Lords Sitting of 24 May 1982

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

The Falkland Islands: Peruvian Peace Plan
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether there is any truth in the reported allegation by the President of Peru that Britain was directly responsible for the collapse of his mediation efforts in the Falklands dispute.
The Minister of State, Foreign and Commonwealth Office (Lord Belstead): No, my Lords. The Peruvian initiative failed because Argentina rejected the proposals.
Lord Jenkins of Putney: My Lords, is the noble Lord aware that the whole of Latin America now appears to believe that this country does not want peace? Will the Government disprove that belief by calling for a n immediate cease-fire?
Lord Belstead: My Lords, our objective remains to end the unlawful Argentine occupation and to give back to the islanders their right to determine their own future.
Noble Lords: Hear, hear!
Lord Brockway: My Lords, in view of the discussion on this point, I should like to ask a question. Did the British Government endorse the proposal in the Peruvian document in favour of a joint administration of the Falkland Islands after withdrawal of the Argentine forces?
Lord Belstead: My Lords, joint administration in consultation with the islands' elected representatives.
Lord Paget of Northampton: My Lords, what was all the negotiating about? The Argentinians have burst into our property. The question was whether they went. What else was there to negotiate about?
Lord Belstead: My Lords, we have been negotiating because we wish to see a solution to what is a tragedy.
Lord Paget of Northampton: My Lords, the solution was that they went, was it not? There was not anything else.
Lord Belstead: My Lords, that is our determination.
Lord Kinnaird: My Lords, would my noble friend the Minister not agree that, at this crucial juncture in our history, unless noble Lords have something constructive to say it would be wiser to keep quiet?
Lord Belstead: My Lords, my noble friend's advice is, as usual, sound.
Lord Jenkins of Putney: My Lords, is the noble Lord aware that a number of us would like to emulate another place by voting against the Government's policies on this issue? Will he ask his noble friend to provide an opportunity for that to occur?
Lord Belstead: My Lords, the noble Lord's judgment is, as usual, not sound.

The Inflation Rate
2.39 p.m.
Baroness Sharpies: 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 further progress is being made in reducing the rate of inflation.
The Lord Privy Seal (Baroness Young): My Lords, inflation is now in single figures—9·4 per cent., compared with a peak of nearly 22 per cent. in May, 1980, and the prospect is for further reductions. We forecast at the time of the Budget that the year-on-year rate of inflation would be down to 9 per cent. by the end of the year and to 7½ per cent. by the second quarter of next year.
Baroness Sharpies: My Lords, I thank my noble friend for that reply. Can she tell us whether it is possible that the rate of unemployment may now be brought down?
Baroness Young: My Lords, one of the first objectives of the Government is to bring down the rate of inflation. We think that, following upon that, we shall see an ending of the recession and then a decline in the total numbers of the unemployed.
Lord Bruce of Donington: My Lords, is not the noble Baroness aware that the figures she gave us earlier omitted to say that when Her Majesty's Government took office in May 1979 the figure, year-on-year, was 10·3 per cent.? It is now marginally below that figure. But will the noble Baroness bear in mind that it has been achieved at enormous cost—at the cost of the devastation of our industries and a massive increase in unemployment?
Baroness Young: My Lords, I accept that the rate of inflation was 10·3 per cent. when we, as a Government, came to office. But I hope that the noble Lord will be pleased that the average level of inflation will be lower under this Government than it was under our predecessor, which is the first time that this has happened since the war.
Lord Boyd-Carpenter: My Lords, was not the 10·3 per cent. quoted by the noble Lord opposite on a rapidly rising trend, whereas the 9·4 per cent. that my noble friend has quoted is on a downward one?
Baroness Young: My Lords, my noble friend Lord Boyd-Carpenter is of course absolutely correct.
Lord Paget of Northampton: My Lords, is the noble Baroness aware that to at least 3 million of our fellow citizens the question is whether they have a better or a worse prospect of a job, and the idea that to produce further unemployment at the triumph of reducing inflation a couple of per cent., is an odd sense of priority, certainly to the great mass of the people?
Baroness Young: My Lords, we all agree that the level of unemployment is a tragedy and is far too high, but, as the noble Lord, Lord Paget, knows, the underlying trends have shown an increase of unemployment throughout the last Government and this, too, was something which we have inherited. We believe that through our policies we are creating real jobs and that the long-term future of people of this country is better.
Baroness Trumpington: My Lords, would my noble friend the Minister not agree that industry, although having had a tough road to hold, is now more streamlined and far more efficient, and that small businesses are on the increase?
Baroness Young: My Lords, yes, I agree with my noble friend.
Lord Alexander of Potterhill: My Lords, would the Minister agree that the reality is that almost since the last war this nation has paid its workforce more than the workforce was earning and it is time we grew up to that reality and faced the fact that, unless we earn enough to compete with other countries of the world, we shall not survive?
Baroness Young: Yes, my Lords, what the noble Lord says is true, and it is important that everyone in this country should understand that we shall create real jobs when people produce goods at the price other people are prepared to pay, at the time that they want them, and of the kind that they want. That is how real jobs could be created, and that is our determination.
Lord Bruce of Donington: My Lords, is the noble Baroness aware that she was misinformed when she told the House just now that unemployment was on a rising trend under the previous Administration? If she will look up the figures she will find that unemployment in the last part of the last Government's term of office was on a firmly downward trend, so much so that it even continued for the first two or three months of the present Administration.
Baroness Young: My Lords, if I have misinformed the House on that matter I apologise, and I would certainly withdraw it. The point that I was making is that each time there has been a rise in inflation, so unemployment has increased and the total numbers of unemployed have increased at each stage, and that is
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why it has been so important to bring down the rate of inflation.
Lord Avebury: My Lords, would the noble Baroness agree that the Top Salaries Review Board has consistently made recommendations for increases in salaries which are in excess of the rate of inflation, and that this sets a bad example to moderate wage and salary earners? In view of this, would the noble Baroness consider recommending that the Top Salaries Review Board be discontinued?
Baroness Young: My Lords, the Government believe that the increases that were recently awarded as a result of the Top Salaries Review Board's recommendations are fully justified. We believe they were essential to ensure an adequate supply of candidates of sufficient calibre for the Bench, and to provide adequate career structures and differentials for the higher levels of the Civil Service and the armed forces. Furthermore, the TSRB group are the only group whose present salaries are below those recommended for April 1980. It was for these reasons that the awards were given.
Lord Wallace of Coslany; My Lords, as the noble Lord from the Cross-Benches said that the trouble was that people were getting in wages more than they earned, would the noble Baroness agree that there is at least one great exception and that is the nurses, who are underpaid for what they do and are being exploited at the present time by an inadequate salary increase?
Baroness Young: My Lords, the whole House and I am sure everybody else appreciate the great value of the work that the nurses do. I should like to make it clear that extra provision has been made to help finance higher pay increases for the nurses, doctors and dentists, and this has been found partly from other savings on programmes and partly from the contingency reserve.
Lord Jacques: My Lords, if the Government's policy has been so successful, why is it that some of the best authorities are forecasting that we shall have 3 million unemployed until 1990?
Baroness Young: My Lords, I cannot possibly speak for other authorities, whoever those other authorities may be. I am simply speaking for the Government.
Lord Derwent: My Lords, has any forecaster ever been right about anything?

Business
Lord Sandys: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Trenchard will, with the leave of the House, repeat a Statement that is to be made in another place on the Falkland Islands.
It may also be for the convenience of your Lordships if I announce that dinner will be available at the usual time this evening. Subject to progress of business, the Committee stage of the Local Government Finance (No. 2) Bill will be adjourned at approximately 7 p.m. for a short period.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I beg to introduce a Bill to consolidate certain enactments relating to aviation security. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(The Lord Chancellor.)
On Question, Bill read a first time, and to be printed

Industrial Development Bill [H.L.]
The Lord Chancellor: My Lords, I beg to introduce a Bill to consolidate, with certain exceptions, the Local Employment Act 1972, Parts I and II of the Industry Act 1972, Section 18 of the Industry Act 1980, Section 6 of the Industry Act 1981 and related enactments. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time. —(The Lord Chancellor.)
On Question, Bill read a first time, and to be printed.

Iron and Steel Bill [H.L.]
The Lord Chancellor: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of recommitment be discharged.
Moved, That the order of recommitment be discharged.
On Question, Motion agreed to.

Local Government Finance (No. 2) Bill
2.49 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Bellwin.)
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF LISTOWEL in the Chair.]
Clause 13 [Declaration that item of account is unlawful]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 61:
Page 11, line 10, at end insert—
(" (2A) The auditor in determining whether under subsection (1) above it appears to him that any item of account arising from the exercise of discretionary power is contrary to law, and the court in deciding whether in the same circumstances to make a declaration under subsection (2) above, shall regard the political policy of the body concerned independent from and in addition to any matters to which it must
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have regard under any statute as a matter of particular relevance which ought to have been taken into account when exercising the power.
(2B) In determining the political policy of the body whose accounts are being audited for the purposes of subsection (2A) above, the evidence of that body as to its political policy shall be conclusive and shall not be questioned by the Court.").
The noble Lord said: I beg to move the amendment standing in the name of my noble friend Lady Birk and myself. This raises once against the whole question of politics and audit. I think it is common ground in the Committee that so far as possible that should be dealt with.
When an auditor is acting in the capacity of auditor to a local authority, whether he belongs to the old district audit service or is an independent practitioner, and bearing more particularly in mind the increased responsibilities of auditors under Clause 9 and the wider, and sometimes diffuse, area that is projected to be covered by his activities, it is of the utmost importance that he should be seen to be acting in a non-political manner, and perhaps more importantly, that he himself should feel that he is not, directly or indirectly, there to serve a political purpose. For the Government, Mr. Tom King, in the course of debates in the other place, has made it clear that he assents to that broad general proposition. He said on 25th March last:
"I want to make it clear that it is not the auditor's duty to consider political merits. It was to avoid any misunderstanding on this point that we agreed to the deletion of ' carrying out of its policies' in Clause 9(1)(c). Auditors themselves have no doubt upon this point ".
He went on to quote an extract from Annexe 2 to the Local Government Audit Code of Practice, which was published as an annexe to Circular 79/73 issued by the Department of the Environment, which explained their duties. It is to be emphasised that a circular does not have any statutory authority. Nor does any sentiment expressed, however clearly, honestly and properly, in either House of Parliament. If the courts have to construe what a measure means, they are prohibited from taking parliamentary proceedings or the intentions of Government, in whichever House they are expressed, into account; they rely only on the law either in statute or on case precedent.
As for the wishes of the Minister, on the assumption that the Local Government Audit Code of Practice, as published in 1973, nine years ago, still represents, and will continue to represent under the new code of practice which is to be issued, those wishes, then the words in the 1973 circular are of some importance. I quote from paragraph 5 of Annexe 2:
"It is, however, not the function of the auditor to express his own opinion as to the wisdom of particular decisions taken by councils in the lawful exercise of their discretion. It is to be expected that any report which related to such decisions would follow discussions with officers and members and refer to facts which had not previously been brought to the notice of the council or which ought to be reported for public information. The report would enable the council to give further consideration to the matter in the light of the facts reported and any public reaction thereto. The role of the auditor as here described has met with the approval of the courts for many years ".
On the assumption that that is still the Government view, there seems to be little reason why it should not be incorporated in the statute, and that is what the amendment seeks to do; namely, to translate into the Bill the intentions of the Government as previously expressed.
I foresee great difficulties arising, particularly when we move into the sphere of an auditor's activities which have been referred to as "value for money audits", a term that is not generally known in the accountancy or even in the legal profession. Its significance and real meaning still have to be established in terms of the juxtaposition of the words there expressed, although there is a special section in Layfield which deals with value for money—I am well aware of it. It may well be that the work of evaluation of value for money is proper for the accountancy profession, public or private, to deal with, but the term "value for money audit" is not well known and, in professional terms, it has little meaning.
There are ambiguities: in view of those, we hope that noble Lords will agree that the whole matter should be clarified, and in our view the best way to clarify it is to include what is meant by the term in the Bill. Once, therefore, it has been determined to he a political matter—which involves value judgments equally as abstruse as those involved in determining value for money—that should be made clear so far as possible within the statute, and, for that reason, I commend the amendment to the Committee. I beg to move.
Lord Bellwin: I am obliged to the noble Lord for an interesting amendment which touches on the important matter, as he said, of the exercise by local authorities of discretion in the exercise of their powers. The Committee will be aware that authorities may be challenged for the unreasonable exercise of discretion if they fail to comply with what is known as the Wednesbury case. Those criteria are that a decision of the local authority made in the exercise of its lawful powers may be challenged only if it can be shown that, in reaching the decision, the authority acted unreasonably, first, by taking into account matters which ought not to have been taken into account; secondly, in not taking into account matters it ought to have taken into account; and thirdly, in coming to a decision so unreasonable that no reasonable authority could ever have reached it.
It is a fact of political life that political decisions guide or direct many decisions of local authorities. That is of itself not unlawful. What matters, as the court heard in the recent Camden case, is the quality of the decision reached. The judgment in that case and its effect on the Wednesbury rules have yet to be assessed. However, there is no doubt that the judgment has bolstered local authorities in the proper use of their discretion. The amendment would in effect write into the Wednesbury criteria a statement that the political policy of the authority is a matter which ought to be taken into account. If the amendment were to succeed, it would create confusion as to its meaning and consequences. In fact, with respect, I suggest that it would achieve nothing.
Political policies would not be protected from the requirements of the law. The provision would apply only where an authority was exercising a power conferred by law; nor would the amendment produce any new considerations. As I have said, political policies already guide very many decisions of local authorities; some people would go much further and say that they guide almost all of the decisions of local authorities.
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I hope that I have explained why I think that the local authorities, in the exercise of their discretion, are hardly in need of—if I may so call it—an illusory support such as is contained in the amendment. I hope that the noble Lord, Lord Bruce, in considering the matter perhaps more carefully, will find that these arguments echo his own concern regarding the reasonable exercise of discretion by local authorities. I feel that the courts have got it right. As with so many other points that the noble Lord raises on this part of the Bill, I understand his concern that the clearer we get the point, the better it will be. I consider that in this instance, as in some other instances that we have already debated, the position as the courts have it at the moment is about right, and that is why we do not want to accept the amendment.
Lord Bruce of Donington: I am grateful to the noble Lord for his reply. If I may say so, the noble Lord seems to have a touching faith in some of the legal decisions that have been made perhaps in more recent times, in so far as they affect local authorities. That is not a view that is entirely shared in legal circles themselves, nor certainly by those of us on this side of the Committee, and therefore it is desirable that these matters, no matter how difficult they can be to formulate, should be put into the statute.
I take the point made by the noble Lord in so far as previous judgments have been involved. Of course, sometimes the difficulty about judgments in a lower court is that not only can they be upset in the appeal court, but they have been known to be upset by the Judicial Committee of your Lordships' House, not always to universal acclaim. I should still have thought that it is much better to have this point clearly stated in the statute.
We shall have to come to this matter again. Speaking as a non-lawyer, I found the noble Lord's reply quite instructive. I shall examine a little more carefully what he said, and I shall reserve the right to come back perhaps at a later stage with even more precise wording, which I hope will enable me to convince him. In the meantime, I beg leave to withdraw the
amendment.
Amendment, by leave, withdrawn.
Clause 13 agreed to.
Clause 14 [Recovery of amount not accounted for etc.]:
[Amendment No. 62 not moved.]
Clause 14 agreed to.
Clause 15 [Fees for audit]:
3.4 p.m.
Viscount Ridley Viscount Ridley moved Amendment No. 63:
Page 13, line 32, leave out (" shall prescribe ") and insert (" may recommend ").
The noble Viscount said: With the leave of the Committee, I should like to take Amendments Nos. 63, 64 and 65 together, since the latter two amendments are consequential on the first amendment. Quite simply, the amendments seek to suggest that in determining the fees to be paid for audit it would be better

959
if the local authority which is being audited were able to negotiate with its auditor the amount of fees which are required, taking into account the amount of work involved and so forth. It would be much more appropriate that the fees should be left to the bodies concerned and the commission should not have the power to prescribe, but merely to recommend, a scale of fees. I beg to move.
Baroness Birk: I should like to support the amendment moved by the noble Viscount, Lord Ridley. It is quite a small amendment, but it is an important one because it would leave rather more flexibility, but without opening the gates entirely. In view of the different circumstances that can arise in various authorities, the term "may recommend" seems to be much more sensible than the term "shall prescribe". There is also the rather more complicated problem where there is an extraordinary audit; under the Bill the Secretary of State would retain a power to direct an extraordinary audit if it were desirable in the public interest. The amendments allow the authority to choose its auditor from the approved list maintained by the commission, and the commission would be able to recommend, rather than order, the scale of fees. I should have thought that there would be an advantage for the commission, because there must be occasions when it would prefer to give this kind of balanced advice, rather than acting in a very sharp and perhaps restrictive manner.
Lord Bellwin: Amendment No. 63 in the group of amendments would make the fee scale which the commission is required to draw up advisory rather than mandatory, and I agree that this is an important point. The problem is that an advisory fee scale would require the commission or its auditor to negotiate fees in each case, and if the Committee thinks carefully about that, it will see that it would create several problems. It would lead to uncertainty about the commission's income. It would jeopardise sensible budgeting. It might well lead to pressure to cut audit standards as a result of what might be considered short-sighted attempts to decrease audit fees. Negotiating the fee in each and every case would be quite an undertaking.
The present position is that fees are prescribed by scales set by the Secretary of State under Section 163 of the 1972 Act. The Bill continues the concept of a prescribed scale, and Clause 15(4) permits flexibility over fees if an unusual amount of work—larger or smaller than expected—is involved in any case. That is the key point to note—that there is a prescribed scale, as pertains at the present time in other like areas, but with a flexibility if the amount of work involved is greater or less than expected.
Amendment No. 64 is consequential on the proposed change from a mandatory to an advisory scale, and so it would seem is Amendment No. 65, since the provisions of subsections (3) to (7) stem very largely from the mandatory nature of the fee scale. A duty to pay the scale fee, for example, as in subsection (3) would be inappropriate if the fee scale were purely advisory. So I repeat that we feel that an advisory, rather than a mandatory, fee scale would be undesir-
960
able. It would certainly make the commission's task extremely difficult, and the point about standards is something that we should not overlook. This is an important point. I hope that my noble friend will feel able to think about it again and perhaps look at the longer-term implications. If he would care to discuss that with me separately, I should be very willing to do so.
Viscount Ridley: I am persuaded—as always—by my noble friend's convincing attitude and I am equally grateful to the noble Baroness, Lady Birk, who put the case so much better than I do. In the circumstances, I wish to withdraw the amendment. I beg leave to do SO.
Amendment, by leave, withdrawn.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 63A:
Page 13, line 34, at end insert ("and in respect of the auditor's responsibilities and attendances as required under sections 11, 13 and 14 above.")
The noble Lord said: I am not sure how appropriate it is for a practising chartered accountant to start ventilating the subject of fees in the Committee. It is therefore proper for me to disclose once again, for the avoidance of all doubt, that I am a practising chartered accountant—a partner in the firm of Halpern and Wolf. I sincerely trust that—
Viscount Ridley: Was that an advertisement?
Lord Bruce of Donington: I believe in the disclosure being specific for the avoidance of doubt. The purpose of this amendment is to draw attention to the considerable difference that will obtain when this Bill becomes law, and the position as set out in the 1972 Act. The responsibilities of auditors have been significantly enlarged from the area which was formally covered under the Act of 1972. I have already addressed the Committee on numerous aspects of the enlargement. For that reason it would seem that a scale of fees per se on the same lines as the scales of fees previously prescribed under regulation would not be entirely suitable under present arrangements.
The Committee will be aware that under the 1972 Act, the approved auditor, which in practice meant a firm of chartered accountants, or a firm of accountants acting on behalf of local authorities, differed considerably from the position of the district auditor. Now they have been both brought into exactly the same level and with precisely the same function. Moreover, there is a further difference. The significance of any extra time that the district auditors spent by reason of the variations in the time taken in the discharge of various functions would be largely lost because district auditors are remunerated by salary according to a salary scale.
The position is going to be rather different now. May I draw attention not only to the provisions of Clause 8, but also to Clause 11, which will now fall to be dealt with by approved auditors on the same basis as district auditors. If the Committee will refer to Clause 11, it will see that, in addition to performing the normal audit of a local authority or other body, as prescribed in Clause 9, which is an enlargement on previous clauses, the auditor is required to comply with Clause 11. Clause 11 states:

961
"At each audit by an auditor under this Part of this Act any persons interested may inspect the accounts to be audited and all books, deeds contracts, bills, vouchers and receipts relating to them and make copies of all or any part of the accounts and those other documents".
For reasons that the noble Lord knows quite well, while that is done the auditor or one of his staff has to be in attendance. The examination may be quite lengthy and time-consuming. At Clause 11(2) it says that the auditor is required to give an elector the chance to question him and he is required to answer. This once again is completely outside the normal audit process as is generally understood in the profession itself and may once again be very time-consuming.
In some local authorities the publication in the local newspaper of the fact that the accounts of an authority are available for inspection and the auditors are available to answer questions as from a given date to a given date, may attract no interest whatsoever. There may be other advertisements in the paper, not always on the same page as legal notices, which people find more attractive. Some local authorities may indeed "get away with it"—I do not mean it in that sense—nobody ever questioning the auditor at all.
The Committee might consider the case of other local authorities where sometimes political passions have been known to run high, either one way or the other, and a group—one or many—of local electors get very disgruntled with the way things are running. I can envisage a fairly continuous procession of one aggrieved person after the other—whether politically or actually aggrieved—going to the audit office or other prescribed address that is required in the notice and questioning them.
There is the other facility which the auditor has to deal with, of listening to objections. That is under subsection (3) of Clause 11. i emphasise that this is not a procedure to which as a profession anybody is lodging any objection—at any rate not at this particular stage—although there may be overriding political considerations which it is not appropriate to deal with when considering this particular clause. But the events can be time consuming. Certainly—at any rate in my view—they could not be accommodated within the normal scale of fees that is prescribed in the regulations, and notwithstanding the provisions to which the noble Lord referred, which enable the commission in certain circumstances to make special arrangements.
There is also the auditor's responsibility under Clause 13. Clause 13 says:
" Where it appears to the auditor carrying out the audit of any accounts under this Part of this Act that any item of account is contrary to law he may apply to the court for a declaration … ".
This means a court application. Then again, under the same clause, it says:
"Any person who has made an objection under section 11(3)(a) above and is aggrieved by a decision of an auditor not to apply for a declaration under this section may—
(a) not later than six weeks after he has been notified of the decision, require the auditor to state in writing the reasons for his decision … ".
I am not suggesting that they will be applicable to every local authority; but they are in the law and they take a considerable amount of time to comply with in addition to the other normal duties. Then there is
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the obligation which an ordinary auditor is not normally required to deal with under Clause 14 of the Bill. This is the certification of items that are unlawful or should be refunded. The auditor has to state in writing the reasons for making his decision. These are all matters which are additional to the normal sphere of auditing, as it is generally understood commercially.
I am sure that the noble Lord, Lord Mottistone, will agree with me—at least, I hope he will—that, in the public companies with which he is associated, the auditor is present at the annual general meeting, he reads his report and, on very isolated occasions, he has been known to speak a short word in reply. But, normally speaking, an auditor is not required, in the exercise of his normal functions, to go into all these matters which I have ventured to lay before your Lordships. Therefore, the reason for this amendment is to put in specifically that account should be taken of the extra responsibilities and attendances that are required under Clauses 11, 13 and 14.
It may well be that I have not got the wording right, and I said to begin with that this was in the nature of a probing amendment. But it would be for the advantage of the noble Lord's department, for the advantage of local authorities and, indeed, for the advantage of the auditing profession at large, who may conceivably be involved in these matters, if the noble Lord could state his views quite clearly on the points that I have raised. I beg to move.
3.21 p.m.
Lord Mottistone: May I briefly intervene to say that I sympathise with the general view which the noble Lord, Lord Bruce, has put forward. I hasten to add that I am not an accountant, and never will be. But I wonder whether, looking more closely at the Bill, he thinks that accountants' interests—because what he is trying to make sure of is that the accountants concerned get the rate for the job—are sufficiently safeguarded by Clause 15(2), under which the commission has to refer to local authorities, who, in this respect, are the employers, and to the accounting bodies who, in this respect, are the trade unions for the accountants. I should have thought that that was a reasonable safeguard, and the extra wording appears to put on a gloss which is not really necessary, as there is quite enough safety written into the clause as it stands.
Lord Bellwin: The noble Lord said that this was a probing amendment. I wonder whether I may give him a probing answer. I listened very carefully to what he said and I found it helpful, because when I first looked at the amendment I was not clear as to the precise objective in putting it down. It might help, because one wants to be sure that one is not missing a point here, if I explain the way in which we see the audit fee mechanism working.
Clause 15(1) requires the commission to fix a fee scale, and it may well follow the present practice of devising a scale which varies according to the total income and expenditure of the authority concerned. Clause 15(4) enables the commission to increase or reduce the fee, if there is more or less work involved in a particular audit than was envisaged when the scale was fixed. So if there are objections under

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Clause 11 which involve an auditor in extra costs, or if an auditor has to spend a lot of time investigating unlawful items of account under Clause 13, or losses caused by wilful misconduct under Clause 14, then the commission can reflect that in the audit fee by virtue of Clause 15(4).
I should have thought that, as my noble friend Lord Mottistone suggested, there was no need to make a specific provision to this effect and that, as it seems to me, is what the amendment appears to do. I say again that, just as the noble Lord wants to consider the point that I make in response, I want to be sure that, arising out of what he said, there is nothing being missed here which ought to be taken up. Clearly, I cannot accept this amendment today, but it is proper that in matters of this kind we should look carefully, and we will.
Lord Bruce of Donington: I am grateful for the noble Lord's reply. As I indicated, the amendment was a probing one. I am sorry that I had to explain it even further in order exactly to elucidate the kind of information which the noble Lord has been kind enough to give. I am grateful for his assurance that he will take a look at it—without commitment, of course. I fully understand that and I beg leave to withdraw the
amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 64, 65 and 66 not moved.]
Clause 15 agreed to.
Clause 16 [Extraordinary audit]:
Lord Bruce of Donington Lord Bruce of Donington had given notice of his intention to move Amendment No. 67:
Page 14, line 25, leave out (" an auditor or auditors appointed by it ") and insert (", at the discretion of the body concerned, either an auditor or auditors appointed by the Commission or an auditor or auditors appointed by that body from the list compiled by the Commission in accordance with section 7(7) above").
The noble Lord said: This amendment seeks to deal with the question of extraordinary audit. We are getting a very large number of extensions of audit in this Bill. We have the ordinary audit which is dealt with in Clause 9, and which has already been enlarged quite significantly—
The Earl of Avon: Would the noble Lord just give way? I think that he is speaking to Amendment 68, and that No. 67 has been spoken to already.
Lord Bruce of Donington: I beg your Lordships' pardon.
[Amendment No. 67 not moved.]
The Deputy Chairman of Committees (The Earl of Listowel): Before I call Amendment No. 68, I should point out to the Committee that, if this amendment is agreed to, I cannot call No. 69.
3.27 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 68:
Page 14, line 34, leave out subsection (2).
The noble Lord said: This amendment seeks to eliminate from Clause 16 subsection (2), which states:
" If it appears to the Secretary of State that it is desirable in the public interest that there should be an extraordinary audit of the accounts of any such body as aforesaid he may require the Commission to direct such an audit by an auditor or auditors appointed by it ".
As I have already indicated, the auditing responsibilities thrust either on the district auditors or the auditing profession generally seem to be becoming greatly extended under this Bill. There is provision under Clause 9 for the ordinary audit, which has now been enlarged to include value for money audit—whatever that term may mean; under Clause 16, we now have extraordinary audit; later on in the Bill we shall have a series of inquiries, although whether they are to be audit, comparative studies or something else is not clear, and there is a new Clause 20 which brings even more accountancy examination, in one form or another, upon a local authority.
I speak subject to correction, but I should have thought that what was important was whether an auditor—a district auditor or an auditor in a private firm—did his work satisfactorily under Clause 9; and one must assume that the auditing profession does its job thoroughly. As I ventured to draw to your Lordships' attention the other night, an auditor has to be satisfied about a whole series of things, and "satisfied" in legal terms—and, indeed, as it is understood by the accountancy profession—evidently carries more meaning than may generally be thought. If, therefore, an audit has been done satisfactorily under Clause 9, it is difficult to understand the reasons for having this whole series of other inquiries which are spread throughout various parts of the Bill.
Once again, they are well within the competence of the accountancy profession and all the six professional bodies. There can be no doubt about that. But I wonder whether we are getting near a situation—and, if I understand the general trend of some of the remarks that have occasionally fallen from the lips of the noble Viscount, Lord Ridley, I think he will probably agree, though I do not give hostages to fortune on that—where there is a danger that local authorities will become very much hedged in with various auditing and accountancy requirements that may suddenly be sprung upon them. I have in mind also the provisions of the Local Government Act 1980 which laid down these very detailed requirements so far as maintenance is concerned; so it is going to be very difficult for local authorities.
My general view is that there is a tendency in Her Majesty's Government to overdo it a bit. Perhaps they ought to take a slightly more relaxed attitude towards local authotities. By the insertion of this clause it seems that they are continually on edge lest some particular local authority or local authorities decide to play fast and loose, and all the ingenuity of the Secretary of State for the Environment will be needed to prevent local authorities from going outside all reasonable bounds.
I do not like to use the term and I certainly do not use it in the personal sense. My relations with the noble Lord opposite are, I trust, very amiable. However, there seems to be a degree of political paranoia behind this—that unless local authorities are kept under

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the closest possible supervision—I will not use the term "corsetted" because it is unfashionable—they will not do their job properly. I do not believe that. The noble Lord and his right honourable friend are, I think, taking matters unreasonably far.
I do not see the purpose of the extraordinary audit which the noble Lord has in mind, unless—I enter a caveat—some kind of public scandal breaks out in between audit times which demands the most urgent and immediate attention of somebody and therefore an interim audit ought to take place. Those circumstances would justify an extraordinary audit. However, to use the noble Lord's parlance, I should have thought that the ordinary machinery of local government and the long traditions of local government, to which the noble Lord has referred, in those balmy, nostalgic days would be quite sufficient to cover a matter of this kind. I should not have thought it would be necessary to take special powers in the Bill, bearing in mind the very extensive powers that are already in it, some of which we have still to discuss. I beg to move.
Lord Bellwin: So far as the extraordinary audit is concerned, may I say that there have been powers in this country to direct extraordinary audits since 1866, so they are nothing new. Nevertheless, I understand that local government is concerned about the Secretary of State's powers in respect of the Audit Commission. I would suggest, however, that the concern is misplaced, not least in the case of the power which we are considering; namely, the power to require extraordinary audits. The power is a proper one. It means that the Secretary of State will be able to respond positively should some matter of public concern arise about a local authority's financial affairs. In such cases one might expect the Audit Commission themselves to respond by directing an extraordinary audit. I would expect this almost always to be so.
The responsibility of deciding whether to direct an extraordinary audit rests upon the commission, as provided for in Clause 10(1). Nonetheless, I think it right that there should be machinery for ensuring that the Secretary of State can himself require an extraordinary audit if special circumstances arise. I do not suggest for one moment that this will happen often, but as a point of principle I bear in mind that the Secretary of State is a Member of Parliament, and I suggest to your Lordships that it is right that the Secretary of State should be able to respond effectively to concern voiced in Parliament.
An extraordinary audit is only about timing. It means making sure that the audit happens earlier and that public objections can be heard earlier than would otherwise be the case. An extraordinary audit does not mean that either the commission or the Secretary of State has any extra power to intervene in the process of audit itself. The auditor will remain independent in the exercise of his judgment. Only he will decide, for example, whether there is anything which requires him to report or to take formal audit action—for example, if he takes the view that there has been illegal expenditure.
For these reasons, I would argue that this is a valuable provision—not one which need give rise to the concern which has been expressed. Of course I recognise the views of the noble Lord, Lord Bruce of Donington, on this point, but I feel that this subsection
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should remain part of the Bill. As I have already said, the extraordinary audit is no new thing, and it is right that the power should be there. It is only important because of the fact that it is there as a reserve power. Its main force has to do with timing. It has always been so with extraordinary audit, and it will continue to be so. I feel that the concern which has been expressed need not arise.
Baroness Birk: This argument seems to me to be quite extraordinary. I would call it almost a "belt and braces" job. The Secretary of State is setting up an Audit Commission which is to be given the widest, strongest and deepest powers that one could imagine; and now to be superimposed are the Secretary of State's extra powers. It seems to me to he both unnecessary and quite wrong.
Lord Bellwin: The Secretary of State already has these powers. The fact that there will be an Audit Commission means that the commission will have the power to continue this process. The Secretary of State's position is a fallback position to cover the point I mentioned earlier about the parliamentary questions which may be asked. If we were introducing for the first time an extraordinary audit it would be a different matter, but there is nothing new about this.
Lord Bruce of Donington: I do not want to press the noble Lord, but it is being a little disingenuous to say that the position is exactly the same as before, because it is not. When the Bill becomes law, there will be an Audit Commission which will result in a completely different situation. I would not wish to query the competence of the Audit Commission to make such inquiries as it sees fit. It is going to be a public body of some consequence, and after the various consultations which are going to be conducted in the course of its formation it will undoubtedly comprise a very large number of extremely responsible people who are respected in their professions or occupations, whatever they may be.
What therefore is the case for giving this power to the Secretary of State when there is to be an Audit Commission? Will not the Audit Commission be quite capable of dealing with a question of this kind without the "sledgehammer" of the Secretary of State being there as well? There is no point in disguising the fact that it is no ordinary Secretary of State whom we have at the moment. Gone are the days of the nostalgic relationship with which I am quite sure the noble Lord is well associated and to which he has referred very often in this place and with which we on this side would probably agree. The relationship between the Secretary of State and local authorities is not exactly as cosy as it was in the far off days to which the noble Lord refers. Therefore to give his right honourable friend these powers to require—and the term is imperative—would appear to be outside the normal spirit of legislation which one would expect as between local government and central Government.
The noble Lord has put in his caveat. As I do not have behind me the big battalions, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sandys: It may be for the convenience of your Lordships that we now take a Statement. I beg to move that the House be now
resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

The Falkland Islands
3.40 p.m.
The Minister of State for Defence Procurement (Viscount Trenchard): My Lords, with the leave of the House, I will now repeat a Statement made by my right honourable friend the Secretary of State for Defence in the other place.
The Statement was as follows:
"Mr. Speaker, Seven weeks ago, when Argentinian forces invaded the Falkland Islands, my right honourable friend the Prime Minister stated that the Falkland Islands remained British territory, that no aggression and no invasion could alter that simple fact, and that it was the Government's objective to see that the islanders were freed from occupation.
"On the night of Thursday, 20th May, Her Majesty's forces re-established a secure base on the Falkland Islands and the Union Flag is today flying over the settlement of San Carlos in East Falkland—where it will remain. The whole House will have been delighted to see the expressions of delight on the faces of the islanders and their children—published widely yesterday.
"The amphibious landing was the culmination of a long period of planning by the force commander and of preparation by the Royal Marine Commanders, members of the Parachute Regiment and supporting arms during their six weeks' voyage into the South Atlantic. While they sailed south, the Government worked unremittingly to persuade Argentina to withdraw peacefully and honourably from the Falkland Islands. But the Government met only with Argentine intransigence.
"Last week it became clear that the only possible course left open to us was the re-possession of the Falkland Islands by military means. In this the Government have been encouraged—as I think has the country as a whole—that Her Majesty's Opposition and the other main political parties in the House have supported us. Certainly I believe that our servicemen have been greatly encouraged by the support that they have received from right honourable and honourable Members of this House.
"Mr. Speaker, I will not go over all the details of the amphibious landing; the approach by the task force under the cover of darkness, widespread raids on Argentine military targets, the entry into Falkland Sound and the disembarkment into landing crafts leading to assault in the San Carlos area, but I think I can say that it was an exploit which captured the imagination of our people.
" Argentinian forces did not interfere to any significant extent with the landing itself. The amphibious ships involved in the first stages of the opera-
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tion were able to withdraw without incident to safer waters to the east of the Falkland Islands and I must here pay tribute to the mcn and women of the merchant marine for their heroism and skill in these dangerous operations; their role is a vital one.
"The landing itself was complemented by attacks in other parts of the Falklands including the airfield at Goose Green and bombardment of military installations south of Port Stanley. Carrier-based RAF Harriers launched attacks against Argentine defences at Port Stanley airfield. These operations were an essential part of the overall plan. I deeply regret, however, that in the course of these operations three Royal Marines were killed when their Gazelle helicopters were shot down and that one RAF Harrier pilot is missing. And, as we have announced, 21 men were tragically lost when a Royal Navy Sea King ditched in the sea shortly before the operations began.
"To protect the landing operation, the Royal Navy maintained a gun-line of destroyers and frigates in the Falkland Sound. Other warships provided close protection for our amphibious forces; overhead, Sea Harriers from our carriers provided continuous combat air patrols. The waves of Argentine air attacks had to run the gauntlet of these air defences. The Sea Harriers shot down eight of their aircraft and total Argentine losses that day are estimated at 14 Mirages and Sky Hawks, two Pucaras and four helicopters. These losses represent more than a third of their combat aircraft taking part that day.
"During these continuous air attacks, the Royal Navy fought with great skill and bravery. Nevertheless, those Argentine aircraft which have penetrated our air defence screen inflicted damage on five of our ships. Of these, the Type 21 frigate HMS 'Ardent' was severely damaged and, despite the efforts of her crew to control the damage, she sank in the course of Friday night. Twenty-two of her crew died and 17 were injured. The injured are now receiving full medical attention in hospital ships of the Fleet.
"Since that action, the task force has been reinforced by the arrival of more, highly capable, warships, more than compensating for those damaged or lost in action so far.
"The following day, Saturday, saw a lull in the fighting. Although the weather was good, the Argentine air force launched only one attack by two Skyhawks on our ships which was not pressed home. Yesterday the Argentine air force resumed their attacks on ships of the task force in the San Carlos Water. The aircraft were engaged by missiles from ships, by shore-based Rapier batteries and by the combat air patrols of Sea Harriers. Six Mirage aircraft and one Skyhawk are known to have been shot down—one aircraft more than was first announced—and there have been unconfirmed reports of a further one Mirage and two Skyhawks also shot down. Yesterday's events involved the loss of two-thirds of the Argentine aircraft taking part.
"In the meantime, action to make the blockade effective has continued. Sea Harriers from the task force yesterday destroyed two Argentine helicopters and caused serious damage to another. Task force

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action also resulted in the beaching of a ship used by the Argentines to ferry troops and ammunition around the islands. With the loss of re-supply ships and six helicopters, the Argentine commander has lost all but a very limited capability to supply his forces and move them around the islands.
"Mr. Speaker, I regret to confirm that in yesterday's action, the frigate, HMS 'Antelope', sustained severe damage. Our latest information —and this is based on preliminary reports—is that one of her ship's company was killed and seven others were wounded. I must also inform the House, with great regret, of the loss of one of our Sea Harriers last night. This aircraft met with an accident shortly after launching from one of our carriers and the pilot was killed. This accident was not as a result of Argentine action and the cause has yet to be established. Next-of-kin have been informed.
"Mr. Speaker, the intensive fighting of the last few days has produced tragic loss of life on our side, and the House will join with me in conveying the deep sympathy of the whole nation to the relatives and friends of those killed and injured.
"We all feel deeply, too, for the constant concern and worry of the families and friends of our servicemen. They are showing great patience and understanding in very difficult circumstances.
"Names of casualties will not be released until the next-of-kin have been informed, although to counter the false propaganda coming out of Argentina we have had to give some general information on the progress of military action as soon as it is confirmed.
"Mr. Speaker, our forces are now established on the Falkland Islands with all the necessary supplies, together with their heavy equipment and air defence missiles. They have mobility with a large number of helicopters at their disposal—and their spirits are high.
"But I must emphasise that our men still face formidable problems in difficult terrain with a hostile climate. We must expect fresh attacks upon them, and there can be no question of pressing the force commander to move forward prematurely. The judgment about the next tactical moves must be his, and his alone.
"But one thing is certain. The days of the occupying Argentine garrison are numbered and it will not be long before the Falkland islanders once again have their democratic rights restored ".
My Lords, that concludes the Statement.
3.50 p.m.
Lord Peart: My Lords, the House will be grateful to the noble Viscount for repeating the Statement. On behalf of the Opposition, I should like to endorse the tribute paid to the force commander and to all members of the British task force, including the Merchant Navy, for the great skill, courage and determination they have shown in the most difficult conditions. May we express the hope that the operation will be brought to a swift and successful conclusion. May I further join with the noble Viscount in conveying our deepest sympathies to the families of those who
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have sacrificed their lives, and our best wishes to those who have suffered injury.
Before the final phase of the reoccupation starts in earnest, may I ask the noble Viscount whether the Government will consider giving the Argentinian troops every opportunity to surrender peacefully so as to avoid further unnecessary bloodshed, and to accompany this with an assurance that all facilities will be afforded by the British Government for the quick return of Argentinian soldiers to their homes and families? The Secretary of State for Defence said last week:
"Even if we are forced to make the military option, the process of negotiations will not end".
Do the Government still hold by that view?
3.53 p.m.
Lord Mayhew: My Lords, my noble friends and I share to the full the heartfelt sympathy that has been expressed for the relatives and friends of those who have been killed or wounded in this action. That need not, I think, prevent us from taking note of the success with which the task force has pursued its objectives with the minimum loss of life. I think it is fair to say that too.
We also join in paying tribute to the courage and determination of all those who took part in this brilliant military success. We pay tribute also to those responsible for the logistics, administration and planning of this operation, since there can seldom have been any military campaign in which the "teeth" have owed so much to the "tail". As for the future, the noble Viscount said:
" … there can be no question of pressing the force commander to move forward prematurely".
My noble friends and I neither expect nor wish that on this kind of subject at this kind of time Government Statements should be in the least bit informative—not in the least—and in this respect we congratulate the noble Viscount on his forecasts for the future. Indeed, I think we would forgive Ministers if, in the interests of the forces, some of their statements were positively disinformative at some time. It may be that before the invasion some of the official statements and official briefings were disinformative. If, on the other hand, the force commander decides to make a quick end to the campaign with a vigorous and immediate advance, he will certainly get nothing but support from my noble friends and myself. It is when the islanders have been liberated that the time will come to speak of a cease-fire.
3.55 p.m.
Viscount Trenchard: My Lords, I thank the noble Lord the Leader of the Labour Opposition and the noble Lord, Lord Mayhew, for those sentiments. I am quite sure that the task force and all those engaged in this operation will be well supported by the unanimity of this House on essential matters. I can assure the noble Lord that'the commander will encourage surrender by any possible means. Indeed, this we have always wanted to achieve, in order to ensure that bloodshed is kept to an absolute minimum. I can also assure the noble Lord that there will always have to be a place for negotiations and that this dispute in the end, from whatever position, can only be settled by negotiation.

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The noble Lord, Lord Mayhew, mentioned that never has there been an operation where the "teeth" have owed so much to the "tail". Indeed he is right, and the Statement pays tribute to the tail. Over 40 civilian ships have been taken over from trade and industry, totalling over 500,000 gross tonnage; nearly 400 sorties have been flown to Ascension Island by air, lifting over 4,000 tonnes of freight and 4,000 passengers. But let us remember the teeth as well and particularly the Royal Navy, who took the brunt of the air force counter-attack while our troops consolidated their essential positions ashore.
I can tell the noble Lord that our statements will continue to be factual. The timing of them and the complete details and how soon they are revealed will, of course, pay first attention to the security and success of the task force.
Lord Kennet: My Lords, we on this Bench join the Government and the other Opposition parties in expressing our grief at the dead, our sympathy with their families and our congratulations for the outstanding success of this operation so far. Indeed it is the case, and it is the measure of our success, I believe, that the Government now enjoy the support of the United Nations, of NATO, of the European Community, whose members have renewed their sanctions indefinitely today, and of all the Opposition parties in the country. May I ask one more question which is not of operational significance? Have the Government anything to say about the reports that New Zealand has made available a frigate for duties hitherto carried out by a British ship elsewhere in the world?
Viscount Trenchard: My Lords, I thank the noble Lord, Lord Kennet, for his remarks. As far as international support is concerned, the noble Lord will be aware that the Security Council, as far as we know, is still debating the situation, but we believe and hope that their eyes are being kept fully focused on the fact that this incident started through unprovoked aggression by the Argentine.
As far as international support of the EEC and NATO is concerned, we have welcomed that, and I can confirm to the noble Lord that it is correct that the EEC today have confirmed that they will extend their sanctions for the time being and they have not fixed a date for renewal. We are very much encouraged by the firm renewal of their support in this way, even though we know that two of their members have certain reservations.
I cannot confirm the offer of the New Zealand frigate, but certainly our allies and our NATO allies have shown major co-operation in taking over roles done by the ships which are normally in the North Atlantic and which are now in the South Atlantic.
Lord Jenkins of Putney: My Lords, is the noble Viscount aware that while all of us share the admiration which has been expressed for the courage and skill of our forces, the number of lives lost in this tragic affair if, sadly, things continue on their present course, looks likely within a few days to approach the total number of the inhabitants of the Falkland Islands? In these circumstances, is he aware that those of us who disagree
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with Government policy in this matter, even though we are a minority at present, are entitled to be heard? Will he provide an early opportunity for that?
Viscount Trenchard: My Lords, as far as opportunities are concerned, they will be discussed through the normal channels. I have before in this House suggested that the number of Falkland islanders is not a relevant point.
Several noble Lords: Hear, hear!
Viscount Trenchard: All dictatorship aggressors start with fairly small aggressions and all appeasement in the past has started with small appeasements; but the example that would go out to the world if we gave in to this aggression would have repercussions all over the world, and in the end this loss of life and liberty would far exceed the number of the Falkland islanders.
Lord Monson: My Lords, in order to minimise casualties among British servicemen, which must be our prime concern, will Her Majesty's Government consider giving an ultimatum to Argentina to cease her air attacks upon the British Fleet forthwith, or risk the possibility of having the bases from which these attacks are being mounted taken out?
Viscount Trenchard: My Lords, my right honourable friend the Secretary of State has before now answered questions on the case for a possible attack on land bases of Argentina. The Government, while not closing any options for the future, have not regarded that alternative as one which would be fruitful in terms of the task before us. The noble Lord, Lord Monson, should take note of the progress of the air fighting over the Falkland Islands. I very much doubt whether the losses which have been sustained by the Argentinians over recent days, and since the beginning of operations—which amount to some 35 combat aircraft—can be sustained with the same vigour. Certainly, if the Argentinians suffer losses of more than 70 per cent. of the aircraft taking part in a raid, then I think we are winning that battle without recourse to a major extension of the hostilities.
The Earl of Selkirk: My Lords, may I ask my noble friend whether he is concerned about penetration into military intelligence by the media, who subsequently make it public? This morning the BBC announced a figure for the number of troops on the Falkland Islands which was at variance with what the Secretary of State has said. Is it really wise that those figures, whether accurate or not, should be made public when lives are at stake?
Viscount Trenchard: My Lords, the media has been a problem in this situation of hostilities and not war. While we have noticed the exceptions where things have gone wrong, I believe that, on the whole, the Government's decision to leave a free media and to ask the media to take its own steps to be responsible, and the policy of issuing statements ourselves as early as we can of the true figures, have kept the position under control. It is the view of the Chiefs of Staff

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that we have not given information to the enemy which is valuable to them. The Secretary of State has announced the battalions which are ashore and the approximate numbers of those, with their supporting equipment, can be worked out by different commentators; but they are of the order of the reports which the BBC have given.
Viscount Massereene and Ferrard: My Lords, may I ask this of my noble friend: would it not encourage the Argentinians to surrender if we told Argentina's Chiefs of Staff that if they did not surrender within a certain time, we would send in our Vulcans to bomb the Argentinian positions around Port Stanley?
Viscount Trenchard: My Lords, all of us enjoy being armchair strategists, not least an old soldier from the last war, but I think I will leave it to the commander as to how he should deal with the airstrip at Port Stanley.
Baroness Gaitskell: My Lords, may I ask the noble Lord the Minister whether it is not a little worrying that accounts in certain newspapers—and particularly in the Guardian—about the reaction by Governments at the United Nations were very hostile in relation to the whole business of the Falkland Islands?
Viscount Trenchard: My Lords, I believe that we still retain a great deal of support across the world, as I have said. I believe it is true to say that a public international forum—when hostilities which we all dislike are in progress—is bound to be taken up by those who say, not unnaturally, "For goodness sake, case the hostilities now". Nobody more than Her Majesty's Government have wanted, first, to avoid hostilities, and then to bring them to an end as fast as possible. We shall be doing our best to make sure that the vast majority of nations realise that the aggressor left us with no alternative.
Viscount St. Davids: My Lords, is the noble Viscount, Lord Trenchard, aware that the Government themselves deserve congratulations for the speed and force with which this blow has been struck? Is the noble Viscount also aware that, quite apart from the fighting ships, the tail of this expedition alone is of considerably greater tonnage than that of the entire Spanish Armada? It has been sent on its way over many thousands of miles in the course of a few short weeks. Is the noble Viscount aware that the whole world is amazed at what we have managed to do?
Viscount Trenchard: My Lords, I am not an expert on the Spanish Armada, but I will tell the noble Viscount that we have no intention of ending up the same way.
Lord Balfour of Inchrye: My Lords, may I ask my noble friend one brief question? Our thoughts and our prayers are with those who have suffered losses. Can the Government give an assurance that service facilities, charitable facilities and, if necessary, public money also will go at once to those bereaved people so that their standards of living and family life can continue during their time of grief?
Viscount Trenchard: I am grateful to my noble friend for raising that subject, my Lords. I believe that standard practice does provide for what he has mentioned and that papers and instructions to all concerned have been got out. As to what the final form of help will be, that will have to be judged as time goes on.
Lord Balfour of Inchrye: It is an immediate need, my Lords.
Lord Molloy: My Lords, is the noble Viscount aware that in so far as this whole business did not start with military action, it will end with military action, and that it is vital that, regardless of how few in number the Falkland islanders are, they are not to be sacrificed to a fascist military junta—and that is the basis of the authority of our action? After that, is it not also sensible that at some time, perhaps when the battle is ending, the Government will start thinking of the connections which end the battle and the commencement of a new era for peace in all of that area?
Viscount Trenchard: My Lords, that is our hope—and I am delighted to be able to say that to the noble Lord, Lord Molloy.

Local Government Finance (No. 2) Bill
4.7 p.m.
House again in Committee.
Viscount Ridley Viscount Ridley moved Amendment No. 69:
Page 14, line 36, leave out ("require") and insert ("request")
The noble Viscount said: I apologise to the House for having to bring it back from the stirring events of the Falkland Islands to the very dull matter of auditors. Amendment No. 69 goes a good deal less further than Amendment No. 68, which was recently moved by the noble Lord, Lord Bruce of Donington. I hope that Amendment No. 69 will commend itself to the Opposition and also to the Government because I believe it is a fairly modest and, I hope, perfectly acceptable amendment.
It is perfectly true that under existing legislation the Secretary of State only can order an extraordinary audit, but under Clause 16 the commission is now empowered to direct an auditor to hold such a thing, and the Secretary of State, under Clause 16(2), as we have just heard, wishes to retain his existing powers to do the same thing. I submit that the two hurdles which the local authority might have to surmount are quite a burden on the authority concerned because, in theory, an objector could object first to the Audit Commission and, if that were unsuccessful, he could then place another objection through the Secretary of State. The matter could prove to be very long-winded and extremely expensive.
It is therefore my suggestion that, although the Secretary of State remains part of the picture, he should only be empowered to request the commission to order an audit and not actually require it to do so. The difference is not, perhaps, very great, but it means that the commission could presumably turn down such

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a request if they felt, for example, that they had already satisfactorily dealt with the matter, or that in their view there was no cause for such an extraordinary audit.
I am moving this amendment because, as I have said when speaking to many previous amendments to this part of the Bill, the whole object of the Audit Commission—and the Government's own words stand in my defence—is to be independent of central and local government if we are to have it. It is with that end in view that I beg to move Amendment No. 69.
Baroness Birk: I should like to support the noble Viscount's amendment. This is moving towards doing away with the independence of this allegedly independent commission which is due to be set up, even before it has been set up. As the noble Viscount said, if it is to be independent it must be treated as such and must be given a certain amount of responsibility; it must receive the respect due to a commission in which the Secretary of State and everybody else has some trust and some belief. This amendment was proposed in conjunction with the previous amendments, which, unfortunately, we did not get the Government to accept, substituting "recommending" for 'prescribing"; that has now gone.
This one also seems to me to have some other nuances. I find use of the word "require" rather than "request" discourteous, and almost offensive, to a commission in this position. I think there is a further and very important point that the Government should take to heart over this. If one is going to set up an independent commission and circumscribe it to this extent, there will be doubt as to whether really independently-minded people of high calibre will be prepared to serve on it because so many rules are laid down by the Secretary of State and the hand of the Secretary of State is laid so heavily on the shoulders of the commission. I can quite imagine a number of people who would be extremely able, and who would probably be the right people to serve on the commission, whether from local government or from outside, who would take the entirely tenable position, "I would not serve on a commission where there was so little freedom of manoeuvre and where, although they were called independent, they were in fact all the time at the behest of the Secretary of State". So for these extremely constructive reasons, as I believe, I hope the Minister will find that he can accept this amendment.
Lord Evans of Claughton: May I briefly support this amendment. Perhaps when the noble Lord the Minister replies he can tell us whether it would be the intention that if an objector is turned down in his request for an extraordinary audit he can then go to the Secretary of State and ask the Secretary of State for an extraordinary audit? If that is the case, local authorities would be faced twice with the same possible danger of having an extraordinary audit imposed upon them, because, one door having shut, one will be able to open another, through the Secretary of State, which seems to me to be highly undesirable.
Lord Bellwin: I could not help but compare the very reasoned way in which my noble friend proposed the amendment and the very drastic way in which the
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noble Baroness made her contribution. She said, will people of high calibre serve on the commission? Well, time will tell. I have no doubt that they will. Then she spoke of the hand laid heavily on the shoulder of the commission. Well, it is not quite the way I envisage it. I think we ought to look for a moment and take into account that for the last three years there has been this power in the Secretary of State's hands to direct that there be extraordinary audits. I can tell your Lordships, because I have seen and I have had given to me so many requests for this, by people who have been aggrieved at the huge rate increases in their area, and by others who have felt that there has been an abuse or misuse of funds by local authorities. Any number of requests have come in, and not once has the Secretary of State directed that there be an extraordinary audit. There may be many who would have said that they would have done so in the particular circumstances.
It brings us back to what is the point of an extraordinary audit. It is only a point of timing. If an audit takes place that is what happens, the accounts are audited. An extraordinary audit only brings forward the time when that is to be done. There may be circumstances where that is the proper thing to do, some obvious scandal of some sort; we can all think of situations where everyone would say that it was the right thing and ought to be done. But in practice it is a power which has existed since 1866, and there have been no dramas about it and there are not likely to be any dramas about it.
So, while I appreciate the point my noble friend makes, when he says, "Would it not be better to retain the independence of the new commission?", T would say we are anxious that the new commission should have its independence, and it will have its independence. Despite what the noble Baroness said, the people who will serve on it will be people of calibre and people known to be responsible, and therefore they will be independent; I have not the slightest doubt about that. But the fact is that this is a fallback position for a situation where Parliament may wish to become involved, where the Secretary of State does have a duty, and where it might be the right thing to do. For that reason alone, I would ask my noble friend to reconsider. What we are saying is that if the Secretary of State can only request the commission then he is really giving up a power to instigate which he has today, and I think it would be a mistake for him to do so, because one never knows what situation might arise where it would be in the public interest—that is what the Bill says; that is the judgment he would have to make. I feel that when one looks at what we are talking about the fact is that the provision is as it stands very reasonable indeed, and I would think presents no problems.
Baroness Birk: I think the Minister was, if I may say so, a little unfair in describing what I was saying as being immoderate. If he takes it in the context of setting up an Audit Commission, that is quite different from the situation, which I know has existed for some years, in which the Secretary of State has this power; we are discussing this now in the context of an independent, high-powered Audit Commission. Either they should be taking on this job or the Secretary of

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State should be doing it. Now we have got this double situation, the belt and braces job, the two in tandem, with the Secretary of State now "requiring", rather than "requesting".
I do not want to prolong this discussion any further, but I do not think the case was put in any immoderate way. We have the Audit Commission and then on top of that the Secretary of State requiring them to do these things, whereas an Audit Commission of the sort the Minister wants to see and worth their salt would, I would presume, be on the alert and prepared to do the work themselves, very often with not even the need for any nudge from the Secretary of State, and they certainly would not need more than a request. I think this is an extremely moderate way of putting it.
Lord Mottistone: The noble Baroness and noble Lords opposite speak as though "requiring" instead of "requesting" is a strange thing in regard to a public body. I can remember repeated occasions, when sitting on the Benches opposite, arguing in the same sort of way against the noble Lords who sat here at that stage. I remember this word coming in other Bills, promoted in Parliament from whatever party in Government, over many years. It is very normal for Secretaries of State to retain long-stop powers of this nature and in the end to be able to say, "Do it". It does not really deprive people of authority and I very strongly support what my noble friend has said. I hope that my noble friend who moved the amendment will withdraw it.
Lord Bruce of Donington: I am constrained by the remarks which have just fallen from the lips of the noble Lord, Lord Mottistone, to reiterate my request that the noble Lord takes another look at this matter. It is quite true, as the noble Lord, Lord Mottistone, says, that when various public bodies are set up, the responsibility of the Secretary of State is very often enshrined in a Bill in its imperative form. This is what happens with some public bodies. However, it is not so with the Comptroller and Auditor-General. No Secretary of State can tell him what to do, order him about or require him to do this, that and the other. Here the body is the independent Audit Commission. It is a completely impartial body. It is not a creature of the Secretary of State and it is not a public body in charge of a nationalised industry or anything of that kind. It is comparable in most respects with the Comptroller and Auditor-General.
The virtues of independence have been extolled by the noble Lord opposite in such lyrical terms that even the most hardened sinner could have been persuaded that he actually meant what he said. He has an opportunity of demonstrating it in this Bill. What is at stake here is, in fact, the independence of this new body. It is quite right that the Secretary of State should have—and it should be stated in the Bill—the various areas within which the Audit Commission should function. It is right that Parliament should lay down the parameters. It is right that, after the Secretary of State has taken into consultation various bodies, he should be able to issue broad general directions. But here under this clause as regards the question of extraordinary audit we find at subsection (1) that:
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"The Commission may direct an auditor or auditors appointed by it to hold an extraordinary audit of the accounts of any body".
That is a power that is given to the commission and a correct power that should be given to the commission. But this particular subsection is peremptory in its form. It says that, notwithstanding the fact that the commission has powers under subsection (1) of the clause to conduct an extraordinary audit, if the Secretary of State requires it to do it, it must do it anyway. I do not think that that really is consistent with the independence of this Audit Commission.
I do not know how the noble Viscount, Lord Ridley, has been persuaded by the balance of the arguments as they have passed to and fro across the Chamber. I am quite sure that he was perfectly sincere in putting forward this particular amendment with which we on this side of the Committee entirely agree. If the noble Viscount presses his amendment to a Division, we shall have no hesitation in following him. However, it will of course depend upon what the noble Viscount decides.
Viscount Ridley: First, let me make it absolutely clear that I do not think that anyone is objecting to the process of extraordinary audit. As we have heard, it has existed for a long time and it must be there. The objection—I do not believe that my noble friend Lord Bellwin has quite answered this—is that two separate organisations, the commission and the Secretary of State, can independently, subsequently, concurrently or even consequently order an extraordinary audit one after the other. The noble Lord, Lord Evans of Claughton, specifically asked about this point and I am not sure that he received a total answer.
I suggest that the right thing for me to do is to withdraw the amendment at this stage, but I should like to consider whether it is possible at Report to bring forward some form of amendment which would say—and I have not thought it out at all—that either one or other of these bodies can ask for an extraordinary audit but not both, one after the other. If that commends itself to the Committee, I beg leave to withdraw Amendment No. 69.
Amendment, by leave, withdrawn.
Clause 16 agreed to.
Clause 17 [Regulations as to accounts]:
4.25 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 69A:
Page 15, line 7, after ("State") insert ("after consultation with the Consultative Committee of Accountancy Bodies").
The noble Lord said: I beg to move Amendment No. 69A. Clause 17 gives the Secretary of State powers, by regulation, to make provision as regards the keeping of accounts, the form, preparation and certification of accounts and so on. This amendment seeks to make it obligatory on the Secretary of State to consult with the Consultative Committee of Accountancy Bodies. Your Lordships are, of course, well aware of the very extensive bodies that exist to further the interests and to safeguard the interests of both the public and the profession of law. There is the Bar

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Council, the Law Society and so on, each with a very long history.
This Bill touches on many matters affecting accountancy and audit, and all I am requesting is that the Consultative Committee of Accountancy Bodies be consulted by the Secretary of State. I should mention that under Clause 7 of the Bill there is set out the composition of this particular consultative committee. We see there the bodies that are, in fact, made eligible for participation in this work. They comprise the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Association of Certified Accountants; the Chartered Institute of Public Finance and Accountancy and the Institute of Chartered Accountants in Ireland. As I am sure the noble Lord is aware, these particular bodies have participated in full, not only in advising him on matters affecting local government finance, but they also participate in the advisory work that is very often conducted with the Department of Industry and the Department of Trade.
All I am asking here is that since these are matters of accounts and accounts lie at the whole basis of them, the Secretary of State should consult with this particular committee. The need for it becomes apparent when one examines Statutory Instrument 1169 of 1974 and, indeed, Annexe 2 to Circular No. 79 of 1973 which sets out a whole series of accounting matters which will be considerably affected by this Bill and to which, in a particular instance, considerable modifications will have to be made in the light of the extra provisions contained within the Bill which we are discussing.
This is a very modest amendment. I have no doubt that the noble Lord's right honourable friend will continue to take advice from all kinds of accountancy, legal and other bodies. I would not suggest anything to the contrary. However, it is particularly important when one is taking powers by regulation, to prescribe certain things—that certain bodies are consulted and that their names are written into the Bill. In this particular case it is the Consultative Committee of Accountancy Bodies. In other parts of the Bill the names of various local authority associations appear and so there is no objection, intrinsically, against the name of any particular body being included for consultation. I hope that the noble Lord will agree that this is a reasonable amendment and I invite him to accept it. I beg to move.
Lord Bellwin: This is certainly a reasonable amendment, but I wonder whether the noble Lord, Lord Bruce, will still feel that it is necessary when I point out that I entirely accept that the Secretary of State should be under a duty to consult the accountancy profession about the regulations on accounts which he is empowered to make under Clause 17. I almost hesitate to suggest it, but I wonder whether the noble Lord has missed Clause 28(3) of the Bill which provides that:
"Before making any regulations under section 15(7) or 17 above the Secretary of State shall consult"—
not only accountancy bodies but also the commission and the local authority associations.
I believe that the noble Lord was also talking about
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the requirement in Clause 28 to consult the accountancy profession on the regulations made under Clause 17 and as to why it referred to:
"such bodies of accountants as appear to him [the Secretary of State] to be appropriate",
rather than to the CCAB. I recognise that the CCAB is the representative body of the accountancy profession in the United Kingdom, but it is not a statutory body and its membership could change so that, for example, the bodies which had a central interest in the regulations were no longer in membership but bodies whose interest in these regulations was minimal remained in membership. In these circumstances the Secretary of State would have to consult the bodies with little or no interest in the matter, whereas the bodies most affected could be left out in the cold.
I submit that the formulation in Clause 28 which enables the Secretary of State to judge which are the appropriate bodies to consult at the time provides the most appropriate way of dealing with the matter. I wonder whether the noble Lord would agree with me.
Lord Bruce of Donington: I am grateful to the noble Lord. I am, of course, fully seized of the point that he has raised in connection with Clause 28. I inserted "the Consultative Committee of Accountancy Bodies" in Clause 17 because a certain amount of co-ordinated work as between the various bodies that are named in Clause 7 takes place within the Consultative Committee of Accountancy Bodies. They produce, or tend to produce, a consensus of view on a whole series of matters. Therefore, in Clause 28(3), to which the noble Lord has referred, I would not wish to take away his obligation to consult with individual bodies. I seek to emphasise that for the purpose of Clause 17, which is directly related to form of accounts and matters of that kind, it might be for his greater convenience to consult with a body within which there is already a consensus of view. It might also save time.
I willingly concede, of course, that the membership or the composition of the Consultative Committee of Accountancy Bodies might conceivably change. I do not think that that would materially affect the issue because the eligibility of the professional bodies, as set out in Clause 7, would remain unaffected, and it would not be of any vast significance if the Consultative Committee of Accountancy Bodies suddenly acquired another member who, at that stage, might not be eligible for inclusion in Clause 7. In other words, it might not affect the consensus of advice and it might be for the convenience of the Secretary of State to have it in this organised form purely for the purposes of Section 17. The amendment is moved in a constructive spirit to try to facilitiate the purposes of the noble Lord, with not all of which I agree, of course. But on the assumption that he wants to do what is in the Bill, I thought it might help him to do it more efficiently this way rather than to make more use of the detailed provisions of Clause 28(3).
Lord Bellwin: Quite clearly, I shall read what the noble Lord has said and discuss it with colleagues. If it is felt that that would be the right way to go, one would want to do something about it. As the noble Lord knows, I cannot accept the amendment,

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but this is a technical matter on which he speaks with experience and knowledge and, without any commitment, I would want to talk to others about it.
Lord Bruce of Donington: I thank the noble Lord for his undertaking that he will have another think about it, once again without commitment. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 17 agreed to.
Clauses 18 and 19 agreed to.
Clause 20 [Studies for improving economy etc. in local authority services]:
4.36 p.m.
Baroness Birk Baroness Birk moved Amendment No. 69AA:
Page 16, line 22, leave out ("shall") and insert ("may").
The noble Baroness said: We now come to the clause which has caused a great deal of controversy, both in another place and in this House, among local authorities and local authority associations. As noble Lords will see, further on in the Marshalled List is an amendment in the names of the noble Viscount, my noble friend and myself, to leave out Clause 20. Therefore, the amendment which I now move is rather a fallback position. It is to substitute "may" for "shall" at the beginning of Clause 20, which describes the duties and powers of the commission. As I think is obvious, we are trying to make it a power rather than a duty.
This is an extremely important clause because it extends the area of traditional auditing into value-formoney studies, on which there has been some scattered debate already through this Committee stage. The Minister has already said several times how important the Government consider these value-formoney studies to be in the context of the work of the Audit Commission. Of course, it makes the Audit Commission an inspector general of local government, pursuing inquiries into matters of policy, which many of us think should not be the purview of auditors or of the Secretary of State's Audit Commission and on on which auditors are not qualified to make judgments. We, on these Benches—and many other noble Lords feel the same—think that it is not a job for auditors.
This is not a party political argument at all. This is a question of what should be the functions of the Audit Commission and what, in fact, should be excluded from their functions; what should be laid on them as duties, and what should be a power. The local authorities' own body, LAMSAC, already does much of what Clause 20(1) is meant to do, but the Government have cut off £500 million from its grant and perhaps the Minister—either on this amendment or later on when we come to the debate on Clause 20—will explain why this is so, when it is considered that this area is very important.
I do not dispute the importance of the area, but it is a question of who is to conduct it. If authorities want management consultants, they can and do have them. By saying that the commission "shall", we are making
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it a duty rather than a power. All we are saying is that the commission "may" do these things; "may" institute these inquiries; "may",
"undertake or promote comparative and other studies, designed to enable it to make recommendations for improving economy, efficiency and effectiveness"
et cetera, rather than "shall". As this is a narrower point than the question of Clause 20, I do not think I shall go any further. I beg to move.
Lord Bellwin: The Government feel that we cannot accept these amendments. It may be said that the commission will see the value of these comparative studies and will be bound to carry them out. Some of your Lordships may argue—and indeed it has been said—that the word "shall" in line 22 imposing a duty is therefore unnecessary. I agree that the commission will be likely to conduct these kinds of studies whether or not it has an express duty to do so. But we feel that this provision is so crucial to the value for money audit that we want to encourage that the Government believe it necessary to put in this safeguard of giving the commission a duty, to make absolutely certain that the studies are carried out. Furthermore, giving the commission a duty would underline the importance attached to these studies by both the Government and Parliament. We feel that these studies are a crucial element in our proposal to increase the amount of value for money audit work undertaken. It is essential that the studies are carried out, and Clause 20(1) ensures this. The amendment would not, and that really is why we cannot accept it.
I, too, have a number of points I should like to make, but if we are going to be debating this again in a few moments on Clause 20, I, also, should prefer in the interests of progress at this stage to say no more. I would want to come hack to elaborate more on the reasons why, as I think would perhaps my noble friend. The noble Baroness might also like to do so. Basically, that is our objection to this amendment. We attach such importance to this value for money work that it is part of the basic policy, the basic philosophy, of what we are trying to do, and we would not want anything to weaken or undermine that. That is why we cannot accept this.
Baroness Birk: I must at this stage accept what the Minister has said, because in fact the amendment is rather the wrong way round, but we cannot help that. It would have been helpful if we could have discussed Clause 20 and then taken what I call the fall-back position afterwards. In view of that, and in the interests of time, which is passing rapidly, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.42 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 69B:
Page 16, line 25, after ("services") insert ("and of other services provided by bodies whose accounts are required to be audited in accordance with this Part of this Act,").
The noble Lord said: I should like with this to take also 69C, F, G and M. These five amendments are minor. Their purpose is to ensure beyond doubt that the commission's power to undertake comparative

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studies under Clause 20 applies to the services provided by the bodies which the commission is required to audit under Part III of the Bill. Clause 6 of the Bill lists the bodies which the commission must audit. To this list is added, by virtue of Clause 24, the Passenger Transport Executive.
Clause 20 requires the commission to do studies designed to make recommendations for improving value for money in the provision of local authority services. But not all the bodies listed in Clause 6 can be strictly said to be local authorities. Combined police authorities are an example of the kind of body listed in Clause 6 which, although closely related to local authorities, cannot be described as local authorities, and whose services might be subject to a study. They are police authorities which are formed from more than one local authority area—for example the Avon and Somerset Police Authority.
It is our intention that the commission should be able to include the services provided by such bodies in its comparative studies, and the amendments to Clause 20 ensure that the commission has the power to do this. Clause 20, as amended, will apply to all bodies required to be audited under Part III, including the PTEs. The separate references in Clause 24 to studies under Section 20 become unnecessary, and Amendment No. 69J, to which I am also speaking, therefore deletes it. I should stress that Clause 20, as amended, applies only to the bodies which the commission is statutorily required to audit. It does not apply to bodies which the commission may audit by agreement under Clause 22(3). I beg to move.
On Question, amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 69C:
Page 16, line 26, leave out ("local authorities") and insert ("such bodies").
The noble Lord said: I have already spoken to this, and beg to move.
On Question, amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 69D:
Page 16, line 28, leave out ("of local authority services") and insert ("by such bodies of their services besides the studies referred to in subsection (1) above and section (Reports on impact of statutory provisions etc.) below").
The noble Lord said: I beg to move Amendment No. 69D. I have already spoken to this. With this I want to speak to Amendments 69E, H and K.
Baroness Birk: Before the Minister starts, are we really discussing 69H? It relates to an entirely new clause, which I should have thought would be taken on its own. It comes after Clause 20. I think we are going to get into a muddle if we discuss that. It is not just odd things and consequentials, it is an important clause on its own. The feeling of the Committee may be that we should discuss that on its own.
Lord Bellwin: I entirely agree. I think that that is right. I think the way we have put them together here has not been right. I understood that that had been agreed, but clearly it had not.
On Question, amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 69E:
Page 16, line 30, leave out ("such studies") and insert ("studies under this section").
On Question, amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 69F:
Page 16, line 33, after ("authorities") insert ("or other bodies whose accounts are required to be audited in accordance with this Part of this Act").
The noble Lord said: I have already spoken to this, and beg to move.
On Question, Amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 69G:
Page 16, line 34, leave out ("local authority)
The noble Lord said: I have already spoken to this, and beg to move.
On Question, amendment agreed to.
On Question, Whether Clause 20, as amended, shall stand part of the Bill?
4.48 p.m.
Viscount Ridley: I beg to move that this clause be omitted from the Bill. We have already started to discuss this matter, and it has been well said by the noble Baroness, Lady Birk, that we are moving here into very much a new field of value for money in local authorities. The Audit Commission will be able to ask for these studies for improving efficiency, and seeing that authorities are getting value for money, and it is quite a new principle that we are discussing.
It should be said at the outset that I do not believe that any responsible local authority has anything to fear from this clause itself, nor from the suggestion that value for money should be investigated. Most of them carry out a great deal of study into, and give thought and time to, the question of value for money, and rightly so, but this clause opens the door a great deal wider. The powers which are being taken by the Audit Commission would seem to be possible of almost limitless expansion, and all sorts of recommendations extending quite definitely into the political fields—and I am being as brief as I can—could follow from this clause.
We have here a fundamental principle, and that is quite simply: are the people who are elected to local authorities to be given the task of doing the things for which they were elected, and be given the responsibility which goes with that election, or is this matter to be gradually reduced and handed over to other bodies?
When we come shortly to discuss the new clause to be proposed by the Government, Amendment No. 69H —I am glad we did not discuss it earlier—we shall see yet another encroachment into the role of councils. If we are to have both Clause 20 and that proposed new clause, we shall be asking too much of local government at one time. I believe it would be fair for Parliament to say the Government can have one or other of those clauses, but not both, for to have both processes running together would be asking too much of local government.
Local government has a fine record of looking at its services. I am certain they would be happy to

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accept some sort of public investigation of the kind proposed, but they feel that their independence is threatened. I am sure that my noble friend Lord Beltwin will, as always, speak with eloquence about his championship of local government, but he must realise that there are genuine fears being expressed by people who are deeply devoted to the cause of local government about what is being introduced in the Bill bit by bit.
I repeat, it is the job of the councillor to see that he gets value for money for his council. Indeed, to that end councillors have set up their own body, LAMSAC, which already carries out quite sophisticated investigations; and CIPFA, the Chartered Institute of Public Finance and Accountancy, publishes frequent and extensive statistics showing how each authority is performing. The 1980 Act introduced many further restrictions. We are, therefore, moving down a road which is not enthusiastically welcomed by local government. We are going far too fast and, accordingly, it would be wrong to have both Clause 20 and the proposed new clause; one or the other, and in some respects I should prefer new clause 69H, which gives an undoubted right to Parliament to look at the money it provides. I beg the Committee not to accept both clauses at the same time, and therefore I could not agree to Clause 20 standing part of the Bill.
Baroness Birk: I support the noble Viscount, Lord Ridley, on wishing to delete Clause 20. He is absolutely right to say that the powers in the clause are extremely wide-ranging, and to allow such powers to be in the hands of the Secretary of State or the quango, the Audit Commission, is pushing the tolerance of local government beyond the limit. Nobody disputes the capability of auditors to look at the question of economy in the provision of services, but "efficiency" and "effectiveness" are two concepts which differ from economy; they are not the same thing at all because they involve the making of value judgments.
If one reads the clause carefully, as I am sure all Members of the Committee have done, one cannot deny that value judgments must inevitably come into the implementation of the clause, and auditors should not be involved in the making of value judgments.
Auditors should not be making such judgments. They are not trained to do so, nor is it part of their job. Judgments about efficiency and effectiveness in relation to local services are made through the ballot box at local elections, and there are other ways by which people, indeed the Government, can make it clear to local authorities where they feel they are falling down on the job. And as there is to be an Audit Commission also, the fact of having such an organisation overlooking the economy side of matters should achieve all that the Government want to achieve.
Electoral accountability is replaced in Clause 20 by accountability to the Audit Commission and the Secretary of State. I agree there is scope for the provision of information of a comparative nature at national level. As has been pointed out, a great deal of good work is already being done by CIPFA, the local government operational research unit, and, in particular, LAMSAC. I should be grateful if the Minister would now answer the question I asked
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earlier—I admit that I asked him earlier not to answer it at that stage—about LAMSAC, and why the Government have chosen this moment (the timing seems paradoxical) to withdraw £½ million of its funding. If it is said that LAMSAC is not doing its job as effectively as it might, I should have thought the answer would have been to strengthen LAMSAC and use it for the job for which it was created.
It is worth noting that the Bill as drafted will entail local government, through audit fees, paying for the role of the Audit Commission. We shall, therefore, have a situation where local government is being forced to pay for the non-audit activities of a quango, but with no direct say in the studies to he undertaken. In that context, I notice that the noble Viscount, Lord Ridley, has a later amendment to change that financial approach. As the noble Viscount said, the dangers of Clause 20 are compounded by Amendment No. 69H and it is fair to say that to have both clauses together, would be going too far. It arose in the Commons as a last minute insertion on Report. At that stage there was simply Clause 20 on its own, and it was then agreed to insert what came to be known as the Joel Barnett clause. Hence, by the time it came to your Lordships' House, we were landed with the two clauses. The noble Viscount is right to say that it is wrong legislatively, as well as for local government, to have the two clauses going through together. Perhaps we should not be discussing Amendment No. 69H at this stage, but when the list was handed to me at lunchtime I did not even notice it—I did not know that the other new clauses was included—although we are agreed that the proposed new clause deserves a discussion on its own. Like the noble Viscount, I should prefer, with some modification, Amendment 69H to Clause 20.
In today's issue of Accountancy Age, the chairman of the Advisory Committee on Local Government Audit, Mr. Brian Maynard, points out that his advisory committee first suggested the need for an audit commission because the advisory committee was frustrated by its own lack of authority. In a letter to the Secretary of State—he sees it rather as a swan-song—the chairman points out that the advisory committee acted in a somewhat similar role (of course, without bthe authority that will be given to the Audit Commission) and warns that exaggerated claims about value for money auditing,
"have been too readily accepted at their face value".
He goes on:
"Considerable clarification of thought will be necessary about the volume and nature of the value for money audit work. It will receive much greater emphasis, as the auditor has the specific duty under the Local Government Finanance (No. 2) Bill to consider economy, efficiency and effectiveness in the use of an authority's resources".
Mr. Maynard goes on to warn the Secretary of State:
"The prime responsibility for achieving value for money must always lie with the elected members and the officials of local authorities".
He suggests that the two most urgent tasks facing the Audit Commission are, first, a code of practice covering standards, procedures and techniques to be adopted by local authority auditors and, secondly, a new scale of audit fees.

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I consider that a very authoritative statement, which might be regarded as more objective than even the views of different Members of the Committee or the various local authorities and local authority associations. When there is this tremendous agreement and concern about Clause 20 the Government should treat it extremely seriously. I do not say it in any spirit of mirth or as a joke, but I cannot remember any other time, in Opposition or Government, when I have so often found myself in agreement with the noble Viscount, Lord Ridley—though we have always been good friends—and it seems to me that if in this field we find ourselves so often on the same side, there must be something wrong with the Government's proposals. The objections to what is being done in this Bill go far beyond party lines, far beyond the idiosyncracies of individuals; they go right to the heart of local government affairs and to the relationship between central and local government.
The Bill adds to the very authoritarian powers that the Secretary of State has taken unto himself in other Bills, and the fact is that what he has done in the past has not worked out to the financial advantage of local government or our national finances. I hope that after the Minister has heard what other noble Lords have to say on this matter, and has considered the objections that I think a number of them will voice, the Government will treat your Lordships' House in the way that it deserves and reconsider the matter.
The Government certainly should reconsider the matter, bearing in mind its history, which I have already explained. The new clause to follow Clause 20 was put in at the last moment in the Commons, and there has not really been a chance to discuss the two clauses together in the other place. This is the first time that the question has been discussed by either House. When the Bill goes back to the Commons they will discuss only Lords' amendments and so there is an onerous duty on your Lordships to try to get it right and certainly to try to improve it. One way in which it could be enormously improved would be if the Government accept the deletion of Clause 20 and then go on to discuss the proposed new clause after Clause 20. Then we can see how we get along there.
5.3 p.m.
Lord Evans of Claughton: My only quarrel with the noble Viscount over the way in which he spoke to the Question that the clause shall stand part related to the moderation of his language and the restraint with which he spoke. I fully expect that after I have spoken on the clause the noble Lord the Minister will accuse me of being immoderate, but it is one of those occasions—to paraphrase Oscar Wilde—when being immoderate is not just a duty, but also a pleasure. To have not only Clause 20 but also the new clause after it (which is enshrined in Amendment No. 69H) is a disgraceful interference with the independence and duties of local government.
I do not believe that what is proposed is the duty of an auditor. I do not think that auditors are qualified or equipped to make analyses of social, environmental or economic issues. While they might be qualified to make value judgments, I do not believe that it is their job as officials to make decisions on value for
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money; those are political decisions. So on both grounds I believe that auditors would be acting in a way that was not appropriate for an audit department.
As the noble Baroness and others have already said, the comparative studies to which the clause refers are quite necessary, but I should have thought that they were being done perfectly adequately at the moment by LAMSAC and the other bodies that have been mentioned. The noble Baroness thinks that it is paradoxical that the Government should be taking £500,000 from LAMSAC at this stage; I think that it is extremely sinister. Does it not lead one to draw certain unpalatable conclusions about the Government's attitude to this further independent body?
In my view by Clause 20 and the new clause to follow the Audit Commission becomes a kind of inspectorate general; the members of the commission become hit men for the Secretary of State in his relationships with local government. I consider that this proposal, like many other clauses that we have discussed in both the 1980 Bill and this Bill, is a very serious intrusion into, and erosion of, the liberty of local government. Surely the decision on whether a local authority is efficient or effective should be made by the electors, the people who pay the rates; that is where the decision should be made. I believe very strongly indeed that not only the clause that we are now discussing, but also the clause that is to follow constitute a very serious invasion into the responsibilities, duties and independence of local government and make it even more a creature of the Secretary of State. I am totally opposed to Clause 20 and to the proposed new clause that is to follow.
Lord Sandford: In view of all the eloquence that has been excited among the metropolitan authorities and the county councils I should not want it to be thought that the district councils were indifferent to this whole matter. I think that they regard this intrusion by central government and by a national audit commission and the national Parliament into the affairs of local authorities and their local electorates as entirely reprehensible and as unwelcome as it is unconstitutional. On the other hand, I have to admit that there are two factors which at the moment make it quite inevitable. One is the combination of the defiance, the extravagance, and the inefficiency of a number of notorious authorities, mostly Left-wing, which has left the Government no alternative but to take some action in this field; and it is now just a matter of discussion as to how extreme and effective that action has to be. In my mind there is no question but that the Government have to take some action.
The other factor which conspires to make this development inevitable is the appalling state into which the financing of local government has now fallen. Where central government and the national Parliament are supplying about half of the total resources of local government it is quite inevitable that the Treasury and the central Government departments will have to intervene in one way or another. Therefore my view, and the view of the association, is that after we have dealt with this particular legislation, what we need to direct our main attention to is a thorough-going reform of local government finance along the general lines on which your Lordships expressed such unani-

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mous opinion three or four months ago. We must reach the situation where, to the largest possible extent, each tier and unit of local government is directly responsible for raising its own finances and so gets central government off its back once and for all. But in present circumstances I do not think that the Government have any alternative but to act broadly along the lines proposed.
Lord Bellwin: We have been talking about two clauses, but I must say first of all that the new clause contained in Amendment No. 69H is quite a different matter. There is a connection, but no more than that because the purpose of each clause is different. Clause 20 is intended to enable the commission to make recommendations for improving value for money in local authorities, but the new clause requires the commission to look at the effects of Government policy on local authorities, and that is designed to strengthen ministerial accountability to Parliament. The two clauses are not at all concerned with the same thing.
Obviously, I cannot recommend to your Lordships this Motion to remove Clause 20. In the Government's view this is an integral and important part of the Bill—I would say a crucial part of the Bill. I listened very carefully to what my noble friend Lord Ridley said, and to what the noble Lord, Lord Evans, said. He presented his argument, as he always does, in a reasoned and moderate way, and I was glad he made the point about the fact that responsible authorities have nothing to fear. That is absolutely right, they have nothing at all to fear. But I will come back to that in a moment, if I may, when I comment upon the individual observations which have been made. First, I want to make just a few points to set the record straight.
Clause 20 is essentially concerned with the across-the-board studies which the commission will be required to undertake. The Government attach importance to these studies, and we see them as a logical extension of the audit process, particularly so far as the auditor's duty to consider value for money is concerned. In fulfilling his duty to consider value for money the auditor must of course first establish the facts of the situation at the authority under audit. But second—and this is more difficult—he will need to form a view on what the situation might desirably be, and then compare this with what he finds at the authority under audit. A valuable part of this assessment will be information on best practice in other, comparable authorities, and it is this information which the across-the-board studies will help to provide.
So we see the studies as being a logical and valuable complement to the audit process. It should also be an extension of it, since work on individual audits will tend to bring to the attention of auditors matters which might usefully be the subject of such studies. But I must stress that the studies are not designed only to benefit auditors. We also see them as being helpful to local authorities themselves. This, I suggest, is clear from the wording of Clause 20(1) itself. It speaks of the studies enabling the commission
"to make recommendations for improving economy, efficiency and effectiveness in … local authority services".
This leads me to stress—and I wonder whether everyone who has spoken and everyone who is in-
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terested realises this—that there will be nothing compulsory about the results of the studies. The commission will be concerned only with making recommendations; and, of course, the auditor will take into account the particular circumstances and the objectives of each local authority when referring to the studies in the context of individual audits. What, if anything, should be done as a result of the studies will be for individual local authorities themselves to decide.
I think that completely answers the point about which the noble Lord, Lord Evans, was so concerned. The fact is that here we are talking about something whereby an authority will have put in a report a recommendation, if you like, as to what it might well do to improve its method of working. I see nothing sinister at all about that—quite the contrary. I would have been delighted at all times when I was in this role. I am told constantly that when I refer to my old position I am being nostalgic. I do not call that being nostalgic. First, it is not all that long ago—it only seems that long ago sometimes—and, secondly, it is quite relevant to what is happening today. There is no difference.
I therefore know for a fact that it is a good thing that one has matters of this kind—this help, if you like, from this kind of audit, which is of a more extensive kind. Of course, there always have been auditors who have involved themselves in value-for-money work without the need for anything else, and they have always been well received by authorities and have always made helpful suggestions. That is all that we are talking about in all this drama about intrusion, interference and all these other emotive terms. This is a tremendous plus for local government, and I think your Lordships know me well enough to know that I would not say that if I did not think it was so.
As my noble friend so rightly said, those responsible authorities who are anxious for improvement will not worry about this. They will say: "So what? That is what it is all about. We have nothing to be afraid of; we want to be better and do things better if we can —and why not?" Furthermore, why should we not look also at the dissemination of best practice? That is something which has not been done. I am pleased to say now that CIPFA and others are doing more and more of this today than ever before. They are publishing information and statistics which are very helpful and which now enable authorities themselves to make certain comparisons, and that also is a good thing.
Perhaps I may come to the point upon which the noble Baroness specifically asked me to comment; namely, about LAMSAC. I think I should say that the consultation paper on the establishment of the Audit Commission raised the question of LAMSAC's role in view of the studies to be undertaken by the commission. In response, local government made the point that LAMSAC is an essentially local government body, which it is. The Government have therefore proposed that the grant be withdrawn as no longer appropriate; but this is only a proposal. I would suggest—indeed this is what has been felt by some of those within local government themselves—this would be a good thing, because then it will be their thing entirely and they will do it their way. I am open to correction, but I think I am right in saying that the

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chairman, too, felt that this was so. In any case, we are to discuss this further with local government itself. Did the noble Lord want to interrupt?
Lord Bruce of Donington: Yes, if the noble Lord is finished with this particular Question, Whether Clause 20 shall stand part of the Bill? and is about to proceed on to the next one.
Lord Bellwin: No, I have not finished; I have quite a way to go yet. I am in full cry. The noble Baroness, Lady Birk, quoted Mr. Maynard, the chairman of the committee, in a letter he wrote to the Secretary of State, and she emphasised the point that Maynard had said that the prime "responsibility" (and that is the key word) for this kind of work must be with the elected members. He was absolutely right; I agree with him. The prime responsibility is with the elected members; but who actually does the work and how they are helped to ensure that there is value for money—this is what this proposal is about.
It is not making the final decision; it is not saying, "You may or you may not, you can or you cannot". It is giving to the elected members that extra information, advice, guidance and knowhow to enable them then to make responsible decisions; and that really is the point, I would respectfully suggest, which is being missed.
Baroness Birk: I wonder whether I might ask the Minister a question on that. How does he then answer the warning that Mr. Maynard gives that,
"exaggerated claims about value-for-money auditing have been too readily accepted at their face value",
and that,
"considerable clarification of thought will be necessary about the volume and nature of the value-for-money audit work"?
That, to me, certainly sounds rather a critical comment from somebody who is really in on the whole thing.
Lord Bellwin: I know Mr. Maynard very well, and most able he certainly is; but I think he would only be able to pick up observations made by people. I cannot comment on what claims are or are not made by anyone, but I can comment on what I actually know, and that is the basis of my remarks now.
I should like to draw this to a close, because I think we shall be talking again on Amendment No. 69H, by saying this. First, I was very grateful for what my noble friend Lord Sandford said. Certainly he did not agree, and he expressed his concern on behalf of the district authorities. But I thought he very fairly put some of the reasons why there is this whole problem today. The noble Lord, Lord Evans, said I would take him to task for immoderate language in putting his case. I do not take him to task; I am just a little sad about that. I do not think it helps his case. He does it a lot better when he puts it the other way. But, certainly, to talk of "hit men" for the Secretary of State—my goodness me! Do not spoil any case you have by exaggeration in that way; I do not think it helps.
The noble Lord said that the electors should decide if an authority is efficient. This is the key. That is the point I am reiterating again and again. Of course,
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the electors must decide on the efficiency of the members, and the members can only be efficient when they have all the knowledge, know-how, guidance and advice that will come to them from the auditors—and that is all that this is about. That is why I feel that we could not accept this while we consider that Clause 20 is a critical part of this Bill. I hope that my noble friend will feel that there is merit in what I am saying and will not wish to press the amendment.
Lord Bruce of Donington: The noble Lord puzzled me at one point. He said when discussing Clause 20—and I think that the Official Report will bear this out—that he regarded this particular operation as a powerful aid to the auditor in the auditor's task of ensuring economy, efficiency and effectiveness in the use of resources. He came dangerously near, I thought—and the words when reproduced I think will bear me out—to saying, in effect, that under Clause 9(1)(c) of the Bill, as I suspected, the auditor is required to satisfy himself as to the economy, efficiency, and effectiveness of a local authority's use of resources, which are the words that the noble Lord used just now when he said that the application of Clause 20 would assist the auditor in just that; whereas, when we were discussing Clause 9 originally, the noble Lord put himself a little at a distance. He said that the auditors were not responsible for satisfying themselves that the affairs are being run economically, efficiently and effectively but that proper arrangements existed for that purpose—which is a totally different thing.
I shall be glad when the noble Lord replies, since his earlier words may have been reported, if he will clarify that position again; that, under Clause 9, the only thing that the auditor must satisfy himself about under Clause 9(1)(a) and Clause 9(1)(b) is that proper arrangements exist, not necessarily that the affairs are being run efficiently, economically and effectively. There is a point of difference there which I am sure the noble Lord would like to clear up before he goes further, perhaps now, but if he would prefer to wait, I shall continue.
Lord Bellwin: If the noble Lord will allow me, I want to comment now. I feel that I have finished what I want to say in general; and, in any case, soon we shall be back on a not dissimilar point. As far as I am aware, it is that the auditor is to be satisfied as to the arrangements. Certainly that is an obligation on the auditor. But I wonder if everybody knows that what is being called for is that the auditor, if he wishes to publish a report—and he may decide after consultation with the authority that he does not wish to do so—shall publish a report which will make certain recommendations. That is what it is about—recommendations as to ways in which things might be improved, done better. That is what he will be doing. In such recommendations there is nothing sinister, nothing that calls for a heavy hand. It is to set out what he discovers in his report.
Lord Bruce of Donington: I think the noble Lord misunderstood me. I was referring to a limited construction of Clause 9. I know that we have passed it, but what the noble Lord said seemed to me to conflict with what he said earlier about Clause 9

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which we have now passed. Perhaps he will reexamine his words and then compare them with what he has said already on Clause 9.
In regard to the amendment of the noble Viscount, Lord Ridley, I hope that he will consider withdrawing the clause altogether. We are now getting near the muttons of the matter. The odd thing is that the thing that the clause is trying to do is perfectly all right and, for once, the blinding truth seems to have dawned: that there is no such thing as a value-for-money audit. What there can be is a series of comparisons between local authorities and the performance of local authority services from which some broad judgment can be made. This is the only way when one is coming to local government services, or services of any kind, as distinct from commercial enterprises, when the arbiter is profit or loss or the extent of the profit or loss.
The only way in which one can arrive at some concept of value for money is not by applying the same criteria as one would apply in a commercial enterprise. That would be worthless because certain social services are not possible to measure in terms of monetary profit or loss. One can only determine on the broad social benefit of the service provided; how essential is the need for it, the administration of it, the social purposes accomplished by it, the benefits diffused by it, as against the monetary burdens borne by the proportion of the rate devoted to that purpose. The only way in which one can come to value for money is by that comparative process. Therein lies the gravamen of my argument, to which I shall not again refer but because of which the noble Lord now understands why I objected to Clause 9(1)(c) which we have now passed and which would become redundant in a way if this clause came into practical operation in a totally different way.
When I listened to the noble Lord, Lord Sandford —and I do not see him in his place at the moment—and I observed the noble Lord's approval which he expressed as to what Lord Sandford said, once again it struck me, as the noble Lord, Lord Sandford, said, that this Bill was inevitable, these provisions were inevitable, because of the excesses that have taken place, the extravagance and waste that have occurred. The noble Lord, Lord Sandford, touched on the real motive for the introduction of this Bill. It is an over-reaction, an over-political reaction, to some spending that has taken place in some authorities. If this function is to be performed, who better to perform it than the local authorities themselves?—either in association or through organisations that they already have. It would be far better if it were done this way and it would be, as the noble Lord himself suggested as he began to get more enthusiastic about it, something which local authorities ought to embrace. A very large number of local authorities on their own have embraced it already. Why does not the noble Lord leave it to the local authorities to finish the job rather than impose something arbitrary on them?
5.28 p.m.
On Question, Whether Clause 20, as amended, shall stand part of the Bill?
Their Lordships divided: Contents, 79; Not-Contents, 62.

DIVISION NO. 1

CONTENTS

Alexander of Tunis, E.

Macleod of Borve, B.

Auckland, L.

Mancroft, L.

Avon, E.

Marley, L.

Belhaven and Stenton, L.

Merrivale, L.

Bellwin, L.

Mersey, V.

Belstead, L.

Monson, L.

Caccia, L.

Montgomery of Alamein, V

Cathcart, E.

Mowbray and Stourton, L.

Constantine of Stanmore, L.

Murton of Lindisfarne, L.

Cullen of Ashbourne, L.

Newall, L.

Daventry, V.

Norfolk, D.

Davidson, V.

Nugent of Guildford, L.

De La Warr, E.

Orkney, E.

Derwent, L.

Oxfuird, V.

Drumalbyn, L.

Platt of Writtle, B.

Elliot of Harwood, B.

Plummer of St. Marylebone, L.

Elphinstone, L.

Ferrers, E.

Porritt, L.

Fraser of Kilmorack, L.

Rankeillour, L.

Gainford, L.

Reigate, L.

Gardner of Parkes, B.

Renwick, L.

Glanusk, L.

Saint Brides, L.

Glenarthur, L.

St. Davids, V.

Glenkinglas, L.

St. Just, L.

Gridley, L.

Sandys, L.—[Teller.]

Hailsham of Saint Marylebone, L.

Selkirk, E.

Selsdon, L.

Hatherton, L.

Sempill, Ly.

Henley, L.

Sharples, B.

Holderness, L.

Strathclyde, L.

Hylton-Foster, B.

Sudeley, L.

Killearn, L.

Terrington, L.

Kimberley, E.

Thomas of Swynnerton, L.

Kinloss, Ly.

Trumpington, B.

Lane-Fox, B.

Vaux of Harrowden, L.

Lauderdale, E.

Vivian, L.

Long, V.—[Teller.]

Willoughby de Broke, L.

Loudoun, C.

Windlesham, L.

Lyell, L.

Wynford, L.

McAlpine of Moffat, L.

Young, B.

McFadzean, L.

NOT-CONTENTS

Airedale, L.

Jenkins of Putney, L.

Ardwick, L.

John-Mackie, L.

Aylestone, L.

Kennet, L.

Banks, L.

Leatherland, L.

Beaumont of Whitley, L.

Llewelyn-Davies of Hastoe, B.

Birk, B.

Bishopston, L.

Lloyd of Hampstead, L.

Boston of Faversham, L.

Lloyd of Kilgerran, L.

Briginshaw, L.

Longford, E.

Brockway, L.

Lovell-Davis, L.

Brooks of Tremorfa, L.

Molloy, L.

Bruce of Donington, L.

Oram, L.

Chitnis, L.

Peart, L.

Cledwyn of Penrhos, L.

Phillips, B.

Collison, L.

Ridley, V.—[Teller.]

David, B—[Teller.]

Rochester, L.

Davies of Leek, L.

Seear, B.

Davies of Penrhys, L.

Shinwell, L.

Donaldson of Kingsbridge, L.

Stedman, B.

Elwyn-Jones, L.

Stewart of Alvechurch, B.

Evans of Claughton, L.

Stone, L.

Ewart-Biggs, B.

Strauss, L.

Foot, L.

Tanlaw, L.

Gaitskell, B.

Taylor of Mansfield, L.

Gosford, E.

Tordoff, L.

Gregson, L.

Underhill, L.

Hampton, L.

Wallace of Coslany, L.

Houghton of Sowerby, L.

Wells-Pestell, L.

Hughes, L.

Whaddon, L.

Hunt, L.

Wigoder, L.

Jacques, L.

Wootton of Abinger, B.

Jeger, B.

Resolved in the affirmative, and Clause 20, as amended, agreed to accordingly.
5.37 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 69H:
After Clause 20, insert the following new clause:
("Reports on impact of statutory provisions etc.
.—(1) In addition to the studies referred to in section 20(1) above, the Commission shall undertake or promote studies designed to enable it to prepare reports as to the impact—

(a) of the operation of any particular statutory provision or provisions: or

(b) of any directions or guidance given by a Minister of the Crown (whether pursuant to any such provision or other wise),

on economy, efficiency and effectiveness in the provision of local authority services and of other services provided by bodies whose accounts are required to be audited in accordance with this Part of this Act, or on the financial management of such bodies.
(2) The Commission shall publish or otherwise make available any report prepared by it under this section, and shall send a copy of any such report to the Comptroller and Auditor General.
(3) Where the Comptroller and Auditor General has received a copy of any such report he may require the Commission to furnish him with any information obtained by it in connection with the preparation of the report, and for that purpose the Commission shall permit any person authorised by him to inspect and make copies of any documents containing any such information; but no information shall be required by the Comptroller and Auditor General under this subsection in respect of any particular body.
(4) Before undertaking or promoting any study under this section the Commission shall consult—

(a) any Minister of the Crown who appears to it to be concerned; and

(b) such associations of local authorities or other bodies whose accounts are required to be audited in accordance with this Part of this Act as appear to it to be concerned and such associations of employees as appear to it to be appropriate.").

The noble Lord said: This is a new clause in what has become known as the C and AG amendment. It has a complicated and controversial history. I understand it even received several column inches on the front of The Times in the far-off days when that paper had room for domestic news on its front page. I ought to begin by outlining the history of this amendment. I shall do it as quickly as I can.
At the beginning of 1981, the Public Accounts Committee produced a report on the role of the Comptroller and Auditor General. It made a number of wide-ranging recommendations, but I will touch only on those relating to local government. The committee recommended that some changes were necessary and that more attention should be paid to value for money. They proposed that the present arrangements for the audit of local authorities should basically continue, but that the staff of the district audit service should be transferred to a national audit office under the control of the C and AG, and the C and AG should report to Parliament on general matters arising out of local government audit.
The Government agreed with the PAC that some reform was necessary and that value for money work should be strengthened. But we rejected the suggestion that the district audit service should come under the control of the C and AG because we believe that Ministers are already fully accountable to Parliament for those functions relating to local authority activities for which they hold responsibility, and that the C and AG did not for this purpose need access to more
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information than is available to the Minister concerned. We preferred instead to tackle the problem through an Audit Commission.
It might fairly be said that the Government's overall response to the PAC's report was not enthusiastically received by the other place. Members of the PAC no doubt appreciated the point to which the Government attached particular importance; namely, that local authorities are constitutionally responsible to their electors and not to Parliament, even though a large proportion of their expenditure is funded by money voted by Parliament.
But the members of the PAC were also not entirely satisfied by the Government's proposals. The chairman of the PAC then hit upon a novel solution. This was to seek to avoid the constitutional problems raised by involving the C and AG in local government audit, and to concentrate instead on what might be called the more legitimate area of PAC involvement; namely, Government accountability to Parliament for the the effect of their policies on local government.
To this end, an amendment was put down for Report stage in the other place which provided, first, that the commission should undertake studies of the impact on value for money in the provision of local authority services of statutory provisions and Ministerial guidance; secondly, that the C and AG should have access to all documents and records held by the commission relating to such studies; and thirdly, that the C and AG should report to Parliament the results of his examination of the commission's documents, but in doing so should identify any individual authority.
The Government recognised the concern for improved accountability to Parliament for expenditure of public money which lay behind this important amendment. They were not unsympathetic to the objectives but felt unable to recommend the other place to accept the amendment because they had only had a few days to consider it and had, in particular, not had an opportunity to consult the local authority associations about it. Moreover, there were certain key points on which the amendment was unacceptable.
The most critical of these was that it gave the C and AG access to documents relating to individual local authorities. We believe it is important to preserve the separate constitutional position of local authorities. In addition, the clause would have made available to the C and AG more information than is available to Ministers who may have to answer to Select Committees. Paragraph 3 of Schedule 1 specifically precludes the Secretary of State from requiring information from the commission about individual authorities. The original amendment precluded the C and AG from identifying authorities in reporting to Parliament, but enabled him to get information from the commission.
The present amendment overcomes this problem by specifically preventing the C and AG from requiring information in respect of any particular body. The wording used is almost exactly the same as that used in Schedule 1, paragraph 3, and this puts the C and AG in a parallel position to the Secretary of State. By denying the C and AG access to information on individual authorities, it also preserves the separate constitutional position of the local authorities.
I have to inform the Committee that the chairman of the PAC has generally welcomed the new clause, but has pressed the Government to make several small changes to it. First, he would like it to be clear that the C and AG should have access to all studies made under the new clause. At the moment the C and AG has access only if the Commission produces a report on the study. I think it highly unlikely that the Commission would not produce a report. Nevertheless, it is possible; and to overcome the problem we propose to amend the clause on Report so as to require the Commission to produce reports on all studies.
Secondly, the chairman of the PAC has asked that the C and AG shall be added to the list of consultees in subsection (4), and again I shall put down an amendment on Report to meet that point. I am conscious that a number of your Lordships, and especially those who are closely interested in local government, are uneasy about the effects of this new clause. I sincerely believe that those worries are misplaced. The new clause did not in any way call into question local authorities' accountability to their electorates. It does not make local authorities accountable to Parliament. It simply enables Parliament to receive reports on the effect of Government policies on value for money in the provision of local government services. I submit that this is a legitimate area for parliamentary interest.
In the other place my right honourable friend felt unable to recommend acceptance of the original amendment because of the shortness of time and because of the defects to which I have drawn attention. However, he undertook that the Government would move an amendment in this Chamber meeting the principle of the original amendment. If the amendment were made, this would give the other place the opportunity to look at the matter again to ensure it met with their requirements.
It is clearly the wish of the other place that a provision on the lines of the new clause should be included in the Bill. For the reasons I have given, I am myself satisfied that, as I said on the previous amendment, it is not sinister and it is not an imposition but a reasonable request. I think this is the best way to go about it and I hope that your Lordships will agree to the new amendment, which I now beg to move.
Baroness Birk Baroness Birk moved Amendment No. 69HA as an amendment to Amendment No. 69H:
Subsection (1), line 2, leave out ("shall") and insert ("may").
The noble Baroness said: This amendment need not detain your Lordships long, because this is again a suggestion to change "shall" to "may" in the second line. In this case it makes a tremendous difference to the acceptability of the clause; otherwise the powers in it are far stronger than we would like to see. Speaking personally, the general idea of a parliamentary responsibility I do not find unacceptable, as long as there are safeguards built into it and as long as the amendment which follows this one in the name of the noble Viscount, Lord Ridley, is also accepted, because that provides protection for individual local authorities.
In this clause I think there is a stronger case for changing the word "shall" to "may" even than there was in Clause 20, because with regard to Clause
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20 there was always the far-out chance that we might lose the clause altogether. In the event it is still there and the clause has not been deleted. There is a very real fear among local authorities about parliamentary control of what they are doing.
The question of power and duty then looms tremendously large; and to obtain the confidence of local authorities and the local authority associations, who are not very happy about the role of the Comptroller and Auditor-General in the affairs of local authorities, to change the word "shall" to "may" is of absolute importance. It is essential to their acceptance or, to put it in a more practical way, to their tolerance of this new clause. I beg to move.
Lord Evans of Claughton: As I am sure the noble Baroness realises, this is a fairly modest amendment, but anything that reduces a danger to the independence of local government I will support, and I support this amendment for that reason.
Lord Molloy: I should like to support this amendment because really to understand the amendment one has to read a little further on the following page. It seems that it is to be compulsory for the commission to examine the economy, efficiency and effectiveness in the provision of local authority services. That seems to be a mammoth task. What I think would be much more sensible is that, if the commission were apprehensive about something, they would examine perhaps the whole structure of local authority and then submit a report. But to say that they "shall" report on every little item, dot every "i" and cross every "t" might mean that if they do that there is a possibility of missing something fundamental that they ought to report on. I think that if the Government would look at it in that way from the point of view of efficiency and from a point of sensibility from the standpoint of the commission, the Commission would be able to concentrate on what they think is important. I believe that the Government should prefer "may" to "shall", and I would support the amendment.
Viscount Ridley: I should like to add my support to the noble Baroness's amendment. Everything that can be said has been said, so I will say no more and wish it well.
Lord Bellwin: I should like to say just a brief word, because I do not want to go over the whole debate. Your Lordships will be aware that the new clause which is proposed in Amendment No. 69H has been tabled—I say it again and I hope that everyone understands it—in response to proposals in another place, where they attach great importance to it. The word "shall" is more appropriate than the word "may", because it places a positive requirement on the commission and that reflects the significance with which these studies are to be regarded. We have already discussed whether to make a similar change of wording in connection with the studies which are to be conducted under Clause 20(1), and I should have thought that the same considerations applied in this case.
The Government have made it clear that they respect the views of honourable Members in another place with regard to these studies, and for that reason I

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am bound to recommend your Lordships not to accept the amendment, which would inappropriately alter the effect of the new clause which has been tabled by the Government. That is the advice that I am given and it seems to me to make some sense. This is not as clear an issue as the one that we were talking about previously, but that is the position and that is what is required by colleagues in another place. That is why we have to go along with it—or I have to, anyway.
Lord Bruce of Donington: I should not like to stand in the way of another place having a look at this provision, but this Bill has been drawn up in a very odd way. Here we have Clause 20 which states:
"The Commission shall undertake or promote comparative and other studies designed to enable it to make recommendations for improving economy, efficiency and effectiveness in the provision of local authority services",
et cetera. We now come to this new clause which states that, in addition to the studies which I have just read out,
"… the Commission shall undertake or promote studies designed to enable it to prepare reports as to the impact—

(a) of the operation of any particular statutory provision or provisions; or

(b) of any directions or guidance given by a Minister of the Crown (whether pursuant to any such provision or otherwise)"—

Then, once again, we have—
"on economy, efficiency and effectiveness in the provision of local authority services and of other services provided by bodies whose accounts are required to be audited in accordance with this Part of this Act".
I do not know how many times the Government want to overlap on these matters, whether for the sake of the Public Accounts Committee or of the other place. But it must have occurred to the noble Lord, when the new clause states,
"In addition to the studies referred to in section 20(1)",
that it means what it says; that, in addition to the studies, there are to be more studies which will involve local authority officials and will mean much local authority work. I presume that, once again, they will involve the headquarters staff of the Audit Commission, the district auditors or some specially selected firms of private accountants. But, once again, it is the affairs of a local authority in this field of economy, efficiency and effectiveness that will be under examination.
Whether it goes to the Comptroller and Auditor General and to Parliament, or whether it goes to the Secretary of State or elsewhere, seems immaterial for the moment. It is another thing with which the local authority has to contend. We have the ordinary audit under Clause 9, we have the extraordinary audit under Clause 16, we have the comparative studies under Clause 20, we now have this extra one under what may become Clause 21 and there will undoubtedly be additional studies.
Are not the noble Lord and his department in danger of suffering from financial hypochondria or something like that? This extraordinary obsession with further studies, when local authorities already have the means at their disposal, almost savours of fanaticism. There is already a very substantial wodge of detailed accounting, apportioning and mathematical
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provisions in regard to local authority finance in the Local Government, Planning and Land Act 1980. This is beginning to be an obsession and I hope that the noble Lord, either now or at some time before the whole thing goes to another place, will stand back from his handiwork, take a look at it as a whole and say to himself "We have gone a bit too far in insisting on all this." After all, these people are human beings. Local government officials are responsible people and local councillors are elected by the local authorities. Why do we have to go through all this mumbo-jumbo at this time?
Baroness Platt of Writtle: I wonder whether I may ask my noble friend the Minister for some information on his new clause, because I confess to being uncertain. First, after the amendments which my noble friend said he intends to bring in at Report stage, will local government be answerable both to the commission and to Parliament, or will they not? Perhaps he was saying that they would not be responsible to Parliament on this matter. Secondly, as regards the reason for this new clause, are the studies to be done before legislation or after and, if they are to be done before legislation, if it were proved that legislation resulted in less economy, efficiency and effectiveness by local government, would the idea be that it should not be enacted?
Lord Bellwin: I am not sure whether I fully understood the point being made by my noble friend. Perhaps I may come to them in a moment. But simply—
The Deputy Chairman of Committees (Baroness Wootton of Abinger): The point which the noble Baroness has raised relates to the main amendment, No. 69H. We are at present discussing No. 69HA, and we go back to No. 69H when No. 69HA has been decided.
Baroness Platt of Writtle: I thank the noble Baroness. I shall raise the point under Amendment No. 69H.
Lord Bellwin: May I say that the new clause does not require the commission to study all aspects of value for money and the impact of Government policies. It is for the commission to decide how many studies to do and what subjects to cover, but—and this is the point—after consultation. The inclusion of the word "shall" does not mean that it has to study the whole field; only that it must do some studies. It is nothing like so severe, imposing or sinister as the noble Lord, Lord Bruce, fears. It is all about accountability.
I know that the noble Lord knows a darned sight more than I do about the way in which the C and AG works, because he has been there and I have not. But the fact is that, as I think everyone would agree, it is an important body which has an interest. We are talking here about the totality of local government, its spending and what it does, and as long as those of us who are concerned about the position of local government have the constitutional safeguards that I mentioned before, whereby individual authorities are not concerned and local authorities, as such, do not have to answer to Parliament—and they do not—there can be no harm in that being discussed in the open and in the C and AG commenting upon it. Again, I would

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welcome it for the reputation and standing of local government. At the end of the day, the great majority —not all—of those concerned will be proud of what comes forth and will welcome it.
Baroness Birk: We have to remember that "shall" rather than "may" follows on from Clause 20(1). As we have been unable to change the "shall" to "may" there, it follows that in this clause the commission must follow up the impact of the operation of any particular statutory provision and—this is very important—of any directions or guidance given by a Minister of the Crown. It follows that whatever a Minister of the Crown deems to be a direction or guidance must be the object of such a study, whether or not that is the purpose of the particular direction or guidance. There is a danger that if this new clause is initiated with a duty rather than a power it could be used to reintroduce political direction of the commission merely by designating the purpose of directions or guidance so as to achieve economy, efficiency and effectiveness.
The Government have given a specific pledge that the audit will be non-political, but now they are saying that studies by the commission may well be political. The word "shall" makes it imperative instead of giving to the commission the option of undertaking or not undertaking the functions laid down. It is a point of principle that the word "shall" between "the Commission" and "undertake" should become "may", otherwise there is this danger. While there is such a danger in legislation, it is no answer to say that Ministers would not behave like this, or that this would not happen. One has to make quite sure that the opportunity is not there on the statute book. Therefore, all that one is asking for is that "shall" should become "may".
The Minister said that more amendments will be introduced at Report. Other amendments on this clause have still to be discussed, so at this stage I shall withdraw the amendment and will come back to it, if necessary, at Report. I hope, though not with much hope of success, that the Minister and his colleagues will have another look at this point on account of the possible legal repercussions which they may not have taken into consideration because of the haste with which, the Minister quite fairly said, this clause had to be drafted. This would give us an even better chance to get it right at Report. Therefore, I should prefer the Minister to take it back and have another look at it, though I do not hold him to anything, instead of pressing it to a Division and wasting the time of the Committee—and possibly not winning the Division, anyway. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: Before we go back to Amendment No. 69H, there is another amendment to that amendment; namely, Amendment No. 69J which stands in the name of the noble Viscount, Lord Ridley.
6.4 p.m.
Viscount Ridley Viscount Ridley moved Amendment No. 69J:
Subsection (2), line 3, at end insert—
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("Provided that the Commission shall not in any such report refer to the affairs of any individual authority in a way which identifies that authority by name or otherwise.").
The noble Viscount said: If we decide to pass Amendment No. 69H there is a further principle which should be respected. It was never the intention of the new clause as introduced into another place to identify individual authorities. This is the right approach, as it should not be the intention of Parliament to supervise the affairs of individual authorities but to pass judgment on the impact of certain measures upon the efficiency of local government. The new proposed clause rightly provides for this in subsection (3), but this relates only to the information which the Comptroller and Auditor-General may require when he has received a copy of the commission's report. Unaccountably, it does not restrict the naming of a particular authority in the report itself. My amendment seeks to put this right. I beg to move.
Lord Bruce of Donington: I hope that the noble Lord will accept the amendment. It would enable us to co-operate and get a good deal of the remainder of the Bill through quite quickly. After the very reasonable argument which we have just heard, to which I shall not add, I sincerely hope that the Minister will agree to the amendment.
Lord Sandford: I, too, very much hope that my noble friend will accept this very important amendment.
Lord Evans of Claughton: So do I.
Lord Bellwin: Not for the first nor, I suspect, for the last time do I find myself on my own over this matter. I listened carefully to what my noble friend had to say, but I truly think that the fears which he and others have expressed are not real fears. I do not think that their concern is justified. Local authorities will have nothing to lose from being identified in the commission's reports. Those authorities which come out well in reports will certainly welcome the publicity, while those which do not compare so favourably will probably be spurred on to do better. We believe that the provision of more information about the activities of local authorities is an important part of the policy of improving the accountability of local authorities. This can only be of benefit to the reputation of local government as a whole.
My noble friend is apparently content for the commission to identify individual authorities under Clause 20 but not under the new clause—though in fairness I have to say that he was not too pleased about that, either. I have some difficulty in seeing the distinction. Both clauses are designed ultimately to enable local authorities to get better value for money. The clauses are closely parallel. It will be a matter for the commission to judge, in a study, whether it comes under Clause 20 or under the new clause. In some cases, that may well be a fine judgment.
The only difference between the two clauses is that the Comptroller and Auditor-General has access to the results of studies under the new clause but not under Clause 20. There is nothing in the new clause or in this amendment to prevent the Comptroller and Auditor-General from using published information

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about individual authorities in his reports to Parliament. Therefore, I submit that it would be inappropriate to do this. That being so, the Comptroller and Auditor-General could use information published by the commission under a Clause 20 study. To enable the commission to publish information under Clause 20 but to prevent the commission from publishing what could be identical information under the new clause seems to me to be somewhat illogical.
I understand the concern of local authorities to preserve their constitutional position vis-à-vis their electors. I entirely endorse and support that all the way. The Comptroller and Auditor-General will not have privileged access to information about individual authorities, and I say again that I should have thought this would have adequately safeguarded their interests.
I shall read carefully what has been said. I did not respond to the point made by the noble Baroness a moment ago, but everything which has been said we shall read carefully, and if there should be some concern which we think is reasonably based we shall seek to put it right. Your Lordships all now know where we are trying to get. That being so, we shall read carefully what has been said, though I make no commitments at all. Noble Lords know that.
Lord Molloy: The noble Lord spoke about local authorities giving value for money. In my experience —and I am sure in the experience of the noble Lord, too—very often local authorities have not had value for money for engagements which they have undertaken on behalf of the people who elected them from some aspects of private organisations which do work for them. If a large private organisation receives a substantial order from a local authority to build houses or roads, for instance, and that organisation does not give value for money, will that local authority have some assistance from Parliament to ensure that they do get value for money—just as Parliament seems to insist that local authorities should give value for money?
Lord Bellwin: The principle of comparison is absolutely clear. It does not matter by what route the authority pays for its services. It is the principle that matters here. If it is buying them by contracting out, the same applies as if they were being done in-house, by direct labour or whatever. There is no difference in principle—it is right or it is wrong.
Baroness Birk: I really am extremely worried about this, because it seems to me that the Minister has said two different things. I understood him to say that the amendment moved by the noble Viscount was not necessary because the matter was covered by subsection (3), which says that no information shall be provided by the Comptroller and Auditor-General in respect of any particular body. I think I am right in saying that the noble Lord, Lord Bellwin, said that this subsection covered it.
Lord Bellwin: Yes, I think that is right.
Baroness Birk: But then the noble Lord went on to say that the Comptroller and Auditor-General has
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access to information under Clause 21 which he would not have under Clause 20. I believe that the situation at the moment is going to throw the local authorities into tremendous confusion about this. They will not know whether information will be given in respect of any particular body, organisation, or local authority. There is a difference, which the noble Lord, the Minister pointed out, albeit somewhat obliquely, between the effect of Clause 20 and the effect of Clause 21, which is the parliamentary control about which many local authorities are very concerned.
As I said earlier, I am not so concerned about that aspect, because I believe there is some point to it provided that the protections are there. One of the protections—and I feel very strongly about this, as do many others who have spoken in Committee—is the amendment moved by the noble Viscount, which spells it out very clearly and without any possibility of doubt or worry about interpretation. If the Government mean—as I understood from the Minister and from the debate in another place—that the identity of any individual authority will be safeguarded, then the only way to make sure of that is to have it spelt out in this clear and simple way in the Bill. I believe that it is essential and it is something to which all sides of the House should stick very strongly.
Lord Sandford: I must support the noble Baroness, Lady Birk, because I think that my noble friend Lord Bellwin is now departing quite significantly from the understanding which was reached in another place when Mr. Joel Barnett moved the amendment which led to this new clause. The concept was accepted, although the amendment was not, strictly on the understanding of the chairmen of the associations, as I understand it, that the question concerning any individual authority affairs being revealed to the Comptroller and Auditor-General, as distinct from the commission, was clearly agreed. For my noble friend to say now that local authorities might welcome this intrusion by the Comptroller and Auditor-General is certainly not the case. I do not know what my noble friend Lord Ridley is going to do about his amendment, but I would have thought that this matter was one that we should go into very carefully and thoroughly between this stage and the next stage.
Lord Bellwin: Clearly there is a misunderstanding here. I said—and I repeat it gladly for the record—that the Comptroller and Auditor-General does not have the right of access himself to individual authorities but that is not to say that he cannot use any published information. There is nothing to stop him from using published information, and therefore he can use information published under Clause 20 by the commission—as can anyone else use that information. If my noble friend fears that that is a possible loophole of concern, then I will undertake to have a look at the matter to ensure that that is not so, because that is not the intention. Although I say that, I must state again that the Comptroller and Auditor-General has access to anything that is published—and so he should, and no one would quarrel with that. Certainly I undertake to look at this to ensure that it is quite clear and that we are in the Bill carrying out the Government's intention. That I undertake to do.
Viscount Ridley: I would like to repeat my noble friend's words; that he was anxious in introducing this new clause to meet the wishes of the other place. I am trying to do just that. But the air is fairly thick with misunderstanding at this moment in time. I would suggest that the right thing for me to do would be to withdraw this amendment with a view to getting some kind of compromise at Report stage. But I must say quite clearly that, if we cannot get any agreement, I am quite prepared to put the matter to the test at Report stage. I beg leave to withdraw amendment No. 69J.
Amendment to the amendment, by leave, withdrawn.
The Deputy Chairman of Committees: We now revert to Amendment No. 69H.
Baroness Platt of Writtle: Can my noble friend now provide the information for which I asked?
Lord Bellwin: I am glad to give my noble friend this information. First of all, the new clause does not make local government answerable either to Parliament or to the commission. Local government is answerable to its electorate and this is in no way altered by the Bill. On the second point, the clause empowers studies on the effect of existing legislation and guidance. It is concerned with effects and there cannot therefore be studies before the legislation concerned is enacted.
Lord Evans of Claughton: I know this is becoming a boring and otiose, but nevertheless I have to say that I am totally, completely and absolutely opposed to this clause too. All I can say is that I am jolly glad that I am not in local government at the moment, because it is becoming so Much constrained by financial examination that it is hardly worth thinking of oneself as any kind of independent body at all. Local government is becoming more and more an agency of central Government. However, throughout it all, I admire the noble Lord the Minister, who goes on in his delightful way, assuring us with all sincerity that this is going to strengthen local government. It is very much like the man who is about to be executed being told that it will help his toothache. That is precisely what this Bill will do; it will solve a number of rather small problems but it is killing the very independence of local government about which so many of us are concerned.
It seems to me that, quite rightly, local government already has constraints placed upon it that Parliament does not. At the risk, I suppose, of committing some constitutional impropriety, I would have thought that the Comptroller and Auditor-General would have plenty to do in looking after the expenditure of central Government and Government departments. I would have said that there was an area which needed much more examination. There is the most tremendous outcry if local councillors go on a short trip to Blackpool to look at the trams, whereas Members of Parliament can go all over the world on various trips without any constraint. Local councillors have to declare any interest and leave a meeting and take no part because they are so concerned about propriety—but here, we can declare an interest and jabber away as long as we like.
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I have been bottling this up for some weeks (I wondered why I had put on some weight) and feel very strongly that we should go on saying that local government councillors are not all venal and should not be watched, constrained and looked upon as though they are bound to commit some heinous offence. I believe that is a terrible insult to local councillors and I hope that we can be reassured—as I know the noble Lord will reassure us in his usual charming way. But, however many reassurances we get, what this legislation is leading to in almost every clause is greater and greater constraint on local government independence, which I believe is totally bad for both local government and the country.
Viscount Ridley: If I may speak to Amendment No. 69H, which was moved a very long time ago, my noble friend did say that he had consulted or would consult the local authority associations on this matter. If he had consulted the Association of County Councils he would have found them totally and unanimously opposed to this new clause—particularly, as I have already said, because it duplicates Clause 20, to which we have already reluctantly agreed. My noble friend may say that they are totally separate processes and are not in any way related, but from the point of view of a local authority about to be subjected to these processes, they will look to be very much the same. It does not matter whether one is looking down the barrel of a 16-bore shotgun or a 12-bore shotgun, the effect is much the same at short range. I suggest that is the case here.
It will be a considerable expense to the local authority to be possibly twice subjected to these things. I think it would be very wrong to agree to it. I felt that the Government were extremely lukewarm in introducing these amendments; I do not believe they really welcomed them in another place and I doubt whether they really welcome them tonight. As there are further amendments, I hope that we may withdraw the whole subject to see if we can get agreement by all those concerned. I hope that Amendment No. 69H can, therefore, be left in abeyance tonight.
Lord Bellwin: May I say that in some ways I hope we shall not do that, because at the end of the day we have to come to conclusions about this. I understand exactly what the noble Lord, Lord Evans, was saying, and the concern of my noble friend and all others who have spoken on this matter. They know how I feel about it. This debate really is about one word, it is about accountability. I do not ever see why anybody in local government at any level is afraid of accountability. The councils I know are not afraid of accountability. They are proud of what they do. In the main they do a good job and they do not mind if people want to know what kind of a job they are doing. If someone points out to them that somebody else is doing the same thing better the first thing they will say is, "Tell me. I'd like to do the same thing". They see nothing wrong in that. That is not an imposition on local government or an inquisition on local government. The only thing we are talking about here is accountability, and it can only be to the good of local government to be as open as possible and let everything be as open as it can be. Let anyone

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who wants to make suggestions or criticisms make them, and then you have nothing to fear at all. That is one of the main objectives of what we are trying to do in this part of the Bill. I do not share the concern of the noble Lord, Lord Evans, because we both really want to see the same thing at the end of the day. Of course, it is my noble friend's decision … Well, this amendment is mine. We are going around so many that I hope I can be excused for not knowing which one we are discussing. So I beg to move Amendment No. 69H.
6.23 p.m.
On Question, Whether the said amendment (No. 69H) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 61.

DIVISION NO. 2

CONTENTS

Alexander of Tunis, E.

McAlpine of Moffat, L.

Auckland, L.

McFadzean, L.

Avon, E.

Macleod of Borve, B.

Belhaven and Stenton, L.

Mancroft, L.

Bellwin, L.

Marley, L.

Belstead, L.

Merrivale, L.

Cathcart, L.

Mersey, V.

Coleraine, L.

Mills, V.

Constantine of Stanmore, L.

Montgomery of Alamein,

Cork and Orrery, E.

Mottistone, L.

Craigavon, V.

Mowbray and Stourton, L

Cullen of Ashbourne, L.

Murton of Lindisfarne, L.

Daventry, V.

Napier and Ettrick, L.

Davidson, V.

Newall, L.

De La Warr, E.

Orkney, E.

Drumalbyn, L.

Plummer of St. Marylebone, L.

Eccles, V.

Elliot of Harwood, B.

Portland, D.

Elphinstone, L.

Rankeillour, L.

Ferrers, E.

Redesdale, L.

Fraser of Kilmorack, L.

Reigate, L.

Gainford, L.

Renton, L.

Gardner of Parkes, B.

St. Davids, V.

Glanusk, L.

St. Just, L.

Glenarthur, L.

Sandys, L.—[Teller.]

Glenkinglas, L.

Selkirk, E.

Greenway, L.

Sempill, Ly.

Gridley, L.

Shannon, E.

Hailsham of Saint Marylebone, L.

Sharples, B.

Soames, L.

Harmar-Nicholls, L,

Strathclyde, L.

Hatherton, L.

Sudeley, L.

Henley, L.

Thomas of Swynnerton, L

Killearn, L.

Trumpington, B.

Kimberley, E.

Vaux of Harrowden, L.

Kinross, L.

Vivian, L.

Lane-Fox, B.

Windlesham, L.

Lauderdale, E.

Wynford, L.

Long, V.—[Teller.]

Young, B.

Lyell, L.

NOT-CONTENTS

Airedale, L.

Chitnis, L.

Ardwick, L.

Cledwyn of Penrhos, L.

Aylestone, L.

Collison, L.

Beaumont of Whitley, L.—[Teller.]

David, B.

Davies of Leek, L.

Bernstein, L.

Davies of Penrhys, L.

Birk, B.

Elwyn-Jones, L.

Bishopston, L.

Evans of Claughton, L.

Boston of Faversham, L.

Feversham, L.

Brockway, L.

Gaitskell, B.

Brooks of Tremorfa, L.

Gosford, E.

Bruce of Donington, L.

Hampton, L.

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Harris of Greenwich, L.

Peart, L.

Hooson, L.

Phillips, B.

Houghton of Sowerby, L.

Ridley, V.—[Teller.]

Hughes, L.

Rochester, L.

Hylton-Foster, B.

Seear, B.

Jacques, L.

Shepherd, L.

Jeger, B.

Stedman, B.

Jenkins of Putney, L.

Stewart of Alvechurch, B.

John-Mackie, L.

Stone, L.

Kaldor, L.

Strauss, L.

Kilmarnock, L.

Tanlaw, L.

Leatherland, L.

Taylor of Mansfield, L.

Llewelyn-Davies of Hastoe, B.

Tordoff, L.

Underhill, L.

Lovell-Davis, L.

Wallace of Coslany, L.

MacLeod of Fuinary, L.

Wells-Pestell, L.

Molloy, L.

Willis, L.

Mountevans, L.

Winterbottom, L.

Noel-Baker, L.

Wootton of Abinger, B.

Oram, L.

Resolved in the affirmative, and amendment agreed to accordingly.
Clause 21 [Furnishing of information and documents to Commission]:
6.31 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 69K:
Page 17, line 3, after ("20") insert ("or section (Reports on impact of statutory provisions etc.)").
The noble Lord said: I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Clause 21, as amended, agreed to.
Clause 22 agreed to.
Clause 23 [Restriction on disclosure of information]:
On Question, Whether Clause 23 shall stand part of the Bill?
Lord Bruce of Donington: In our debates this afternoon and, indeed, in the preceding debates, the noble Lord has always appeared to be the most reasonable type of person. He says that he is perfectly prepared to be flexible and he waxed so lyrical about the virtues of local authorities when we were talking about five minutes ago, that I really wondered why the Bill was necessary at all. According to the noble Lord the local authorities were so virtuous that they really did not need all the regulatory provisions of the Bill—they would love them; all responsible local authorities would adore them and completely understand them.
I hope that the noble Lord, in addition to giving every appearance of flexibility—and he is always a very reasonable and persuasive person—will show some concrete signs of flexibility because so far he has agreed with no amendment at all. He must be canonised within his own official box as being the really tough guy who gives away nothing at all to the Opposition while appearing to exude benevolence.
I am now going to venture to put the noble Lord to the test by asking him to delete Clause 23. Clause 23 provides for confidentiality of information obtained by an auditor or his staff, and in the event of disclosure of information it provides for penalties. I put it to the noble Lord that in the auditing profession the district auditors are so virtuous that they do not need

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a provision of this kind. In fact, the noble Lord will recall that he put the same argument to me when we were arguing together about the insertion of a new clause after Clause 10 when I ventured to suggest to the noble Lord that an officer of a body who knowingly or recklessly makes a statement to the auditor which is misleading, false or deceptive should be guilty of an offence. The noble Lord was most affronted by that. In his view these were completely unnecessary provisions. He had never heard of such a thing and it could not possibly apply to any local authority. He said that officers of local authorities were always truthful and so on. Therefore, he rejected the same kind of penal clause after Clause 10 precisely on those grounds. I did point out to him that in the Companies Act 1976, Section 19, there was a similar provision. But the noble Lord replied to that on the basis, "Well, of course, limited companies are prone to all kinds of villainy"—
Lord Bellwin: No.
Lord Bruce of Donington: If the noble Lord looks at the record, he will find exactly that.
Lord Bellwin: If the noble Lord will give way, I should like to point out that that is not a word which I use lightly. I am sure that I would not have used it in that sense.
Lord Bruce of Donington: If I have used a slight hyperbole, to which I am rarely liable, as I am quite sure the noble Lord will agree, then I apologise. However, the general sense of what he said—to put it in a more moderate form—was, at minimum, "]Well, this kind of thing might happen ", I repeat 'might happen', "in the world of business enterprise but certainly not in local authorities ". Thus he resisted the amendment. I am going to approach the noble Lord in exactly the same way as regards this clause.
From the moment someone enters the auditing profession, from the moment he enters articles, if there is one thing that is dinned into his mind it is the confidentiality of the information which he obtains That applies from articled clerks, right through to clerks, qualified people and principals. If there is one axiom, it is the confidentiality of information that we obtain. That is burned into the professional souls of all the bodies which are approved by the noble Lord in Clause 7 of the Bill. Therefore, by the same token, I am claiming that this clause is completely unnecessary and should be deleted. After all, it would shorten the Bill and make for economy of paper, efficiency, the efficient use of resources and so on. Even on those grounds such action would be justified.
However, it is justified on another ground altogether. One only has to look at Clause 11 to see how ridiculous it really is, because under Clause 11, at each audit, it is laid as a responsibility on the auditor to produce to any elector:
"accounts to be audited and all books, deeds, contracts, bills, vouchers and receipts relating to them and make copies of all or any part of the accounts and those other documents".
I do not see how an auditor will be able to preserve confidentiality if, under the statute, he will be required to display all the documents.
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Let me give the noble Lord an illustration. Let us say that you are a small local building contractor accustomed to work under the RIBA contract. You are a little disgruntled because your firm has not got contracts recently and so you want to see what your competitors are doing. I shall tell you what to do. You complain to the auditors and demand to see all the documents. Among the documents that you will be entitled to see will be a bill of quantities of your competitors, which would disclose all the rates that were charged in the bill of quantities making up the total amount of the bill on which the quotation was obtained. It would be an invaluable clue to a competitor, as an elector, to finding out exactly how his opponent prepared the tenders. He would then be in a position so to amend his own procedures in submitting his own bill of quantities in the future by—and the noble Lord knows this perfectly well—doctoring the rates. He could make certain rates on which he knew there would be day works from his own experience, so that he could, in fact, make more money out of the contract.
All this could be done. But you are asking the auditors to maintain confidentiality of information and you are demanding at the same time, under Clause 11, that they show everybody the documents or the electors the documents. More than that, under Clause 11, the auditors are there to answer questions. If you answer questions, and you answer them truthfully, how can you avoid coming into conflict with Clause 23? It may be that the honeyed words of the noble Lord will presently convey to me that no such instances have ever been experienced and that all local electors are so virtuous this time that it makes the provision completely unnecessary.
I think the noble Lord will agree that in the same way as the clause, which I ventured to put before him about the criminal offence committed by an officer if he gave false information, was unnecessary, Clause 23, at the hands of just as professionally trained people with a very considerable tradition of confidentiality behind them, in fact, ought to be omitted.
Lord Bellwin: I should dearly love to be able to meet the noble Lord on this, but I fear that yet again he would say, "I am unable to do so". It seems to me to be very important that there should be protection against wrongful disclosure of information. The auditor will be in a very specialised, privileged position, and it is right that there should be penalites against abuse of that position. In no way do I detract from what the noble Lord said about the profession, which has the highest possible standing and standard. There is no question about that at all; I must make that clear.
I would stress that Clause 23—and this surely is a very significant part of the response to the noble Lord —does not represent any change in the substance of the existing situation. At present district auditors and their staff are covered by the Official Secrets Acts and wrongful disclosure by approved auditors from the private sector is prohibited, as he knows, by Section 158(5) of the 1972 Act. Clause 23 only makes essentially the same provisions. I am sure that we should not consider making a change in that area at this time.

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As to the point about Clause 23 being inconsistent with Clause 11, I understand what the noble Lord is saying and I understand his point; but, again, I fear that I cannot agree that because of that it is right to delete Clause 23. I would suggest that the two clauses are concerned with somewhat different matters. Clause 11 largely repeats Section 159 of the Local Government Act 1972. It gives the public the right to inspect the accounts and documents relating to them, and it gives local electors the right to question the auditor about the accounts. It is implicit, of course, that he must answer the questions in so far as they do, indeed, properly relate to accounts, but not if they go further.
But whereas the public right of inspection and questioning relates only to accounts, the auditor himself will inevitably need access to a wider range of information. His duty is to verify the accounts in depth; in particular his duty to consider value-for-money matters will require him to go somewhat wider than the accounts themselves. He will be looking, for example, at management systems and their effects.
Similarly, the Audit Commission, in pursuit of their duty to make across-the-board studies, will have access to a considerable amount of information, which should not be misused. Accordingly, I would suggest that both Clause 11 and Clause 23 are right and proper provisions. It is certainly right that the public should have right of access to accounts and of questioning the auditor about them. It is surely equally right that the auditor, his staff and the commission should be prevented from improperly disclosing information which comes to them in their wider, more privileged role.
The duty to produce documents, et cetera, under Clause 11(1), is laid not upon the auditor but on the body subject to audit, as I know the noble Lord knows. So, for that reason, I suggest that both the clauses have their roles to play and should stand together in the Bill. I listened very carefully to what the noble Lord, Lord Bruce, said in particular about the various fiduciary obligations and standing of the profession and, I repeat, I do not question that in any way. But I do not think that there is a direct comparison here between Clause 11 and Clause 23. I do not think that there is a matter here which is of such great moment as to cause the Government to think that they should alter the Bill. Therefore, again, regretfully I fear that I am unable to accept the amendment.
Lord Bruce of Donington: I am sorry that the noble Lord remains inflexible. Of course, what he has not explained is why, in that event, it is all right to leave the position of the auditor undone, in that it is not an offence, and is not an offence under this Bill, to give incorrect information to the auditor. The noble Lord declined to make it an offence when we were debating this particular clause to which I have already referred. There it was all perfectly all right; there was no need to create an offence for making incorrect statements to an auditor; there was no offence for falsifying documents to be given to an auditor. The noble Lord declined my invitation—my amendment—that would have made it an offence to do these things.
But when it comes to the function of an auditor, the noble Lord takes on an entirely different tune: because
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it was in the original 1972 Act, therefore, it must remain. That is all that the noble Lord is saying: it is there; it has served a useful purpose. Of course, he still has not dealt with the conflict, to which I referred, between the provisions of Clause 11 and the provisions of Clause 23. All he is really saying is that if an auditor is asked a question he cannot, give a truthful answer for fear of Clause 23; that Clause 11 and Clause 23 are not compatible with one another. It may well be that the noble Lord thinks that the powers contained under Clause 11 serve a very useful purpose as a mere window dressing. But if any elector wants the information that he is due to get under the provisions of Clause 11, it is very difficult to see how the auditor can, in fact, deal with those questions truthfully without in some way infringing Clause 23. This is the noble Lord's dilemma; it is not mine.
My profession will most certainly note very carefully the provisions on Clause 23, which in any case are a matter of long tradition and custom with us, about which we need not be told. But we shall bear them in mind and underline them when it comes to the performance of any duties under
Clause 11.
Clause 23 agreed to.
Clause 24 [Passenger transport executives and their subsidiaries]:
6.49 p.m.
Baroness Birk Baroness Birk moved Amendment No. 69L:
Page 18, line 23, leave out ("and the London Transport Executive").
The noble Baroness said: In moving Amendment No. 69L, I should also like to speak to Amendments Nos. 69N, 69P, 69Q and 86A. These amendments, which were tabled and moved in another place, seek to delete the provisions of the Bill in relation to the London Transport Executive. London Transport is a trading body, as the Minister in another place agreed in Committee. Its position may in many ways be considered analagous to that of British Rail and other nationalised industries. It is autonomous in various respects, but nevertheless London Transport is subject to directions and financial control by the GLC in a way akin to various nationalised industries whose autonomy is subject to similar Government controls.
In these circumstances we believe that it is not appropriate for its accounts and contracts and other documents of a commercial nature to be open to inspection under Clause 11 of the Bill by anyone who is interested, including trading competitors. Further we believe that it is misconceived to apply local authority auditing to its business transactions because it is not really part of local authority business.
The Minister, Mr. Giles Shaw, in Standing Committee suggested that Clause 22, now Clause 23, provided adequate protection against disclosure of commercial information, but on that occasion no mention was made of the power to inspect and copy documents under Clause 11(1). Having regard to the council's functions in relation to the London Transport Executive, and particularly since under Section 11(4) of the Transport (London) Act 1969 the executive is required to provide

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the council, the GLC, with such accounts and other financial information as the council may require, it is quite wrong that the council should, as the Bill proposes, lose its power in Section 10(1)(a) of the 1969 Act to direct the London Transport Executive as to the form and content of its accounts.
As drafted, the Bill, in Clause 20, which we were discussing earlier, would require the Audit Commission to undertake, or promote, studies to enable it to make recommendations for improving a body's efficiency, and studies relating to the provision of its services, although it is not entirely clear from Clause 20 to whom the recommendations are to be made. But, on the face of things, Clause 20 would certainly apply to the London Transport Executive. However, it is clear that, under Section 11 of the Transport (London) Act 1969, the GLC may give general directions to the executive as to the exercise and performance of its functions. It can also review the executive's organisation, and as a result of such a review give directions for ensuring that the executive's undertaking is organised in the most efficient manner.
Further, whatever recommendation, if any, the Audit Commission might make, the executive cannot make any substantial change in their organisation except in pursuance of a direction from the GLC. Of course the accounts of the executive must be audited, and the 1969 Act makes the necessary provision for that. But I would submit that it would be inappropriate and unnecessarily confusing to replace that provision by making the executive subject to such provisions of this Bill as well. I beg to move.
Lord Bellwin: The effect of this group of amendments would be to remove the London Transport Executive from the Bill. I therefore cannot accept them. London Transport is a trading body and therefore rather different from local authorities themselves. But the Government believe it is appropriate that trading bodies owned by local authorities, or forming part of their activities, should be audited under the commission. LTE is essentially a trading body, responsible to the GLC in carrying out its functions, and the GLC is responsible for supporting it financially to the extent that it cannot meet the full cost of providing an appropriate level of services. This is similar to all other major local authority-owned trading services, such as airports, harbours, PTEs and municipal bus companies.
In the Government's view, it is important that such bodies should be fully accountable to the public. Accountability is best ensured through the commission. I do not see this as a threat to the commercial activities of LTE any more than it now is to the many trading bodies currently audited under Part VIII of the Local Government Act 1972.
We also consider it important to encourage economy efficiency and effectiveness in the provision of local authority services. There is considerable public interest in LT's performance in these respects—and rightly so. As your Lordships know, one of the Bill's aims is to permit studies which would help achieve improvements. It is also important that value for money audit should not be separated from financial
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audit. Full knowledge of a body's affairs will help the auditor to make the most effective recommendations. It is important therefore, not to prevent LTE from benefiting from studies under Clause 20.
I understand that LTE's present audit specification is more extensive than the companies Acts require —it is as much a management audit as a financial one. This will not be put at risk by the Bill. It specifically caters for the possibility of exceptional audit requirements in Clause 22(2). I cannot accept this amendment, and I have explained why.
Lord Bruce of Donington: I am very sorry that the noble Lord has not seen fit to accept this amendment. As the noble Lord has said, London Transport is a trading organisation to which the canons of commercial auditing are much more appropriate. To begin with, unlike a local authority it produces a proper balance sheet and accounts for its assets—something which no local authority does at all at the moment. Nobody at the moment knows what any local government authority assets really are, but in the case of London Transport they are already incorporated in its balance sheet and totally different concepts of auditing ought to apply to London Transport than apply to local authorities.
The noble Lord knows this perfectly well. He introduced to us the Local Government, Planning and Land Act 1980, dealing with the specialist requirements relating to maintenance departments, and he knows perfectly well that there the whole concept of auditing was very different from the concept of auditing incorporated in this Bill. It was designed there so that the accounts produced on behalf of maintenance departments of local authorities' direct labour organisations were required to be in such a way as to enable easier comparison of them to be made with the accounts of private enterprise firms in a similar field.
Therefore, the whole of that particular section of the Bill had to be framed so that direct labour organisations kept accounts which were comparable with those produced by private enterprise, and therefore contained their asset structure and the various other matters normally incorporated within a normal company's accounts. Now once again we have the same thing here. We have a trading organisation which is susceptible of normal audit treatment, and should be treated as such. If it is desired to bring this within greater public accountability than the existing audit arrangements of London Transport at present provide, it might be wise, in view of some of the statements that have appeared in the press about the Government themselves taking over London Transport —in which case the noble Lord would have to amend this Bill pretty smartly—to put it under the Comptroller and Auditor General.
I certainly see no reason why it should be retained in this Bill. If one tried to apply the same canons of treatment to a vast trading organisation of this kind as one did with the local authorities, I predict—with sorrow, because I should like to help the noble Lord if I could, but he will not be helped—that it will produce a lot of trouble, complication, and unnecessary hassle. It can be done in a much tidier fashion. To decide to play it this way, I am sure one will find in the end, is a considerable mistake.
Baroness Birk: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sandys: I think that this would be a satisfactory moment to adjourn our consideration of the Committee stage for 40 minutes until 7.40.
[The Sitting was suspended from 7 o'clock until 7.40 p.m.]
The Deputy Chairman of Committees (Lord Wells-Pestell): I have to inform your Lordships, in calling Amendment No. 69M, that if that amendment is agreed to, I shall not be able to call Amendment No. 69N.
Lord Bellwin Lord Bellwin moved Amendment No. 69M:
Page 18, leave out lines 40 to 44.
The noble Lord said: I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 69N, 69P, and 69Q not moved.]
Clause 24, as amended, agreed to.
Clauses 25 to 27 agreed to.
Clause 28 [Orders and regulations]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 69R
Page 20, line 35, leave out from ("to") to end of line and insert (" the approval by resolution of each").
The noble Lord said: The clause begins:
"(1) Any power conferred by this Part of this Act to make orders or regulations shall be exercisable by statutory instrument".
Subsection(2) then says:
"Any regulations made under this Part of this Act shall be subject to annulment in pursuance of a resolution of either House of Parliament".
We seek to obtain the approval by resolution of each House of Parliament, so making it subject to the affirmative resolution procedure. There are a number of instances in the Bill where the Secretary of State may make regulations. There is Clause 15, which deals with the whole question of the scale of fees. Under Clause 17 he may make regulations in two instances, first,
"applying to bodies whose accounts are required to be audited in accordance with this Part of this Act … with respect to … the keeping of accounts",
and matters of that kind; and, secondly, in subsection (2):
"Regulations under this section may make different provision in relation to bodies of different descriptions".
In Clause 24 there are further provisions for the making of regulations, for example under subsection(4):
" The Secretary of State may, if it appears to him expedient to do so, by regulations provide—
"for the provisions of this Part of this Act to apply in relation to subsidiaries of the Executives mentioned in subsection (1) … and for any statutory provision which would otherwise apply in relation to the auditing of the accounts of those subsidiaries to cease to apply".
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Under Clause 26 he is given power to make regulations in subsection (3). All those regulations deal with important matters in Part III of the Bill.
The Committee will recall that the principal purpose of that part of the measure is the establishment of the Auditing Commission and other auditing provisions. All are of considerable significance and it would be far better in our view if any regulations under Part III were made subject to the affirmative procedure. I hope that, in view of the opinions expressed to the Minister throughout the Committee stage by noble Lords on both sides, he will accept that serious matters arise under this part of the Bill and that such regulations as are issued should be subject to the affirmative procedure of both Houses. I anticipate that on this occasion I shall not meet the normal but charming resistance of the noble Lord.
Lord Bellwin: The noble Lord, Lord Bruce, is very persuasive, but what can I do? The Committee will appreciate that we are discussing what is basically a matter of judgment. The Government view is that the regulations made under Part III—namely, the regulations on audit fees, the keeping of accounts, the audit of subsidiaries of PTEs and the transitional arrangements—are most appropriately dealt with under the negative resolution procedure. The noble Lord is right to say that they are important matters. If we imposed a duty on both Houses to discuss them, that could be at the expense of something more important. In the Government view, the negative resolution procedure is the most appropriate for those matters, and I trust the amendment will not be pressed. If the noble Lord feels very strongly about it, I will take it away and discuss it with colleagues, but I must say that at present that is felt the most appropriate way of dealing with the regulations. He made an important point about the general concern that was expressed earlier. That is not an unimportant point, and while, therefore, I cannot accept the amendment, I would undertake to discuss it with colleagues.
Lord Bruce of Donington: I am grateful for that sympathetic response, and I am wondering whether to regard it as the iron hand in a velvet glove or an affectionate handshake, but certainly I am grateful to the Minister for carrying the matter as far as he has. The noble Lord well knows that the disadvantage, both here and in another place, of the negative procedure is that owing to the sheer pressure of business and the volume of work that all Members of Parliament have to undertake—not forgetting the volume of work in which a number of noble Lords are involved—negative procedure resolutions tend to get lost in the rush. On the other hand, matters must arise on the affirmative procedure and they appear on the Order Paper and attract attention.
I hope that when the noble Lord consults with his colleagues he will bear in mind that we are here dealing with most important questions. I think the Minister will agree that, apart from those elements of our debates that must be counted as part of the normal political controversy that arises at times, we have tried to be constructive. We have attempted to make it live up to the reputation of your Lordships' House—that Bills normally leave this place a little better than when

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they arrived—although we do not seem to have made much of a dent on this one. I assume, therefore, that in the view of the Government the Bill is the last word in drafting perfection, something which in future years they may not believe because—it is a Third Reading point on which I shall elaborate at a later stage—it ain't all that good.
One way in which one can improve the Bill is to include the affirmative procedure here. In view of the anxieties of local authorities, which have been expressed on all sides of the Committee, and the anxieties of some Members, too, the noble Lord might consider it wise to give the point more than sympathetic consideration and see whether he can persuade his colleagues on it. On the basis of the conditional indication given by the noble Lord opposite, without prejudice (in legal terms), I beg leave to withdraw the
amendment.
Amendment, by leave, withdrawn.
Clause 28 agreed to.
Clause 29 [Interpretation of Part III]:
[Amendment No. 70 not moved.]
Clause 29 agreed to.
Remaining clauses agreed to.
7.51 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 71:
Before Schedule 1, insert the following new schedule:
("SCHEDULE
RATES AND PRECEPTS: TRANSITIONAL PROVISIONS
1. The following provisions of this Schedule apply where before the passing of this Act and whether before or after 1st April 1982—

(a) a rating authority or precepting authority has made or issued—

(i) a supplementary rate or supplementary precept for or in respect of a period beginning on or after that date; or

(ii) a rate or precept for or in respect of any such period other than a financial year; or

(b) a rating authority has made a rate (other than a supplementary rate or rate falling within sub-paragraph (a) above) by reference to a supplementary precept or precept falling within that sub-paragraph.

2. No rate or precept shall by virtue of section (Substituted rates and precepts) of this Act be substituted for a supplementary rate or precept falling within paragraph 1(a)(i) above.
3. Where a rating authority has made a supplementary rate falling within paragraph 1(a)(i) above any sum paid by a ratepayer to the rating authority in respect of the supplementary rate (or so much of any sum so paid in respect of rates generally as is attributable to the supplementary rate)—

(a) shall be repaid if the ratepayer so requires; or

(b) if repayment is not required shall, as the rating authority may determine, either be repaid to him or credited against any liability of his for rates in respect of the hereditament in question.

4. Where a precepting authority has issued a supplementary precept falling within paragraph 1(a)(i) above any sum paid to that authority in respect of the precept shall be repaid if the authority to which the precept was issued so requires or, if repayment is not required, credited or otherwise dealt with as may be agreed between those authorities.
5. A rating or precepting authority which has made a rate or issued a precept falling within paragraph 1(a)(ii) above shall under section (Substituted rates and precepts) of this Act make a rate or issue a precept in substitution for that rate or precept as if it were a rate or precept for a financial year but the estimated product of that rate or precept shall for the purposes of sub-
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section (2) of that section be adjusted in such manner as the Secretary of State may direct.
6.—(1) A rating authority which has made a rate falling within paragraph 1(b) above shall under section (Substituted rates and precepts) of this Act make a rate in substitution for the rate falling within that paragraph.
(2) Where the precept by reference to which the original rate was made fell within paragraph 1(a)(i) above, the estimated product of the original rate shall for the purposes of subsection (2) of that section be calculated without reference to the precept.
(3) Where the precept by reference to which the original rate was made fell within paragraph 1(a)(ii) above—

(a) the rate substituted under the said section (Substituted rates and precepts) shall be made by reference to the precept substituted pursuant to paragraph 5 above; and

(b) the estimated product of the original rate shall for the purposes of subsection (2) of that section be adjusted in such manner as the Secretary of State may direct.

7. In this Schedule any expression which is also used in Part I of this Act has the same meaning as in that Part.").
The noble Lord said: I have already spoken to this amendment. I beg to move.
Baroness Birk: It is perfectly true that we had an earlier debate on this matter, but I cannot let the amendment pass without making a comment on the objectionable nature of the schedule. The point about it is that it is retrospective. It spells out what we discussed in Clause 2 on the supplementary rate. In paragraph 1 of the new schedule it is made quite clear that:
"The following provisions of this schedule apply where before the passing of this Act and whether before or after 1st April …".
We know perfectly well what that is all in aid of; it is in aid of the Bedfordshire supplementary precept, and is intended to try to establish the legality of what was an illegal action in the past. Whether in the process of time, or when the question is challenged, it will be found to be legal, we shall have to wait and see, but since the case relates to only one authority (Bedfordshire) I wonder whether this makes it hybrid in addition to everything else.
We have heard of a statement made by Mr. Tom King, the Minister in another place, to Standing Committee D on 25th March, explaining the background and what the Government are doing. The fact that what is proposed is retrospective does not make it any better; indeed the whole concept of retrospection is so alien to what ought to be done in the Bill that had we not voted on the matter when dealing with the original clause, we would certainly have divided the Committee at this stage. However, I do not think that the amendment should pass without making a comment on a matter which we find
very reprehensible.
On Question, amendment agreed to.
Schedule 1 [The Audit Commission]:
[Amendments Nos. 72 and 73 not moved.]
Baroness Birk Baroness Birk moved Amendment No. 74:
Page 22, line 10, leave out paragraph 3.
The noble Baroness said: Schedule 1, paragraph 3, allows the Secretary of State to obtain information from the commission and then to issue directions to it concerning the discharge of its functions, with which

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the commission must comply. Although paragraph 3(3) states that individual bodies cannot be singled out, this is a very wide-reaching power in the Secretary of State's hands and, speaking briefly—so that we can get to Clause 4 within a reasonable time—the amendment would diminish the power. We believe that it is very important that it should do so. I beg to move.
Lord Bellwin: I appreciate the fact that some of the local authority associations and accountancy bodies have misgivings about the Secretary of State's power of direction because they fear that it will undermine the independence of the commission, but as I said when we earlier discussed this question, I am quite satisfied that the fears are exaggerated. The fact is that in legislating to set up non-departmental bodies of this nature successive Governments have taken powers to give directions. I shall not bore the Committee by reciting a list of recent examples, but suffice to say that it includes nationalised industries, and, as the noble Lord, Lord Northfield, will know, it also includes new town development corporations and the Commission for Local Authority Accounts in Scotland.
I, too, wish to curtail what I want to say on this matter, but I should like to stress that the power cannot be used by the Secretary of State as a way of interfering in the affairs of an individual local authority. In paragraph 3(3) of Schedule 1 the Secretary of State is specifically prohibited from giving directions in respect of any particular body, and there are also in the paragraph two other safeguards which were included in response to Opposition requests in the other place. First, before giving a direction the Secretary of State must consult the commission and the relevant local authority associations and accountancy bodies; and secondly, directions must be published. So there is no possibility of a direction being suddenly sprung upon the commission without warning; nor could there be any question of the Secretary of State using the power of direction to twist the commission's arm behind closed doors. As I said on the earlier amendments, I believe that the powers in paragraph 3 are necessary and desirable. They are very well precedented, and I do not consider that they undermine the commission's independence.
Baroness Birk: I did not find that reply very satisfactory, mainly because the Minister has not agreed with me. The provision reserves the Secretary of State's extensive powers of direction over the commission and once again it reflects seriously on the integrity of the commission and calls into question its true independence. If the Government wanted to demonstrate the good faith of the Secretary of State, they would remove these further inhibitions on the commission and allow it to exercise some real independence. However, I should like to read what the Minister has said and see whether I can write to him a persuasive letter. In the meantime, in view of the thinness of the Committee, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 74A:
Page 22, line 10, leave out sub-paragraph (1) and insert—
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("(1) The Secretary of State may, after consultation with the Commission, make regulations as to the discharge of its functions.").
The noble Lord said: With the permission of the Committee I shall deal with Amendments Nos. 74A, 74B, 74C, and 74D together. Of course, we expected that the noble Lord would not give way on the deletion of Clause 3, despite the support for the deletion given by his noble friend the noble Viscount, Lord Ridley. That does not appear to have counted for very much in the mind of the noble Lord. So we were left with the alternative of trying to improve the Government's existing intentions, bearing in mind the necessity of preserving the independence of the Audit Commission.
In paragraph 2 of Schedule 1 it is put forward very blithely, in most authoritative terms:
"The Commission shall not he regarded as acting on behalf of the Crown and neither the Commission nor its members, officers or servants shall be regarded as Crown servants".
For what that is worth, that is supposed to be a firm, copper-bottomed indication of complete independence. Of course, it means nothing of the kind, because in other parts of the Bill, as explained by my noble friend Lady Birk, it is quite clear that to a very large extent the Secretary of State will be able to do exactly as he wants; and throughout the Bill, and indeed in this very schedule, powers are given for the Secretary of State to give directions.
Amendment No. 74A seeks to modify paragraph 3(1) by saying:
"The Secretary of State may, after consultation with the Commission, make regulations as to the discharge of its functions".
The reason why that has been put in is that at a later stage we make all regulations under the schedule subject to the affirmative resolution of both Houses, and this ensures that, on this all-important matter, the directions that the Secretary of State gives to the Audit Commission after consultation with them shall at any rate be brought before Parliament. That is the first point that I wish to make.
The amendments to subparagraph (3) follow from that in deleting the first line and in putting into operation Amendment No. 74C. After amendment the new subparagraph (3) would read like this:
"No information shall be required by the Secretary of State under this paragraph in respect of any particular body whose accounts are required to be audited in accordance with Part III of this Act",
et cetera. Then, instead of the present subparagraph (4), which lays down:
"The Secretary of State shall publish any direction given by him under this paragraph "—
which, of course, under the amendment would be by regulation—there would be inserted:
"Any regulations made under this schedule shall be exercisable by Statutory Instrument laid before Parliament for approval by each House of Parliament".
I would have thought that that would have tidied it up for the noble Lord, and would have enabled him to go to his colleagues and say: "In their Lordships' Committee there were misgivings about the independence of the Audit Commission. With my usual patience, and time and study I tried to persuade them but at the end of that, in spite of all my eloquence, they were not convinced". Then the noble Lord

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could point out to his colleagues: "A way out was suggested to me—that I could do almost exactly the same as I wanted, in different language, as long as I laid it before both Houses of Parliament". Then the noble Lord could say to his colleagues: "On the whole I thought this was a reasonable request, and in order that we might pay tribute to the constructive spirit that their Lordships' Committee had shown throughout, we decided to accept the amendment".
In that spirit of eager anticipation, in commending the amendment to the Committee I sincerely trust the noble Lord will make it unnecessary for me to do anything other than move it.
Lord Bellwin: I trust the noble Lord will attend our Minister's meeting in the morning. There is no need for me to do so; he presents his point so well. Of course, I listened, as I always do, with interest to what he said in moving these amendments, but I feel that once more we are not in agreement. I recognise that there should be two essential elements in any direction-making process: first, that directions are publicised before they are given; second, that Parliament has an adequate opportunity to question Ministers about directions. I submit that both these elements are in fact achieved in paragraph 3 as at present drafted.
There is no question of any Secretary of State using his power of direction to force the commission to take action under a veil of secrecy. Paragraph 3 quite clearly provides for consultation with the commission, the local authority associations and the accountancy bodies before—I repeat, before—a direction is given. I cannot be much more categorical than that. It is inconceivable that such consultations will be carried out in secret. The whole local government world will be aware of what is going on, and so, I submit, will Parliament. Parliament will have an opportunity to question the Secretary of State, or the responsible Minister in your Lordships' House, about the proposed direction.
It seems unnecessary to burden Parliament with the duty of approving any direction that may be given. I am not prepared to speculate on the sort of directions that might he given, and, indeed, if the practice of the Scottish Commission is anything to go by, no directions will be given. But directions could conceivably he given on detailed and perhaps relatively minor points. It is surely inappropriate to require Parliament to devote time to such matters.
The Bill as drafted enables Parliament to become involved through its right to question Ministers about the discharge of their functions. I believe that this is the appropriate way to tackle this problem, and that is why I feel the amendments are not necessary.
Lord Bruce of Donington: I am sorry the noble Lord has not seen fit to give way on this. He really must not go on trotting this one out time and again, because we are getting a bit used to it now. Although his advisers may supply it to him periodically, it is becoming a little wearisome; that is, that directions might be on minor matters of detail only, there will therefore be dribs and drabs of them and therefore they will not be worthy of a regulation anyway. The noble Lord
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really must not say that. This is a stock reply. Quite clearly, a direction when it is given will be on some important matter; it will be given careful consideration; and it will not consist of a few words interspersed with a few pieces of punctuation which are of no real significance. The noble Lord really must not run that one again; let us have something different.
I am very sorry indeed that the noble Lord has not seen fit to amend in this way. I am beginning to wonder whether he really wants our constructive efforts on his behalf at all. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 74B, 74C and 74D not moved.]
8.8 p.m.
Viscount Ridley Viscount Ridley moved Amendment No. 75:
Page 22, line 31, leave out from ("hold") to end of line 32 and insert ("office for a period of three years from the date of his appointment, and shall thereafter be eligible for re-appointment to the Commission").
The noble Viscount said: With this amendment I should like to take Amendments Nos. 76, 77, 78 and 79, because I believe the whole group together are consistent with what I think your Lordships will agree I have tried to say throughout—that the Audit Commission should be seen to be independent of both local and central Government. With this end in view, I have put down several amendments of detail which I believe would be appropriate with that aim in view.
The first would state that the office held by the commissioners or members should be determined and not left entirely to political discretion; and I am sure that is something with which your Lordships would agree. In the case of Amendment No. 76, it seems to me more appropriate that anyone who wishes for one reason or another to resign should make known his resignation to the commission itself rather than to the Secretary of State. Again, this underlines the necessity to prove that the commission is independent of government. Amendment No. 77 I think is reasonably self-explanatory, but it has the same end in view.
Amendment No. 78, again, would seek to enhance the independence of this commission. The power of the Secretary of State to remove any of its members, which I think your Lordships will agree could be exercised in a very arbitrary way in future circumstances, really should not be something that the Government either need or want; and I hope very much that that can be accepted. Finally, in the case of Amendment No. 79—I think this is a matter of some importance—is it envisaged that these members should be paid; and, if so, at what sort of figure? Is it not surely necessary that they should be reimbursed only expenses? Or how much are they going to be paid for this purpose? Again, if they accept fees from the Government, are they truly independent? In the interests of brevity I hope I have not spoken too shortly. This group stands or falls together. I beg to move Amendment No. 75.
Baroness Birk: I should like to support the amendments of the noble Viscount because they are practical and sensible. The first amendment, Amendment No. 75, seeks to specify a fixed term of office for

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members. It is something which is now normal practice and it is essential when setting up a new body. As the noble Viscount has the amendment, any person shall be eligible for reappointment to the commission. It means that you do not get people going on until "death do them part" from the commission—which I do not think is the right way to run anything. I should have thought that that was something which was either administratively safe or implicit or something which the Minister could easily accept.
On Amendment No. 76, it is quite right that if you have a commission or any body then anybody resigning should resign to the head of the body. I should myself have preferred "chairman". It could be either the chief officer or chairman. I think it is right. The chairman or chief officer knows the people. The Secretary of State is an enormously busy individual and if some member of the Audit Commission resigns there is no personal contact between them; so that this is quite wrong when you are appointing people and it is wrong from the point of view of the Audit Commission because it does a somersault over the heads of the chief executive and the chairman of the Audit Commission. Therefore, I hope that the Government will either accept that or agree to take it back and consider "chairman". My feeling is that you resign to the chairman and not to the chief officer.
Amendment No. 77 again tries to stress the independence of the commission by removing the power of the Secretary of State to remove any of its members from office. It follows what is generally a fairly formal procedure, but, again, all that it is doing is giving something which is very practical, sensible and realistic but giving it into the hands of the commission. If the commission cannot deal with these things without going to the Secretary of State, then they have no right to be there; they must be a lot of puppets. I hope the Minister may say that it is a question of drafting because they have the same disqualification inserted in another place and it is important that it should be done in this way.
Amendment No. 78 allows the Secretary of State to obtain information from the commission and then to issue directions to it concerning the discharge of its functions to which the commission must comply. Although paragraph 3(3) says that individual bodies cannot be singled out, this is a very wide-reaching power in the hands of the Secretary of State. This amendment deals with the powers. I am not sure whether that one has been dealt with already. Clause 79 deals with leaving out remuneration. I take it, as the noble Viscount says, that it seeks to ensure that allowances only should be paid to commission members. Again, I think he said that he wants them to be independent and not to be salaried members of the commission but to have allowances. In a way, it is a quasi-voluntary position with the allowances paid to them. I think that the other amendments follow on from that. I should like to support the noble Viscount.
Lord Bellwin: I recognise that Amendments Nos. 76, 77 and 78 are in line with earlier ones tabled by my noble friend Lord Ridley which would have removed from the Secretary of State the power to appoint the members of the commission. If the Secretary of
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State is not to make the appointments, then it is logical that he should not determine the terms of the appointment.
However, as I have already said, I disagree with the purpose of these amendments in seeking to remove the Secretary of State's powers of appointment of commission members. I dwelt on the reasons why this power is necessary during the discussion of Amendments Nos. 72 and 73. If the Secretary of State is to have a power of appointment, then I also think it is right that he should have a role in determining when a person should leave office. Perhaps I can deal with each of these amendments in turn.
Amendment No. 75 is concerned with subparagraph 4(1) which provides the flexibility I have spoken of by enabling the Secretary of State to set out special conditions in each appointment. This is a commonplace provision and applies, for example, to the Scottish Accounts Commission and the Urban Development Corporations. It would, for example, enable the Secretary of State to provide, if it seemed appropriate, that a local authority member should cease to be a member of the commission if he ceased to be a member of a local authority.
The amendment also provides for a fixed three-year term. It may well be that the appointment will be for three years, but to provide for a fixed term seems undesirable. A potential member might, for example, be willing only to serve for two years. The amendment would prevent this.
Amendment No. 76 is a consequential of earlier ones which have removed the Secretary of State's power to appoint Commission members, and give it instead to the local authority associations and the Lord Chancellor. If the Secretary of State is not to appoint the members, then it would clearly be wrong for notice to be submitted to him. But as I have said the Government is firmily opposed to the Secretary of State losing this power, and I must oppose this amendment on those grounds.
Amendment No. 78 would leave out subparagraph 4(3), to be replaced by Amendment No. 77. Subparagraph 4(3) sets out the general conditions governing vacation of office. Amendment No. 77 would appear at first glance to repeat the provisions of paragraph 4(3), without a role for the Secretary of State. In fact, there are differences which I regard as serious deficiencies in the amendment, quite apart from my overall objection of the removal of a role for the Secretary of State.
Amendment No. 77 would make disqualification absolutely automatic in the stated circumstances, whereas the Bill, by using the word "may" in line 36, leaves room for discretion. Your Lordships may feel that it is right that there should be some room for judgment in the light of the circumstances of each case.
"Incapacity by physical or mental illness",
for example, is rather a loose concept, and some scope for judgment in the light of each case is desirable. The provision in subsection (3)(d) about being
"in the opinion of the Secretary of State otherwise unable or unfit to discharge the functions of a member",
is well precedented, for example, in the Scottish legislation which set up the Commission for Local Authority Accounts in Scotland; it has given rise to no problems

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there. It seems right that the legislation should cover unusual circumstances which, by their nature, cannot be foreseen or listed in legislation, but which should nonetheless lead to removal from the commission. For example, it might be that a man was convicted of a crime, perhaps in the field of financial propriety, which made it clear that he was wholly unfit to hold public office. In such a case, the Secretary of State should have the power to remove a member and might face strong parliamentary pressure to do so.
I would remind the Committee that there is a safeguard—and this is an important point for my noble friend—in that anybody who thinks that he has been unreasonably removed from office would have the right to make a challenge in the courts. I have dwelt on the practical drawbacks of these amendments, which would have serious consequences for the terms and conditions of commission members. But, before moving to Amendment No. 79, I would remind the Committee of my overriding objection to these amendments. The Government strongly believe that the Secretary of State should appoint the members of the commission. I therefore argue that it is right for the Secretary of State to have a role in determining terms and conditions of commission members.
I turn to Amendment No. 79. This amendment would prevent the commission from paying remuneration to its members. I should point out that it is commonplace to provide that members of public bodies shall be paid such remuneration, as well as allowances, as a Minister may determine. It is our intention that members of the commission should be paid a suitable salary, in addition to allowances for expenses. It may be of course that some members will feel that they do not wish or need to be paid. I recognise for example that there is an honourable tradition in British public service of giving one's time unpaid. That is why the words "if any" appear in this provision, to cover the case of those who feel they do not want to draw a salary.
But, understandably, it is not everyone who feels able to work without payment, and I think the Committee will agree that the commission should be able to have as its members people of the appropriate calibre. I have tried to cover my noble friend's amendments in some detail because these are serious amendments which require a proper and detailed answer. I hope that he will feel in view of what I have said—he may wish to consider the matter further—able to withdraw the amendment.
Baroness Birk: I did not intend to speak but with great respect, the Minister was talking quite a lot of light-hearted nonsense. Sometimes he looked quite amused at what he was reading out himself. I am not really surprised. On the first amendment, the noble Viscount has not taken away the right of appointment by the Minister. I understand the Secretary of State appoints members of the Commission and all the noble Viscount is saying is for a period of three years. The Minister said, "Supposing somebody wants to stay for only two years?" They resign. This is usual. You appoint people for three years, five years or whatever, and the usual appointments nowadays are for three years. This is a normal function.
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Then he goes on about being disqualified and that seems again to be a normal function. I support very strongly the basic point of principle that here is a so-called independent commission and every tooth, every fingernail—everything—has been drawn out from it before it has even got going. The reasons given do not really strike one with great conviction. The Minister put it over, as he does, with great persuasive conviction but the substance does not hold water. The point that you do not appoint somebody for three years because somebody may only want to stay for two years—well, frankly, that I just could not swallow.
Lord Bellwin: Perhaps the noble Baroness will swallow the fact that someone may want to be appointed for five years. What is the magic about three? It is very common for there to be appointments for more than three years. I can think of several public appointments made for five years. When I quoted two what we are saying is that there is no magic about three. There is nothing sacrosanct about three.
As to her point about my reading, one tries in giving detailed responses, which are often quoting paragraphs and subparagraphs of the Bill, to be helpful and give a considered response to those who raise issues. That is what I was trying to do to my noble friend. He and his colleagues, when they get the time to read what has been said, will want to study carefully these matters. That is why I went into the detail that I did.
Viscount Ridley: I am grateful again to the noble Baroness. She raised one specific point about whether the resignations should be to the chief executive or the chairman of the commission. I feel the point is neither here nor there but she is probably right in what she says.
The whole point of these amendments is to try to make it clear that the Audit Commission is totally independent of local and central Government. I am afraid my noble friend has scraped the barrel and used all sorts of thin arguments. I think that we shall be left with the inevitable conclusion that this Commission is going to be a creature of the Secretary of State. The Government are not prepared to accept any of the relatively minor amendments which would have made it seem to those not involved in the detail of it something truly independent, which is what we are all after. I hope we can consider this again and I shall not press this group of amendments.
On remuneration, it is entirely a matter of judgment for the Government whether or not members of such bodies should be paid. One must accept that. May I ask whether any remuneration which may be decided by the Secretary of State will come out of Government funds or out of the Audit Commission's voted funds? It it comes out of the latter, it will descend on local government indirectly in due course. Is it a matter that the Government will pay these people or will they be paid for by local government? This could be an important issue in the future.
Lord Bellwin: The commission will receive their money by way of income from the fees charged. The real answer to my noble friend's concern about an extra burden of cost being put on to local government is that if the concept is right—and clearly Government

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believe that it is otherwise they would not be bringing it forward—then the benefits which will accrue from the commission's studies and work should more than offset many, many times what they charge. We have seen enough evidence where authorities have brought in people who have done certain studies and work in this field. The fee has been repaid many times over.
Viscount Ridley: I am grateful to my noble friend for clearly establishing the fact that the fees paid to any future member of the Audit Commission will come out of local government or partly out of ratepayers' pockets. Having established that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 76 to 80 not moved.]
Viscount Ridley Viscount Ridley moved Amendment No. 81:
Page 24, line 47, leave out paragraph 9 and insert—
("9. There shall be defrayed out of moneys provided by Parliament—

(a) any expenses incurred by the Secretary of State under this Part of this Act; and

(b) any deficit incurred by the Commission after deducting fee income from its expenses.").

The noble Viscount said: Under Clause 9 there is a duty placed upon the commission for self-financing, taking one year with another. As a result, the income audit fees must support not only the audit expenses but also the administrative costs of the commission itself and also the comparative and other studies which we have recently debated at some length in the Committee under various clauses, and we have just heard about the fees of the commission.
Unless the comparative studies are to be funded in some other way, it seems to me inevitable that the level of audit fees which will be charged will be higher than they would otherwise be if the Commission was not required to undertake them. It therefore follows that local authorities will be paying for these studies whether or not they want them or are able to make use of them. It therefore seems to me logical that if the Government require the complicated straitjacket which they are now imposing on local government, the least they can do is to pay for it. I beg to move.
Lord Bruce of Donington: I support the amendment. The case is unassailable. The amendment says that there shall be defrayed out of moneys provided by Parliament any deficit incurred by the commission after deducting fee income from its expenses. On the basis of the noble Lord's optimism, there ought to be no deficit, and therefore he should be in no particular danger regarding this clause. Therefore I would not have thought he would be exposing himself or his right honourable friend to any peril.
But there is another reason why we on this side of the Committee would wish to see the expense borne by the Secretary of State, because then we could get it on the parliamentary Vote. It would be another of the supplementary estimates which central Government from time to time finds it necessary to bring before Parliament. If the Secretary of State bore the expense, we should know the extent of the financial folly to which the Government had committed themselves, and that
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would be a very great help to Parliament in passing judgment on the efficiency of the Act and any inordinate expense incurred within it. It would also give the right for the PAC and the Comptroller and Auditor-General to have a look at it. It might be that the Public Accounts Committee in another place might be able to bring people forward for public examination. It opens the avenue to parliamentary control if it appears on the parliamentary Vote.
There are obvious reasons therefore why I should now appeal to the noble Lord's sense of democracy, because, if he believes in Parliament as much as he says he believes in local government, then he ought to support the amendment moved by his noble friend: otherwise it is mere froth; it is just words; it is merely paying lip service to democracy and it becomes verbal dexterity and nothing else. This ought to be the earnest of the noble Lord's good intentions and I repeat that, with the ingenuity in the use of words and the felicity of their expression with which he entertains us, surely the noble Lord in these circumstances—and I appeal to his sense of honesty in the matter—ought to accept this amendment from his noble friend.
Lord Bellwin: I listened to the passion with which the noble Lord speaks on behalf of my noble friend's amendment. I would question the reference to "honesty"—I do not think he meant it in the way that it sounded. It would seem that as far as the noble Lord is concerned I have to accept the amendment; otherwise in some way—but I had better not go further down that road, had I? This is the last item in this section of the Bill and it has been a tortuous one because there has been so much detail and it has taken us so long to get through that I suppose it is understandable that a little irritation, as we come to the end, is really inevitable.
I am sorry to say that my noble friend has not removed the doubts that I had on first reading this new paragraph. The original paragraph is, I hope, moderately clear in requiring the commission to break even, taking one year with another. I would suggest to your Lordships that it seems a reasonable duty to place on a body which is meant to be substantially independent. It means that the commission will have to set its fees, which will be its main source of income, so that it covers all its expenditure. It follows that the fees will have to cover not only the individual local authority audits but also, as has been said, the across-the-board comparative and other studies which the commission is required to carry out under Clause 20 of the Bill.
Therefore the only real point of contention is: who should pay for this? I note the views expressed that local government should not have to finance these studies, but I would make the point that I made a few moments ago: they are after all designed for the benefit not of central Government but of local government. Indeed, Clause 20(1) says:
"The Commission shall undertake or promote comparative and other studies designed to enable it to make recommendations for improving economy, efficiency and effectiveness in the provision of local authority services and for improving the financial or other management of local authorities".
Moreover, we see the studies as being an important aid to the auditor by giving him a useful comparative

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basis for his work on individual audits, for example, in the value for money field. We see the comparative studies as a natural extension of the audit process and we think they should be financed as such.
I am also a little worried about the terms of the amendment. It would effectively relieve the commission of any financial obligation at all. It does not require the commission to cover even any part of its costs: for example it does not say that the commission must cover the cost of individual audits, whereas Parliament must pay for the comparative studies. It merely says that Parliament must defray any deficit incurred by the commission. That is a very open-ended thing to say, and for the reasons I have given I fear I cannot commend such an amendment to your Lordships. I understand the points that the noble Lord, Lord Bruce, makes; but if he accused me of dexterity with words, I would accuse him of semantics and of juggling around. It all sounded very good but I bet when he reads it it is not half as good as it sounded.
Baroness Birk: I am not going to use any words like that. I am just going to ask this. If I go into the Peers' Bar here and I am landed with a plate of scrambled eggs which I do not want—I do not like them and I do not want to eat them—is it fair that I should be asked to pay for them when I have not even wanted to participate in the eating of them? If the Minister could show that local authorities were all in favour of the Audit Commission and that their associations thought it was the best thing for local authorities, then there would be some substance in the argument. But to impose something on them and then on top of that say: "You will now pay for something you do not like", seems to me to be quite outrageous. This is just a simple question. It is not semantics or jargon or anything fancy like that.
Lord Bellwin: The noble Baroness should not have ordered the eggs in the first place!
Baroness Birk: I did not order them: they were handed to me.
Viscount Ridley: The noble Baroness has just eaten some excellent scrambled eggs. I watched her doing it.
A noble Lord: Who paid for them?
Viscount Ridley: I did. May I ask just one more question? I can see that the Government are not going to give way on this, but will they make appropriate arrangements under the rate support grant for the estimated expenses of this commission to be taken into account in the annual negotiations?
Lord Bellwin: I cannot comment on that now, I am afraid, but I will certainly discuss it with my colleagues and I hope they would; but certainly we will talk about that.
Lord Harris of Greenwich: With great respect, the noble Viscount asked what seemed to me to be a perfectly reasonable question as to whether this could be taken into account. I do not think we have asked the Minister a great deal today, and certainly, if we have,
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we have not got anything at all. So could he not be a little generous to us on this matter and say that it will be taken into account?
Lord Bellwin: I think my noble friend knows, despite the way I put it, that if I said that I shall do exactly that, and I am glad to say that to the noble Lord, Lord Harris.
Viscount Ridley: I beg leave to withdraw the
amendment.
Amendment, by leave, withdrawn.
Schedule 1, as amended, agreed to.
Schedules 2 and 3 agreed to.
[Amendments Nos. 82, 83 and 84 not moved.]
Schedule 4 [Repeals]:
Lord Bellwin Lord Bellwin moved Amendment No. 85:
Page 33, line 15, column 3, at end insert—
("In section 7, in subsection (5) the words from "but" onwards and subsection (6).").
The noble Lord said: I have already spoken to this amendment, and I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 86 and 86A not moved.]
Schedule 4, as amended, agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 87:
In the Title, line 3, after ("years") insert ("to provide for the making of substituted rates and the issue of substituted precepts; to regulate proceedings for challenging the validity of rates and precepts;").
The noble Lord said: I have spoken to this amendment. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 88 and 89 not moved.]
Title, as amended, agreed to.
House resumed: Bill reported with the amendments.
8.42 p.m.
Lord Bellwin: My Lords, I beg to move that the House do now resolve itself into a Committee (on Recommitment)
on Clause 4.
Moved, That the House do now resolve itself into a Committee (on Recommitment) on Clause 4.—(Lord Beliwin.)
On Question, Motion agreed to.
House in Committee (on Recommitment) accordingly.
[The LORD DRUMALBYN in the Chair.]
Clause 4 [Adjustments of distribution of block grant]:
Lord Bellwin Lord Bellwin moved Amendment No. 1:
Page 3, line 8, leave out from ("(cc)") to ("any") in line 10 and insert ("making, in the amount of block grant payable to an authority, adjustments by reference to guidance issued by the Secretary of State and designed to achieve").
The noble Lord said: In moving Amendment No. 1, I should like to speak also to Amendments Nos. 5 and

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12 which are consequential on it. I hope that we need not spend too much time on these amendments, as they are simple drafting improvements which will have the effect of expressing more clearly what Clause 4 actually does.
Subsection (1) of the clause describes an additional purpose for which multipliers can be determined in a rate support grant report. What a multiplier actually does is to adjust the amount of grant payable to an individual authority. This amendment makes it clear that the purpose of a multiplier would be to make such adjustments by reference to guidance issued by the Secretary of State. It then makes it clear that it is the purpose of the guidance to achieve reductions, or restrict increases, in the level of local authority expenditure. This describes more accurately than the amended clause the proposals which we have already announced. The expenditure targets which we have issued to individual local authorities were designed to achieve those reductions in local authority spending that were necessary in the light of the Government's public expenditure plans. The multipliers will carry into effect the Government's policy of adjusting the grant of those authorities that complied, or failed to comply, with their targets.
Subsection (1) of the unamended clause also provides that the guidance should be issued in accordance with principles applicable to all local authorities. Amendment 5 preserves this restriction, but places it more appropriately in subsection (2); Amendment No. 12 simply provides that it will continue to have effect, unlike the rest of subsection (2), in both 1981–82 and 1982–83. I hope the Committee will accept these for what they are; namely, straightforward drafting improvements. The subsections with which they deal are not the whole of the story, for the use of multipliers is further qualified by subsections (3)(c) and (5). These amendments do not in any way reduce the effect of those further qualifications, and with that assurance I commend them to your Lordships. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 2 and 3 not moved.]
Lord Evans of Claughton Lord Evans of Claughton moved Amendment No. 4:
Page 3, line 14, after ("conditions") insert (" and having regard to the ability of every local authority to carry out its duties imposed by or under any enactment or at common law").
The noble Lord said: With this amendment, I would ask your Lordships to consider Amendment No. 7. I realise, in reading through the Marshalled List, that Amendment No. 6 should not be there. It is obtrusive, otiose, unnecessary and, generally, an embarrassment to me. In moving this amendment, I go back to the point we had reached in the Committee stage, when the floor opened up and consumed the noble Lord the Minister.
Without repeating myself at any great length, I should just like to say that I believe that when the Secretary of State, under the holdback provisions, reduces the grant payable to a local authority because of what the Secretary of State believes to be overspending, he should take account not only of the general economic conditions, but also of each local authority's requirement to carry out certain duties under the law.
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It seems to me that it is not just the general economic conditions, but also the statutory duties that local authorities have to carry out, which should be considered.
That is why I have put down these two amendments.
For example, there may be a conflict between the duty of a non-metropolitan county or a metropolitan district to provide education services and the general economic conditions of the country. It may be that their statutory obligation to provide an education service conflicts with what the Secretary of State believes to be the general economic conditions of the country, and that, by complying with the Secretary of State's holdback, they may be in breach of their statutory obligation to provide an education service; similarly, with highway obligations and a whole host of other statutory or common law duties which local authorities have.
The purpose of these amendments is to try to get a reassurance that local authorities could not be put into the position where, by complying with the Government's requirement under Clause 4, they will, at the same time, be open to attack from individuals or groups for failing to comply with statutory or common law obligations. If the noble Lord the Minister can reassure me about that, then I shall be happy to consider withdrawing the amendment. It is a matter which is causing great concern among local authorities. It is not just something that I have thought up in order to try to embarrass the Government. There is genuine concern about this and a reassurance would be very helpful, if the noble Lord the Minister could give it. I beg to move.
Lord Bellwin: I am far from sure that I can assuage the concern of the noble Lord, Lord Evans, in the matter, but let me try. We have another opportunity to discuss this amendment—we seem to have been around this track before—which the noble Lord expressed in similar terms to one which was negatived in the Report stage of the Bill in another place. I agree that Clause 4 is concerned with the proper relationship of central and local Government and, above all, with central Government's right to determine the overall level of public expenditure and the level of grant support provided by central Government taxpayers to local services. These are important questions and I am certainly glad of the opportunity to address myself to them.
It should be axiomatic that the control of public expenditure is an essential tool of economic management and is the proper concern of those responsible for the national economy. There is nothing new in local government being set expenditure targets. What was new in 1980–81 was the failure of local government as a whole to meet those targets, sometimes by a wide margin, and this year initial budgets indicate an aggregate overspend of £1·5 billion. This is a staggering figure.
So, faced with an aggregate overspend of this kind, the Government reduced the aggregate amount of rate support grant payable in respect of 1980–81 by £200 million. The effects of this were felt by all authorities, irrespective of whether or not they had met their individual targets, for there was no power to distinguish between them under the 1974 Act. The 1980

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Act which came into force in 1981–82 provided for multipliers to be determined which would have the effect of adjusting the grant entitlements of individual authorities. My right honourable friend the Secretary of State therefore made clear that if there was continued general over-budgeting in 1981–82 he would once again reduce the grant aggregate but would use multipliers to make sure that the effects of any general grant reduction were felt only by those authorities that had individually over-budgeted. A similar proposal has since been announced for 1982–83.
It is with this use of multipliers that Clause 4 is concerned—a discriminatory use, certainly, but equally certainly, in my view, not an unreasonable one. Nor is it an unreasonable extension of the powers of central government, for it has only become necessary with the failure of local government to maintain the tradition of voluntary adherence to public expenditure guidelines. When I say that, I refer of course to local government as a whole. It makes me particularly sad, when I know that there are very many authorities—some 260 or 270 out of the 400 or 430 involved—which have met all their targets. So the amendment looks, on the face of it, eminently reasonable, but only when one forgets that grant is only one source of an authority's income and that statutory services form only part of their expenditure. Authorities can and should take their probable grant entitlements into account when setting their rates, and this Bill does not in any way diminish their duty to do so.
Councillors also have to consider the level of provision of discretionary services. The Bill does not take anything away from that responsibility, either. And above all—for it is the ratepayers' money which they are spending, not their own—they have a duty to see that their services are provided in an efficient and economical way. I simply do not believe that the cuts for which we have asked have to be made entirely at the expense of services. Most of them can be absorbed by running the business of the authority more economically. In saying that I recognise, as I said a moment ago, that there are many authorities which are achieving this. Therefore it is all the more regrettable that in the aggregate we are still faced with an overspend of £1·5 billion.
In conclusion, therefore, I say that although the amendment seems not unreasonable it would, in our view, undermine the purpose of the clause and that the clause and the hold back schemes for which it provides are not so unreasonable as the amendment would intimate. I have, therefore, to say that we cannot accept the amendment.
Lord Northfield: Having listened to this debate, may I pull the leg of the noble Lord by saying that I have read the same words in cols. 103 and 104 of 10th May. The noble Lord has read out the same answer to a similar amendment. I have been following it word for word.
Lord Bellwin:The extempore parts could not have been the same.
Lord Northfield: I was not saying that! However, I followed what the noble Lord said word for word—not to disagree with a great deal that the Minister
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has said but simply to say that I listened to it at Second Reading with great interest and that I came here to talk about it after he said it the first time.
The noble Lord knows I accept that a great deal of what is happening as a result of the 1980 Act is reputable and should be supported. The noble Lord will remember that I supported a number of the parts of the Local Government and Planning Act 1980 against colleagues on my own side of the House, and he was good enough to acknowledge it at the time. To some extent I agree with a great deal—indeed, most of what the noble Lord has said this evening about the right of the Government (he has said it not once but twice now) to have a final say, to have the upper hand in regulating the level of local government expenditure.
Having said those words, which are friendly to the general stance that the noble Lord takes on these matters, I hope that I may be allowed to make one or two points having reflected upon them. The noble Lord is quite right that they all deal with the relationship between central and local government. However once this Act becomes law I hope that an attempt will be made to mend the fences with local government. We have reached the stage where local government is intensely upset by the changes—perhaps proper changes, as I have been fair enough to say—of the last two years.
Because they are sensitive people who have grown up among long traditions of public service, they have perhaps reacted over-sensitively and put the worst complexion on what the Government are doing. I remember saying—at the time the noble Lord was grateful that I said it—that they were worrying too much about some of the provisions in the Local Government and Planning Act 1980 and that it would not work out half as badly as they expected. The noble Lord has since said this himself. On the other hand, relationships have deteriorated and local government now needs a period of convalescence, if I may put it that way, and a period of encouragement rather than the reverse.
In this case, what we might reflect upon is that the over-tough use of these particular powers can have two very bad effects, as was pointed out at the earlier Committee stage. First, the general hammering which local government thinks it has had and the premium now put upon being the lowest in the league of rate levels is also putting a premium on poor services. This is worrying many of us who have to watch local government in as disinterested a way as we can. It is now a matter of pride to have the lowest rate and to be giving poor service, because the fact that poor service is being given is hidden under the glory of being low in the rate table. One finds counties (I am not going to mention names) where the level of provision of social services for old people—for instance, home helps—which is an indicator that matters a great deal in a caring society, is now forgotten in the general effort to keep down the rates at all costs. This is very worrying, but it is happening.
The second thing which can happen through the over zealous use of these powers by the Secretary of State is to put a stop to the pioneering of new ideas by local government. A great deal of what we are doing today in local government is successful. I am

1035
looking now at the noble Viscount opposite. The pioneering work which he has done in Northumberland in encouraging small industries needed a great deal of courage in order to go to the ratepayers for some of the money, but he has given a lead to other people in other parts of the country. If one uses these powers overzealously, one will find that that kind of pioneering effort which spreads to other counties is stamped upon and is afraid to show itself.
The third thing which I hope will make the Government be slightly more relaxed and become anxious to encourage local government in the future is the reflection that the changes have been so badly received because, at a time of recession, at a time of general fall in gross national product, local government has been asked to make changes it has never been asked to make on this scale before: to pull back its sights, to pull back its vision, to pull back its pioneering and even to cut its services on a scale they had become totally unaccustomed to. The present Government are only bound to do it, I am sure, from their own reckoning of the situation, as much because of the recession as because of the belief in their own principles. I hope that the Government will reflect upon the fact that, although that £1½ billion overspend is reprehensible, we should at least get it into perspective and see that it is the result of circumstances which we are in, and accept that we could have expected a period of difficulty in getting adjustments of this kind made in this kind of economic situation.
I am pleading not so much for this particular amendment but that the principles which underlie this amendment should now be faced by the Government. We need a period of rebuilding confidence between the Government and local government after all these big changes of the past few years—many of which, as I have said, I have supported the noble Lord in bringing them about. If the noble Lord, Lord Bellwin, can give some reassuring words on an amendment of this kind, or on some of the other amendments which are on the Marshalled List, perhaps we can make a start on the period of convalescence about which I have been talking.
Lord Bellwin: The noble Lord, Lord Northfield, will not find what I am about to say anything that he can quickly put his hand to, but first let me say that I entirely accept not only what he says—although I want to answer the points he has made—but also the way in which he has said it. The noble Lord is always constructive so far as I am concerned, and I think he knows that too. I would have to pick the noble Lord up on some of the points he made. Certainly the relationship is not as good as one would like it to be at the present time.
What is it that the Government have set out to do? We must first look at that, and then I will try to come to some of the other points as quickly as I can. The Government have said that we now want spending by local authorities to be 5½ per cent. less than it was in 1979. That is what we are saying. This is the source of all the problems and it is the basis on which we accept amendments. When the noble Lord, Lord Northfield, says that the local government has never had to do this before I must reply, not so. In 1976, as I have
1036
said on more than one occasion, we were told that spending had to be reduced in that one year by 3 per cent. The noble Lord probably remembers that it was cut by 3 per cent. in the one year. I will not go into the reasons why this had to be done. That is what we were called upon to do and that is what local government did.
I said many times during the course of the 1980 Bill that it was a proud moment for local government; that however much we disagreed with the Government of the day, we always tried to conform because we recognised the right of central Government to govern. We knew that local government accounted for some 20 to 25 per cent. of total spending and that if we did not conform we were undermining Government—and that was not what we were about in those days. It was a proud boast. We have to compare that position with what we see today. I said twice when I was speaking earlier that the sad thing was that there were so many who were trying to do this and were achieving this. Surely something has to be done. This is the theme that runs through the whole of Clause 4 and not just through these amendments.
We come to it again—that something has to be done to protect those who are trying against those who do not want to know, who cock a snook, and who say, "To heck with the Government. We don't care. We've got a mandate". That is what they say—I could debate that for hours, if necessary, but I will resist the temptation.
When the noble Lord says that there is pride in being the authority with the lowest rate and that there is a premium on poor services, I reply that he of all people, with the great record he has in Telford and elsewhere, knows that the two things do not have to go together. It is not what you charge the ratepayers, but what you spend and what you get for what you spend. I can illustrate many examples of authorities who spend much and who were challenged and criticised because in the spending league there were way down at the bottom—but in the achievement league they were way up at the top. The two things of spending and rating do not, in my opinion, go together.
Lord Northfield: I am agreeing with what the noble Lord says, but at the same time it does become a cloak for some local authorities to hide under provision of services. In other words, both of us can be right on this matter.
Lord Bellwin: I will not go on at length. I entirely accept the thesis of everything the noble Lord was saying. He was hoping that, after all this is through, there will be a better relationship, and I too desperately hope that will be so. It will certainly come from the Government's side. It is no part of our plan in any way that friction and unhappiness of this kind should always go on. That is no part of what we want to do. We have do to do everything possible to avoid that and I give an assurance that we will.
On the other hand, local government has to play its part—it really has—and find ways. It must sit down and say, "How do we do it? Let us talk about it. Let us not take the position of saying it is impossible or out of the question. Let's sit down and talk about it and how, why and when". I am sorry if the noble

1037
Lord, Lord Evans of Claughton, is left feeling that we have somehow strayed, but I hope he will not think so; probably not. This is a very important point and it is the theme of Clause 4.
Baroness Birk: As this is the theme of Clause 4, and time is going on, and since we seemed to have entered into a general debate on the clause, rather than wait for Amendment No. 8 to be moved by the noble Lord the Minister, it might be better to enter the general debate on Clause 4. This has had a very chequered history. I do not know whether this is the last of it because I would imagine that the Government might have to come back on Report with other amendments.
This has had a chequered history in another place. It arrived in this House, as noble Lords will remember, unamended and when it appeared that the amendments were not going to arrive here until Report stage, the Committee stage on Clause 4 was stopped and the clause was re-committed for this day. Unfortunately, due to other very urgent business last Thursday, we were not able to start this as first business today and it has left us rather late at night to deal with something which is of tremendous importance in this Bill.
Speaking for myself and for my colleagues on these Benches, we have never accepted the Government's and Secretary of State's approach to spending limits and penalties, which we consider are essentially arbitrary and unfair. This has been illustrated by an enormous overspend which has been seen not only in Labour authorities but mainly in Conservative authorities as well. We believe that the real basic control is by the electorate, through the rates, and also by having a far better liaison with local authorities than there is at the moment—between the Government, the department and the Secretary of State and the local authorities. I believe that on an earlier amendment, the Minister himself admitted that relations were certainly not as good at the moment as he would like to see them.
On the question of inflation, the increase in rates is certainly no more inflationary than other factors, and the draconian efforts of the Secretary of State over the last three years have really been singularly unsuccessful in achieving the object he has set himself. Having said that, we then have to accept that the Government have imposed this system, and, in a democracy, however much one dislikes certain things that are done, one accepts that that is the system at the present time. Having accepted that system, it is clearly desirable that there should be exemption for special purposes, which is the motivation behind the amendments which the Government brought forward and which they, understandably, had tremendous difficulty in being able to draft. I understand it because it is a very complicated subject, and I think many of us here feel that they still have not got it right.
The Government's amendments are really not the way to achieve the object. The undertaking given by the Minister in the Commons, Mr. Tom King, could be overthrown at the instigation of a local authority or a local authority association. I am sure the Committee and certainly the Minister do not want me to read out the statement made by Mr. King in another place, where he made it quite clear that the superholdback
1038
had gone and that this would not be happening. But in fact these amendments have restored that very unhappy position. It is true that the Minister can say that the Secretary of State does not have to use it, but that is not good enough. Neither local government nor we ourselves are here to bail the Government out, and, although we may will a successful end, it does not mean that we are willing these very unfortunate means.
First of all, these exemptions can be made at any time before, during or after the financial year in a supplementary report. The Government's amendments permit the Secretary of State to disregard expenditure of any description or amount in a target penalty exercise. The safeguard appears to be in the amendment, in that the Secretary of State can make exemptions only if representations are made to him by an association of local authorities or any local authority. This safeguard is not really a safeguard. It could be highly dangerous and could be illusory. This is very worrying to the local authority associations as well as to individual authorities. The Association of County Councils, on the one side, which is a very Conservatively flavoured organisation, and, on the other, the Association of Metropolitan Authorities, which is Labour flavoured, have really almost joined together in finding this extremely objectionable.
When it comes down to it, the Secretary of State will have the power to choose which applications he accepts. There is room for all sorts of manoeuvring, which, to be fair, may not be the object of the Secretary of State but which can in fact happen. Although it is important that there should be exemptions so that local authorities can deal with something that suddenly happens—riots or other things which occur for which extra expenditure is needed—we are very unhappy and feel very strongly against the present amendments that we have before us tonight.
In fact, much as we disliked the original clause that arrived in this House before the amendments, we would in fact prefer that to remain as it is, and if there are extra expenditures we would prefer those to come out of the contingency fund or to be met in some way or another without the exemptions being made by means of an enabling power, unless the Government can find a way—and this is their tremendous difficulty—of spelling out almost exhaustively every emergency that can occur. I do see the problem in doing that, because there will be things that nobody has thought of which will not be in the Act. But, unless one has that or unless one uses contingency powers, we feel that the enabling power is too dangerous, too uncertain and is very unpopular certainly with my colleagues and myself and certainly with local authorities, local authority associations and everyone concerned with them.
Therefore, I hope that noble Lords on whatever side of the Committee they are sitting tonight, whether as party members or as independents, will for those reasons vote against the Government amendments. There is of course another element which I shall not dwell on because I know that there are other noble Lords who wish to speak on it. There is a very strong retrospective element which is also very unpalatable in the clause and these amendments. I think that the

1039
Government amendments should certainly be voted against and turned down tonight.
Lord Bellwin: I should like to know where we stand in terms of the order of business. The noble Barness has made a really good speech. I understand how she was manoeuvred into this situation, but perhaps we could have some clarity. I think that in fairness, as Amendment No. 8 is a Government amendment, I should like to speak to it first and then, if necessary, after others have spoken have the chance to reply. Perhaps the noble Lord, Lord Evans, would first tell us where we stand on his amendments.
Lord Evans of Claughton: I seem to be once again the innocent precipitant of a quasi- crisis. As I said, I had not really intended to divide on this amendment and No. 6, but people much more experienced than I tell me that if we go on talking much longer there will not be a Committee here to divide. Through no fault of mine this debate has been generalised by other people.
It had been my intention to ask your Lordships to divide on this amendment to indicate my personal—I think that this is the view of many other noble Lords—strong objection to Clause 4. I fundamentally oppose this clause. It is to me the linchpin of the whole of the legislation. It is a great tradegy, as the noble Baroness has said, that we have come to it late in the evening because of circumstances beyond people's control. Frankly, I would much prefer that we divided on Amendment No. 8. However, I am put in a very difficult position.
Since the debate has become generalised, I should have thought that it would have been better to divide on this amendment. However, if it helps the Committee I am willing to withdraw this amendment and the ones following it if we can have a brief debate on Amendment No. 8. But if it is to be a lengthy debate, I do not see how we can get round this. I can see all kinds of influences being imposed upon me. As I have said, and as I say again, I feel that this is absolutely fundamental. We have heard a lot of examples this evening from the noble Lord, Lord Northfield. I have personal examples of many authorities who are grossly underspending. I shall not mention names. We know the examples. Her Majesty's Inspectorate of Schools has said that there are four authorities and everyone is now engaged in a guessing game as to which they should be. This legislation is retrospective—which I find totally unacceptable—for 1981–82 and 1982–83. Frankly, this is such an appalling clause that although this is not the appropriate amendment—in fact, it is moved by me and therefore it is a very much better amendment—and although I think that we should really be dividing on Amendment No. 8, I think that I must test the feeling of your Lordship's Committee on this amendment.
9.19 p.m.
On Question, Whether the said amendment (No. 4) shall be agreed to?
Their Lordships divided: Contents, 37; Not-Contents 45.

DIVISION NO. 3

CONTENTS

Airedale L.

Jeger, B.

Ardwick, L.

John Mackie, L.

Birk, B.

Kaldor, L.

Bishopston, L.

Kennet, L.

Brockway, L.

Llewelyn-Davies of Hastoe, B.

Brooks of Tremorfa, L.

Bruce of Donington, L.

Lloyd of Kilgerran, L.

Chitnis, L.

Lovell-Davis, L.

Cledwyn of Penrhos, L.

McCarthy, L.

Collison, L.

Peart, L.

David, B.

Pitt of Hampstead, L.

Davies of Leek, L.

Rochester, L.

Evans of Claughton, L.

Seear, B.—[Teller.]

George-Brown, L.

Stedman, B.

Glanusk, L.

Stone, L.

Glenamara, L.

Tordoff, L.

Hampton, L— [Teller.]

Underhill, L.

Harris of Greenwich, L.

White, B.

Hooson, L.

Winstanley, L.

NOT-CONTENTS

Alexander of Tunis, E.

Long, V.—[Teller.]

Avon, E.

Loudoun, C.

Bellwin, L.

Lyell, L.

Belstead, L.

McFadzean, L.

Boyd-Carpenter, L.

Macleod of Borve, B.

Brougham and Vaux, L.

Marley, L.

Coleraine, L.

Massereene and Ferrard, V.

Cork and Orrery, E.

Montgomery of Alamein, V.

Cullen of Ashbourne, L.

Mottistone, L.

De La Warr, E.

Murton of Lindisfarne, L.

Drumalbyn, L.

Portland, D.

Eccles, V.

Rankeillour, L.

Elliot of Harwood, B.

Redesdale, L.

Elton, L.

St. Just, L.

Energlyn, L.

Sandys, L.—[Teller.]

Fortescue, E.

Stamp, L.

Gainford, L.

Strathcarron, L.

Gardner of Parkes, B.

Trenchard, V.

Hatherton, L.

Trumpington, B.

Hylton-Foster, B.

Vaux of Harrowden, L.

Kinloss, Ly.

Windlesham, L.

Kinross, L.

Wynford, L.

Lindsey and Abingdon, E.

Resolved in the negative, and amendment disagreed to accordingly.
9.27 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 5:
Page 3, line 17, leave out from ("(11A)") to ("the") in line 18 and insert ("Any guidance issued for the purposes of subsection (6)(cc) above shall be framed by reference to principles applicable to all local authorities; and before issuing any guidance for those purposes").
The noble Lord said: I have already spoken to this amendment, and I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 6 and 7 not moved.]
Lord Bellwin Lord Bellwin moved Amendment No. 8:
Page 3, line 44, at end insert—
("( ) If representations in that behalf are made to him by any association of local authorities or by any local authority the Secretary of State may—

(a) in the Rate Support Grant Report made for any year under section 60 of the said Act of 1980; or

(b) in a supplementary report made for any year under section 61 of that Act,

1041
provide that expenditure of any description or amount shall be disregarded for the purposes of paragraph (cc) of subsection (6) of the said section 59 and in determining under subsection (3)(c) above whether or the extent to which local authorities have or have not complied (or have or have not taken steps to comply) with the guidance referred to in that paragraph.").
The noble Lord said: Amendment No. 8 is all about exemptions. It is designed to make specific provision for the exemptions from holdback that the Government have already announced in respect of both 1981–82 and 1982–83. The reason why this amendmend has been introduced by the Government is because we understand that there is some question that Clause 4, as it stands at present, would prevent us allowing any exemptions from holdback. Let me remind your Lordships what are those exemptions. For 1981–82 we have agreed to exempt all authorities spending at, or below, the level of their grant-related expenditure, their GRE, and we have agreed to disregard expenditure incurred as a result of last winter's weather, civil disturbances and other emergencies, and in the case of partnership and programme authorities we have agreed to disregard urban programme expenditure. For 1982–83 we have again agreed to exempt authorities spending at or below their GRE.
All these exemptions have been agreed in response to representations made by individual authorities and by the local authority associations. We must now honour the undertakings we have already given. We need also to be in a position to be able to consider any representations that may be made in the future and to respond positively if that seems appropriate. This amendment is designed to enable us to do just that.
Let us be quite clear about this. If the Committee does not agree to this amendment, and this has to be clearly understood, the Government will not be able to give any exemptions from holdback for either 1981–82 or 1982–83. All authorities spending above their target, whatever their spending is in relation to GREs, will be subject to holdback. Expenditure on the urban programme and incurred as a result of emergencies will be taken into account in calculating liability to holdback, for there is no question of the Government back-pedalling on holdback even if this clause was not to be accepted.
There is an overriding need to reduce local authority overspending, and the Government are not going to renege on their responsibility to control the overall level of public expenditure. Therefore, the holdback is not in question. What is in question is whether we can give the exemptions that local authorities and local authority associations have been urging on us. I emphasise again that, whatever may be said here tonight, local authorities are not opposed to exemptions. Many county councils have argued strongly that there should be a GRE exemption. They are not opposed to the clause. There are a good many authorities—those who would have benefited from the proposed exemptions—who will he appalled if the clause is not accepted. I have to say that should the Committee divide, those who vote against the amendment with the intention of helping local authorities will be acting under a most serious misapprehension.
If exemptions cannot he given, they will not be given, but, as I have said and repeat, it will still be necessary for the Government to take action in face
1042
of the overall failure of local government to conform to the public expenditure guidelines. The amounts involved cannot be ignored. I said a few moments ago and say again: in the current year, authorities are planning to overspend by some £1½ billion above the Government's plans. Faced with overspending of that order, the Government's proposals for the holdback of grant must go ahead, as my right honourable friend told the Consultative Council last week. That must be so, whether or not the amendment is accepted.
The new subsection will not replace the limitations on the use of multipliers which already exist in the 1980 Act and in Clause 4 of the Bill, but stands along-side them and should be read in conjunction with them. The most important in that context is probably that imposed by subsection (5), which requires holdback multipliers to be determined in accordance with principles to be applied to all authorities. That means that any exemptions allowed under the new subsection to be inserted by the amendment have themselves to be in accordance with principles applied to all authorities. The amendment would not allow an exemption to be given ad hominem to a particular authority or group of authorities, but only on the basis of a general principle.
I hope that that, together with the provisions that exemptions can be given only in response to representations, will be seen as an adequate safeguard. If not, it is hard to see how any amendment could be framed which would make express provision for exemptions many of which must, by their nature, be responses to unexpected circumstances that arise during the course of a year, while at the same time providing any greater safeguards for authorities. The amendment is needed to enable us to deal fairly with the representations which are hound to arise when dealing with a general scheme of grant abatement of the kind envisaged by the clause. I have explained the reasons for it and endeavoured to deal with some of the reservations which I know are genuinely held among the local authority associations. I hope I have reassured the Committee on that score and that the amendment will be approved.
The Principal Deputy Chairman of Committees (Baroness White): Is it intended to move Amendment No. 9 as an amendment to No. 8?
Lord Evans of Claughton: Because of the lateness of the hour, while reserving my position, I shall not move that amendment.
[Amendment No. 9 not moved.]
Viscount Ridley: We seem to be incapable of discussing Clause 4 without getting into a procedural muddle. I am sorry that the noble Lord, Lord Evans, led us into the Lobby on what was probably the wrong amendment; this is the one on which I would gladly have followed him. However, my purpose is simple on the matter. It is an extremely complicated and awkward subject and at this hour it does not deserve to take our time. But I wish to place squarely on the record that the Association of County Councils are opposed strongly and firmly to any amendment of any kind to Clause 4. They believe, for better or worse, that a respectable and reasonable compromise on this difficult subject

1043
was achieved in another place, and I thoroughly support their lengthy arguments, with which I will not weary the Committee at this hour. Therefore, I feel it would be wrong to make any exemptions to Clause 4 as drafted, and I believe that the amendment does not have the confidence of local authorities. I understand that as recently as last Friday the associations jointly issued a statement saying that all of them wished to see no amendments to Clause 4 at this stage.
Lord Bellwin: I want to make one further brief comment, which I feel I must make in all fairness. My noble friend Lord Ridley is speaking for the county councils and I hope that he clearly understands the implications of exactly what it is that he proposes to vote against. I understand that in 1982–83 there were 141 authorities, including 26 shire counties, which stood to gain a GRE exemption for 1981–82. If the amendment is defeated, they are at risk of losing the whole of that money, and I hope that my noble friend realises that.
I am not going to make another speech, but I should like to add that the Government have listened very carefully to representations and I have personally met many deputations. I know the strength and cogency of the arguments that were put forward for exemption. We have agreed to accept many of the arguments that were put to us. We have throughout behaved in a responsible and responsive way, and this amendment is the result. It is designed to allow us to continue to listen to representations and to continue to respond in a helpful and balanced way. It is not designed to do anything else. I most strongly urge your Lordships to support the amendment.
Baroness Birk: I agree with the noble Viscount that this clause seems to be doomed to procedural muddles as well as everything else, but now that we are on the clause and it is being spoken to I must say a brief word about it. After a great deal of what, frankly, has been messing around, the Government have come up with wording that is quite contrary to what they said they intended to do. The amendment is designed to enable the Government to keep their promise to exempt certain exceptional payments from the financial penalties scheme that the Bill will otherwise introduce, but it would restore to the Secretary of State all the sweeping powers that he had originally sought to take away grant from particular authorities at any time during the year on a penalty basis, discriminating between local authorities. It is impossible to let the occasion pass without saying this and without pointing out that the amendment would negate the promises made by Ministers during the earlier stages of the Bill, a long time back at the beginning of this year. Nevertheless this has happened.
This is a backdoor action, which is doing quite the contrary to what we were told it would do. We got into a muddle on the earlier amendment and so the Minister generalised. I see that it is difficult to specify exemptions in a Bill; nevertheless the Government must do one thing or the other. On the one hand, they must specify all the exemptions, so that everybody knows exactly where they are, and nobody is frightened of discriminatory action or is frightened that somebody will sneak on them, tell on them, or point a finger
1044
at them, which is what is possible within the Bill at the present moment. It works either way politically; this is not a political point; it is what is in the Bill.
Alternatively, the Government must leave what is far from being a satisfactory situation, but is at least much better than the present amendment which the Government have brought forward. Clause 4 should be left as it is at the moment, which is exactly what the noble Viscount was asking for. If the noble Viscount is prepared to vote against the amendment, in view of the fact that it is extremely important and crucial to the Bill—it is the absolute nub of Clause 4—my noble friends and I will certainly support him in the Division Lobby.
Lord Bellwin: I should like to say a last word, because I suspect that the situation is still not understood. The amendment is about exemption. It can be used only to reduce the instance of hold-back; it cannot increase it. It does not go against any of the undertakings that we have given; quite the reverse. We need it to fulfil them.
9.40 p.m.
On Question, Whether the said amendment (No. 8) shall be agreed to?
Their Lordships divided: Contents, 47; Not-Contents, 27.

DIVISION NO. 4.

CONTENTS

Alexander of Tunis, E.

Loudoun, C.

Avon, E.

Lyell, L.

Bellwin, L.

McFadzean, L.

Belstead, L.

Macleod of Borve, B.

Boyd-Carpenter, L.

Marley, L.

Brougham and Vaux, L.

Massereene and Ferrard, V.

Cork and Orrery, E.

Montgomery of Alamein, V

Cullen of Ashbourne, L.

Mottistone, L.

De La Warr, E.

Murton of Lindisfarne, L.

Drumalbyn, L.

Northfield, L.

Eccles, V.

Portland, D.

Elliot of Harwood, B.

Rankeillour, L.

Elton, L.

Redesdale, L.

Energlyn, L.

St. Just, L.

Fortescue, E.

Sandford, L.

Gainford, L.

Sandys, L.—[Teller.]

Gardner of Parkes, B.

Stamp, L.

Glanusk, L.

Strathcarron, L.

Hatherton, L.

Trenchard, V.

Hylton-Foster, B.

Trumpington, B.

Kinloss, Ly.

Vaux of Harrowden, L.

Kinross, L.

Windlesham, L.

Lindsey and Abingdon, E.

Wynford, L.

Long, V.—[Teller.]

NOT-CONTENTS

Airedale, L.

Llewelyn-Davies of Hastoe, B.

Birk, B.—[Teller.]

Bishopston, L.

Lovell-Davis, L.

Brooks of Tremorfa, L.

Peart, L.

Bruce of Donington, L.

Pitt of Hampstead, L.

Chitnis, L.

Ridley, V.—[Teller]

David, B.

Rochester, L.

Davies of Leek, L.

Seear, B.

Davies of Penrhys, L.

Stedman, B.

Evans of Claughton, L.

Stone, L.

George-Brown, L.

Tordoff, L.

Harris of Greenwich, L.

Underhill, L.

Jeger, B.

White, B.

Kennet, L.

Winstanley, L.

Resolved in the affirmative, and amendment agreed to accordingly.
[Amendments Nos. 10 and 11 not moved.]
9.49 p.m.
Lord Bellwin Lord Bellwin moved Amendment No. 12:
Page 4, line 37, leave out from ("that") to ("(7)") in line 38 and insert ("so much of subsection (2) above as relates to consultation and subsection").
The noble Lord said: I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Lord Bellwin Lord Bellwin moved Amendment No. 13:
Page 4, line 40, at end insert ("or 1st April 1982").
On Question, amendment agreed to.
House resumed: Clause 4 reported, with the amendments.

Criminal Justice Bill
Brought from the Commons, read a first time, and to be printed.
Industry Bill
Brought from the Commons, read a first time, and to be printed.

El Salvador: Report of Election Observers
9.50 p.m.
Lord Chitnis Lord Chitnis rose to ask Her Majesty's Government what opinion they have formed of the election in El Salvador and how they formed it.
The noble Lord said: I beg leave to ask the Question standing in my name on the Order Paper. At the start, I should apologise for the lateness of the hour at which I am doing so but that is not entirely my fault. I make no apology at all for raising the question of El Salvador when I realise that many of your Lordships' minds will be on other parts of Latin America. I have a sneaking suspicion that long after our relations with the Argentines is settled and the future of the Falkland Islands is settled, the problem of El Salvador will still be there and will bubble once again to the surface.
I confess also that I suspect I know the answer to the Question which I am asking. I imagine that the Government are likely to say: "Taking one thing and another, and what with this and that, and in all the circumstances, the election in El Salvador was relatively fair". The evidence they will give for coming to this position will be the report of the official observers, Professor Derek Bowett and Professor John Gals-worthy, published by Her Majesty's Stationery Office, 24 pages, at £2.55p.
Therefore I will, if I may, start with the second part of my Question first and concentrate on the official observers' report. The official observers record that they arrived in El Salvador on Sunday, 21st March, a week before polling day. The very first thing that I should like to establish is whether the observers were aware that under a perfectly reasonable provision of El Salvadorean law public campaigning in the election campaign was suspended on Wednesday, 72 hours after their arrival. If so, one wonders how this squares with the assurance given in a Written Answer by the noble Lord, Lord Carrington, when he was Foreign Secretary, that the observers would arrive in El Salvador in time enough to observe the election campaign. I suspect that in 72 hours one can see very little of the campaign.
But then I should like to call attention to the conditions under which Professor Derek Bowett and Professor John Galsworthy conducted their observations. On arriving at San Salvador airport, they were taken under armed escort of the Salvadorean National Guard to the Hotel Presidente, which had been commandeered by the Government, entry to which was restricted to only observers and their staff. Whenever they set foot outside this hotel they were again under the escort of the national guard.
I firmly believe, having observed elections both as an official observer and an unofficial observer in various places, that it is quite impossible to observe an election objectively under these conditions. If you accept the hospitality of the authorities, and if you accept the protection of the authorities, I do not see how you can reasonably be expected to estimate the conduct of those authorities objectively. Certainly if observing other people's elections is going to become a new
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international spectator sport, as it shows some sign of doing, I suggest that in future when Her Majesty's Government send observers to elections the official standing of the observers should derive only and solely from the British Government and not from the host Government, and that the British Government should make their own arrangements for the observers' hospitality, protection and all other arrangements.
It follows from what I say that I am not particularly impressed by the account of the official observers' travels as detailed in the report. Quite honestly, it is too much to expect the people of El Salvador or any similar country to talk freely to foreigners who suddenly turn up in a rather remote part of the country where they happen to live, surrounded by armed guards, who the people know are their enemies. But those are the conditions under which the British official observers normally went around.
That said, I should say I am extremely impressed by the observers' achievement in discovering what has so far eluded the spy satellites of the CIA, namely, the border between El Salvador and Nicaragua. Her Majesty's Government, I think I should say, ought to know that in Central America there is a considerable feeling that people in Britain know very little about conditions in that part of the world. They are aware, as many of your Lordships may not be, for example, that Her Majesty's Government's accredited representative to El Salvador did not spend a single day in that country in 1981. They feel, frankly, that people do not know what is going on there, and just as the noble Lord, Lord Shackleton, had occasion last Thursday to question the Foreign Office's knowledge of geography, so I must do tonight. I think it would be helpful if the Government were to put on the record that they are aware that there is no border between Nicaragua and El Salvador.
It also follows that, as I am not impressed by the observers' travels, neither am I impressed with their conclusions. Take first of all the size of the electorate that was meant to be voting in this election. Dr. Bustamante, the celebrated Salvadorean gynaecologist who was in charge of the electoral commission, told me that he had no idea of the size of his electorate and indeed said then, before polling day, that he had no intention of publishing a percentage turn-out since he had no idea of the total number of people involved. He did, though, give me and others various estimates which he made; and one thing I must ask is why, quite extraordinarily, the official observers disagree, not just with me but with Dr. Bustamante's figures?
For example, on page 9 of their report they publish an estimate of the total electorate of El Salvador at 5·09 million. That figure they justify. They explain why they had come to it, and I have no quarrel with it. But then they go on to assert, without any evidence whatever, that 60 per cent. of the electorate of El Salvador was under the voting age of 18. They just assert this without any justification, and they then say there were 200 refugees, where Dr. Bustamante himself said that there were 400,000 refugees and every reputable aid agency says there are 500,000 refugees. No reason is given for this. They say that 50,000 people were without identity cards—something you had to

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have to vote in El Salvador—and the Salvadorean authorities say that 100,000 people were without identity cards.
Why was there this extraordinary discrepancy? And, leaving aside that and just taking the fact that there were a large number of refugees and a large number of people without identity cards, I fail to see why, simply on the word of official observers, Salvadorean authorities or anybody else, these people who are Salvadorean citizens are simply considered to be non-persons in the context of the election and thus disenfranchised.
Incidentally, while we are on the subject of figures, I suggest that your Lordships should take some care before you believe any figure of total turn-out that you are given. There was a strange happening soon after the election finished, when the computer—which, I think quite unnecessarily, was hired to count the votes—found it all too much and stopped for a day and a half. From that moment on, nobody seems to be clear as to exactly how many people voted. Certainly I have had two separate figures from the Salvadorean authorities, differing quite considerably as to the number of people who voted. I therefore suggest that no figure can be taken with any great confidence.
Then there are the observers' conclusions. They talk quite a bit about the Left, and I wonder whether I can say one thing here. In so far as I, in this speech, will talk about the Left, I am using the term in the way it is used in El Salvador. By the El Salvadorean use of the word "Left" I think every noble Lord in this Chamber would be considered to be a dangerous member of the Left. The Left in El Salvador means anybody from the centre of the Conservative Party in this country leftwards.
The Left did not participate in the Salvadorean election, because they would have been butchered had they done so. If your Lordships want evidence of this, the Secretary-General of the Christian Democrat Party—the part of it which was contesting the election—told me that 700 of his party workers had been murdered in the two years prior to the election. If you digest that figure in relation to a small country the size of El Salvador, which has a population of about 5 million, you realise its enormity. You also wonder what would have happened if parties on the Left, who had to produce a nomination paper of 3,000 names to be lodged with the authorities in order to qualify to stand at the election, had done so. But while the official observers pay some note to this point, they also went on to say that they thought that the Left did not participate in the Salvadorean election, because of their long-standing disbelief in, distrust and distaste for democracy. This is a quite monstrous slur to come from the Master of Queen's College Cambridge and a former British ambassador.
The leading figures of the FDR, the political coalition of the Salvadorean left, are, for example, Dr. Guillermo Ungo and Senor Ruben Zamora; one a socialist, using a British term, and the other a Christian Democrat. These people have spent their lives fighting to get democracy introduced to El Salvador. In return for this, they have suffered exile, harassment and physical threat. It is quite monstrous that two people, who
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have never suffered a day of their lives for their political beliefs, should make this implicit, and pretty explicit, slur on Dr. Guillermo Ungo, Senor Ruben Zamora and their colleagues. If nothing else, I hope that the Government will tonight repudiate this slur on them and, indeed, might go on to say that they believe that the Left had good reason for boycotting this election, lest they be butchered by people on the Right in El Salvador.
Incidentally, another thing that the report said about the Left is that, five days before the election, the Left volunteered that they would stand were the election to be put off for a bit. I have gone to some trouble to investigate this tale. It is plainly and simply untrue. Were the Government to say that this was repeated by the observers only as something that was said to them, I would say that lots of things were told to the official observers in El Salvador, as lots of things were told to me, and one does not necessarily have to report them all.
Furthermore, they made the point that the Left tried to disrupt the election. That is a comment that can be made only by people who do not know the normal conditions of life in El Salvador. Certainly, the disruption of daily life caused by the Left was not half as bad as it was when I was there last summer, when power cuts were a normal feature of daily life and there was considerably more fighting in the streets of El Salvador than usual. Certainly, too, one man with a gun could have caused mass panic in the crowds gathered around the polling stations on polling day. The fact that this did not happen gives the lie to that assertion.
The main conclusion of the observers' report is that the election in El Salvador was fair. But I am afraid that the reason for their coming to that conclusion was that they chose to take a very narrow focus on what an election is. Their spokesman in El Salvador announced that the British were there not to take account of the human rights situation; that was outside their terms of reference. What they were there to do was to concentrate on observance of the electoral law and the process of casting a vote. This is a ridiculously narrow concept of what an election is. To make the point, I can only tell your Lordships that I suspect—though I have never done it—that if one went to the Soviet Union and observed an election purely from the proposition of whether Soviet electoral law was observed, and whether people were putting bits of paper into ballot boxes, without troops having guns at their backs, you might equally come to the conclusion that a Soviet election was free and fair.
The British official observers in El Salvador ignored the human rights situation, the deaths and the disappearances that go on every day. They ignored the circumstances of the war and the political campaigning. If you read the account of their travels as recorded in their report, you will find that they spent a lot of time talking to returning officers but, according to their report, they did not go to a single political meeting or visit a single political party's headquarters. Can you imagine that doing that in any normal election would give you a reasonable idea of what was happening?
I must ask the Government whether they believe that their observers gave enough weight to these other and, I think, major considerations. In other words, I think very little of the official observers' report—without calling attention to Appendix C, a rather odd appendix which purports to detail the parties which were registered at elections and the parties which were not. Among the list of parties registering is one which does not exist. It is a trade union. Accion Democratica, which won seats in the Assembly, is not recorded in the list. And one party—the MNR—is recorded as being both a registered party and a non-registered party.
I went to El Salvador two weeks before polling day in this election. I published a report about it, 28 pages and costing £1, in which I came to a somewhat different conclusion. If I may, I shall briefly explain to your Lordships why. The first and major flaw in the Salvadorean election was that as a result of the non-participation of the Left, the people of El Salvador had an extraordinarily limited choice. They were given two alternatives only. If I may adapt that to an English situation, it is as if there were an election between a weak Conservative Party under the thumb of the military and a murderous version of the National Front. That is the choice which the electors had. I recognise that, if you have this, it is an election. If forced to do so, I could make a choice between those two alternatives, but I should never delude myself into believing that those were the only proper political choices which should be available either to the people of El Salvador or to the people of this country.
Secondly, the electorate were given no choice about policies. There were no party manifestoes and ideas about what each party would do. The election was fought by all parties and by the electoral commission itself on the basis of negative attacks on their opponents and slogans. And not one of the parties contesting the election made a positive proposal about the one thing which the election was meant to be about—namely, how to finish the war. The electoral commission had the slogan, taken up by the parties, "Your vote the solution", but nobody was explaining how voting at this electon would solve anything, even though this was the one major issue.
Noble Lords should recognise that there is a real war going on in El Salvador. It is certainly true that there are towns like Santa Ana which are relatively peaceful, but in San Salvador, the capital, gun battles are taking place every night, or on many nights, there are dead people to be seen if you go outside before breakfast, lying in the streets, and, worst of all, in the North and in the West of the country there is a real war in the sense of helicopter gunships blowing up bridges, and devastion and death. That is what is going on in El Salvador, and that is what this election did nothing to solve.
However, having decided to hold an election, there were enormous pressures on voters to vote. This is not to suggest that, as in Zimbabwe in the first election there, voters were herded by troops to the polling station. It was rather more subtle than that. First, there was the considerable psychological pressure, with tremendous publicity put out by the electoral commis-
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sion that the army was safeguarding the democratic process. That may sound an innocent statement in Britain, but in El Salvador where people have learned what the army is like, I must tell your Lordships that that in itself is an implied threat. But there was also the technique of casting the vote, which I believe I can show to your Lordships was a tremendous and unacceptable pressure on voters.
They decided to hold the election in El Salvador without a register. I make no complaint about that. It is perfectly possible to have a free and fair election without a register. Indeed, the noble Lord, Lord Underhill, and I saw one when we attended the second Zimbabwe election. If you have an election without a register, all you need to do is to mark the voter's body. This is normally done by putting a mark on their hand with something which will not come off during the hours of polling. That is what you must do and it is all that you need to do. However, the Salvadorean authorities did two other things as well. First, voters had to give their names which were written down on a list when they arrived at the polling station. If you decide to hold an election without a register that is all right, but it is a complete nonsense to try to compile an election register by hand on polling day. Nonetheless, this is what they did, and the voter had to sign his name against that. This is an unnecessary provision against fraud and particularly in the context of El Salvador, where most citizens of that country would have wanted very much to make sure their name was on that list. Then their identity cards were marked with what the authorities called an indelible mark.
Take the point that in El Salvador your identity card is your passport to life and liberty. You have to show it very often at road blocks, to your employer, and whenever you want to do anything important. Very considerable propaganda was put out that these cards were going to be marked, and this caused very great pressure on the voters. I know of one Salvadorean politician on the Left who has been imprisoned for his political beliefs and who obviously had no vested interest in the choice that was offered in that mis-election. He none the less felt that he ought to go down, cast his vote and get his card marked.
In Guazapa, a Salvadorean country town, ballot papers ran out halfway through the afternoon. The voters were extremely upset and very angry—not because they were being deprived of their democratic voice, but because their cards were not going to be marked. An official had to reassure them on that point before they would go home.
Again, in the Guardian last week we have a tale that tells us that already—so soon after the election—the people from El Noria have fled, afraid that they were going to be killed because they had not voted in the election for the constituent assembly and because they knew it would be detectable from their cards that they had not done so. I hope the Government can explain to me—because I cannot and I do not believe that the official observers did—how marking the cards of voters was a prevention against fraud given that the hands had already been marked, and why (other than for the reasons I have explained) this provision was produced.
This provision produced total chaos on polling day. It was an extremely elaborate voting process which

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involved people finding names, having cards marked and so on which in itself—if one wanted to be pernickety—invalidated the election. That is one of the explanations for the vast crowds that I have been told about. Also, if there are very few polling stations you will also get vast crowds. If in Beaconsfield on Thursday there are only four polling stations—which is about the number there were in Soyapango, which has a population about the size of an English constituency—then you will get vast crowds. If people tell me that the crowds were all terribly cheerful, I will only say this. First, most of the film that was shown was from San Salvador early in the day. Secondly, if you were to reintroduce rationing to this country and everyone had to queue up for ration cards at a very small number of delivery points, and if you were to ask them to do this on a very pleasant and sunny Sunday morning, the crowds would be quite cheerful and would make the best of a bad job. I daresay that they would queue up in a happy and friendly way—which would tell you nothing at all about their sympathy with the reintroduction of rationing.
In other words, I find that the election was bad—bad in conduct, bad in timing and bad in result. After all, there was no reason to have an election now and hardly a more inappropriate time could have been chosen by the Salvadorean authorities and by the Americans who urged this election on them. This is not hindsight. Last July I saw Ambassador Hinton of the United States in El Salvador and urged him not to press for an election now, citing the unfortunate precedent of the internal election in Zimbabwe, which was held in similar circumstances. Ambassador Hinton's reply was if there was an election now which improved matters, that would be "one up" to the Americans; if the election did not work, then nothing would have been lost. This was, of course, a most dreadful misjudgment.
As the election unfolded, as a result of the way in which it was run the extreme Right has been allowed into the highest circles of Salvadorean politics. The lives of ordinary Salvadoreans have been made worse. The killings and the disappearances are already increasing. The war goes on. And within the last few days, the land reform campaign has been suspended. After all the travail of the election, an interim president has been unveiled to the El Salvadorean people whose name was never mentioned and who played no part in the election campaign. Major D'Aubuisson is the Speaker of the constituent assembly, and a more bizarre colleague for Mr. Speaker Thomas than the man described by Ambassador White as a "pathological killer" it would be difficult to think of.
So I hope that the Government will agree that this was an inappropriate election run in impossible circumstances. But perhaps the official observers had an impossible task given to them because of their terms of reference, because of their unfamiliarity both with the country and with observing elections, and because they were not necessarily the first choice for this job. Therefore, not too much weight should be given to their report. But since the election in El Salvador was such a bungled exercise, I hope the Government will agree not to be influenced by the spurious mandate claimed by those in the
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majority in the Salvadorean assembly when they come to determine Britain's future policy and actions on El Salvador.
10.16 p.m.
Lord Underhill: My Lords, I am grateful to the noble Lord, Lord Chitnis, for opening this very important matter, even though it may be at this late hour. As one who was privileged to be a member of the parliamentary delegation which observed the Zimbabwe election in 1980, I recognise only too well the task of the two Government observers of the El Salvador election. As the noble Lord has said, their terms of reference were rather confined. They were stated by the Lord Privy Seal in the other place on 2nd March. It is clear that the terms of reference were confined to the actual election process and the election campaign, and there is no doubt, and their own spokesman has said, that that excluded consideration of human rights.
I am sure we must set out the actual background. In the same speech in which the Lord Privy Seal set out the terms of reference, he said:
"The history of this unhappy country has been one of unrelieved violence and cruelty, dominated by a few families who have abused their wealth and privileges and have ruled by military force".—[Official Report, 2/3/82; col. 210.]
Time and time again popular moves towards reform have been frustrated by military coups and brutal repression. We have now two reports, the report of the official Government observers and the report of the noble Lord, Lord Chitnis, who went out to El Salvador, I think, on behalf of the British Parliamentary Human Rights Group. It is always difficult to make assessments of reports of events when we are sitting some thousands of miles away, but on the actual election I find in the two reports a great deal of common ground. I hope the Minister when he comes to reply will be able to deal with this question raised by Lord Chitnis about the security provision and whether or not the observers were free to move around as freely as your delegation was when we went to the official elections in Zimbabwe.
In one footnote the observers refer to encountering dismay and anger at the reporting of events by the British press and media. They do not elaborate upon that, and I must ask, who were the persons who expressed these views and what did they complain about? There is no information given. In the report of Lord Chitnis he refers to certain events to which consideration must be given. The United Nations High Commission for Refugees at the end of 1981 stated that 329,500 refugees from El Salvador were in neighbouring countries. In a brief footnote on page 9 of the observer's report they state that perhaps 200,000 left the country. As I think they were referring to electors, those two figures may somewhat agree, although some observers commented that there would be large numbers of other people from El Salvador who are refugees in neighbouring countries but unregistered. Lord Chitnis states that there were some 300,000 displaced persons in El Salvador. The observers' report in paragraph 9 states:
"In present circumstances, many Salvadoreans were displaced, taking refuge from the fighting".
There is no indication whether or not they agree with the figure of 300,000 displaced persons. If one takes the

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refugees and the numbers said to be displaced, then one in 10 of the population of El Salvador is homeless. Yet the El Salvador authorities were proceeding with an election.
Many figures have been mentioned about the number of deaths of civilians. It is generally accepted by most commentators in the press throughout the world that something like 30,000 civilian deaths took place in 1980–81. The legal aid office of the arch-diocese of San Salvador claims that it has documented deaths in 1981 alone of some 12,500 non-combatant civilians killed by security forces or para-military squads. There is no reason to deny those figures.
I listed a number of points which I thought were essential for an efficient election campaign. Time prevents me from going through them. However it seems, looking at both reports, that there is agreement on a number of points. Both are in agreement that the absence of an electoral register was no obstacle to fair elections in the circumstances. Both agree that the arrangements to vote anywhere were also sensible in the circumstances. Both describe the process of marking the identity card and the right hand. But cognisance should be taken of the point which the noble Lord, Lord Chitnis, made in his speech that the term "invisible" and the term "indelible" were used. Whether or not the use of the word "indelible" was to have a psychological impression upon persons who might not otherwise go to vote, is a matter of conjecture. Both reports have criticised that the election law provides no limitation whatever on parties' election expenditure.
The noble Lord, Lord Chitnis, in his report has commented on the massive expenditure by some of the parties. We have heard the noble Lord, Lord Chitnis, tonight refer to the unsatisfactory distribution of election material to some polling stations, that some stations ran out of ballot papers and that there was also need for more polling stations. Those same criticisms appear in the observers' report. But there seems to be general agreement in both reports on the absence of any interference with voters at polling stations and on the generally relaxed attitude of voters going to the poll. In fact, I noticed that the noble Lord, Lord Chitnis, comments in his report that things may have been chaotic but there was no evidence of double voting or massive fraud—it was certainly not possible at polling station level.
One foreign paper which I read said that we can be satisfied that there was no fraud because the Christian Democrats and the Right parties were keeping clerical tabs on each other so that there could be none. The official report refers to the clerks at polling stations drawing up lists of those who voted. We have heard the noble Lord endorse that tonight. It means that there was, and still is, a clear list available to the authorities of all those who voted. In the light of what has gone on in the last two years at least, such a list with people absent from it could be extremely dangerous.
There would appear to be three vital issues outstanding: the right and opportunity of parties to contest the elections; the opportunity to vote; and the conclusions about the voting. The observers in their report state that the El Salvador Government offered guarantees to all participants, and they seem inclined to the
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view that all parties incurred the same degree of risk. One of the points of their conclusion is that the abstention of the Left was, in the opinion of most people, due mainly to the fear by the Left that the election would demonstrate that they enjoyed little popular support. I would suggest that that statement, "in the opinion of most people", is far from objective. Their conclusion adds, however, that in the light of past events, the fear for Left-wing candidates, had there been any, was not without justification and they comment on the fact that in 1980 seven leaders of the moderate Left opposition had been kidnapped, tortured and eventually murdered.
The noble Lord, Lord Chitnis, has tonight referred to the need for 3,000 signatories before a party could be registered to contest the election. That is also in the observers' official report. The noble Lord, Lord Chitnis, comments that, in view of the death lists, the submission of that number of names would put lives at risk.
A point which is in his report and to which he has not referred tonight is that the army command regard the FDR, which is the alliance of political parties on the Left, as terrorists; that there were 138 names on a death list issued by the army press office in March 1981. I would ask the Minister whether that has been checked and, if it has not, I believe it should be, because it was a definite statement made by the noble Lord, Lord Chitnis, that this was issued by the army or the security press office. Is it also correct, as claimed by the noble Lord, Lord Chitnis, that the central election committee—which, in effect, is Government-directed—advised in June 1981 that the FDR parties should contest the elections from outside the country?
Both reports refer to the Franco-Mexican Declaration of 28th August 1981, which described the alliance of FDR and FMLN, which is the alliance of the guerrilla forces, as a representative political force and called for dialogue between the Government and the Opposition parties, including that alliance. The observers' note on this ended:
"This was not the view of HMG".
This would indicate that the Government's view on any non-participation of the Left in the election was concluded in advance of the observers' report. The noble Lord, Lord Chitnis, states that all the Right-wing parties which contested the election also opposed any such dialogue, and that the alliance parties time and time again expressed willingness to open negotiations with the El Salvador junta.
I think it would be wrong to assume from the observers' conclusions that the Opposition parties did not want a proper election. In his report the noble Lord, Lord Chitnis, has given a very useful summary of the parties which contested the election and those which did not. I must refer to one that did not contest the election, the MNR. This is a social democratic party, a member of Socialist International, of which the Labour Party, of which I am proud to be a member, is also an active affiliate. They have consistently advocated the holding of elections, but that the elections should follow a cease-fire.
You have heard the noble Lord, Lord Chitnis, express doubts about the electoral register and the turn-out. When I look at the figures given in the observers' report—and I admit that this is only up to

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the time they left, when the counting had not finished—and, when I look at the official figures claimed by the noble Lord in his report as given to him by the El Salvador embassy in this country, I must conclude that the figures depend upon an estimation of the potential electorate, bearing in mind that there is no electoral register, and there seems to be no information, as the noble Lord says, as to whether or not the persons who are under 18 years of age represented 60 per cent.—there is no indication from where that figure came. There is obviously no sound figure of population, because that was based on the 1970 census, with a statement that there had been an increase of 3·2 per cent. per year. Based on that, 60 per cent. are taken off as being under 18 and, therefore, not in the electorate.
The figures would also depend on the allowance being made for those prevented from voting because of the fighting—the observers put this as high as 100,000—and also figures for those who are refugees in neighbouring countries. How many of those in neighbouring countries who are refugees were able to come back to El Salvador to vote? Noble Lords have heard me say that the United Nations Committee has stated that there are at least 329,000 refugees in neighbouring countries, and other people think that is high. If we take the refugees outside the country and those prevented from voting, we have at least 430,000, and it could be higher. That is at least 20 per cent. of the estimated normal electorate. That is a figure which should make us think carefully about whether or not you could have a proper election, even if the election process is conducted fairly, if 20 per cent. of the people were not able to take part in the voting.
Paragraph 28 of the observers' report states that the turnout was massive and quite unprecedented, and that while voters were perhaps undecided as between the political parties, they wished to vote as a demonstration of their desire for peace and they believed that the elections offered some promise of peace. It so happens that I came across a report which appeared in the Economist on 27th March, the day before the elections, and I quote:
"With the guerrillas refusing to take part and the war continuing, the election bears some of the stigma that Rhodesia's 'internal' election in 1979 did. Yet polling seems likely to be as fair as it can be under the circumstances".
We must keep in mind what the noble Lord, Lord Chitnis, said about the Zimbabwe elections because at the "internal" election in 1979 the two—and I use the word for description—"guerrilla" parties did not contest those elections, and there was what was considered to be a high turnout. A massive majority was given to Bishop Muzorewa whose UNAC party secured 67 per cent. of the vote. At the 1980 election when both PF and Zanu PF took part, a further 900,000 people voted and they obtained together 87 per cent. of the votes, and Muzorewa's party support dropped from that figure of 67 per cent. a year before to only 8 per cent.
It would be argued, and I think rightly, that people voted at the interim election for peace and their own government, and at the 1980 elections, which were so well supervised by British election staff, they voted for the parties they really wanted. The difference is that there was the Lancaster House agreement in which the guerrilla parties took part. That did not happen in El Salvador. As the observers' footnote stated, such
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dialogue was not the view of Her Majesty's Government.
It is not my purpose tonight to go into the realms of policy. But it would appear to me that if the USA had urged a ceasefire and discussions with all elements in the country and the United Kingdom had supported that proposal, things might have been much different. As it is, the future looks very bleak. I must echo the comments of the noble Lord, Lord Chitnis. While the election process in many respects may seem to have been fair up to a point, if we regard the election solely on that and ignore the brutalities that took place right up to the eve of the election, ignore the fact that a dialogue was dismissed, ignore the fact that Her Majesty's Government were in favour of having no dialogue, then we must criticise the situation in which we find ourselves today.
10.36 p.m.
Viscount Montgomery of Alamein: My Lords, the noble Lord, Lord Underhill, has commented on the technicalities of the electoral procedure, as he is indeed well qualified to do. But I hope that he will forgive me if I return to the general aspects of the problem and the implications of the recent election on the lines of the Motion drawn by the noble Lord, Lord Chitnis. Although the Motion put down by the noble Lord, Lord Chitnis, is on rather narrow lines, he has fortunately amplified the scope in his remarks and I find this helpful and would like to take up the more general aspects.
I should like to thank him for introducing this subject, which is timely, and to congratulate him on his report which I found extremely interesting. He knows, because we have already discussed it outside this Chamber, that I do not agree with the conclusions that he drew. Therefore, I know that he will listen carefully to the criticisms and comments that I am going to make concerning his report.
As a private citizen, the noble Lord, Lord Chitnis, would have had no difficulty travelling in El Salvador, as it is a free country; and his comments, therefore, are not as perceptive as they should have been in that he failed to understand the complexities of the Latin American temperament. He is in some ways, despite his perception, at a disadvantage in that he does not speak the language, although I know he took interpreters with him. The Latin American is a complex person and it has taken us many years to understand him. Indeed, events in the South Atlantic, and the reactions to what has been happening there, have shown up once again the lack of comprehension in this country and elsewhere of Latin American thinking in general.
On the other hand, the observers whom the British Government sent comprised a distinguished academic in constitutional law, someone of consequence, and a retired ambassador who spoke Spanish and whose knowledge of the area was considerable. It was very important for the British Government to have sent observers to the election because any steps towards democracy today are important. I wonder—the noble Lord, Lord Chitnis, has not brought this out—what it is he wants to achieve.
When we debated this subject 13 months ago, there were many more speakers and the general tenor of the debate was mostly anti-American, deploring United States intervention and influence. But surely their

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influence—I put this to the Government—has been beneficial because the hostilities, whichever way one looks at the issue, have diminished, and I am sad that in his report the noble Lord, Lord Chitnis, offers only criticisms and no solutions.
In the last few years there has been in El Salvador what amounts to a civil war, and we discussed that last year in that debate. That war has, to a large extent, been fought on United States television screens as well as in the fields of El Salvador. One of the benefits of the recent election is that the massive press coverage in El Salvador has diminished, because events appearing on television screens is no way to resolve problems. The result of the election has been that a constituent assembly has been established, and that must be a setback for the guerrillas. In their official report, the observers comment—I summarise their words—that,
"despite the difficulties, the elections offered a first step towards the democratic alternatives to violence".
Whatever the circumstances, that must be a valuable contribution.
Exactly what has happened? It has not been a victory for D'Aubuisson. We have seen subsequently the appointment of Alvaro Magana as President. He is a conciliator, a lawyer and an economist accustomed to compromise. He is forming a Government which is a coalition of the main parties. His sponsorship for the presidency was with the support of figures like Guillermo Garcia and Jaime Gutierrez, who are radical thinkers, and, in my view, that support alone gives some indication that the reforms, in which many of us believe—I know the noble Lord, Lord Chitnis, believes in them—will and must continue.
I think it is deplorable that the Left—and we may understand some of the reasons—did not participate in the elections at all, and I believe that they are the losers thereby. They have demonstrated that they do not believe in the democratic process whatsoever. Naturally, I look forward to hearing what the Minister has to say.
My view, formed after many years of experience in El Salvador and knowledge of the people who live there, is that some very tangible benefits may emerge from the wreckage of this terrible and deplorable strife. There are those who would like to replace authoritarian government, which is what El Salvador has had, but which does at least provide some limited freedoms, with totalitarian government, which precludes all freedoms whatsoever. The moves that have taken place in El Salvador and the election that has taken place will contribute to preventing that from happening.
What has happened in El Salvador shows that the ballot box is better than the bullet. I believe that we should be proud that Her Majesty's Government have participated courageously in promoting democratic traditions in such a small country as El Salvador, which is normally outside their sphere of influence. We must all hope that they can continue to do so and that this will lead to the brighter future which we all desire in that country.
10.42 p.m.
Lord Kennet: My Lords, of course the British Government will have contributed to the installation of
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democracy and the democratic tradition only if they have returned a valid and illuminating report on the elections which have just taken place. I do not want to speak about El Salvador, or about the difficulties of introducing democracy into a country in the throes of an atrocious civil war; nor about the American wish to have elections in such countries when they are influential in those countries. I want to talk only about the action of an external Government such as our own in sending official observers to report on such elections.
The two official observers went, I understand, at what was in effect the joint invitation of the Salvadorean and American Governments. That was the politics of it. They were chosen by the British Government and sent as their representatives in order to report to the British people, and in the name of the British people, on what had happened. Their report has come out in a White Paper, with the familiar signs on the outside; the august authority of the British state is in that Paper. It cost £2.55 for about half as much material as is in Lord Chitnis's report at £1; but that is a side issue which I shall not pursue.
In order to judge how the observers have done their work one needs to consider the alternative approach that they might have taken. I speak here from experience because I once received a joint invitation from the American Government and the Government of another country in the throes of an atrocious civil war—namely, Vietnam—about eight years ago, to observe an election in South Vietnam. I went there, along with one other British parliamentarian, and quite a large number of parliamentarians from other countries. I found that it was not possible for me to visit any of the parties in their headquarters, except the Government party. It was not possible to travel freely. I made no great point about that at the time because, as everybody remembers, the civil war was indeed an extremely violent one.
It was possible on polling day for me to observe three polling stations, where I found some abuses, but no very obvious ones. I was told, and I accepted, that there were—I believe it was—12,997 other polling stations in operation on that day. The total was 13,000, if I remember right. I did not think that it was worth making a formal report to anybody on the basis of my experience; nor did anybody ask me for one. So I simply wrote an article in The Times, saying that I thought that the result of the Vietnam war would be settled primarily by the Vietnamese and not really by the Americans, and that turned out to be perhaps a not useless result from the journey.
Our official observers in the case of the Salvadorean election have declared, by and large, that it was okay. They have given it roughly a clean bill of health. Let us examine this. An election is a social process which takes place between two classes of people, candidates and electors. If we start with the candidates, we find that in the words of the official observers themselves:
"The fear of the Left for the physical safety of Left-Wing candidates, had there been any, was not without justification".
That is very mildly put. Lord Chitnis put it somewhat more robustly in his speech in introducing this very welcome debate. I would put it more robustly still: they knew that if they stood they would be butchered or shot; therefore, they did not stand. Who would?

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If we turn now to the other partner in the social contract of an election—the electors—we find once again from the official observers' report the following. If they went and voted they got their hands marked with an ink with lasted more than 24 hours—the official observers do not tell us how much more than 24 hours; it could have been a month, it could have been six months—and they had their identity cards stamped, we understand, for evermore. They were therefore marked as safe people who had voted. They were safe people because, my Lords, in this election voting was compulsory, and if you ignore a compulsory edict from the armed forces and the Government of El Salvador at this moment you know what happens to you—you are butchered or shot.
It is therefore not surprising that many people voted. Nor is it surprising that nobody voted for the Left-wing candidates, because they were not there for fear of being butchered or shot. Nevertheless, the official observers found it possible to give this election a clean bill of health in our name in a White Paper published by the British Government and presented to the British Parliament and people. I will say no more, but I will listen with the greatest interest to what the noble Lord speaking for the Government has to say in reply to this short debate.
10.50 p.m.
Lord Belstead: My Lords, I am grateful to the noble Lord, Lord Chitnis, for giving the House an opportunity to consider an event which has been the subject of much public interest and discussion, not only in this country but elsewhere. As your Lordships will know, the Government decided to respond to an official invitation extended by the Government of El Salvador to send observers to the Constituent Assembly elections held in that country on 28th March. The Government sent two independent observers—men whose integrity was unquestionable—to view the electoral process and to report on it. It was made clear at the time to all concerned that this decision was not to be interpreted as support for any political grouping in El Savador.
The observers, Professor Bowett and Sir John Galsworthy, went to El Salvador on 21st March. That was in fact the day they were invited to arrive, and, incidentally, three days before campaigning ended. They remained there for 10 days. The noble Lord, Lord Chitnis, was critical of the timing of the arrival. They were the first official team to arrive. A summary of their findings was made available to the House on 6th April, and their full report on the election was placed in the Library of the House on 22nd April.
I am sure noble Lords will agree that the report is a conscientious and workmanlike document. It can properly serve as a guide to the Government in their judgment of the election. The observers have made it clear that no obstacles were placed in their way by the Government of El Salvador. They point out that they were free to move around the country—one of the tests to which the noble Lord, Lord Kennet, attached importance, I think—and to interview anyone they wished in conditions of complete privacy. They concluded that the system provided by the Transitional Electoral Law contained sufficient safeguards to ensure an electoral result reflecting the sentiments of the
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Salvadorean people, and that the actual conduct of the election, though not free from difficulties, was fair. They also took the view that the people of El Salvador saw the election, not as itself a solution to their problems but as a first and essential step towards a resolution of their great problems. I must say that I was glad that this was an aspect emphasised by my noble friend Lord Montgomery of Alamein in his speech.
Most importantly, the observers believed that the election was a demonstration that the people wished to try to resolve their problems by democratic processes and not by violence. The Government have also read with care the report prepared by the noble Lord, Lord Chitnis. It is not for the Government to defend in detail either document. However, I must tell your Lordships that, although I have listened carefully to the noble Lord's speech, the Government find the official report to be convincing and persuasive and we accept its conclusions.
The noble Lord referred to the non-participation of parties to the left of the Christian Democrats and those who are currently within the umbrella opposition grouping, the FDR—that is, the Democratic Revolutionary Front. It is not correct, however, to believe, as I think the noble Lord, Lord Underhill, believed, that all those non-contending parties would have had to go through the process of registering for the election by submitting the names of 3,000 supporters and thus placing their lives at risk. The Salvadorean Electoral Commission had declared that the prior registration in previous elections of two parties within the FDR—namely, the MNR, which was specifically mentioned by Lord Underhill, and the UDN—made their re-registration for the 1982 elections unnecessary. Nonetheless, those parties chose not to participate. I think that that is a matter for regret. But, having said that, one must not be naive in this matter. I fully appreciate that the murder of the FDR leaders in 1980—an act which was condemned by Her Majesty's Government in a message to the Salvadorean Government at the time—served as an ominous precedent. This was, indeed, acknowledged by the official observers. But so, too, was the appalling toll of Christian Democrat party workers mentioned, very fairly, by the noble Lord in page 12 of his report.
The noble Lord was also highly critical of the impression of our official observers about the reluctance of parties within the FDR to participate. But we really cannot get away from the fact that, imperfect though the circumstances for holding such an election were, the majority of the people of El Salvador voted for parties who were known to be to the right of the Christian Democrats and who were implacably opposed to the guerrillas and all they stood for.
I must therefore reject the suggestion that the electorate voted merely in order to get their names listed at the polling station and to have their identity cards marked. The observers' report makes clear that the ink used disappeared within 24 hours—
Lord Kennet: My Lords, I thank the noble Lord for giving way. I believe it says that it lasted for at least 24 hours. If I have misread the report and it said, on the contrary, that it disappeared within 24 hours, I should be grateful if the noble Lord could refer me to the paragraph.
Lord Belstead: I am afraid that I cannot refer to the paragraph, my Lords. I think the report said "within 24 hours". What was also said by the noble Lord, Lord Chitnis, was that on several occasions ink did not show up at all under polling booth infra-red lamps. So there is extra corroboration in the direction of the argument I am using.
I do not agree that the stamping of identity cards was unnecessary. Marking voters' fingers prevented individuals from voting twice. Marking identity cards prevented the misuse of the cards in neighbouring polling booths. Nor can we accept that most people voted out of fear. There was no way of knowing how a person voted. Moreover, both reports made it clear that the prevailing atmosphere was relaxed. Compulsory voting is not, of course, unknown in unimpeachably democratic countries; for example, Belgium and Australia.
Having said that, there is no question that the guerrillas tried to intimidate and kill people who wanted to vote. As the noble Lord himself noted, mines were laid on roads by the guerrillas. Those watching television saw how guerrillas attempted to take the town of Usulutan. The observers reporting to Her Majesty's Government noted that the guerrillas had made a determined effort to prevent the electorate from reaching the polls by conducting a campaign of burning buses, an act which did not prevent voters turning out in their hundreds of thousands. There is no doubt in the Government's mind that a sustained and reprehensible effort was made by the guerrillas to intimidate the populace and prevent them from exercising a free choice.
In saying that I am bearing out the reasons why the Government accept the argument of the observers that by and large the electoral process was fair but it was not without flaws. Both the official observers and the noble Lord, Lord Chitnis, expressed concern at the seemingly limitless funds employed by the extreme Right-wing party ARENA in its campaign. Both reports agreed that the voting procedure was unnecessarily complex and caused delays.
At the same time, I think it is important to note that the noble Lord does not allege personation, double-voting, or massive fraud. On the contrary, I think it is fair to say that he recognises that none of these were in evidence at the polling stations he visited. Equally, he makes no accusation of intimidation or coercion against the army or security forces. On the contrary, he says that the people accepted the presence of the soldiers and admits that the army confined itself to crowd control. On the basis of our own observers' report, I would share those views.
Lord Chitnis: The noble Lord does not believe an election is just polling day, does he?
Lord Belstead: No, my Lords, I did not think that I had given that impression during my speech.
The noble Lord criticised the manner in which the official observers were transported on their journeys in El Salvador. Because of the danger, many Governments did not appoint observers. We would have been failing in our duty if we had asked our observers to deny themselves the security offered by the Salvadorean Government. But I would repeat the assurances given by the observers that at no time did the Sal-
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vadorean Government deny them the right to go wherever they chose. They have also told us that the security guards never entered a room in which they were holding discussions, and that their escort was always invariably separated from them in the crowds at the polling stations. The noble Lord in his report describes a "bizarre encounter" with Sir John Galsworthy on election day. The person described by him as a bodyguard seated next to Sir John was in fact Her Majesty's Ambassador in Honduras. No observer is infallible and the noble Lord proved that on that occasion.
I should also like to comment on the human rights situation. It was never the intention that the observers should investigate the human rights situation as such. Other organisations—most notably the United Nations Human Rights Commission—are specifically concerned with such a task and are currently conducting an investigation. We have welcomed this investigation and continue to support it. But many points in the official report do touch on subjects of human rights interest; it would be absurd to suggest that human rights considerations were excluded from the context of the report.
The Government's own attitude to human rights in El Salvador was made clear in answer to a Question posed in another place on 3rd March when the Minister of State in the Foreign and Commonwealth Office at that time, Mr. Luce, said:
"We are fully aware that there is a large scale abuse of human rights in El Salvador. We note that in his final report to the United Nations Human Rights Commission, the special representative states that violations of human rights are in the majority—though not solely—perpetrated by members of the State apparatus and violent groups of the extreme Right. We repeat our call upon the Salvadorean Government to ensure that all its citizens, including those within the armed forces, act within the law, and bring those responsible for such abuse to justice".
I am glad to have this opportunity to tell the House that this remains the policy of Her Majesty's Government.
It would not be right for me to leave this subject without some consideration of the' outcome of the elections. As the House knows, no one party won an outright majority in the Constituent Assembly: the Christian Democrats polled the largest vote and obtained 24 of the 60 seats. As happens often in such situations in Western Europe and elsewhere, alliances and coalitions were then formed. Such coalitions are generally regarded, not as a hoax on the electorate as the noble Lord, Lord Chitnis, suggests in his report, but as pragmatic attempts to form and continue a Government.
A Government has now been formed under an independent, Alvaro Magana, who won the support of the majority of the Constituent Assembly, including the Christian Democrats. Members of all the main competing parties have been appointed to offices of the new Government. The task before them of bringing an end to the war, rebuilding the economy and recreating a just society is very formidable. Let nobody underestimate that: Her Majesty's Government certainly do not. Let us hope that this is a new opportunity for El Salvador. At the same time I think it right to reaffirm that Her Majesty's Government look to the new Government of El Salvador to curb human rights abuse, to bring those responsible for such abuses

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to justice and to maintain necessary social and economic reforms.
This year's elections of a Constituent Assembly were only a first step towards a resolution of El Salvador's tragic difficulties. It is now for the new authorities in El Salvador to find a way forward towards a peaceful settlement to a conflict which still rages, as the noble Lord, Lord Chitnis, rightly says, and still takes many innocent lives. There are many who have been forced into exile who wish to return and who could have a valuable role to play in El Salvador's future political and economic development. We note from reports that President Magaña has not ruled out the possibility of a dialogue. We fervently hope that it will be possible to achieve a peaceful solution to the problems of his country, and we look to the new authorities in El Salvador to propose how this can best be achieved.

Civil Aviation Bill [H.L.]
Returned from the Commons agreed to.
Civil Jurisdiction and Judgments Bill [H.L.]
Returned from the Commons agreed to with amendments; the amendments to be printed.