Lords Sitting of 17 March 1977

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Ely.

HOUSING FINANCE REVIEW
Baroness FAITHFULL: 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 on what date the Housing Finance Review was started, on what date they received the report, and when it will be released for public consideration.
The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk): My Lords, the Housing Finance Review began early in 1975. The terms of reference were later widened to cover housing policy generally. The bulk of the analytical work has already been completed and the Government are now considering the results of the review. We shall publish proposals just as soon as they are ready, but the issues are both manifold and complex.
Baroness FAITHFULL: My Lords, I thank the noble Baroness for her reply. Is it true to say that the review was commissioned in 1974 by the late Anthony Crosland, who asked that the findings should be made public to all, that he was expecting the review to come out in the spring of 1975 and that it is now 1977? Would the noble Baroness let me know, if possible, what is the significance of the change of name? I believe that it is now called not the Housing Finance Review but the Housing Policy Review. Finally, would not the noble Baroness agree that the holding up of this report is detrimental to the pursuit by local government departments of an economic housing policy for this country?
Baroness BIRK: My Lords, may I say in answer to the first supplementary Question of the noble Baroness that she
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is quite correct. The review was announced in another place by my late right honourable friend Tony Crosland on 18th November 1974. Also it is quite true that he said that the results should be made public, and they will be made public; there is no change of policy. The report has been delayed because the original terms of reference were widened to include housing policy generally, which widens it beyond just the financial factors. My right honourable friend the present Secretary of State regrets the delay but the subject is complex and he feels that it should be dealt with thoroughly. As this is a wide look at the long-term policy, I do not think that at the moment the delay is affecting the housing situation; local authorities are still getting their housing allocations. So far as the year ahead is concerned, they know exactly where they are. I can only repeat that the policy review will be published as soon as possible.
Lord HARMAR-NICHOLLS: My Lords, may I ask the noble Baroness whether it is true that the review has been drafted more than once because of the opposition of the trade union membership? While everybody would agree that the trade union membership ought to be consulted, it is another matter if they have the final word which causes policies to be altered—as, for example, happened in the last economic review, when £1,000 million was put on the employment tax, which is not in the best interests of the country. As my noble friend has already said regarding this review, certainly it is not in the interests of a good housing policy.
Baroness BIRK: My Lords, the noble Lord is getting confused between the Housing Policy Review and the NEDO housing report. The publication of the NEDO housing report is entirely a decision for the Building EDC. Naturally we hope that all the analyses they make will further discussion on housing policy, and their recommendations will be taken into account. However, the noble Lord has mixed up two separate questions.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, while the noble Baroness is meditating on the long-term housing policy, will she reflect upon the fact that ever since I can remember, which is since 1915 in this connection,

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there has been a continuous housing shortage and that throughout the whole of that period the pillars of national policy have been security of tenure, rent restriction and municipal housing? Will not the noble Baroness reflect that the shortage and the pillars have something to do with one another?
Baroness BIRK: No, my Lords, I would not accept that argument. Also I would beg the question of the overall housing shortage. One of the problems which is being considered in the review is the allocation of housing and how it varies from one area to another, so that one finds an acute housing shortage in some places but not in others. I do not think that jettisoning security of tenure and the other tenets which the noble and learned. Lord mentioned will bring along the review any more quickly or any more satisfactorily.
The Earl of SELKIRK: My Lords, is the noble Baroness able to say whether the review will be published under the authority of the Secretary of State or under the authority of the advisory committee which is examining the question?
Baroness BIRK: My Lords, it will be published under the authority of the Secretary of State.
Lord WYNNE-JONES: My Lords, while my noble friend is meditating upon the dicta of the noble and learned Lord who sits on the Opposition Front Bench, may I ask her to consider why the government of the City of New York has had difficulty with housing: whether they also have had the same pillars to which the noble and learned Lord referred?
Baroness BIRK: My Lords, I shall certainly meditate on that point as well.
Lord AVEBURY: My Lords, has there not been another pillar of housing policy since 1919; namely, the comparative freedom of local authorities to knock down perfectly good dwellings, as in the case of Southwark and Lambeth recently? While the publication of the Housing Policy Review may not be holding up local authorities in their task of building new houses, would it not be extremely valuable,
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if this report gives support to the idea, for the Government to give a strong lead against the destruction of good properties and their renovation, as an alternative to building large numbers of new houses which are colossally expensive?
Baroness BIRK: My Lords, that is exactly what the Government are currently doing. They are not waiting for the policy review to do that. Local authorities are continually being asked and advised to do the very thing the noble Lord has mentioned.
The Lord Bishop of SOUTHWARK: My Lords, as one of the pillars of South-wark that has not been knocked down, may I ask Her Majesty's Government whether the advice is mandatory or not? —because it seems to me that there is taking place in South London a great deal of destruction of buildings which ought to remain.
Baroness BIRK: My Lords, the advice is not mandatory because local authorities have freedom to deal with their own allocations. But by means of the allocation of resources encouragement is given to the line of policy which the Government think is better for the community.
Baroness WARD of NORTH TYNESIDE: My Lords, may I ask whether the present committee is the same as that appointed by Mr. Crosland, and, if not, may we have the names of those who have lost their positions or who have been appointed to the new committee?
Baroness BIRK: My Lords, the noble Baroness has a very good point there which has caught me out. I can tell her that the committee consists of a number of non-governmental housing experts, but I will write to her about the composition of the committee.
Baroness WARD of NORTH TYNESIDE: My Lords, if the noble Baroness does not mind, I should be very much better pleased if it could be put on the Record so that everybody knows the answer.
Baroness BIRK: My Lords, perhaps the noble Baroness will table a Question for Written Answer.
Viscount BARRINGTON: My Lords, can the noble Baroness give a rather clearer answer to the last question asked by the noble and learned Lord, Lord Hailsham of Saint Marylebone, which was not whether she would accept what he said but whether she would reflect upon it? The noble Baroness said that she could not accept it.
Baroness BIRK: My Lords, I have not accepted it but I will certainly reflect again.
Lord MOWBRAY and STOURTON: My Lords, is not the noble Baroness in agreement that Government policy now should be for less redevelopment and more improvement?
Baroness BIRK: My Lords, this is all part of what will come out in the Housing Policy Review. It has for some time now been the Government's policy that concentration should be on improvement.

GOVERNMENT EXPENDITURE: BALANCES
3.17 p.m.
Baroness VICKERS: 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 arrange for any money not expended by Departments at the end of their financial year to be carried forward into the following year.
Baroness BIRK: My Lords, my right honourable friend the Chancellor of the Exchequer does not propose to change the present arrangements. There is a long-standing Parliamentary rule that balances of Supply grants unspent at the end of the financial year must be surrendered.
Baroness VICKERS: My Lords, does the noble Baroness realise that a great many Departments, including local government departments, look round to see on what they can spend this money? Surely this is a great waste of money and, therefore, if the balance could be carried over to the next year it might obviate
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some of the cuts which were to be introduced during the following year, and also in the long run it might save the Government money.
Baroness BIRK: My Lords, there have been a number of anecdotes on this matter in circulation, and although we keep hearing stories about it little real evidence exists. If the noble Baroness can give me information concerning any concrete cases with regard to either local authorities or anybody else, I will, with great pleasure, have them looked into.
I do not think that there would be any real advantage in such a carry-over, because, whatever incentive exists to get money spent before the end of the financial year, any programme manager carrying forward more than he had brought forward at the beginning of the year might gradually accumulate a reserve which would put current expenditure out of control altogether. In any case, money cannot be spent on something which has not already been estimated for; so it is quite natural that very often the frills of expenditure are carried out at the end of the year rather than at the beginning. Finally, although I would not for a moment say that this situation is absolutely perfect, it is a matter which has been argued backwards and forwards throughout various Administrations; and with a total Government public expenditure of about £50,000 million it really is best at the moment, if we are to keep proper control, to have a yearly control.
Lord PEDDIE: My Lords, will my noble friend not agree that there is a fair measure of criticism of the current method of financing and it is difficult to know whether or not that criticism is justified? Can my noble friend say whether there has been any detailed inquiry into current practice and, if not, whether there is any possibility of such detailed specialist inquiry being made?
Baroness BIRK: My Lords, inquiries have taken place. As I understand it, from one Administration to another the Chief Financial Secretaries have looked into this matter to see whether there really is very much of this alleged wastage at the end of the year and whether it would be possible to devise another system. It does not appear that any other

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system would have any advantage. Departmental accounting officers have to account to Parliament through the Public Accounts Committee for the way in which they have discharged their responsibilities. This appears to be the best way of doing it. Further, there has been no directive issued by the Treasury to Departments to spend any surplus or saving by the end of the year, nor have they been told that failure to do so would result in the surplus being deducted from the following year's budget. Any such directive would be contrary to Government practice.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, while the noble Baroness has been piously regurgitating the pure milk of Treasury orthodoxy, may I ask whether it is not a fact that, although this matter has been agitated within the Treasury for generations, there must be an incentive to spending Departments to go on spending and not to save if they are not to be allowed any degree of virement at all? Is it not a fact that outside there has been a continuous challenge and a continuous criticism of the refusal of the Treasury to allow virement in any form?
Baroness BIRK: My Lords, first of all, nothing can possibly be spent, except on approved programmes; so that immediately circumvents that point. Over and above that, there are the auditors. There are also the programmes, which are looked at when the next year's Estimates are being considered. So if there are cases of people behaving in this way—I do not say that there may not be some cases where money is spent in a way it should not be spent—then this can be taken into account. This is why I have asked for these cases, which are always talked about in a general way, to be made more specific and given to me so that I can pass them on to my colleagues in the Treasury.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, I am sorry to press the noble Baroness on this matter, but does she not realise that the necessity to obtain House of Commons approval for expenditure has nothing at all to do with the present dispute? What is in question is the negotiation, prior to House of Commons approval, which takes place
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between the Treasury and the spending Departments. Does not she realise that the reason why there is no specific evidence is because the spending Departments habitually cover up their tracks?
Baroness BIRK: My Lords, they cannot cover up their tracks when they are required to have audited accounts. What I have been trying to explain, in answer to the noble Baroness's Question, is that in fact even if they carried money over, there would still be the same incentive to exceed expenditure or to save it. The Departments could also be in a worse position when the next year's Estimates come up. I agree that this is a kind of hoary annual which goes on and on, and I do not know whether even the Treasury has the exact answer for it. With that amount of Government expenditure, it is not like running a series of commercial companies.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the House is deeply interested in this Question; that is quite obvious. We have had nearly 16 minutes on Questions. As we have not heard from anybody from the Cross-Benches, I think the House would wish the noble Viscount, Lord St. Davids, to ask his question, and we hope it might be the last.
Viscount ST. DAVIDS: My Lords, I am sorry to disappoint noble Lords. I wanted to ask this. While the noble Baroness is thinking about so many matters, may I ask whether she would consider that there might be an advantage in offering a bonus to such local government officers and other public servants as did not spend all the money that was put in their hands. If this was offered, it might be a considerable incentive and result in considerable saving, which is what we must achieve at this moment.
Baroness BIRK: My Lords, I believe that this suggestion has been made before to the Treasury, but I cannot hold out any hope of such a system being worked out.
Viscount ECCLES: My Lords, may I ask the noble Baroness whether she is aware that for many years it has been the practice to allow the Government hospitality fund to carry over its balance into

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the next year, and that is the reason why Ministers are able to offer their friends such good wine? I did it myself. Since this is a very difficult subject, I should like the noble Baroness to suggest to the Chancellor that it might be possible to offer certain Departments the right to maintain a small reserve—not a very large reserve. Then, if they do make economies and do not want to spend the money in the month of March, they could have up to a certain figure carried over without prejudice to the next year's grant.
Baroness BIRK: My Lords, health authorities, as the noble Viscount probably knows, are able to carry over about 1 per cent. of their expenditure. This applies to them, as they are a central spending Department—but it applies only to them. I will certainly carry forward the noble Viscount's suggestion.

TOURISM TAX
3.26 p.m.
Viscount MASSEREENE and FERRARD: 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 intend to introduce a tourism tax in the near future.
Baroness BIRK: My Lords, a tourism tax would present a number of complex problems, and I cannot imagine the introduction of such a tax without prior consultation with the industry.
Viscount MASSEREENE and FERRARD: My Lords, is the noble Baroness aware that I am extremely relieved at that reply? I had heard rumours to the contrary. Would not the noble Baroness agree that it would be madness—and, of course, madness is a condition of mind from which Labour Governments are not always immune—to tax this industry, which is now one of our greatest foreign currency earners? It is estimated that this year the expenditure of overseas visitors, including what they spend on British carriers, will earn this country £2,500 million. If my arithmetic is correct, that is about £7 million
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a day. I thank the noble Baroness very much for her Answer, because my Question was a fishing Question.
Baroness BIRK: My Lords, while I cannot accept the noble Viscount's comments on madness in the brain of the Labour Government, he is right that any talk about a tourism tax could have very grave effects on tourism, which we are all greatly concerned to increase and expand. It is now, as he is aware, the industry fifth in importance so far as our balance of payments is concerned. I am aware of these rumours going around, and I hope this has provided the opportunity to scotch them.

EASTER RECESS
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, with the leave of the House, I take this opportunity to make a Statement about the Easter Recess. Subject to the progress of business, the House will rise on Thursday, 31st March, and return on Tuesday, 19th April.
Lord BYERS: My Lords, may I ask the noble Baroness at what time the House will meet on the Thursday?
Baroness LLEWELLYN-DAVIES of HASTOE: At 2.30 p.m., my Lords.

WATER CHARGES EQUALISATION BILL
Brought from the Commons; read 1ª, and to be printed.

BUSINESS OF THE HOUSE
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, on behalf of my noble friend the Leader of the House, I beg to move the Motion standing in his name on the Order Paper.
Moved, that leave be given to the Lord Oram to advance his Motion to approve the Weights and Measures Act 1963 (Honey) Order 1977 from Thursday the 24th to Monday the 21st instant.—(Baroness Llewelyn-Davies of Hastoe.)
On Question, Motion agreed to.

ROE DEER (CLOSE SEASONS) BILL
Lord STANLEY of ALDERLEY: My Lords, I beg to move that this Bill be now read a third time.
Moved, That the Bill be now read 3ª.—(Lord Stanley of Alderley.)
Lord BURTON: My Lords, may I say a brief word on this Bill? I must apologise for not having raised this matter before. It is really a nonsense to proceed on this matter piecemeal and with great speed without full consultation with all the relevant bodies. The 1st November, which is one of the dates mentioned in the Bill, does not apply to any other species of deer and the date is different for roebuck in Scotland. Noble Lords may remember that during the Second Reading debate on the Deer Bill the noble Viscount, Lord Thurso, raised the question of having different seasons in Scotland and England. I hope that progress will be made with the Bill of the noble Lord, Lord Northfield, so that, after having had full consultations, the dates will be correct in his Bill.
Lord NORTHFIELD: My Lords, I too do not wish to detain the House. The noble Lord, Lord Stanley of Alderley, was kind enough to write to me asking me to support his representations to the Secretary of State for Scotland to make orders bringing some of these dates into line. On this Third Reading, would he care to say whether he would support a general move to get all the parties together in order to achieve common dates to the close seasons in the two countries, despite what may be in the Bill that we are now, I hope, about to pass?
Lord STANLEY of ALDERLEY: My Lords, I thank the noble Lord, Lord Northfield, for those remarks. After the Committee stage I wrote immediately to him and to the noble Lord, Lord Wells-Pestell, on this matter. I was strongly supported by the British Deer Society which agreed that the dates in my Bill, if I may so call it, were correct. Believe it or not, the dates for North of the Border were, for once, wrong. I can go no further than that. I still think that I am right. I am supported by the British Deer Society, which did not support me
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very warmly after the speech I made on the Bill of the noble Lord, Lord Northfield. I still think that this is correct. I understand that later the Secretary of State for Scotland can alter the dates in Council.
On Question, Bill read 3ª, and passed.

COUNTY COURTS JURISDICTION ORDER 1977
3.32 p.m.
The LORD CHANCELLOR (Lord Elwyn-Jones)The LORD CHANCELLOR (Lord Elwyn-Jones) rose to move, That the draft County Courts Jurisdiction Order 1977, laid before the House on 10th March, be approved. The noble and learned Lord said: My Lords, this is a draft Order in Council which requires Affirmative Resolutions in your Lordships' House and in another place before it is made by the Privy Council. The purpose of the order is to increase the jurisdiction of the county courts.
As your Lordships will know, the county courts are our local civil courts, dealing with the great bulk of civil litigation. There are some 300 of these courts up and down the country, in England and Wales, and the extent of their jurisdiction is determined by certain financial limits upon the size of the claims which may be brought in the county courts. The most important of these limits is that relating to actions in contract and tort which was last fixed in 1974 at £1,000. I am proposing that this figure of £1,000 should be increased to £2,000.
My main concern here is to maintain a proper balance between the work of the county courts and the High Court. In the last 20 years an increasing proportion of civil work has been done in the High Court. Although I hesitate to quote figures, I shall quote just two figures from a detailed set. To illustrate sufficiently what I have said, perhaps I may refer to the statistics which show that in 1958 one writ was issued in the Queen's Bench Division for every 15 summonses issued in the county courts. By 1976 one writ was issued in the Queen's Bench Division for every 7·15 summonses issued in the county courts. That imbalance has continuously increased over the last 20 years.
The proposed increase in the jurisdiction of the county courts would not by itself be enough to achieve any real improvement. The effect of the increase, taken alone, is simply to widen the range of choice open to litigants, leaving them free to proceed either in the county court or in the High Court in cases involving up to £2,000. In order to give some real incentive to bring cases in the county court, the County Courts Act provides for what I shall call the costs sanctions. There are two relevant rules here and they have the same purpose; namely, that of deterring people from bringing fairly modest cases in the High Court rather than the county courts. The first rule is that where a plaintiff in the High Court recovers less than £650 he can recover costs from the unsuccessful defendant only at the rate which would have applied had he brought the action in the county court. For that purpose, the draft order increases the limit of £650 to £1,200. The second rule is that where a plaintiff proceeds in the High Court and recovers a sum less than £150, he is not entitled to any costs at all against the defendant. The draft order increases that figure to £350.
It is these increases in the costs sanctions which should have the effect of achieving a real transfer of work from the High Court to the county courts. Naturally I have consulted all those who are most likely to be affected by these changes. They include the Bar Council, the Law Society, the TUC and the under sheriffs, who are responsible for the enforcement of orders in the High Court. I am, of course, fully aware of the importance of ensuring that these changes do not produce disadvantages to the litigant. For instance, I am satisfied that those injured in the course of their employment will not be prejudicially affected by the proposed change. The number of such cases which is likely to be transferred to the county court is of the order of about 1,300 a year, many of which of course do not reach trial at all but are settled. Litigants in those cases will have the advantage of the earlier decisions which the county courts are able to achieve and of having their cases dealt with often much nearer to their homes and their places of work.
Your Lordships will find that the detailed changes are set out in tabular form
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in Article 2 of the draft order. Column 1 lists the statutory provisions in which the change is to be effected. Column 2 gives the existing figures in each case and column 3 gives the proposed new figures. The key provisions are those in the first item in the column; namely, Section 39 of the County Courts Act, which sets the limit of jurisdiction in contract and tort at £1,000 which, as I have said, will be increased to £2,000; and in Section 47 where the separate provisions relating to the upper and lower costs sanctions are set out.
I should also draw your Lordships' attention to the fact that the equity jurisdiction of the county court, which is dealt with in Section 52 of the Act and deals with such equitable matters as the administration of estates and the variation of trusts, is increased from £5,000 to £15,000. Provision is also made that the upper limit to the amount of claims which may be heard by registrars is increased from £100 to £200. Finally, the jurisdiction relating to what are now called "extortionate credit bargains", which is perhaps our modern term for usury, is also increased. Under the Consumer Credit Act this jurisdiction will be brought into line with the jurisdiction of the county court in contract and tort with effect from the date when the relevant provisions of the Consumer Credit Act come into force. I can reassure your Lordships that the remaining changes in the order are either consequential or what I might describe as parallel to the changes that I have outlined. I beg to move.
Moved, That the draft County Courts Jurisdiction Order 1977, laid before the House on 10th March, be approved.—(The Lord Chancellor.)
3.39 p.m.
The Earl of MANSFIELD: My Lords, I am sure that noble Lords will be grateful to the noble and learned Lord the Lord Chancellor for explaining these changes relating to county courts and their jurisdiction in a comprehensive manner. The noble and learned Lord, with his usual perspicacity, has anticipated the two matters which I had intended to raise with him. Nevertheless, as I understand it, these changes do not so much reflect the fall in the value of money as a desire to keep a balance as between

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litigants who come to the High Court as opposed to the county courts.
One is perhaps moved to ask whether the noble and learned Lord is satisfied that the county courts are able to take on this extra work. Certainly in the days when I was in practice, which was not so very long ago, one always was concerned not so much at the actual delay in getting a case on before a county court, but at the appearances which frequently proved to be fruitless because the courts were so busy that they could not get to the end of their lists. If that were to be the result of this legislation then the cure would be almost worse than the disease, because at least when it comes to the High Court the litigants know where they are and know approximately when their cases are likely to be called on.
So far as the table in Article 2 is concerned, I was struck by the increase in the sum under Section 52 of the 1959 Act from £5,000 to £15,000, and that, of course, as the noble and learned Lord said, relates to equity jurisdiction. One asks whether there has been an imbalance. Otherwise, why is it necessary to make such a substantial increase—a threefold increase? The other interesting matter is the extortionate credit bargains in Section 139(5) of the Consumer Credit Act 1974. As the noble and learned Lord said, the maximum has been raised there from £750 to no less than £2,000. Have there been many of these cases? If so, they certainly have not attracted much, if any, publicity. Is it because there have been cases, that the county courts, it is felt, should deal with them? Or do the authorities believe that there will be a number of cases, and that this is, as it were, a wise clearing of the decks before the rush occurs? Subject to these two questions, I am sure your Lordships will give a welcome to these provisions.
Lord BROWN: My Lords, while in no way wanting to question the substance of this order, I seize the opportunity to raise a more general question. It seems to me that at least part of the reason for this order arises from the progress of inflation. This may not be the sole cause, but it must be part of the cause. It has occurred to me frequently that whenever we put a financial limit, or fine, or liability in a Bill, the original intentions of Parliament are quickly vitiated by the progress of
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inflation. To amend every Bill on the Statute Book to put this right would be an enormous task. Is it not time that the Government considered a general amending Bill to index financial figures put into Bills in accordance with the value of the pound? Otherwise every fine, every limit, slowly becomes out of date and eventually ridiculous.
Baroness WOOTTON of ABINGER: My Lords, I regret that my noble friend is accepting inflation as a regular phenomenom, and utterly denying the possibility of a return to stable money.
3.43 p.m.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, may I put to the noble and learned Lord one point which arises out of this order but which does not in any way affect what my noble friend has been saying, that this side of the House approves of the order. When I became Lord Chancellor about seven years ago it was my duty to carry through the Courts Act which amalgamated in criminal jurisdiction the various quarter sessions courts and assize courts into Crown Courts. It was always in my mind to try to do the same in civil jurisdiction—that is to say, not to have a statutory limit at all on what are now the county courts. In relation to civil jurisdiction, I wanted to carry out an exercise rather on the basis of the Beeching Commission, so that there would be only one type of court with civil jurisdiction throughout the country, on the basis of the Crown Court in criminal jurisdiction.
This would have a double merit. Instead of having to come to Parliament from time to time to ask for increased jurisdiction in the county court, and instead of having the occasional dispute, not always unimportant, as to whether a particular piece of litigation brought in the county court is within the county courts' jurisdiction at all (I have in mind those which ask for particular remedies not readily available), you could get rid of jurisdictional problems altogether by simply doing in relation to civil jurisdiction what has now already been done as a result of the Beeching exercise in relation to criminal jurisdiction.
When I put this suggestion forward in the ordinary way some years ago, I was

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told that the administrative machinery at the disposal of the Lord Chancellor's office could not cope with the exercise in relation to civil jurisdiction at the same time as they were undergoing the agonies of the Beeching reforms. These ought now to have more or less come to an end, and I should like the noble and learned Lord to inquire as to whether or not there are advantages in a Beeching type exercise in relation to civil jurisdiction.
3.46 p.m.
The LORD CHANCELLOR: My Lords, I am grateful for the response which the order I have introduced has raised and for some of the interesting questions that have arisen in the course of the discussion. May I deal immediately with the suggestion of the noble and learned Lord. I confess that we have not been giving any fresh thought to the unification of civil jurisdiction on the lines that he has mentioned. I am happy to say that the problems flowing from Beeching have been pretty well resolved subject to the insoluble problem of the continuing increase in crime, and the continuing increase in the number of cases that come before the courts, which is an agonising problem for any holder of my Office. I am certainly willing to look at that. It has not come into my in-tray since I have been in this Office, but we shall certainy look at it in the light of what has been said.
I am not sure about the suggestion that we should provide in all circumstances for built-in provisions to deal with the contingency of inflation. I agree with my noble friend that it may be too pessimistic a conclusion that we have inflation for all time. It probably is better to keep control in this way, tiresome though it is to the Department to keep on having to bring orders before Parliament in this way. Perhaps it is not a bad thing for Parliament to review and look at the inflationary situation and its effects as we go along. At any rate, that is the intention in regard to this order.
The noble Earl, Lord Mansfield, has raised one or two questions. First, I think that the county courts will be well able to cope with the additional work that this order will bring before them. The registrars will be handling more of the small cases by virtue of the increase in jurisdiction that they will get by reason
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of the order. I have had discussions with those concerned with county court administration and I do not think that they have indicated any anxiety on the score of not being able to cope.
I was asked how many cases in respect of the extortionate credit bargain provision have come forward. As yet, none of course, because the Act itself creating that category of grounds for setting aside contracts does not come into force until 16th May. I hope that there will not be a flood, but at any rate it is prudent to provide for what may occur. The noble Earl also asked me about the apparently large increase in the provision for jurisdiction in equity matters. The profession asked me some time ago to make this kind of change. The figures have not changed since 1969. The matters relevant tend to run to large sums, and I think that this will be in keeping with the wishes of those who are professionally concerned in this particular field. I think that covers the matters put to me, and I am grateful to the House for giving support to the Motion.
Lord ROBBINS: My Lords, I would appeal to the noble and learned Lord to give further consideration to a problem which, with respect, he dismissed in a rather cursory manner. At best, inflation will be running this year in the neighbourhood, optimistically, of between 12 per cent. and 15 per cent. It is unlikely to be reduced greatly the year after and, on all reasonable computations, before we get back to a state of stable money several years will have elapsed.
The noble and learned Lord said that it would be a good idea for Parliament from time to time to review the position; but the position in this respect affects every figure which enters into the structure of the law of the land. It seems to me that if Parliament were to carry out the injunction of the noble and learned Lord and review the situation from time to time, the business of both Houses of Parliament would be greatly increased, whereas the objection to indexation is certainly not the objection which the noble Baroness raised—that it assumes built-in inflation for ever; if inflation ceases, indexation ceases likewise. This is a serious matter as regards the business of Parliament and I appeal to the noble and learned Lord to give further attention to it.
The LORD CHANCELLOR: My Lords, I appreciate the seriousness of the problem. I was trying to recollect what the occasion was when I introduced legislation with a measure of indexation in it; I recollect that on that occasion it was strongly criticised as accepting the continuing flow of inflation as inevitable, insoluble and something that should not be countenanced by the recognition of indexation. There are, with respect to the noble Lord, Lord Robbins, other views. If it were developed, it might be of great convenience to Government, but whether Parliament would then be able to feel confident that it was keeping a sufficiently watchful eye on the impact of matters like the order I have introduced today I am not at all sure, but I assure the noble Lord that I have an open mind on it and that we shall be looking at it.
On Question, Motion agreed to.

SOCIAL SECURITY (CONTRIBUTIONS) (MARRIED WOMEN AND WIDOWS) AMENDMENT REGULATIONS 1977
3.53 p.m.
Lord WELLS-PESTELL Lord WELLS-PESTELL rose to move, That the draft Social Security (Contributions) (Married Women and Widows) Amendment Regulations 1977, laid before the House on 9th February, be approved. The noble Lord said: My Lords, I hope the House will permit me to deal with these two sets of regulations together, since both are concerned with amendments to the same Statutory Instrument—namely, the Social Security (Contributions) (Consequential Amendments) Regulations 1975. The regulations being amended are largely concerned with laying down the rules under which those married women and widows who already pay reduced-rate contributions will be able to go on doing so, if they wish, when the new pensions contributions start on 6th April of next year.
The date, 6th April 1978, was expressed in several places in the original regulations as the date on which Section 2 of the Pensions Act comes into force. Section 2 gives the Secretary of State power to prescribe the actual rates of contribution to the new pensions scheme. But Section 2 has been found to be inadequate and,
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as some noble Lords will know, proposals to repeal it are included in the Social Security (Miscellaneous Provisions) Bill so that references to the date on which it comes into force will become meaningless. The draft (Consequential Amendments) Amendment Regulations have the sole object of replacing those references with the date intended; that is, 6th April 1978.
The other regulations for which your Lordships' approval is sought—the (Married Women and Widows) Amendment Regulations—make small technical adjustments to the contribution arrangements for women who are or have been married. These arrangements commence on 6th April 1977, a year ahead of the general start of the new pensions scheme, and Regulation I accordingly bring the amendments into force on the same day.
Regulation 2 amends the definition of a "qualifying widow"—that is, a widow who can continue to have reduced contribution liability if she wishes. It affects only war and industrial widows and ensures—as has always been the intention—that such a widow will have to start paying the full rate of contribution if her war or industrial widows pension is reduced below the level of a basic National Insurance retirement pension. This can happen after some months of widowhood in the case of a young widow who has no children. She will usually be able to support herself, but she will need National Insurance benefits when she cannot work and only full contributions will be able to provide these.
Regulation 3 is a new provision. The general pattern of the regulations requires a woman who wishes to change from reduced liability to full liability to revoke her earlier election by written notice. Her existing election for reduced contributions has to continue in effect until the end of the tax year in which she gives the notice. This would bear hard on a woman who, on going out to work after a break of a year or two, started paying the full rate although, unknown to her, an earlier election was still in force. The Department would not know of her mistake until her contributions were brought to account, when she would probably be well into her second year of paying at the full rate. By then it would be too late to give her written notice of revocation for that second year.
This amendment will allow her to let the full-rate contributions in the second year stand as correctly paid, if that is what she wishes, so that they will count towards future benefits. It puts her in the same position as if she had revoked her election at the time when the mistake arose. The reduced rate will remain due for the first year and the excess contributions will be refunded. And of course she can choose to have a refund for the second year if, on being told of her mistake, she prefers to let her reduced liability run on.
I will mention Regulation 5 next. It merely makes the necessary consequential amendments to other regulations which arise from Regulation 3. Regulation 4 makes a minor amendment to clarify one of the transitional provisions of the main regulations, as applied to the new pension arrangements. It can fairly be described as a drafting point and I do not think I need say more because of that. I beg to move.
Moved, That the draft Social Security (Contributions) (Married Women and Widows) Amendment Regulations 1977, laid before the House on 9th February, be approved.—(Lord Wells-Pestell.)
Lord SANDYS: My Lords, the House will be grateful to the noble Lord, Lord Wells-Pestell, for explaining these two sets of regulations which, on the face of it, are helpful towards the widows. To be a widow in 1977 one needs the assistance of a great deal of advice to pilot oneself through a mass of very complicated statutory details within the new social security scheme. In view of the fact that the Government have admitted mistakes through the introduction of the Social Security (Miscellaneous Provisions) Bill—an amending Bill which corrects what took place in 1975—I hope that they will recognise that there is a very real need to discuss and to inform organisations concerned with those who are dealt with in these regulations and to publicise what they have in mind. Speaking from this Dispatch Box only a short while before the noble Lord's right honourable friend the Chancellor of the Exchequer introduces his Budget in about a fortnight's time, one can only hope that in formulating his proposals the Chancellor will see the very real need to take the widow's position into consideration.
Lord WELLS-PESTELL: My Lords, I am most grateful to the noble Lord, Lord Sandys. I am not sure whether it was the noble Lord or somebody on the Liberal Benches who fairly recently drew attention to the complication of all these benefits, and one must admit to having considerable sympathy with this point. I think that I said at the time, although I am trusting entirely to memory, that I thought that the only people who really understood these matters were the social workers who had made a point of trying to understand them so that they could advise the various people who came to them, and if I may say so they are doing it very successfully.
We have given an undertaking in relation to these matters to have widespread Press publicity to draw the attention of the married women and widows who are involved. The noble Lord and others may have seen some of the publicity upon which we have embarked in the national Press. We are proposing to carry out similar publicity in the Radio Times and rather extensively in women's papers, as well as the national Press. We are very alive to this point, and having seen some of the advertisements myself I can say that they are worded in simple English. I believe that with widespread coverage it should be possible for people to understand the situation.
On Question, Motion agreed to.

SOCIAL SECURITY (CONTRIBUTIONS) (CONSEQUENTIAL AMENDMENTS) AMENDMENT REGULATIONS 1977
Lord WELLS-PESTELL: My Lords, I beg to move these regulations formally.
Moved, That the draft Social Security (Contributions) (Consequential Amendments) Amendment Regulations 1977, laid before the House on 9th February, be approved.—(Lord Wells-Pestell.)
On Question, Motion agreed to.

ROYAL ASSENT
4.4 p.m.
The LORD CHANCELLOR: My Lords, I have to notify the House in accordance with the Royal Assent Act

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1967 that the Queen has signified her Royal Assent to the following Acts:

Consolidated Fund Act,

Covent Garden Market (Financial Provisions) Act,

Aircraft and Shipbuilding Industries Act,

Roe Deer (Close Seasons) Act,

Anglian Water Authority Act.

EEC: FIFTH DIRECTIVE ON COMPANY LAW
4.5 p.m.
Lord MATS Lord MATS rose to move, That this House takes note of the Fifty-fourth Report of last Session of the European Communities Committee on the Draft Fifth Directive on Company Law: Two-Tier Boards and Worker Participation (R/2128/72). The noble Lord said: My Lords, in the preparation of our report we were greatly assisted by oral evidence given by the right honourable Peter Shore, then Secretary of State for Trade, officials of the Department of Trade, Sir Henry Fisher and officials of the City Company Law Committee, Lord Briginshaw and officials of the Trades Union Council. In addition we had written evidence from a number of sources, in particular the Law Society, the Association of British Chambers of Commerce, the Engineering Employers' Federation, and Aims of Industry.
The publication of the Bullock Committee Report on 26th January 1977 implies that the report of the European Communities Committee on the same subject is now in need of up-dating, and I would draw your Lordships' attention to one or two of the main issues raised by a comparison of the findings of the European Communities Committee and those of the Bullock Committee. The two-tier structure is followed by most of the Community countries. The single-tier structure proposed in the Bullock Report has a parallel only in Sweden, which is not a member of the Community. The implementation of the Bullock proposals would take a long time to achieve and involve a good deal of effort and cost for companies. If a
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further change to a two-tier system should later be required in order to comply with the Council of Ministers' decision to adopt the two-tier board system for harmonisation's sake, this could lead to considerable confusion and disruption to industry in general.
I should draw your Lordships' attention to the fact that the ownership of industry and the relation between ownership and control are almost entirely ignored in the Commission proposals and in the Bullock Report. The Bullock Committee were of course precluded from considering these matters because of their terms of reference. Proposals for promoting industrial democracy by changes in ownership as an alternative to, or together with, changes in control form a very important matter. Your Lordships may feel that your Committee should not at this stage comment upon it, but in my view, however, it is impossible to arrive at adequate conclusions on changes in control, such as those contained in the Fifth Directive, the Green Paper, and the Bullock Report without at the same time giving very serious consideration to the question of ownership.
This report before your Lordships today, I would beg to suggest, is not a second Bullock—and that may cause some relief to some of your Lordships. Nevertheless, ours was not a Committee charged with the task of producing recommendations for worker representation on boards from first principles. We were required to consider and to report to this House upon the proposals contained in the Communities' Fifth Directive which, so far as worker participation and two-tier boards are concerned, have had the advantage of being in operation in Europe for some time, and therefore we had information as to the difficulties which had arisen and the advantages which had been obtained therefrom.
I do not propose to take your Lordships through the report in detail, but I would draw your Lordships' attention to what I believe to be some of the more important aspects of the proposals. The draft Directive requires that all companies employing more than 500 people shall have employee participation on a supervisory board, and that the company shall adopt the two-tier structure of a supervisory board and a management board.

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This requirement has to some extent been modified and made more flexible in the Green Paper. At the risk of telling your Lordships what your Lordships undoubtedly already know, the membership of the supervisory board is composed of one-third elected by shareholders, one-third by the employees and one-third independent, co-opted by the other two-thirds. The recommendation does not envisage the selection of employee members to serve on the board being in the hands of an outside body unconnected with the company itself.
Also, it is likely that the Fifth Directive, if adopted, would involve considerable amendments to the existing United Kingdom law in so far as it affects companies and employment generally. Nevertheless, your Lordships' Committee appreciates that it is the Commission's policy and their aim to achieve greater worker participation within industry. They have therefore considered the principal implications and problems which could result from compulsorily including employee representation on the boards of companies. The report examines the existing powers and duties of directors, to whom they have a responsibility and to what extent these powers, duties and responsibilities can or should be imposed upon employee representatives. Under the present law, the duties of a director can, I think, be said to fall principally into two categories. Their duty is, first, to shareholders. I would not necessarily say it is first to shareholders, but they have a duty to shareholders. They also have a duty to other parties, among whom are the staff and the workforce, the creditors, the investors, the suppliers and customers.
As we see it, the Trades Union Congress envisages that the employee members of the supervisory board or single management board would be elected through trade union machinery, and here your Lordships' Committee foresees difficulties. The first is that they would probably have, or feel they had, an obligation to report downwards to the shopfloor, or to representatives of the shopfloor and/or to the trade unions. That could mean that they were in possession of information which was not available to the shareholders or to the investing public generally. Your Lordships' Committee took some comfort from the evidence given by my noble friend Lord Briginshaw,
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although his opinion was a personal one and was, therefore, unofficial. He said:
"We are asking for representation; we want the right to have it, and it seems that in that sense and in that area the worker director must take the same responsibility".
This was a most helpful comment, a most statesmanlike comment, and it is to be hoped that it will be generally accepted elsewhere. Your Lordships' Committee draws attention to the difficulties which could arise should a board be composed half of employee representatives and half of those elected by the shareholders, with no casting vote. In these circumstances, we can see that a situation of complete stalemate could result, and this could have far-reaching consequences to the companies concerned.
In conclusion, my Lords, may I make reference to what, in the view of your Lordships' Committee, was a most important point, and probably the most controversial; namely, that there should be freedom to enable appointments of employee representatives to be made from within the company or group, so that they would be familiar with, and have knowledge of, the company's business, rather than that they should be elected from an outside source. Secondly, that there must be a transitional period, and that employee representation should not in any circumstances be made immediately compulsory. Much more time is required for Member States to decide, between the dual or unitary board, which structure they think is best suited for their own particular circumstances. To emphasise this point, one has only to cast one's mind back to what happened with the CBI and the TUC. They both started out by taking up one view, and they both ended by changing roles and deciding quite the opposite.
My Lords, I appreciate that this report does not necessarily march in step with Bullock, but perhaps it may offer the basis of a compromise which might be more acceptable to all sides of industry. May I end by thanking all those who submitted evidence to your Lordships' Committee, and also the Parliamentary secretariat and our advisers, who worked extremely long hours. My Lords, I beg to move.
Moved, That this House takes note of the Fifty-fourth Report of last Session

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of the European Communities Committee on the Draft Fifth Directive on Company Law: Two-Tier Boards and Worker Participation (R/2128/72).—(Lord Mais.)
4.17 p.m.
Baroness ELLES: My Lords, we are certainly grateful to the noble Lord, Lord Mais, for his expert introduction of the EEC Select Committee's Fifty-fourth Report—a report which I think we will all agree deals with a subject of vital concern to the economic and social progress, not only of our own country but of other Member States of the European Community. Here, I should like to express my gratitude to the members of the Sub-Committee, and to the Select Committee as a whole, for having produced a most valuable report. Emphasis has been laid in the report, not so much on the economic and social consequences, as were expressed in the Gundelach Green Paper, but rather on the changes in company law which would be necessary in regard to powers and duties of directors, responsibility of employee directors, participation in supervisory or unitary boards of companies, and so on.
Perhaps I should say straight away that I shall refer only to "employee directors", because I do not consider that the term "worker director" really reflects what we are talking about. I believe everybody in a company, at whatever level they may be, will certainly be workers, whether they are on the board of management or on the shopfloor; and I think "employee director" is really a more correct term in this regard. However, in view of the more legalistic approach of the report, a very impressive list of witnesses gave evidence to the Committee, both orally and in written submissions; and I was rather surprised not to see the CBI listed as among those who gave or submitted evidence. I wondered whether it was just that I had failed to see what was there, or whether there was some particular reason why the CBI felt that they were not wanting to give evidence to the Committee. Indeed, were they invited? Perhaps the noble Lord would tell me when he comes to wind-up the debate.
It is also fair to recall, of course, that the draft Fifth Directive was drawn up in 1972,
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which was before the United Kingdom and two other Member States acceded in 1973; so obviously the draft Directive was based very much more on the company structures of the then existing Community countries. Also, of course, it is fair to point out that the report before us today, as the noble Lord has already pointed out, was written and produced before the Bullock Report; so we have to see the evolution of ideas on this matter in chronological order. Of course, the terms of reference of the Bullock Committee were very different from those of Gundelach, because the terms of reference of the Bullock Committee were very narrow and were confined to deciding how participation of trade union members on company boards could in fact come about, rather than considering the situation of employees as a whole and the wider matters which appear in the Gundelach Report. The Gundelach Report was based on the representation of all employees, including minority elements. From these employees would appear representatives on the company boards. The second difference—and I think that it is a very major one—between the reports is that the Gundelach Green Paper sets out clearly and well the reasons why it is considered desirable to have employees represented on the boards of companies and leaves wide open the methods as to how such participation is to be achieved.
Also, it makes very clear that the main objectives of employee participation are to increase economic stability and improvement in the working and living conditions of the citizens of Europe, based on consensus between the forces of labour, management and capital, and not to create confrontation between the different elements which go to make up industrial strength. Gundelach also recognises the need for considerable flexibility and the taking into account of the different historical and traditional methods of labour structures. Nevertheless, the report recognises—and, here again, I feel that this is a vital point which Gundelach makes—the need for a new approach to the problems with which industries are faced in the light of economic and technological changes.
I should like to refer to three points that arise in the report before us and which were considered in both the Gundelach and the Bullock Reports. The first point is the question of directors' responsibilities. In

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paragraph 12 of the 54th Report, it is stated that the responsibility is recognised by the claim tlat employee board members so appointed should have different responsibilities from those of other members.
From the evidence in the report, it would appear that the trade unions—and I believe that it was Mr. Fisher's contribution—consider that an employee director would have different responsibilities from those of other directors and be responsible mainly to those who elected him. I consider that the better view is that all directors have equal responsibilities to look after the interests of the company as a whole, of which, of course, labour is one of the essential elements. One of the reasons why employee directors have succeeded in Western Germany is possibly because both the unions and the employees as a whole recognise that their interest lies in a successful and productive company rather than one that is a failure.
The second point that I should like to make is that it is not possible to attempt to extrapolate a form of company structure from one country to another without considering the criteria and conditions which are in force. Much has been said about the West German system, but very little about the many reasons why it has succeeded whereas, in other countries, it may not. It has partly become possible because the economic conditions in Germany have been very different from ours. Indeed, this must be an interdependent reasoning: it is partly because if the company works the economic progress is available, and the economic progress is available because the company works. These must be interdependent factors.
But there are certain conditions which are imposed in Germany which contribute to the success of the system. One is that the unions are obliged by law to be independent from any political organisation. There are very few unions in Germany—I believe only about 16 altogether, compared with about 490 in this country. Strikes, except in very clearly defined circumstances, are illegal; and labour agreements are, of course, legally enforceable. I believe that one cannot consider the whole system of employee participation and its success in other countries unless those conditions are also considered.
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So the success of employee participation must be seen against that background, particularly in regard to the non-political questions. I must confess that it strikes me as incongruous that the unions are seeking—at least on the evidence of the Bullock Report—to sit on the boards of companies in the private sector of the economy while the leaders of the TUC apparently declare their allegiance to the Labour Party which, I believe, includes the nationalisation of all means of production in its objectives. It would surely be unreasonable, therefore, in the present context to expect any trade union leader to work for the success of a system that he believes should be destroyed. Or should trade unionists who follow this policy not sit on such boards if that is indeed their belief? Of course, my own view on this, having seen many opinion polls on this point, is that vast numbers of trade unionists do not want the total nationalisation of all means of production, so that those trade union leaders who declare their belief in this doctrine and support the nationalisation programme of the Labour Party do not in fact reflect the majority of the trade unions. However, I am of course putting forward a personal view and anybody is entitled to get up and deny what I am saying.
Thirdly, the question of the relationship between shareholders and the company has perhaps not had the attention that it deserves. My noble friend Lord Carr of Hadley in his notable speech on 23rd February when we were discussing Bullock, pointed out clearly the change in the role of the shareholder and who the shareholder is. So often he is seen in the popular mind as a capitalist who puts all his ill-gotten gains into companies in order to exploit workers, whereas, if one looks at the lists of the names of shareholders and those whom they represent, one finds nowadays largely institutions such as the pension and investment funds which represent thousands if not millions of individual investors from all parts of the country and from all levels of society. Indeed, they may possibly include the unions themselves which will have shareholdings in the major industrial companies of this country.
The West German system requires the role of the shareholders, which is clearly defined in national legislation, to have control of the board, and that is a point

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that the noble Lord raised. As a result, the question posed in paragraph 15 of the report would not arise in Western Germany because, clearly, one of the main reasons behind this must be that the investment required to improve and create new employment would not be forthcoming or would be very much less likely to be forthcoming if it were thought that the shareholders who, after all, represent investment did not in the end have the final say in major matters of developing or closing down a company.
So the views expressed in the Gundelach Report for eventual employee participation I myself believe—and I am not here speaking for my Party because there are many views on this in all Parties—are very convincing. I believe that schemes should certainly be encouraged on a pilot basis to try out different forms of participation. However, whatever form is tried, I am convinced that the representation must be from among employees themselves within the company structure, for they have the closest interest in the decisions that are to be taken. Secondly, the employees, at whatever level, must be able to take part both in elections and in being elected. This would also give an opportunity to minority interests to be fairly represented. Noble Lords may not he surprised to know that I am thinking particularly of women in factories in this connection, who, under the Bullock proposals, would have very poor representation on supervisory boards and who would not have their interests properly looked after.
I also believe that the recent situation in Leyland has shown that union participation at the top level is not enough. It may have contributed help in getting things straight—I was of course not concerned in the deliberations so I cannot tell—but it has clearly not been enough. There must be participation and communication at all levels of a company's structure. The employee directors must be free to work for the interest of their own fellow employees for the good of the company. It was clear that the erosion of differentials would be a major reason for discontent and therefore this discontent would become exploitable. Clearer communication through all levels of a company (many companies are making efforts to improve their annual reports
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so that they are clear and understood at all levels of company structure) and educational programmes for employees to understand why and how certain decisions are taken affecting their working and living conditions also need to be undertaken. I think this is an area where management and directors could put their minds to having a massive education programme for the people on their own shop floor in industry and I believe that in industrial relations this is an area which has been neglected.
They need also the opportunity to participate in much wider share-ownership schemes and in profit sharing schemes so that they have a financial stake in the success of the company, always realising that there must be some form of protection if the company does not do so well for reasons beyond the company's control. We are aware that a great many companies already practise these schemes successfully. I believe also that the vast majority of employees want to work in a successful enterprise but they must be given the opportunity of having more to say in the decision-making processes which affect them.
My Lords, in conclusion, I should like to thank the noble Lord, Lord Mais, for giving us the opportunity to discuss the Fifty-fourth Report and an opportunity to consider industrial relations and the development of company structure in European terms; because ultimately the success and economic and social progress of the European Community must depend on the progress made in those elements of our society which create industrial wealth and, as Mr. Gundelach pointed out, that is the limited liability company.
4.32 p.m.
Baroness SEEAR: My Lords, the Liberal Party's commitment to the supervisory board goes back a long way—as far as the end of the 1920s when the well-known yellow book was published which advocated some form of supervisory board. That being so, it will not surprise your Lordships that we on these Benches take a particular interest in the proposals which have come forward from the EEC. After the recent debate on Bullock, I shall be brief this afternoon pointing out, primarily, the ways in which, from the point of view of my Party, support is given to the proposals in

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the draft Directive and certain modifications of that support. Our support for supervisory boards is based on a number of reasons: first, because we have always believed that people who work in an organisation have an interest in that organisation parallel with and no less important than the interest of the shareholders; and that that interest should be represented on the supervisory board in the direction of the company. We have also always supported the idea of the supervisory board as opposed to the unified board because it leaves the function of management to be carried out by the professional manager.
We believe that that becomes increasingly and not less important as the complexities of running a business grow. This, in our view, has been one of the reasons for the success of the German scheme, in that increasingly well-trained and competent managers as the executive board are free to get on with the task which is theirs of seeing that the business runs effectively; but that they are answerable ultimately to the supervisory board and the really important decisions, the appointment of the executive board and the big decisions on financial changes, closure of plants, extension of plants, have to be sanctioned by that supervisory board.
But in the development of the thought of the Liberal Party about supervisory boards, and because we have been thinking about them for so long, it is no surprise that we have developed rather a wider range of ideas in this connection than have some other Parties. We have come to believe that the best way of finding the supervisory board is not, in fact, by the appointment of worker directors to represent particular interests, with all the danger that that involves of carrying negotiations on to the supervisory board. We should prefer to see the development whereby an assembly representing equally shareholders and employees jointly elect the board; but that would then be a board chosen by the two groups but on which no one individual would be identified as being the representative of a particular interest. This being so, in our view you would get a more integrated functioning of the supervisory board than if you have a worker director there, somewhat uncertain as to what his role really should be.
In this suggestion, we differ from the German practice; but I am interested to
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see that we do not differ from the wording of the draft Directive that has come through from the EEC where they refer to the need that members of supervisory boards are acceptable to the employees. The Liberal device in this regard would enable the certainty that the board was acceptable to the employees, which is one of the aims put forward in the draft Directive. In addition to supporting the idea of supervisory boards with our particular proposals—which, of course, do not figure in the draft Directive—as to how that board should be chosen, we believe also that in some respects we should go further than is proposed here.
As the noble Baroness, Lady Elles, suggested, supervisory boards by themselves do not get very far in the direction in which we need to go in the much greater involvement of people in the running of the concern and the much greater understanding of the problems involved in the running of a concern. This is one of the major reasons for having a supervisory board. We believe that a supervisory board must be reinforced and strengthened and must rest upon a well organised works council so that the knowledge that is gained at the supervisory level penetrates into the works as a whole, and so that ideas through the works council come up to both the executive and the supervisory board. We said at the time of the Bullock proposals that the idea that you make good progress by having a supervisory board without first developing an effective works council is a myth.
We have always argued, too, that, along with the idea of extending control and responsibility at board management to people chosen by the workers, there should go a much greater development of employees' share ownership. In the United States, the ownership of shares among employees has gone very much further and has spread more widely than in this country; and this is also true of Europe. Employee share ownership and profit sharing schemes, none of them panaceas by themselves, taken together build up a structure of a reformed kind of industry with a reformed approach by all sectors towards what industry needs to do and the changes which it needs to make. These, taken together, would give the kind of approach that is very much overdue.

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Speaking for myself—and this is not a part of Party policy—I am glad to see that the suggestion is that there should be on the supervisory boards room for third parties. I am not convinced that the best way of getting those third parties is by agreement between the employee members and the shareholder members; because in many areas, but not all, it is important that there should be the opportunity for some kind of consumer and/or community representation on the boards, particularly, or perhaps mainly, where you are in a monopoly or a near-monopoly industry, and where the consumer has very little chance to see that his ideas and interests are adequately protected.
I echo what the noble Baroness, Lady Elles, said when she referred to the need for experimentation. The original draft Directive coming from Europe, although one had sympathy with many of the ideas that were being expressed, was altogether too rigid as it was put forward to be satisfactorily adopted in this country. I do not believe that any of us are in a sufficient state of knowledge and experience to settle for any one pattern. I believe that what we need is a minimum standard which all organisations will be required to achieve, but that a great deal of experimentation is needed. I hope that at the end of the day it will not be considered necessary that all companies should have two-tier systems or all companies should have single-tier systems. Is it not possible to have the chance of choosing according to the particular nature of the organisation?
I repeat that we need to experiment, and we need to remember that the right kind of organisation is that which fits the particular undertaking. This is true of an organisation's structure in all its facets. It must also therefore be true of the kind of board structure we need to have. There must be the determination to go ahead, and it must be a real determination. Forgive me, my Lords, if I say that many supporters of employee participation are rather recent converts. However, given that there is now the determination to go forward, whatever the reasons for the new-found faith, surely we must have time to experiment. If we are wise, we shall at the end of the day come out with a variety of different patterns.
4.42 p.m.
Lord RHODES: My Lords, I suppose that nothing sharpens the wits more than waiting to make a speech. The ideas which have crowded into my mind since this topic was first raised on the Floor of this House on 23rd February are astonishing to me. A few minutes ago I remembered that it was 70 years ago when I first began working in a factory. It is exactly 66 years ago that I was sacked for joining a union. And what a lot of things have happened since then! It seems to have taken us a long time to get round to discussing this type of participation. But now it is here, we do not want to do it in a hurry; it wants some deliberation and thinking out before we make our decisions.
We are obliged to the noble Lord, Lord Mais, for this debate today. We are also obliged to the Committee who discussed the matter because it is a very good report. The Fifth Directive, which drew particular attention to two-tier boards, has in a way been overtaken by the Bullock Report. What the Government may or may not do about the Bullock Report applies as well to the Fifth Directive, as it does to the Green Paper which followed it. We may ask: "What is the position now?" What we know is that the Fifth Directive received short shrift from most of the countries in Europe, particularly from France, Belgium and Italy, just as this silly idea about Euro-beer and Euro-bread has had the "raspberry" during the past few days.
The Green Paper highlighted the objections in Europe to worker-participation based on a rigid formula. However, the Green Paper in its conclusions stuck to the original opinion that a two-tier system was best, but with this difference: any system adopted should have a maximum degree of elbow-room, manoeuvrability, flexibility or whatever one likes to call it, and not be tied down to a rigid formula. We must not delude ourselves in believing that a universal system can be invented to suit all circumstances. Neither is it inevitable that Britain should adopt a ready-made design from Europe. We must face up to the fact that we must find our own solution.
The subject has been discussed for years by many committees: the TUC, the Bullock Committee, the Plowden Committee studying the electrical supply industry in England and Wales—on which the

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noble Baroness, Lady Seear, sat, and which was a very good committee—the Green Paper, which followed the Fifth Directive, and then the Select Committee for Europe. It is as clear as crystal that we have a highly complex and tremendously difficult job on hand. It will take all the resource, patience and clear-headedness of which we are capable to evolve a system that will work and inspire rather than damp down.
I have argued already that management must be free to manage; it must not be deflected by the introduction of collective bargaining by a representative body on any company board, because if that happens it will be a disaster. Fortunately, we have some hope that the right honourable Edmund Dell, our Minister at the Department of Trade, understands that. In a recent speech to the Society of Long-Range Planners, he said:
"In Germany they insisted on the need for a management board … capable of taking rapid decisions in the interest of a company."
He went on:
"The Germans regard management capability as a paramount consideration and I think it will be agreed, that we here—on any proposals that we make—must do the same.".
In all probability, when the time comes, we shall remind Mr. Dell that he said that.
When our EEC Committee considered the two-tier system, they soon realised that here was a concept that was many-sided and had many variations. May I offer a suggestion at this point: that we stop talking about a supervisory board. We should really get down to considering carefully what the function of a second-tier board should be. If a two-tier board is intended to be a second or higher management board, the dangers are obvious to everybody. If, on the other hand, we look to the second tier as an auditing body to which the management hoard is accountable for its actions, that would be a different kettle of fish altogether. In the face of these alternatives, would it not be a good move to establish a few basic principles? I do not claim that any I refer to are original. In fact, Strategy of Industry, published after the Chequers meeting in November 1975, was larded with them. However, they are worth repeating.
The basic objective is to get effective employee participation. That is No. 1.
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But let us get away from the idea that it can be achieved only by representation on the board according to a rigid formula. In most cases, if that were to happen it would be ossification and not participation. I would go on to say that any effective participation starts at the grass roots and must grow up from them. In the case of a company, it should be at all levels. There is no reason why there should not be a link at board level with board members and an involvement in business policy. Again, we have to accept the fact that there is an enormous difference between management decision-making and management accountability. The sooner we get to an understanding of that, the better.
What do we do now? We must keep on with discussions and deliberations before ever we issue a White Paper. Do not let us commit ourselves too soon. There are people who have suggested a Royal Commission: personally, I do not know about that. In time it may be necessary to legislate to get companies on the move towards involvement, but whatever legislation we introduce, we must leave some elbow room for manoeuvrability.
We must encourage companies to develop their own involvement, within the framework of company law. We must at the same time be careful, where firms have really first-class and well-proved systems, that these are not upset. We have done too much upsetting of good institutions. When I was Lord Lieutenant of Lancashire, I went round to see what they were doing in the way of plucking out the middles of cities. I kept telling them: "Never pull anything down until you know what you are going to put up in its place." We have a long way to go on this. I would say again that we must be careful to see, where firms have really first-class and well proved systems, that they are not upset.
My next point is this. Let those who are thinking this matter through consider what is the right and proper form in which a board can be accountable. I am using the word "accountable" instead of the word "supervisory". Bullock, in his biased terms of reference, was never asked that question—never once—and we must not confuse the matter of decision-making with business

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policy formation. That must be clearly understood.
Our Prime Minister has made a rare job of his visit to America and on his return he said these words:
"I think it is a worrying fact that the real position of this country is so distorted abroad. We have got into a trend where everything that is wrong is headlined and everything that is good is put at the bottom of the page. In the old days we could afford the self-denigration factor. We cannot afford it any longer. We are now fighting for our lives and it is beholden to all of us to put abroad a fair representation of our country's position."
That was well said.
I should like, in finality, to say this. We have a nucleus of companies in Britain which are second to none in the world. I travelled round the world during a period from March to May last year, and every single place I went to I found that there was admiration for some of our big companies—companies which have shown accountability not only to their workers and their shareholders, but also to the nation. They have the national interest at the forefront of their thinking. Let us give them the credit for that. Such firms can teach the EEC something, and such firms are the envy of the Western World; so I would urge that we be careful to see that any legislation we may introduce here in the future keeps them that way. In addition, everybody should try to bring up the level of competence and character of companies that are lagging behind. If we try to do that, we have a big job on hand.
4.57 p.m.
Lord KINGS NORTON: My Lords, I think most of us will find ourselves in complete sympathy with the noble Lord, Lord Rhodes. I always admire his speeches and I found nothing to disagree with in what he has said to us this afternoon.
The Select Committee gave their opinion of this complex matter of two-tier boards and worker participation—or, as I think it is preferable to call it, as did the noble Baroness, Lady Elles, "employee participation"—in paragraph 33 of the report that we are discussing. I find myself largely, though not entirely, in agreement with their view. They discuss in the report the idea of worker participation at the highest board level, and I
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gather from the wording of paragraph 33, which was reiterated by the noble Lord, Lord Mais, in his introductory speech, that conditionally at least they accepted it. But I think the interests of employees in the United Kingdom may not necessarily be best served by adopting it.
In the debate we had on the Bullock Report, the noble Viscount, Lord Watkinson—and today the noble Lord, Lord Rhodes, was to some extent echoing what he said—seemed to me to make an excellent case for an alternative approach to the problem of doing justice to the views and aspirations of employees. My own experience in industry suggests that this alternative approach—based on what the noble Viscount, Lord Watkinson, called partnership and on consultation and the exchange of ideas and information between management and employees at all levels of an organisation—has great merit. I believe the Select Committee should consider this interpretation of employee participation. As the report indicates, a new version of the Fifth Directive is unlikely for another two or three years, and so it would seem we have time to do some more thinking and possibly to discuss the ideas we develop with our European partners.
In the process of making up our minds as to the course we should best pursue, I think there are aspects of the two-tier system about which we should be quite clear; and I do not think they are explicitly dealt with in the report. The first is this—and it is one to which the noble Baroness, Lady Elles, has referred today; we hear a great deal about the German two-tier system. That is undoubtedly because of German economic success. But I do not think that German economic success has much to do with their two-tier board system. I believe that German success is a function of Teutonic industry, of having no more than 16 unions, of a taxation system which provides incentive and, above all, as the noble Baroness, Lady Seear, has said, a highly sophisticated system of worker councils—the result of about a century of development—which are in frequent consultation with management, and which in some areas share decision-making with them. This is what the Germans call co-determination.
The German two-tier system itself is, in my view, rather unbalanced. The

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Aussischtrat—the supervisory board, as we translate it—with its almost 50 per cent. worker participation, has the job of appointing the members of the Vorstand, on recommendations from the Vorstand, of top financial policy, of approving mergers and of little else. It usually meets once a quarter. The board which really matters, and which controls the company and its workers and negotiates with the union—there is unlikely to be more than one union in a given company—is the Vorstand, which has no worker representatives at all. Its members are all full-time senior executives.
My feeling is that any pressure, if there ever is any, to emulate the German two-tier board system should be resisted. I believe that we should instead continue to develop, augment and improve our own two-tier system. At the risk of repeating myself, I want to emphasise, as I did in the debate on the Bullock Report, that we have a two-tier system here. Call it a unitary board system, if you like—though I think it is a misleading term—but the fact is that in all but the very smallest companies there is, in a United Kingdom company, under the board, a management committee under the chairmanship of the managing director. When we are told, "You ought to have a two-tier structure," the answer is, "We have one", and do let us remember that.
But let us look carefully, also, at the possibility of supporting it by voluntary schemes, such as the noble Viscount, Lord Watkinson, outlined, and such as many companies already have, or possibly—but not probably—less voluntary schemes like the employee councils of the German industrial structure. In this connection, I strongly recommend to noble Lords the highly informative article by Sir Emmanuel Kaye in The Times yesterday. Sir Emmanuel heads a German company as well as a British one, and if the Select Committee have not had the benefit of his advice I am sure they will find it valuable.
Just as I believe that the German two-tier board system has little to do with German economic success, I believe that our own kind of two-tier system has little to do with our own relatively poor performance. The United States, about whose commercial and industrial achievements there can be little argument, has a
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system similar to ours. Our system is not perfect. Perhaps it should be rather more standardised in pattern. We see large companies with small boards, we see small companies with large boards, we see companies with no non-executive directors, which is bad, and—which is worse—we occasionally see companies with a host of non-executive directors and only one or two executives.
Perhaps without designing straitjackets, which is what the Bullock Report appeared to favour, we should try to develop a more consistent pattern at the same time as we develop the concept of employee participation, conscious of the appalling difficulties, indicated in the report, which we shall be in if we do it the wrong way. I hope, too, that our pattern, when it crystallises, will not require the creation of an arbitrary boundary, like the 500 employees of the draft Directive or the 2,000 of the Bullock Report, below which the system need not apply. If we are too rigid about boundaries, we are in for quite a lot of trouble.
I begin to detect signs of a more reasonable definition of harmonisation in the EEC. There is evidence for that view in the report and in the Green Paper. At one stage, it seemed to mean, in the Commission's dictionary, the development of a single system for the Community. Perhaps it soon will mean in "Brusselese" what I think it ought always to have meant—the elimination of discord. This will be achieved by each country developing its own system with the knowledge of how its partners are developing theirs. It is far, far better for us each to understand the other's systems, than that we should struggle—almost certainly unsuccessfully—to have the same.
It is, in any case, evident that we do not need a single company law structure for Europe to achieve co-operation. There are enough examples of multinational companies and industrial collaboration in Europe to make clear that variations in company law are not obstacles in the face of potential commercial, technical or financial advantage. To take a recent example, the collaboration of British, German and Italian aircraft organisations which has produced the MRCA, or Tornado, aircraft, was controlled by an international company called Panavia. Its board was international, its behaviour

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was international, but it was Panavia GmbH, subject to German company law; and that produced no difficulties at all.
To struggle towards identity of structure —and it no longer, I admit, seems likely—is unnecessary and time-consuming. Let us improve our industrial system, understand our neighbours' systems and eliminate any elements which hinder collaboration.
5.7 p.m.
Lord DOUGLASS of CLEVELAND: My Lords, I have listened with great interest to what has been said and I think that the meaning of the recommendations has been well outlined by my noble friend Lord Mais and subsequent speakers. All have addressed themselves to the problem rather than to personalities, except perhaps the noble Baroness, Lady Elles, who introduced a rather personal feeling into this debate which I regret. because it is one of those subjects which will require cooperation from everybody in the country if the problem is to be solved. She is under a misapprehension when she says that they do not have trouble in Germany because strikes are prohibited by law. They are prohibited by law, but in 1968 the profits of the companies went up astronomically while wages remained almost stationary, and there were wildcat strikes all over Germany.
Baroness ELLES: My Lords, will the noble Lord allow me to intervene? I think he will see when he reads his Hansard tomorrow that I did not say that supervisory boards worked because strikes were illegal. I merely said that if you consider one form of democratic institution, you have to take it in the context of what obtains in other legislation and criteria. I certainly did not say what the noble Lord implied I said.
Lord DOUGLASS of CLEVELAND: My Lords, I feel that what the noble Baroness has just said implies exactly the same thing, that she feels that if you have legislation against strikes then you do not have them. But I will read Hansard tomorrow. What I know is that if a large body of employees is totally dissatisfied with the conditions under which they work they will strike, and our job is to find a method of achieving the conditions so that they will not strike, so that they
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will accept the sacrifices which are necessary, as workers in this country have accepted sacrifices since the Social Contract came into operation. It is necessary to have understandings. The noble Baroness also said that the share ownership schemes were successful. They were not. They had premiums of 30 and 40 per cent. on them and they have been absolutely unsuccessful. Hardly anybody has taken them up. Those things do not help in any discussion of this character.
A good deal has been said about reporting hack. I was on the Iron and Steel Board which controlled the iron and steel industry, in so far as one could not develop any part of that industry without the permission of the board, nor put up the prices charged for iron and steel at that time. On that board, we were able very successfully to control an industry without having to come down hard on it. I notice that the noble Baroness, Lady Seear, is no longer here but she asked for consumers to be represented on boards. Consumers sat on the Iron and Steel Board. Therefore, when prices were fixed the consumers knew exactly what they would have to pay. Every one of us on the board reported back to the people whom we represented. I see nothing wrong with reporting back, if a modicum of discretion is used and if those things which would be hurtful to the company concerned are not reported back. Every trade unionist understands that.
Corning to the problem of unemployment which trade unionists have to face at present, everybody says that we must increase investment and that if we increase investment we shall cure unemployment. In Germany, which has been so successful, the General Secretary of the German TUC has said that under the present system there is no cure for unemployment: every time you invest large sums of money in industry you increase unemployment because of the large sums of money which are spent on technological improvements. We have an example of that in Great Britain. The Post Office are now installing new electronic systems rather than electric machinery. It has been estimated that a cubic inch of electronics will provide this year as much output as electric machinery and that in 10 years' time the output will he 1,000 times more than that which will be provided this year. That is, as each year goes by

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and a new electronic unit is installed there will be an extra 100 times output from that unit. When the workers of the world—the problem affects the whole of the world—see this they say, "What is going to be done about it?"
We have voluntary systems of participation and co-operation which have worked well for 10 years, yet in those years unemployment has increased. Unemployment is increasing dramatically and nobody seems to be able to stop it increasing. They had guest workers in Germany, all of whom have now gone home, but their own workers will face unemployment now as a consequence of technological improvements. This is the problem to which we have to address our minds. We argue that we can solve the problem by introducing a shorter working week, but as soon as we put forward that argument we are told that we cannot afford a shorter working week; there is not enough money in the country to pay for it.
I am not going to try to provide an answer to the problem. Instead I am going to suggest that unless there is greater union participation the unions will not believe that the employers are trying to solve the problem correctly. The employers will try to persuade the unions otherwise, but they will not get very far with it. In these circumstances, is it difficult to understand why the workers say, "We want not only consultation but the right to take part in decision-making"? The Bullock Committee jumped the gun. The noble Lord, Lord Rhodes, said that we are in a situation where industry is controlled by a managerial society: that it is controlled not by the shareholders who put in the money or by the workers who work in the industry but by the managers who manage the industry. If we are to have a managerial society and industry governed by managers, it is self-evident that the election of trade unionists on to boards will not take place. The Bullock Committee killed this argument from the word "go" by suggesting that there should be unitary boards.
This brings me to the question of the supervisory board in Germany. Everybody says that we ought to adopt the German system. However, it is not a German but a British system which was
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established when Ernest Bevin was Foreign Secretary. He sent Lord Feather, who sat in this House, to Germany to help them to solve some of the problems with which they were faced after the war. He created industrial trade unionism instead of a great number of trade unions and, having created trade unionism, he created works councils. There is a great deal to be said for works councils.
There was a showdown in British Leyland last week because a number of the men broke the rules. It was not a quarrel between the toolmakers, who are skilled men, and unskilled men, as is so often represented in the media. It was a quarrel between skilled men. If the unions had given way on that question and awarded the lower-paid toolmakers the same wages as the higher-paid toolmakers, you can take it from me that there would have been an almighty row in the industry. So it was a trade union quarrel, which the works council could have looked at and probably solved. The problem at British Leyland is that it is an amalgamation of a number of companies, all of which have carried their rules into the one company. This problem must be thought out, and a works council could do that.
The system established in Germany by Ernest Bevin consisted of an industrial council, which made industrial decisions, and equal numbers from each side of industry were represented on it; regional councils which made regional decisions, again with the same numbers from each side; and works councils, right down to the workshops, which made works decisions. A national decision overrode all other decisions, while regional decisions overrode all works decisions. Therefore a decision-making system was established which could not trip itself up. It represents communications par excellence, and at the end of the day it preserves unity in that society—except, as I have said, when there is an unfair situation in which profits are soaring and wages are virtually standing still. Then there are strikes. However, the machinery is there to deal with strikes.
In this country, where we have the problem of British Leyland, we have the advantage of trade unions which are prepared to carry responsibility. I hesitate

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to think what would have happened if the quarrel had been between two unions. I do not think that it would have been settled so easily as it has been settled now. However, what the unions have to do is to apply the rules; in trade unionism, rules will apply when legislation is completely hopeless. The AEU stuck tight to its rules and did not ignore the problem. You must talk to the men and you can even stretch the rules, but you cannot break them. It is fatal to break rules; you must have rules somewhere. I believe that we in this country can widen the scope beyond one trade union to all trade unions. At British Leyland all the unions stood behind the AEU and said, "The rules of the union must be sacrosanct".
If we had co-determination in this country and a works council, although not necessarily a works council, and the good will of the people inside the trade unions, I believe that half of our internal trade union problems would vanish. I believe we could then get communication with the people on the board, and far better if it is a supervisory board where one can at least make an approach to this problem with trade unionists working alongside managers. I believe we could then get an understanding of the problems, and we should be at the stage of asking the right questions. I am not going to attempt to say what the solutions would be, but I do want the right questions to be asked, the right machine to be set up and, with the noble Lord, Lord Rhodes, while I have been sitting here all sorts of ideas have been going through my mind as a result of this debate.
If we can get to the point I have indicated I think it could be the beginning of a successful understanding in this country towards tackling the one great problem of the present day, the inevitable unemployment which will arise from the present system; with the system itself adapted to a situation where workpeople will not feel that they are going to be unemployed and not wanted, while those who have the money and who own the shares will get all the benefit from these technological improvements. The only way I can see that happening is for there to be a board of some kind on which the workers have as much influence as the employers. It cannot be the managerial board and, in the absence of
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something better, I think it must be a supervisory board.
Lord BOOTHBY: My Lords, before the noble Lord sits down I should like to ask him one question. He put his finger on the vital spot but he did not give the answer. It is that the steady advance of technology in industry is bound to lead to unemployment. With all his great experience, the noble Lord did not tell us whether there was any solution. I sometimes doubt whether there is one.
Lord DOUGLASS of CLEVELAND: My Lords, perhaps I may stick my neck out. I was unemployed for the whole of the first year of my married life, so I speak feelingly about people who are unemployed. If you walk the streets for a year, particularly when you have just got married and all life is before you, you feel quite bitter. In the shop in which I worked at one time we were to work only one furnace out of three for a foreseeable period of two years. The management told us that, and they said: "We are going to declare some men redundant". There was no redundancy pay in those days. We had a meeting and we said: "We are not going to allow anybody to be redundant; we are going to share the work". Accordingly we shared the work: we worked one week and drew the dole for two weeks, and we knew that we were going to do that for two years. In fact we did it for more than two years.
There is not enough money in the industry to have a shorter working week, so is it possible to evolve a method whereby work is shared with your fellow men when there is only so much work available? I think it is possible. If I am asked to work out a scheme I will do so; I have not done it yet. I think the answer is that if there is only so much work it must be shared; the method of sharing must be devised, and what better than a board on which workers and employers sit together?
5.24 p.m.
Lord MORRIS: My Lords, I welcome this report of the Select Committee in that it highlights with heady erudition and laudable brevity some of the very real problems which arise when considering the possibility of tinkering with the structure of limited companies. There has been much debate on this subject in recent years, arising in my view partly as a result of the

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belief that those who work for a company are more members of that company than the remote shareholder, who in many cases is more a lender of capital than a participating member. Similarly, it is often held that those who work for a company are part contributors of the capital of that company. I would respectfully submit that that is undoubtedly so, for in so far as those who work for a company contribute to the creation of a surplus they are in fact creating the internally generated capital of the company. Similarly, in so far as those who work for the company create the asset goodwill they are partly contributing to the capital appreciation or worth of that company, yet this employee-company relationship is in no way reflected in company law. The relationship of the employee to his company is reflected in the common law—master and servant—but those who work for a company are not merely servants or officers of the company but are participating partners of capital who have a duty to serve the interests of the company as a whole.
However, I entirely agree with the view taken by the Royal Commission on trade unions and employers associations, in that they felt unable to recommend that the appointment of worker directors should be made compulsory. That must be right, because tinkering about with the structure of a board of directors of a company might well prove divisive rather than cohesive and lead to inefficient, contentious and indecisive management. I submit with respect that those who hold the view that the structure of the board of directors of a company should be changed are playing a cacophonous tune on the wrong organ.
As your Lordships are aware, the two organs of a company are the board of directors, analogous to the Government or executive of the company, and the members in general meeting, analogous to the parliament of the company. It is in the parliament of the company that those who work for a company, other than at director level, might best have their voice. I believe that view was held as long ago as in the 1920s. Section 45 of the 1929 Companies Act, which is the forerunner of Section 54 of the 19.48 Act, provides, inter alia, that a company may lend money to its employees in order that they might
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purchase its shares. The artifice of creating a two-tier board is, in my submission, wholly unrealistic and above all superfluous, for in practice in any well managed company such a structure already exists in that the managing director—the chief executive of the company—is responsible to, and reports to, his fellow members on the board after consultation with, and consideration reports from, management teams under his control.
To put it another way, non-director level management is the second tier. Any management which does not regularly consult and consider the views of all those who work for the company does so at its economic peril. Similarly, good management, like good Government, will, and does, consider the views of all those affected by its decisions, not only its shareholders, but staff, creditors, prospective investors, clients and customers.
Finally, I feel that it is worth considering the perspective of this problem. At present there are some 670,000 companies registered in England and Wales of which some 400,000 are trading. Of these, only approximately 1 per cent. are listed on recognised stock exchanges, namely, about 4,000. Ninety-nine per cent. of all companies trading are small to medium sized companies, and in my experience those who work for the majority of the companies in this country participate in the management, both directly and indirectly, for where management fails to involve those who work for the company it does so to its great cost. That is a reality of corporate and business life. Greater worker participation should lie in the heart of good management—not so much in the body of the law.
5.30 p.m.
Lord HOUGHTON of SOWERBY: My Lords, I welcome the contribution to our debate that has just been made by the noble Lord, Lord Morris. I think all speeches made in your Lordships' House by younger Members are of especial value. In my view, all speeches made by noble Lords who are under the age of 50 should be printed in bold type in the Official Report because they make more worthwhile reading than all the rest put together. I wish I qualified for heavy type in my new version of Hansard.

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My Lords, we are disussing a subject to which we gave many hours of debate very recently, and today our debate is a kind of postscript to the major debate on the Bullock Report, that we had recently. In the matter of timing, and the dates of the documents that we are looking at at the moment, there is a curious oddity about it. All the evidence given to the Select Committee was completed before the Bullock Committee was set up. The Select Committee made its report in the middle of 1976 when the Bullock Committee was halfway through its task. We are debating the report of the Select Committee weeks after the Bullock Committee reported. It all seems to be wrong somehow, and yet I believe that it is perhaps more convenient than we realise that we are discussing the draft Fifth Directive at a time when it is likely as time goes on to become more relevant to the debate now in progress.
I want to start with one or two very short propositions. The first is that we have been very backward in this country in innovation and experiment with company management. Although many radical schemes have been introduced, in general the basic structure of company law, company structure and organisation has remained the same for many years. I believe I said on a previous occasion what a pity it was that the report of the Whitley Committee, recommending joint industrial councils in industry, in 1919, was brushed aside by both sides of industry and it was left to the Civil Service to make a thoroughly good job of it. Had both sides of industry been keener on adopting the recommendations of the Whitley Report those many years ago, we should have had works councils in Britain for exactly the same length of time that they have had them in Germany, because their works councils started at the same time as the Whitley Councils in the British Civil Service.
The second proposition that I want to put to your Lordships is that we are discussing the creation of a new franchise, a new dimension to civil rights. This is most important to bear in mind, because it suggests that you cannot have too many loose phrases on what we mean by "participation" and in what framework and in what form it is to be granted. This is why, with great respect to my
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noble friend Lord Rhodes, the time for wide generalities is coming to an end; we really have to get down to the practical issues that are waiting to be dealt with. It is a pity that we are having to talk generalities at all. Had we taken note of what was happening in Europe years ago, long before the EEC, we should have been much further advanced in our thinking on this subject. But you cannot say we must have flexibility, we must have manoeuvrability, we must have elbow room, we must have all the room in the world to devise our own schemes, when we are dealing with a new franchise. There is bound to be form, and there is bound to be sooner or later statutory support for a new franchise; and that means that we have to be more precise in our conception of what it is and how it is to be applied.
When we are asked to take note of the report of the Select Committee, I ask how much note do we take of it, and when we have noted it what do we do with it, having given it our temporary attention this afternoon. It is certainly part of the debate that is to go on for a little while longer, as I said a moment ago; but I think we have to put this now a little further forward on the agenda of the debate, because the majority report of the Bullock Committee is having a very rough time. It has not only been criticised, it has been condemned, and there has been talk even of resisting it. I see the noble Lord. Lord Carr, there, and whenever I see the noble Lord I am bound to think of the Industrial Relations Act 1971; I cannot help it. I am bound to use him—with great respect and affection towards him—as a striking illustration of what you cannot do by Act of Parliament. And you can no more do it on management than you can do it on the unions. Let us bear that in mind. There is more than one interest here, even when conferring a new franchise, an extension of civil rights. There are those who are affected by that extension; there are those who have to work with it and come to terms with it, and their views and their attitude have to be borne in mind.
So, my Lords, I think we must employ that strange genius that we always fall back on, the voluntary system. We must try to make progress so far as we can and for as long as we can by voluntary means. What is it to be? My personal

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view is that the majority report of Bullock is now out, and we, therefore, have to find some alternative to it. The alternative is not to do nothing. I think that the movement towards a wider democracy is so strong now, the anxieties in industry and the feeling of people that they are cogs in a machine are growing so strongly and so speedily, that there will be an increasing drive to have some share in the decisions and in the discussions on matters which are going to affect the lives and livelihoods of so many people. As has been raised in the debate already, the effects of technology, are obviously matters upon which the worker has a greater interest than perhaps anybody else because his job may be at stake. All these must come into the field of discussion.
How then is it to be done? If the majority report of Bullock is out, what is likely to be in? Here I pass to the minority report, and one sees in the minority report at least a standby solution to this dilemma along the lines of the Fifth Directive that we are discussing now. That is the two-tier structure of company boards. Bear in mind also, my Lords, that some strange things have happened on this subject. The initial evidence of the Trades Union Congress to the Bullock Committee was in favour of two-tier boards. The initial evidence of the Labour Party to the Bullock Committee was in favour of two-tier boards. As the noble Lord, Lord Kings-Norton, pointed out, the CBI have now come out in favour of something they were opposed to to start with. They have all done the same; opinions have changed as they have gone along. I hope I am not imputing any motives in members of the majority of the Bullock Committee, but I am hound to say that I identify four members out of seven who held very strong views against going into the EEC at all, and I cannot think that they embraced with enthusiastic affection any of the European institutions and perhaps thought of the essentially British alternative.
Do not let us be so prissy about the British. We are no longer able to show that what is British is best. Others have been trying other methods and have succeeded. In the earlier debate I said—and I repeat it today—that worker participation on these lines is an indispensable condition of the survival of the mixed economy. There is no other way in which
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to eliminate the ideological struggle on the shop floor. The trade union movement and the management in Europe are able to co-operate so successfully on a scheme of this kind because there is no longer an ideological struggle taking place on the shop floor. Wherever else it may be, it is not on the shop floor. I believe that that has paved the way for a degree of cooperation and efficiency, especially in Germany, that we would envy here. It is an encouragement for us to look at what has succeeded elsewhere.
The proposal for a unitary board on the lines suggested by the Bullock Committee has not been tried elsewhere except in Sweden. There are numerous examples of alternatives to that of the two-tier structure. I believe that this is the scheme which may hold our attention more closely as the days go by because it appears to be the possible alternative to the majority report which would satisfy the main principles of participation. It would be built on practical experience elsewhere and it would be more acceptable to a large section of British industry in a way that the majority report would not. It cannot be so very bad, otherwise the Trades Union Congress and the Labour Party in the first instance would not have put it forward as their preference in the appointment of workers to company boards. Many details would have to be thrashed out—for example, powers, proportions, the basis of election and that kind of thing.
Within the structure of the two-tier system, there is room for modifications and improvements. However, we shall probably find that if we are to get anything approaching an agreed solution so that we can go forward with this new franchise of worker-participation in industry, we shall have to do it on the basis of the two-tier board. In 1974 I paid a longer visit to Europe than that paid by the Bullock Committee, and I looked at these matters. I attended meetings of management boards and supervisory boards; I attended meetings of works councils. I went round industry with, if I may say so, a not inexpert eye, because, after all, I was connected with the Whitley Council system, departmentally and nationally, in the Civil Service and was a member of the General Council of the Trades Union Congress for 10 years. I did not go to Europe as a novice. I thought that I could distinguish between what was good

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and what was not so good in that system. There was more good there than one sees in many parts of industry in Britain today in the relations between management and workers.
I am confident that we can look at this report with a considerable degree of faith; it is something which we should examine more closely before we get drawn off to improvisations of a special character of an essentially British nature which we believe would be the alternative to the majority report. I believe that we are on the way to finding an acceptable solution. The report before us this afternoon is a very valuable contribution towards it.
5.45 p.m.
Lord PRITCHARD: My Lords, today one constantly hears of the two sides of industry, of worker directors and shareholder directors. That is quite wrong, as it is quite wrong to talk of workers and management. We are all workers; we are all one in the team, or we should be. If we are not, that is where we are at fault. There are not just two sides of industry; there are certainly three. Today the Government play a major part in industry. The Government, the shopfloor and management are not sides but component parts that must fit together and really work for our benefit. I agree with the remarks made by the noble Lord, Lord Houghton of Sowerby, that it is on the shopfloor that we must seek unity and solve the problems.
I hope that it is not presumptuous of me humbly to put forward some thoughts that may lead to a solution to this very serious industrial relations problem which faces us. My only excuse is that I have led companies of over 50,000 employees. Among my groups I have quite a large company in Germany under my chairmanship, together with companies in Holland and Belgium. Therefore, for seven years I have had first-hand experience of two-tier boards and worker representation on those boards. It does work. It certainly works in Europe, but it does not necessarily mean that because it works there it should be imposed here, and certainly not automatically from the top. The circumstances here are very different.
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As the noble Lord, Lord Douglass of Cleveland, said, Germany owes a great debt to Mr. Kevin and especially to our old friend, Lord Feather, who produced this very brilliant Act whereby there are 16 trade unions and one trade union to each industry, of which everyone in the company is a member. The noble Lord, Lord Kings Norton, has already fully outlined the functions of the German two-tier board system, the Aufsichtsrat and the Vorstand, so I shall not go into that. I would add one point. Because everyone in a company is a member of the one trade union—and therefore there is no poaching; different views are not expressed; it is just one body—there is no problem over how members from both the shopfloor and the offices are elected to the boards. That disposes of a very major problem that arose between the CBI and the TUC. However, circumstances are very different here. One only has to imagine the number of unions in British Leyland to appreciate that.
In Germany, directors who are elected by the shareholders or by the employees to the supervisory board are absolutely equal. There are no first-class and second-class directors. That disposes of another problem and is what the noble Baroness, Lady Elles, had in mind. In this country there is a fair amount of fear and fright about the concept of two-tier boards. Without going into the pros and cons—because they have been well aired today—most major companies in Britain, although they do not know it, operate two-tier boards. Most large companies have holding companies, which, in effect, are a supervisory board; they are not exactly the same, but they are the British version. The actual management of the company is run either by subsidiary company boards or committees and they become, in turn, the Vorstand. Therefore, the step is not all that great.
As the noble Lord, Lord Rhodes, said, it must be obvious that the whole concept of our problem is getting ideas to flow upwards from the shopfloor as well as downwards from the board. For instance, one example is in production methods. It is quite obvious that they will be much more effective if the suggestions come from the bottom upwards rather than if they are imposed by management from some austere position at the top.

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Looking at British industry today, I should like to say something which has been touched on, but only lightly. We have much to be proud of, as well as some things we can well be ashamed of. There are a large number of companies, by far the majority in this country—and particularly the smaller companies and medium sized companies—whose efforts in both the home field and particularly exports need commending in the greatest possible way. They produce excellent goods, delivered on time at the right price, but that never hits the headlines in the media. It is only the distressing and sad parts that they bring up.
To come more seriously to the point of worker representation, I think that we should all accept gladly, as the noble Baroness, Lady Seear, said, that people who invest their livelihood in the business deserve to have the right to be consulted just as much, if not more than, the people who invest their money. They need to be able to make their views known and to be consulted before a decision is made and not merely informed afterwards, however beautifully they may be informed.
My conclusions are really these: more important in priority than two-tier boards is legal insistence on statutory works councils for companies of 100 employees or more—as small as that. They should be democratically elected annually jointly by the shopfloor and by management. They should be intimately involved not so much with some of the top level things that everyone thinks are important and are not so important, but with matters that really concern the members of the company, whether they be in management or on the shopfloor. I am thinking of such things as job evaluation; wages and piecework rates; working times, including overtime; holidays; redundancy; work procedures; closing of factories; any major alterations (one hopes, improvements) that are going to lead to more profitability for the company that could well be shared with the workers. By "workers", I naturally mean every employee and not just those who work in any one part of the company.
We cannot do that necessarily today for reasons we all know, but in the future I believe that there should be a much closer relationship with what a man earns and with what he produces and the economies
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of that production. I feel that in return for this we should get from all our employees a much greater pride in the company, a much greater dedication to their task—which, I am afraid, exists to a much greater extent in Germany, Japan and the United States.
Finally, may I make a suggestion on the subject of profit sharing. I do this with all humility, and begging to differ from the noble Lord, Lord Douglass. I agree with him that this has failed in many instances, but it has succeeded in the United States. There are other ways of applying this, and I believe that the icing on the cake that we should bake, knowing that the bigger we bake the cake the bigger part we will get out of it, should be profit sharing on the American pattern. There both the company and the recipient receive tax benefits on money allocated from profits and built into a fund which ends up by individuals, at a given time, or when they leave or retire, receiving shares which they could, or could not, convert into cash. This involves them much more realistically in the company. I feel that such legislation would be a valuable contribution to our economy and could pay big dividends.
5.54 p.m.
Lord ORAM: My Lords, I would first wish to pay tribute to my noble friend Lord Mais for giving us this opportunity to have this most useful debate, and also to the Select Committee for their work in producing such a clear and understandable report on this very detailed and important subject. I should like to refer to the points raised in the report itself later in my speech, having first of all outlined Government policy on Industrial Democracy in the European context. The House will remember having debated other EEC Directives concerning company legislation in April last year, and I would therefore also take this opportunity of expressing my pleasure in seeing that the House is being kept fully in the picture with proposals in the EEC which will affect our own legislation in this country.
The Instruments covered in the Fifty-Fourth Report of the Select Committee have direct relevance to the debate in this House on 23rd February—to which a number of references have been made—

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on the report of the Bullock Committee on Industrial Democracy. Your Lordships will doubtless remember that long debate. I certainly do but I feel it may be helpful to your Lordships if I recall the Government policy made in a Statement by my right honourable friend the Secretary of State for Trade on the publication of that report. He repeated the Government's commitment to a radical extension of industrial democracy through the representation of the work force on company boards and to the essential role of trades unions in this process; and he said that we intended to undertake consultations with the CBI and the TUC on the basis of the majority report, in order that as much common ground as possible may be identified.
He expressed the hope that these consultations would take place in a positive and constructive atmosphere with recognition by both sides of industry of the need to seek a lasting settlement. As I have listened to your Lordships' debate today, I have felt that most, perhaps all, the contributions to which we have listened have made significant contributions in that spirit. This process of consultation with the CBI and the TUC has now begun. The Prime Minister, as your Lordships will be aware, has recently had discussions with the CBI; and a group of Ministers has met with them to explore further their point of view, particularly in relation to problems of participation below boardroom level.
The TUC are currently studying the report in detail, and arrangements are in hand for the Secretaries of State for Trade, Industry and Employment to meet them to hear their views. Letters and statements are being received from organisations and the public, all of which will be helpful to us in reaching conclusions for the framing of our legislative proposals. It is therefore clear that every effort is being made to reach a solution that will be workable in this country and acceptable to Parliament, industry, commerce and the professions. I should like to emphasise this point, since when I later discuss the European harmonisation programme I feel sure it will be helpful to your Lordships to remember that the Government's policy must first be to achieve a solution of our own problems.
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Turning now to the Continent, your Lordships will be well aware of the considerable experience of worker participation at board level that has been gained in Western Europe for many years. Apart from Italy, Ireland and ourselves, most other EEC countries have arrangements of one form or another for participation at board level, and I do not think I would be misleading your Lordships if I were to suggest that we in this country have been somewhat tardy in this field. I found myself agreeing with my noble friend Lord Houghton when he was making a similar point.
The European experience, and particularly in Western Germany, has shown that worker participation has made a considerable contribution to industrial harmony and has resulted in high productivity and a strong economy. Your Lordships will be aware that in West Germany workers have been represented on supervisory boards for the past 25 years. Legislative arrangements also exist in France, Holland, Denmark and Luxembourg within the EEC and in a number of other European countries. Thus, it is completely understandable that the Commission of the European Communities has made proposals to the Council for some form of harmonisation in this sector. They have stated that in their view is it clear from the developments which have been, and still are, taking place in many Member States, the time is ripe for the reform of certain social institutions, including companies, in order to take account of important evolutions which have been gathering momentum for some time. Their aim has been clearly expressed: to provide legislation which will create a framework, taking into account current developments—social, economic and political—and in as flexible a manner as possible, so that advances can be made towards the attainment of the natural and genuine extension of democratic principles they wish to see in the Community. The Government support this view. I will therefore turn to the two documents themselves.
The draft Fifth Directive was first submitted to the Council in 1972, mainly as a result of work and debate on the Statute for the European Company, which had been published in 1970. The European Company Statute, among many other matters, had laid down fairly rigid principles

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of worker participation—a mandatory requirement for a two-tier board, a supervisory board consisting of three equal parts, representation on a works council and so on. The draft Fifth Directive concentrated attention on this particularly sensitive area. However, it did not make any progress through the Council before, in November 1975, the Commission published its Green Paper in an effort to stimulate and consolidate public opinion.
Your Lordships will be aware that the Commission's intention is to revise the text of the Directive as a result of the debate on the Green Paper and after taking into consideration the comments of the European Assembly and Economic and Social Committee. We await the publication of the new text of the Fifth Directive, which we understand to be likely during the first half of this year. As a result, it would be true to say that the Directive as it now stands is rather out of date and no longer a live document. I think it would be helpful, therefore, if I were to concentrate on the Green Paper itself.
As your Lordships are aware, the document discusses at some length the requirement for, and the problem of, introducing employee participation at board level and the proposed future companies structure in the European Community. It particularly recommends that a dualist board system and employee participation on the supervisory board are valuable and realistic objectives, and that action should be taken on the associated issue of employees' representative institutions, namely, works councils. However, to reach these objectives, it strongly endorses the need for flexibility in each Member State and proposes that they be approached by stages. The Government welcome this policy and, as I shall mention later, discussions with our European colleagues have given us much encouragement in removing any fears that the Commission will be pressing for a solution which is rigid and contains no room for manoeuvre to take account of the many and varied systems in each of the Member States. The underlying objective, which the Government support, can be fairly described as a means to provide a framework in which employees are ensured of a role in the processes of taking decisions about matters affecting their work, status and livelihood. In not making formal proposals, the Paper commends to serious
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and constructive debate its proposed common guidelines that would allow the consideration of a number of alternatives.
From what I have said so far, I think it can be seen how the Government stand in relation to the European harmonisation programme of industrial democracy. My right honourable friend the Secretary of State for Trade said in his Statement on 26th January that the Government were committed to the principle of worker participation and to the trade unions essential role in this. I would therefore re-emphasise that it will be Government policy first to reach conclusions that are satisfactory to this country, and that this must be regarded as our first task. While achieving the eventual solution, it would of course be wrong to ignore the experience available to us on the Continent and to European proposals such as those in the Green Paper. In fact, the Secretary of State has already visited West Germany to study their experience at first hand and he intends to visit other EEC countries in the near future.
However, it must remain our priority to develop a system suited to the needs of our own country, and only when this has been evolved can we reach conclusions on harmonisation. I must emphasise that these principles will in no way prevent or deter us from taking part in discussions in the EEC concurrently with resolving our own problems. It may not be possible for our delegations to take up a firm position on many matters in these discussions until we have reached conclusions on our own system, but there is no reason why we cannot make constructive and helpful efforts in the furtherance of European harmonisation in this field.
I believe that what I have said will have given your Lordships an answer to some of the recommendations in Part III of the Select Committee's report, and it would therefore be right for me now to turn to the report itself. The Select Committee recommended that the Bullock Committee should take account of the matters raised in Part II of its report, and while of course I cannot speak for the Bullock Committee, it may be useful if I draw attention to some aspects of that report which are relevant to the Select Committee's recommendations.
The Select Committee has drawn attention to the changes in the very nature of a

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company, and in particular to the relationship between director and shareholder, and poses the question whether the board should be able to override decisions of the general meeting in certain circumstances. The Bullock Committee clearly recognised that where there is a situation where employee representatives sit on the board as of right, some fundamental changes would be needed. For that reason, the majority of the Committee recommended that, while leaving the shareholder the ultimate decision on such matters as dividends, changes in the capital structure of companies and winding up, these decisions should be taken only following a recommendation from the directors.
The Bullock Committee, while recognising the fundamental changes these recommendations entail in the legal rights of shareholders suggest that because of the way these rights are exercised in practice its recommendations would bring the law more into line with current practice in large companies. Noble Lords will also be familiar with the formula which the majority of the Committee recommended should be adopted to avoid the possibility of deadlock arising from a situation where shareholders and employees each had 50 per cent. of the seats on the board. Some of these recommendations of course have proved to be very controversial and we shall naturally be consulting about them.
The Select Committee, in its statement of its opinion, also draws attention to the powers, responsibilities and duties of directors as they exist at present in our law, and to the difficulties that might result from the changes in these that might be necessitated by the adoption of a two-tier board system, or of employee representation on company boards as envisaged by the TUC in their booklet, Industrial Democracy, and in their evidence to the Select Committee. Your Lordships will be aware that the majority of the Bullock Committee were of the opinion that difficulties in the separation of directors' powers and duties between the two elements of a two-tier board system were such that any legislation to introduce such a system would have to be unacceptably formalised and rigid. While this is an aspect of the two-tier approach which clearly needs careful consideration, I
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should like to emphasise that the Government have not closed their mind on this subject. It is undoubtedly true that two-tier systems have worked well in other countries, and we are ready to consider all the arguments that may be deployed.
On the question of the duties of directors, noble Lords, will have noted—with approval, I feel sure—that the Bullock Report recommended that all directors, however appointed, should have the same duties and responsibilities. I note that the noble Baroness, Lady Elles, indicated her feeling that that should be so. It also recommended—and this, I am sure, met with general approval—that directors in discharging their duties to the company should have regard to the interests of employees as well as other interests. As the Select Committee noted, this requirement raises some questions of interpretation and definition which are at present being carefully considered by the Government.
The report of the Select Committee also raised the question of the appointment and removal of employee representatives. As the House will know, the Bullock majority report discusses this whole subject at some length and comes to the conclusion that this should be organised through the unions acting together in a Joint Representation Committee. This, of course, has been one of the most controversial issues in the Bullock Report, and I will not comment on it further today, save to repeat that this is one of the areas in which the Government are at present carrying out further consultations.
The last problem to which the Select Committee drew attention was the need to provide for the continued co-ordination and control of groups of companies by their parent. This, too, is a subject which the Bullock majority report covers in some detail and, as noble Lords will know, its recommendations are designed to meet the point identified by the Select Committee. Indeed, the report acknowledges that companies with over 2,000 employees are normally members of a wider group, and hence this is a matter of considerable importance. I can only add that the Government are similarly seized with the magnitude of this issue and the need for their legislative proposals fully to take account of it.
I would therefore wish to close by stating my appreciation once again for this

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opportunity of expressing the Government's intentions and stating my belief that this has been a very useful and, indeed, necessary debate, so that the views expressed by noble Lords during the debate on the Bullock Report can be properly extended to the European context. Once again, thank my noble friend Lord Mais for having given the House this opportunity.
6.17 p.m.
Lord MAIS: My Lords, I do not wish to delay your Lordships longer than necessary, but I should like to deal with one or two points which were raised during the debate. The noble Baroness, Lady Elles, asked why we did not include the CBI among those who gave evidence. In fact we took evidence from the CBI on the Second, Third and Fourth draft Directives and perhaps the noble Baroness will bear with me if I suggest that I should tell her outside this Chamber why we did not ask the CBI for the Fifth Directive.
The noble Baroness referred to the success of German industry and other noble Lords also mentioned this. I believe that we would all agree that the whole structure of German unions is very much responsible for this, in that their unions are industrially rather than trade based, as is the case in this country. I feel that we should take some credit for that fact, in that the system was set up by this country. One might sometimes say that there are advantages in losing a war rather than winning it.
My noble friend Lord Rhodes, with his usual eloquence, defined what he considered should be the areas of responsibility for the supervisory board. So far as I can see, it is essential that it should restrict itself to accountability, policy and finance and that it should in no circumstances become involved in the day-to-day running of the business. The noble Baroness, Lady Seear, also referred to the question of the establishment and the great need for works councils. Of course, with the two-tier system, one would have the works council below the management board and it would be between the works council and the management board that I would envisage that the day-to-day running, industrial problems and labour relations generally would be dealt with. They would not reach the supervisory board except as a last resort.
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My noble friend Lord Houghton asked this question: Having taken note, what now? May I suggest, as I suggested earlier, that Bullock, though it is not exactly dead, is failing fast. I feel that, in the report we are discussing, there is the basis of a workable alternative. I hope that it will be pursued on those lines. I should like to say how much I welcomed the comments of my noble friend Lord Oram and his reaction to the question of the responsibility of directors. This is a terribly important point for all industry, no matter the field in which it operates. One cannot have two sets of responsibility on any board and run it successfully. Sooner or later, it would be bound to lead to difficulties and misunderstanding, and it would certainly prevent a harmonious existence between both sides. In fact, it would tend to divide rather than unite the board. I should like to thank all those who have taken part in this debate this afternoon. May I say that the interest taken in this matter is most encouraging. What has come out of this is that we are not doing so badly in this country as the media would sometimes have us believe.
In my experience, and I think in the experience of most of us, the very large majority of the companies in this country are operating harmoniously, and there is nothing like the industrial dispute that is suggested. It is always magnified out of all proportion, and although we have had some very serious cases lately, generally speaking there is a good relationship between the boardroom, management boards, or whatever they are, and the shopfloor. I fear that we do ourselves a great disservice in making as much of this as we do and making nothing like enough of what industry in this country achieves, has achieved in the past, and, we all hope, will achieve in the future. Once again, I thank noble Lords for taking part in the debate.
On Question, Motion agreed to.

EEC: 62nd REPORT ON THE LABELLING DIRECTIVE
6.21 p.m.
Lord SAINSBURY Lord SAINSBURY rose to move, That this House takes note of the Sixty-Second Report of last Session of the European Communities Committee on

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the Labelling Directive (R/898/76 and R/2384/76). The noble Lord said: My Lords, I am honoured to have been asked by my colleagues on Sub-Committee D of your Lordships Select Committee on the European Communities to introduce this report today. Before I do so, I should like to pay tribute to the subcommittee's chairman, my noble friend Lord Raglan. It is thanks to him, and to the sub-committee's specialist adviser, that the report that we are to discuss today is such a model of brevity and lucidity. But I warn your Lordships that the subject is highly technical, inevitably detailed, and almost impossible to enliven with any humourous touches. Before I introduce the report, I should perhaps say a word or two about the Directive's progress.
The draft on which the sub-committee based its report was issued in April last year. Since then, as part of the Community's normal legislative machinery, a Council Working Party, consisting of officials from the Member States, has been examining the Commission's proposals. Although it has not yet completed its work, it issued a progress report in December last year. From this it is clear that many Amendments of detail, and some of considerable importance, have already been proposed. The Working Party's report also identifies the major areas of disagreement that remain and indicates the views held by the various national delegations. I shall mention these points at the appropriate moment in my speech. It would confuse an already complex subject even more if I were to summarise them separately. I understand that it is hoped that the Community will agree a final version before the end of the United Kingdom's presidency in July.
My Lords, we are all of us consumers, and so the Directive with which Sub-Committee D's report is concerned is of direct importance to the whole nation. It deals with the labelling of foodstuffs for sale to the consumer and with certain aspects of their presentation and advertising, and is part of the considerable harmonisation programme that the Community is undertaking in measures of consumer protection as applied to foodstuffs.
In this country we have had food and drugs legislation for over 100 years, and so many of the ideas in the Directive are not new to us at all. In a number of cases we will not need to change our existing practices in any way, and other requirements of the Directive will need only minor modifications. There are, however, some important specific differences between the Commission's proposals and the present United Kingdom legislation, and I will deal with these later in my speech. Before I do so, however, I should like to call your Lordships' attention to some very important sections of the report; namely, paragraphs 6 to 14. These deal in some detail with harmonisation as it affects trade and consumer interests, and with the way it is being put into practice, and I believe that these comments may apply beyond the particular concerns of this report.
The sub-committee met on half a dozen occasions to examine written and oral evidence from a wide variety of organisations representing the interests of manufacturers, retailers and consumers, as well as from the Ministry of Agriculture. As we heard and read this evidence, it became clear that some of the interested parties felt considerable dissatisfaction at the Commission's consultation procedures and believed that insufficient account was being taken of the commercial and practical problems that these proposals raised. There was a feeling that because representations were heard only from European-wide organisations, whose evidence was inevitably the outcome of a compromise among national attitudes, the individual problems and points of view of one individual product sector of the food industry became lost and refined out of existence.
The sub-committee cannot of course comment on whether this dissatisfaction is justified, but the very fact that it was so strongly expressed has led us, in paragraph 6 of the report, to stress the importance of real, rather than formal, consultations. The Council Working Party indeed accepted many, though by no means all, of the detailed points of criticism made by interested parties in its progress report. This, however, by no means invalidates their concern about the early stages of the consultation procedure. Some of the trade associations that gave evidence also argued that the measures proposed were

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too detailed. The Commission, they felt, should merely have issued a general statement of principles, to be followed up with detailed regulations applying to specific products.
The Ministry's representatives disagreed and were very hopeful that a satisfactory set of regulations would be formulated after the Commission's consultations had been completed. However, they accepted, as does the sub-committee, that a series of derogations or special arrangements would be necessary for some products, since the scope of the Directive is so wide. Once again, I can report that progress in this direction has been made by the Council Working Party.
Other fears expressed by some of the witnesses who appeared before the subcommittee include concern at the cost of the measures proposed in the draft Directive and the problem of their enforceability. Paragraphs 12 and 13 of the sub-committee's report mention some of the extra costs that may fall on manufacturers as a result of the Directive's proposals. Members of the sub-committee felt very strongly that extra costs should be avoided whenever possible, and that changes that may be required because of other Community legislation should be put into effect at the same time. The sub-committee heard contradictory evidence about the attitudes and practices in various parts of the Community towards the enforcement of legislation. While the sub-committee is not able to comment on this, we stress strongly that whatever proposals are finally formulated must be practicable for retailers and manufacturers, and meaningful to the consumer. Nor should they place too heavy a burden on the enforcement authorities.
My Lords, I have dealt at some length with these issues of consultation, drafting, enforcement and cost because they seem to me to raise points of importance about the whole nature of the harmonisation measures. However, I hope that I have not given the impression that the subcommittee has neglected a detailed examination of the proposals in the draft Directive. The opposite, of course, is the case. Though many of the proposals contained in this Directive are similar to the requirements already enforced by our own food labelling regulations, significant details reflect a different approach to
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some of the issues. Rather than take up a great deal of time in explaining numerous technical points of detail, I might refer your Lordships to Appendix I of the report. In this we have summarised the evidence we received on the most important and contentious proposals, and the conclusions that we reached.
However, I should like to bring to the attention of the House two major requirements laid down in the Directive, neither of which is included in our national food labelling legislation. Article 9 requires that all foods should be marked with a minimum durability date, and lays down that the formula to be used is, "Will keep until", followed by a date. This requirement applies to all foods, irrespective of the time they can be expected to last. At present, only voluntary systems of date-marking are in operation in this country. These usually specify what is known as a "sell by" date; that is, they state the date by which the product should be sold by the retailer. This, it is important to remember, is not the date after which the product becomes inedible: it is the one by which it should be sold to the final consumer, to the housewife. It still need not be eaten immediately, and, indeed, storage instructions are often given on the pack. "Sell by" dates are at present shown on most of the more highly perishable foodstuffs —dairy products and delicatessen, for instance—and on some medium-life foods. Date-marking is operated on an entirely voluntary basis at the moment, and it is accepted that the system is working well. The steering group on food freshness, which was set up by the Food Standards Committee to review this subject, among others, recommended in its interim report, published two years ago, that open date marking should be extended and that legislation based on the "sell by" date should be introduced for certain products.
The sub-committee heard conflicting evidence on this topic and, indeed, had some difficulty in reaching an opinion. We felt that the evidence on the relative merits and demerits of the various systems was not explicit. Representatives of retail interests argued strongly that the present "sell by" rubric gives best service to the customer, while consumer organisations thought that housewives were confused by the term and argued for the "best before" formula, which

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Canadian experience was said to have proved relatively satisfactory. After much discussion, the committee decided that, if a change is necessary at all, the "best before" formula is preferable to the Commission's proposed "will keep until", which it was felt might mislead the consumer.
The Council Working Party, too, is finding great difficulty over this part of the Directive. It has widened the list of products that are to be entirely exempt, and has altered the information to be given. Most important of all, it now recognises that it is impracticable to try to establish a single system for all foods, and is discussing the possibility of an alternative formula—either a "sell by" date or the date of manufacture, or even, maybe, the date of packing—to be used for short-life products. I understand that the list of such products is also under discussion. In addition, I believe that the Council Working Party has accepted the "best consume by" rubric for most medium-life foods. This is virtually identical with Sub-Committee D's recommendations.
The second new requirement so far as United Kingdom legislation is concerned comes in Article 8, which requires that the drained net weight of solid food sold in a liquid medium be declared. This would apply to such foods as tinned frankfurters, tinned vegetables and tinned fruit. Your Lordships will already have realised some of the problems. In the first two examples, the liquid is discarded before the sausages or vegetables are eaten; in the latter example, the juice is consumed with the fruit. Trade evidence was unanimous that only in foods where the liquid is discarded should the drained net weight have to be declared. Having heard that in Denmark there are apparently no problems in enforcing a requirement similar to that proposed in the Directive, the Committee is not convinced that such a declaration would cause any difficulties. However, we suggest that the draft Directive is too sweeping. A list of exemptions should be provided; or alternatively, the requirement should be included where necessary in vertical Directives relating to individual products. In addition, we recommend that the limit below which net quantities need not
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be declared should be raised from 5 grams or millilitres to 50. This would then be in line with current regulations in this country. I am relieved that the Working Group's report does at least provide that in exceptional cases the limit may be raised above 5 grams.
My Lords, I am conscious that I have already taken up too much of the time of the House and that I have completely ruined my record for speaking reasonably briefly. None the less, I should now like to leave my role as spokesman for the Sub-Committee and speak for myself for a moment, out of my long experience as a retailer, on just two or three of the very important issues raised by this document. The first of my points concerns Clause 3(b) of Article 2. In the original Directive this stated that the Directive was to apply to all forms of advertising of foodstuffs. This provision is quite unreasonable and I am relieved to see that the Council Working Party's revision now states, slightly unclearly, that it applies to certain aspects only. Advertising is an enormous subject; it is soon, I believe, to be the subject of a separate Directive, and this is the way it should be examined, not on the coat-tails of a measure concerned with labelling. Point of sale advertising—that is, advertising within the shop itself and therefore closest to the consumer as she makes her purchases—is already regulated quite adequately in this country by national legislation.
Your Lordships will not be surprised that I have my own very definite views on date-making, and my doubts about this aspect of the proposal are only partly met by the Council Working Party's modifications I have mentioned. I will make just one point, but a very important one. We must never assume that the housewife has no common sense. The "sell by" date is not so terribly complex. It allows the housewife to have the freshest possible food and so generates confidence in the retailing system. It also helps the retailer to achieve efficient stock control. These are benefits we should not throw away lightly.
The disadvantages of any formula that states or even implies how long the food will keep is that the retailer has no way of knowing—let alone controlling—the way his customer will store the food after

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it has left his store. Therefore, any formula such as "best before" or "will keep until" must take into account the fact that it may be stored by the housewife under unsuitable conditions. To safeguard themselves and their retailing colleagues, manufacturers will therefore be compelled to stamp a date that is, in effect, far too early. This will inevitably lead to greater wastage and, therefore, higher costs. However, I have no desire to be ungracious, and I welcome the progress made by the Council Working Party in proposing a separate formula for short-life foods. I very much hope that the Ministry's negotiators will bear in mind the importance of establishing as comprehensive a list of such products as possible.
My Lords, there is much more that I could say about this Directive—not least about the rather bizarre comments the European Parliament made on it. However, I must cease. I hope that your Lordships have found helpful this review of the work of Sub-Committee D. I certainly found its meetings stimulating. Yet, as a staunch European, I still wonder whether legislation of such complexity is what the Founding Fathers of Europe really had in mind. I beg to move.
Moved, That this House takes note of the Sixty-Second Report of last session of the European Communities Committee on the Labelling Directive (R/898/76 and R/2384/76).—(Lord Sainsbury.)
6.45 p.m.
Lord REDESDALE: My Lords, we should all be enormously grateful to the noble Lord, Lord Sainsbury, for giving us such a truly well-informed and fascinating speech. I think that the rest of us can be quite brief for he covered the subject very fully. The points that I might have raised, I was able to score from my notes as the speech proceeded. He covered them so ably. From these Benches we would agree very much with what the noble Lord has said. I feel that, over-all, we should welcome the proposals in terms of concept; that is, to inform the consumer about the product, about what it contains and when it should be consumed. On that last point we get into the enormously complicated question of "Sell before …" and the various formulae. I myself have suffered at the hands of a
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time-expired sausage so that I feel that there is still a necessity for some formula. Speaking personally, I think that I would agree that the "Sell before …" formula is the best. This leads me to a point that I want to raise later; and there are a great many points that will have to be discussed more fully before this Directive can be allowed to go through.
Speaking of the Directive itself, I noted —and I had to find out what it meant— that this was a horizontal as opposed to a vertical Directive. The term seemed rather to be something out of a television set than out of a report. However, there is an important similarity; that is, that the "vertical hold" or the "horizontal hold"—and this is a horizontal one —requires more fine tuning before we are there! The picture at the moment is, I feel, rather fuzzy.
The noble Lord, Lord Sainsbury, mentioned the question of advertising. Reading in the report of the Advertising Association's submissions at that stage, it showed that there would be two sets of definitions to work from. Advertising is a very difficult subject to control in any case; and when you start working to two sets of definitions, then, as with the football pools, the permutations go on into large numbers. Another aspect that I feel the noble Lord raised so well was the question of consultation, which came up in the Select Committee's report. It seemed that the Commission had been a little arbitrary in the way it listened to the submissions and was a little one-sided. We all have the consumers' interests primarily at heart, but, in the end, the consumers' interests can be negatived if the requirements laid down become so expensive to implement that the cost is then passed on to the consumer. I think that we have to look at this question fairly objectively; otherwise, in trying to protect the consumer, we may be pricing some foods almost out of the market.
My Lords, I was somewhat facetious on the question of the horizontal Directive; but the point is quite an important one. The report is so horizontal and covers so many different products that it is hard to apply over-all rules to all of the products. It is quite ridiculous. I thought the noble Lord, Lord Sainsbury, made very ably the point that we cannot have a single system. It seems to be

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somewhat impracticable, and therefore it comes back to this point of further fine tuning.
A point which came out of the Directive which worried me when reading through Articles No. 9, 10 and 11, was that they are all concerned with the implementation and bringing into force of the Directive. They say that it should have been done yesterday. I feel this is extremely dangerous and we have to look at it most carefully. I was glad to see that the then Mr. Thomson (who will be joining us as Lord Thomson next week) said in the sitting of the Assembly on Friday 9th July, at page 253:
"Finally, the deadline asked for in paragraph 9 is too short in the eyes of the Commission and underestimates the impact that this Directive is going to have".
I thought that was extremely sensible, and I hope that this point is taken up.
Finally, my Lords, I want to raise one worry that we have about product liability. This is going to be a major subject; it is going to have a big effect on the law. Before there are put in hand Directives which affect product liability, we must have the benefit of the Law Commission's report. I hope that we will resist any implementation of this Directive until we have gone into it very much more fully and have had the benefit of the Law Commission's report on the subject.
6.52 p.m.
Lord MACKIE of BENSHIE: My Lords, as a member of the Committee, and at this late hour, I will be brief because I am attending a dinner tonight at which I am supposed to speak and your Lordships will also want your dinner. Also, the noble Lord, Lord Sainsbury, has covered the subject extraordinarily well. I should like to say how much I appreciated working with him on the Committee. What a splendid asset it is for us to have one of the great merchants of this country on the Committee and applying his expertise in these matters. I nearly always agree with him, except that he has an unfortunate tendency to regard the consumer as more important than the farmer. On that we frequently disagree. I approached this part of the Committee's work knowing that I had no knowledge at all about labelling, except
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that I have a certain expertise in the matter of certain noble labels which carry the poetic names of Glenfiddich, Glendronach, Black and White, and Whyte and Mackay's. I could go on, but I see that noble Lords are with me in this piece of expertise.
In the matter of labelling, I at first thought that what the Commission should have done was to lay down certain minimum standards. It quickly became apparent to me that this was impossible because one could not ask certain countries, if one wanted to make trade flow freely between them, to modify their standards as against countries like ourselves who are in the lead in our standards of labelling and protection of the public. So that one had to accept that the complication and fine tuning about which the noble Lord, Lord Redesdale, spoke, was necessary if we were going to fulfil the obligation of the Commission to make it possible for trade to flow freely in the European Community.
I should like to stress only one practical point of our report to underline what the noble Lord, Lord Sainsbury, said about paragraph 6. I should like the Minister to take particular note of paragraph 6. During our examination of the expert witnesses, the men who represented great industries and were determined to protect the name of their product and do the best they could to raise the standards, it was constantly revealed that they got on enormously well with our own Ministry of Food, they were co-operative and understood the practical difficulties. They regarded the Ministry of Food as a heaven compared to the hell of Brussels, where they felt that co-operation had advanced in no way towards our system in this country. I think that the noble Lord who is to reply might well look into this because the witnesses felt very aggrieved. These were men of great expertise, they were prepared to co-operate but found that they were completely ignored.
In all these matters, the practical aspect to consider is how well the system works. Our own system is working extremely well. Something we could teach the Community on this point is how to conduct expert investigation into the practical problems of labelling. That means a tremendous amount to the consumer. As has been said already, labelling which is impracticable raises the cost

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of food. That is the only point that I should like to underline in the noble Lord's excellent speech on the work of the Committee.
6.56 p.m.
Baroness ELLIOT of HARWOOD: My Lords, as a member of Sub-Committee D, I should like to add to the congratulations to the noble Lord, Lord Sainsbury, who has covered the matter so well that there is not very much for us to add. I should like to thank him very much indeed for his help and for the speech that he has made today. I first came across the problems of labelling when I was the chairman of the first Consumer Council. That was a long time ago, in 1960 or 1961. We received a number of complaints from consumers that what they thought they were buying —and which appeared to be correct on the label—was not what the food or drink turned out to be. Not all these complaints were justified—a great many were not. But I was at once made very conscious of the openings for misleading the consumers. Today it is different. Accurate labelling is on the whole—in this country, anyway—practised assiduously. However, the European Community are concerned and have put forward proposals which we in Sub-Committee D have studied and on which we have reported.
Obviously, the sivation today is quite different from my early experiences before we joined the EEC. Labelling in those days was concerned with the United Kingdom. Labelling today must be understood throughout the whole community and some of the criteria are the same. Labelling must not mislead the buyer; the ingredients must be on the label; labels must not cause confusion by having too much information on them or information which is not sufficiently clearly put. The language should be understood on both sides of the Channel
The Commission is anxious to harmonise the labelling programme throughout the EEC, and this will be difficult. But I think that, on the whole, we were not opposed to the principle. I should like to stress, too, the evidence we received from many organisations which confirmed that they were not happy with their interviews in Brussels. The noble Lord, Lord Mackie
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of Benshie, said that they thought it was hell in Brussels. I cannot remember anybody actually using that word, but I daresay that that was the impression. There is no doubt that they are happier dealing with our Ministry of Agriculture than they are when dealing with the EEC.
In the evidence that we received from organisations, we were critical of an attempt to do too much in labelling operations. It is possible to put too much information on a label. The print might be too small to be read easily. The EEC should consider cutting down rather than extending the amount of information which is put on labels. The Ministry were not so critical about that, provided there could be some harmonisation between the countries on the point.
The question of costs for labelling was raised. I can remember that the noble Lord, Lord Sainsbury, during one discussion, pointed out that if the machinery for labelling had to be changed, for example, for cans or bottles, it would be enormously expensive for the producers of those items and therefore we should not immediately accept the need to change unless we were absolutely certain that it would be very much clearer for the buyer. I came to the conclusion that it was not at all easy to strike a nice balance between the information given on labels for the consumer and the difficulties involved for the manufacturer. There are problems, which we have outlined in paragraph 18, showing the difference between what we do in the United Kingdom and what is asked for by the Commission. As, on the whole, our system works quite successfully, one is reluctant to embark on a new and complicated system or series of systems, which would cost a good deal to implement.
In a detailed examination of new requirements, there are one or two points which stand out in my mind as a result of our discussions. In Article 5.2 the EEC say that no trade name or brand name shall be used without an explanation. For example, "Oxo" for us needs no explanation; neither does "Bovril", nor "Heinz", nor "Bird's Eye" products. These are all well-known to us and the housewife in this country knows exactly what she is buying when she is buying those things. But it seems those brand names are not to be allowed unless they are explained on the labels. I cannot help feeling that is not

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really necessary, since I am quite sure that these products are as well-known all over Europe as they are in this country.
Article 8.4 refers to "drained weight" and has been dealt with very conclusively by the noble Lord, Lord Sainsbury. I agree with him that this is a very complicated matter, but I think we should try to get it explained and dealt with more simply than we are asked to do in the Directive. Article 9, which refers to the date by which a food should be consumed, is also rather controversial. It is not easy to decide on a date mark, but we felt that the Canadian system was on the whole the best, the formula being "best before", rather than the Commission's proposed "will keep until". I do not have very strong views about it, but I was convinced when we were discussing the matter in the Committee.
There is a further complication on date marking, which refers to long-life food, including milk. Only this morning I had a memorandum from the Food Manufacturers' Association, in which they put some very pertinent points about labelling. Their argument is that if date marking is made compulsory for all products, then durability and not date of manufacture is appropriate for long-life foods. Those points are very technical ones, but in our negotiation with the Brussels people I think we should bring them forward.
The question of the best labelling system which would be acceptable to all the countries of the EEC is difficult to settle. Variations in products, in ingredients and in claims that one product is better than another, all complicate the issue. But I would recommend to the Government the findings of Sub-Committee D. We certainly took a great deal of evidence, and with two experts there, the noble Lords, Lord Sainsbury and Lord Mottistone, we were well-informed. I hope very much that this report will be read by the Commission and will be of help in this complicated matter.
7.4 p.m.
Lord MOTTISTONE: My Lords, perhaps I should begin by reminding your Lordships that I have an interest in this matter, in that I am the Director of the Cake and Biscuit Alliance, which is a
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trade association connected with the food industry. I also have the great honour to be a member of Sub-Committee D and to work with my colleagues, and in particular the noble Lord, Lord Sainsbury, who has covered this ground so very well and so very fully. I feel slightly like a tail-end batsman, and perhaps your Lordships may be likened to a crowd of Australian fielders who would like to "get me out quick". However, if your Lordships will bear with me, I should like to stay in for an over or two because although I endorse practically everything that the noble Lord, Lord Sainsbury, has said, and indeed what has been said by my other colleagues, there are one or two points I should like to put forward for consideration.
The first point is that, as well as the labelling Directive having itself been altered since we took this evidence and since the report was written, in some respects in fairly important ways—in fact the conclusion of those alterations has not been reached, as was mentioned by the noble Lord, Lord Sainsbury—it is a fact that the policy of the Commission towards Directives seems to be shifting. We were told at the turn of the year that they were moving away from vertical Directives altogether and concentrating on horizontal ones. My noble friend Lord Redesdale is thinking of his television sets. I am not going to follow him on that, but the fact of the matter is that the policy, as set out in paragraph I of our report, has been substantially modified. We may well not find vertical Directives following on to back up the horizontal ones. In turn, that could make a difference to what should be put into horizontal Directives. Indeed, I heard only yesterday that the Commission are perhaps going even a step further and moving away from Directives altogether—or from harmonisation—as being too doctrinaire, and that they are moving towards "economic covergence".
It seems that "convergence" is the new favoured Community word. Perhaps that is a little in advance of its time, but the trouble with it all is that we are trying to debate this, and indeed our representatives and the Government representatives are trying to discuss this issue against a rather shifting background, and it is very difficult to know what are the important points to stand on. I should

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have thought the first thing to do would be to examine what is the real objective we are trying to achieve. That seems to be set out best in the third sentence of paragraph 3 of the report, and perhaps I might repeat it to your Lordships:
"The Committee support the Commission's aims of harmonising national measures in this area to the extent that these eliminate non-tariff barriers and promote the liberalisation of intra-Community trade in foodstuffs."
That is surely what the European Common Market is all about, and what we joined the Community for. The problem is that it is difficult to get agreement from all the Nine countries on the details of the Directives and that, when agreement has been reached, the result may all too often be worse for all concerned than it was before. The misgivings expressed in paragraphs 12 to 17 of the Report are very real.
Another aspect, which is also referred to in paragraph 3 of the report, is concerned with the interests of the consumers and, as has been said by many noble Lords, the consumers in the United Kingdom are probably well enough satisfied with our own existing regulations though, as will be seen from the evidence given by the Consumers' Association, there are certain areas in which they would like to refine them in the ways that have been described. I would suggest that perhaps there are two areas in which consumers could reasonably expect more information, that is, date marking, which has been mentioned by many people and ingredient listing. But as with other details in the report, these create their own problems.
I should like, if your Lordships will hear with me, to return to the subject of date marking with a piece of evidence which has been obtained by a French colleague of mine, who works for a sister trade association on an over-all Community basis, and who was sent recently to examine the date marking practices in Austria, where they introduced a very stringent labelling policy some four years ago. He reports that it seems that prior to the passing of their labelling regulations, they did one of these opinion polls and discovered that only 15 per cent. of housewives attached any value at all to date marking. They then went ahead and introduced new legislation on labelling, and when this was about to come into
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force a tremendous campaign of publicity was mounted, partly by consumer organisations and partly by the Government of Austria, by which it is suggested there was a need to take some action to increase its popularity. That seems to be the kind of thing that happens to Governments from time to time.
The net result of this great campaign was that the 15 per cent. figure was increased to 70 per cent. How genuine that is, how genuine all the demands for these changes are, is highly doubtful, and I am not at all sure whether date marking, and these other alterations to our own regulations, will make as much difference as people might like to think. After all, voluntarily, certain British manufacturers and retailers have introduced "Sell by" over some years, which was referred to by the noble Lord, Lord Sainsbury, and it is probably the best of various unsatisfactory alternatives. But as will be seen from the report, there was counter-evidence, and the Commission itself has shifted, so far as the report is concerned, to "minimum durability", as explained by the noble Lord, Lord Sainsbury, and as described in Article 9, page xv. But the matter is still being argued out, and alternative methods of date marking are being considered.
To return to the Austrians, they have four different types of marking—I think it is true to say that, if one of the ideas that the Commission is considering at the moment is adopted, we shall certainly have three, if not more—and these four types present the ordinary shopper in Austria with a bewildering range of alternatives, as you can find if you go to Vienna. Indeed, it has also been estimated that this date marking process alone, apart from the other alterations, has made an increase in costs of between 2 per cent. and 4 per cent. When asked what they would do if they were starting all over again, the Austrians said that, primarily, they would like one method, and "Sell by" seems to be the best one to indicate that, once a product has been purchased, there is still a period of life in it. That is an experience from which we can learn, and perhaps the Commission, too, would do well to learn from it. The Government may like to take note, as they are still involved in these consultations, of the fact that it may be advisable for the Commission

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itself to do a study—which it could do quite quickly—on the lines of the one to which I have been referring.
I do not propose, as time is drifting on, to take any more examples, and the one to which I have referred is, admittedly, contentious. But I suggest to your Lordships that the experience from which I have been quoting gives more point to what I was suggesting earlier, which is that the benefits to the consumer of such changes as have been proposed are not nearly as much as might be hoped. It may, therefore, be wise to hesitate before we go further with this piece of legislation, if what we are concerned with is the consumer's interest.
So far as eliminating non-tariff barriers goes, it may be of assistance. But, in this respect, I suggest it is most important that the derogations referred to in Article 4 of the Directive, on page xii, are kept to a minimum. One country's derogation is another country's barrier to trade. But having said that, there are many proposed details in the Directive which are much too stringent for a horizontal Directive which is to apply to a wide range of products. Thus a delicate balance has to be struck between limiting the freedom of countries to opt out of the implementation of the Directive nationally by derogation, and making the detailed instructions in the Directive meaningful, but not punitive.
The latest draft of the Directive did not meet the needs of that balance, but there is hope that if the Government and their representatives are resolute during the next three months of our Presidency of Council, a satisfactory solution may be achieved. The Government certainly do not lack advice on what is required, and if they heed, in particular, that offered in this country by the Food and Drink Industries Council, and in Europe by the Commission des Industries Agricoles et Alimentaires—commonly known as the CIAA for the Brits—they will not go far wrong. It would, indeed, be heartening to be given an assurance by the noble Lord, Lord Strabolgi, that this is in mind for the next set of consultations on this subject.
In conclusion, as a keen European, I have been somewhat disillusioned by my experience of the labelling Directive, but I
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believe that all of us concerned have really been hoping for too much, too quickly. A better perspective was probably given by a wise German, whom I met on a visit to the Commission nearly seven years ago. When asked how long he thought it would be before the Community was truly functioning as planned, he said, "200 years". With that perspective, perhaps the best course of action in regard to this Directive is to pass it, but at this stage to lean very much in the direction proposed in paragraph 7 of the Report.
I thank your Lordships for listening to me and allowing me to bat for so long. I trust that when the debate comes to be considered, the Government will take particular care to ensure that nothing gets through that it is not reasonable and practicable to apply in this country.
7.18 p.m.
Lord STRABOLGI: My Lords, we are greatly indebted to my noble friend Lord Sainsbury for initiating this debate. Of course, my noble friend has unrivalled knowledge and experience of these matters. He is also a member of the Scrutiny Committee and, if I may say so with great respect, I can think of no one better qualified to initiate an important debate of this kind in your Lordships' House. We are also most grateful to the Scrutiny Committee for the work which they have done, and for producing this report. The Committee shoulders a substantial burden and responsibility in scrutinising proposals by the Commission, and reporting to the House on them.
We are very much aware of the value of these Committee reports in drawing the attention of the House to particular issues of importance, and in stimulating discussions on them, such as we have had today in this most interesting debate. I therefore very much welcome the opportunity which we have had to debate this document, which, if adopted, will, as has been said by almost every noble Lord today, have a direct effect on the labelling and advertising of all foods sold in this country. As my noble friend said, we are all of us consumers.
I think it might be helpful if I were to start by putting the draft Directive, which we are discussing today, into the general perspective of food laws. All developed

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countries (including all the EEC member countries) and, indeed, an increasing number of developing countries have systems of food law of varying scope and complexity. Food law may be broadly described as legislation governing the safety, composition, labelling and advertising of foodstuffs. Its purpose is to protect not only the consumer but also the reputable manufacturer and distributor. These laws are framed to ensure that food offered for sale is wholesome; that it is not injurious to health; that it is of an approppriate composition; and that it is labelled and advertised in such a way that the purchaser is not misled and is able to make an informed choice about the food he or she buys.
As these food laws have developed on a national basis and reflect different consumer tastes and dietary patterns it is hardly surprising that they differ to a greater or lesser degree. These differences can and often do constitute non-tariff barriers to intra-Community trade, a point which was touched on by the noble Lord, Lord Mottistone, in his interesting speech. For this reason the Community is working on a food law harmonisation programme, which was revised in 1973, with the object of removing these barriers. This programme embraces both horizontal Directives, as alluded to by the noble Lord, Lord Redesdale, dealing with a particular aspect of foodstuffs in general, such as the labelling Directive, or with food additives and vertical Directives covering the composition and labelling of particular foodstuffs.
We are, of course, in complete agreement with the need to eliminate barriers to trade and to protect the consumer. The traditional United Kingdom approach has, in general, been to concentrate on the "horizontal" aspect of control, so as to ensure that all food is safe, wholesome and accurately labelled and only to impose "vertical" regulations where the independent expert committee which advises on these matters have recommended such action. This offers the maximum advantage to both manufacturers and consumers.
The draft Directive on Food Labelling which we are discussing today fits in well with this philosophy on food harmonisation. It is a "horizontal" Directive, as the noble Lord, Lord Redesdale, has said, and we are therefore giving it a high degree of priority during the United
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Kingdom presidency. The Community proposals have as their basis the same principles on which our existing labelling law is based; that is, the prevention of fraud and the provision of sufficient information for consumers to be able to make an informed choice between the many foods available in the shops, and indeed to be able to decide whether they wish to buy a particular food at all. Our existing legislation, which is in general highly regarded by both consumers and the food industry, and the proposals which we are now debating, both require the provision of broadly similar information on the label. I think it is important to understand this point and to recognise that though there are some new requirements, to which I shall refer later, no new basic principles are involved. For this reason the proposals put forward by the Community are broadly, and I stress the word "broadly", acceptable to us although we have a number of reservations and doubts about some of the detail which we shall be seeking to resolve as discussions proceed with our partners in the Community, and with the food industry and consumers of this country. I take careful note of what the noble Lord, Lord Mottistone, with his unrivalled experience, has said about consultation.
I note that the Scrutiny Committee also found the draft broadly acceptable. It was, however, concerned that too much was being attempted at once, without proper regard to practicality and costs. I understand this point of view and agree we must keep it closely in mind. We must consider the proposals in the light of our existing law, our present enforcement effort and the cost of implementing any additional proposals. We see merit in maintaining similar labelling laws throughout the Community but we are naturally concerned to avoid a plethora of legislation. Consumers must be protected but they wish, very naturally, to see increases in costs kept to a minimum. We attach the greatest importance in getting the balance right. Enforcement will continue to be the responsibility of the food and drug authorities. I am confident that they are fully capable, without additional staff, of enforcing any amended labelling law as effectively as they do our present regulations.
Given adequate time for compliance—and I stress there should and will be

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adequate time—most of the Community proposals should not involve food manufacturers in a great deal of extra cost. We have this very much in mind in the discussions in Brussels. Most of the label changes can be taken up as new stocks are ordered and ample time should be allowed to clear stocks of food through the distributive chain. Extra costs would arise from the introduction of statutory open date marking, for which our consumers have been asking for some time now. This is an important matter which has been referred to by every noble Lord who has taken part in the debate. The principle has been accepted by both the present and previous Governments, following the publication of reports by two independent advisory committees appointed by Ministers to examine the problem. Date marking would therefore have been introduced here some time ago but for the existence of the draft Directive. So most of the extra costs would have been incurred even if this draft Directive did not exist.
Food manufacturers and distributors have increasingly introduced date marking on a voluntary basis, and this we welcome. I recognise that most of these voluntary systems are based on a "Sell by" system, as recommended by the advisory committees and as referred to by my noble friend Lord Sainsbury, and that our food industry would like to be able to continue to use "Sell by". However, it must also be recognised that consumer interests, not only nationally but on a Community-wide basis, have said that they do not favour such a system. They are in favour of the system proposed by the Commission in the draft EEC Directive which is based on a "minimum durability" date: that is to say, a date by which the consumer is advised to eat the food if it is to be in the best condition. This system also appears to commend itself to most Member States. These issues are still under active discussion in Brussels, but I take note of everything that has been said on this subject in the debate today.
Then the question of advertising was raised. Advertising is already controlled by our existing food law, so it seems to us appropriate in principle that controls on the advertising of food should be included in this Directive; but we realise that there are strong feelings in some quarters of the
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food industry—and, indeed, in the advertising industry—and the Department is currently discussing this matter with the various bodies concerned. I have already said that the Community proposals involve some changes in our law. I have dealt with date marking. I will now refer to the more significant of the remaining proposals. The rules governing the listing of ingredients of food are likely to be more closely defined and the number of foods which need not at present list their ingredients will be much reduced.
The draft Directive also requires that, in certain circumstances, water used as an ingredient in the preparation of a food must be listed, as was mentioned today. The so-called "30-year rule", which permits brand names established for over 30 years to be used without any further description being given of the true nature of the food, will be abolished—though the brand name will still be permitted. These are all changes for which our consumers have been asking. The view of the Scrutiny Committee that national derogations from certain requirements may be necessary fits in well with the Government's view. Here again, I am sure it will be possible, after consultation with the industry, to keep the 30-year rule for some products which have a long tradition and which are known nationally and throughout the world, and yet to incorporate some additional information which may be required.
In settling the attitude of the Government towards the detailed provisions of the Community proposals we shall take into account our existing food law and developments in food production and technology since our labelling regulations were made in 1970, together with the increasing pressure from consumers to be properly and adequately informed about the foods on which they spend their money. That is most important. As the noble Lord, Lord Mottistone, said, perfectly rightly, we take account of what the manufacturers say; but we must also take account of what the consumers say, and I should have thought the manufacturers should take account of what the consumers say as well. After all, they are going to sell their products to the consumers.
Lord MOTTISTONE: My Lords, if the noble Lord will allow me to say so, I

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think he can be assured that the manufacturers listen to what the consumers say. After all, their livelihood depends upon the consumers; so there is not much problem there. The fact of the matter is that there is sometimes a tendency to listen to people who say they are consumers rather than to representatives of consumers. With the greatest possible respect to my noble friend Lady Elliot of Harwood, who has ably represented consumers in her time, it is very important to make the distinction. One would suggest to the Government that the manufacturer probably knows his consumers better than the Government do, or possibly sometimes the organisations which purport to represent them.
Lord STRABOLGI: My Lords, I should like to join the noble Lord in paying a tribute to the noble Baroness, Lady Elliot, for the great work she has done for the consumers. When I read all the evidence attached to the report, as I did during last weekend, I was very impressed with the evidence submitted by the manufacturers. They made some most useful and important points. I was also impressed with some of the evidence given by the consumers. Various views were expressed which we shall take into account when we formulate these Directives.
We shall also take into account the benefits to by derived by our food manufacturers, who of course wish to export to Europe, from a rationalisation of the different labelling laws of the Member States. Officials have consulted and are continuing to consult over 300 interested parties, including food and drink manufacturers, distributors, retailers, consumers and enforcement officers. We also have the benefit of the views of the Food Standards Committee. With continued co-operation and frank exchange of information between these interested parties and officials, and the helpful views which have been put forward by the Scrutiny Committee, for which we are extremely grateful, our aim will be to achieve a satisfactory and balanced Directive which will be fair to all parties, to the benefit of our industry and to the consumers on which it depends.
7.34 p.m.
Lord SAINSBURY: My Lords, having taken so long to introduce this report, I do not intend to delay your Lordships
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for more than a minute. In the first place, I should like to thank you all for your contributions and to thank you most warmly for your over-kind references to myself. I am sure that this debate has been worth while and that notice will be taken of the report of the debate, both in Whitehall and in Brussels.
On Question, Motion agreed to.

HERITABLE SECURITIES AND MORTGAGE INVESTMENT ASSOCIATION, LIMITED BILL [H.L.]
Examiners Certificate that the further Standing Orders applicable have been complied with: Ordered to lie on the Table; Bill committed to an Unopposed Bill Committee.