Lords Sitting of 20 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 Oxford.

CONCORDE: NEW YORK LANDING RIGHTS
The Earl of KIMBERLEY: 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 they will exert strong pressure on the United States Government and the Port Authority of New York to grant Concorde landing rights in New York forthwith, in view of the further postponement of this decision by the Port Authority to February 1977, when the new Administration will be in office.
Lord ORAM: My Lords, our concern at postponement of the decision has been expressed to the United States Government and to the New York authorities. We are also taking steps to publicise the economic benefit to New York of air services there by Concorde.
The Earl of KIMBERLEY: My Lords, I thank the Minister for that very satisfactory Answer. Does he not agree that should the decision go against Concorde in February there will then be an even longer delay while an appeal is heard, which may well prove disastrous to the whole project?
Lord ORAM: Of course, my Lords, we are hoping for a favourable decision, and we hope to avoid the situation to which the noble Earl refers.
Lord TREFGARNE: My Lords, can the noble Lord say whether the extension of the existing Washington service through to Fort Worth has yet been agreed with the American authorities?
Lord ORAM: Not without notice, I am afraid, my Lords.
Lord WYNNE-JONES: My Lords, in view of the report in the Press recently that the noise level of Concorde had been appreciably reduced, can my noble friend say what are the results obtained at Washington on the noise level?
Lord ORAM: My Lords, I understand that noise from Concorde measured at Washington has been entirely within the levels predicted by the Coleman decision.

EUSTON STATION: INFORMATION FACILITIES AND STAFFING
2.38 p.m.
The Lord Bishop of LONDON: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what progress has been made towards the provision of an information kiosk at Euston Station.
Lord WELLS-PESTELL: My Lords, British Rail have agreed to make facilities available for leaflets giving information about the services available to people arriving in London without adequate preparation. My right honourable friend the Home Secretary has offered to meet the initial cost of providing such leaflets.
The Lord Bishop of LONDON: My Lords, I thank the noble Lord for his reply which goes partly towards meeting the needs of those people who believe that a kiosk is essential. Can the noble Lord give an assurance that he will press for the erection of a kiosk, which would be manned by people who could give personal advice? Can he give us any information about the possibility of one of the lodges outside Euston Station being available? Furthermore, can the noble Lord say whether there is any substance in the rumour that the free lodge is in such a miserable condition that it may have to be demolished?
Lord WELLS-PESTELL: My Lords. since this matter was first raised in your Lordships' House—some appreciable time ago, I admit—it has given us an opportunity of taking a fresh look at the situation. On a former occasion I think I said

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that British Rail had refused to make available a booth on the concourse, and the question of the booth, which is known as the East Lodge, was under discussion. British Rail have said that information leaflets, which will be drawn up after consultation with the various voluntary organisations working in the area, will now be made available from the British Rail Information Services, which, as your Lordships may know, at Euston is right in the centre of things.
After very careful consideration and following discussions with the various voluntary organisations, it has been established beyond reasonable doubt that it would be better to help the various voluntary organisations themselves to do a much better job than they are doing at the moment, and not have the booth which we were considering at East Lodge. It is true that it is in a very dilapidated state, but that has nothing to do with the decision. In the past few months wehave been able to ascertain that on arrival at Euston, as at other London railway stations—and this also applies to Victoria Coach Station—very few people go to the existing facilities. They immediately go to the West End, and it is in the West End that these services are needed.
There are five voluntary organisations working in the West End doing a remarkably fine job, and it is felt that, if we could strengthen the work that they are doing and provide them with sufficient money to extend it, that would be preferable to having a booth in Euston which is some considerable distance from the railway station itself. I should point out that just outside Euston Station there is a Citizens' Advice Bureau, Saint Philomena's Hostel and Friends' House—all within a stone's throw of Euston Station—where help and advice can be given.
Lord BROCKWAY: My Lords, may I ask the Minister this question? In view of the large number of young people who come to London and are now found to be homeless, is it not desirable that the leaflet distribution should be accompanied by a kiosk at Euston Station, and other stations, to which these young people might he immediately directed? It is difficult for them to reach Friends' House or either of the other places unless they
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have information guiding them to those premises.
Lord WELLS-PESTELL: My Lords, in theory I would agree with my noble friend, but I was trying to say that there arc five organisations, which are known as the West End Co-ordinated Voluntary Services, who in fact go to stations, and particularly to Euston Station, and that one organisation patrols regularly by car to pick up boys and girls who are in need of help. We feel that what we have in mind will serve a much better purpose.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, while I am sure the whole House will appreciate the personal interest which the noble Lord has shown in this matter, may I ask him whether part of the trouble is not or was not the existence of shady characters who were themselves lying in wait for these unfortunate young people? Can the noble Lord say whether anything has been done to intercept these doubtful characters and to prevent their activities?
Lord WELLS-PESTELL: My Lords, so far as my personal knowledge is concerned, I would say to the noble and learned Lord that some of these organisations regularly patrol Euston Station with a view to getting hold of young persons. I do not know to what extent they have observed undesirable people, but it is a matter I should like to pursue.
Baroness MACLEOD of BORVE: My Lords, may I ask the Minister what will be in the leaflets, whether addresses will be given, how the leaflets will be distributed and whether they will also be distributed at the place at which the young people get on to the train—in other words, in Scotland or at Manchester, or at any of the big cities—as well as in London when they arrive?
Lord WELLS-PESTELL: My Lords, we had a campaign some months ago in which posters and leaflets were distributed at railway stations in certain Northern towns, and this, we feel, has been successful. The content of the leaflet which we propose for the Railway Information Bureau at Euston will be drawn up by representatives of the voluntary organisations, of the local authority social services

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and of the Home Office. It will contain not only all the matters mentioned by the noble Baroness but other information as well. We are hoping that it will be possible to arrange a telephone system which will be available 24 hours a day.
Lord AVEBURY: My Lords, the noble Lord said that one of the problems is that young people pass straight through Euston without necessarily seeking the guidance which is available from the agencies located there, and that they arrive in the West End, where they are got at by a variety of undesirable influences. Does that not indicate that the same kind of facilities which the noble Lord has mentioned as being provided at Euston Station—that is, the leaflets—should be available centrally in the West End? Would he not consider advising Westminster Council to take over Playland, which we understand is still flourishing there, and to convert it for this purpose? —Playland being the place where these young people were got at by so many undesirables.
Lord WELLS-PESTELL: My Lords, one of the reasons why we want to involve further the five organisations working in the West End is because they, too, will be able to establish advisory and help centres, and to have the leaflets. As to the reference to Playland made by the noble Lord, I would have to pursue this with my right honourable friend.
The Lord Bishop of LONDON: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether, if and when an information kiosk is provided at Euston Station, the financing and staffing of the project will be undertaken by the Voluntary Services Unit of the Home Office.
Lord WELLS-PESTELL: My Lords, it has already been necessary for me to spill over into the second Question of the right reverend Prelate, and I do not want to cover that ground again except to say that, in reply to his Question, the Answer is: No, my Lords. The Voluntary Services Unit already makes grants to GALS,
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which stands for the Girls Alone in London Service. That organisation, which is situated in the West Lodge at Euston Station, received from the Voluntary Services Unit at the Home Office £10,000 in the present financial year. In the current financial year we have made available £56,200 to the West End Co-ordinated Voluntary Services, which provide a variety of services for young people. I understand that my right honourable friend the Home Secretary has offered to make additional money available to these agencies—the additional sum being a further £10,000—in order, as T tried to point out in reply to the right reverend Prelate's first Question, to make their facilities of service even more effective than they are at the present moment.
The Lord Bishop of LONDON: My Lords, while acknowledging the very great personal interest which the noble Lord takes in this matter and expressing gratitude for it, and while also thanking Her Majesty's Government for the information which the noble Lord has just given, may I ask him whether he will bear in mind that the personal influence and contact of skilled advisers cannot be replaced by leaflets? Will he bear in mind the importance of having, at key centres, places where people can go to receive personal guidance and advice from those skilled and experienced in the matter and able to give it?
Lord WELLS-PESTELL: My Lords, the noble Lord will know that I have expressed myself a number of times on this matter: that we must not let loose on to the community woolly-minded, do-gooders. Part of the money is to be used to see that this kind of work is done by adequately trained people. I want to come back to what I said at the beginning. Only an infinitesimal number of boys and girls—and we have been able to establish this beyond reasonable doubt in recent weeks—go to West Lodge and even to the local services which are available just outside Euston. They go instead direct to the West End, and this we want to cover more effectively.
Lord SOPER: My Lords, is the Minister aware that the co-ordination of these various bodies, for one of which I am responsible, is a marked advance and one of the best preventatives against the kind

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of woolly do-good attitude which in some cases takes place? Is he further aware that nine out of 10 of those who request advice are asking for somewhere to put their head down that night? The problem of homelessness is the acutest of all these problems facing the organisations.
Lord WELLS-PESTELL: My Lords, this is so. The noble Lord is referring, I am sure, to the Kingsway Day Centre and we acknowledge the tremendous contribution that that centre is making as part of the co-ordinated voluntary services in the West End of London. But we are aware that one of the solutions to the present problem is the provision of more accommodation.
Lord TAYLOR of MANSFIELD: My Lords, in listening to the questions and answers it seems to me that all the emphasis for the provision of facilities for this service is on Euston Station. There are two adjacent stations, St. Pancras and King's Cross, serving the North as Euston serves the North-West. Are these facilities available at these two stations?
Lord WELLS-PESTELL: My Lords, the facilities are not available at the moment. But the fact that Euston have now offered to provide facilities in their main information services enables us to hope that we shall be able to do something similar at St. Pancras and King's Cross.
Lord AVEBURY: My Lords, I agree with the noble Lord, Lord Soper, that the most acute part of the problem is homelessness. Will the noble Lord not advise authorities such as Lambeth, which are wickedly vandalising existing property, to desist from that while homelessness affects not only young people coming from elsewhere but young people who are becoming homeless within London itself.
The LORD PRIVY SEAL (Lord Peart): My Lords, I think we should proceed to the next Question.
Lord WELLS-PESTELL: My Lords, we touched on this point the last time I raised this matter. We are not unmindful of what is going on in unoccupied buildings and dwelling-houses and so on. The noble Lord raised this matter recently and I have conveyed the information to my right honourable friend.

BRITISH LEYLAND AND SOUTH AFRICAN UNIONS
2.54 p.m.
Lord BROCKWAY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have concluded their review of the attitude of British Leyland towards the recognition of trade unions with black membership in South Africa.
Lord WINTERBOTTOM: My Lords, as I told your Lordships in a Written Answer on 7th December, my right honourable friend the Secretary of State for Industry is in touch with British Leyland about their policy towards black trade unions in South Africa and the company are keeping that policy under review.
Lord BROCKWAY: My Lords, is it not the case that the TUC, the Churches, both Protestant and Catholic, Sir Robert Birley and the Secretary of State for Industry himself have expressed deep concern on this matter? Is it not desirable that a company which is largely Stateowned should give a precedent in this matter in view of the opposition of very many British companies to the proposal?
Lord WINTERBOTTOM: My Lords, it is no part of the Government's policy to restrict normal civil trade and investment relations with South Africa. British Leyland's overseas investment policy is a matter to be decided by its management in the framework of overall plans agreed by the National Enterprise Board.

BUSINESS OF THE HOUSE
Lord PEART: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That Standing Order No.43 (No two stages of a Bill to be taken on one day) be suspended until the Christmas Recess.—(Lord Peart.)
On Question, Motion agreed to.

PATENTS BILL [H.L.]
Lord ORAM: My Lords, I beg to introduce a Bill to establish a new law of patents applicable to future patents and applications for patents; to amend the law of patents applicable to existing patents and applications for patents; to give effect to certain international conventions on patents; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Omni.)
On Question, Bill read 1a, and to be printed.

NATIONAL INSURANCE SURCHARGE BILL
2.56 p.m.
The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey): My Lords, I beg to move that this Bill be now read a second time. The Bill now before the House gives effect to a measure announced by my right honourable friend the Chancellor of the Exchequer in another place on July 22nd. This is the introduction of a new tax to be known as the National Insurance Surcharge and it will be collected through the machinery of the National Insurance contributions. I must emphasise however to noble Lords that this is a tax and, as such, in no way affects the rate of contribution or of benefits under the National Insurance system. Indeed, the most important word in the Title of the Bill is the word "Surcharge".
The new tax will come into operation on April 6th, 1977. The new tax is to be levied at a rate of 2 per cent. on those earnings which are liable to secondary Class 1 National Insurance contributions. In effect, the surcharge will apply to earnings under £105 per week. It will not apply in respect of those earning less than f15 a week for whom no National Insurance contribution is payable. These figures of £15 and £105 are the new limits for National Insurance contributions for 1977/78. They were announced by the Secretary of State for Social Services on December 7th 1976.
This new tax will be collected together with the employers' National Insurance
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contribution so that there will be no additional administrative work for the employers. In effect, the employers will calculate the employers' contribution as though the rate had been increased by two percentage points. The additional revenue will be paid over to the Inland Revenue.
Baroness ELLES: My Lords, did the noble Lord say that the 2 per cent. would be on the contribution or on the earnings?
Lord McCLUSKEY: My Lords, I intended to say (and I hope I said) that it will be on the earnings. If that satisfies the noble Baroness, perhaps I can return to repeat that the employers will calculate their contribution as though the rate had been increased by two percentage points in relation to earnings. The additional revenue will be paid over to the Inland Revenue along with the National Insurance contribution and PAYE. The revenue from the surcharge will be paid into the Consolidated Fund along with the proceeds of other taxes. Because the surcharge makes use of the machinery of the National Insurance contribution for purposes of collection, it will be exceptionally cheap to collect. It will throw no extra administrative burden on employers, and no additional civil servants will be needed to operate this tax.
If I may turn to the reasons for the introduction of this tax, when my right honourable friend announced the introduction of this tax in July, he explained that the size of the Budget deficit in the current financial year, although raising problems of financing, was advantageous at a time of recession, as it enabled unemployment to be kept lower than it would otherwise have been. However, given the prospects for 1977/78, both in world trade and at home, he wished to reduce the public sector borrowing requirement during that year. This was part of a long-term strategy to reduce the borrowing requirement steadily over the next three years. If this did not happen, it was his view that the financing of the public sector could preempt private savings, which productive industry was likely to require on a substantial scale to finance stock building and investment. Alternatively, it would lead to an excessive growth of the money supply, which would refuel inflation.

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The National Insurance surcharge, which he then announced (that is, on 22nd July), was seen as one step in beginning this reduction of the public sector borrowing requirement. Although the rate of the surcharge is comparatively low, the comprehensive nature of its base makes it revenue-rich and therefore well suited to its objective of reducing the public sector borrowing requirement. The revenue yield in 1977/78 is estimated to be £950 million. The reduction in the PSBR which will result is some £700 million. The difference between these two figures is explained very largely by the increased level of public expenditure in money terms which will be occasioned by the higher price level caused by the imposition of the surcharge.
Although circumstances and forecasts have changed since July of this year, there is still a need for this substantial increase in revenue. The measures which my right honourable friend announced in another place last Wednesday are a reflection of the continuing need to reduce the PSBR in 1977/78 and in subsequent years. It is linked with a large external deficit and with a severe problem of internal financing. An excessive PSBR presents the choice, on the one hand, of high interest rates and, on the other hand, printing money.
A gradual reduction in the PSBR will enable us, without inflation and without intolerable interest rates, to provide for the borrowing needs, both of the public sector and of industry. This is essential to the industrial strategy, because it is necessary for industry to be able to borrow for investment and for working capital at tolerable interest rates. The National Insurance surcharge is of course only part of the strategy. Other measures were announced by my right honourable friend the Chancellor of the Exchequer last week which will carry this matter further forward. It is clear that our long-term objectives will be achieved by a combination of public expenditure and taxation changes. The National Insurance surcharge was the first of the tax changes to be announced and it forms part of the economic line-base on which last Wednesday's measures were calculated.
If I may turn now to the economic effects of the surcharge, noble Lords will appreciate that to raise almost £1,000
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million in taxation is bound to have, and does have, a considerable effect on the economy, and this would be true whichever tax instrument was chosen. The choice of the National Insurance surcharge in particular was made because of the nature of its economic effects. The surcharge is a tax on consumption. That is, although it is to be collected from employers, it is expected that they will pass it forward into their prices, which will eventually reach the consumer. However, because it is a tax with a very broad base (although at a low rate) the time taken for the effects to pass through the economy to the final consumer is much greater than in the case of other taxes on consumption; in particular, for example, value added tax.
The estimate is that the adverse effect on unemployment by the fourth quarter following the introduction of the surcharge might be of the order of 10,000 jobs lost. Similarly, the effect on the retail price index at that point in time is estimated to be of the order of just under 1 per cent. Comparable figures for an increase in the standard rate of value added tax which would achieve the same effect on the PSBR would be an addition of some 50,000 to the unemployment figures and about 1.8 per cent. on the retail price index. This reflects the fact not only that VAT comes through more quickly, but also, as I told this House two weeks ago in a debate on VAT, that it bears almost entirely on about 50 per cent. of consumer expenditure, whereas the surcharge will spread very widely over the whole domestic economy.
Perhaps it would be useful if at this stage I were to say a few words about the comprehensive nature of the tax, which I know is of concern to many here. I have already explained the economic reasoning which led the Government to make this a non-selective tax. There are also sound practical reasons. The National Insurance contribution system is itself non-selective, and one of the merits of the surcharge is that it follows the contribution system in all respects. This will enable employers, as I have already said, to behave in practice as though there had been an increase of 2 percentage points in the rate of the employers' contribution, thus eliminating extra work for them. It would have been impossible to introduce a system of selective payments for 1977/78 given the administrative timetable already

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laid down by the National Insurance contribution system. Selectivity in that year could therefore be introduced only by means of a system of repayment. This would involve the employer in making a claim for repayment, which would have had to be processed and checked. If that system were introduced, there would then necessarily be additional work for employers, and additional civil servants would be required to operate the scheme. Inevitably, there would be difficulties of definition, and borderlines would have to be drawn which would no doubt give rise to complaint and criticism.
Having said that, it may of course be argued that many of these points which go in favour of this form of tax do not apply to Churches and charities; or if they do, that their validity is much reduced. This is a point of view of which the Government are well aware. Indeed in another place Treasury Ministers have already announced that they will consider very carefully representations from Churches and charities. I understand that the most reverend Primate the Lord Archbishop of Canterbury is shortly to lead a deputation to meet the Prime Minister to discuss this matter. Accordingly, at this time I would not wish to say any more, although I will listen to the debate and, in the light of the points made, it may be desirable for me to add something to that.
Baroness ELLES: My Lords, if the noble and learned Lord will allow me to intervene once more, would he ensure this time that the Prime Minister will receive the most reverend Primate the Archbishop of Canterbury and his delegation if they go to 10 Downing Street?
Lord McCLUSKEY: My Lords, that question is misconceived, with respect. The noble Baroness imagines that the Prime Minister refused to see the Archbishop. That is not so. The Archbishop sought a meeting with the Prime Minister on two days which were two of the busiest days for many years in the life of a Prime Minister of this country. The Prime Minister did not decline to see the Archbishop but sought to make a different arrangement. The Archbishop has no free time to meet the Prime Minister before Christmas. But of course as soon as it
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suits the Archbishop, the Prime Minister will meet him.
My Lords, in conclusion, this is a new tax for this country, although the machinery, in the form of the employers' National Insurance contribution, has existed for a long time. It is the Government's view that this non-selective way of raising a large sum of revenue with its effects being spread thinly across the whole economy is preferable to other, more selective, measures which could have been taken. It does of course present problems for particular interests, but it is necessary to point out that many of the difficulties would be created by any increase in taxation of similar magnitude. My Lords, I beg to move that this Bill be now read a second time.
Moved, That the Bill be read 2a.—(Lord McCluskey.)
3.10 p.m.
Baroness ELLES: My Lords, we are grateful to the noble and learned Lord, Lord McCluskey, who has outlined for the benefit of the House draft legislation to implement the proposals made by the Chancellor way back in July—a long time ago in the economic history of this country. It must be said at the outset that we on these Benches consider the measure contained in the Bill to be thoroughly objectionable both as to the way in which it is to be implemented and as to its probable effects upon the economy.
The Title of the Bill is itself deceptive, as indeed the noble and learned Lord very honestly indicated. The surcharge to be paid by employers is not, as one might be forgiven for imagining, on the National Insurance contributions but on the earnings of the employees. Therefore, although it is 2 per cent. on earnings, it is 23 per cent. on the National Insurance contribution. I should like to emphasise that point, because I do not think it was made quite as clear as perhaps it might have been by the noble and learned Lord in his brief. If 2 per cent. is calculated on the employee's share of the contribution, that would be 2 per cent. on 8½ per cent. of somebody's earnings; but in fact he is paying 2 per cent. on earnings and 23 per cent. on what is 8½ per cent. on National Insurance contribution; so the total contribution by the employer is an increase of 23 per cent. on the National Insurance contribution.

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The noble and learned Lord has said that there would be no additional cost to the Civil Service involved here because it would be raised through the National Insurance scheme. I wonder whether he could explain how the money will be transferred from the collectors of National Insurance money to the Treasury. I imagine that some members of the Civil Service must be employed to effect such a transfer—or is it done entirely on Giro? Further, it might be reasonably assumed, if it is reasonable to assume anything any more, that the extra payments would be a contribution to the National Insurance Fund. It might be thought possible, say, to allow the payment of £10 to old age pensioners as a Christmas bonus or to increase the child allowances, which are so badly needed for poor families. But not a bit of it, as the noble and learned Lord has indicated. The estimated yield of over £900 million per year will be paid into the Consolidated Fund, at the same time reducing the PSBR—thus enabling the Chancellor to cut back less on public expenditure than he would otherwise have had to do. From a growing number of published examples and following the statement of Mr. du Cann, chairman of the PAC, it appears that about £1 billion—rather more than the tax yield—could be saved just by being more efficient, responsible and competent in administration and in Government. In effect, what is happening is that the new tax is a boost to the squanderers in the public sector.
Lord McCLUSKEY: My Lords, in the light of what she said and in view of the fact that she interrupted me twice, may I ask the noble Baroness to explain how one can pay the benefits to children or old age pensioners without increasing the public sector borrowing requirement?
Baroness ELLES: My Lords, I think I have given one indication; that is, if administration was more efficient £1 billion could be saved, to say nothing of what could be saved by stopping the nationalisation programme, which is to cost the Government several thousand million pounds. There are several ways of saving money in connection with the Public Expenditure Account, as the noble and learned Lord well knows. The Government considered in July the necessity for bringing in this tax against a totally different set of economic circumstances
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and still see fit to introduce a measure which in effect amounts to a net 2 per cent. increase in direct taxation on earnings; the only difference from the present methods being that it is the payer who foots the Bill and not the recipient. During the last few weeks in the worsening conditions of the economy, the Government have made several policy statements, with some of which we on this side of the House would certainly not disagree. But if the Government meant what they said, or if the half of them who speak were aptly able to implement what they propose, there would be no shred of justification for this new tax—a tax which is both unfair and dangerous because of the way in which it is being levied. It is also dangerous because of its possible and, indeed, probable effects upon the economy.
We are told by the Prime Minister and the Chancellor that it is vital to encourage industrial investment: indeed it is a basic thesis of the Government's industrial strategy, so we are given to understand. Both the TUC and the CBI recognise the need to shift resources to the manufacturing industries, but does an extra tax on all employers—and I repeat, all employers—encourage investment?—especially when one takes into account the exorbitant minimum lending rate, which is now over 14¼ per cent. The tax will cost an estimated £400 million to manufacturing industry. At the same time, the mini-Budget includes proposals to phase out the regional employment premium, so that regions which are trying to revitalise their industries and create jobs in areas of high unemployment will find it harder than ever to follow their programmes. Is this what could be called encouragement? Is this a shift towards manufacturing industry, on which the future of the British economy depends?
We are told that inflation must be curbed, and we absolutely agree with that. In July, when the tax was proposed, inflation was running at the rate of just over 14 per cent. Incidentally, were we not to have been into single figures as regards inflation by the end of this year? Who remembers that promise now? The figure is now rising again and running at about 15 per cent. Yet it is admitted that this tax will be passed on in prices not only of food but also or other goods and services, such as gas, electricity, travel and so on. In any circumstances, can this be

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considered a contribution to curbing inflation?
We are also told that unemployment must be checked. We totally agree with that. It was unimaginable in the early 1970s that the unemployment figure for this country could reach 1 million, let alone 1½ million. Yet we read again yesterday of estimates of 2 million unemployed. Those figures cannot express the consequences on even more people, including families and dependants; and it is no use quoting statistics only. These are human beings we are considering, passing their days in ever-declining hope.
Over £900 million is being removed from the very sector which is able and which must, if we are to survive as a nation with a viable economy, create new wealth and new jobs and be able to offer opportunities to young people who are completing their education. I have said over and over again in this House that one of the most immoral situations in this country, whichever Government are in power, is to have thousands of school children leaving school and being neglected by the society in which they are meant to earn their living. Yet, according to Government calculations, this new tax will result in at least another 10,000 unemployed by the last quarter of next year. Other estimates show convincingly, and regrettably, that that figure will be largely exceeded.
We are also told that the private sector must he encouraged, particularly to increase our exports. Who, my Lords, would not agree with that, with a trading deficit of over £500 million in November alone? But who are our exporters? A pay policy was surely agreed between all parties—the workers, the CBI and the Government. Why is it that only the employers are now to be affected by an alteration in the pay policy? Many small firms are among our exporters, making components for engineering, precision industries and so on. What does the tax do for those small businesses? It directly puts up the cost of labour. According to an Answer published in Hansard on 13th December in reply to a Question put down in another place, it will cost an extra £1,607 per year for a firm with 25 employees, £6,407 for 100 employees and for a large firm with 10,000
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employees the enormous sum of £642,700. Of course, one can go on calculating in that proportion according to the number of employees involved. No wonder the figures for bankruptcies are higher than they have ever been, having declined during the period 1971–73. There are now over 7,000 for 1975 alone, not to mention the incalculable number of firms which just folded up in despair in the present state of the economy.
Is this extra cost going to help the private sector and small businesses, especially with the minimum lending rate at its present level? We are told, and once again we agree, that direct taxation is too high. Everybody would agree with that. But, as I have said, this Bill, in effect, imposes a direct tax on earnings: regardless of whether it be the payer of earnings or the recipient of earnings, the effect of this surcharge is a direct tax.
We are told that the yield will be over £900 million, but the net benefit to the Consolidated Fund will be around £700 million, and we must ask: Why? The noble and learned Lord quite rightly gave one or two reasons as to why there should be a difference. But according to the statement made by the Financial Secretary in another place, it was also estimated that part of this £200 million from the tax receipts will be needed to pay for the unemployment benefits of those who will become unemployed, because of the imposition of the tax. Crushed between the Treasury computer, which fails, like almost every other projection, to give an accurate image of the future, and the Marxists within the Labour Party, who know only too well what they are projecting for the future of Britain, the Chancellor has totally failed to encourage those citizens—and I believe that they represent the vast majority of the people of this country—who are waiting and wanting to co-operate to restore, through increased productivity and successful export programmes, the failing economy of Britain.
Finally, there are two areas on which others will be speaking in this debate. The Churches were specifically told that they would suffer no more taxes, and they were actively encouraged by the Government to switch from self-employed to employed status. Yet some days later—but I will say no more as, undoubtedly,

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the right reverend Prelate the Bishop of London will be informing the House of these matters on the basis of his personal, expert knowledge. The other area is that of the voluntary organisations, on which the noble and learned Lord has rightly touched, and has said that the Prime Minister is willing to receive representations. We on this side of the House are wholly in sympathy with the charities and the Churches, and are very pleased with the statement which the noble and learned Lord has made that the Prime Minister will receive representations and consider very seriously their position. But what conclusions are we to draw from this collection of statements which we have had on the economy? Do the Government imagine that the citizens of this country can really believe any more what the Government are saying? It is no longer a question of a credibility gap. and it is clear that everything that is said by the Government in relation to the economy is merely listened to with increasing incredulity. What a way to run a country which was once great!
The fact is that since this tax was proposed the economic position of the country has changed. Certain assumptions were made which have already been proved baseless: economic growth of 4½ per cent. which was estimated in July, now may be 2 per cent.; inflation was declining in July but now it is not. It is now assumed that investment in industry will increase by 19½ per cent., but on what basis is this assumption made? It seems to be a totally groundless assumption. This Bill does not answer any of the real problems with which the country is faced hut, on the admission of the Government, will serve to exacerbate them. It does not answer any of the economic, social, financial or political needs of the country. Above all, it does not give any incentive, which is so badly needed for the wealth creating sectors of the economy. Consequently, it will not provide confidence in the Government, either at home or abroad, if they proceed with this measure. We on this side of the House maintain that this is a bad Bill, and will be of no benefit at all to those who most need help.
Lord JACQUES: My Lords, before the noble Baroness sits down, may I ask this question? She has a very great interest in the EEC. Will she admit that
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this Bill brings employers' contributions and taxes a little nearer to the rates which are paid by our partners in the EEC?
Baroness ELLES: With pleasure, my Lords. In fact, the noble Lord has very kindly drawn attention to the fact that our direct taxes are considerably higher than those in any other country in the EEC. The United Kingdom pays 43 per cent., Germany pays 33 per cent. and France pays 20 per cent. Further, the social security contributions in the other EEC countries include medical services and health services, whereas in this country they are paid out of direct taxation. Further, if anybody wants to make any comparison between social security benefits obtained in any other European country and those in this country, I know where I would live.
3.23 p.m.
Lord BANKS: My Lords, I should like to join with the noble Baroness, Lady Elles, in thanking the noble and learned Lord, Lord McCluskey, for the concise way in which he has introduced this simple, though controversial, measure. However, I must confess at once that I dislike this tax intensely. The 2 per cent. surcharge on employers' contributions to National Insurance is clearly a tax on employment at a time of high unemployment, and it will, for some employers, be the last straw. It must encourage employers to employ fewer people. We are told that the surcharge will be passed on in prices, but of course not all businesses will be able to do this. The Government's estimate of the increase in unemployment directly attributable to this tax is 10,000, but I shall be greatly surprised if it is not much higher than that. Figures of 75,000 to 80,000 have been mentioned in the debates in another place. The surcharge must be taken into account together with the increased contributions which employers are to pay, anyway, from next April in respect of those earning over £95 per week, and these National Insurance burdens are being added at a time when it is estimated that there will be a surplus of £888 million in the National Insurance Fund in 1977–78. So, first, it is a tax on employment.
Secondly, the tax takes no account of ability to pay and it will be bound to

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bear heavily on small firms, on labour-intensive industries and on firms in a marginal position between profit and loss. The Government tell us that the self-employed are not affected by this tax, and of course their own National Insurance contributions are not affected. But they are affected in their capacity as employers, and many partners and sole proprietors will feel the weight of this extra burden very severely.
Thirdly, the tax also takes no account of ability to pass on the surcharge in prices and some organisations, by their very nature, are quite unable to do that. This is, of course, the position of the Churches and the charities, to which the noble and learned Lord referred, and figures have been given in debates in another place of the frightening extra cost which will have to be borne by the Churches and the charities. I have no doubt that the right reverend Prelate the Bishop of London will be able to give us more detail of this situation. But perhaps I may say just a word about the position of my own denomination, the United Reformed Church. The Churches generally are now contemplating moving to employed status for their ministers of religion, and the cost to the United Reformed Church, which is one of the smaller of the major denominations, would be £150,000 a year. That is just to move to employed status, because the Church will now have to find the employer's contribution for all its ministers. If the 2 per cent. surcharge is added, it will have to find another £40,000 on top of the £150,000. This is money which has to be raised; it is not money which will come in from any automatic source.
The fourth reason why I object to this tax is that I believe it is an abuse of the National Insurance system. The National Insurance Fund will have a surplus this year of £932 million, so the estimate runs, and, as I have already mentioned, in 1977–78 of £888 million. I think it follows from that that the National Insurance system is being used as part of a deflationary policy, at the moment. The whole basis of National Insurance is that there should be contributions from employers and employees, and also a contribution from the Treasury at a fixed rate. What would happen in the ordinary course of events in 1977–78 is
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that the Treasury would make a contribution of about £1,500 million to the National Insurance Fund, according to the agreed basis as approved by Parliament.
What is happening, in effect, is that that is being reduced by very nearly £1,000 million as a result of this surcharge. So a major change is taking place in National Insurance policy, but it is disguised; it is being introduced by a backstairs method. With the increased contributions projected for next year for those earning over £95, of which employers will have to pay their share, this makes the burden of National Insurance contributions, with the surcharge, much heavier on the employer than it need be, and this must subject the whole system to strain.
It has been said—the noble Baroness has answered this effectively—that in countries on the Continent employers pay more in social security contributions; but, as she pointed out, to get a proper comparison it is necessary to know what is spent by employers in this country on other benefits, such as pension benefits, which are provided through the national social security systems in some of the Continental countries to which reference has been made.
Lord BROWN: My Lords, is the noble Lord one of those who believes in earmarking specific tranches of taxation for quite specific purposes—for instance, the road vehicle tax for the Road Fund, the National Insurance contributions for the National Insurance Fund, and so on?
Lord BANKS: My Lords, I thank the noble Lord for his question. If it is understood that these moneys are being raised for a particular purpose—and the contributions are given a particular title, which suggests that they are—then the answer certainly is, Yes. What we need to know is the incidence of taxation on employers in those other countries as well, as compared with this country.
We on these Benches have long questioned the contributory principle, since the National Insurance scheme is "pay as you go" and is not really insurance at all. We have advocated that National Insurance contributions should be regarded as a social security tax; that is what they really are. Indeed, we suggested that they could be regionally

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varied to help the implementation of regional policy. But we have never advocated that money raised by this tax should go to the general revenue.
It seems that there is a likelihood that the surcharge which is being imposed to deal with the current difficult situation may become a permanent feature, because it is much easier to impose a tax than it is to repeal it. When the noble Lord replies I should be grateful if he would give us an assurance that at least it is not the Government's intention that this surcharge should become a permanent feature of the taxation scene.
The Government say that this tax is an essential part of the package designed to reduce the public sector borrowing requirement in 1977/78. On 22nd July the Chancellor announced public expenditure cuts which were calculated to reduce the public sector borrowing requirement by £800 million in 1977/78, and also the surcharge, which we are discussing today, which was designed to reduce the public sector borrowing requirement by £700 million, making a total of £1,500 million to be reduced by that set of measures. Last week the Chancellor said that notwithstanding those measures the forecast of the public sector borrowing requirement was now £10,500 million for 1977/78 and he proposed a package of measures which would reduce that requirement by a further £1,800 million. Therefore, taking together the July and the December measures, the total reduction in the public sector borrowing requirement is £3,300 million, of which this Bill contributes £700 million.
I think that helps to put the Bill into perspective. I am quite convinced that it will be possible to re-arrange the package to eliminate altogether the surcharge. For example, we might well have had a larger contribution from drink and tobacco —perhaps even double. If we were to achieve that, it would leave a smaller revenue to be raised from other taxation. For this purpose I should have preferred to use value added tax, but less would have to be raised by this means than is being raised by the surcharge. In those circumstances, I think that a 2 per cent. increase would have been sufficient.
Unlike the surcharge, value added tax does not affect food, nor does it affect many necessities. Also it does not affect
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exports, and I believe it to be generally fairer. The fact that it bears more heavily on selected areas than the surcharge, because it is not so broadly based, and that it finds its way immediately into the retail price index, would be offset by the fact that, under the arrangement I am suggesting, less revenue would have to be raised by value added tax than by the surcharge. I have no doubt that the package could be rearranged in some such manner and I therefore reject the argument that there is no alternative to the National Insurance surcharge.
For the reasons which I have given I regret that the Government have felt it necessary to introduce the Bill, and I hope that it will not be long before they feel able to bring before us another Bill that is designed to repeal it.
3.37 p.m.
The Lord Bishop of LONDON: My Lords, I, too, would like to thank the noble and learned Lord for the clarity and brevity with which he has presented the Bill, although I regret that I do not think that I shall be able to emulate the second admirable quality of his speech. I am grateful that the noble Lord has confirmed the assurance given in another place, that the position of the Churches and the charities will be given very careful consideration by Her Majesty's Government. I shall bear in mind that assurance in what I have to say to your Lordships.
Your Lordships will be aware, from the publicity which has been given to their representations, of the widespread and deep concern felt by the Churches and charities over the likely impact of this surcharge. In this debate the noble Lord, Lord Allen of Abbeydale, will present the views of the charities and of the National Council of Social Service. I, as Chairman of the Churches Main Committee, a body which represents all the major Christian Communions and the Jewish Church, shall seek to place before your Lordships the grounds on which the Churches base their conviction that this Bill would impose on them a gross and damaging injustice. Before I do so, I want to remove some of the misunderstandings which have arisen as a result of the publicity given to the negotiations between the Government and

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the Churches and charities, to which reference has already been made in this debate.
First, the information that the Churches were seeking an urgent interview with the Prime Minister was not supplied to the Press by the Churches themselves. Where it came from I do not know. Secondly, it was unfortunate that the situation was presented as one between the Archbishop of Canterbury, speaking for the Church of England, and the Prime Minister. This was never the case. The negotiations throughout have been made by the Churches Main Committee, or with its knowledge and consent. Sir Ronald Harris, the First Estates Commissioner, communicated first with the Chancellor of the Exchequer and it was only when the Committee was satisfied that it could not get a sympathetic response from the Chancellor that it felt it necessary to ask the Archbishop to lead a delegation to see the Prime Minister himself.
A similar state of affairs had arisen over the Community Land Bill and the then Prime Minister, Sir Harold Wilson, received a deputation led by the Archbishop. The issues of this surcharge were so grave that it was felt necessary to ask for another interview with the Prime Minister. The deputation would have been led by the Archbishop of Canterbury and would have included Archbishop Dwyer, the Archbishop of Birmingham and the Elected Chairman of the Roman Catholic Bishops Conference; the Moderator of the General Assembly of the Church of Scotland; The Moderator of the Free Church Council; the Archbishop of Wales; and the Chief Rabbi and others of us, together with the noble Lord, Lord Allen of Abbeydale, and other representatives of the National Council of Social Service. There was never any question of Dr. Coggan going alone to fight the battle for the Church of England. It was the leaders of the Churches and representatives of the charities going together to express jointly their deep appreciation.
It has been represented that it was discourteous to approach the Prime Minister at short notice and at a time when he was deeply immersed in negotiations with the International Monetary Fund; and that it was unfair to put him
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in a position when his inability to receive the deputation looked like a snub to the Archbishop. Certainly the Prime Minister's decision was in no way interpreted by the Archbishop or anyone else involved as a slight or a rebuke. Nor was the approach made at the last moment. It was on 22nd July that the Chancellor announced his intention to impose the surcharge on employers' National Insurance contributions, and that he would introduce legislation "early in the new Session". On August 10th the noble Lord, Lord Allen of Abbeydale, wrote on behalf of the National Council of Social Service seeking exclusion for charities. On 19th August Sir Ronald Harris wrote setting out the position of the Church of England, and reflecting the situation facing all Churches.
Since neither representation received any encouragement from the Chancellor of the Exchequer, the Churches Main Committee on 8th October decided to ask the Prime Minister to receive a deputation at the highest level. On 5th November the Archbishop of York, acting on behalf of the Archbishop of Canterbury who was out of the country at the time, and Lord Allen of Abbeydale representing the National Council of Social Service, wrote to the Prime Minister asking him to receive the deputation. The Prime Minister's reply was dated 23rd November, but for some unexplained reason it did not reach the Archbishop till 3rd December, ten days later than the date of the Prime Minister's letter, and nearly a month after the dating of his letter to the Prime Minister. A copy of the Prime Minister's letter of 23rd November was sent to the other signatory, Lord Allen, under cover of a letter from a private secretary, dated 30th November, a week later: and it was by his courtesy that a copy reached the secretary of the Churches Main Committee on 2nd December.
The Prime Minister's letter gave no indication of any readiness to make relaxations in favour of the Churches and the charities, but suggested that the delegation might like to meet Mr. Joel Barnett, the Chief Secretary to the Treasury, to discuss the problems, "especially in the context of the clergy becoming employees". Your Lordships will appreciate that it was not discussion I at this level or of this nature that was

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being sought, and the Archbishop repeated as soon as possible, in a letter of 3rd December, the request that the Churches and charities should be exempted from the surcharge, or that the deputation should be received on 6th December or 7th December.
Meanwhile events had caught up with the negotiators. On 30th November the Ways and Means Resolution was introduced into the House of Commons and passed, and the National Insurance Surcharge Bill given a First Reading. On 2nd December the Bill was published and the Churches and charities had a first opportunity to see what it contained. On 6th December the Bill was given a Second Reading: on 8th December it was taken through all its remaining stages and the Ways and Means Resolution precluded any useful amendment. So the Prime Minister's reply on 6th December to the Archbishop's letter of 3rd December had to point out that since the Ways and Means Resolution had been passed, it would not be possible to introduce relief into the Bill.
A letter over the signatures of Lord Allen and myself, setting out the concern of the Churches and charities, appeared in The Times on 6th December; and on 8th December the Archbishop again wrote to the Prime Minister asking that a deputation should be received at the earliest possible date. We are thankful to know that this will take place early in the New Year. I apologise to your Lordships for recounting this catalogue of dates, but it is necessary to do so to belie the suggestion that the Churches and charities dragged their feet until the last moment. The facts are that representations were made as early as August and that the request for a deputation was made on 5th November.
The mysterious delay in the delivery of the Prime Minister's reply of 23rd November, coupled with the speed at which the Bill was taken through another place, combined to rob the parties concerned of an opportunity to meet and to discuss the issues before decisions were reached. I again repeat that the Churches have never interpreted the Prime Minister's inability to see the delegation as an affront. Although, as I have said, publicity was not given nor sought by the Churches, it has nevertheless served a useful purpose in
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alerting the general public to the implications of the Bill for Churches and charities, and the evidence is that the deep disquiet of those most closely involved is shared generally throughout the country.
I come now to the problems presented by this Bill for the Churches and of the negotiations which have preceded it. As long ago as October 1972, the Churches Main Committee received representations from the Department of Health and Social Security regarding the place of the clergy within the reconstructed National Insurance Scheme. In the course of negotiation it became apparent that the Department, very reasonably, wished to treat with the Churches en bloc through the Churches Main Committee, and that it would need to have one policy for clergymen of all denominations, and that whereas the Department would consider sympathetically representations made to it, it reserved the right to require the Churches to accept "employed" status for their ministers.
The negotiations have been protracted both because of the complications of the scheme and because of the varied status of ministers of religion within their respective communions. By the middle of this year the answers had come in and had been collated. The Church of Ireland wished to remain self-employed. The Roman Catholic Church asked for special consideration by reason of the particular status of its priests. All the others opted for employed status, reserving the right to contract in or out at a later date. These decisions were of course reached on the information of the costs involved in contributions as they were then known.
Perhaps I may illustrate the situation by describing the position of the Church of England, since this is the one which I know most intimately. The clergy of the Church of England are proud of their independence and of being self-employed persons. But after very careful weighing of all the factors it was thought that the advantages of employed status were sufficiently strong that it would be worth while accepting this position. The issues were fully debated in the General Synod at York in July of this year, and it was agreed that for the purposes of the new Social Security scheme, the clergy of the Church of England should be advised to accept employed status and then to "contract out". It was recognised that

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this would cost £350,000 a year, above vs hat the clergy are already paying, and that this sum could only come from the Church Commissioners, and that in consequence there would be that amount less available for distribution for clergy stipends and pensions. But it was thought that the long-term advantages justified this expense.
My Lords, these decisions were reached on Friday, 16th July, in good faith that this would be the extra cost to the Church of England with its 12,000 clergy. Comparative figures relate to the other Churches. Consider our dismay, therefore, when six days later, on 22nd July, the Chancellor of the Exchequer announced in another place that he intended to place a 2 per cent. point surcharge on the employer's contribution as a tax. The effect of this would be at one stroke to double the cost of the new scheme. For the Church of England it would mean not £350,000 a year, but £700,000 a year. For the Churches together the Chancellor's tax would cost at least a further £675,000 per annum. I need hardly expand further on the devastating effect that these sums will have on the economy and effectiveness of the Churches. Doubtless the noble Lord, Lord Allen of Abbeydale, will point out a similar situation regarding charities. The figures speak for themselves.
On a number of grounds we of the Churches and charities are bound to record our most energetic protest against the imposition of this tax. We do so on the following grounds. First, we consider it to represent a clear breach of the repeated assurances given by the present Government that they do not intend to tax Churches and charities beyond the indirect taxes which have obtained for some time. I do not want to go over again the ground we covered in the debates on the Community Land Bill and the Community Land Tax Bill. Suffice it to say that by reason of their service to the community, Churches and charities have for 400 years been exempted from direct taxation. This principle has been maintained until recently by all Governments. Churches and charities are not liable to income tax, corporation tax, capital gains tax, and receive favourable treatment over capital transfer tax. The Government have said that if a wealth tax were to be introduced, it would not apply to charities. The
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Layfield Committee recently recommended the continuance of partial exemption for charities from local rates. The recent Goodman Committee recommends that, subject to certain technical conditions,
"the present relief granted to charities should be continued".
There was an entitlement to refund on SET. The development land tax, we were told, was not a tax at all. The Churches and charities pay VAT because this was an indirect tax replacing purchase tax. The clearest statement of Government policy in recent months was that of Mr. Denzil Davies, the Financial Secretary, in the Committee stage of the Development Land Tax Bill in another place when he said:
"Again I can say quite clearly … that there is no intention of extending taxation to charities in general".—[official Report, Commons, 13/5/76; col.1172.]
And later:
"… there is no intention of extending taxation, be it income tax, capital gains tax, corporation tax, or any other tax, except those indirect taxes which we have imposed on charities for a long time. Any other direct taxation will not be extended to charities".
Nothing could be clearer than that.
I hope it is not going to be suggested that this surcharge is an indirect tax and therefore may properly be imposed on Churches and charities. I do not know whether there is any clear-cut definition of the difference between "direct" and "indirect" in this connection. I have consulted a number of people experienced in tax matters, and they all agree that whatever this surcharge may be, it certainly is not an "indirect" tax, if only for the reason that it is inescapable for those who pay the employer's contribution. ft is a direct tax laid upon that contribution. The Financial Secretary on 13th May said —and I have already quoted him:
"There is no intention of extending taxation, be it income tax, capital gains tax, corporation tax, or any other tax, except those indirect taxes which we have imposed on charities for a long time".
Surely, my Lords, if the English language means anything, the implication of those words in this case is clear beyond any question.
My Lords, I hope no one is going to suggest that exemption for Churches and charities is impossible for practical reasons.

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One of the commendations we have already heard accorded to this surcharge is that it is so easy to compute and to levy. If such be the case, then it must be equally easy to grant exemptions, and I cannot believe that it is beyond the wit of the Treasury to do so. It has been done in the case of SET. The Prime Minister himself, when Chancellor of the Exchequer, in June 1966 devised a scheme for refunds, and the Churches and charities were grateful to him for his understanding. I hope we may have similar reason in this case to be grateful to him and his successor, for it should not be impossible to find a method of exemption either by way of non-payment of the surcharge or refunds.
Secondly, this surcharge is highly discriminatory and unjust. The Churches and charities have no desire to opt out of the responsibility which lies upon all of us to shoulder the burden of restraint and sacrifice which the state of the economy requires. Nor do they ask for special treatment other than that which has been traditionally accorded to them. But they do ask that they shall be treated in this instance in the same way as others and not discriminated against. They ask that the Chancellor's assertion, repeated by the noble and learned Lord, that this is a broad-based tax shall be implemented in their case. For this is precisely what it does not do.
Most employers other than the Churches and charities, with the possible exception of those who can afford domestic service, will be able to pass this tax on to the consumer or to deduct it against corporation tax. The whole tenor of the presentation of this case by the noble and learned Lord was that it was a tax that employers could pass on to others. The Chancellor said in another place on 22nd July,
"The addition, like the existing contribution, will be an allowable cost for purposes of the Price Code and corporation tax".
On the Second Reading of the Bill on December 6th, Mr. Sheldon said:
"We must expect that the surcharge will be deductible against corporation tax, just as the employer's National Insurance contribution is deductible. We must expect that, over a period, the bulk of the surcharge will be passed on into prices … As the House is also aware, the surcharge will be an allowable cost under the Price Code in the terms in which such costs are defined in the code".
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Local Authorities will be able to charge it against the rate support grant.
But, my Lords, the Churches and charities have no one on to whom the surcharge may be passed; no corporation tax against which it may be set. Nor is there any wealthy sponsoring body that can carry the burden. As regards the Church of England, the extra £350,000 will have to come from the funds of the Church Commissioners, out of funds which are provided for the increase of stipends and pensions each year. Nor can the Churches, thank God, sack overnight the clergy whose contributions they might not be able to afford. In the case of Churches and charities this tax must eventually be paid by the lowly-remunerated clergymen and parish workers, by retired clergymen and widows; or in the case of charities—as the noble Lord, Lord Allen, will no doubt tell us—by the children cared for by Dr. Barnardo's Homes or the National Children's Homes or by the blind and the spastics. I mention these cases not to wring your Lordships' emotional heartstrings but to remind you of the facts. This is not a broad based tax. This is a grossly discriminatory tax against a small minority who have a right to look to the Government for protection.
There is another area in which this surcharge could discriminate against the clergy or the employees of charity. We indicated our readiness to enter the scheme on the figures before us. The resources of the Churches were going to be stretched very tight in order to do so, but they reckoned that they could just about manage it. With this new impost some of the Churches may be forced to say that they simply cannot afford the price which they would be required to pay. So the clergy might have to remain self-employed. Thus, for reasons totally unrelated to the terms of the social security scheme—for that is what this surcharge is—a clergyman could be deprived of the opportunity of enjoying the full benefits of a National Insurance scheme which is his right as a citizen. It could be too expensive, not as a scheme, but because of a charge laid upon the employer which has nothing to do with the insurance at all. Here again, the impost on the Churches and charities is discriminatory and unjust.
Finally, my Lords, the application of this surcharge would place the Churches

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and charities in a position of the utmost jeopardy. We know that the 2 percentage points levy will double the cost to the Churches. Since this new tax is so easy to compute and to collect, there will be a great temptation to use it again in the future. If the percentage rate were to be increased to 4 per cent. a further £350,000 would be required for the Church of England alone, and the overall cost, contribution and tax, for the Church of England would rise to £1,050,000; if the levy were to be increased to 6 per cent., the overall cost for the Church of England would be £1,400,000. My Lords, we simply do not have the money to talk in these terms, when there are so many commitments over and above the provision of a proper stipend for the clergy and church workers.
Moreover, my Lords, it is particularly unjust when, at a time when the Churches are trying to raise the stipends of the clergy, and there is so much sacrificial giving from church people, any modest increases that we are able to achieve would mean that the costs of employed status and the 2 percentage points levy would both rise. It is reasonable that the contribution to social security should rise. It would be very hurtful, however, if the reward of giving for clergy stipends were to be the necessity to pay a large slice of it away in this surcharge. Incidentally, I note that there have been indications recently that the Chancellor hopes in his next Budget to reduce income tax. This would, of course, be a very welcome step for all of us. But I hope he will not attempt to compensate the Exchequer by increasing the percentage points of the surcharge. If he were to do this, it might well in the long run harm the clergy more seriously than the paying of direct income tax.
My Lords, I apologise if I have occupied too much of your time and your attention. My reason for speaking at length is to ensure that your Lordship's House and Her Majesty's Government are left in no doubt about the extreme gravity with which the Churches and charities view the consequences of this surcharge. We find it difficult to understand how it can be that, at a time when charitable activities are being asked by the Government to renew their efforts and to fill the gaps left by the inability of Government to
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meet the essential needs of society, they are being subjected to the punitive provisions of this measure and to the uncomfortable threat that the Government intend, little by little, to erode the protection which has over the centuries been extended to them. They want to get on with their work; they want to be free to do so.
We should have liked to amend the Bill by including a power to enable the Minister to exempt Churches and charities from its provision. Unfortunately, we were precluded from proceeding in this way by the terms of the Ways and Means Resolution. We take some comfort from the observations of Mr. Denzil Davies in winding up the Second Reading in another place on December 6th, which have been confirmed by the noble and learned Lord. Mr. Davies on that occasion assured the House that without entering into any commitment the Government would listen to representations and consider them in depth, and, if satisfied that they should be acceded to, would put the matter right before the tax is introduced on April 6th 1977. I hope the Government will consider the representations I have made in the light of Mr. Davies's observations on May 13th that there is no intention of extending taxation to charities, and that they will, in his words, "consider" our representations "with great sincerity", and "put right what a great many people believe to be a major act of injustice.
4.8 p.m.
Lord ALLEN of ABBEYDALE: My Lords, I rise to speak about the position of charities under this Money Bill. I must begin by declaring an interest, not a financial one, in that I am chairman of the National Council of Social Service, a body which has in membership a wide variety of voluntary organisations which serve the community. I do not propose to detain your Lordships by repeating the arguments which have been so clearly put by the right reverend Prelate, or by going again over the earlier history of our exchanges with the Government, but I do want to say that, like him, I was encouraged by the undertaking given by the Treasury Minister of State in another place, that if the Government decided to make a concession it would be possible to "put the matter right"—and those were his

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actual words—before the tax was introduced next April. I listened also with appreciation and hope to what the noble and learned Lord said when introducing the Bill this afternoon. But Mr. Denzil Davies did not say quite how this would be done. No matter. He left the door slightly ajar, and I hope that the debate this afternoon may help to push it open.
I am urging this for two main reasons. In the first place, this extra tax would be a blow to charities just at a time when the Government themselves, because of the financial pressures on local authorities, have urged increased reliance on voluntary organisations concerned with care in the community. I must say that I found it slightly ironic that earlier this afternoon, at Question Time, we heard tributes paid to the increasing work done by voluntary organisations in dealing with certain social problems in London on the same day as we are taking the Second Reading of this Bill. The Social Services Secretary said this summer that, pound for pound, the Government could often buy more service through a voluntary channel than through a statutory one. Indeed, he felt able to promise some extra money to those charities which were already grant aided by his Department. But there are not very many of these, and, grateful though we must be for this concession, I am afraid it goes nowhere near to solving the problem created for charities by this Bill.
As has been said, charities cannot set off their extra expense against corporation tax; charities cannot increase their prices across the board; charities, at best, can recover only a limited amount by increasing their charges, if that is how they raise some of their income—and by no means all of them do—and some rather anxious calculations have been going on. Out of the cases I have been looking at, I should like to give just three examples. The Royal National Institute for the Blind calculate that the net extra cost to them would be of the order of £50,000 a year, which would somehow have to be met from their own charitable funds. This is a pretty discouraging prospect for an organisation which, over the last four years, has contributed very nearly £2 million from its own funds on providing homes and hostels, training and rehabilitation centres, and education for the blind, and has spent another £1½ million from its own funds on braille.
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The Spastics Society, for their part, calculate that the extra cost to them would be nearly £40.000 a year. For Dr. Barnardo's the figure works out at some £75,000. These are all net annual figures and they assume, for example, that local authorities will have the money to pay increased charges—itself not a totally reliable assumption. At a time when charities are naturally finding it harder to raise money, the results could only be a cutting back of voluntary work which is provided inexpensively (which surely matters in these days of financial troubles) and is much needed for the wellbeing of the community.
I come now to my second main reason for urging a concession. This is one of principle. It is quite simply that the current proposal runs counter to long accepted principles relating to the taxation of charities, and fills me with foreboding for the future. From the correspondence I have had with Ministers and from the debates, I think that I can identify four separate arguments advanced so far against the concession which Churches and charities are seeking, and I should like to take them in order, very briefly.
The first is the argument that hitherto charities have not necessarily been completely relieved of indirect taxation such as VAT. The right reverend Prelate has already commented with some eloquence on this point. I would simply add that I too am not aware of any universally accepted definitions of direct taxation and indirect taxation, but certainly if one of the criteria of indirect taxation is that by refraining from doing certain things, or refraining from making certain purchases, it is possible to avoid paying the tax, then this tax certainly does not meet that criterion. Any of the charities concerned could meet it only by sacking its staff and closing down. But anyway the tax is no more indirect than was SET, from which charities were exempt. Nor is it more indirect than rates, from which charities get a certain mandatory relief.
The second of these four arguments is that to relieve charities of this new tax would be administratively impracticable, as the Chancellor first put it, or very expensive, as the Prime Minister put it subsequently. On this I would repeat that it proved perfectly feasible to work out procedures for the recovery of SET. The

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present problem is admittedly somewhat different since SET was designed as a wide-ranging and deliberately discriminatory fiscal device, and the methods of collection which have been explained this afternoon make the deduction, or the recovery, of a surcharge by charities slightly more complicated. These are intricacies which obviously cannot be lightly brushed aside, but nevertheless I can see no reason at all why some pretty simple and inexpensive machinery should not be devised for the recovery of this tax by charities.
The third argument is that if a concession were made to charities it would be impossible to stop there. But it proved quite acceptable to Parliament to make concessions in the recent community land legislation which were limited to charities, and to charities alone, and to refuse to extend them to other claimants, such as pension funds. For the life of me I cannot see why this should not be done again.
But there is a fourth argument which has just been touched on but which has never been made quite so explicit as the others. I suspect that a difficulty which the Government have had in mind is that to make any concession would involve making a concession to some organisations which—how shall I put it?—count as charities but are somewhat less than favourite children in the eyes of Her Majesty's Government. There is a general issue involved here which will no doubt be discussed in the coming months in the light of the recent report of the committee which the noble Lord, Lord Goodman, was good enough to chair for the National Council. But whatever emotions this issue may arouse, I would argue that it is marginal in the present context. I certainly hope that the voluntary bodies which look after the blind and the spastics, and some of the other unfortunates of Our society, are not going to lose this battle on the playing fields of Eton.
4.18 p.m.
Viscount NORWICH: My Lords, I do not intend to delay your Lordships for very long at this hour. Most of the points I was going to make have already been admirably put before your Lordships by the right reverend Prelate and by the noble Lord, Lord Allen of Abbeydale.
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I think I shall confine myself this afternoon therefore to the effects, in perhaps slightly more detail than that just given by the noble Lord, on one particular charity about which I suppose I should declare an interest, though once again it is far from being a financial one. I speak of the National Trust, on whose executive committee I have the honour to serve.
The National Trust is, I suppose, in many ways fairly typical of virtually all the charities in this country in that it stands to be desperately hit by the new legislation which is proposed. It is untypical, however, in that, first, it has already been hit even more than most of them by galloping inflation, since many of the endowments which enable it to maintain the very large number of properties it owns were calculated with great care some years ago so that almost every one of them is totally inadequate for the purpose at the present time. Secondly, as these properties are extremely widespread all over England, Wales and Northern Ireland, it is obviously necessary to have a large number of individual employees looking after them, and by definition the organisation has to be very decentralised.
The result of this, briefly, is that with a total staff of about 1,200, the National Trust will have to pay between £45,000 and £50,000 a year. This is not just on the staff who run the Trust at head offices and in regional offices but the gardeners, woodsmen, caretakers, curators, nature reserve wardens, any number of people on all of whom this new tax will have to be paid. They cannot possibly any more be reduced in number. Having run at a very serious deficit for the last two years, we have reduced all we possibly can and to reduce further would be dangerous. If this money is to be found, the only alternative will be to cut back to a very dangerous degree on the maintenance on the houses which were given to us on trust and which it is our trust and duty to preserve. In this connection, it is worth metnioning that we already spend rather over 85 per cent. of our income on the maintenance of these houses. It is nowhere near sufficient at present prices and the Historic Buildings Council said only recently that it would be an extremely grave mistake if urgent maintenance were postponed until brighter days in future;

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the longer we wait the more expensive these things will be.
I need not say more. I wanted to give a brief indication of the kind of thing I am sure all charities are facing in various degrees and I can only say how glad I was to hear of the delegation under the leadership of the right reverend Prelate which will he calling on the Prime Minister in the near future. I hope the Government will, even at this late date, find it within their power to do something to stop this appalling and, I believe, disastrous injustice.
4.23 p.m.
Lord GORE-BOOTH: My Lords, like the noble Viscount, Lord Norwich, I will not detain the House for long. Nor is it my purpose to develop anything I say into a general attack on Governmental fiscal or taxation policy. My principal purpose is to put the matter in yet another way. The right reverend Prelate said he did not wish to enter into an emotional aspect of the matter, but I suggest that a little emotion belongs because, after all, people who contribute to charities do so not wholly cold-bloodedly but with a feeling of emotion.
Perhaps I can put it simply by saying that in the case of the Save the Children Fund, in which I declare a similar interest to that of other noble Lords in relation to other charities, if the Bill in its present form becomes an Act, the children will pay £25,000 in tax. I am not being unfair about this because the Bill is perfectly honest, in its reference to the Consolidated Fund, in making it clear that the children will not get the £25,000 back again, and I would assure your Lordships that even in this inflationary time one can do a lot for deprived children with £25,000.
The only other argument I would add to those which have been so brilliantly and thoroughly expounded by the right reverend Prelate and by my noble friend Lord Allen of Abbeydale, is that the housemaid's baby is not always a wicked thing and it may be a method by which highly desirable reforms have gradually been inserted into our political and economic system. Thus, I would not be so rash as to condemn all housemaids and all babies proceeding therefrom. But in this case it is surely very easy to
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see that the principle of adding just a little more to the burdens on the Churches and just a little more to the burden on charities can go further and wider each time there is a financial crisis, so that each time the Government will, in the name of economy or in the name of balance, be placing a greater burden on people who are still gallantly ready to go on paying what money they have left, after they have been taxed, towards good causes. If that principle were to spread—and I think that if the Bill goes through it would tend to spread—then the taxation on the lame, the halt, the blind and the children would become more and more formidable, to the disadvantage of them all.
I beg the noble and learned Lord, Lord McCluskey, not to refer this matter to the borrowing requirement. Without being oflensive, I would say that your Lordships have provided the Government with a number of alternative methods to reduce the borrowing requirement rather than taxing the unfortunate. I will of course not enumerate them for fear of prolonging my speech or transgressing my initial principle of not attacking the Government's policy in general, which could then indeed happen. I would urge that in advising his right honourable friend the noble and learned Lord should not use that particular argument, which is so easy to refute. I hope that when there is an interview with the Prime Minister, Mr. Callaghan will be briefed to consider what is said to him both with his mind and with his heart, and indeed, as we heard, by a curious providence, in the prayer that was read to us before we started this Sitting, that the Government will make use of
"… the true Christian act of charity towards another".
4.28 p.m.
Baroness PHILLIPS: My Lords, I, too, will not delay the House for long as the argument has been so splendidly put by the right reverend Prelate. However, I should be betraying my own small charity if I did not intervene. When I was a very young Socialist we used to perform a play which was supposed to describe the capitalist economy. In the play, two men started out with a shilling and handed it hack and forth, one to the other, and at the end of the day the man who started with a shilling still had it and

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the other man had nothing. Listening to the explanation of this new surcharge and constantly listening to the explanation of the economy, I begin to think that that strange play was indeed correct.
I can say straightaway in the case of my charity, that the recipients, the consumers, are young mothers and children to whom we are not able to pass on any more extra charges: they are already beset on all fronts and it would be quite impossible for us to do that. We receive from the Government a grant, for which we are very grateful, which has hitherto met the cost of the salaries. Like most charities, we depend heavily on voluntary labour. We have a very small, very low-paid staff, and the grant just covered our expenses until last year. The staff met together and, being women and practical and patriotic, we all agreed that there would be no increase during a period of 18 months. However, unfortunately that did not solve the problem because postage went up, travelling went up, the cost of electricity and gas went up—in other words, there was nothing on which we could cut back except by sacking the people who were working for us.
It is not my intention to make an emotional speech: I am merely stating the facts as they are. One of our staff is a young widow whose case I have pleaded many times. She is not entitled to the full pension nor, indeed, to reasonable increases in pension. Another is a deserted wife who gets the minimum from the State and who receives a very low wage from us because it is all we can pay. One is a single woman who, because she has retired, has to pay back part of her pension under the earnings rule. The rest of us who receive our wages pay back the normal tax to the State, so that, out of the original grant, I have worked out that nearly half already goes back to the State. There must be a more economic way of handling that, though, no doubt, like Parkinson's Law, it keeps some people in jobs.
When it comes to VAT, we have small educational conferences and I am at present engaged in a battle to the death with the Customs and Excise—and whoever thought of giving the Customs and Excise the job of collecting VAT? The Customs and Excise were trained as revenue officers on the assumption that smugglers were
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doing something wrong. Those of us who have to pay VAT arc not doing anything wrong. On our small conferences we now have to pay VAT. If we have a charitable exercise, if we have a carol concert, we have to pay VAT. There is no question but that a large amount of the money that we receive from a grateful State already goes back to the State: now we come to this new surcharge.
I must say straight away to the Government, though I feel sure that highly intelligent economists have thought this out, that it is introducing a totally new principle to put a surtax on what is virtually a National Insurance fund. I agree with those of your Lordships who have already expressed the fear that, though it is 2 per cent. now, there is always the danger that this could be increased. It is all too easy to add to an existing surcharge rather than think up a new tax.
I was a little confused by the explanation given by the noble and learned Lord, Lord McCluskey, that this would mean no additional work. Surely each extra tax that has to be collected means additional work. When one considers that, as a charity, because of what we already have to collect for the State, we have to employ a highly skilled accountant, whereas in other circumstances we could employ a much less well paid bookkeeper, I suggest that already most employers are doing part of the State's work. They may be doing this with great joy and enthusiasm, but I suggest that it is not wise to stretch it too much. I can only say in the case of my own charity that we have come to the end of the road. If one more tax is imposed upon us there is no question but that we shall go out of existence. Maybe that will not matter to some people, but it will matter a great deal to the 50,000 mothers and babies whom I hope I have served.
4.34 p.m.
Baroness ELLIOT of HARWOOD: My Lords, there is one point that I should like the noble and learned Lord, Lord McCluskey, to clear up if he can or at any rate to give me some information about when he replies to this most interesting and moving debate. I have spent almost all my life in voluntary organisations raising huge sums of money for various

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good causes. I have also spent a lot of my life on the committees of big trusts that donate their funds, which are entirely charitable and have absolutely nothing to do with any kind of taxation of any sort for they all have charitable status, in distributing such charity money to organisations that have been carefully considered and looked at by these committees. What is to happen now? Are the gifts of these trusts, whose money is entirely charitable and has nothing on earth to do with taxation, to be falsified if their money is given to the organisations? I could cite any number with which I am associated, like the noble Baroness, Lady Phillips.
What will be the position if, in giving out money from these trusts, we find that a proportion of it will have to be given to the Exchequer in taxation? Would not that have some legal aspect which would falsify the wills and deeds under which such great funds have been set up? I am speaking of funds that were set up many years ago and whose interest is, as it has always been, devoted to charitable objects. I believe that this may complicate matters in a court of law if somebody were to go into the matter, because we are not allowed by law to use our money except for organisations that are charitable and whose funds all go to the objects for which they raise and administer money.
I believe that this is one of the most iniquitous pieces of taxation I have ever heard any Government put forward. I am not saying that because we have a Labour Government. If it had been my own Government, I should have been just as angry. I think that it is monstrous and I found the speeches of the right reverend Prelate the Bishop of London and the noble Lord, Lord Allen of Abbeydale, for the Council of Social Service, with which I have been associated all my life, and everybody else most moving, as was the appeal of the noble Baroness, Lady Phillips, whose work for voluntary organisations is very well known. I hope that the Government will look at this again because it seems to be something which is altogether without foundation. It is like a vicious circle. It will go round and round and it will make everything much more difficult just when we are all longing for people to give voluntary service in order to save money for the Government and when a great number of
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organisations are doing that. I hope that the noble and learned Lord, Lord McCluskey, will also take into account the fact that many great trusts are only allowed to give their money to organisations that have charitable status and do not pay tax at all. If this is introduced, it may add a complication which would be very difficult and would mean that a lot of money would be wasted by the giving trusts. I hope that the noble and learned Lord will think about this as well as about everything else that has been said here today.
Baroness GAITSKELL: My Lords, I should like to add just one sentence to this debate to which I have listened after an absence of two and a half months from this Chamber. It has been a very moving debate. We are asked to make sacrifices, but I have not heard one speech that has given any alternative to this proposed tax or surcharge. The noble Baroness, Lady Elles, attacked the Government for raising unemployment by this tax, but I always thought that the Conservative Party had up till now urged higher unemployment in order to deal with our problems. That is all I have to say.
Baroness ELLES: My Lords, perhaps may be allowed to intervene. The Conservative Party has never recommended higher unemployment at any stage of any of its policies. If the noble Baroness took the trouble to read the Hansard of another place, she would have seen that the Financial Secretary himself stated that there would be further unemployment as a result of this tax. This has not been denied by the Government. I think it is only a question of how many, but it has never been denied by the Government that this tax will create further unemployment.
Lord DRUMALBYN: My Lords, I shall certainly not delay the House for more than a minute or two. I do not want to add to all the many things with which I have entire sympathy which have been said about the effect on Churches and charities. I think that the case has been fully made there. I want to make two simple points. First, it seems to me to be wrong in principle to use a Department such as the Department of Health and Social Security and the National Insurance Scheme as a tax gatherer. This seems to be wrong in principle. It can in the future open the

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way for very serious extension, and I should go so far as to say serious abuse. The second point is this. The noble and learned Lord, Lord McCluskey, agreed that this proposed tax would be passed on to the consumer; that is, the consumer of goods produced at home. It must follow that to that extent it will make it easier for the foreigner to compete on the British market.
My Lords, this is a serious aspect of the problem. The noble Baroness has just challenged us to say what we would do. If a tax of this kind were being introduced, should have thought that some adjustment should also be made to equate the effect on imported goods with the effect on goods manufactured in this country. May we not finish up by finding that one result of this tax is a further decline in our position so far as the adverse balance of payments is concerned, which again would have to be made up by borrowing from abroad?
4.41 p.m.
Lord McCLUSKEY: My Lords, as the right reverend Prelate pointed out, I was brief in introducing the Bill, but I regret to say that in the light of the debate I have heard I will need to be a little longer in replying. Having regard to what was said by the noble Baroness, I should like to begin by turning to the general matter. Noble Lords will be aware that the debate today is not a general economic debate. It is the Second Reading of the National Insurance Surcharge Bill, although I do not pretend that general economic considerations are entirely irrelevant to it, nor did I do so in my opening speech; and I am not seeking to suggest a censure of the noble Baroness for raising the matters that she did. Of course it is true that the Bill forms part of the Government's general economic strategy, as do the measures which the Chancellor announced last week. That is why, in my opening speech, I explained, I hope briefly, the economic background to the decision taken six months ago to introduce this tax. Once the decision had been taken however and was announced in July, the yield of this tax became one of the important and the fixed factors for 1977–78 against which the Chancellor had to view the changing economic forecasts for the domestic and world economies presented to him this autumn: in other words, if I may be
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forgiven by the noble Lord, Lord Gore-Booth, for saying so, a reduction in the public sector borrowing requirement of £700 million in the first year, which will result from the introduction of this new tax, is part of the base line from which the Chancellor decided to reduce the PSBR still further last week.
This second stage decision, which was announced last week, does not therefore properly fall within the scope of this debate. I think that Members of this House will recognise that, and I must ask noble Lords to accept that I cannot, on behalf of the Government, properly comment further on the measures before they are debated in this House. I think that noble Lords will know that they are to he debated in another place tomorrow—
Lord GORE-BOOTH: My Lords, I hope that as the noble and learned Lord referred to me he will give way for a moment. I think that he will be aware that I was purposely trying to avoid the general economic discussions. I was arguing for charities, and of course that makes the borrowing requirement argument rather different.
Lord McCLUSKEY: Yes, my Lords; of course I entirely accept what the noble Lord says.
The noble Baroness suggested that the Title of the Bill was misleading; the noble Lord, Lord Gore-Booth, said that the Bill was a perfectly honest Bill. I would hope that in emphasing, as I did at the beginning, that the important word in the Title is the word "Surcharge" that helps direct attention to the true character of the Bill; but plainly, in the light of this debate, this House fully understands the true character of the Bill. It is a taxation measure pure and simple, riding, one might put it, on the back of the National Insurance Scheme, and I shall address myself to the propriety of that in a moment or two.
I will come later to the matter of charities and specifically Churches, and I hope that noble Lords will allow me to reply to that in some detail. But before I do so I want to make it quite plain that although this is levied as a tax on earnings, it is in fact, with these exceptions in relation to charities and the Churches, a tax upon consumption. The noble Baroness cannot have it both ways; it is not both at the same time.

1117
It is one or the other. In fact, it is a tax on consumption because under the provisions of the Price Code and the special arrangements relating to distributors, retailers and the like, the extra cost to manufacturers, distributors and so on will be able to be passed on. That is why ultimately there will be an effect upon the RPI, and in that sense the tax is an indirect tax. I am hesitant to involve myself in an argument about the borderline between direct and indirect taxes. It is not a borderline which is well defined, and I understand that economists are departing from the use of these terms simply because of the difficulties that exist where the tax which starts with one character appears in its incidence to acquire a different character—
The Earl of SELKIRK: My Lords, I should like to ask the noble and learned Lord this. He says that it falls on the consumer. Would this also include cases of professional services, some of which are regulated not only by the prices and incomes regulations but also by the courts in certain cases?
Lord McCLUSKEY: My Lords, I happen to be aware of the kind of matter of which the noble Earl is speaking, and I would hope that the courts, in taking into account applications by those whose fees are regulated by Statutory Instruments (for which the courts are responsible) would take account of all the additional costs which they can properly bring to the attention of the courts in relation to the cost of running the businesses out of which they have to make such profit as they can in rendering their services to the public. But of course I accept that in that type of case it is not simply a question of going to the Price Commission and getting authority to raise a charge. It has to be done through this other mechanism.
Baroness ELLES: My Lords, the noble and learned Lord has been very tolerant about the way we have intervened, but I hope that he will allow me to intervene again because I really question this definition of a tax on consumption. Surely it is a tax on earnings and a tax on earnings is a tax on income. It is not just passed on to the consumer. Surely there will be a 2 per cent. tax on, for instance, the
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earnings of nurses in hospitals. Presumably the whole of the National Health Service will be affected by this surcharge. A great many services not within the field of consumers on to whom profits and prices can be passed will be affected by the surcharge. I do not want to be contentious about this; it is just a matter of querying the definition. It is not a tax on consumption that can be passed on to a consumer. It is a tax on earnings of people regardless of the kind of job they are doing.
Lord McCLUSKEY: My Lords, I do not mean nationalised industries' employees because the nationalised industries will be able to pass on the extra cost in the prices they charge, but there is the case of public employees—the case of local authorities has already been mentioned—and this extra impost is a matter which qualifies in relation to the calculation of the rate support grant. In relation to central Government employees, the central Government as employers are liable for the surcharge like any others, but their increased costs will be met by adjustments to the relevant supply estimates. We are concerned here with part of the reason why one does not get a yield which is directly related to the number of persons who are employed, as the noble Baroness plainly knew before she asked me.
I said—and I apparently puzzled my noble friend Lady Phillips—that this scheme, this form of tax, would not require extra civil servants. I think I puzzled her in the respect that she thought it must require extra work on the part of the employer. I think I can assure her on that point. The way the tax will work is this—and I shall have to come back to this in another context. At the present time, as noble Lords will be aware, the Department of Health and Social Security issues tables, and these tables are used by the employer or by his accountant, or by whoever is responsible for it, to calculate the amount which is due. At the present time, in respect of this class of contribution, the sum which is due is shown as a percentage; that is to say, 8¾ per cent. The new tables, which will be issued to take effect from 6th April 1977, will simply show the figure to be 10¾ per cent. Therefore, it is not extra work. Instead of having to calculate 8¾ per cent.,

1119
one calculates 10¾ per cent. One does not write out an extra cheque or anything of that kind; there is no extra work on the employer. Of course, noble Lords see the benefits of such a simple tax as being entirely sinister because they see that, in future, Chancellors, recognising that it is such a simple and cheap tax to operate, might be tempted to go a little further. I can express no commitment on that; it is not for me to make any statement about the attitudes of future holders of that high office.
May I, then, before 1 come to the charities, look at certain matters which were raised? Both the noble Lord, Lord Drumalbyn, and the noble Lord, Lord Banks, suggested that this was an abuse of the National Insurance system. I hope I can answer that in this way. The new tax, which is enshrined in this short but important Bill, is a tax which simply uses the National Insurance collection machinery. It is properly a surcharge. The Government have never sought to disguise the fact that this is in fact a tax. It will operate—and these are the important words, I think—as though the rate of employers' contribution had been increased by two percentage points. As I have explained, that goes for ease and cheapness of collection. But it is not using the National Insurance system; it is using the existing machinery. As I think the noble Lord will understand, the present system is that the Inland Revenue in fact collects the National Insurance contribution in the first place from the employer at the same time as it collects PAYE. Then, these two separate sums, collected together, are divided by the Inland Revenue, and the National Insurance contribution is paid over to the DHSS. That will continue; but, of course, the DHSS will simply repay the surcharge to the Treasury. So I do not accept that this is an abuse of the system; it is a use of the system. And, in so far as it avoids recruiting extra civil servants, avoids increasing bureaucratic burdens and avoids increasing staffing and other such burdens upon employers—in these respects it is surely deserving of a welcome.
Lord BANKS: My Lords, I am grateful to the noble Lord for giving way. Would he not agree that it will be exactly as if the Treasury contribution to the National Insurance Fund had been substantially
1120
reduced? That is precisely the effect that the measure will have, although such a proposition has not been before this House or another place.
Lord McCLUSKEY: My Lords, I would certainly not agree with what the noble Lord suggests. The Government's contribution to the National Insurance Fund is one thing; this is something entirely different. They are two separate things. The Exchequer supplement to the National Insurance Fund, as the noble Lord will be aware, is provided out of general taxation. It is some 18 per cent. of contributions at the present time. It represents the Government's contribution to the tripartite partnership of Government, employers and employees. So this sum is paid out of general taxation. The surcharge is in addition to general taxation, and thus contributes towards that very sum which provides the Exchequer supplement. Therefore, in my submission, it cannot properly and accurately be said that this is somehow subtracting from that Fund, or from that contribution.
I also take note of the suggestion that was made by the noble Lord, Lord Banks, that it would be possible to eliminate this tax altogether. I would remind noble Lords that it is calculated that the tax will bring in something of the order of £1,000 million, or a little more, in a full year. It was suggested by the noble Lord that one might raise the same sum of money by a tax upon drink or tobacco.
Lord BANKS: No, my Lords.
Lord McCLUSKEY: I think some such thing was suggested. I think the words drink and tobacco "were used; I certainly have them noted. Certainly, if one was tempted to do that one would be raising the cost of these items by a staggeringly large amount, and the effect upon the retail price index would be immediate and perhaps catastrophic for general social policies.
Lord BANKS: My Lords, may I correct the noble Lord on that point? What I was suggesting was that there should be a 2 per cent. increase in VAT and double the amount which was actually put on drink and tobacco, which is very

1121
much less on drink and tobacco than the whole amount. It might be a quarter of it.
Lord McCLUSKEY: Certainly, my Lords, if one increased VAT by 2 per cent. the effect on the retail price index would be the same as this; if one put the rest of the burden of the tax upon drink and tobacco, the effect upon the retail price index would be that much larger. If one raised VAT by 2 per cent., one would achieve only half the revenue yield of this particular tax.
My Lords, I would come, then, to the matter which has plainly disturbed your Lordships most of all, and that is the matter of charities and Churches. Let me say, first of all, that the right reverend Prelate the Bishop of London referred to a suggestion that the Churches had dragged their feet. I make no suggestion, and the Government make no suggestion, that the Churches have dragged their feet in the matter. The timetable which the right reverend Prelate the Bishop of London gave is entirely accurate. would seek to add only this to it, that the first request to meet the Prime Minister was made on the 5th November 1976. Of course, representations had been made to the Chancellor of the Exchequer before that, and there had been some correspondence. Those representing the Churches did not ask at any time for a meeting with any Treasury Minister; and, indeed, when the Prime Minister, in reply to the letter of the 5th November, suggested that they should meet the Chief Financial Secretary to the Treasury, who was the senior Minister in charge of introducing this tax, they would not do so. I am sorry, if I may say so, that the right reverend Prelate should refer to the proposal that they should meet the Chief Secretary to the Treasury as a proposal which they rejected because they did not want a meeting at that level. He was, after all, the senior Minister in charge of this particular tax.
The Lord Bishop of LONDON: My Lords, will the noble Lord give way? When the Archbishop of Canterbury, the head of the Roman Catholics, the head of the Jewish Church and the head of the Free Churches all ask to see the Prime Minister, that is the level at which
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they wish to have their discussions. No disrespect of any kind to Mr. Joel Barnett was intended; but when no satisfaction can be gained from the Chancellor of the Exchequer, it is surely only reasonable and proper that the heads of the Churches should have the right of access to the Prime Minister himself.
Lord McCLUSKEY: My Lords, as have already said, the Prime Minister, it is hoped, will meet representatives of the Churches in the fairly near future.
I began by saying, but I want to repeat this because it is important that we deal with the matter fully, that the National Insurance surcharge is, and is intended to be, a broadly-based tax. It is based upon consumption in so far as it will be passed through into prices, and in that respect it most closely resembles the other indirect taxes such as VAT. These indirect taxes traditionally have been—and that applies to VAT as well—generally paid by both the Churches and charities. Let me make the point which the noble Lord, Lord Allen of Abbeydale, foreshadowed; that is, that charity law does not, in fact, differentiate between different sorts of charities. Indeed an object may be a charitable object in the legal sense, notwithstanding that it will benefit the rich as well as the poor. General fiscal relief would therefore benefit all charities including, for example—and I do not hesitate to mention it—the one which the noble Lord had in mind, professional associations and public schools, just as much as the concessions would benefit organisations for the relief of poverty, of disease and other forms of personal distress.
Indeed, the noble Viscount, Lord Norwich, mentioned that one of the charities which he was interested in was the National Trust. That, in association with the other examples I have given, gives some idea of the scope of the word "charity" in English law and adopted in the whole of the tax law of the United Kingdom.
My Lords, let me make it plain—and I hope that noble Lords will take it into account—that the Department of Health and Social Security makes specific grants to certain voluntary organisations. There is selection there, not for everybody calling themselves a charity but for certain

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voluntary organisations. In 1977–78 these grants are to be increased by about 60 per cent. to a sum of some £5 million. I think that my noble friend Lady Phillips gave an example of a charity in receipt of such a grant. So that the Government give, and intend to increase, selective help to charities judged to be at present of the greatest service to the community
Baroness PHILLIPS: My Lords, this is too good an opportunity to miss getting it on the record. The noble Lord has said that there will be an increase in grants to those given under the Department of Health and Social Security. The grant that I receive comes from a different Department, the Department of Education and Science. Can I hope that they also will be increasing their grants?
Lord McCLUSKEY: My Lords, no doubt they will note what the noble Baroness has said. The announcement which I was referring to, that grants are to be increased by 60 per cent., was made in June. My Lords, I should like to say something about the Churches. At the present time, as the right reverend Prelate has made clear, the clergy are, for National Insurance purposes, regarded as self-employed; and there are the negotiations to which he referred that would lead to the result that they would become employed persons for National Insurance purposes from a date which may be April, 1977. That course has been chosen because it confers some benefits on those who chose it; although I do not suggest that the matter is one-sided. It is accepted that the National Insurance surcharge will increase the cost to the Churches of the projected change-over once it takes place. I think it is correct to say that the right reverend Prelate has asked on behalf of the Churches' main committee that the change-over should be deferred until a later date. The Government understand, and regret, that the new tax creates problems for the Churches but the fact remains that until the clergy become employees of the kind to whom the tax applies the surcharge will not apply to them.
Let me look at some of the arguments that have been put forward with such clarity by noble Lords. The first argument was that charities are, in principle and traditionally, not subject to direct
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taxes. As the right reverend Prelate has pointed out, the Churches enjoy, along with the charities, a uniquely privileged position in relation to non-payment of tax. They are relieved of taxes and he specified them; but they are not and have never been relieved of indirect taxes. Similar arguments to those heard today were put forward in respect of VAT but VAT applies to these bodies. They are not exempt, for example, from revenue duties; they are not exempt from he duty on petrol and on vehicles and they are not exempt from certain aspects of development land tax
Baroness ELLES: My Lords, would not the Government consider that the Church plays a special role in the community? You cannot consider the Church and the charities which have been mentioned in this House on the same basis as companies which are making profits. Is the argument of the noble Lord that because he is afraid that the Etonians (as have already been mentioned) should not be subject to tax, Dr. Barnardo's Homes must suffer as well? It is a curious way of arguing that because one might have to pay a tax, everybody must pay it—rather than think of those who are desperately in need.
Lord McCLUSKEY: My Lords, that was not the argument that I put forward. I accept that the Churches and the charities are in a unique position. That is why they pay no income tax, that is why they pay no corporation tax, that is why they pay no capital gains tax and no other direct taxes. The point that I made, and seek to make, in relation to charities of a kind which are entirely different—for example, the public schools and the like —is simply this. Once you recognise that you have to draw a distinction between charities for the relief of poverty and misery and so on and the so-called charities existing as charities in English law from the time of Elizabeth I, then, in order to administer a scheme which selects some of them for exemption and leaves others within the tax, then you begin to increase the administrative and bureaucratic costs both for the persons on whom the tax is or may be imposed and for central Government.

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Mention was made of SET. That was a special case because that was always intended to be and was designed as a discriminatory fiscal device. It was designed to help encourage the transfer of resources to manufacturing industry; and there was deliberately set up a system of machinery for making refunds. Accordingly, it was possible within the scope of that machinery to exempt persons or bodies from the tax. The tax with which this Bill is concerned is designed as a broad-based revenue raising instrument using the National Insurance machinery and there is to be no costly administrative machinery for refunds and exemptions.
My Lords, on the matter of selectivity, there are certain possibilities and they are being given consideration. You can have selectivity by exemption. That requires you to make judgments between those which are, as it were, deserving charities (to use an old phrase) and those which are non-deserving charities in the sense in which noble Lords have spoken and have heard this afternoon. You can have selectivity by exemption; but there arise formidable problems of definition. You can have selectivity by repayment. That also raises the same problems of definition and considerable administrative problems. Many more civil servants will be required to inspect individual deduction cards and generally to police the exceptions.
Furthermore, and this is a point of some substance, one starts off highly sympathetic as the Treasuary Ministers are, to the points made by the right reverend Prelate; but, in no time at all, those who claim exemption as a special case become wider and wider. We have gone from the extremely deserving and sympathetic cases of the blind and of Dr. Barnardo's Homes and the like to the case of the National Trust. One can then see that other groups would come forward and seek exemption, or selection to come out of the tax, on the ground of employment in the depressed areas, in parts of Scotland or Merseyside; and one could have employers of the disabled making the same point. One could have small firms claiming exemption. One would end up not with a broadly-based tax at all, but with a tax with a much heavier incidence upon certain parts of the community and one would then change the character of the tax altogether.
The Lord Bishop of LONDON: My Lords, before the noble and learned Lord moves on from this part of his speech, will he explain how it is that charities and Churches are already exempt and are perfectly clearly defined? Charities are those which are recognised by the Charity Commissioners; Churches are clearly defined. Why should it be so difficult to apply to this one tax a principle which has been universally applied for the past 400 years in protection of Churches and charities?
Lord McCLUSKEY: My Lords, I am not suggesting that it is administratively difficult to accept as a charity those bodies which are regarded as charities by the Commissioners of Inland Revenue. I am suggesting that, within that general bracket of bodies which are entitled in law to be known as "charities", there are organisations which in no popular or ordinary sense can be regarded as charities.
The Lord Bishop of LONDON: My Lords, I am sorry to interrupt again, but the noble and learned Lord has not answered my question. They are exempt at the moment and there is no difficulty about this. Why should there be difficulty applying to this one particular tax which has now been produced?
Lord McCLUSKEY: My Lords, I have tried to explain the administrative difficulties, apart from the difficulties of definition. I do not want to appear—although plainly I may be failing in this regard—as if I am saying that the mind of the Government is closed on this; I am seeking to answer particular points. In so far as I do not do so, I regret that I cannot answer them. Noble Lords will recall what I said and perhaps I should close on that. There are to be further discussions and one hopes matters can be taken further in the course of these discussions. My Lords, may I conclude by saying that the noble Baroness, Lady Elliot of Harwood, asked a question and, in so far as I followed it, I think there is no difficulty. May I be allowed to write to the noble Baroness to seek to answer her question when I have studied it in Hansard?
Baroness ELLIOT of HARWOOD: My Lords, the words of the right reverend Prelate the Bishop of London apply

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exactly. It is the Commissioners of Inland Revenue that decide which organisations are charities. To those organisations, because they do not pay any tax, great sums of money are paid out by trusts, the Carnegie Trust, Pilgrims Trust and all the others. They would be unable to do that if the money that they were giving out went in taxation.
Lord McCLUSKEY: My Lords, all charities pay some tax; I think that the noble Baroness is mistaken in supposing that some charities pay no tax. All charities pay certain indirect taxes. I will write to the noble Baroness on that matter. The noble Lord, Lord Drumalbyn, made a point in relation to competition with those who import into this country and difficulties for exports. In this regard, surely the House will acknowledge that in recent times, owing to the changes in the exchange rate, the competitive position of those who export from this country is considerably advantaged by the decline in the value of the pound; and, similarly, difficulties have been created for those who seek to import into this country. The effect of this surcharge is thought to be relatively small in relation to that effect on the exchange rate. My Lords, I should like to thank all those who have taken part in this debate. I apologise for having taken so long to reply. I hope that noble Lords will accept the length of my reply—whatever its content—as a mark of the appreciation of the lucidity, cogency and passion of the points which have been made.
On Question, Bill read 2a; Committee negatived.

EUROPEAN AERONAUTICAL SECTOR: 51ST EEC REPORT
5.15 p.m.
Lord KINGS NORTON Lord KINGS NORTON rose to move, That this House takes note of the Fifty-first Report of the European Communities Committee of last session on the Action Programme for the European Aeronautical Sector (R/2461/75). The noble Lord said: My Lords, the report is, I believe, a document of considerable importance to the development of aeronautical policies and attitudes in the Community. It is a commentary on the EEC Commission document mentioned in the Motion, the Action Programme, which was published on 3rd October, 1975.
This programme, which proposes a highly centralised control by the Community of the aircraft industry and air transport systems of the Nine, was considered in detail by Sub-Committee F of your Lordships' Select Committee on the European Communities, under the chairmanship of the noble Earl, Lord Lauderdale. As a member of the Sub-Committee, I should like to tell those of your Lordships who are not members how much the Sub-Committee owes to the outstanding quality and vigour of the noble Earl's chairmanship.
The Sub-Committee devoted nine meetings to written and oral evidence from representatives of the British aircraft industry, of the British air transport industry, and of Government Departments; and in this way a spectrum of informed opinion became available to the Sub-Committee which was further helped by the attendance at private meetings of two members of the EEC Commission.
The Action Programme document be-gins by analysing the difficulties of the aircraft industry of the Member States arising from the alleged dispersal of its resources and inadequate co-ordination of decision-making, but recognising advantages in its technological abilities and developing opportunities. It concludes that:
"the development of the industry, with its important inputs of new technology, requires clear strategies, systematic long-term planning, and coherent management. And because of the high-level of investment which must be undertaken it requires a wide capital base, secure financing, good market prospects and the avoidance of the kind of waste that arises from duplicated efforts and lost opportunities for rationalisation."
It would indeed be difficult to disagree with these sentiments.
The document then proceeds to review the market, particularly the European market. Only the civil market is within the competence of the Commission, and in the civil area the Programme commits itself to a policy of creating a "European airspace" managed at Community level. This appears to mean, ultimately, central control of the Community's airlines and of their development in ways calculated to improve the market for the civil aircraft manufacturing industry. Indeed, the manufacturing industry and the air transport industry are seen as two sides of a single coin.
The Programme recognises however that the civil market is little more than 40 per cent. of the whole and states that,
any policy designed to strengthen and develop the aircraft industry must therefore include common action in the defence equipment field. To this end the Governments of the Member States should decide to create a joint arms procurement agency, responsible for joint development and purchasing of airborne weapons, to meet the needs of the European armed forces."
As the Programme document sees it, if the Community's aircraft industry is to have any future, the framework for its management would devolve from a proposal from the Commission to the Council. The Council, after consulting the European Parliament, would make the major policy decisions on programmes, Community financing and international agreements. On the basis of those decisions, the Commission would assume the management of the common aerospace policy. This awe-inspiring conception is made a little less frightening by the statement that the Commission would organise the management of the aircraft policy in such a way as to use the maximum existing national structures and to seek the greatest possible decentralisation. Nevertheless, Community financing of the aircraft policy would not be superimposed on national financing; it would replace it.
The Action Programme document concludes with, first, a proposal to the Council of the European Communities for a decision concerning the creation of a common policy in the civil aircraft and aviation sector and, secondly, a draft resolution for the Member States to consider relating to the creation of a military aircraft procurement agency. The decision proposed for the Council is that there should be, inter alia—T am not giving them in full:
"a common programme for all activities in connection with the manufacture of large civil aircraft, common financing (to replace national financing) of research, of development and of production tooling for the common programme, a common programme of basic research receiving community financing, financial support for marketing, harmonisation of the laws, regulations and administration provisions of the Member States dealing with certificates of airworthiness, the creation of a European airspace, managed on a Community basis, involving a system of regulated competition, the aim of which would be to provide services tailored to the public need at the best possible prices, joint negotiation of the Community's agreements with other countries,
particularly on traffic rights, so improving the Community's bargaining power and leading to optimizing international routes and services."
I have tried to give your Lordships a conspectus of the document which was the basis of the deliberations of Sub-Committee F. It has necessarily been sketchy, because the document contains a dozen pages of report and a score of pages of annexes.
Now I should like to turn to the report which is the subject of my Motion. In the Introduction, the report says with, I think, commendable restraint, that the draft decision and the draft resolution, which I have tried to précis for your Lordships, would have far-reaching implications. Their full impact, according to the report, cannot be assessed until the consequential draft regulations and directives are known. The report therefore examines the general objectives of the Action Programme, their justifications and how far they can be achieved through the Commission proposals.
The first critical note is struck when the report, in its paragraph 10, deals with the concept of a Community airspace to supplant both national sovereignty in airspace and national air transport regulations. The programme talks of "European" airspace, which the report regards as misleading. Also misleading, says the report, is the term "airspace" because in aviation circles "airspace" means the area above its territory in which a country enjoys national sovereignty. The Commission uses the term in a new and wider sense, to mean the whole paraphernalia of regulations and agreements controlling air transport operations. The Commission argue that a unified Community airspace, in the new sense, would help the realisation of proposals for aircraft manufacture. But, says the report, a little unkindly, so little argument is adduced in support of this view that some witnesses suggested the air transport proposals had been included as an afterthought.
The Report, my Lords, also reviews the legal implications of the Commission's Action Programme. Broadly, if it were implemented, it would seem that United Kingdom would be lost to the Community. Furthermore, the financing of research and development, and of United Kingdom sovereignty over the airspace above the United Kingdom would be lost

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to the Community. Furthermore, the financing of research and development, and of United Kingdom airworthiness standards and certification would have to pass under Community control situations demanding modification of existing legislation. Only noble Lords with a detailed interest in the administration of aircraft construction and aviation will find time to read the minutes of evidence in the report, but I hope that most noble Lords will study the conflation of this evidence in Part IV. The ideas in it are already concentrated into a small space, and a further précis would not be comprehendsive. However, in commending it to your Lordships, I would draw attention to some points which are particularly important.
First, the evidence did not seriously challenge the Commission's broad assessment of the industrial situation, though the Commission was thought to have underestimated the difference between air frame and engine manufacture. There was, however, little support from witnesses for any of the proposed solutions. Rolls-Royce, for example, were totally opposed either to unified Community control of engine manufacture or to financial incentives for greater collaboration in the engine field. From the Minister of State, Department of Industry, and from his officials, while there was naturally support for United Kingdom collaboration with other countries, there was none for a programme in which United Kingdom policy was submerged in a Community policy and the independence of the United Kingdom aircraft and engine industries lost.
Evidence was heard about co-operation between the civil aviation authorities of the United Kingdom, France, Germany, Italy, Holland and Belgium on drawing up joint airworthiness requirements. These are well advanced for airframes and complete for engines—the other countries accepted the United Kingdom engine code. The point is made, however—and it is a very important one—that agreement on standards does not guarantee uniformity of enforcement. I intend to return briefly to the subject of airworthiness later in my speech. Official support for the idea of a military procurement agency was noticeably qualified. While the need for co-operation and the co-ordination of operational requirements was endorsed,
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it was clearly felt that progress in those directions could be made without the Commission's proposed new agency.
The Report makes clear that the concept of a European airspace was received with considerable scepticism. To quote the Report:
"The proposals rest on the assumption that the manufacturing industry requires a community airspace. This assumed link is crucial to the argument but is neither explained nor justified."
in the Action Programme. The evidence before the Sub-Committee, summarised in part IV of the report, suggested that a common EEC transport policy is not necessary for helping manufacture. Furthermore, on more general grounds, it was felt that the EEC was not the right machine to bring about the changes. The weight of feeling, indeed, was that the area for co-operation was much greater than that of the Community, and that the development of co-operation was already satisfactorily progressing through the work of the European Civil Aviation Conference, the Association of European Airlines, the International Civil Aviation Organisation and the International Air Transport Association.
The opinion of your Committee, my Lords, is given in Part V of their Report. Again, I do not intend to give a comprehensive account, but to draw attention to important parts. For instance, they say that as the United Kingdom and France together account for some three-quarters of aircraft building in the EEC the addition of further layers of Community authority could only produce a steep organisational pyramid. The intervention of seven other Member States with limited interests in the matter would hardly encourage the political accommodation required. The Committee do not believe that the Community's institutions are well adapted to making prompt decisions of the type required.
While, say your Committee, it is not clear whether the Commission is, indeed, aiming at a protected EEC market for aircraft built inside it, attention must be called to the evidence, which was almost unanimously hostile to protection. Companies have shown, continues the report, that common action across national boundaries is neither impossible nor dependent on the evolution of European company law or Community action.
Aircraft manufacturers have made good progress in voluntary collaboration under economic pressures alone.
The Committee consider however that the Commission may well be right in averring that economic forces will not alone bring airframe manufacturers sufficiently together. The Committee would welcome it if the individual Governments, particularly of the United Kingdom and France, demonstrated a policy of active collaboration so that the independent national airframe came in future to be regarded as the exception rather than the rule. The Committee appreciate, however, the force of the argument put to them by Mr. Kaufman that for defence reasons the United Kingdom must be able to design and develop airframes independently if necessary. The Committee welcome the proposal that certain areas of basic research should enjoy Community financing, because increasing costs threaten to limit national efforts, but this must not be, says the Committee, at the cost of endangering present research centres.
On airworthiness, the Committee consider it better for the Community to encourage the present action on joint airworthiness requirements, than to risk changing to the system indicated by the Commission. As I have already said, the Committee consider that the case for a European—that is to say, an EEC—airspace has not been substantiated. Its implementation would duplicate and undermine valuable work being done by existing international bodies, and it might jeopardise the United Kingdom's relatively strong position in civil aviation.
The conclusion of the Committee I must read to your Lordships in full. It is not very long. This is it:
"The Commission's aim to improve the competitive strength of the aircraft and air transport industries results in proposals for no more than organisational action. This would be taken at one remove from the industries concerned. The intention is to ' go beyond the stage of intergovernmental co-operation '. The proposals would upset present co-operation in bodies of wider scope than the Community. The Commission imply that the new organisations, if set up, would be able to find solutions to the industries' problems on such matters as aircraft types, marketing, finance, routes and fare-structure. This is not demonstrated nor is it self-evident. The Committee can even foresee matters being made worse. While they support the principle of Community finance for basic research and
marketing, they think it would be wrong for approval to be given to the other and fundamental changes proposed, even in principle."
That is the conclusion of your Lordships' Select Committee. I have done my best to give your Lordships an idea of the Select Committee's 51st Report, and an idea of the EEC Action Programme which occasioned it. May I conclude with a few remarks for which no one is responsible but myself.
First, I would draw your Lordships' attention to Appendix 6 of the Select Committee's report. in which is given the Resolution adopted by the European Parliament on 6th July last on the Action Programme. It recommends the Commission to concentrate on getting decisions of principle out of the Council on industrial policy, and on putting its common air transport proposals into concrete form. I doubt very much whether, even if this recommendation is implemented, we shall be much further advanced. But I should like to ask the noble Lord who will be speaking for the Government whether he can tell us if the proposals of the Action Programme have indeed got any further through the EEC machinery. I think we should all like to know, too, whether there is any information about the attitudes of other Member States. Indeed, we should like to know whether there is any change in the attitude of the United Kingdom Government since the Sub-Committee took its evidence.
The attitude of the Select Committee is clear. It found the Action Programme largely unacceptable. I think it could be described as, at one and the same time, didactic and naive. To what extent it is typical of what might be called the Commission approach, I am not sure but I am clear from experience of other draft papers from the Commission in scientific and technological fields that it is not unique. I feel strongly that the philosophy of centralisation—and it is that, despite the disclaimer to which I drew attention earlier—is wrong and should he resisted. I feel, too, that the Action Programme was written by people with little first-hand knowledge of aircraft and aviation.
There is a type of official operating in Brussels called an "expert". In the fields of science and technology, he does not seem to be what you or my Lords, would call an expert. He appears to be an

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administrative civil servant who depends on the advice of the true expert—the scientist or the engineer. This must make the drafting of intelligent documents relating to the fields of technology—such as aviation—unnecessarily difficult. My belief is that collaboration and harmonisation are best achieved by experts in the United Kingdom sense; not experts in the EEC sense.
A great deal of collaboration between the United Kingdom aircraft industry and the aircraft industries of Europe has been achieved. I think it was all initiated before the Treaty of Accession. It has had, so far as the United Kingdom is concerned, nothing to do with the EEC. It was achieved by experts in the United Kingdom sense, and has resulted in the Tornado, the Jaguar and the Concorde, to give the most dramatic examples, and that is the way it should continue. Any attempt to impose collaboration from Brussels just will not work.
We see another example of the result of collaboration between experts, United Kingdom style, in the remarkable progress towards agreement in airworthiness standards. The Action Programme gave no indication that the Commission was even aware of it. And Sub-Committee F learned recently of another example of successful collaboration between real experts, unassisted by EEC experts. This was in the field of molecular biology. The lesson is obvious. If the EEC is to get anywhere in matters of science and technology, it must leave negotiation in the hands of people who know.
Finally, I want to make the point, of which in fairness I must say that the Commission show that they are not unaware, that there is not a civil aircraft industry and a military aircraft industry. There is just one aircraft industry. The fact that the military industry is not within the Commission's purview is, in my opinion, just another reason for drastic modification of the Action Programme for the European Aeronautical Sector, which the Select Committee consider raises such important matters of policy and principle that the special attention of this House should be drawn to them for debate. My Lords, I beg to move.
Moved, That this House takes note of the Fifty-first Report of the European
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Communities Committee of last session on the Action Programme for the European Aeronautical Sector (R/2461/75).—(Lord Kings Norton)
5.39 p.m.
Lord CARR of HADLEY: My Lords, I am sure that we should all be grateful to our Select Committee on the European Communities, and particularly, of course, to Sub-Committee F, under the chairman-ship of the noble Earl, Lord Lauderdale, for drawing our attention to this EEC Commission document called Action Programme for the European Aeronautical Sector and for analysing its implications for us so thoroughly and yet so succinctly.
I am sure, too, that we are all grateful to the noble Lord, Lord Kings Norton, both for playing his part on that Committee and bringing his own personally great knowledge and experience in this field to bear on the problem before us and for the speech which he has just made. He has brought out for us, very clearly I think, the main objectives and recommendations that are contained in the action programme document and also the main criticisms of it which the sub-committee made.
It seems to me that the case made by the Select Committee against the Commission's main general proposals is very strong. Indeed, I believe that it is unanswerable and I hope that your Lordships and the Government will express strong agreement with the Select Committee's views. The case has been so well summarised by the noble Lord, Lord Kings Norton, that I am sure your Lordships will agree with me that I need not amplify it in any way. I should simply like to say that I agree, I think, with everything that the noble Lord has said.
One of the points which the noble Lord made was that the Committee's report showed considerable restraint. It certainly did, and so did he, and I must try to do the same, although that will not be easy. As the noble Lord has said, the proposals contained in the Action Programme are indeed awe-inspiring. In my view, they are in fact downright terrifying. Like many noble Lords, over the years I have read many plans for action which have been strong in diagnosis but weak in prescription. It seems to me, however, that this action programme is not weak in prescription; it is absolutely lethal. If the medicine were ever to be administered to

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our European aircraft industries they would be as good as dead.
From the moment it was mooted—that is, before the Treaty of Rome was finally agreed—I was a strong supporter of the European Economic Community. Then I was a strong supporter of the view that Britain should be a member of the Community. Therefore I find it all the more distressing when the Commission put forward recommendations such as those which are contained in this action programme document. Their proposals amount to centralisation run mad. Also, I fear that they typify the very worst kind of inward-looking approach which so many of the opponents of the Community feared. They feared that the Commission might develop in that way and we, the supporters of the Community, said that it must be our job to see that this did not happen. Certainly, I think that we have that job on our hands so far as this document is concerned.
Of all the industries which need to be more genuinely international in outlook and competitive power, I suppose the air transport, the airframe and the aero-engine manufacturing industries must be among the principal ones. For them to become locked in an inward-looking Community attitude, bureaucratically run from Brussels, would, I believe, be a disaster. The Community must, of course, strengthen its own aircraft and air transport industries, but it must not run fences around them either industrially, administratively or commercially.
Luckily I think that there is little danger that this Action Programme, and its proposals, will ever be implemented. Although that is fortunate in one way, it is depressing in another. To me, at least, it is extremely depressing that the Commission should put forward proposals so wildly out of touch both with the reality of the needs of these industries and also with the reality of what can and cannot be done.
What, then, should be our main conclusions about all this? Not, I think, that the Commission should keep its nose out of these matters. On the contrary, despite the great growth in European co-operation in these industries between Member countries and their aerospace industries I think that co-operation has not yet gone far enough or been made effective enough and that there is need
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for more of it. Although I have been so strongly critical of the proposals contained in the Commission's document, I strongly approve of much of their analysis, and I must quote with approval one or two of their main conclusions in that analysis of the problem.
They say that the future of the aircraft industry in Western Europe is of importance to the Community for a number of reasons; that the existing industry is a major source of employment; that it is one of the chief representatives of the type of employment—highly skilled, commanding sophisticated technologies and a high level of investment—towards which the Community must necessarily move in the future as the industrialisation of the Third World proceeds and the wider international division of labour unfolds. I believe that analysis to be profoundly true.
I agree also, and I quote again, that the research and development carried on by the aircraft industry has proved to be a major source of scientific invention and technological information across a wide range of products. I agree that Western Europe's capacity to make an appropriate contribution to its own defence must depend in large measure upon the strength of its aircraft industry. I agree, too, as the document says, that despite its importance, the European aircraft industry faces serious difficulties which have put a question mark against its future and that, in large part, these difficulties are due to the divergent policies of the Member States with regard to their aircraft industries.
The document goes on to outline in more detail the criticisms of the record in recent years and I think that we can probably all agree with the following three points. First, that resources have been spread over too many, sometimes competing, civil and military programmes; secondly, that no overall market orientated strategy to co-ordinate the various kinds of aeronautical programmes has been produced; and, thirdly, that there has been a lack of adequate support for marketing and for developing existing products.
With all of these basic points of analysis, and others which I have not quoted, I certainly strongly agree. I hope that your Lordships' House will agree with them and

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that we shall hear from the Government that they agree, too. Therefore I want to separate my praise from my criticism. I have, and I believe rightly, criticised very severely the Commission's proposals for action, but I support and agree with their analysis. Also, I want to say that we need the Commission to inquire, to report, to criticise and to suggest what needs to be done by the Governments, the aircraft industries and the airlines of the Member countries of the Community. Also, we need our own Government to play an active part and to give a strong lead to other Governments in the Community in correcting the failures and the weaknesses to which the Commission draws attention.
While, therefore, we shall be right, I hope, in condemning the Commission's proposals as to how these problems should be dealt with, I believe that we should be wrong if we turned a complacent, blind eye to the Commission's critical analysis of the situation because the present situation is potentially a dangerous one for these vital industries. We must have a European strategy for the development of our air transport industries and for the aerospace manufacturing industries which can supply the products that they need. If not, these great industries, which at the moment are creative, will end up—I say 10 years from now, although that is a guess, but at least some time from now—as no more than subcontractors. That, I believe, would be a great loss to Britain and to all the Member countries of the Community. The costs of aircraft development are now so enormous that collaboration is essential. Collaboration is essential on a wider scale than simply the European Community, and it must particularly bring in the United States of America. But it must not be just piecemeal collaboration between individual European and American companies based merely on medium-term commercial considerations because that would lead inexorably to the subcontractor status which I have just spoken about as being a danger which we must take seriously in Britain in particular and in Europe generally.
So I believe that in Britain, France, Western Germany and Holland, as the four countries in descending order of contribution which really are the heart of
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the aerospace industry in Europe, Governments and the air transport and aerospace industries themselves must now put some real heart into a European strategy, and do it urgently. We need the weight of the Community behind such a strategy and that is why, as I conclude, I want to make clear that fiercely though I criticise the recommendations for action by the Council in this document I praise their interest in it and I hope we shall tell them that we want them to continue to show that interest—inquiring, reporting, criticising, urging but, please, not establishing a great centralised bureaucracy which will defeat their own objects just as surely as ours.
5.52 p.m.
Lord LLOYD of KILGERRAN: My Lords, I should like to join with the noble Lord, Lord Carr of Hadley, in congratulating the noble Lord, Lord Kings Norton, for his masterly and comprehensive speech in relation to this, the Fifty-First Report of the European Communities Committee on the aeronautical sector. If he will allow me to say so, the noble Lord is recognised as one of the great international authorities in the field of aeronautics. It is no exaggeration to say that had it not been for his skill, both in technology and administration, many of the great advances in aeronautics during the last thirty-five years would not have taken place.
I also had the privilege of serving on the Sub-Committee which produced this report. I do not propose to follow the noble Lord, Lord Kings Norton, in the analysis he has made of the technological aspects and aspirations expressed by the Commission in their action programme. In my view a Commission's report of this kind has to be judged from an entirely different standpoint; namely, a political standpoint. After the devastating criticisms of the noble Lord, Lord Carr of Hadley, perhaps I may be able to cast, as it were, a political lifeline to the basic themes on European unity behind this Commission's action programme.
It seems to me that the main weakness of this Commission's programme is that it almost completely fails to discuss, or even to consider, most of the political realities associated with its otherwise commendable analysis of the industrial and technological situation in the EEC

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in the aeronautical sector. In my view it is not enough for the Commission to produce documents such as this, mainly with a technological and scientific content. There is a great danger to the unity of Europe for the Commission to seek as its mission in such an important industrial sector as the aeronautical sector, to set up some kind of organisation or institution without also giving some guidance as to how their proposals can be achieved from a political point of view.
Also, it seems to me to be essential for the Commission to show how their proposals can help towards the political unification of the Community. Therefore it is from that point of view that I endeavour to assess the value of this Commission's report. This Action Programme of the Commission fails to appreciate or discuss the political implications of its proposals, many of which run counter to so many diverse national interests which are bound to impede progress. Therefore I say again that it is not enough for the Commission in this Action Programme to deplore, as it does, the failure of the basic political strategy in Europe in the 1960s and at other times without expressing some view as to the present and future political situation in Europe in relation to the industry with which it is endeavouring to deal.
Of course I realise that under the Treaty of Rome the Commission is in some difficulty because it is bound to look for political guidance to the European Parliament rather than national Governments, and at least until direct elections to the European Parliament are achieved the European Parliament cannot be said to be a very effective political instrument. But as the noble Lord, Lord Kings Norton, and also the noble Lord, Lord Carr of Hadley, have pointed out, the Commission's broad assessment of the industrial situation was not greatly challenged in the evidence recorded in the report of the Select Committee. I entirely endorse the general proposals in the Commission's programme urging a European strategy in the aeronautic sector, and in particular the proposals for an EEC package in certain market slots. These relate to the size of civil aircraft and are set out at pages 24 to 27 of the Action Programme in the Commission's Bulletin Supplement 11/75. I agree that these suggestions should be made a key theme of important
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commercial advantage to Europe, assisted by the form of export bank for finance purposes suggested in the report.
Again, I agree with the comments of the Commission—and I believe the noble Lord, Lord Kings Norton, and the noble Lord, Lord Carr, would agree with this—that for far too long the European market for both civil and military airframes has been dominated by American firms, and that in the absence of some sort of systematic European procurement agency, market opportunities for European aircraft have been lost. Again, I would agree with the view of the Commission that the future survival of European firms in the aeronautics sector may be greatly at risk. As the noble Lord, Lord Carr of Hadley, pointed out, their position is critical because of the concentrations of industry in the United States of America and the foothold which American firms are gaining more and more in Europe through some of the agreements with firms in the Member States, thus further imposing their monopoly on Western markets. But the apparent political superficiality of the Commission's proposals in this connection were aptly illustrated when the Minister of State pointed out in evidence to the Commission —and this is recorded in paragraph 598 of the Select Committee's report:
"… it would be an absurdity to imagine that in a world which is dominated both by the American market and the American industry we can ignore the American industry and simply have a European industry and a European market."
As the noble Lords who have preceded me have pointed out, the Select Committee's reports have supported the Commission's views that certain areas of basic research should enjoy Community financing because mounting costs threaten to limit national efforts. There appears to be little political controversy of significance likely to arise in this field. I have also noted the Commission's sympathy to the desirability of encouraging innovation in the aeronautical field.
I could continue to quote areas of the Commission's proposals where it would have been helpful for the Commission to indicate at least in some detail the political implications of the proposals and how they might be resolved. It might be that if they had done this, the criticisms that your Lordships have heard tonight might not have been quite so severe. Therefore,

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it seems to me inevitable, in the absence of these political assessments, that the Select Committee should have come to the conclusion it has done in paragraph 67, which has been read by the noble Lord, Lord Kings Norton. This seems to me to be an unfortunate position to have reached. It must be frustrating for members of the Commission, particularly in view of the vast amount of work they have put into their programme, to hear and to read criticisms of their report by Members of your Lordships' House without having the right to reply directly.
My Lords, I should therefore like to presume to make a suggestion to the noble Lord the Minister and, indeed, if I may, to the noble Baroness, Lady Tweedsmuir of Belhelvie, who presides over this Select Committee. My suggestion is that after this debate has been concluded, it would be politically expedient to organise a further meeting, perhaps of Sub-Committee F, under the chairmanship of the indefatigable and noble Earl, Lord Lauderdale, so as to further consider all the matters raised in the report of the Select Committee and by noble Lords in the course of this debate. In my view, these discussions should be particularly in a political context, so as to assist if possible in the furthering of the bases of the Commission's desire for some kind of uniformity in Europe in the aeronautical sector.
The Minister of State, when he gave evidence to the Select Committee on 19th May 1976, clearly stated what was his preliminary view on the proposals of the Commission. At paragraph 595, the Minister said:
"… I think it is fair to say we would have our doubts as to whether an international, bureaucratic machinery would be better equipped to take account both of the overall problem and also of the needs of individual countries".
This observation appears to me to summarise the political problems to which the Commission's programmes give rise.
I should like to say again that there is room even now for further discussion of the political problems raised by the proposals of the Commission. Where there is the political will, there must surely be a political way, even in the context of the Rome Treaty. Therefore, I feel that further discussion would be welcomed by representatives of the directorates of the
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Commission's concerned in these matters. I hope therefore that I may elicit from the noble Lord who will be replying to this debate on behalf of the Government, some sympathy for this proposal for further discussions.
6.4 p.m.
Lord BESWICK: My Lords, I have an interest to declare on which I will not elaborate, for reasons which I think your Lordships' House will understand. I am also tempted to ask for the indulgence of the House in making a maiden speech, because although I have been in this House now for something over 12 years, this is the first occasion on which I have not spoken from either Dispatch Box. I propose to restrict my remarks to the airframe manufacturing element in this report, although I should love to try to sort out some of the airspace and air transport tangles, but maybe there will be another time for that. May I express my admiration of the way in which the Select Committee assembled and analysed the evidence submitted, and for the clarity with which they expressed their opinions. I make in passing only one observation on the procedures of the Committee. I see that they had the privilege of consulting two members of the EEC Commission, but I wonder whether it might not also have been of advantage to take evidence from one of two industrialists from the Continent. I can well see the difficulty of determining whether such evidence was widely representative, and there may have been other difficulties, but if the Select Committee are to offer opinions and if they are to carry weight—and after this I believe they will —it might be relevant if they hear the views of some of our friends from across the Channel.
May I also offer my warm congratulations to the noble Lord who moved this Motion. His exposition of the contents of the Community document, of the Report of the Select Committee, and his own comments, as the noble Lord, Lord Lloyd of Kilgerran, said, were quite masterly. We shall all benefit from his own comments. Few noble Lords in this House equal the knowledge and experience on aerospace matters accumulated by the noble Lord, Lord Kings Norton. We are fortunate to have his advice at our disposal.
I say immediately that with the noble Lord, Lord Carr of Hadley, I share the

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anxiety of the noble Lord, Lord Kings Norton, at the prospect of management responsibility for European aerospace being vested in some new body sited in Brussels. I would have said that a year ago, but having had some responsibility during the past year for planning a centralisation exercise for the United Kingdom I can see even more clearly how easy it could be to build up a central bureaucracy. But that danger for Britain must and will be avoided. While pitfalls and problems of centralisation can be avoided or overcome in a national exercise, I believe it to be sheer folly to imagine that we can impose a centralised management control upon the aerospace industries of nine countries, and still retain a credible competitive manufacturing industry in Europe. Having said that, I want also to say—and here I follow the noble Lord, Lord Carr of Hadley—that I do not think this report adequately commends the Community for its wisdom in singling out the aeronautical sector as being of prime importance if the EEC is to remain an important innovative industrial area of the world. I believe that the Commission have their priorities right when they underline the importance of this industry.
Moreover, as the noble Lord, Lord Kings Norton, said—and he was supported by much of the evidence offered to the Committee—the analysis by the Commission of the shortcomings of the industry was largely correct. As the noble Lord, Lord Carr of Hadley, said, it is not their diagnosis but their prescription which one can fault. I venture to suggest further that the report rather labours the point that the Committee are opposed to protection for the manufacturing industry. They say that the evidence was
"almost unanimously hostile to protection".
It would not be entirely unfair to say there would have been similar hostility to the concept of laissez faire. "Protection" is a harsh and emotive word. But the Commission themselves did not introduce it. We are dealing with a situation which is far too complex to be considered in the context of such simple terms as "protection". In paragraph 15, the Committee say:
"The only industrial protection is to produce and to market effectively the best aircraft world-wide".
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Of course, there is much truth in that. There is also much truth in the proposition that sunshine helps the success of summer holidays. I have little doubt that our American friends would applaud these sentiments of the Committee, although in a friendly aside they might also pay tribute to the assistance, direct and indirect, of NASA and of the existence of a large domestic market. That tribute for the help they get from their own Government funding of research and development and to their large home market would be a justified tribute. The fact is that the United States manufacturer has enjoyed and now enjoys some very real advantages. These advantages have led to success. And success in this field has a certain centripetal effect. If a manufacturer sells his equipment to an airline it is that much easier to sell the next generation of equipment to that airline. And a manufacturer with many customers finds it easier to get more customers.
It is to the credit of the Commission that they recognise that something extra has to be done if Europe is to stem and then reverse this trend towards the United States of America. It is true, as the report notes, that economic factors have compelled companies to come together both in Europe and in the United States. In the United Kingdom, of all the names we knew postwar only Scottish Aviation remains. Of the others, Vickers, De Havillands, A. V. Roe, Blackburn, Handley Page, Bristol, and the rest, all are gone. I understand that this House is now prepared to see this process of strength through unity in the United Kingdom extended even further. But even with the logical extension to one United Kingdom airframe corporation we cannot say that this will suffice unless more is done on a Community scale. Collaboration on a wider scale is inevitable, and we shall see more examples both within Europe and between Europe and the United States of America. The noble Lord, Lord Carr of Hadley, can be assured of that. But we need also to ensure that the European environment within which this collaboration extends is as favourable as is practicable.
I have said already that I agree with all noble Lords who have spoken, and with the Committee whose report we are considering, that we should dismiss the chimera of centralised management.

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Sophisticated collaboration, the right permutations of partnership—they can give us opportunities which we should never enjoy under a centralised bureaucracy. So I dismiss that. As to Community financing, this would have most powerful attraction if the Community had access to some newfound pot of gold separate from national contributions. But if it is proposed merely that money now provided nationally is to be handed over to a central fund, then the attractions I agree with the Committee, are less clear. The possibility of supporting sales by a European credit institution, in my view, deserves more study than is evident in the report. If the Commission can help eliminate competitive credit terms that are unfair, uneconomical or unethical, then that help should be encouraged. On the positive side it is surely worth exploring further the possibility of some European counterpart of the United States export-import credit facilities.
My Lords, on basic research, I warmly welcome the approach of the Committee as expressed in paragraph 61. It is absolutely essential that research resources be shared in Europe if we are to maintain a significant place in Western World aerospace. But this must not mean that we seek to impose some new Community establishment independent of present national facilities. The industrial experts to whom the noble Lord, Lord Kings Norton, referred have, with a zest which is most stimulating, already come together for work on common problems. Currently BAC, HSA, MBB and Aerospatiale have a research collaboration agreement which is working and could be widened. Very wisely specific problems have been identified for study. Collaborative work on composite materials has already yielded results. If extra funds can be found by the Community for this kind of practical functional collaboration, then that would be a real step forward. If new equipment can be funded—and I have in mind, for example, a new wind tunnel—then that would really be encouraging a Community sense. But the emphasis must be upon sense and not upon prestige. It should be Community policy that such new equipment would be integrated into a research establishment now existing.
With this same idea of building upon what we have, may I refer briefly to the
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recognised need to bring the airworthiness and certification authorities into line with technical and industrial developments. As the report notes, much has been done to achieve agreed common standards. But if it is considered necessary to go further and have one authority for all the Community, could we not again build upon what we already have. The ARB, now part of the CAA, has a quite outstanding reputation in Europe. It is highly respected in the United States of America. With the careful inclusion of selected professionals from other organisations in Europe, is it quite beyond the bounds of national susceptibilities to have the presently established British Authority as the chosen instrument for Europe?
So far I have had in mind only civil aircraft, and for reasons of time I had not intended dealing with the immensely important military potential. However, one sentence in a most interesting article in today's Times by Mr. Layton of the Directorate General of Industrial and Technological Affairs of the European Commission—who has the article printed, by a most pleasing coincidence, on this day on which we are discussing his report —provokes me to make one reference. Mr. Layton points out that the selling capability of the European manufacturers would be greatly enhanced if they were
…. backed by the combined political weight of the European Community".
I believe Mr. Layton is right. But we do not have to wait for some new collaborative civil project before this Community weight is tested. We already have fine examples of collaborative effort in the military sphere. The Anglo-French Jaguar is an example. If the combined political weight of the Community was put behind the sales effort of the Jaguar we could find ourselves with a dramatic growth in European aerospace.
Finally, my Lords, may I say again that the House should feel indebted to its Select Committee for the work which went into this report, and especially for the way in which it has been explained to this House. Judging by the less ambitious theme of Mr. Layton's article today, it would seem that the report has already been carefully studied in Brussels. The objectives of the Community's Action Programme I warmly applaud. I hope

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that the Select Committee's Report and this debate will help define more realistic action towards those objectives.
6.20 p.m.
The Earl of LAUDERDALE: My Lords, by the law of averages one is bound sooner or later to follow a maiden speaker, but the law of averages is strangely distorted when I have the opportunity of congratulating such a distinguished speaker on a maiden speech, doing so from the bottom of my heart since I also regard him as a personal friend. When the noble Lord, Lord Beswick, addresses the House and brings to it such wide experience and authority, of course he commands an attentive audience. We are none of us—. those who have heard him before his maiden speech—surprised that what he had to say was thoughtful and constructive.
As chairman of the Sub-Committee, a layman—indeed, professional only as a kind of eternal gamma double-minus amid the scholars and the scientists—I must join Lord Beswick's applause for the European Commission having tackled the subject at all. This is the first major essay that the Commission has undertaken in the field of transport policy as distinct from relatively minor matters such as truck drivers' working hours and the social conditions of bargees on the Rhine. Perhaps I should say in reply to one point made by the noble Lord, Lord Beswick, that we were much tempted to go further into the industrial area. But our Sub-Committee is instructed to look at energy; transport and research and industry is really outwith our normal remit. Under that constraint, to say nothing of the pressure of time, we felt the best thing was to do what we could, so to say, from United Kingdom sources.
As chairman I must first of all thank my own chairman, the noble Baroness, Lady Tweedsmuir of Bethel vie, who presides over the whole operation of scrutiny of European proposals, and who presides in queenly fashion over no fewer than 80 of your Lordships spread among seven Sub-Committees, all beavering away with diligence but always encouraged by her smile and quite frequent attendance at our sessions—attendances that are always welcome.
I should like of course to thank the noble Lord, Lord Kings Norton, not
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only for the way he introduced this debate but for doing it at all. He is virtually a founder member of our Committee. I must thank other noble Lords who served on the Committee. I must thank our specialist advisers, Mr. Thorley and Professor Doganis, who bring acidity of wit and of pen to the benefit of our drafting sessions. Finally, one must thank our witnesses. Perhaps it is worth mentioning that it is open to any noble Lord, or indeed anybody in the country or, for that matter, abroad, to submit evidence to a Select Committee of this House, and, if they wish to be heard orally, to make a formal approach to the clerk or the chairman of the Committee. Such approaches are commonly made and invariably welcomed.
We are indeed grateful to two members of the Commission who came to give us evidence—though I think that "evidence" is not the technical word when we meet in secret under the EEC Commission's rules—or who came to attend our deliberations, both Mr. Le Goy and Mr. Christopher Layton. More is the pity that under the rules of the Commission their help cannot be published. I think they will now know what other witnesses would find when they come, that we treat witnesses gently. We have learnt from Samuel Johnson that questioning is not the mode of conversation appropriate to gentlemen. We do it as nicely as we can.
We were of course gratified this morning to find Mr. Christopher Layton's interesting article in The Times. which provided a useful trailer for this debate. Of course old lags from The Times must have smiled to themselves. I look back over 35 years since I was a staff member of that great newspaper, and I find, as I am sure other alumni of Printing House Square must find occasionally, that despite the whizkid appearance cultivated today, the old editorial and administrative muddles still go on. This report we are now debating was available to The Times five full days before it was published. The Times. was not represented at the Press conference which we took care to arrange at, I hope, a convenient time. They did give us a couple of sticks, to use the journalists' jargon, a couple of bits two inches long on an away page, and what they gave looked very much like a direct rewrite of the Press handout I had

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myself composed. The report of course goes into rather greater depth than Mr. Layton could accomplish in the three columns or so that he had at his disposal this morning.
It is important to grasp what this document proposes in the simplest terms. It invites the Nine in Council to decide on the common programme and indeed on a common airspace, and all this to be in the future subject to majority voting in the Council, which really means the Commission directly or indirectly entering the manufacturing and airlines' business as managers. If ever there was a prescription for planners to leap in the dark that would seem to have been it.
At the heart of it I think one can distinguish certainly three confusions which need to be brought out and which were ignored in Mr. Layton's article this morning. There is a confusion between the aero engine and the airframe manufacturing sides of the industry as if they were unified, as if they were single, as if their technologies were not in fact as different as male and female. And then there is the confusion which seems to identify, or seeks to amalgamate, aircraft industry policy with air transport policy. They are two very different things.
Finally, there is the fear of United States' influence. It is admitted that some 60 per cent. of all aircraft built in the United States and Europe are in fact for military purposes. So there is a consequential proposal for a Military Procurement Agency which can only be under NATO but which, in turn, is to a very great extent dependent on the United States. So there is at any rate a contradiction here too.
Then there is a general purpose, which is not stated baldly but clearly emerges from the logic of the proposal; it is that by regulated competition there should be advanced a gradual merger of airlines and co-ordination of all services and schedules so that one day nine transport markets will be merged into one. I say this is not stated baldly, but if that is not the logic of the argument then it is hard to find what it is. The background is common ground. There are too many manufacturers making too many types covering too many overlapping requirements. These
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are therefore produced on too short production runs with too high unit costs. They are so produced in order to supply too many and too small airline buyers. All this happens in a world where too many seats are chasing too few passengers. These conditions threaten the airframe manufacturers—who indeed appear to have been the inspiration behind the Commission's proposals—but not the aero engine builders, with a choice between bankruptcy and American takeover.
The common finance ideas seem so attractive at first that one rubs one's eyes and wonders whether they have not emerged from some Ministry of science fiction. Of course the two main manufacturers, Britain and France, would be likely to welcome any proposal that the other seven should help spread the provision of high risk capital. That would come as no surprise to anybody. But could it happen unless the seven increased their share of manufacture, which could only have the effect of dispersing manufacture from the two, or even the four, present manufacturing countries when the real need is concentration? This proposal seems to anticipate a genuine merging of nine sovereignties by anything from one to two decades.
Then there is all the philosophy about a common airspace, which does not appear to have been thought through really thoroughly. It would mean that the Community would take over the national oversea flying rights of the Nine, but of course the third countries concerned would be likely to seize any opportunity to renegotiate existing traffic rights in order to bargain for their airlines the opportunity to penetrate further into the Community, and goodness knows what American counteraction there might not be. Moreover, the common airspace proposal would very likely result in a Community traffic control instead of something that is already going ahead on a Europe-wide basis; at any rate, it is difficult to see how the one would fit in with the other.
On the question of airworthiness certification, to which Lord Beswick referred, here is a cardinal point both of opportunity but also of danger. Those of us who listened to the evidence about airworthiness were much struck by the explanations

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we were given of what happens in the United States; standards may be established, but their enforcement, to some degree regional, can lead to enforcement being subject to political pressures. The Civil Aviation Authority is utterly and completely independent. It must be one of the few independent bodies in the whole of this kingdom at the present time. Its independence is greatly respected not only in the United States but even in Japan and the Soviet Union, who seek to get aircraft certificated by the CAA in order to commend them in third countries. What one must fear is that were the CAA functions to be transferred to Europe, there might be unevenness in the application of their standards due to local political pressures, which would be a real step back.
Although inevitably one has needed to refer in a slightly negative way to certain points, one must again congratulate the Commission—I hope one can do this in no sense seeming to patronise—on at last making a really big essay in the field of transport policy. The proposals on rail, road and inland waterways which we have had up to now have not been great political documents, The proposal for ninefold finance of research is a positive and a useful step forward; as I have said, if United Kingdom standards and practice in airworthiness could be transferred to the EEC plane, all would benefit. I can speak only for myself on this point—the matter has been mentioned by the noble Lord, Lord Lloyd of Kilgerran, and by Lord Beswick—but surely it is time for further dialogue in this area. I know that colleagues on this Sub-Committee have always been eager for a two-way movement of ideas with the Commission, and they welcome any formal or informal steps that come along, socially or in any other way, to advance that end.
I think it is no secret that it is common practice in the Scrutiny Committee as a whole to dispatch members of Sub-Committees to Brussels for a confrontation, or at any rate a discussion or dialogue, with members of the Commission when a substantial report has emerged, particularly if there is any danger that it may raise people's hackles here and there. Not only that, but we have also surely to address ourselves—this is the purpose of debate in your Lordships' House—to the policy of the British Government. One
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hopes that the Government will recognise that Britain has a very strong base from which to contribute to the formulation of Community policy. We have the world's second largest civil aircraft and airline industry; we have the world's largest network of civil air agreements, thanks to our Imperial past. We have the world's largest and best certifier of airworthiness. And it is worth recognising that British Airways fly six out of ten of the most dense scheduled passenger routes in the Community, and carry 26 per cent. of all scheduled passenger traffic.
Despite that, when we received evidence from Mr. Kaufman we got a sense that the Government were still tentative in their approach. More than eight months after the document had been in their hands, Mr. Kaufman was quite frank in saying that the Government had scarcely considered it. Then we were told, in one of those rather incautious asides which one hopes do not represent the heart of Government thinking, that the aim of the manufacturing industry in the aircraft business was principally to provide jobs; I refer noble Lords to Question No.628 on page 118 of the evidence. It is always splendid to provide jobs, but the object of industry is not to provide jobs; it is the economic function of production to serve a need. I was rather surprised to find that Mr. Layton's article this morning began with the same sort of premise. Anyway, the Government accept the facts of life in regard to the predominance in this field of the United States—Question No.598 referred to that —and we were also reassured that the Government were determined to see an independent capability continuing, with freedom to collaborate with whoever seemed proper, whether within or outwith the Community.
Finally, I readily welcome the Government's view that they do not want all this to be submerged under the Brussels bureaucracy. But can the Government, having now had more time to think about it, go a little further? The Commission may indeed err in proposing solutions which are Community-wide to problems that are wider than the Community. This may be a mistake, but so far as one can judge thus far our own Government have appeared to take a line with a slightly Little England flavour about it, especially when the production of jobs

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rather than the production of aeroplanes seems to be thought of as a major target of purpose. We want to know the Government's strategic approach. The present is not the epoch for a provincial British attitude to these matters. Perhaps there has been too much provincialism of late in more than one quarter of Europe, and it is well to remember that all irregularity is catching.
6.40 p.m.
Lord WYNNE-JONES: My Lords, I have been a member of this Committee and have found it an extremely interesting task, enlivened by the wit and humour of our chairman which he shows on every occasion. I feel that the impression may have been left—certainly not by the noble Earl, Lord Lauderdale, but perhaps by the noble Lord, Lord Carr of Hadley—that the Commission had no business to come forward with any proposals of this sort. I believe that if this impression got about it would be rather bad because it would mean that we did not appreciate the serious nature of the problem facing the whole aeronautical industry of Europe, which is not in a good state. I do not mean to say that the industry does not do some excellent things, nor that there are not some excellent companies, but if one looks at the figures in the Commission's Report one sees that, in the proposals put forward by the Commission in 1970, the percentage of the aircraft operated within the Community which were produced by the Community's aeronautical industry was 33 per cent. In 1975, it was 22 per cent.
In Europe as a whole in 1970 the percentage of the aircraft produced by European industry was 30 per cent., whereas by 1975 it had dropped to 17 per cent. In the United States of America in 1970, 2 per cent. of all the aircraft flown were manufactured in Europe. In 1975 it was 0.1 per cent., which is really derisory. In the whole of the Western world, leaving out the Soviet Union which has a very large industry of its own, 9.5 per cent. of the aircraft flown in 1970 were manufactured in Europe. In 1975 that had dropped to 8 per cent. In today's article ill The Times Christopher Layton points out that over the next 10 years the probable market for
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civilian aircraft in the whole world will be of the order of 60,000 million dollars. If the European percentage of that figure continues to drop we shall be producing a negligible proportion of the world's aircraft.
It is in this context that the Commission came forward with its proposals. It does not make sense to turn round and merely to say that its proposals are not acceptable. I sat on the Sub-Committee, and I agree with criticism made of the proposals, but the reason for the proposals still remains and, unless we are prepared to face this and realise that there must be some method of dealing with it, I am afraid that neither aeroplanes nor jobs will be available—and the two do go together.
So it is important for us to realise that the aeronautical industry of Europe is in a dangerous position—dangerous because it has been on the slide; dangerous because, if that continues, it will disappear. Therefore, it really becomes a very serious matter for us to consider and for the European Commission to consider. I cannot pretend that I have the answer. I am no expert in these matters. I merely spent months trying to find out what other people thought. However, we have a certain amount to look at from other parts of the world. One point is that referred to by the noble Lord, Lord Kings Norton. It is that one cannot dissociate the civil from the military aircraft side. It is quite impossible to do so because it is the same people who make both types of aircraft. If one looks at the position in this country, for instance, years ago, we produced a new, original, excellent aircraft—the Comet—as a civil aircraft. It had many problems and when the problems had been resolved by civilian effort it was used for military purposes, as a transport. The Americans do not do it in that way. They start by pushing their money into military aircraft. The whole cost of the development is borne on the military budget and, when they have solved all the problems, Boeing come along and produce their splendid 707, 727 and 747. These were all produced as a result of military prototypes and more than prototypes—the aircraft were actually manufactured. The Americans have been doing this all the time but we have not done it to anything like the same extent. We work the other way round.

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When we come to look at possible co-ordination, I feel that everyone must agree—and I am sure that all the members of the Committee agree—that it is impossible to run a British aircraft industry on its own without co-operation with any other country. It is not on. What is to be done? We may co-operate with one other firm in some other country. That is done on a firm to firm basis. It may work or it may not. I think that we ought to investigate and find out where and why it works. I suggest that there is something to be said for looking at the experience of the military aircraft, the MRCA—Multi Role Combat Aircraft which is now called the Tornado. This is produced by the industries of Germany, Great Britain, Italy and Belgium working together. France would not come in, and contracted out. The countries concerned set up an organisation called Panavia in order to supervise and organise the operation. From all I can understand, it has worked well; and if this has worked well, is there not something to be said for asking why it did so, and where it may have been weak, and for seeing whether we can use it as a model for going ahead?
It seems to me that if are to have effectively different national industries in our countries—and we are going to have separate national industries whatever we like to call them; 1 can only say that I think we have done little service to our own aircraft industry, by holding up the Bill which has delayed the establishment of an effective industry and that I do not think that that delay is doing any good to anybody at all and it is a pity that it ever happened—and an aircraft industry in this country, then that aircraft industry will have to collaborate with some other aircraft industry. If it does there has to be some organisation for collaboration. I do not believe, any more than the other Members of the Committee did, or any Member of the House who has spoken tonight believes, that we ought to have a special bureaucratic organisation set up in Brussels. But I believe that we ought to see whether something like Panavia might be a model, where one might get the industries of the major countries coming together and being prepared to create an organisation which looked after the production of the aircraft—not in the sense that they told the companies exactly
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what they had to do, but that they acted as a co-ordinating body and they looked after the sales and ensured that the sales were world wide. Remember, my Lords, that we are now thinking of a market in the next 10 years of 60,000 million dollars of which at the present time Europe would not get 8 per cent., and we ought surely to aim at getting much more than that.
Therefore, the matter is not a trivial one. It is not a matter to be dismissed as a misconception on the part of the Commission. Rather, I would say that the Commission are to be applauded for having put forward ideas that we have put forward from the Sub-Committee; we put forward certain criticisms of these ideas. But I think I can say that no member of the Committee would wish your Lordships to feel that we did not regard the matter as something which had to be pursued actively, and that some encouragement had to be given in order to get the industry working effectively.
6.52 p.m.
Lord TREFGARNE: My Lords, I, too, had the honour to be a co-opted member of Sub-committee F and in that capacity I would wholly endorse and agree with the conclusions of the Sub-Committee expressed in the report. I should also like to be associated with the words of the noble Lord, Lord Kings Norton, and others relating to the chairman, the noble Earl, Lord Lauderdale, who has presided with such skill over that Sub-Committee, I believe since its inception. I want to make only one particular point tonight, and that relates to the Concorde and to its sales prospects. Mr. Kaufman gave evidence to Sub-committee F and he was asked about the financing of Concorde sales and was not I think able to be very helpful on that occasion. In my view—and I believe that this is a view held by others—the disappointing sales of the Concorde thus far are due in part at least to the difficulties in financing the sales. I do not want to minimise the other difficulties, such as landing rights in New York and elsewhere, and over flight rights in the Far East, but the problems of selling the aeroplane seem to be concentrating around the areas of finance, and I hope that the Government will be able to give some urgent attention to this problem.

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There are a number of possible solutions. The first has, I know, been canvassed and has been called leasing. The kind of leasing envisaged in these reports is not really leasing at all. It is a time charter arrangement whereby British Airways or Air France would purchase the aeroplane, or have it purchased on their behalf by the Government, and would hire the aeroplane by the hour or by the mile to smaller airlines which could not afford perhaps even to utilise a whole Concorde and would perhaps need one for only half of the time. A time charter arrangement such as this is widely used in civil air transport and it would, I think, indeed I know, have considerable attractions to a number of airlines, particularly in the Far East, like Philippine Airlines and Singapore Airlines.
I want to ask the Government whether they and their French colleagues have actively considered this proposal and whether it has been established that British Airways, and Air France if necessary, would be willing to perform this kind of service. I think that the smaller airlines would be well advised to embark upon supersonic transport by this fairly modest means. I think that the manufacturers of the aeroplane ought to be hesitant about pressing sales upon smaller airlines which may find the provision of ancillary support services difficult to meet. We have all read of the criticisms of the McDonnell Douglas Corporation, as to how it "sold"—and I use the words in inverted commas—the DC10 to an airline in the Eastern Mediterranean, which in the end, it was alleged, were not specially well able to operate it, and indeed an accident ensued. We want to try to avoid exposing ourselves to criticism of that nature in respect of the Concorde. Therefore I hope that British Airways and Air France will join with the manufacturers in offering a time charter service for some smaller airlines which might not be able to justify, or support, the purchase of one or more complete aeroplane or aeroplanes.
Then one must look at the problem of selling the aircraft to those larger airlines which are able to justify the use of at least one aeroplane. The difficulty at present seems to he centring on the rate and time of the finance offered. I am informed
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that prime purchasers of American equipment can, through the American Export-Import Bank, hope to secure credit terms of between 8 and 9 per cent. interest per annum and repayments over 10 years. I am also informed that the Concorde sales team cannot offer terms anything approaching those. The best that they can offer is 10 or 11 per cent. interest and only seven or eight years' repayment terms. As the Concorde is substantially more expensive than, for example, a Boeing 747, this means that the finance burden on the airline is very large indeed.
Of course, the Concorde is not such a productive aeroplane as the 747; that is to say, that the seat-miles it produces, given typical utilisation, are not as great as those of the Boeing 747, and therefore the financial terms have to be at least as attractive. Of course the seat-mile yield of a Concorde is higher than that of a 747 because of the premium fares that are presently charged. But I do not think that one can hope or expect that the premium rates attracted by the Concorde, or at least demanded by the Concorde, at present can be read across to provide a similar yield when the aircraft goes into service on some of the other routes.
I believe that the only way that this requirement can be met—and I believe it to be in the national interest of both this country and France that it should be—is by the establishment of a joint Anglo-French finance company which would, initially at least, have to be partially Government financed. We are already involved in Concorde finance to an enormous extent, but I fear that if we are to see the project come to full fruition by achieving a reasonable number of sales this course of action is the only one open to us. I recognise that it would cost a good deal of money to set up this project, but no more money I believe than has been involved in setting up the National Enterprise Board to date; and in any event, once it was running it would be self-financing.
Such a company could offer a number of different possibilities which would have to be tailored according to the customer's taxation position and requirements generally. It would have to provide a straightforward lease where the operating company did not require to depreciate the aircraft for tax purposes. That would be a lease in the true sense, I believe;

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namely, a monthly or annual rental arrangement. It would have to provide a lease-purchase arrangement for companies which wanted to take advantage of tax arrangements similar to those applying in this country; and it would also, I fear, have to provide finance facilities for the very expensive ancillary equipment that one needs to operate such an aeroplane as this successfully. I mean, of course, the ground-starting equipment, the baggage-handling equipment and possibly, for larger customers, even ground simulators.
The final point I would make in this context concerns the question of crew training. The Concorde heralds a new generation of aeroplanes. It is wholly more complex to operate than the conventional range of subsonic aeroplanes, and I think it essential that the crew training facilities which can he offered ought to be clearly underwritten by British Airways or Air France, or perhaps both. British Airways have had some difficulties of their own in crew training recently, but these have not, I believe, been anything more than of an industrial relations nature, and have anyway now been resolved. I think that the future of the Concorde project is dependent upon decisive action now to push the sales forward. I think that the upturn in the civil air transport industry is coming very shortly now, and we must be ready to take advantage of this with the aeroplane when it happens.
7.2 p.m.
Lord WINTERBOTTOM: My Lords, I should like to preface my remarks by complimenting the Select Committee and its chairman on the work they have put into examining the Commission's Action Programme and into taking evidence from interested parties, and into their report of this work. I know that your Lordships will agree with me when I say that the report, quite apart from its value in its own right, has contributed greatly to the interest of this afternoon's debate; and I know, too, that your Lordships would not wish me to pass on, in part to reply to the debate and in part to state Her Majesty's Government's attitude toward the report, without, on behalf of the House, thanking the noble Lord, Lord Kings Norton, for the admirable opening speech with which he started our discussion. I thought it was a model of
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clarity and moderation; and, whether it encourages him or depresses him, it is very much in line with the thinking of Her Majesty's Government.
My Lords, may I clear out of the way the question which the noble Lord put to me towards the end of his speech concerning the progress to date in Brussels on the Action Programme, which is of course a matter of interest to us all. The Council have yet to discuss the Action Programme, but there have been procedural discussions in COREPER. I understand that noble Lords who take part in the activities at Brussels know what COREPER is. COREPER have asked officials of the Member States who are working under the auspices of the Economic Questions Group to establish the scope for future collaboration on future civil projects. Further discussions in COREPER appear unlikely until they have had the European and Economic Questions Group's report, and this should be completed by the end of the year. The Action Programme itself was, as noble Lords will know, the subject of a long and, at times, very confused debate in the European Parliament on the 6th July. Briefly, the European Parliament approved the Commission's proposals but with certain reservations similar to, but less strongly held than, our own. Perhaps many of us are afraid of being thought bad Europeans while having some reservations on the proposal of the Community views.
My Lords, having said that, it may in fact also act as a reply to points made by the noble Lord, Lord Lloyd of Kilgerran, and the noble Earl, Lord Lauderdale, and in fact my noble friend Lord Wynne-Jones. This is clearly only the beginning of the dialogue. Obviously, in a matter of such major importance, as the noble Earl the chairman of the Committee has pointed out, discussions will continue within the framework, perhaps the over-wide framework, set by the Commission on what is basically a subject of major importance to the European industrial community. So, although the Fifty-first Report of your Lordships' Select Committee has a slightly disinheriting countenance, nevertheless I think it is true to say that the criticism is constructive and that the House as a whole welcomes the initiative of the Commission. We now have to get down to producing workable policies; and

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in an industry which has such a long time-scale from the concept of an aircraft to its appearance in the airlines or in the fighting forces of the world, we must expect a long period of dialogue. I am certain that opportunities will be given to your Lordships' Select Committee and many other individuals to take part in that discussion.
Perhaps I may also take this opportunity, before launching into the Government's view, to reply to the noble Lord, Lord Trefgarne, about Concorde financing. It is not strictly within my brief, but it might be helpful if I were to indicate in general terms the Government's position on the leasing of Concorde as of now. We are prepared to consider leasing as an alternative to a sale, and indeed proposals have been put by the manufacturers to a number of airlines. However, your Lordships will understand that it would not be approppriate to disclose the detailed proposals, which form part of commercially confidential negotiations, or to indicate our attitude on detailed issues connected with leasing, which could provide commercially valuable information to our competitors. I think the noble Lord has raised an important point. However, I think that is the most I can tell him.
Lord TREFGARNE: My Lords, I am sorry to interrupt the noble Lord, and I hope he will understand that I do not want to interfere in commercial negotiations, which I recognise are confidential and private; but can he say whether the offers that he has referred to are pure leasing offers—in other words, simply financial transactions in relation to one piece of hardware—or are the offer of a service; namely, the use of the Concorde as opposed to the acquisition of it?
Lord WINTERBOTTOM: My Lords, I am afraid I cannot answer the noble Lord in detail. If he would care to put down an Unstarred Question properly phrased—that is something he would have to work out—I will see whether I can give him a wider answer than that which I have given him this evening. The Government have of course been looking at the implications of the Commission's proposals, but they have wished to hear the opinions of Parliament before reaching a final view. May t give your Lordships the Government's present thinking? As the Select
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Committee and noble Lords clearly appreciated, the proposals contained in the Action Programme have to be seen in the context of what is already taking place independent of any action by the Commission to foster closer collaboration both within the European aeronautical sector and beyond.
I will deal first with the question of civil aircraft manufacture. The Commission say that the survival of the national aircraft industries in Europe is dependent on closer collaboration, in particular so as to avoid domination by the major United States manufacturers. What concerns us is that there is in this a strong flavour that the European industries should unite to take on the Americans. Such a confrontation would be unrealistic and almost certainly financially disastrous. There is already a substantial degree of collaboration between the aerospace industries of the United States and Europe, and it is clear—and I say this in a European context—that our chances of survival will be greater if we work in association with the United States, where this is appropriate, rather than trying to compete with them head-on. We should not overlook the fact that the United States manufacturers currently supply 90 per cent. of the world's civil aircraft market—and this is a point made very strongly by my noble friend Lord Wynne-Jones—nor, indeed, as other noble Lords have said, the strong ties they have with many of the world's major airlines. Realism suggests that it would be better to try to capitalise on those ties rather than to contest them. Other countries in the EEC, notably France and Germany, are showing by their actions that they certainly do not rule out transatlantic collaboration.
I must stress that in using the terms association" and "collaboration", I am not envisaging a take-over or domination of our industry by the US companies such as the Commission seem to fear. What we seek is genuine collaboration on future civil aircraft projects to our mutual advantage. I believe the US companies are ready for such partnerships; that Boeing and their fellow manufacturers recognise, just as the European firms do, the need to spread the high risks and costs involved in launching new civil aircraft. I have no doubt, too, that they see co-operation with European manufacturers as a means of strengthening their position

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in the European market for civil aircraft which, outside the USA, is the largest in the world.
Against this background, I think the Commission's objective in seeking to promote closer collaboration within the Community in the manufacturing sector is one we can all share. But there are further qualifications which need to be entered. First, so far as the United Kingdom is concerned, I think a large majority of this House would endorse the view that collaboration must be based on the choice of commercially viable projects. It is the market which must determine which projects are launched. The choice cannot be predetermined simply by virtue of a desire to collaborate with particular partners; and certainly not by a central organisation in Brussels unable to draw on direct expertise and experience in the civil aircraft sector. A second and complementary qualification is that the interests of the United Kingdom industry and those of France, Germany and the other European countries, may not wholly coincide.
The Select Committee have said that they favour closer Anglo-French collaboration, in particular. The Government are wholly in favour, in principle, of European collaboration, either on its own, where this makes economic sense, or as a basis of transatlantic collaboration. This certainly applies to the French, whose industry is second only to our own in Europe in size and capability. My honourable friend the Minister for Industry, Mr. Gerald Kaufman, has made this abundantly clear to his opposite number in the French Government, M. Cavaille. Our situation and our problems are akin to those of France and the other European countries with major aircraft industries; that is, we all need work and recognise we can achieve greater strength in the market at less risk by collaboration. However, we are not necessarily all starting from the same basis so far as existing commitments are concerned. Collaboration on a mutually acceptable basis may be achieveable on some projects but not on others; like-wise with sonic particular partners in some cases but not in others. We each have to find the mix of projects best suited to our particular needs and capabilities and our respective long-term objectives.
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I would note in this context the opinion of the Select Committee that an important requirement from the United Kingdom point of view is to maintain an independent capability in the British industry so that it will be in a good position to take advantage of opportunities further in the future. I believe that the failure of the Commission in its Action Programme to take due account of the differences in the needs and starting positions of the various European industries is a major weakness. It is unrealistic to assume that there is any single, overall programme which could simultaneously satisfy the needs and effectively utilise the capacities of the European aircraft sector as a whole, especially if, as we should insist, profitability is the overriding criterion.
My Lords, these are some of the objectives which the United Kingdom industry is currently pursuing while at the same time seeking as large a share as it can of profitable new civil aircraft business, business which, it has been pointed out, will be worth 50 billion dollars over the next decade or so. Our industry is taking a leading role in the current round of international studies, both in Europe and across the Atlantic, aimed at defining future airline requirements and the possible industrial collaborative arrangements for producing them. There are many options and for the moment they all remain open.
The Select Committee have indicated a measure of agreement with the Commission's view that economic forces alone will not necessarily, of themselves, achieve the optimum degree of collaboration between manufacturers. I think the question of timing is the key one here. Public ownership is intended to bring about the long needed and long postponed rationalisation of the United Kingdom industry; but this is only part of the answer. Governments must urge and assist their industries to study with their counterparts in other countries all the possibilities for future collaboration. The British Government are doing all they can to encourage and help the United Kingdom industry, under the leadership of the Organising Committee, to advance their studies with the European and American manufacturers. I was glad to see my noble friend Lord Beswick here today to make his so-called maiden speech and to give us his valuable views on this subject which I am certain Her Majesty's

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Government will note with interest. The momentum of these studies has been stepped up and significant progress is being made. Our aim is to ensure that when the time comes for decisions on projects and partners, we can arrive at the best possible answers based on a thorough analysis of all the possibilities.
My Lords, I must here inject a warning about the position in which the United Kingdom industry finds itself. The airlines are not yet at the point of placing firm orders but the various technical objections are being narrowed down and refined. Important moves towards future collaborative groupings are imminent, but because of the uncertainty surrounding the future of the industry, the credibility of our manufacturers is being questioned by some of our potential partners, and ultimately the industry might for this reason be prevented from playing its full part. Opportunities missed then will affect jobs as well as the maintenance and development of our overall capability, with very serious long-term consequences.
In the Government's view—and we have had long discussions on this—the difficulties facing the industry can in the long-term only be solved by nationalisation and I would hope that this House can play its part to secure a future for the industry. To summarise what I have said so far, the Government certainly agree with the Commission that there is much to be gained by closer collaboration on civil aircraft manufacture in Europe. However, our objectives need to go wider and our approach must be different from that suggested by the Commission if we are to succeed in obtaining the maximum amount of profitable work for our industry. I have no doubt that this is also the attitude of the other European countries who, by way of their current negotiations with the US companies, have demonstrated very clearly that they also recognise the need to look beyond a purely European solution, in a pragmatic and open-minded way, with the aim of securing a work load mix which is best matched to their particular needs and capabilities.
My Lords, turning to the Commission's proposals for a military procurement agency, the Government fully support the emphasis in the Action Programme on the need to maintain healthy defence
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industries in Europe, with both design and production capability. This is to the benefit of NATO as a whole. We recognise the need for greater co-operation within Europe and we are looking to the European Programme Group as the principle vehicle for achieving this. We regard it as important to include in the Group's work the contribution of those European members of NATO who are not in the EEC, as well as the eight countries which are. This is a point stressed by at least one noble Lord today. Fortunately, the immediate industrial situation on military aircraft and guided weapons production, provided that current programmes are maintained, is nothing like so difficult as the civil aircraft question. Here, together with other interested Governments, there is time to plan for the future.
We do not support the Commission's idea of a European procurement agency. Different NATO allies often have, for example, different time-scales for replacing their equipment so that standardised procurement is not always possible. We believe that the work of the European Programme Group is the principal means by which progress towards co-operative and rationalised procurement by interested Governments can be achieved in Europe. This Group will also be working towards the development of co-operation between the United States and Europe.
My Lords, I should say a word here about the Commission's proposals on aerospace research. They propose that the Commission should take charge of all such research, whether civil or military. So far as defence research is concerned, we believe that co-ordination is handled through NATO. On the civil side, if European projects emerge, there may be a useful role for the Commission in co-ordinating associated research work by the partner countries and firms participating in the project. Moreover, although moves are already in hand towards further research co-ordination within Europe, I think it would be acceptable for the Commission to explore with Governmental and industry authorities the prospects for co-operative research activities required to fulfil the needs for the design of future civil aircraft. However, in essence, this is a matter which will largely depend upon the larger issue of collaboration on specific projects. This view is in harmony with the views expressed by your Lordships.

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The Commission also included in their Action Programme a number of recommendations with regard to civil air transport. The Select Committee has probed these closely and their views on air-worthiness, on the link between the manufacturing industry and the airline industry, and on the international regulation of air transport are in general accord with the prevailing views of the Government. I think it is fair to say that there is widespread scepticism of the need at the present time for additional institutional arrangements for the regulation of air transport and the airline industry in Europe—or that this is a necessary prerequisite to success in the manufacturing sphere.
Existing international organisations, the International Civil Aviation Organisation and the European Civil Aivation Conference, in which the Community Members play a full part, are already engaged in dealing with the problems the Commission have highlighted. The larger area covered by the 20 States which are members of ECAC, is a far more natural unit for the co-ordination of civil aviation policies than the much smaller area of the Community Members alone. Air traffic control of the upper air space in Europe is already organised under the aegis of Eurocontrol.
To conclude, I think I should be fairly summarising the views of your Select Committee and what has been said here this afternoon if I say that we see little reason to quarrel with most of the broad objectives which the Commission have set down in their Action Programme. The Commission document has served and, I am sure, will continue to serve as a valuable stimulant to international discussions of how these objectives can be achieved. On the other hand, and at this point in time, there appears to be general agreement that all that can be done to move towards those objectives is already being done —and that direct intervention by the Commission would not help.
However, their concern is appreciated and we should be grateful to them for the work they have done in focusing attention on the long-term goals, and the large scale of those goals, to which the Member States should be aiming. That position is
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broadly in accord with the preliminary views which the Government have formed, but I am sure that, in considering this matter further with a view to arriving at a fully defined United Kingdom position, they will be pleased to take account of the detailed consideration which your Lordship's House has given to the Commission's proposals. May I thank your Lordships for a most interesting debate to which I found it very pleasant to reply.
Lord KINGS NORTON: My Lords, before the noble Lord sits down, could he answer my question about the attitude of other Member States? Is it known what any of them have thought about the Commission's documents?
Lord WINTERBOTTOM: My Lords, I thought I said something; I may not have said it clearly enough. The Member Nations of the EEC—speaking, oddly enough, as Party delegations, I was interested to see—approved the Commission's proposals, but with certain reservations which were similar but less strongly held than our own. They were less strongly held because they had not so much at stake.
The Earl of LAUDERDALE: My Lords, if I may just add to that, other than what was said in the European Parliament, will the Minister give us any indication of the views of the Member Governments at Council level? We appreciate that matters have been handed down to COREPER and the Economic Group. Has the noble Lord any idea what the Belgians, Dutch, French and Germans are thinking?
Lord WINTERBOTTOM: My Lords, we are waiting on COREPER.
7.26 p.m.
Lord KINGS NORTON: My Lords, it is a pity that the other Governments have not the advantage of a Select Committee which makes reports of the kind that ours does; they do not have the same opportunities for expressing detailed views. The Select Committee will be very gratified with what the noble Lord has said about the Government's attitude. I want to study what he said in some detail; but the general impression that he has left with us is that the Government have very similar views to the Select Committee and broadly agree with what they have said.

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There may possibly have been a suspicion in some minds that I was critical of the Commission for even trying to put forward a plan; but that is not so. I think that we would all agree that it is a perfectly proper job for the Commission to do, and their objectives—as I think I said clearly—are such that we could not disagree with them. But we did, as is now clear, disagree with the detailed proposals.
I should like to thank all noble Lords who took part in this debate for their reaction to my remarks. It is very gratifying to have so many nice things said. The noble Lord, Lord Carr of Hadley, said he agreed with all I said. I agree with nearly all that he said. When he said that the diagnosis was right but the prescription was wrong, he put the whole matter in an appropriate nutshell. He said—and this is absolutely true—that we must have a European strategy. The point is how that strategy is best evolved. There is a suspicion in our minds that the present system in the Commission is probably not the best to evolve it. The noble Lord, Lord Lloyd of Kilgerran, made a point which has not been sufficeently emphasised, and that is the political aspects and the political implications of the Commission's proposals. I hope we can take the matter further in the way that he suggested.
All members of the Sub-Committee, like all Members of your Lordships' House, will be glad that the noble Lord, Lord Beswick, found it possible to come here this evening. We are all deeply interested in what he has had to say. I was particularly interested in his views on seeking the opinion of Continental industrialists. We did not do that. I do not think we will have an opportunity of doing it for the time being; but it would be worth while learning more about their attitude of mind. He emphasised, as others have done, the dangers of a central bureaucracy, and he said very wise words about those two notions, "protection" and "financeing". One remark pleased me more than anything else; it was a very daring suggestion but a highly practical one. It was that if the other European countries would like to ask the ARB to do the job of certification of airworthiness for the Nine, it would be a simple solution to an international problem.
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While it is a very daring suggestion. there is a great deal of evidence for its practicability, because all the countries in the joint airworthiness requirement group —there are six of them—have accepted the British engine code without any change whatsoever. They could perfectly well take the airframe code as well, but because they have had developments of their own in those directions there is some harmonisation (to use the current jargon) to be done. There was no harmonisation to be done on the engine side—we had the whole job finished before they had really started—but I hope they might be induced to think along the lines put forward by the noble Lord.
I was particularly glad to hear the tributes to our advisers from the noble Earl, Lord Lauderdale. We have had wonderful service from Mr. Thorley and Professor Doganis. We have got very used to them and I do not know what we should do without them. The noble Earl talked about the "three confusions" in the Action Programme document and I hope the Commission will read what he has had to say, because none of us were terribly happy about this particular contribution.
The noble Lord, Lord Wynne-Jones, gave some quantification to the diagnosis of the noble Lord, Lord Carr. The figures he quoted from the Action Programme are very disturbing indeed. I was very glad that he raised the point about the affinity of civil and military developments. The noble Lord pointed out that the Comet, a civil aircraft, has developed into the military type Nimrod. In the United States the process has been precisely the opposite. Because of their work on bombers during the War, they had no difficulty in translating it into civil transports in the early days after the War. We had no similar advantage, but in any case we do not seem to work in that way. I think something very interesting might happen in the United States in the next few years. It is my personal view that the Pentagon will select the B.I. for their next very expensive supersonic bomber, and that this will be the first step to the American SST.
What the noble Lord, Lord Wynne-Jones, said about Panavia is worthy of consideration. This is a case where people who really know how things should be

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done got together and made the best scheme for doing it. That is the best thing to do: to leave it to the experts to get the best kind of organisation, as I tried to say this afternoon. The remark of the noble Lord, Lord Trefgarne, impressed me enormously—you will notice I am wearing my Concorde tie today. I think that his views on time-charter service for smaller airlines and on an Anglo-French Finance Company should receive the greatest possible consideration.
I do not want to make a long speech. I have already ruined my record. Before I started today, my bowling average was for 14· 7, but I made a 25-minute opening speech and I have ruined it. I have now been going for seven minutes, which is more like my usual performance. I should like to conclude by saying that personally I found it extremely gratifying that the Government's general view was so much in accordance with that of the Select Committee. I am not quite sure what is going to happen next on the European front, but if it is felt in the Commission that they would like to confer with Sub-Committee F, I am sure we should be only too pleased to meet them.
On Question, Motion agreed to.

UNIVERSITY OF LONDON BILL
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