Lords Sitting of 26 January 1981

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Peterborough.

Immigration and Nationality
Lord Brockway: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what reply they have made to the request of the Action Group on Immigration and Nationality for a review by a Royal Commission of migration policy in Britain.
Lord Sandys: My Lords, my right honourable friend has replied to the Action Group on Immigration and Nationality to the effect that the Government do not consider that there is a need for such a review of either immigration policy or the way in which it is implemented.
Lord Brockway: My Lords, is it not the case that the series of immigration Acts has been related to immediate circumstances—mostly the coming of non-whites to this country—and that it does not represent an overall policy? Are there not many other considerations than humanitarian: the age of immigrants, their skills, their distribution in the regions, their effect on our economy? Would it not be very desirable that there should be this review which has been supported not only by many interests but by Members of all parties?
Lord Sandys: My Lords, the noble Lord will be aware that during July 1978 the previous Administration published the report of the Select Committee on Race Relations and Immigration (Cmnd. 7287). The present Administration have policies which are broadly in line with the principles set out on page 4 of that report.
Lord Brockway: My Lords, is it not the case that we have to bear in mind a number of international obligations: the Treaty of Rome, the European Convention on Human Rights, the United Nations Convention and Protocol on Refugees? Is not our present migration policy in conflict with some of those international obligations? Has the Minister seen that Canada and Australia have had the kind of review for which we are asking and, as a result, have reached conclusions which are acceptable and in agreement with their international obligations?
Lord Sandys: My Lords, so far as I am aware, none of the present policies is in conflict with our obligations under the various treaties. Turning to the other matter which the noble Lord raised, I think it is true to say that the policy of the present Government is quite clear.
Lord Elwyn-Jones: My Lords, is it not the case that there is a considerable difference between the policies enunciated in the present Nationality Bill which is now in another place and the proposals of the previous Administration? In relation to my noble friend's Question, if it appears that we are enmeshed in deep controversies, would not a further review be helpful to try to resolve a highly controversial question?
Lord Sandys: My Lords, the noble and learned Lord, Lord Elwyn-Jones, is quite right. The Government have made proposals for the revision of the immigration rules: the White Paper, Cmnd. 7750, published in November, 1979. However, my right honourable friend has not yet thought fit to publish the results of the Government's considerations.

Civil Service Training Arrangements
2.41 p.m.
Lord Spens: 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 how many departmental training establishments are used by Government departments; what facilities are provided for residence and subsistence during courses and seminars and who pay for them; and what allowances are given in addition to the facilities provided.
The Lord President of the Council (Lord Soames): My Lords, most Government departments have their own training arrangements to help meet the need to equip their staff to do their jobs well. There are nine residential establishments, including the Civil Service College at Sunningdale, which provide courses for staff from all departments. Both residential and non-residential training are financed by the departments concerned. The residential establishments provide board and lodging free of charge to students, who do not therefore receive separate subsistence payments, but may claim a residential course allowance of £2·75 per day to reimburse incidental expenses.
Lord Spens: My Lords, I thank the noble Lord the Leader of the House for that Answer. It is his last point, on the allowances, which worries me. Is the noble Lord aware that a four-day course was held this year, starting at lunchtime on Monday and finishing after lunch on Friday, during which the people attending the course were provided with colour television sets in their rooms, and radios, with facilities for making early morning tea or coffee and with a three-course breakfast, a three-course lunch and a three-course meal in the evening? They were also given a subsistence allowance of £11 for the four days. It seems to me that that £l1 subsistence allowance is extravagant.
Lord Soames: My Lords, it sounds to me a very agreeable course. Perhaps the noble Lord, Lord Spens will let me know where it is. But as to £11 subsistence over a four-day period being extravagant

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I think I should need to look at that to be absolutely sure that the noble Lord was right in what he said.
Lord Goronwy-Roberts: My Lords, if I may raise a separate point, may we take it that in addition to the courses to which the noble Lord has referred it is the practice of departments—and particularly a department like the Foreign Office—to provide special courses in other public institutions, such as universities and, particularly, polytechnics, where applied language studies can he given?
Lord Soames: Absolutely, my Lords, and I must apologise to the House for the flippancy of my reply to the noble Lord, Lord Spens. This is a very serious matter and the courses are absolutely necessary. I have "mugged up "this subject for the purpose of these replies and it may interest the House to know that there were in fact 320,000 civil servants who went through some form of course or other as they were moved from one place to another, and of those a very small proportion actually went on residential courses. Where the Foreign Office is concerned, not only the language courses but also the courses to prepare them with knowledge of British industry and the like, which is necessary when they are posted to foreign countries, are, I think, invaluable to this country, and on the whole they are well done.
Lord Goronwy-Roberts: My Lords, is the noble Lord the Lord President aware that the information and the statistics which he has given will reassure those of us—they are not very many—who have the impression that these courses are a kind of holiday? In fact they cater for 320,000 learners and they are applied very seriously to the requirements of a wide-ranging field of public service.
Lord Soames: My Lords, I am most grateful to the noble Lord.
Lord Boyd-Carpenter: My Lords, can my noble friend confirm that many progressive companies in the private sector organise similar residential courses and believe that they derive much benefit from them?
Lord Soames: My Lords, I am grateful also to the noble Lord and I know this to be true. Probably training is one of the last things in which we should try to make extravagant cuts.
Lord Gisborough: My Lords, can the noble Lord give an estimate of the cost of the hotel facilities aspect of these courses, as opposed to the cost of the actual training?
Lord Soames: My Lords, it was for this reason that it sounded to rue much more like a hotel than a residential training establishment to which the noble Lord, Lord Spens, was referring. I was not aware of this particular one and that was why I asked him if he would be so good as to provide me with the details. Most of the residential courses are in colleges like, for instance, the Civil Service College at Sunning-dale, which is not run like a hotel and does not have these facilities, either in the bedrooms or in the breakfast room.
Lord Plant: My Lords, would the noble Lord the Leader of the House agree that it would be quite wrong if the result of this exchange was that people thought that the conference allowance was excessive? In my view it is not excessive and I hope that that impression will not be left.
Lord Soames: My Lords, I am grateful to the noble Lord. I do not think that £11 over a four-day period would be thought excessive by the country at large for people on a course away from home, albeit with their major bills for board and lodging paid.
Lord Balfour of Inchrye: My Lords, can the noble Lord the Leader of the House say whether in suitable courses, particularly those dealing with industry, a certain number of places are allowed to senior men in industry in the same way that many industrial courses welcome civil servants?
Lord Soames: My Lords, in my view, exchanges of this kind are to be welcomed.

British Leyland Corporate Plan
Lord Denham: My Lords, with the leave of the House, at a suitable moment after 3.30 p.m. my noble friend Lord Gowrie will repeat a Statement that is to be made in another place on the British Leyland Corporate Plan.

Merchant Shipping Bill [H.L.]
2.48 p.m.
Read 3a, an amendment (privilege) made; Bill passed, and sent to the Commons.

Parliamentary Commissioner (Consular Complaints) Bill [H.L.]
Read 3a, and passed, and sent to the Commons.

Social Security (Contributions) Bill
2.49 p.m.
The Minister of State, Department of Education and Science (Baroness Young): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, that the House do now resolve itself into Committee.—(Baroness Young.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE LORD ABERDARE in the Chair.]
Clause 1 [Increase in contributions]:
The Chairman of Committees (Lord Aberdare): I have to point out that if Amendment No. 1 is agreed to I cannot call Amendment No. 2.
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 1:
Page 1, line 13, leave out subsection (2) and insert—
("(2) In section 4(6) of the principal Act, at the end there shall be added the words "and there shall be an additional primary contribution of 1 per cent. of so much of the earnings as exceeds the said upper earnings limit or prescribed equivalent." ").
The noble Lord said: I beg to move the amendment standing in my name on the Marshalled List. As your Lordships will know, the Bill provides for an increase of 1 per cent. in the national insurance rates of earnings between the lower amount of £27 per week and the upper amount of £200 per week. May I say at the very beginning that we on this side of your Lordships' House—and I know that those of you on the Government side will agree with me entirely, if only for the very first time—agree that there is a need on the part of every Government, and particularly on the part of this Government at the present moment, to raise more money to meet a variety of types of expenditure. Having said that, we on this side suggest that the method adopted in this Bill is seriously open to question and in some measure quite unfair. A section of the earners will be bearing an unfair burden, compared with those earning very high incomes. The purpose of the amendment now before your Lordships is to try to make the position more equitable. I would ask your Lordships to spend a moment or two looking at the situation.
Taking the £27 per week to £200 per week employees, the £27 earner will pay 7¾ per cent. on all his earnings, as will the £200 per week earner. The £27 per week person, as I understand it, is not likely to be eligible for income tax, so the extra 1 per cent. that he is required to pay under this Bill—I try to say this kindly, although I do not feel very kindly about it—is in fact a form of taxation. The £200 per week person will pay—taking the 7¾ per cent. which he will have to pay under this Bill—something like £15.50 per week national insurance contribution. At this point the amount remains fixed, regardless of what he may earn in the future and regardless of what anybody else is earning. So a person earning £300 a week, £400 a week, £500 a week will still pay only £15.50 per week. It is this point which I want to stress.
If the Government have to raise extra money—and I have already conceded that it is necessary to do so—is this the most appropriate way or the most equitable way of doing so? I say that there is an obligation on any Government, regardless of their political complexion, to be fair. This amendment would provide for an employee earning more than £200 per week to pay an extra 1 per cent.; that is, an extra £1 per week for every additional £100 of earnings. So whereas a £300 a week man will now only pay £15.50, if this amendment is accepted he will have to pay £16.50, and so it would go up at 1 per cent. This seems to me to be not unreasonable, and although I cannot give your Lordships the exact figure, it will in fact bring in an extremely substantial sum to the Treasury. Is it right, is it fair, is it equitable that people earning over £200 a week, regardless of whether it is £300, £400, £500, £600, or £1,000, should still pay the same rate of national insurance as the person on the £200 a week limit?
I know the answer will be, "Ah, but they pay a great deal more in income tax". This I do not deny.
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But what I do suggest is that they are in a position to pay this extra amount, bearing in mind that a great deal of the burden of raising this extra money will come from the £27 a week to the £200 a week employees. It seems quite reasonable to me—I am open to be told that I am wrong, if it can be proved that I am—to say to people earning in excess of £200 a week that they should be required to pay 1 per cent. on all they earn over that. It is only £1 in respect of an additional £100 per week. It will bring in a substantial amount for the Treasury and will relieve the burden on other people. I beg to move.
Lord Drumalbyn: Before the noble Lord sits down, may I ask him what estimate he has made of what this £1 will bring in on earnings above the upper limit?
Lord Wells-Pestell: I have seen this, and I had cut it out, but I have mislaid the cutting. I do not often do that. I gather it is a very substantial amount. I do not know whether the Government, who have undoubtedly considered this matter, will be in a position to reply to the noble Lord.
Lord Hawke: It would help if the noble Lord would say what they are going to get out of the extra pound if they become sick or unemployed. It is to some extent an insurance scheme. Is the rich man going to get any more benefit than the £200 a week man?
Lord Wells-Pestell: If the Committee will allow me to reply, anybody who is paying national health insurance, whether earning £200 a week or £300 a week, is entitled to the same benefits, and those benefits, if I may say so, are numerous.
Lord Banks: I should like to say a brief word in support of this amendment. It has always seemed to me, as it seems to the noble Lord, Lord Wells-Pestell, that it is unfair that those earning over the top limit, of £200 a week under this Bill, should have their national insurance contributions as a percentage of their earnings actually decline the higher their income is. The continued extension of intervals of upper limits results in those caught between the old upper limit and the new upper limit having to pay in the year that they are caught a particularly heavy amount. I did point out on Second Reading that for the person on the £200 a week maximum it will be an increase of 39 per cent. in his national insurance contributions. If there were no top limit for contributions, that would remove that anomaly.
There is the question of whether to do that would be a disincentive. I am not, of course, suggesting that a higher rate should be paid by those who are earning higher salaries; merely that a rather lower rate than the present one should be spread over the whole of earnings. I do not think that need be a particularly serious disincentive. I would not increase the benefits provided on the other side. I would not increase the limit on the benefits side, which does of course include the earnings-related pension. I would not do that because in my view to do so would upset the balance—which was established when this scheme was set up—with occupational schemes.
That then raises the question of whether it is right

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to have contributions with no limit on the one side, whereas benefits are related to a limited amount of income on the other. The Government already seem to be moving in this direction because they are phasing out the earnings-related supplements attached to other benefits and this would merely be a move in that direction. Moreover, the position exists at present with the self-employed that they get no increased benefits for the increased amount, the percentage, that they pay of their income. So, the principle would seem to have been established in one part of the national insurance field. This particular amendment would be a very modest step towards that end. It would not extend over the top limit the whole percentage, but merely the 1 per cent. that the amendment sets out; so it would not remove the anomaly, but it would mitigate it to some extent. To that extent I would support the amendment.
Lord Boyd-Carpenter: As we are in Committee I think that I am entitled to ask the noble Lord, Lord Wells-Pestell—if I may have his attention—whether he will clarify a little the answer that he gave, admittedly off the cuff, to my noble friend Lord Hawke as to the effect on benefits of acceptance of his amendment in relation to contributions. I am concerned with the retirement benefits. As the Committee knows, we have—up to a point—an earnings-related system of retirement benefits. As a matter of interest I had the privilege of taking through another place the 1959 Act which started that system, so it is fairly familiar to my mind.
But, as I understood the noble Lord, Lord Wells-Pestell, he said that benefits generally—which obviously include retirement benefits—would not be increased by the adoption of his amendment. I respectfully express a doubt as to whether his amendment is, in fact, framed to have that effect. As I understand it, if it were passed into law it would have such an effect. But I think that one is entitled, in Committee, to take the intention of the mover. As I understand it, his intention is to superimpose on a wage-related system of retirement pensions a further contribution which has no effect at all on retirement benefit. With great respect, that will surely reduce the scheme to a measure of some confusion.
If, on the other hand, the Committee were to adopt the noble Lord's amendment as it stands, I would express the opinion that it would "up" at any rate the retirement benefit and this, of course, as the noble Lord, Lord Banks, has rightly pointed out, would have a considerable effect on the understanding between the national insurance scheme and the private schemes as to their scope and area of activity and as to the whole machinery of contracting out.
Therefore, I think that the noble Lord owes the Committee a little further explanation on this point, and I hope, if he gives it to us, that he will also be good enough to explain why he thinks it right to impose what, on his own view of it, would be a direct additional tax on people who already pay very high rates of taxation indeed.
Lord Wells-Pestell: If the House will allow me to reply—
Lord Boyd-Carpenter: We are in Committee.
Lord Wells-Pestell: Yes, of course. I think that I interpreted what the noble Lord, Lord Hawke, said rather too negatively. I thought that the noble Lord was referring to benefits to which one was entitled—I was thinking quickly about unemployment. I would accept that it must marginally—I cannot say to what extent and I cannot say the exact amount—affect the benefits that people are entitled to by way of retirement and matters like that. I accept that. But it would only affect them marginally because we are talking about an increase of only £1 a week, which I grant you is £52 a year, for a person who earns an additional £100 a week. As I have said, I wish I could tell the Committee what has been computed to be the value to the Treasury of this increased amount, if it were implemented. I am afraid I have forgotten the third point which the noble Lord asked me about.
Lord Boyd-Carpenter: I asked the noble Lord why, on his assumption originally made that this increased contribution would carry no benefit or indeed on the assumption he now makes that it would give only little additional retirement pension, he thought it right to superimpose on the national insurance scheme what would, in substance, amount to a direct additional tax on that section of earners already paying high rates of direct taxation.
Lord Wells-Pestell: I thought that I had dealt with that when I introduced the amendment by saying that it seemed to me that the burden of raising extra money was going to be put on that section of the community which was not in such a happy state financially as the other section of the community earning £200 a week or more. I went so far as to say that I accept the fact that they already pay more income tax, as a result of high income, than the band about which I have been talking. But, what I was saying—and if not saying, implying—is that I still think that they are in a position, having regard to the times that we are going through, to make an extra contribution of £1 a week for every £100 they earn.
Lord Drumalbyn: I should like to ask the noble Lord to clarify his general intentions here. If I may say so—and I am not, of course, criticising the Chair in any way—it came as a surprise to me that if this amendment were accepted the next amendment could not be called. I had imagined that the noble Lord was intending that the extra contribution for those above the earnings limit was to be related to the diminished extra contribution that those within the two limits were going to have to pay. In other words, instead of paying 1 per cent. extra, they would be paying one quarter per cent. extra. I had envisaged that the two amendments hung together and that it was intended that the one would compensate for the other.
But am I now to understand that the noble Lord is advocating this change on its own merits without regard to compensation at all—without regard, for example, to the amendments that he is proposing to Clauses 2 and 3? Is that the case?—because if that is so, the argument, of course, is quite a different one: it is related only to what he regards as a matter of justice, which some of us on this side would regard as going a very long way to undermine the whole basis of the national insurance scheme.
3.10 p.m.
Lord Houghton of Sowerby: I am bothered about this amendment and others on the Marshalled List because I doubt whether the role of this Committee is to do what we are setting about doing this afternoon. I do not know whether I am unduly sensitive about this matter, but at a time when the composition, the role, and indeed the very existence of this House is under constant discussion, we must choose with care what role we assume on particular occasions.
We are all aware that not even the House of Commons can impose an additional charge upon the citizen without either a Budget resolution or a financial resolution to provide for it. Therefore, the sovereign House of Commons cannot impose, by its own will, without the sanction of the Government of the day, additional taxation on the citizen. It is a quirk in the financial arrangements of another place and here that the national insurance fund has never been brought within the restraints of public expenditure, which are imposed upon Members of another place. In the House of Commons we used to say, "You cannot increase taxation by a ha'penny in the pound, but you can increase national insurance benefits threefold; you can halve the contributions and you can bankrupt the national insurance fund, and no Government can stop you". That was the extraordinary anomaly in the differences of financial procedure, because from the beginning we had a national insurance fund which was kept separate and distinct from the whole range of public expenditure.
This and other amendments have the effect of increasing the charge on the citizen, whether for additional benefits or not is really irrelevant to the point of principle that I am discussing. On the general question, we must remember that this Bill has been through a Committee of the House of Commons, which was differently constituted from this Committee this afternoon, and these intricate questions—which noble Lords have quite properly raised—will have been examined with some care and in detail. I doubt whether a Committee of your Lordships' House is the suitable place to deal with some of the matters which are much more appropriate to the smaller Standing Committee, which could give much closer attention to intricate matters of this kind.
I think that we are free to discuss these matters and to criticise them, as, indeed, was done on Second Reading; and on clause stand part in the Committee stage of the Bill, on closer examination of the Bill, we should be free to voice our criticisms. But I am bothered about any suggestion that the Committee should divide on an amendment which is virtually an imposition of an additional charge on the citizen. With the greatest respect, I think that it would be very difficult for this House to send such a Bill, deeply involving finance, economic policy and burdens on the citizen, back to the House of Commons, and to say, "We do not like it; you ought to amend it". Quite frankly, that is not within the role of this Committee on this subject.
Although the national insurance fund should remain a separate entity and, within its general framework, still be held to be a contributory scheme, it is a long time since that fund was immune from Government mutilation to meet questions of economic policy. Many
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years ago I remember a Labour Financial Secretary to the Treasury moving in the House of Commons to reduce the Exchequer contribution to the fund, which was embodied in statute, because the call for unemployment benefit had been so much lower than had been estimated in determining the contributions. Therefore, it was felt that the Exchequer could contribute less because the national insurance fund was making a profit out of full employment. That is the first occasion that I recall when there was an intervention by Government in the financial arrangements of the national insurance fund.
However, it has happened a number of times since. Indeed, in this excellent summary of information relating to this Bill, prepared for the Library, one sees how in the past Government economic policy has been closely associated with the finances of the national insurance scheme, if only because of the very substantial Treasury contribution to it. My noble friend Lord Wells-Pestell said on Second Reading, on 13th January, 1981, at column 17, that Professor David Metcalfe of the University of Kent had said that,
"The Department of Health and Social Security is no longer running an insurance system, but has opened a bucket shop for the Treasury".
The noble Lord, Lord Boyd-Carpenter, will remember that I accused him of presiding over a bucket shop 20 years ago when he first introduced the graduated contribution in order to provide a subvention for the financing of the flat-rate scheme. I went further—and with his unfailing good nature he took it in very good part—and said to him that financial men in the City had been sent to prison for less, for the sleight of hand that the noble Lord introduced in 1960 when graduated contributions were introduced, for which no immediate benefits were payable; we all subscribed to our 6d bricks and the money was passed over to finance the flat-rate scheme. But we forgave him that long ago.
Lord Boyd-Carpenter: If the noble Lord will allow me to intervene, I seem to remember that his noble friends have sometimes criticised the scheme as doing less than might be desirable for the lowest paid. Does the noble Lord not recall that the 1959 Act deliberately used some of the contributions of the higher earners to help the benefits of the lower paid? I would have expected him to applaud that.
Lord Houghton of Sowerby: Yes, I give that to the noble Lord. At the time I had the embarrassment of hearing some of my friends use much more abusive language than I used about what the noble Lord was doing. After all, it was called a swindle. But I never used that word; I must at least be credited with a sense of proportion—I did not call it a swindle.
Quite seriously, the manipulation of funds within the framework of the national insurance scheme, the obligations of the Exchequer to maintain it, and all these matters are important matters of Government finance and of national economic policy. I personally concede that these are quite suitable steps to take when examined on their merits in relation to a particular situation.
But if we are to talk about fairness within this national insurance scheme, there are many aspects of this

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difficult quality of fairness which one has to examine. To quite a large extent we have to take the rough with the smooth to make the scheme understandable and, at the same time, broadly acceptable from a social point of view. But we must bear in mind that, as the contributions rise and people's earnings take them into the field of direct taxation, the fact that contributions by employees to the national insurance fund are not tax deductible is becoming quite an important consideration when looking at what is and what is not fair. We must remember that as the threshold for direct taxation rises and the less well paid are exempted from tax altogether, their position in relation to contributors in the higher ranges of income is disturbed, because the higher you go the heavier the burden of direct taxation. It is not as heavy as it was three years ago but it is still very heavy.
Those are my thoughts on this. I apologise for introducing this rather broad question of where the role of this House lies, but I think, with great respect, that while we should be free to examine and criticise we ought not to regard ourselves as free to say to another place, "We think you have it wrong. We think we have got it right, and we are sending it back to you to make the necessary adjustments". That I think would be a presumption, if I may say so with great respect, on the part of this House.
3.21 p.m.
Lord Harmar-Nicholls: I should like to cross swords with the noble Lord, Lord Houghton of Sowerby, on his description as to the role of this Committee on a question such as this. If we accept his judgment as to what our role is on a Committee such as this, we may as well not come. Is this a school debating society? He says we can criticise it and debate it, but we must do nothing about it.
What is the role of this House, which is part of Parliament, when it is sitting in Committee? It is just as influential as the Committee in another place. Our role is to revise and improve where we can; but secondly our main responsibility is to give the other place a chance for second thoughts. Unless on occasion we pass an amendment, which is the only way of getting the matter hack to the other place, how can we carry out that function of giving the other place a chance to think again and to have second thoughts?
On this occasion I shall vote against this amendment, and I hope that the noble Lord, Lord Wells-Pestell, and his noble friends do not get their amendment. I think that that is the feeling of many of us. I believe that the situation is such that, if we can possibly avoid doing so, we ought not to disturb the flow of this piece of legislation towards the statute book. I am critical of it. I do not think it is good. I think the overall effect of it in many ways is to make it that much more difficult for small industries and self-employed industries to be able to play their great part in getting us back again on the road to real prosperity, and our relative position vis-á-vis our competitors in the world so much better.
I do not think this is a good Bill. I think it is mistaken in terms of how it is proposed to reduce public expenditure. But, because it is not such an outstandingly important part of the total strategy,
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I believe it would be more damaging to delay it by trying to put right those individual things such as I have in mind than to let it go through on this occasion. But we can use this Committee stage as a means of firing a shot over the bows of the Government to let them know that, in the view of many of us, they have made a mistake on this and that they ought to look at it again when they arc thinking of similar legislation that may emerge in future.
It is all very well for the theorists in the various departments who can see as the theory that the thing fits in and dovetails nicely, but if you carry the effects of this Bill as it stands, completely, how it is going to affect small businesses with their added expenses added to the interest rates, added to the world depression they have to face, I do not think the result is good. But it would be more harmful to delay the Bill by passing amendments on those points about which I feel strongly, and which I wanted on the record.
I do not accept, and I hope that this Committee will not accept, the description that the noble Lord, Lord Houghton, gave as to what is our task. If this item was big enough to justify using our power to give the other place a chance to have second thoughts, we ought to use it and we ought to put it to a Division. If the noble Lord does so, I shall vote against him. But I do not believe that we can accept as correct the judgment that, just because there happens to be something involved with fiscal conditions here, we ought to do no more than just talk about it and criticise it.
We are part of Parliament. A lot of people want to take away what powers we have, which are good powers, which are stabilising powers, and we ought to guard them jealously. I do not like the amendment, but I cannot accept the judgment that it ought not to be pushed to a Division if those who are moving it think it is going to play that important a part in the whole set-up of trying to put this country right.
Lord Drumalbyn: Before the noble Lord sits down, may I ask him whether he is seriously telling us, after all the times in another place where he has opposed financial resolutions, and argued about them, that what has been said in another place and what the financial resolution contains do not matter? Here the noble Lord, Lord Houghton, is arguing that we are really talking right outside the financial resolution because this is in fact a tax. I have looked at the financial resolution and it seems to me perfectly plain that it is right outside the financial resolution. Surely he is not arguing that it is for us to put forward and pass amendments which are outside the financial resolution merely because we think this is something better to do? Incidentally, may I ask for a clarification here? My noble friend beside me points out that we are dealing with the Social Security (Contributions) Bill, and I find the Marshalled List says Social Security (Contributions) Bill [H.L.]. Perhaps my noble friend may have thought that this Bill was now starting.
Lord Harmar-Nicholls: In answer to the question put to me before I sat down, of course one ought to pay a lot of attention to what goes on in another place. Of course one ought to take into account that it has been examined, perhaps more meticulously than we

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can, by a smaller committee; but I was not prepared, and am still not prepared, to accept the overall judgment of the noble Lord, Lord Houghton, that we ought not on any occasion in a Bill such as this ever to send anything back. If my noble friend is prepared to accept those reduced powers of this House, then I am surprised, because I should like to argue for much more than that.
I work on the basis—of course I may be wrong on this, and my noble friend can put me right—that if an amendment appears on the Marshalled List it is in order as regards procedure. If it is on the Marshalled List and it is out of order, as my noble friend has said, then somebody else has made a mistake. Whoever allowed it to appear on the Marshalled List in this form, whether it be the advisers of the noble Lord and his noble friends who moved it, or anybody else who is in a position to stop it, I do not know, but if it is on the Marshalled List I presume it is in order. If it is in order, then if we think strongly enough that second thoughts ought to be given to it, of course we ought to use our powers. But I am going to vote with my noble friends on this. I am surprised that my noble friend seemed to be more in sympathy with the noble Lord, Lord Houghton, than with the general proposition. I do not want any of these things to come to pass, and I am not prepared silently to accept that the powers of this House be reduced at a time when some want them more than ever to be downgraded. If the position left on the record were to be as it was put by the noble Lord, that may have been the beginning of just that course of events.
Lord Nugent of Guildford: May I just say a word of thanks to the noble Lord, Lord Houghton, for raising a point which in the 15 years I have been here I have never before heard raised but which I believe is a valid one. Certainly it is valid in principle. Although usually I find myself very much in agreement with my noble friend Lord Harmar-Nicholls, I am not sure that he is right on this. After all, my noble friend would accept that when the Finance Bill comes here from the Commons we do not think of amending that. The effect of this Bill, with all the curious anomalies of the national insurance fund, is to levy a charge on the citizen, just as the noble Lord, Lord Houghton, has said.
While it is true that this has not been precisely defined, and my noble friend Lord Harmar-Nicholls is right there, its practical effect is exactly the same as in changing the incidence of taxation. My noble friend is not right about the validity of amendments which appear on the Marshalled List. Only one person is responsible for amendments on the Marshalled List, and that is the noble Lord who puts them down. We in this House do not have the system as in the Commons where they have to get past the Table with all the authority of the Chairman of Ways and Means. Here we alone are responsible for amendments and must defend them ourselves.
I would not say that Lord Wells-Pestell's amendments are out of order. Indeed, we have this interesting debate coming out of it. But, on the question of whether it would be wise, having discussed it, to vote on it—so that, if by chance the noble Lord won, the amendment would have to be sent to the Commons—
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I think the noble Lord, Lord Houghton of Sowerby, would be right. I believe it would be a serious error of judgment because it would be trespassing into a field where your Lordships normally do not go in regard to the effect of the incidence of financial measures on the citizens of this country.
We owe a great deal of gratitude to the noble Lord for raising this extremely interesting point. Without any criticism of the merits of the amendment—I understand what the noble Lord is doing, although I do not agree with him; if I were sitting on the Benches opposite I might wish to support him because I understand what he is doing—I suggest that when we come to the financial point, it is wrong in principle. We cannot tell what will come out of all this, but the noble Lord, Lord Houghton, is to be thanked for raising an interesting point which has added a great deal to the knowledge of all of us.
Lord Banks: I have followed with great interest the discussion as to whether the amendment should be discussed or not, and I appreciate the weight of the suggestion that perhaps we should not be discussing it. Nevertheless, social security is a matter of cash benefits and almost everything to do with social security involves money. Indeed, almost every, if not every, amendment involves Government expenditure and I am not clear where we should have to draw the line if we said the amendment should not be discussed, because I am sure that the amendments proposed by the noble Lord, Lord Spens, have a similar effect. Indeed, as the noble Lord, Lord Harmar-Nicholls, said, we might as well abandon our Committee stage if we cannot discuss the amendment.
Lord Hawke: I have attended your Lordships' proceedings quite regularly for about 35 years and I must say that the noble Lord, Lord Houghton of Sowerby, has raised a point that is new to me. I think he is right and that we should have thought of it before. What clinches the matter for me is that these contributions are raised in the same way as income tax and probably the same cheque from the same person covers both, and, for that reason, I believe it is merely a branch of income tax.
Lord Shinwell: I suggest that the time has arrived, after a rather protracted discussion of a subject with which few of us are familiar, to ask why the Government have not intervened to clarify the issue. The issue is not whether we should accept the amendment but whether, on a proposition which would in effect increase a contribution from some members of the community—whether they are capable of paying is beside the point, although that issue has been raised—we are competent to give a decision. I have been led to understand for a long time that whatever competence was vested in your Lordships' House, we were not entitled to intervene in matters of finance. We have no right, so I have always understood—I have never before changed my mind on that, although I am being asked to change my mind today; I do not like changing it and there are changes being suggested in other directions which almost frighten me, but I do not want to introduce another subject—to accept, or even to discuss, a proposition which in effect would mean asking some citizens in our community to pay more

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than it was thought they should pay.
Who can determine this for us? My noble friend Lord Wells-Pestell, despite his great knowledge of the subject, cannot do so. We must ask a responsible Minister to clarify the position. Perhaps we may ask the noble and learned Lord Chancellor to attend our proceedings briefly to render some legal advice; he usually likes to discuss these matters. I do not know why he is absent, except of course that we are in Committee. It seems that we do not have a Chairman, Lord Chancellor or Minister able to help us. With the Government appearing reluctant to intervene, what are we to do? I might suggest that, having heard the discussion, we now proceed to the next business.
3.35 p.m.
Baroness Young: I assure the noble Lord, Lord Shinwell, that I was not reluctant to intervene. I was trying to intervene but there has been such a tremendous amount of interest expressed in the amendment, and now on the constitutional points about your Lordships' proceedings, that it has been difficult to intervene at all. I shall not go far down the constitutional path today; this is not a money Bill and it is quite proper for your Lordships to discuss it, although I shall ask the Committee to resist the amendment, and therefore I do not wish it to be pressed to a Division (I understand that that would be possible if your Lordships wished to do so). The House of Lords has implicitly accepted the Commons financial privileges for a long time and does not seek to amend Bills of aids and supplies, or money Bills, under the Parliament Acts. However, as has been pointed out, this Bill is concerned with a fund, so it is technically possible for us to amend it. I feel, however, that all that has been said means that we should not put ourselves in a very good stance vis-á-vis the other place, apart from the fact that it is a wrecking amendment from the point of view of the Bill and would have a profound effect on the Government's medium-term strategy. For those reasons I am bound to ask the Committee to resist the amendment.
The noble Lord, Lord Wells-Pestell, said the amendment was intended to give an extra benefit. However, the effect of the Pensions Act 1975 of an upper limit for benefits would he lost; public expenditure would inevitably rise and, that being so, contributions would in turn have to rise to pay for it, so we should not achieve the kind of savings we are looking for. Apart from that practical point, we believe that such a change would, in the short term at any rate, be unworkable for both employers and the Department of Health and Social Service. It would complicate the calculation of the deductions to be made from wages to the extent that many employers using computers would be unable to implement the change from April. For the DHSS, it would mean a complete revision of the format of the contributions tables which have to be sent to about 1 million employers; and, again, that could not be done in time for employers to implement the new rates in April.
If, however, all contributions had to be counted for benefit purposes, that would undermine the operation of the upper earnings limit for benefit entitlement and so increase public expenditure. The relationship
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between the earnings-related component of the state scheme and the guaranteed minimum pensions provided by occupational schemes would be lost.
As I have indicated, we believe that the amendment as drafted is quite unworkable. But, even if it were workable, it would be disastrous from a financial point of view because it is preceded by the proposal to leave out subsection (2) of the clause, and that would mean that the primary contribution which we are proposing in the Bill would be reduced from 7.75 per cent. to 6.75 per cent. and we would therefore lose £900 million. The noble Lord, Lord Wells-Pestell, was asked by some of my noble friends how much the additional primary contribution would raise. We have estimated that it would raise about £34 million. However, with regard to the balance of all those figures, the national insurance fund would risk being in deficit to about £850 million, and clearly we could not possibly accept that.
I am grateful to my noble friends who have intervened in the debate and to the noble Lord, Lord Houghton of Sowerby, who I think feels that although it would be quite proper for your Lordships to discuss this matter, it would be quite wrong for it to be pressed to a Division. Based on what I have said, I should like to assure your Lordships that the operational difficulties are very real and could not be overcome without large-scale planning and consultation with employers. Although the new primary contribution would not raise much additional revenue, it would be a radical change in the structure of contributions and a major departure from the previous arrangements agreed in 1975.
From what I have said it will be clear that I must urge the Committee not to accept the amendment if it is pressed to a Division. In conclusion, may I point out to those of your Lordships taking part in the Committee proceedings who may be under the misapprehension that this is a House of Lords Bill, that I understand that the letters "H.L." which appear in brackets on the Marshalled List are a printing error. Those of your Lordships who have been following the progress of the Bill will know that it has gone through all its stages in another place.
Lord Wells-Pestell: I should like to say to the noble Lord, Lord Drumalbyn, that I would accept the decision of the Chairman of Committees; it is said that if this amendment is accepted by the Committee, the other amendment cannot be taken. My knowledge of these matters is very limited, but when I tabled the amendments I was not of the view that one amendment excluded the other. However, as I say, one would of course accept the decision of the Chairman of Committees in this matter, but I understand that, if this amendment is not accepted, I shall be free to pursue the other amendment.
I do not want to comment at great length on what has been said by the noble Lord, Lord Houghton of Sowerby, but I must say that his words came as a great surprise to me. It would have surprised me had any Member of your Lordships' House been able to table amendments which gave rise to conflict with another place without first being told so. I could see nothing to prevent me from putting down the amend-

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ments and, if necessary, dividing the Committee on them. This is not a supply Bill; it is not a money Bill.
When the noble Lord, Lord Houghton, says that we ought not to say to another place that they have got it wrong and we have got it right, I would point out that we say that on almost every sitting day of your Lordships' House. If there is a Conservative Government in power, we certainly say that; if there is a Labour Government, then noble Lords on the other side say that even more vehemently than we do. That is the role of your Lordships' House, and I believe that, while we must act within the limits imposed on the House by various legislation, it is right and proper that we should take the matter to a Division if we feel strongly about it.
With regard to this particular amendment, I did not intend to divide the Committee, though what has since taken place rather urges me to do so, since I think that we ought to kill this idea once and for all and exercise what I consider to be our undoubted right. All I wanted from the noble Baroness the Minister—and I have obtained it—was a statement that there are very good reasons for not adopting this proposal. Noble Lords opposite may not believe this, but I thought that the amendment might have been helpful towards securing extra money without imposing such a great strain on that section of the community which, in my view, could afford to pay another 1 per cent. of its earnings. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Minister of State, Department of Employment (The Earl of Gowrie): I think that it might be for the convenience of the House if I now repeat a Statement—
Lord Shepherd: First, the House needs to be resumed.
The Earl of Gowrie: I am most obliged to the noble Lord. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to: House resumed.

British Leyland Corporate Plan
3.44 p.m.
The Earl of Gowrie: My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Industry on the British Leyland 1981 Corporate Plan. I am also making available in the Library of your Lordships' House, and in the Printed Paper Office, a report by BL on its recent performance and details of the Corporate Plan.
My right honourable friend's Statement is as follows:
"The plan contains BL's strategy for returning the company's businesses to viability in the medium term. It foresees a need for some £620 million of additional Government equity in 1981/82, £370 million in 1982/83, and £150 million over the two
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following years, in order to assist the continuing programme of restructuring and investment in new projects, including the new LC10 medium car family. The plan was submitted in four business sections. The policy of the BL board has been (and will continue to be) to decentralise decision-making to the operating units. The intention of the board as stated in the plan is to draw these operating units into four distinct businesses to enable management to concentrate on well-defined product groupings. These businesses are BL Cars, Land Rover, Unipart and the Leyland Group. As the structure evolves, so the progress of each business will be separately monitored.
"The board is meanwhile exploring a variety of possible forms of collaboration, and has written to the Government in the following terms:
'The board sees collaboration with other manufacturers as an important part of its strategy for recovery and for reducing and eventually removing dependence on Government support. This might take the form of collaborations on components or on particular parts of the business; but the board would also welcome, and actively seeks, a relationship of a more comprehensive kind which might grow out of such collaboration.'
"The Government supports BL's intention of creating viable businesses and of attracting private capital into them. It has approved the plan and has agreed to fund the first two years of the plan (including the first phase of the LC10 programme)—that is £620 million in 1981/82 and £370 million in 1982/83—subject to regular monitoring by the BL board of progress in achieving the plan. The Government as shareholder will also be watching closely the financial performance of the company.
"The chairman's letter to me of 26th January, which I am publishing in full today in the Official Report and placing in the Vote Office, also makes it clear how the board will respond if the chances of achieving the plan's major objectives are appreciably reduced.
"He says that:
'Circumstances may arise in which, through a substantial deviation in performance or an appreciable departure from the assumptions underlying it, the corporate plan is clearly not being achieved and it appears impossible to bring about recovery within the timescale envisaged. This could arise for external or internal reasons; an example would be a major strike which damaged or appeared certain to damage any substantial sector of the business. In such circumstances the board would, in accordance with section 1 of the plan, very quickly initiate a review (in consultation with the Government) of the plan of the relevant business group, with consequent implications for continued Government funding.'
"The board and management have assured me that they will not hesitate to take whatever difficult and fundamental decisions about the future of the company are necessary if circumstances, inside or outside BL, require it.

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"As I have already told the House, there will be an opportunity for full debate in the context of the amendment to the NEB's financial limit in respect of BL in the Industry Bill which I shall table for consideration at Report Stage. Clearance from the European Commission will be needed for the Government's funding.
"Finally, it is the Government's intention that the shareholding in BL should be transferred from the National Enterprise Board to the Secretary of State. This transfer will not, however, take place until the Industry Bill now before Parliament receives Royal Assent. Meanwhile, the Government will discuss with BL matters arising from the change of ownership, in order to ensure continuity of BL's financial arrangements.
"The Government wish the BL board and the company's employees well in their task."
My Lords, that concludes my right honourable friend's Statement.
Following is the letter referred to in the Statement:
26th January 1981
The Rt. Hon. Sir Keith Joseph, Bt, MP,
Secretary of State for Industry.
Dear Secretary of State,
The Board believes that BL's 1981 Corporate Plan offers—subject to the risks and qualifications which are made clear in the Plan—the best feasible prospect of bringing about the recovery of the business.
As you know, recovery will take time, and during this period the risks to the survival of whole sections of the business will remain considerable. While it should be possible for the business to accommodate the normal trading fluctuations within the framework of the Plan, the achievement of competitive cost levels is essential to ensure our survival. As we have made clear in recent weeks, even the success of a particular new model such as Metro cannot allow us to relax the strict discipline which has to be exercised on all aspects of our cost structure.
Government approval of our Plan and funding request would not change this situation, because it is our own performance in the external competitive environment which fundamentally determines whether or not the business can survive. Dealers and customers would simply walk away from the company if there were a major strike. Moreover, they would desert us more gradually, but no less surely, if we allowed our costs to rise to uncompetitive levels—or indeed if it seemed to them that the necessary funds would not be sought from Government.
Circumstances may arise in which, though a substantial deviation in performance or an appreciable departure from the assumptions underlying it, the Corporate Plan is clearly not being achieved and it appears impossible to bring about recovery within the timescale envisaged. This could arise for external or internal reasons; an example would be a major strike which damaged or appeared certain to damage any substantial sector of the business. In such circumstances the Board would, in accordance with section 1 of the Plan, very quickly initiate a review (in consultation with the Government) of the Plan of the relevant business group, with consequent implications for continued Government funding.
The Board will, of course, be monitoring progress under the Plan regularly in the normal course of its business and in the context of the annual updating of the Plan towards the end of 1981.
In our recent discussions on the Corporate Plan, you also asked me to confirm to you the views of the BL Board on the importance of collaboration in our recovery strategy for each of our main business groups.
The Board sees collaboration with other manufacturers as an important part of its strategy for recovery and for reducing and eventually removing dependence on Government support. This might take the form of collaborations on major components or on particular parts of the business; but the Board would also welcome, and actively seeks, a relationship of a more comprehensive kind which might well grow out of such collaboration.
Yours sincerely,
(signed) Michael Edwardes."
3.50 p.m.
Lord Bruce of Donington: My Lords, the House will be grateful to the noble Earl, Lord Gowrie, for repeating that Statement. I am sure he will understand that before taking a completely definitiveand detailed attitude towards the Statement, we shall have to have time to examine quite closely the 1981 Corporate Plan, to which the Statement refers, and the appropriate documents. At the risk of embarrassing the noble Earl, may I at once say that we on this side of the House entirely applaud the decision that the Government have taken in this matter. It represents the first of a series of U-turns, which will progressively increase as soon as the industrial deserts which the Government's policies are creating throughout the country proceed to yield their results. It would nevertheless be most churlish if we refrained from congratulating the Government on that account alone.
The Statement refers to four business sections. We should like to examine those a little more closely when the details become available, but we should like to know the extent to which the individual managements of these four sections will be independent of the BL main board. In other words, what will be the role, apart from monitoring, of the BL board as a whole? The Statement mentions collaboration with other manufacturers. This seems to us to be an entirely acceptable idea, although we should like some further particulars in due course, probably in debate, of a relationship of a more comprehensive kind which might grow out of such collaboration. We shall require to have a little more detail as to the implications of that. We would note that the Government, as shareholders, will be watching closely the financial performance of each of the four divisions.
The Statement enters a caveat about the future performance of each of the four groups, and in itself sets out conditions under which the Government and the board might have to review the situation in the event of the plan not working out in the manner that is now envisaged. It gives as an example if there were,
"a major strike which damaged or appeared certain to damage any substantial sector of the business".
Yes, my Lords; and we trust that the Government will give us some indication of the degree to which they have impressed it upon BL management that cooperation is in fact a two-way affair which involves not only the workers and the trade unions but also, of course, the management itself. There are, of course, other reasons why the plan should not work out in the way that is now envisaged—external factors; for example, the external rate of exchange. What would be the attitude of the Government if BL found itself considerably cripped by the maintenance of an altogether artificially high rate of exchange, and are they going to take into account the extremely high interest rates that now obtain?
We note finally that it is the Government's intention that the shareholding of BL should be transferred from the National Enterprise Board to the Secretary of State. We on this side would like to know why. We always understood it to be the philosophy of the party opposite that the less the Government or the state interfered in individual businesses the better it would be. One shudders to think, for example, what would happen to BL if we had intervention in its affairs

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on the lines on which the Government so disastrously interfered with the steel industry in 1979; and we ourselves would not think that the Secretary of State for Industry was the best possible person to give directions to the industry on a detailed basis.
Having said that, let nothing take away our support for the action that the Government have taken. We shall review it, and we hope that there will be full opportunity for debate so that all these outstanding matters and affairs of some detail may perhaps be dealt with at a rather greater length.
Baroness Seear: My Lords, we on these Benches would also like to thank the Minister for repeating this Statement this afternoon. As a policy, we are opposed to pouring money into industries for which there is no likely successful future—and this is a very great deal of money, £1,140 million over a period of four years, or something of the order of £20 for every man, woman and child in the United Kingdom over that period. Therefore, we need to be satisfied that this money is going to be used to good purpose. We recognise, of course, that the future of BL is not concerned only with BL itself but will have a great effect on employment in the very large number of suppliers where jobs would be lost on a very large scale if BL were unable to continue in business. Therefore, while having reservations about the wisdom of investment of this kind unless there is true security, we recognise that it is not unreasonable that the Government should attempt to keep the more viable parts of BL alive and to see them flourish.
We therefore welcome the fact that there is concentration in BL on what seem likely to be, in the judgment of the management, the most profitable areas of business in which they are engaged; and the decentralisation which is promised in the plan is also something which we welcome. However, our fear arises that once this business begins to be profitable there will be a return to the disastrous industrial relations which have bedevilled BL over the years. In very recent months there have of course been signs of true improvement—true improvement which has perhaps come about because of the very bleak future of BL, and the realisation among an increasing number of people employed in that company that their future is dependent on the survival of the organisation.
But if there is a return to some degree of prosperity—and this must be the hope, otherwise it would be quite improper for the Government to pour so much money into this organisation—what undertaking is there, what have the Government done to find out from both the management and the trade unions, that there will not be a return to industrial relations of the kind that we have seen in the past? It really does require a new mood, a new age of industrial relations, in BL if this money is not to be yet another example of public money being thrown away. It could be that some development of an industrial democracy inside BL, some promise of a share in such profits as may be made among the employees of BL, might be a move in the direction of bringing in a new development in industrial relations; but, without that, our fears that this money will once again be wasted will be likely to prove all too well founded.
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We also wonder why the Government have seen fit to remove the supervision of this investment from the National Enterprise Board to the Secretary of State. We surely must believe that the National Enterprise Board, set up under people with real experience of industry and with the time and expertise to concentrate on the problems of industry, is a better organisation for the monitoring of the use of this money and of the development of BL than is possible in the Department of Industry. We very much regret that the Government have seen fit to make this move, which seems contrary to their appreciation of what is needed for the professional development of industry, which is what is so deeply required.
As the noble Lord, Lord Bruce, has said, there is much in this Statement which requires further consideration. We note that a debate has been promised in another place. Is it too much to ask that the Government will arrange for a debate in this House on the future of BL?
3.59 p.m.
The Earl of Gowrie: My Lords, I am grateful for the general welcome which both the noble Lord, Lord Bruce of Donington, and the noble Baroness have given to this Statement. If I may take the points in reverse order, obviously I see no reason (though it is a matter for the usual channels) why we should not debate this very important issue. On the issue which both Opposition Front Bench spokesmen raised about the transfer to the Secretary of State from the National Enterprise Board, I think both the noble Lord and the noble Baroness will probably be aware, as the House will be, that the National Enterprise Board has made public—I might say very public—its desire not to look after British Leyland. The Government are accepting this; and I think many of my noble friends would agree that an investment of this scale, involving such responsibilities and such decisions, would be more appropriately taken directly by the Government, since the Government are perforce involved. I would also say to the noble Baroness that it would seem to me to be adding even more grievously to the burden on public spending, and therefore to the resources available to industry, if we had to have the enormous duplication of effort of different public bodies monitoring the activities of what we hope will in due course be a vigorous private trading sector industry. I am not sure whether that would be the most efficient way to proceed.
The noble Lord, Lord Bruce of Donington, as we would expect of him, made his teasing remark about U-turns. I do not think that either British Leyland's position or the seven economic ages of man were created by this Government. We have to deal with the position that we find, and the erosion of the competitiveness of the British motor industry is a position that we find. On the question of whether British Leyland would be affected by a strong pound, that is one of the external reasons which Sir Michael Edwardes made clear would have to be taken into account during the operation of his corporate plan, and about which he would have to be in close touch with the Government.
On the issue of the internal reasons and the desire which I am sure we heartily share for continued—and

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I stress "continued"—improved industrial relations and productivity at BL, again Sir Michael has been most careful—and my right honourable friend's Statement repeated his letter—that if there were to be internal disruption then, to put it very bluntly and not to mince words, this whole large public investment might be in jeopardy. That would have to be taken into account, and that is why that letter has been quoted in the Statement.
Lastly on these points, the noble Lord, Lord Bruce of Donington, mentioned the burden to British Leyland of high interest rates. I must point out two matters to the noble Lord. One of the reasons why interest rates, which are a great burden on industry, are high is exactly that the Government have to help and support difficult and ailing large-scale industries at a time of recession. Secondly, it must be recognised that when he welcomes the support—and I am grateful to him for the welcome—Government aid in this direction inevitably will have to be financed, and that will be reflected in interest rates and it may deny other people equally needed resources.
Lord Harmar-Nicholls: My Lords, bearing in mind that £1,100 million is earmarked and it is envisaged that four separate managements will operate as distinct from the one that exists at the moment, has any thought been given to what proportion of the £1,100 million will be allocated to each of the four and the reasons for the size of the allocation? Bearing in mind the damage that could be done if the whole group was put in jeopardy by one section creating the troubles that we have seen in the past, could we have an assurance that the monitoring will look upon the four separate managements individually? If one falls down because co-operation is not forthcoming, then will they only lose the help that is now being offered to them, and not the remainder? On the other hand, if one section falls to the ground, for the reasons that I have just mentioned—and various sections in BL in the past have shown themselves to be better or worse than others at various times—then it will not be a matter of what is removed from the one section not going automatically to the other. Has any thought been given to how that will work out, or does that need further thought in the future?
The Earl of Gowrie: My Lords, the relation of the main BL board to these four product companies is that of a holding company to subsidiary companies. If I may use this analogy, the holding company is not in this instance a finance group, as it were; that is the position in which my right honourable friend and ourselves are in. The role of the holding company is managerial and directional in this case. It is because we are confident in the present British Leyland management and in the internal structural coherence of its plan that we find ourselves able to support it. I hope that my noble friend's point will be met on that.
Lord Beswick: My Lords, I welcome particularly the reference in the Statement to the structure evolving as against the requirement that it should conform to some predetermined governmental structure. May I ask the noble Lord whether he can give an assurance that evolution of this structure will be a question of
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management decision and not governmental pressure? While I welcome the fact that at the end of the Statement the Government were able, as a postscript, to wish well the men and management of BL, may I ask the noble Earl whether, if they are successful and do well, that will be a precursor to a change of ownership to outside interests?
The Earl of Gowrie: My Lords, the noble Lord, Lord Beswick, has a great experience of the public trading centre sector in his own right. There seem to be two slightly inconsistent points of view expressed in both his questions. Obviously, the Government would prefer to be disengaged so far as possible from this kind of financing. It will not have escaped your Lordships that there is an irony in the fact that the Government, with all the social and other claims upon the taxpayer's limited resources, are, among other things, engaged in funding the production of luxury cars. This is something that should not be forgotten. Therefore, whereever possible we should like not to be involved in the trading sector. If BL is successful, Sir Michael and the management have made it clear that they will continue to seek private capital coming into the company. Obviously, the more private capital that comes into a successful company, the less charge there will be on Government funding. That, I should have thought, would be broadly welcome to all of us.

Social Security (Contributions) Bill
4.9 p.m.
House again in Committee.
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 2:
Page 1, line 15, leave out ("7·75") and insert ("7").
The noble Lord said: This amendment seeks to reduce the proposed increase by ¾ per cent. I do not contemplate that there is any need for the remaining amendments to take any great length of time. They are on the list of amendments because they raise, so far as we on this side of the Committee are concerned, a matter of principle. We do not like the way in which these increases are being effected. I made that perfectly clear on the first amendment. That is really what is behind these amendments, and it may well be that we shall want to test the opinion of the Committee on one or two of them. But, as I said, I am proposing to be very brief.
I move the amendment on the basis that this 1 per cent. cannot really be justified, other than on grounds of indirect taxation. I made this point on Second Reading. I have looked at it again, I have considered the matter and I see no reason to come to any other conclusion. As I understand the situation, the 1 per cent. increase is made up of ½ per cent. which is required to enable the Exchequer to reduce its contribution to the fund; ¼ per cent. which is required for the National Health Service—again, to save the Treasury; and ¼ per cent. which is required to meet the ever-increasing cost of unemployment.
If I may deal with each of those very briefly, I see no justification, even in a period of financial emergency or crisis, for the Exchequer to reduce its con

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tribution to the fund. Ever since I can remember, there has been a very good relationship between what is collected by way of national insurance, and what is given from the Treasury, which comes out of taxation. I see no reason why that kind of partnership, if I may call it that, should not continue. Merely to put an extra burden upon the lower income groups in order to save the Treasury seems to me to he a little reprehensible. I say no more than that.
With regard to the ¼ per cent. which is required for the National Health Service, as I said, again, it is to save the Treasury. There is no suggestion that it will be used for a better service. There is no suggestion, so far as I can see from anything that has been said in another place, that it will make improvements which are so badly needed. Therefore, I again see no reason for imposing ¼ per cent. upon a particular group of wage earners.
The ¼ per cent. which is required to meet the ever-increasing cost of unemployment is in a very different category. As I said at the very beginning, one recognises that there is more and more money being paid out to more and more unemployed. I shall not venture to suggest what is the cause of that, other than to say that this is an unpleasant fact which we must face. It seems quite reasonable that people who are in work should be encouraged and asked to make an extra contribution to help those who are out of work. Therefore, in the circumstances, the ¼ per cent. is necessary and justifiable.
The reason why I talk about ¼ per cent. is that I believe I am right in saying that, according to the Government Actuary, only ¼ per cent. increase is necessary to meet the additional cost of unemployment benefit. If the noble Baroness the Minister says it is true that the Government Actuary considers that only ¼ per cent. is necessary to meet the additional cost of unemployment benefit, then, by all means, let us have it. The ¼ per cent. is the only part that can be justified. Therefore, I beg to move.
4.15 p.m.
Lord Banks: I should like to support the amendment. It removes that part of the increase in the employee's contribution which is not designed to pay for national insurance benefits, but is designed to promote the Government's medium-term economic strategy. We on these Benches do not support the transfer of the burden from the Treasury supplement to personal contributors. I said on Second Reading that I disagreed with personal contributors being asked, in effect, to pay for non-contributory benefits.
The noble Lord, Lord Cockfield, has been good enough to write me a letter about some of the arguments which I advanced at that time. I much appreciate that and I am grateful to him, and I have informed him that I should like to refer to that letter this afternoon. In that letter he says, about the argument which I have just mentioned,
"You…said that the Government's decision to reduce the rate of Treasury Supplement because Exchequer support for social security (by means of the Supplement and provision for non-contributory benefits) had increased, indicated that the Government wanted the contributor to provide for non-contributory benefits. That is not so. The Government's view, and the reason for the Bill's provision, is that contributors
584
should pay more for their contributory benefits, and the general taxpayer less. Non-contributory benefits will continue to be financed through general taxation".
Of course, I realise that money contributed to the national insurance fund will be used to finance national insurance benefits. That is technically the position. But if the Treasury supplement is reduced because, among other things, expenditure on non-contributory benefits has gone up, and personal contributions are increased to make good that reduction, then, in effect, contributors are contributing to some extent to non-contributory benefits. So I stand by what I said, and I believe that it is wrong to advance increases in non-contributory expenditure as an argument for increasing the contributions to the national insurance fund, which is what the Secretary of State did in another place.
Baroness Young: As the noble Lord, Lord Wells-Pestell, has said, the effect of this amendment would be to increase the primary—that is, the employee's share—Class 1 contribution rate from 6·75 per cent. to 7 per cent., instead of to 7·75 per cent. as under the Bill; that is, a ¼ per cent. increase instead of a 1 per cent. increase. As the Committee will be aware, the 1 per cent. increase under the Bill is the sum of three elements: ½ per cent. is to offset the reduction in the Treasury supplement; ¼ per cent. is to provide for the increases in the National Health Service contribution and ¼ per cent. is to ensure that the national insurance fund will be kept in broad balance.
I am glad that the noble Lord, Lord Wells-Pestell, and the noble Lord, Lord Banks, have recognised that the ¼ per cent. required for the national insurance fund would be maintained by this amendment. But I must make it quite clear to the Committee that this is not an amendment that we could accept. It does, in fact, cut across the whole principle of the Bill, for the fact is that the loss of revenue, were the amendment to be carried, would be £450 million to the national insurance fund and £225 million to the National Health Service; that is, assuming that the ¼ per cent. which remains went into the national insurance fund.
I think that the noble Lord, Lord Wells-Pestell, intends this amendment to be linked to further amendments which stand in his name, and in the name of the noble Lord, Lord Wallace of Coslany, both on Clause 2, which provides that the Treasury supplement would not be reduced and that the National Health Service contributions would not be increased, as proposed in Clause 3. The total effect, therefore, is to strike out the principal effects of the Bill. I have no doubt that we shall be returning to both of these points on later amendments.
Perhaps I may conclude by saying, as I indicated on Second Reading, and as my right honourable friend the Secretary of State for Social Services has explained in debates in another place, that the Bill is a coherent package with important economic effects. As your Lordships know, the Government regard it as vital to their economic strategy to restrain the growth in the public sector borrowing requirement. This amendment, if carried, would make that objective far more difficult to achieve, for it attempts to cut the heart out of the Bill. It is for that reason that I must ask the Committee not to approve it.
On Question, Whether the said amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 66; Not-Contents, 131.

CONTENTS

Airedale, L.

Hall, V.

Amherst, E.

Hampton, L.

Amulree, L.

Henderson, L.

Avebury, L.

Howie of Troon, L.

Aylestone, L.

Jacques, L.

Bacon, B.

Janner, L.

Balogh, L.

Jeger, B.

Banks, L.

Kilbracken, L.

Barrington, V.

Kilmarnock, L.

Beaumont of Whitley, L.

Leatherland, L.

Beswick, L.

Llewelyn-Davies of Hastoe, B. [Teller]

Birk, B.

Blyton, L.

Lloyd of Hampstead, L.

Boston of Faversham, L.

Lovell-Davis, L.

Brockway, L.

Melchett, L.

Brooks of Tremorfa, L.

Peart, L.

Bruce of Donington, L.

Phillips, B.

Byers, L.

Ponsonby of Shulbrede, L. [Teller]

Cledwyn of Penrhos, L.

Collison, L.

Sainsbury, L.

Cooper of Stockton Heath, L.

Sefton of Garston, L.

David, B.

Segal, L.

Davies of Leek, L.

Shinwell, L.

Davies of Penrhys, L.

Stamp, L.

Denington, B.

Stone, L.

Diamond, L.

Strabolgi, L.

Donaldson of Kingsbridge, L.

Strauss, L.

Elwyn-Jones, L.

Taylor of Mansfield, L.

Fisher of Rednal, B.

Underhill, L.

Gaitskell, B.

Wells-Pestell, L.

Gladwyn, L.

Whaddon, L.

Goronwy-Roberts, L.

Wigoder, L.

Greenwood of Rossendale, L.

Willis, L.

Hale, L.

Winstanley, L.

NOT-CONTENTS

Abercorn, D.

Dundonald, E.

Abinger, L.

Ebbisham, L.

Ailesbury, M.

Eccles, V.

Airey of Abingdon, B.

Effingham, E.

Allerton, L.

Ellenborough, L.

Ampthill, L.

Elliot of Harwood, B.

Armstrong, L.

Elton, L.

Auckland, L.

Exeter, M.

Avon, E.

Faithfull, B.

Balfour of Inchrye, L.

Falkland, V.

Beilwin, L.

Ferrers, E.

Belstead, L.

Fraser of Kilmorack, L.

Berkeley, B.

Freyberg, L.

Bessborough, E.

Gage, V.

Boardman, L.

Gainford, L.

Bolton, L.

Geoffrey-Lloyd, L.

Boyd-Carpenter, L.

Gibson-Watt, L.

Brentford, V.

Gisborough, L.

Bridgeman, V.

Glasgow, E.

Carrington, L. (A Principal Secretary of State.)

Glendevon, L.

Glenkinglas, L.

Cathcart, E.

Gore-Booth, L.

Chelwood, L.

Gormanston, V.

Clancarty, E.

Gowrie, E.

Clwyd, L.

Gridley, L.

Cockfield, L.

Grimston of Westbury, L.

Colville of Culross, V.

Grimthorpe, L.

Cork and Orrery, E.

Haig, E.

Cottesloe, L.

Hailsham of Saint Marylebone, L. (L. Chancellor.)

Cross, V.

Cullen of Ashbourne, L.

Daventry, V.

Halsbury, E.

Denham, L. [Teller.]

Harmar-Nicholls, L.

Drumalbyn, L.

Hatherton, L.

586

Hawke, L.

Onslow, E.

Henley, L.

Orkney, E.

Hornsby-Smith, B.

Orr-Ewing, L.

Hylton-Foster, B.

Peel, E.

Ilchester, E.

Pender, L.

Kemsley, V.

Porritt, L.

Keyes, L.

Radnor, E.

Killearn, L.

Redmayne, L.

Kilmany, L.

Romney, E.

Kinloss, Ly.

St. Aldwyn, E.

Kinnaird, L.

St. Davids, V.

Kinnoull, E.

Salisbury, M.

Knutsford, V.

Saltoun, Ly.

Lauderdale, E.

Sandys, L. [Teller.]

Lindsey and Abingdon, E.

Savile, L.

Long, V.

Sempill, Ly.

Loudoun, C.

Sharples, B.

Lucas of Chilworth, L.

Skelmersdale, L.

Lyell, L.

Soames, L. (L. President.)

McAlpine of Moffat, L.

Spens, L.

Malmesbury, E.

Stradbroke, E.

Mansfield, E.

Strathcarron, L.

Margadale, L.

Strathclyde, L.

Marley, L.

Strathspey, L.

Melville, V.

Sudeley, L.

Merrivale, L.

Swinfen, L.

Montgomery of Alamein, V.

Tenby, V.

Morris, L.

Trumpington, B.

Mowbray and Stourton, L.

Vickers, B.

Murton of Lindisfarne, L.

Vivian, L.

Noel-Buxton, L.

Wakefield of Kendal, L.

Northchurch, B.

Willoughby de Broke, L.

Nugent of Guildford, L.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.30 p.m.
Lord Spens Lord Spens moved Amendment No. 3:
Page 2, line 10, leave out sub-paragraph (a).
The noble Lord said: My three amendments deal with the plight of the self-employed. If I may give a little background to cover all three amendments before going into specific details about the first amendment, the self-employed are liable to pay two separate contributions for national insurance: one is a flat rate Class 2 contribution which all self-employed have to pay unless they are earning a very small income indeed, and that flat rate contribution will be increased under this Bill from £2·50 to £3·40—an increase of 90p per week, or an increase of 36 per cent. on the £2·50. That is a very much larger percentage than the increase in the Class 1 contribution, which works out at just under 15 per cent.
The Class 2 contribution is paid direct to the Department of Health and Social Security but, in addition to the Class 2 contribution, those in business earning profits of more than £3,150 per year under this Bill will be charged a Class 4 contribution of 5 per cent. on the balance of their profits between £3,150 and £10,000. That contribution is assessed by the inspector of taxes. They are not allowed to deduct their own personal allowances when having that assessment made. They have to pay that contribution with their taxes.
The self-employed have had a grumble about this Class 4 contribution ever since it was introduced in 1975. It was then introduced with a rate of assessment of 8 per cent. The band on which the assessment was made was very much lower. The increase in the band is the result of inflation. It remained at 8 per cent.

587
until 1978. It was then reduced to 5 per cent. of the relevant profits.
The complaints got to the ears of the Government party. Although I have not studied their manifesto, I believe they undertook to do something about the Class 4 contribution. They have done something about it. They issued a consultative document in the autumn. It suggests that there might be other ways of assessing the self-employed. However, there is a very nasty caveat in the introduction:
"In the present economic climate we shall not be able to accept any proposal which would increase social security spending or require us to employ more staff".
That cuts down the type of proposal which might be made.
The Government also argue that the self-employed ought to pay an element of the employer's contribution as well as that of the employed person's contribution. Noble Lords will find that in paragraph 26 of the discussion document. We consider that argument to be quite invalid. The employer can charge his element of the contribution to tax whereas the self-employed cannot.
Another aspect is that the self-employed's Class 4 contribution is levied on his net profits. You cannot compare the self-employed's net profit with an employed person's salary. The self-employed has got to be in a position to leave sonic of those profits in the business if ever he is going to expand it. Therefore, any comparison with the employed person's salary should be at a very much lower level. If these points are introduced—£3,150 is about £60 a week, rising to £10,000 at the top end—it is not a very high salary upon which to pay extra tax.
The other point about Amendment No. 3, my first amendment, is that the rate of tax—5 per cent.; it started at 8 per cent., stayed there for three years and came down to 5 per cent. in 1978—has nothing to do with inflation. Why should there be any increase in the rate of this tax, as is proposed? My first amendment is to remove the words "5.75 per cent." from the Bill, which would leave the tax at 5 per cent. 1 believe this to be fair to the self-employed. I beg to move.
4.37 p.m.
Lord Cullen of Ashbourne: The noble Lord, Lord Spens, has drawn attention to the document The Self-Employed and National Insurance. All noble Lords who are interested in the subject should certainly study it. It is very good and gives a number of options to those who are interested to get in touch with the department and make their views known. Some of the options are quite radical and would make quite a change in the way that the contributions are now made. I think all noble Lords agree that it would be a mistake to try to make any changes in the present system until such time as this document has been digested, until the recommendations of different people have been made and until the Government have had time to consider them.
Turning to the noble Lord's amendment, the reduction in the Treasury supplement is reflected in the Bill in a rise of ½ per cent. in both the Class 1 employee rate and the Class 4 rate paid by the self-employed,
588
while the increase in the National Health Service allocation results in a further increase of ·25 per cent. The Class 4 rate, unlike the Class 1 rate, is not being raised by a further ¼ per cent. in respect of increased demands on the national insurance fund. These are occasioned by higher unemployment, and the self-employed are not eligible for unemployment benefit. Thus the relationship between the Class 1 and the Class 4 contribution rates is being maintained.
The effect of the proposed amendment would be to leave the Class 4 contribution at its present level. This would shield better off self-employed people from the effects of the reduced Treasury supplement and from paying their share towards the rising cost of the National Health Service. It would also destroy the present relationship between the Class 1 and Class 4 contribution rates. As the noble Lord will know, this relationship has existed since the Government Actuary's report of 1977 recommended the present method of calculating the rates of contribution of the self-employed, and, as I suggested earlier, it would be quite wrong to make any changes in advance of the review of the position of the self-employed in the national insurance scheme. I therefore ask the Committee to reject this amendment.
Lord Spens: No one has supported me. I am surprised because I thought some noble Lords would support a plea for the self-employed but, as no one has done so, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.41 p.m.
Lord Spens Lord Spens moved Amendment No. 4:
Page 2, line 14, leave out ("£3,150") and insert ("£10,000").
The noble Lord said: With the leave of the Committee, I shall deal with Amendments Nos. 4 and 5 together. What I am asking for here is that the band on which this Class 4 contribution is assessed should be raised from the miserably low level at which it is proposed to have it—that is, on profits between £3,150 and £10,000—so that the provision reads, "on profits between £10,000 and £20,000". That would take a number of small businesses out of the system. It would be a great relief to them, it would not cause anyone else to pay any more, except that on Amendment No. 5 perhaps the upper figure should be £16,850, which would give exactly the same result as the present band does for individual persons paying this surcharge.
We consider that this is a direct tax on the self-employed; it is particularly hard in the case of the small businessman who is just starting up and, if one can imagine someone earning a profit of £3,150 and then finding that if he goes above that profit he will suddenly be assessed with an additional tax, it is clearly not encouraging to the small businessman. Let us raise that band quite considerably. I beg to move Amendment No. 4.
Lord Banks: I wonder whether I may give the noble Lord, Lord Spens, a little encouragement by saying that certainly I was in support of his previous amendment but it was so obviously a follow-on from the amendment which had preceded it that I thought it would be wrong to take up the time of the Committee by repeating the

589
same arguments.
I am not quite clear what the effect of this amendment would be in terms of revenue. Reading through the discussion document to which the noble Lord, Lord Spens, has referred it would appear that what is now being paid by the self-employed has been actuarily arrived at and is the correct amount. If this change should result in less revenue that would mean an increase in the flat rate and an increase in the flat rate would be undesirable because obviously it would have an impact on the poorest. But if the change in the limits which the noble Lord proposes would not in fact mean any loss in revenue and nor any increase in the flat rate, then I think there is a good deal to be said for it.
One of the problems with this whole question of National Insurance and the self-employed is that the self-employed do not get an earnings-related pension. This is taken into account, of course, in deciding what their contribution should be, but if something could be done in that direction it might well remove the feelings which self-employed people have, that they are discriminated against in this respect. It is clear, again from the discussion document, that it would not be easy to include the self-employed in the present arrangements for earnings-related pension. But the Government might well consider the possibility of themselves matching a contribution to a retirement annuity of a kind which now qualifies for complete tax relief, up to a certain level, to a contribution made by a self-employed person, so that the self-employed person would have to make a contribution himself in the first place and then have a similar contribution, up to a limit of, say, 3½ per cent. of earnings within the limits on each side. I do not think that that would be administratively difficult to incorporate. It would certainly be easier than attempting to bring the self-employed within the existing earnings-related pension system. I do not think that it would be extremely difficult to do, but of course it would be a concession and it would cost money. I calculate that if half the people who would be eligible were in fact to take advantage of the full rate it would probably cost about £40 million. I am sure the Government will say that they have not got £40 million for anything at the moment but they might well consider this in the future. In the meantime, provided there is no increase in the flat rate, I have a good deal of sympathy in what the noble Lord, Lord Spens, is suggesting.
Lord Roberthall: I, too, should like to give some support to the noble Lord, Lord Spens. I do not know anything about the technicalities involved, but I think that a Government which says that it wants to encourage small businessmen and is very anxious to do things for them ought to look at the bearing of the exemption limits. Of course it is much more noticeable with VAT, where I think the lower exemption limit is quite ridiculously small. It seems extraordinary that with inflation going on so fast the lower limit has moved up only by £500 on £2,650. I do not know whether the noble Lord, Lord Spens, intends to press this amendment to a division, but the point I want to make is that there is a strong feeling among small businessmen that there is a disparity between what the
590
Government say about small businessmen and what they actually do.
Lord Cullen of Ashbourne: I am sure that my right honourable friend will be grateful for the comments generally made on the subject of the self-employed, and those views will come into the discussion which will arise from the result of this document.
I think perhaps I should make clear that the self-employed contributions are based on the Class 1 contributions. They are set at a similar level and the increase from £2,650 to £3,150 is on the same lines as the increase in the Class 1 contribution from £23 to £27. The arrangement between the two groups has been accepted by both parties. As the noble Lord, Lord Wells-Pestell will remember, it was the Government Actuary who, in 1977, laid down the method by which these contributions would be made, and I do not think we should depart from that until the discussion document has been properly looked into.
So far as the amendments are concerned, taking the two together, the purpose of having Class 4 contributions is to introduce some relationship between the contributions of the self-employed and their earnings, thereby spreading the burden of contributions over the range of earnings in a way which was not possible under the pre–1975 system of purely flat rate contributions for the self-employed. The upper profits limit parallels the upper earnings limit for Class 1 contributions. The Bill proposes limits of £10,000 per annum and £200 per week respectively, which of course are identical. The lower profits limit is fixed at a level which ensures that the total self-employed contribution, for Class 2 and Class 4, remains at a fairly constant percentage of earnings for all contributors with earnings from the Class 4 threshold to the upper profits limit.
The effect of the amendment would be to increase the lower profits limit for Class 4 contributions from £2,650 to £10,000 per annum, instead of to £3,150 as under the Bill, and to raise the upper profits limit from £8,300 to £20,000, instead of to £10,000 as under the Bill. This would both destroy the parallel with the Class 1 upper earnings limit and result in a scheme where the percentage of earnings paid in contributions fell to 1·8 per cent. for a contributor with earnings of £10,000 a year and 3·7 per cent. for a contributor with earnings at the upper profits limits. This would be a quite irrational and unjustifiable pattern of rates. If there is to be any change in the basis of the Class 4 contribution, this should be properly considered during the review of the position of the self-employed in the national insurance schemes. I must ask the Committee not to accept this amendment.
Baroness Phillips: I notice that the Minister refers constantly to the similarity between employed and self-employed. Certainly it would not be fair if the self-employed entered the scheme at the same point as the employed. But I think we must remember that the self-employed not only do not receive the benefits to which the Minister referred, they do not receive unemployment benefit and they do not receive sickness benefit. So we have to be very careful when we talk about the correlation of payments, because the benefits drawn are totally different.

591
I noticed that the Minister referred to the fact that Governments of both parties have not been very kind to the self-employed, and that I would wholly endorse. I attacked my own Government, just as I am quite gently chiding the present Government. The only difference is that the present Government have rather suggested that they are on the side of the self-employed, and it seems that the self-employed are not going to get any better treatment under this Government than they did under the last.
This class of person is always referred to as the "small businessman". The taxicab driver and all sorts of people are self-employed and they are not any longer very wealthy people; they are people with quite small earnings. I think they are a very much neglected group in our affairs. They are growing in numbers. They feel a sense of grievance, particularly about the benefits that they cannot collect. I should like the noble Lord, Lord Spens, to feel that he has got support for this amendment; the self-employed do need a spokesman.
The Minister referred several times to the review which is to take place. Is it convenient to ask when this review is to be dealt with? If it is to be soon, why do we bother to have a Bill now? Perhaps it would be better to leave the matter until latter.
Lord Cullen of Ashbourne: I am sure the noble Baroness knows that we must have these rates organised in time for payments in April of the next year. Regarding this document, the representations are asked for by 31st March of this year; after that the Government will obviously consider the recommendations on the matter and come to decisions to put before Parliament. I doubt whether I actually said that I did not think the self-employed were fairly treated; I do not think I did say that.
Baroness Phillips: No, I said that.
Lord Cullen of Ashbourne: I do know that over a very long period of time the self-employed have felt that they have been badly treated, and it is in order to find out whether or not they are that this discussion is to take place. I think that most self-employed feel that they do not get a fair crack of the whip. I am not sure whether that is true. The noble Baroness's first point is that the contributions take account of the fact that they do not receive all the benefits. That is actuarially looked into.
Lord Spens: I am most grateful to the noble Lords and the noble Baroness who have supported me. I think it has been useful to have had this little debate; we have at least got some arguments down on paper in Hansard. I do contest the view that the upper limit of this band, £10,000, should be the same as the upper limit for the employee, because the self-employed person does not have the same benefits, and, as I said, the self-employed person has to keep some of his profits as reserves in order to help him to expand. Therefore, I should have thought that the upper limit for the self-employed might have been increased to £12,000 or something like that, and the lower limit similarly
592
increased to relieve the very small business. However, I do not propose to divide the Committee on this amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 5 not moved.]
Clause 1 agreed to.
Clause 2 [Alteration of Treasury Supplement to contributions]:
4.57 p.m.
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 6:
Page 2, line 17, leave out subsection (1).
The noble Lord said: I beg to move Amendment No. 6. As this amendment deals with Clause 2(1), and the next amendment deals with Clause 2(2), with the consent of your Lordships and of the Minister, I should like to speak to both together, although they are in different fields. I do not really want to say anything about Amendment No. 6 because it would mean repeating what I said a short time ago about the Treasury contribution which the Government seek to reduce from 18 per cent. to 14½ per cent. I think I expressed myself fairly firmly about that and what we feel about it. I do not think there is any need for me to go over that again, except to say that we are entirely opposed to the proposed reduction.
What does concern us—and I would hope that it would concern noble Lords opposite—is that in Clause 2(2), the intention is to provide means whereby the Government can vary that situation whenever they want to. We take the view that this is a power that ought not to be given to the Government to use as and when they think fit. A suspicious person like myself suspects that the Goverment want it in because every year they will seek to reduce the 14½ per cent. That is my suspicious nature. If they want to change it year by year, the facility for them to do so will be found in this Bill.
This is not just a technical matter, and I am sure the Minister is not going to say it is a technical matter. This is a matter of principle. If the Government are proposing to do this, they ought to do it by principal legislation and not by order. As I have said, we feel strongly about it. We certainly would not consider dividing the Committee on Amendment No. 6, but I think we should be sorely tempted to do so on Amendment No. 7. That is in no way intended to be a threat, but I merely mention it to indicate to the noble Lord the Minister that we feel rather strongly about this particular method of seeking to make increases.
Lord Drumalbyn: I should like to put a matter to my noble friend before she replies. I quite understand the suspicion of the noble Lord opposite as regards this matter, but I would not credit him with a suspicious nature. I am bound to say that there is some logical reason for withdrawing the Treasury supplement over the years. But I think that the noble Lord is entitled—and I should also like to know this—to get some idea of what the Government have in mind now. I can visualise the circumstances in which they would wish to increase the contribution. Indeed, if we take it historically, I think that was the reason for

593
maintaining the Treasury supplement after the time when the Treasury supplement was being used—as it originally was—to compensate for the fact that contributors were reaching retiring age before they had anything like paid for their contribution. There is a perfectly good argument in that regard for gradually withdrawing the supplement to the point where the fund is regarded as self-supporting—but self-supporting in principle: there must be a flexibility about it.
There may be times when a Treasury supplement is required in order to keep the fund in balance or to ensure that the fund is kept in balance (because it probably has to be done prospectively). On the other hand, as the noble Lord, Lord Houghton of Sowerby, said earlier, the fund might be in very good form because we had had something like full employment and so forth, and it might be expedient to reduce the contribution.
Secondly, I should like to know why the Government are deciding that there should be a limit of 2 per cent. either way. Are they so sure that that will be enough in some circumstances, if they do have to increase the contribution? There might be some fairly calamitous economic situation and they might have to increase it by more. Are they so sure that this will do? Those are the two points that I should like my noble friend the Minister to tell us about, because I think that she should allow us to see into the Government's mind in this regard. I immediately concede the need for flexibility, but what direction do the Government see themselves going in; and, secondly, is it flexible to have only a 2 per cent. option, so to speak?
Lord Banks: I should like to support Amendment No. 6 for the reasons which I gave when discussing Amendment No. 2. But, in addition, the argument has been put forward by the Government that Government expenditure on non-contributory social security benefits and on the Treasury supplement has increased between 1975–76 and 1980–81 by 27 per cent. in real terms, whereas all contributions, including those of employers, have increased by only 7·8 per cent. in real terms.
During the Second Reading debate I pointed out that the figures given by the Secretary of State in another place showed that expenditure on non-contributory benefits had increased by 26 per cent. and expenditure on the Treasury supplement had increased by 30 per cent. It was clear, therefore, that there had been no greater increase in expenditure on the Treasury supplement than on non-contributory benefits, so, it was somewhat irrelevant to bring in non-contributory benefits at all.
I further pointed out that the apparent disparity between a 30 per cent. increase in the Treasury supplement and a 7·8 per cent. increase in contributions was the result of introducing in April 1978 the new pension scheme incorporating an earnings-related pension as well as the basic. Those who were contracted out had their contributions and those of their employers reduced because the occupational scheme, of which they were members, undertook to provide the earnings-related pension.
The Treasury supplement is related to the gross premiums before reductions for the contracted-out. If gross contributions were taken there is no disparity.
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Net contributions were what the Secretary of State used for his comparison. The increase for gross contributions was approximately the same as for Treasury supplement. I argued that it was right to take gross contributions into account since the reduction was given to people who were contributing to a pension scheme which would relieve the national insurance fund of the burden of providing them with an earnings-related pension.
I should like to refer just once more to the letter from the noble Lord, Lord Cockfield. He said:
"It is true that on the assumptions you make gross contributions would have risen by much the same or indeed slightly more than support by the Exchequer. But this comparison is not a valie one. If you include notional gross contributions in such an equation you would in effect be adding payments to private pension schemes to one side of the balance only.
"For a true comparison you should add contributions to private schemes in 1975 to the other side. This comparison is as follows: Contributions to pension schemes and the National Insurance Fund—in real terms—in 1975—£20,100 million. Estimated contributions to pension schemes and the National Insurance Fund in 1980—£22,715 million. This is an increase of 13 per cent., which is of course considerably less than the 27 per cent. increase in Exchequer support for social security over the period".
I do not accept the noble Lord's argument. He is saying in effect that the reductions in contributions to those contracted out have not resulted in a corresponding increase in contributions to private schemes. But it was not to be expected that employers and employees, already contributing to private schemes, would increase their contributions to such schemes because their membership of such schemes entitled them to a reduction of contribution to national insurance. As a result of their existing membership of a satisfactory pension scheme providing them with the equivalent of the earnings-related pension at least, they ceased to be eligible for the earnings-related pension. There was a reduction of contribution in exchange for a reduction in benefit. What else they may or may not have contributed to private schemes is irrelevant.
My point is as follows: the apparent difference in the increase in the real value—30 per cent. for the Treasury supplement and 7·8 per cent. for contributions—arose only because the new pension scheme with its contribution reductions for the contracted out, came into force in the middle of the period under review. You take a figure for contributions in 1975–76, which has no reductions taken off, and compare it with a figure in 1980–81 after reductions have been made; you link the Treasury supplement to gross contributions, and the result is bound to show an apparent disparity. But once the change in the system is made, as it was in 1978, future comparisons work out differently. If you compare the net figure for any year after 1978 with the net figure for any subsequent year, you will be comparing a net figure with a net figure, and you will find no disparity with the Treasury supplement unless you change the percentage of the Treasury supplement.
My calculation is that between 1978–79 and 1980–81 net contributions and the Treasury supplement have both increased by about 43 per cent. before allowing for changes in the real value of money. I repeat that there is no real disparity and that the argument in favour of the reduction in the Treasury supplement and the increase in contributions, on which the Government have heavily relied, is baseless.
The Minister of State, Treasury (Lord Cockfield): Although formally only Amendment No. 6 has, at this stage, been moved, as the noble Lord, Lord Wells-Pestell, has suggested, it is for the convenience of the Committee if we deal with both Amendments Nos. 6 and 7 together. That is what I propose doing. The Bill logically falls into two parts. Clause 1 provides for an increase of 1 per cent. in contributions and, in effect, the remainder of the Bill deals with the allocation or the distribution of the additional money so raised.
Your Lordships have already agreed, on a Division, to the increase in the contributions by one percentage point. Therefore, we are now concerned, not with the amount of the contribution, but only with where that increased revenue goes. In fact, it goes in three directions. A quarter of it goes to the national insurance fund itself in order to make good what would otherwise be an actuarial deficiency, and the noble Lord, Lord Wells-Pestell, has said that he does not challenge that. The remainder goes as to roughly one half of one percentage point to reduce the Treasury supplement, and the final one quarter, of course, goes to the National Health Service. It is the reduction in the Treasury supplement with which we are now concerned.
There is objective or actuarial basis for determining the amount of the Treasury supplement. It was set at 18 per cent. in 1975, largely because that was the level at which the figure had settled down over a period of years. There had been fluctuations in the figure, but by 1975 it had settled down at about 18 per cent. However, we believe that circumstances have now changed sufficiently for that figure to be reviewed, and we believe that there are firm grounds on which it should be reduced to 14½ per cent., as provided in the Bill.
There are two reasons for this. The first is that the balance between contributory and non-contributory benefits has changed significantly over the years; that the non-contributory benefits, which of course by their very nature are paid for by the taxpayer, have increased much faster than contributory benefits. Because it is the taxpayer who pays the whole cost of the non-contributory benefits, we believe that it is only right that within the field of contributory benefits there should now be a re-assessment of the contributions made by employees, employers and the Treasury. That is the first reason.
The noble Lord, Lord Banks, disputes the argument underlying this. This is a straightforward difference of opinion. He takes the view that by increasing the contributions paid by employees towards contributory benefits, we are thereby making them pay towards noncontributory benefits. This is a view that we totally reject. The scheme itself remains a fully contributory one. Indeed, one could argue that the smaller the Treasury supplement the more contributory is the scheme. We cannot, therefore, accept the noble Lord's main argument.
As regards the other point he raised, as he himself said, both earlier in our deliberations and also in speaking on this clause, I have in fact already written to him about this. But I shall endeavour to explain the matter again in perhaps a slightly different and more philosophical way. In the case of people who
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are contracted out, the contracted-out benefits are not provided by the national insurance fund. That, of course, is axiomatic. Correspondingly the fund does not receive the contributions which would have provided those benefits. Therefore, the correct comparison must be between what the fund actually pays by way of benefits—that is, excluding the benefits that it does not pay—and what the fund actually receives by way of contributions—that is, excluding the contributions that it does not receive. In real terms, the contributions actually received by the fund have increased over the past five years by 7.8 per cent.
At the same time the Exchequer contribution to the social security system—that is, the Treasury supplement plus non-contributory benefits—in real terms has increased by 27 per cent. That is simply a question of fact. The 27 per cent. represents the increase in the actual amount of money that the Treasury has handed over to the fund or spent on increased benefits, expressed in real terms.
However, when one asks: why has the amount contributed by the Exchequer risen in this way? part of the answer lies in the fact that the Treasury supplement is calculated, not on the amount of contributions that the fund receives, but on a notional figure consisting of actual contributions plus the contributions that would have been paid had people not contracted out. Therefore, the existence of these notional contributions provides, in part, an explantaion of why the amounts provided by the Exchequer have, in real terms, increased much faster than contributions. It does not in any way alter the fact that the correct comparison is and must he between what the contributors actually pay and what the Exchequer also actually pays.
The noble Lord, Lord Wells-Pestell, directed his remarks primarily to subsection (2) of the clause, which provides a power for the Treasury supplement to be increased or reduced by two percentage points. We believe that this is a necessary degree of flexibility. In fact, it merely mirrors what is already contained in the 1975 Act—the principal Act—relating to contributions. There is a power by regulation enabling the Government to alter the rates of contribution by 0.25 percentage points on either side; that is, for employers and employees. A change of 2 percentage points in the Treasury supplement would have an effect of approximately £350 million. That is, the amount of the supplement could be increased by £350 million or reduced by £350 million. That in fact in financial terms is a rather smaller degree of flexibility than was incorporated in the 1975 Act in relation to contributions, because an increase or decrease of 0.25 per cent. in contributions on each side—that is, employers and employees—would produce a change of approximately £500 million, which is substantially greater.
My noble friend Lord Drumalbyn put two questions. The first one was in many ways much the same as the one expressed by the noble Lord, Lord Wells-Pestell. He asked what do the Government have in mind now. The noble Lord, Lord Wells-Pestell, not unnaturally, thought that there might be some dark plot to eliminate the Treasury supplement altogether. My noble friend Lord Drumalbyn suggested, in the opposite direction, that there might be good grounds for eliminating the Treasury supplement. We in fact, while noting

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these expressions of opinion, have no specific plans in mind for the future. We believe that this degree of flexibility is highly desirable. What happens will have to depend on circumstances as they exist in the future. Neither I nor anybody else in the Government can at this stage say whether it will be necessary to use the power, and, if it is necessary, whether it should be used in one direction or the other.
The second question that my noble friend put was, do the Government regard a limit of 2 per cent.—that is, up or down—a sufficient degree of flexibility? The answer is that we do regard it as sufficient. It provides an ability to change the Treasury supplement by a substantial amount of money; a sum which is much in line with the degree of flexibility provided in the case of the contributions themselves.
Finally, I would say this. There is, of course, always anxiety, not only in your Lordships' House but perhaps even more in another place, that too much power ought not to be delegated to Governments. In general, of course, we as a party very much support the view that too much power should not be delegated to Governments. This is why first of all this power has been limited in the way that it has; and, secondly, it is subject to the Affirmative Resolution procedure. This appears on page 4 of the Bill in Clause 4(5). Because it is the Affirmative Resolution procedure, it means that proper parliamentary control is maintained over any change in the amount of the Treasury supplement. For all these reasons, therefore, I would advise your Lordships against acceptance of either and both of these amendments.
On Question, amendment negatived.
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 7:
Page 2, line 23, leave out subsection (2).
On Question, amendment negatived.
Clause 2 agreed to.
Clause 3 [Allocation of contributions]:
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 8:
Page 2, line 35, leave out subsection (2).
The noble Lord said: I beg to move Amendment No. 8, standing in my name, and, again with your Lordships' permission and the permission of the Minister, I should like to also speak to Amendment No. 9. These two amendments deal with Clause 3 and refer to the allocation of contributions. I can deal with this briefly because it is really on a matter of information that I want to direct my question to the Minister.
If one looks at the destination of contributions of Treasury supplements in Section 134 of the Social Security Act 1975 on pages 112 and 113, the Government in the Social Security Bill now before the Committee seek to increase the percentages. I note that it is suggested that, in Section 134 paragraph (c) on page 113 of the principal Act, the words "8 per cent." should be replaced by the words "11·5 per cent.", and that, in paragraph (d), again, "8 per cent. "is to become "11·5 per cent.".
I wonder whether the Minister can give any indication as to why there should be such a marked increase in the percentage. I do not wish to raise the matter of
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the smaller increases from 0·4 per cent. to 0·65 per cent., and from 0·6 per cent. to 0·85 per cent.
Baroness Young: May I answer directly the noble Lord on that point? I think there is some misunderstanding about this clause. In Clause 3(2)(a), which has the sets of figures to which the noble Lord referred, that is the Class 1 40 per cent; but (b) is of course the self-employed, the Class 2 contribution, just as paragraph (d) is also the self-employed. It is important to know that we are talking about two quite separate categories of people; one the self-employed and the other Class 1 contributors.
Lord Wells-Pestell: I am much obliged to the noble Baroness. This has dealt with a confusion in my own mind, and there is no point in my saying anything more. With the leave of the Committee, I ask permission to withdraw this amendment.
Amendment, by leave, withdrawn.
[Amendment No. 9 not moved.]
Clause 3 agreed to.
Clause 4 [Supplemental]:
5.30 p.m.
Lord Wells-Pestell Lord Wells-Pestell moved Amendment No. 10:
Page 3, line 28, leave out ("before") and insert ("except").
The noble Lord said: The Bill does not apply in respect of any tax year before the tax year beginning 6th April next. We seek by this amendment to remove the word "before" and insert "except", which would mean that the Bill would operate for only one year. I suppose it is not reasonable to expect the Government to agree, but we feel that the Bill is in many respects unsatisfactory; if it is to come into operation its life should be no longer than one year, and the Government should look afresh at many of its provisions.
Baroness Young: It is clear that the noble Lord, Lord Wells-Pestell, sees the Bill as a temporary expedient, a measure devised by the Government to overcome immediate economic problems. That is not the case. The Bill is an essential feature of the Government's medium-term economic strategy and it achieves what we regard as these desirable effects: first, it helps to reduce Government spending and eases the pressure on the public sector borrowing requirement; secondly, it collects the balance of responsibility for financing the social security system as between the contributor and the general taxpayer, something to which we attach great importance; and thirdly, it restores the value of the National Health Service contributions.
These measures are not temporary; they are intended to carry forward into future tax years. Adjustments up or down may of course prove necessary in time, and that is why powers are being taken to amend National Health Service contributions—which was the subject of the second of the two amendments the noble Lord withdrew on Clause 3—as well as the rate of the supplement, a matter which was dealt with fully by my noble friend Lord Cockfield.
For those reasons the Government could not accept the amendment. There is always an opportunity to

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review, as in the case of this Bill, by primary legislation, if that were thought necessary and if the degree of flexibility, to which reference has already been made, both over NHS contributions and the Treasury supplement should not prove in future years to be flexible enough to meet a particular requirement. I therefore advise the Committee not to accept the amendment and I hope the noble Lord will be prepared to withdraw it.
Baroness Phillips: Before my noble friend considers withdrawing the amendment, there is a point I must raise. Having listened to the noble Lord, Lord Cockfield, who, with all the magic of Paul Daniels could have sawn the lady in half having first convinced her that he was doing it for her own good, may I draw to his attention a reference he made which I suggest should be put right for the record? He suggested that people opting out made no contributions, or if he did not say that, he used a similar phrase. He will he aware that they opt out of only one part of the contribution, and that is in respect of the retirement pension—in other words, those who pay for a private scheme—and perhaps when the noble Lord reviews what he said (I am glad I taught maths because I could almost understand what he said) he will bear in mind that everybody contributes, although they do not necessarily contribute to one particular section.
Lord Cockfield: I very carefully referred to contracted-out benefits.
Baroness Phillips: Yes, but they are contracted out of only one part.
Lord Drumalbyn: May I ask the Minister to say for the record whether there is any precedent in the national insurance fund for duties or obligations being imposed for only one year?
Baroness Young: I have no reason to think that has ever been done before, but if that information is not correct I will write to the noble Lord. My understanding is that it would be quite exceptional if the amendment were carried.
Lord Wells-Pestell: Am I to understand from the noble Lord, Lord Drumalbyn, that that is a good and sound reason for taking a contrary course on this occasion?
Lord Drumalbyn: So far as somebody might imitate it in the future, yes.
On Question, amendment negatived.
Clause 4 agreed to.
Clause 5 agreed to.
House resumed: Bill reported without amendment; Report received.

Local Authority Grants (Termination) (Scotland) Order 1980
5.37 p.m.
The Minister of State, Scottish Office (The Earl of Mansfield)The Minister of State, Scottish Office (The Earl of Mansfield) rose to move, That the order laid before
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the House on 11th December 1980 be approved.
The noble Earl said: My Lords, as your Lordships will be aware, the arrangements for providing Government grant towards revenue and capital expenditure incurred by local authorities are complex. This is unavoidable, and it is highly desirable that the arrangements should be kept under review. Our intention is to secure improvements and in particular to simplify the arrangements when reasonable opportunities arise. That is the background to the order, which proposes some simplification in the present arrangements. It originates in a review, sensibly initiated by the previous Administration in 1977 and summarised in Part IV of their Green Paper Local Government Finance in Scotland (Cmnd. 6811) published in May of that year. The order has the full agreement of the Convention of Scottish Local Authorities, and I should tell your Lordships that it has been considered by the Joint Committee on Statutory Instruments, as recorded in their 5th Report, ordered to be printed by your Lordships on 14th January, and the committee offered no observations on the provisions of the order.
It may help your Lordships if I first outlined how specific grants and rate support grant are linked. The aggregate amount of support for revenue expenditure by local authorities is determined each year at the time of the rate support grant settlement. The Secretary of State for Scotland determines an estimate of relevant expenditure to be incurred by authorities in the grant year and applies to that figure the percentage which the Government are prepared to meet. The result represents aggregate grant which is paid in part—some 8 per cent. at present—by way of specific grants, the balance representing rate support grant paid in aid of local authority revenues and not earmarked to individual services. The more that is paid by way of specific grants the less is available for rate support grant and vice-versa. The balance between the two does not affect the total.
Particularly since local authority reorganisation, there has been general agreement that specific grants should be restricted so far as reasonably practicable, and that the proportion of aggregate grant paid through rate support grant should be maximised. That gives authorities wide discretion to determine their own priorities. Too much reliance on specific grant would imply a paternalist attitude by Government, and would be inappropriate in modern circumstances.
In pursuit of that general principle, the previous Administration recommended in their Green Paper certain criteria for use in judging the continuing need for specific grants. Those criteria were: first, to give special encouragement to expenditure on particular activities or services where there is a strong national interest; secondly, to compensate local authorities for the cost of activities engaged in at the request of central Government where the authority has little or no discretion over the amount of expenditure incurred; thirdly, to supplement block grant in relation to types of expenditure the need for which arises too unevenly, as between areas or years, to be reflected in the assessment of expenditure needs; and, fourthly, to assist a local authority in the financing of expenditure undertaken for the benefit of an area wider than its own.
In consultation with the Convention of Scottish Local Authorities, a subsequent review identified a

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number of grants which failed to meet any of the criteria. When the Government assumed office we were happy to allow the review to continue and it has led to the proposals embodied in the order. With the agreement of the convention, we propose that three revenue grants and one capital grant should be discontinued effectively from 1st April.
The main features of the four grants may be summarised as follows. First, under Section 9 of the Local Government (Scotland) Act 1966, grant has been paid on the basis of 50 per cent. of loan charges incurred by authorities in connection with the acquisition of land for use as public open space. Grant payments are running at present at approximately £33,000 per annum. No new claims have been submitted since 1978. I should like to assure the House that grant payable to the individual authorities currently receiving this form of assistance will continue to be paid. That is permissible under Article 5 of the order, which specifies that its provisions shall not affect the payment of grant in respect of expenditure incurred prior to 1981–82.
Secondly, under Section 76 of the Health Services and Public Health Act 1968, grant of 50 per cent. has been made available on expenditure incurred by local authorities on the supervision of imported foodstuffs. Only six authorities have submitted annual claims, and the total annual payment during that period has not exceeded £39,000. That is a minute sum placed in the context of total expenditure and grant, and discontinuation of the scheme was recommended as long ago as 1974 by the Local Government Finance Advisory Panel, on which local authority interests were heavily represented. The order provides a belated opportunity to implement that recommendation.
Thirdly, under the Education Authorities (Scotland) Grant Regulations 1948, 100 per cent. grant is available towards the costs incurred by authorities in removing war works. The grant served a useful purpose for some considerable time after the ending of hostilities in 1945, but very substantial progress has now been made in clearance of war works and no claim for grant has been received since 1976–77; and the grant has clearly served its purpose.
Finally, I turn to a capital grant made available under Section 97 of the Agriculture Act 1970 towards capital costs incurred by local authorities in provision of flood warning systems. Since the provisions of the Act came into force three flood warning schemes have been grant aided at the rate of 50 per cent. of actual expenditure—two in 1974–75, and one in 1980–81. Accordingly, little use has been made of the provision for these grants and the amount involved, relative to total capital expenditure by local authorities, is small. Looking to the future, I am advised that there is little or no scope for further works of the kind covered by the scheme, and no further proposals are in prospect. In agreement with the convention therefore the Secretary of State proposes to terminate provision for this grant, along with the three revenue grants which I have already described.
It is in those circumstances that I commend the order for approval by the House. My Lords, I beg to move.
Moved, That the order laid before the House on 11th December 1980 be approved.—(The Earl of Mansfield.)
5.45 p.m.
Lord Howie of Troon: My Lords, I am a little surprised to be here. My appearance is due to the unavoidable absence of the noble Lord, Lord Ross of Marnock, the most noted and leading Scotsman in the House—at any rate on this side. I am grateful to the noble Earl for his explanation of the order, even though at first sight it appears to be taking money off Scotsmen the day after the anniversary of Burns' birth—but that over-eggs the pudding. This is a minor measure, far from being the most important of the Session, but it is a marginally useful piece of tidying up. If it will do only a small amount of good, at any rate we can agree that it will probably do no harm. The Opposition have no objection to the order. As the noble Earl said, it arises from a review which the last Government set up three or so years ago; and I think he said that the local authorities do not object to the order, either.
Abolishing the four specific grants which the noble Earl mentioned will make little difference to the total rate support grant, which runs at about £114 million. I wonder how much is expected to be saved, considering that some of the grants will continue to be paid under Article 5 of the order, though presumably for a limited period only. There is no doubt that the provision of flood warning schemes will continue in a small way, though as the Minister said, there seems to be little scope for further works of this kind. Presumably if further flood warning works do go ahead, they will be paid for in some other way.
It is good to see, too, that the war seems to be coining to an end and that the claims for clearing war works from educational land have dried up. I remember when I was at school helping to construct an air raid shelter in the playground. That shelter has long since either been filled in or built over, and presumably the work has been paid for. This particular grant has had its day.
As I say, the order will tidy up an area of the grants system. It is to be welcomed, and we hope to see it speedily passed through the House.
Viscount Thurso: My Lords, we, too, raise no objection to the order in general principle. I am personally a little concerned—and most apologetic—that the debate began a little earlier than I expected and so I missed the beginning of the speech of the noble Earl, Lord Mansfield. It was the beginning of the speech to which I would have listened with the greatest of attention, since no doubt it dealt with specific grants payable to local authorities in respect of expenditure incurred in the acquisition of land for use as public open spaces. I am a little worried about the provision of public open space in Scotland. We need in our burghs and towns as much open space as we can get if we are to provide the play areas that our children need. Any diminution of the amount of grant for the acquisition of public open space must make it more difficult to provide the kind of play areas that may well be needed for our children.
If I have mistaken the effect of the order on the ability of local authorities to provide public open spaces, then I apologise to your Lordships for my tardiness and my slow step, and I shall be glad if I learn that I am mistaken. However, if I am not, I

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hope that the Government will ensure that there are other ways in which adequate public open space can be made available to ensure a sufficient number of play areas and recreation areas within cities and burghs throughout Scotland.
The Earl of Mansfield: My Lords, probably I should congratulate the noble Lord, Lord Howie of Troon, upon his first appearance at the Dispatch Box—
Lord Howie of Troon: It will probably be my last!
The Earl of Mansfield: I congratulate the noble Lord with great sincerity, since he is the only Scottish Labour Peer who has recovered from the celebration of Burns' birthday, which I think is saying something; and I apply similar comments to the noble Viscount, Lord Thurso, who has managed to struggle here, even if not quite on time. If I may say so—and I do not want to be offensive about this—I went into these four little schemes fairly fully in my opening remarks, and I want to emphasise that the amounts of money are simply infinitesimal, not in private terms but in the context of public money. The grants have never recently been popular, particularly so far as open space is concerned. Very few local authorities have availed themselves of the grant, and it is in the order of £1,000 or £2,000 per local authority.
The powers of the local authority to acquire open space are totally unaffected by this little order. Support from the public purse will continue to come through the rate support grant. These specific grants are the way in which central Government can encourage local authorities to do something by providing extra "goodies", if I am not using a slang expression. In this particular instance, the local authorities did not much want to take the offer up, and it is now being discontinued. But this in no way affects either their right or the availability of public money should they wish to provide open spaces.
Very much the same affects the matter of flood warning works. There is absolutely nothing in this order which affects the power of local authorities to provide flood warning arrangements; and, as I have said already, the rate support grant will take care of what I might call the financial aspects.
On Question, Motion agreed to.

Forgery and Counterfeiting Bill [H.L.]
5.52 p.m.
Viscount Colville of Culross: My Lords, I beg to move that this Bill be now read a second time. It was in 1973 that the Law Commission produced their Paper No. 55 on this topic, as usual a well-researched document based upon wide consultation and containing at the back a draft Bill with notes upon it. They did their usual excellent job; and I am happy to say that the current chairman of the Law Commission has written to me saying that he is glad that at last this work is coming off the shelf and on to the floor of Parliament. I am also immensely grateful to Her Majesty's Government for the assistance that they have
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given me, and I hope will continue to give me, in the preparation of this Bill to present to the House this evening.
The Bill does not look exactly the same as that at the back of the Law Commission's Report, but it is more a difference of form than of substance. There are a few changes which have come about as a result of subsequent legislation and a certain amount of further discussion, but in essence it is all there very much as the Law Commission suggested. The existing law on forgery is found mainly in the Forgery Act 1913, which in itself was a consolidation Act, and on counterfeiting in the Coinage Offences Act 1936. The trouble about these Acts is that, certainly as far as concerns forgery, it is not all in that Act because there is still an element of common law, and what is in that Act is fairly complicated.
There are over 30 separate offences; there are 13 different categories of document which it is an offence to forge with intent to defraud, and there are different maximum penalties for most of them; then there are 18 categories of documents which it is an offence to forge with intent to defraud or deceive, again with different maxima; and then, furthermore, the Act creates offences of forging other, unspecified documents with intent to defraud or deceive if the document is what is called public but only with intent to defraud if it is a private document. So it is not really very straightforward, and it certainly needs simplification.
That, of course, is one of the main objects of the Law Commission, but their other object in all their work is to modernise, and there have been many developments since 1913. For instance, some of the documents in that Act really no longer require any protection at all, even if they continue to exist, while at the same time other documents, quite unknown before the First World War, have come into existence and indeed have so grown in their significance that they may require special attention. Indeed, if your Lordships will look at the repeal schedule, at the back of the Bill, you will see a whole lot of modern legislation which has created specific forgery offences in addition to what the 1913 Act contains.
Then, of course, the Law Commission also turned their mind to counterfeiting, having first established that the two subjects should be dealt with in conjunction. The 1936 Act goes back to a time when gold and silver coins were in public use and had an intrinsic value apart from their face value. So that Act distinguishes between gold and silver coins and other sorts of coins; and it had all sorts of different penalties accordingly. Of course, nowadays one would hardly think it worthwhile to file or clip the coinage that we use in our everyday affairs, but in 1936 this was a serious matter and had to be dealt with. So again the need for modernisation and simplification is there.
There is also the curiosity that, as concerns coins and banknotes, they were differentiated. Coins were a matter of counterfeiting, but making false banknotes was forgery. Really, it does not now seem that we need different codes of law to deal with both of them, and the Law Commission has I think adequately explained, and been supported by its consultees, the reason why these should all be dealt with in a similar Bill. So the Bill follows the Law Commission's pattern, dealing first with offences relating to forgery

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and then with the counterfeiting offences.
Part I, regarding forgery, applies to England, Wales and Northern Ireland, but not to Scotland, where forgery is a common law offence. Part II applies to the whole of the United Kingdom. If one looks at paragraph 78 of the Law Commission's Report one sees that this is in fact, I believe, what they had anticipated, and indeed would have liked to have seen, although they themselves were confined to only England and Wales. I will not go into some of the philosophical discussions or the jurisprudential discussions about the need to have an offence of forgery at all, or any particular one, but it does seem right that forgers—who, after all, are a special form of criminal that we all tend to recognise as such—should have legislation specifically directed towards them.
I am certainly entirely in agreement with the Law Commission in contending that there is a good case for retaining a separate offence of forgery, which is defined in Clause 1 of the Bill as the making of a false instrument with the intention of inducing someone to accept it as genuine, and by reason of so accepting it to do or not to do some act to his or any other person's prejudice. That really is, in essence, the way that the Law Commission put it, too. That is an offence punishable with a maximum of 10 years' imprisonment.
There are a number of technical terms, terms of art, in this Bill, as there always are I think nowadays in modern criminal legislation. I hope that if noble Lords will give it a Second Reading we can look more thoroughly at the Committee stage at any of the technicalities that may be causing difficulties. For instance, the word "instrument" is defined in Clause 8, and it is a document, but it is nowadays defined so as to include also such things as tapes and records. It is a false instrument if it tells a lie about itself—that is the classic definition—but not if it merely contains lies. For instance, a letter from an applicant for a job which falsely states his qualification is not a forgery, but one which falsely purports to have been written by a previous employer is because that tells a lie about himself.
The Bill uses the word, "prejudice", which has the intention of combining the previous words, "intention to defraud or deceive". It covers prejudice not only in terms of financial loss or gain but also prejudice in terms of performing a duty in a way that it would not have been performed but for the false instrument. It picks up, for instance, the case of Welham which was decided about 10 years ago in this House. Thus a person who forges a pass to gain access to the Gallery of your Lordships' House with the intention that the policeman on the gate should accept it as genuine and as a result allow the person to enter would be guilty of forgery. But a person who, as a practical joke, forges a letter to a friend demanding payment of a debt which he knows has already been paid would not be guilty of forgery because he would not be intending to induce his friend to do anything by way of an act to his prejudice. I hope that the single word "prejudice" will cover the whole field and abolish the tiresome distinction between the two that the old legislation contains.
Clauses 2, 3 and 4 reproduce in effect Clauses 2 and 3 of the Law Commission's Bill. Clause 2 provides that it is an offence to make a copy of a false instrument
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with the same intention as is required in Clause 1, while Clauses 3 and 4 deal with offences of using a false instrument or a copy of one—that is, using rather than making it—both of which were in Clause 3 of the Law Commission's Bill. The need to cover copies as opposed to the original instrument is discussed in the Law Commission's report at paragraph 39. They rightly point out, as your Lordships will all know far too well, that the increase in the use of photo-copying facilities means that copies of documents are increasingly accepted as though they were duplicates of the original or indeed possibly sometimes the original itself. Considerable reliance is placed on them. It seems sensible therefore that this position should be made clear.
So far as concerns the offence of using a copy, the law Commission again considered whether a separate offence was necessary and concluded that it was. As they point out in paragraph 46 of their report, a person who uses a false document in order to gain some financial advantage would probably be guilty of an offence under the Theft Act, but that Act would not be adequate to deal with a case in which some non-pecuniary advantage, such as the issue of a driving licence, is sought or obtained. So Clause 3 makes it an offence to use a false instrument with the same intention as in Clause 1—that is with the intention of inducing someone to accept it as genuine and so act to the prejudice—and Clause 4 says the same for a copy of a false document.
The first major departure from the Law Commission's Bill comes in Clause 5 of this Bill. This is the clause that creates the offence of possessing certain forged instruments and the implements and materials for making them. There is at present no general offence of possessing a false instrument and nobody is suggesting that there should be. Generally speaking, adequate control is provided by the offences of making, copying and using false instruments. But there does seem to be a restricted range of forged documents and other things which by their mere existence present a sufficiently grave danger to justify making it an offence to possess them and the materials used for making them.
In considering which items should be covered by this offence of possession, the Law Commission identified two criteria. These were the ease with which the instruments may pass from hand to hand, and the ease with which they may be accepted as genuine because of the circumstances in which they are commonly used. So the Law Commission proposed that it should be an offence to possess, either with the full intent as in Clause 1 or without lawful authority or excuse with consequently different penalties, certain items which were listed in their report, items very similar to some of the ones listed in the 1913 Act.
Things have moved on and, for instance, credit cards are now even more common and more widely used that they were eight years ago in 1973. It has been possible to identify other instruments which it would seem ought to be protected using the Law Commission's criterion. An additional one covers items upon which special reliance is placed and whose nature is such that possession of a forgery is unlikely to be innocent and demands some type of explanation. That is why Clause 5 includes things like passports,

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cheques, travellers' cheques, cheque cards, credit cards and certificates relating to the registration of births, deaths and marriages. The need to cover some of these is very obvious. Travellers' cheques and cheque cards are instruments which are in frequent use in circumstances where they may easily be accepted as genuine. They have a potential for use in serious crime that needs to be looked after. Passports and certificates issued by the General Registry Office perhaps are a little different, being documents which are used in a wide range of circumstances, and it is really the question of their authenticity upon which people place so much reliance. These two types require extra protection as well.
That is not, however, the only change in Clause 5 because there is also now included an offence of making or possessing implements and materials used for the creation of that list of instruments to which I have been referring. Many of the items covered by this clause are, as I have just said, of particular public importance and the others have special reliance placed upon them. There is of course the question of special implements and materials being necessary therefore to be used in their manufacture. It seems to me that this type of material used for manufacture needs the same treatment as the currency notes, and that the possession of materials and implements for making them ought to be an offence. By penalising the possession of such implements and materials it is also possible to penalise the possession of incomplete forgeries which have not yet been finished which otherwise it might be difficult to catch.
I am sorry to speak at length on Clause 5 but I thought it necessary to deal with the differences between the Law Commission's Bill and this Bill in some detail. I do not think that the rest of this Part of the Bill will need very much explanation. The penalties under Clause 6 have been brought up-to-date. They are really the same as the Law Commission suggested but there is now a pattern introduced by the Criminal Law Act 1977 into which all the offences fall. In Clause 7 there are powers of search and forfeiture which are the same as before. Then we come on to the clauses which define the technical terms which go to make up the offence, some of which I have looked at already.
The point that I should like to raise in Clause 9 about falsity is that we have here a comprehensive list of the range of circumstances in which an instrument is said in law to be false. This substantially retains two things; first, the definitions in the 1913 Act and then also the common law. That makes it possible in Clause 13 to abolish the common law offence of forgery. So the whole subject will be dealt with in this Bill.
I come then to Part II which deals with counterfeiting and relates to the making, using and possessing of counterfeit notes coins or the implements used for them. Again, the same pattern as in Part I. The offence of making a counterfeit of a currency note or protected coin appears in Clause 14. The Law Commission recommended that it should be an offence to make a counterfeit note or coin with the intention that it should be used as genuine, and proposed a maximum penalty of 10 years' imprisonment. That is the same as occurs in the first part of the Bill. There
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is no such intention in the present law: the offence is established without proof of more than the conscious act of the maker that he is making a coin resembling a current coin, so the mental element is not there at the moment. Then, as I said, bank notes used to be dealt with under the Forgery Act 1913, but there was an intention under the terms of the 1913 Act that could sometimes lead to difficulties which the prosecuting authorities had trouble in overcoming, so they had to fall back on minor charges. Now it is all being brought into line with a similar remedy. As I said, it is a two-tier offence: first, making the note or coin with the intent to pass it to be used as genuine. There is also the lesser offence which I have just mentioned. The penalties are accordingly greater for the first and less for the second. Clause 15 creates the offence of passing or rendering counterfeit notes or coins as genuine or delivering them to another person. That is the lower tier of the offence.
Control or custody of counterfeit notes or coins is covered by Clause 16, and subsection (3) deals with problems of incomplete counterfeits. Under the present law the offence of forgery or counterfeiting can be complete despite the fact that the note or coin is not yet finished or that the coin is not in a fit state to be uttered. It seemed, therefore, important that this should continue to be the case, so that it is possible to deal effectively with counterfeiting operations detected at a relatively early stage before the finished product is actullay produced and is ready to be passed into circulation. That is greatly assisted by the definition of the word "counterfeit" in Clause 27.
The "possession offence" under Clause 17 is essentially the same as in the Law Commission's Bill and the same as the one I was referring to in Clause 5 in relation to forgery. In contrast with the existing provisions of the 1913 and the 1936 Acts, which relate to specific tools and materials in some detail, this clause is widely drawn and covers anything which may be used to make a counterfeit, in recognition of the fact that many things which could have perfectly innocent uses can at the same time be used in the process of counterfeiting.
Clauses 18 and 19 cover lesser offences of reproducing British currency notes and making or selling imitation British coins. The Law Commission considered the need for these offences, and the provisions are still substantially the same as in their Bill. What it is essentially about is to prevent the reproduction of bank notes in advertisements and imitation coins used in sales promotion schemes. Both offences are punishable only by a fine.
The importation and exportation of counterfeits are covered in Clauses 20 and 21 and really come under the aegis of the Customs and Excise.
The penalties are set out towards the end of Part II and they follow the same pattern as before. Similarly, there are powers of search and forfeiture in the case of counterfeiting as in the case of forgery.
A clause (Clause 25) has been added, providing in common form a director's liability provision, relating only to the offences in Clause 18 and 19. Those offences are by their nature likely to be, or capable of being, committed by companies, and it seemed appropriate therefore that where an officer of a company has

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approved or connived at the issue of token money or has been negligent, he should also be liable to conviction.
I have already mentioned the definition of "counterfeit" in Clause 27. Again, that is basically the same as was given by the Law Commission, although—I believe on the advice of the Treasury—some technical amendments have been made to ensure that the Bill deals adequately with a certain method of making counterfeit notes known as the "slit note system"—which is not the same as the "split note system".
Then there are the usual miscellaneous clauses at the end, with a large repeal section and the extension to the various parts of the British Isles that I have already mentioned. I hope that your Lordships will therefore think there is not really a great difference from what the Law Commission has said but that where there have been changes there are good reasons for them and that the changes constitute an improvement. I am afraid it is necessary, in a technical Bill of this sort, to go into a little detail. I think I may have been too long but nevertheless I hope that your Lordships will give it a Second Reading; and I so move.
Moved, That the Bill be now read 2a.—(Viscount Colville of Culross.)
6.15 p.m.
Lord Elwyn-Jones: My Lords, I am sure that the House will be grateful to the noble Viscount, Lord Colville of Culross, for introducing this Bill and indeed for taking it under his highly competent wing. It is good to hear him in action again, if he does not mind my saying so. I am relieved that there was no element of reproach in his speech about the failure to take action sooner on the Law Commission report, which was received in the Home Office as long ago as 1973. It would perhaps have been a matter of some delicacy if he had made a complaint because of course the noble Viscount was at that time a distinguished Minister in the Home Office. But the major passage of time undoubtedly occurred in the years 1974 to 1979, and the explanation is partly that time is the least available of all parliamentary commodities. Also it does appear that the report itself did the round of the departments, and no doubt that took a little time as well.
With the fact that there is need for a specific, separate offence of forgery, I am fully in agreement with the noble Viscount and with what he has said. Forgery is not so frequent a crime as burglary, theft or robbery but forgeries do run into thousands each year as crimes. I have little doubt that there are far more forgeries now than there were in 1973. The noble Earl the Minister indicates dissent. I am not stating that as a known fact, but it should be interesting to know how things have gone. I should have expected more forgery offences, for the reason mentioned by the noble Viscount—namely, the greater proliferation of cheques, travellers' cheques, cheque cards and credit cards. If I am wrong, that is very gratifying. Certainly, since the passing of the Forgery Act in 1913 many forgery and forgery-type offences have been created in specialised contexts. The coming into use of motor vehicles called for a multiplicity of documents, and it seems that far and away the most commonly committed of forgery and forgery-type offences have
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been those resulting from the forging of motor vehicle licences.
The schedule to the Bill indicates that there is a good deal of consolidation in the Bill: of course we welcome that very much. It is perhaps sad that it has not been legislsted upon before. I remember that when I occupied the Woolsack my noble and learned friend Lord Gardiner used to begin each Session of Parliament with a recitation, delivered in a prophet-like way, as to the matters which had been left undone which ought to have been done; and there was always a list of uncompleted and unfulfilled reports from the Law Commission. But a good deal has been done. Parliament's record has been pretty good in this field, and it is right that should be so. But the process has been greatly assisted by the willingness of individual Members in each of the two Houses—and here, notably, today by the noble Viscount, Lord Colville, in undertaking the responsibility, in view of the difficulty of slotting in. "Get slotted" used to be the great demand of Ministers going to the Legislation Committee, by the supporters of particular measures.
The noble Viscount, Lord Colville, gave a very lucid explanation of the Bill itself and I do not quarrel with the extent, broadly speaking, to which it departs from the Law Commission's Bill. So far as the departures are merely departures of drafting, the drafting in the Bill as it is before the House seems to be an improvement. But he has drawn attention to the changes effected in Clause 5 of the Bill. Indeed, in this and other respects, the Bill shows the signs I have indicated, that the draft from the Law Commission went around the departments and there was a good deal of tacking, nibbling and adding, here and there; no doubt, to some extent, to the dismay of the draftsman.
But, in relation to Clause 14(2), which provides that,
"It is an offence for a person to make a counterfeit of a currency note or a protected coin without lawful authority or excuse",
I have wondered what is the reason for introducing that as a new offence. It did not exist in the Law Commission's proposals. Another matter which is of interest to me is the question where do forged paintings stand under the terms of the Bill? In the report of the Law Commission, contained in the explanatory notes to Clause 2 are the words:
"An instrument in writing, whether of a formal or informal character, embraces all those documents the contents of which are to be acted upon. It excludes such things as paintings whether signed or not".
I am not clear from the terms of this Bill whether it is intended to exclude forged paintings, which is a branch of forgery which seems to have flourished in recent years. No doubt the noble Earl will be able to tell us, if not now then at a later stage, the answer to that.
As I have said, I agree that the changes in the documents that are now included in Clause 5(5) paragraphs (g) to (k)—cheques, travellers' cheques, cheque cards and credit cards—are justified. I am intrigued about one thing. There is included in paragraph (l) of the list,
"certified copies relating to an entry in a register of births, adoptions, marriages or deaths",
but I see no reference to forged divorce documents, either a decree nisi or a decree absolute. Does it

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mean that the Divorce Registry nodded when this report of the Law Commission was circulating, or was it thought that in these days a mere forged decree nisi or decree absolute is of no real importance?
6.24 p.m.
The Earl of Mansfield: My Lords, I am sure that the whole House will be grateful to my noble friend Lord Colville for introducing his Bill, and also for explaining its purpose and effects. The Government welcome the Bill as a useful piece of law reform. As my noble friend has explained, it is based to a large extent on the recommendations of the Law Commission, which are contained in their report on forgery and counterfeit currency. The Government are in broad agreement with the recommendations contained in that report, and are therefore pleased to lend their support to the proposals in this Bill.
I am glad that, as between my noble friend and the noble and learned Lord, there was little, if any, accusation of delay in bringing forward the Bill. That is as it should be, as we all know the constraints on parliamentary time. If I made a face as to the noble and learned Lord's estimates of the number of offences under the various interrelating Acts, it was a personal expression and not one which was based on statistics. If interesting statistics emerge between now and any future stage of the Bill I shall gladly pass them on to the noble and learned Lord.
I should like also to add my tribute and the Government's appreciation to the work of the Law Commission. We all know that they have a valuable role to play in their review of the criminal law, and the Government consider themselves fortunate to have such an eminent and experienced body to advise them on such matters.
I do not intend to comment in detail on many of the provisions of the Bill. My noble friend has given us an explanation of most of them, and I have indicated the Government's general welcome. But I should like to concentrate on just one or two points which have already been commented on by both noble Lords who have spoken. The first of these is Clause 5, which creates offences of possessing certain false instruments and the implements for making them. The Bill departs from the Law Commission's recommendations, and my noble friend has given his reasons for extending the scope of the clause, which the Government accept. One could, I suppose, argue that a more satisfactory approach might have been one which avoided the need for a list of instruments, and instead created a general offence of possessing any false instrument. But when one examines this proposition more closely, it soon becomes apparent that this would not provide a satisfactory solution.
The Law Commission argued that the possession offence should be what is now described as a two-tier offence; that is, that a distinction should be made between the person who possesses a false instrument with the intention of using it to induce someone else to do some act to his or another's prejudice, and the person who merely possesses a false instrument without lawful authority or excuse. In the latter case, although the person who possesses the false instrument may intend no harm, there is always a danger that the
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instrument will fall into the hands of someone who will use it to somebody else's prejudice. We need, therefore, to guard against this kind of situation, and for this reason I believe that the two-tier approach is right.
If, however, there were to be a general offence of possessing a false instrument, it is clear that this approach would have unwarranted consequences. It would mean, for example, that a mother who finds her son going off to school with a forged letter from her in his pocket, excusing his absence on the previous day, would, if she kept the letter instead of destroying it, be guilty of an offence. Clearly, this would be absurd and it would, therefore, be necessary to distinguish between those false instruments which it would be an offence to possess either with full intent or without lawful authority or excuse, and those which it would be an offence to possess only with full intent. The result, in my view, would be the worst of both worlds—an offence which is actually wider than necessary and a list.
I believe that the Law Commission and my noble friend are right to adopt the approach which they do. I also believe that my noble friend is right to extend the range of items covered by the clause. I know that the police will welcome the extension of the clause to cover such things as cheques, cheque cards, credit cards and travellers' cheques. They have expressed concern about the increasing use of instruments of this sort in serious crime, and are doubtful of their ability to act in certain circumstances in the absence of an offence of possessing certain false instruments. Clearly there is room for debate as to what should be the range of restricted items, including divorce papers. It is always difficult to know where to draw a line, but, as things are, I should have thought that my noble friend had got it about right. I should be reluctant, I think, to see any substantial widening of the scope of this clause, although, particularly if the noble and learned Lord wishes it, we can come back to the matter in Committee.
I should like to say something about Clause 8 and, in particular, about the definition which it contains of one of the central concepts of this part of the Bill; namely, the concept of an instrument. There is difficulty in capturing precisely the notion of the two types of message identified by the Law Commission which a document, to be covered by the law on forgery, should convey. The Law Commission pointed out that documents usually contain messages of two distinct kinds; that is, a message about the document itself, such as the information that it is a cheque, and a message to the effect that the document is to be accepted and acted upon, such as the message that a banker is to pay a specified sum. They argued that the distinguishing feature of those items which should be covered by the law on forgery is the presence of the second type of message. This, I am sure, is right, but the difficulty lies in finding a satisfactory way of capturing this notion.
Like the Law Commission, the Government have given careful thought to this problem and have concluded that the best approach is indeed the one adopted by the Bill: that is, to rely upon the notion of an instrument, coupled with the requirement in the offence provisions that it be used to induce someone to act upon it.
Turning to Part II of the Bill, my noble friend

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explained that he considered it necessary to amend the Commission's proposals as they related to the offence of making and using counterfeits so as to create two-tier offences requiring either the full intent recommended by the Law Commission or absence of lawful authority or excuse. He referred to possible difficulties in proving the full mental element and thus securing convictions in appropriate cases, and I can confirm that those involved in prosecuting offences of this nature have, on occasions, experienced just such difficulties.
Clearly, it would not be justifiable to create an absolute offence with any substantial penalty, nor would it be right to require less than the full intent proposed by the Law Commission in any offence rendering a person liable to 10 years' imprisonment. But the Government agree in effect that it is both appropriate and justifiable to create a lesser offence, carrying a maximum penalty of only two years' imprisonment, which relies upon absence of lawful authority or excuse. We are therefore content with the changes which he has made to the Law Commission's proposals in this part of the Bill. The rest of the Bill is, as my noble friend has indicated, very much the same as the draft prepared by the Law Commission and calls for no special comment from the Government at this stage. We are broadly content with what is proposed.
The noble and learned Lord raised the matter of Clause 14(2). This is—I was going to say pontificated upon but that is rather offensive—discussed in paragraph 88 of the Law Commission's report, if my memory serves me right. If it does not, I apologise. We can return to the matter later. In any event, I am grateful to my noble friend for introducing this helpful Bill. Mercifully, it raises no party political issues and in our view is a useful contribution to law reform. I hope therefore that the House will agree to give it a Second Reading.
6.34 p.m.
Viscount Colville of Culross: My Lords, the welcome that has just come from my noble friend is not wholly unexpected. None the less, it is agreeable. As for the noble and learned Lord, Lord Elwyn-Jones, it is particularly comforting to know that he has not been able to find any serious defect in the Bill. Perhaps I could deal very quickly with his three points.
First, on the question whether the Family Division nodded when the departments were being asked about the provisions, I do not think so. I can see no particular reason why a decree nisi or a decree absolute should be the sort of document which is necessary, as it were, for a possession offence, which would mean that it would be in Clause 5. If you had a false one and used it with the necessary intent, you could still be guilty of an offence under Clause 1—also if you had a copy under Clauses 3 or 4. So the mere fact that it is not mentioned in Clause 5 only differentiates it to this extent: that the simple possession of it is not something which creates an offence. In other words, it is not the sort of document which is so much relied upon by people, as are the others listed, that it has been singled out. But it would be covered by the rest of the Bill, and I do not think that there is any problem over it.
Paintings are—contrary, as I understand it, to
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what the Law Commission recommended—specifically left out by virtue of the definition of "instrument" in Clause 8. Case law on this matter is in conflict. There is an old case, called Closs, where the courts held that the signature on a document, combined, turning it into a false painting was indeed a forgery. In 1971, however, Essex quarter sessions had in front of them a case, called Douce, where the learned deputy recorder held that it was not a forgery. I think it is the latter, although the person concerned was acquitted on all counts.
In the commentary on that case I see that in Scotland, in common law, the fabrication of a picture with a false signature on it is not forgery. It may very well be that the reason for this is in order to have conformity between the law in the two countries. If, however, the noble and learned Lord wishes to raise this point again we can of course consider it. I understand his point. I should have thought that, as opposed to the mere forgery and having it with the necessary criminal intent, it would not be at all difficult in the circumstances where it was sold to find that some other sort of criminal offence had been committed. It may well be that in the circumstances that is good enough.
As for Clause 14(2), the noble and learned Lord must remember that here we are marrying together the two old codes for coins and for bank notes. There was always an absolute offence for coins but not for bank notes. What has now been provided in Clause 14(2) is a second-tier offence where you cannot prove the full mens rea that is necessary under Clause 14(1). Nevertheless, the circumstances are thoroughly fishy and it is quite easy to prove the necessary ingredients of the offence under Clause 14(2). As the Bill is pulling together coins and bank notes it is of course necessary to have a second offence which covers both of them. My noble friend Lord Mansfield also commented upon this.
I hope that that is a satisfactory solution. If I have got it wrong, I shall make certain that I tell the noble and learned Lord before the next stage. That is a stage to which I much look forward. In the meanwhile, I hope your Lordships will this evening give the Bill a Second Reading.
On Question, Bill read 2a, and committed to a Committee of the Whole House.