Lords Sitting of 14 April 1983

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

Village Ventures Competition
Baroness Lane-Fox: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many schemes have been organised under the Village Ventures Competition.
Lord Skelmersdale: My Lords, I understand that more than 1,500 schemes were submitted for this competition which was organised by Rural Voice at the invitation of my right honourable friend the former Secretary of State for the Environment.
Baroness Lane-Fox: My Lords, in thanking my noble friend for that Answer, may I ask whether this partnership between Government and rural areas appears to be promoting the stimulation of the self-help and initiative that is always present but sometimes latent in village areas? Can he also describe some of the actual projects that have been included in the scheme?
Lord Skelmersdale: My Lords, yes. That was certainly the rationale behind the decision of my right honourable friend to part finance this scheme. The object was to take an existing project a stage further. Since 1975, 12 counties have participated by running their own competitions to encourage self-help projects in villages in order to enhance the quality of life and to improve the viability of rural communities. These projects have been very wide-ranging; for example, a volunteer-run community shop and the rebuilding of a village hall in Gloucestershire, a television relay station for an isolated community in Cumbria, a social club in North Yorkshire and a community swimming pool in Dorset.
Baroness Birk: My Lords, will the noble Lord not agree that the funds made available for prize money could possibly be better used if allocated as a system of grants since this would encourage a wider range of self-help activities in rural areas? Is he also aware that this approach has the support of Rural Voice which, as I am sure he knows, is an alliance of nine national organisations representing rural communities and interests right across the field?
Lord Skelmersdale: My Lords, the noble Baroness has correctly identified Rural Voice which, when preparing for this Question, I found difficult to do. The substantive part of her supplementary question was to ask whether the prizes would not have been better in
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the form of grants. At the instigation, I understand, of Rural Voice, this was a wide competition with many prizes, none of them greater than £150. I do not therefore think that grants would have been appropriate in this case.
Lord Northfield: My Lords, are the Government linking this type of activity with the work of the Development Commission? I understand that the Development Commission can offer 35 per cent. grants for the conversion of redundant farm buildings and can offer 50 per cent. towards the cost of local authority small workshops. Do we not need to link the economic revival of the countryside with the beautification of villages?
Lord Skelmersdale: My Lords, yes. The noble Lord is correct. Although the present scheme has come to an end, I understand that Rural Voice hopes to continue it and the Development Commission has agreed to provide further financial assistance in the same way that my department did; that is to say, on a pound for pound basis.

Certificate of Prevocational Education
3.11 p.m.
Lord Gainford: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when the new certificate of prevocational education will be introduced.
The Earl of Swinton: My Lords, my honourable friend Mr. William Shelton, the Parliamentary Under-Secretary of State for Education and Science, announced in another place on 24th March that he had invited the Business and Technician Education Council and the City and Guilds of London Institute to establish joint arrangements for a national system of prevocational education which will include the certificate of prevocational education qualification. These arrangements will fill an important gap in the provisions for young people who wish at 16 to stay on in school or go to a FE college for a year in order to continue their full-time education so as better to prepare themselves for the world of work, or for specific vocational courses. The first CPVE courses will be made available in Sepember 1983, of necessity based largely on existing provision. More complete and coherent arrangements will have been developed, preferably by September 1984 and no later than September 1985.
Lord Gainford: My Lords, I thank my noble friend for that full Answer. Has he any information about what subjects are likely to be compulsory and which ones may be optional?
The Earl of Swinton: My Lords, the whole system for 16-year-olds will be optional. It will be a matter of whether or not the young people wish to do it. The subjects will be largely an issue for the new board. I understand that there will be a mixture of what might

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perhaps be called traditional school subjects, such as English, mathematics and maybe some computer work, and also experience and studies for work. It is very much for the board to decide what to do.
Baroness Fisher of Rednal: My Lords, is it correct that the new certificate will be awarded for a grouped course which obviously takes into consideration preparation for the world of work? In view of that, does the Minister feel confident that young people will stay on at school or college to take this examination, when they can obtain work experience and get £25 per week under a youth training scheme? Does he not think that the young people will choose the £25 a week and the youth training scheme in preference to the new arrangement which he is bringing forward?
The Earl of Swinton: My Lords, I do not think that that is necessarily so, because this new CPVE is aimed primarily at a different target group. An increasing number of young people are choosing to stay on in full-time education, and it is important that an appropriate qualification should be made available to those who do not have the traditional academic inclinations. The document Seventeen-Plus—A New Qualification, published in May 1982, forecasts an initial take-up of some 80,000 per year. I think that target may not be met initially because of the limited amount of time available between now and September to launch the qualification. At the same time, I am informed that there is a very satisfactory number of young people who wish to take advantage of this particular qualification.
Lord Leatherland: My Lords, can the Minister tell us whether there will be any upper age limit for this certificate? I have an interest because I shall be 85 on Monday.
The Earl of Swinton: My Lords, I would not hazard a guess at the noble Lord's age because he looks so young. However, it is, I think, aimed at the 16-year-olds; those who want to go immediately on from school and spend a year getting this qualification.
Baroness Fisher of Rednal: My Lords, in view of the Minister's reply, does it mean that the 80,000 who will be taking this course—or it may be less than that if the take-up is lower—will be taken off the unemployment figures of young people?
The Earl of Swinton: Yes, my Lords. It will simply be considered as a continuation of their education, and as such they will not go on to the unemployment register.
Lord Ross of Marnock: My Lords, can the Minister say whether this has a purely English application?
The Earl of Swinton: My Lords, I would have made some inquiries about that had I known that the noble Lord, Lord Ross, would be here. I suspect it has, but I shall have to write to the noble Lord with a definite answer.

Miss Ruth First
3.17 p.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what inquiries and respresentations they have made to the Government of Mozambique concerning the murder in Maputo of Ruth First, a distinguished British subject, and whether responsibility for the murder has been established.
Lord Skelmersdale: My Lords, our ambassador has been in close contact with the Mozambican authorities about this sad case. The Mozambican authorities are continuing their investigations but have not as yet been able to establish who was responsible.
Lord Jenkins of Putney: My Lords, the noble Lord will agree that this is a very sad business indeed and he will also agree that it is now a very considerable time since the murder took place. Is the noble Earl in a position to bring any further pressure to bear in the matter so that we may know more details of what investigation has taken place and what further steps may be possible?
Lord Skelmersdale: My Lords, as I understand it, our embassy in Maputo is in contact with the Mozambican authorities, who are pursuing their investigations as to how, why and by whom this dastardly act was committed. I am afraid that I cannot give the noble Lord any more details than that.
Lord Cledwyn of Penrhos: My Lords, is the noble Lord aware that grave allegations have been made and have been reported in the British press that this is part of the South African campaign of destabilisation in this area? Of course there are many other cases as the noble Lord is aware. To what extent are Her Majesty's Government making representations to the South African Government about this?—because the consequences, if it increases and develops in that area, could be disastrous not only for the area itself, but for this country and the world at large.
Lord Skelmersdale: My Lords, if that were so, I should agree with the noble Lord the Leader of the Opposition. But I would emphasise his word "allegations". Nothing has so far been proved and it could very well turn out that there was another reason for this sad act.
Lord Milford: My Lords, why look for the answer in Mozambique, in Maputo? Is it not much more likely to find the answer here in England? Are the Government not aware that in 1980 a South African self-confessed spy gave details of accredited diplomats at the South African Embassy who were in fact operatives of the South African National Intelligence Service and were producing files on individuals and organisations opposed to apartheid? Is the Minister aware that the report specifically mentioned a bulging file on Ruth First?
Lord Skelmersdale: No, my Lords, I was not aware of that, although I have no doubt that the noble Lord's information is correct and this was a published fact. However, in the event, I do not believe that any useful purpose would be served by setting up an inquiry in this country, thus cutting across the official Mozambique investigation. And of course the reason for such an inquiry stems from events which took place in Mozambique.
Lord Hatch of Lusby: My Lords, will the noble Lord agree that Ruth First was one of the great herioc figures in the African nationalist movement of this century, and that she was a British citizen simply because she had been incarcerated for 117 days in a South African prison? Is he further aware that she is the fourth of my own personal friends who has been murdered in suspicious circumstances as a part of their life's work against apartheid? Will he give the House an assurance that the British Government are aware of the widespread activities of the South African security and intelligence forces, and that they will accept their responsibility to protect all British subjects against such attacks in the future?
Lord Skelmersdale: My Lords, we can only protect British subjects when we know of their existence; in other words, in this particular case, Miss First was, I am informed, not registered at the embassy in Maputo and nobody knew that she was, in fact, a British citizen. Contrary to what the noble Lord has said, Miss First was born in South Africa and she acquired British nationality, not because she was in a gaol, but when she was resident in the United Kingdom in the 1960s, working, among other things, as a lecturer in sociology at Durham. As the noble Lord says, she was very deeply involved in South African liberation politics. But I must repeat, we do not know who was responsible for her death.
Lord Jenkins of Putney: My Lords, will the noble Lord draw the attention of our ambassador to what has been said in the supplementary questions, ask him for a report and seek to make a statement at a later date?
Lord Skelmersdale: My Lords, I am not quite sure about the propriety of making a statement at a later date, but, as regards the first part of the noble Lord's supplementary question, most certainly I shall do that.
Lord Hatch of Lusby: My Lords, just for the record, would the noble Lord agree that Ruth First was in this country solely because she had been imprisoned in her own country, in South Africa, and had been allowed to leave South Africa in order to come to this country? That was how she acquired British citizenship.
Lord Skelmersdale: No, my Lords, she acquired British citizenship because she was here in this country working for a long enough period to fulfil that particular criterion.
Lord Milford: My Lords, would the Minister not agree that it might be a good idea to vet South African people coming here as diplomats and, if they have a suspicious past, to withhold their visas?
Lord Skelmersdale: My Lords, with respect, that is a totally different question.

Helsinki Agreement: Madrid Conference
3.23 p.m.
Lord Brockway: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make a statement on the proceedings of the Madrid Conference on the Helsinki Agreement.
The Lord Privy Seal (Baroness Young): My Lords, at its recent session, the Madrid Conference focused mainly on the draft concluding document and on the amendments which the West had proposed to it. The neutral and non-aligned participants tabled a revised draft on 15th March. We are consulting our partners and allies about the appropriate response by the West when the meeting reconvenes on 19th April.
Lord Brockway: My Lords, while thanking the Minister and regretting that I did not hear all her Answer, for which I apologise, I should like to ask this: was there not considerable agreement on the document which the non-aligned countries prepared? Was the difference of opinion on the monitoring of military manoeuvres and on the subject of disarmament? What was the attitude of the British Government on these issues and was any decision reached regarding a European disarmament conference?
Baroness Young: My Lords, I must apologise to the noble Lord, Lord Brockway, if I did not speak clearly enough. I hope that he will hear my answer. I should like to make it quite clear that the draft proposals put by the neutral and non-aligned countries have features which Her Majesty's Government welcome, but, as has been reported in the press, it does not include Western proposals concerning, for example, the Helsinki monitoring groups, the expulsion of journalists and radio jamming.
So far as our objective is concerned, we continue to seek a satisfactory outcome in the form of a substantial and balanced concluding document covering all areas of the Helsinki Final Act.
Lord Thomas of Swynnerton: My Lords, bearing in mind that the Soviet Union does not seem to have carried out many of its undertakings made at Helsinki and apparently has not the slightest intention of doing so, are the Government satisfied that there is any point in continuing with this enterprise in Madrid?
Baroness Young: My Lords, the answer to my noble friend, who has raised a point which has been of concern to many people, is that we believe that, if we were to abandon this process, we should forgo the opportunity to draw attention to Soviet and Eastern European failure to fulfil their commitments undertaken at Helsinki and give up the attempt to build constructively on those commitments.
Lord Avebury: My Lords, has there been any progress whatever since the Helsinki agreements were concluded in the matters of human rights, some of which the noble Baroness, Lady Young, referred to herself in the answer to the first supplementary question? Has there been one instance of a person having been allowed to leave the Soviet Union after suffering persecution because of his beliefs, such as the case of Mr. Shcharansky, which the Prime Minister herself took up recently?
Baroness Young: My Lords, I acknowledge that there are many outstanding, very difficult cases, and Her Majesty's Government acknowledge that point. We are, of course, pleased at the release of the "Siberian Seven", though this, of course, is just a step—one instance. But that does not in any way mean that we should give up the attempts to build on an agreement that has already been signed.
Lord Cledwyn of Penrhos: My Lords, is the noble Baroness aware that we on this side of the House entirely agree with her that it is vital to maintain lines of communication between the West and the Eastern bloc? Could she say a little more about the draft proposals of the non-aligned countries? Does she agree that there is sufficient substance in those proposals to enable Her Majesty's Government and their allies to seek an agreement in Madrid after the conference reconvenes this month? Is she satisfied that there is a real prospect of a settlement on this occasion, in view of the disappointments of the last two conferences?
Baroness Young: My Lords, of course we hope that there will be a settlement and, as I indicated in an earlier answer to the noble Lord, Lord Brockway, the draft from the neutral and non-aligned nations has, indeed, features which we welcome. But the proposals, which I think the West have put forward, have been very much designed to strengthen the commitments of the participants in all areas that were covered by the Helsinki Final Act, and they include not only monitoring groups but trade union rights, human contacts, the working conditions of journalists and, indeed, a conference on disarmament in Europe.
Lord Brockway: My Lords, while welcoming the decision of the Government, does the noble Baroness not agree that it is by this kind of co-operation that there is likely to be some modification of the denial of human rights in the Soviet Union? I speak from some experience. Does she not also agree that, while we denounce denial of human rights in the Soviet Union, we must remember that the United Nations has declared that 82 countries, many of which are our own allies, are denying human rights?
Baroness Young: My Lords, as I have indicated, our Government and the Western Governments hope that, when the conference resumes, we shall reach an agreement on a substantial and balanced concluding document. I do not think that there is anything further that I can add on those other matters at this stage.
Lord Orr-Ewing: My Lords, would my noble friend bear in mind that the Soviet Union are honouring the rules of the Helsinki agreement more in the breach
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than the reality? If a new agreement is reached—and there are many of us who support the idea that to talk is better than to shun—can we be sure that these new rules will be carefully and accurately monitored, and monitored from within the Soviet Union, without those in Russia who monitor them being shut up or assaulted, as is currently happening with the present Helsinki agreement?
Baroness Young: My Lords, of course I welcome what my noble friend has said about the attitude that Her Majesty's Government are taking over this matter. He may like to know that the leader of the British delegation has indeed repeatedly described the plight of certain people in the Soviet Union—for example, the Helsinki monitoring groups; certain religious communities; and people in both penal and psychiatric institutions. He has also referred to the Soviet jamming of radio broadcasts, and measures to inhibit the export of books to the Soviet Union. The conference has been left in no doubt about our view about all these things. Of course we cannot at this stage make guarantees about the future, but one must try to work to see whether we cannot get some progress on the Helsinki Final Act.
Lord Elwyn-Jones: My Lords, is it possible to obtain more publicity from the matters that are disclosed at this very important conference? One receives communications from the people concerned which really are alarming in their extent and in their nature. I wonder whether there is any effort made to publicise. I take it that the proceedings there are not themselves public. If that is so, the need for some subsidiary form of publicity seems to be very important.
Baroness Young: My Lords, I certainly take the point of the noble and learned Lord. I am quite certain that a parliamentary Question such as this gives an opportunity to give answers to some of the points that are of most concern, and to indicate exactly where we are at this particular time. However, I shall indeed draw to the attention of my right honourable friend the Foreign Secretary the point that has been raised, because, although I understand that the Foreign Office does in fact publish information at regular intervals, it may well be that something more could be done.
Lord Kennet: My Lords, what is the present position of the Government towards the proposal for the European disarmament conference, which the Leader of the House has just mentioned and which has, in the past, been more associated with France than Britain?
Baroness Young: My Lords, on that particular point we of course support the idea of the conference on disarmament. Its purpose would be to negotiate in the first phase confidence-building measures which are militarily significant, politically binding, verifiable and of course applicable to the whole of Europe, East and West.

Armed Forces' Youth Training Scheme
3.32 p.m.
Lord Denham: My Lords, at a convenient moment this afternoon my noble friend Lord Avon will, with

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the leave of the House, repeat a Statement that is to be made in another place on the Armed Forces' Youth Training Scheme.

Value Added Tax Bill [H.L.]
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I beg to introduce a Bill to consolidate the enactments relating to value added tax. 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.

Car Tax Bill [H.L.]
The Lord Chancellor: My Lords, I beg to introduce a Bill to consolidate the enactments relating to car tax. 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.

Ashridge (Bonar Law Memorial) Trust Bill
Read a second time, and committed to an Unopposed Bill Committee.

Level Crossings Bill
Lord Brooks of Tremorfa: 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 commitment be discharged.
Moved, That the order of commitment be discharged.—(Lord Brooks of Tremorfa.)
On Question, Motion agreed to.

British Shipbuilders Bill
3.35 p.m.
Report received.
Clause 2 [Organisation etc. of British Shipbuilders' activities.]
Lord Bruce of Donington Lord Bruce of Donington move Amendment No. 1:
Page 2, line 40, after ("or") insert (", subject to the provisions of subsection (1A) below.")
The noble Lord said: My Lords, with the leave of the House I propose to move Amendment No. 1 and to speak to Nos. 2 and 3 as well, since they all fall together. The purpose of these amendments is to enable a reasonably accurate price to be obtained when the Secretary of State, in using his powers under Clause 2, directs British Shipbuilders to dispose of various interests which are described in general terms in Clause 2 itself.
Your Lordships will be aware that we on this side of the House dispute the whole purpose of Clause 2, which is to give the Secretary of State powers to dismantle, virtually, at a point of his own choosing, British Shipbuilders. The noble Lord, Lord Trefgarne, when he was speaking not only at Second Reading but also in Committee, gave a pretty broad hint to the House that it was the intention to dispose of part, or the whole, of the warships section of British Shipbuilders. Your Lordships will be aware, that, speaking in your Lordships' House yesterday, the noble Earl, Lord Gowrie, in announcing that about £2 billion had already been brought into the Treasurey as a result of previous privatisation measures, indicated that a further £2½ billion was also on the pipeline in relation to future privatisation.
It may well be, of course, that her Majesty's Government will not be afforded the opportunity of proceeding with this privatisation to the tune of a further £2frac12; billion because, of course, there is an election coming. So far as we on this side of the House are concerned, that election can take place just as quickly as maybe, because we are quite confident of its result. Nevertheless, it is a prospect, by some queer act of fate or some national misfortune, that we may neverthless be inflicted with another era of Thatcherism. This is possible, and indeed the House must legislate for that possibility.
Therefore, it is desirable that, whether these various assets be in the form of companies, of shares in companies or of tangible or other assets, we should look carefully into the whole quesion of the value and the benefit that is obtained either by British Shipbuilders or, in certain circumstances, by the Treasury itself for the transfer of these assets into private hands. Your Lordships will be familiar with several cases of privatisation, the results of which have raised eyebrows in all parts of the House and, indeed, in another place, where manifestly, on privatisation, the assets belonging to the nationalised industries have been disposed of at a price which has not reflected their true value. As a consequence, the state—if the state has been involved—or the corporation, has suffered loss. By the same token, there have been occasions, notably Britoil, where apparently there was an overvaluation, and the results are well known.
It is important that some rules are laid down. That becomes even more necessary in the light of the attitude apparently taken by Mr. Nigel Lawson in the disposal of Wytch Farm, in which, as recorded in Hansard of another place for 28th March, the right honourable gentleman confirmed that British Gas had been ordered to dispose of its interest. He was questioned about the price. Noble Lords who read The Times and other reputable newspapers will recall that the price which British Gas put on Wytch Farm was in the region of £500 million, whereas they are being compelled to sell at nearer £240 million, or even less. The Secretary of State for Energy was emphatic about it. There was no argument; the House of Commons had decided—the people's will had been spoken, through Her Majesty's Government—and that was the end of the matter.
It is one thing for the sale of an undertaking to take place between willing buyer and willing seller. It is another if the seller is instructed to sell against his will,

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because the prospective purchasers must be aware that if they play the waiting game, the Secretary of State will be bound to instruct the corporation concerned to sell—to a given organisation or consortium—at a given price. So that in itself hardly provides the circumstances under which a sale at fair value can take place.
It is that state of affairs that the amendment is designed to remedy. I concede that the wording of the amendment may require correction. Your Lordships will note that I have stipulated in it that the price should be by reference to that determined between willing buyer and willing seller and that, in default of agreement on that, it should not be left to the Secretary of State to issue a diktat but that he should request either the president for the time being of the Institute of Chartered Accountants in England and Wales or, if appropriate, the president of the Institute of Chartered Accountants in Scotland, to appoint an arbitrator with a view to determining a reasonable and fair price.
The wording of the amendment, if the principle is agreed, will obviously have to be extended to include the presidents of the Association of Certified Accountants and the Institute of Cost and Management Accountants, as well as perhaps the Chartered Institute of Public Finance and Accountancy—in other words, all those professional bodies of accountants that are gathered together within the consultative committee of accountancy bodies and which are recognised officially as the leading professional organisations under the Companies Act.
There may be arguments against what is proposed, but the Government are operating under circumstances which differ substantially from those obtaining in private industry. The Government are very strong indeed on value for money and have emphasised repeatedly in other contexts the necessity for value for money audits. Your Lordships will recall that during the passage of the Local Government (Miscellaneous Financial Provisions) Act and other local Government legislation, great emphasis has been placed by the Government on the necessity not only for financial probity but financial prudence.
Should not those same values operate on the disposal of valuable assets? The system of Government accounting and the system of accounting obtaining in local government is, with some modification, entirely on a cash basis—money in and money out—and the Government make no effort to account for the capital assets that they possess. A similar situation is applicable in local government, as was revealed in the Layfield Report; that even though ratepayers' and taxpayers' money has been spent on capital projects—in the acquisition or building of substantial assets—Government accounts do not take any account of that, nor do the accounts of local authorities.
What would be said of an ordinary commercial company in the possession of substantial assets used in the process of production or commerce, or whatever it may be, which suddenly disposed of some or all of those assets at half the price? Not only would the auditor's attention be drawn to it—he would soon discover it—but it would be reflected in a loss figure being incorporated in the accounts of the company concerned.
Not so with the accounts of central Government. They can dispose of their assets at whatever value they choose, for whatever purpose they conceive—even though the purpose may be entirely political—yet the public at large are quite unaware that in disposing of property (public property paid for out of taxpayers' money) they have flogged it off to private interests at prices far below those which they would normally obtain as between willing buyer and willing seller. The noble Earl, Lord Gowrie, mentioned that £2,000 million had been paid into the Treasury as a result of the privatisation measures so far taken. I would gamble—the Minister can dispute it if he wishes—that that figure would probably have been increased by another £500 million if proper steps had been taken to ensure a proper valuation of the assets, be they shares or physical property, at the time those sales took place. This amendment seeks, therefore, to protect the taxpayer.
It is all very well for the Government to realise assets that have been purchased out of taxpayers' money, sell them off to private interests, and then use the money—which indeed they do—for ordinary current purposes in relief of the public sector borrowing requirement; but the public do not know this and the public ought to know it. What has happened so far in a number of instances has been a public scandal. Even though it is not part of this Bill, noble Lords will be aware of the circumstances in which people are permitted to acquire homes at one-half their market value. That does not show up anywhere in the accounts of the local authorities, but it is a loss nevertheless.
In moving this amendment, I ought to say to the noble Lord that we are laying down guidelines which we think could usefully be followed, and I would warn him, in terms as temperate as possible, that when the next Labour Government get in office we shall exhume some of these transactions that have taken place; and that what happens now and what has happened in the past may well form a very useful guide as to what may happen on repossession. It is all very well to say that the fixing of a share price or the value of an asset can easily be determined on the basis of market forces. Market forces are a favourite aid to noble Lords opposite as being the cure to all ills and as being the very great leveller to find out what really is the true worth of things. But, as I said at the outset of my remarks, when there are circumstances in which a seller is forced to sell to a prospective buyer, this hardly produces a situation in which an accurate price can be determined; nor is it sufficient to say, as his right honourable friend Mr. Nigel Lawson said in another place when discussing the valuation of Wytch Farm, that a distinguished oil analyst had been called in and had given a figure.
Noble Lords with experience in commerce and industry will know quite well that the valuation of shares, particularly unquoted or unlisted shares, is a very difficult and complex matter that has to take into account a variety of factors. It can be dealt with on an earnings basis, or on a dividends basis, or on a net asset realisation basis; a whole series of factors have to be taken into account. The physical aspects of the business concerned, if it is a business, need to be thoroughly reviewed. The business position in terms of

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the future earnings of the company, in terms of its future sales, the kind of competition against which it will come—all have to be very carefully reviewed. And so does the trading position of the company, the degree to which it is capable of sustaining its overhead expenditure at certain levels, bearing in mind current conditions, and how it can maintain its profitability. So, indeed, does the financial situation have to be reviewed before an accurate valuation can be determined. Cash flows have to be estimated, future capital expenditure has to be reviewed and taken into account. In the case of a valuation of a share or of a company, all these add up to extremely competent professional handling by people who are absolutely impartial.
I think that it would be in the interest, in this case, of British Shipbuilders, and, therefore, in the interests of the country as a whole, if this procedure were adopted. I have already indicated to the noble Lord that my amendment is not, of necessity, in its final form. I have already given an indication that certain modifications in regard to the selection of an arbitrator may have to be inserted. But I am convinced that this, or a procedure substantially like it, is the correct procedure to follow. As I said on a previous occasion, the Government's intention to dispose of the warship section which operates mainly on a cost-plus basis and which is already yielding profits is virtually a no-risk section of British Shipbuilders' activities. The companies comprising it, receiving, as they do, defence contracts from this country and other countries, are virtually in a no-risk situation. Therefore, their return—on the lines currently indicated in the accounts of British Shipbuilders—is virtually assured. This, therefore, ought to enhance on an earnings basis the value to be put on the shares or on the undertakings or even on parts of the undertakings.
I hope, therefore, that the House will accept this amendment as being a genuine endeavour—even though the amendment itself may carry certain technical and legal defects—to see that, if the Government must continue on this process of privatisation, they should at least proceed on the basis in which the British taxpayer does not suffer any unnecessary capital loss so that the whole thing is done quite openly and quite fairly at prices to be determined independently. In that way, perhaps, the unfortunate process of privatisation, even though we do not agree with it, can be carried out in a manner that is fair and open and can be seen to be so by everyone.

Armed Forces' Youth Training Scheme
3.58 p.m.
The Parliamentary Under-Secretary of State, Department of Energy (The Earl of Avon): My Lords, with the leave of the House, perhaps I may now repeat a Statement being made by my right honourable friend the Secretary of State for Defence in another place. The Statement reads as follows:
"With your permission, Mr. Speaker, I will make a statement on the participation of the armed forces in the Government's Youth Training Scheme.
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"I have been considering the role of the armed forces in the Government's programme to provide training and work experience for unemployed school-leavers. The high quality of the training provided by our armed forces has convinced me that they should play a part. I therefore propose to make available some 5,200 places for the young unemployed volunteering for such opportunities which will be on the same basis as the Youth Training Scheme. The precise number of places available in the first year will depend on the number of applications and the capacity of the services' training organisation. The young people will volunteer to join one of the services on a 12-month engagement, part of which will be spent in formal training and the remainder in work experience. All volunteers will receive the same basic training as regular service men and women, and some will go on to learn skills and trades. All applicants for the scheme will be volunteers. will have to satisfy existing entry standards, and will be able to leave at any time on 14 days' notice.
"They will be servicemen and servicewomen, and in all but a few respects will qualify for the same benefits as single regulars and under the same disciplines. They will receive, as will youngsters joining civilian employers in the scheme, an allowance of £25 per week. I have decided that a deduction from this will be made for food and accommodation of £10 per week.
"The Ministry of Defence will receive the same subvention as civil employers. As the YTS volunteers will pay less than the normal service food and accommodation charge, my department will contribute about £1 million to subsidise this lower deduction.
"In order to give effect to these proposals, I shall be laying before the House Statutory Instruments to amend the appropriate service regulations. I hope that the scheme may be in operation before September this year.
"Mr. Speaker, I am sure the House will applaud the willingness of the armed services to devote some of their training skills for the benefit of young people. I recommend the scheme to the House."
My Lords, that ends the Statement.
Lord Bishopston: My Lords, the House will be grateful to the Minister for having repeated the Statement made in another place. A few questions may be relevant at the moment, although the House will have to await the Statutory Instruments, when they come later. May I stress, first of all, that my noble friends and I are not against young unemployed people being given a sense of purpose and being willing to accept some degree of discipline so that they are ready to meet the demands of a working life. That is very important to those who are jobless.
Many, I presume, will question whether this may be the best way to achieve it—it is one way—as it introduces some aspects which are not necessarily helpful to civilian life if those concerned do not wish to opt for a career in the forces at the end of the 12-month period. Will the Minister tell us what consultations have taken place with the MSC on this

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matter, and with what result? Will he also tell us whether the MSC will be involved? Can we be told the full cost of the scheme, and whether the MSC resources generally will be cut, with the reductions being made elsewhere? Also, although it is called a voluntary scheme, will the Minister ensure that there will be no pressure put on the young unemployed people to accept it at the expense of other benefit?
The rates of pay and deductions have been given, and we are grateful for the details provided in the Statement. Will there be a gratuity at the end of the period such as other members of the armed forces may expect for a period of 12 months or even less? This may assist the youngsters in getting a start in civilian life later. Also, without being unduly critical, is this scheme a reflection on the success of other youth training schemes and of the reluctance of some employers to co-operate in them? The Minister will be aware, of course, that 50 per cent. of school-leavers have no job prospects, and some will say that this is another way of reducing the figures of the unemployed without necessarily ensuring a job at the end. I wonder whether the Government have considered an alternative scheme, or another scheme, which would give unemployed young people a chance to join, say, the industrial Civil Service on the same or a similar basis, where the training may be of greater use later on.
Finally, the House will have noted that the Statement has come from the Secretary of State for Defence, and not from the Secretary of State for Employment. While we recognise that it is important to reduce the number of unemployed—in reality, I believe, it is nearly 4 million now—it is important that we have a policy generally which is a comprehensive effort by all Government departments to rejuvenate our economy and provide everyone with a sense of purpose in the national interest.
Lord Hunt: My Lords, I am privileged to have been invited by our colleagues on the Liberal Benches to respond to this Statement on their behalf as well as on behalf of my colleagues on this Bench. In thanking the Minister for repeating this Statement, on behalf of the Alliance I should like to give it a qualified welcome which could, depending on the answers which I hope the Minister will be able to give to my questions, become a more enthusiastic welcome. It is obviously true that this scheme will do nothing to strike at the root causes of unemployment, but it seems to us to be an entirely legitimate and acceptable option to offer to young people in the Youth Training Scheme. I believe it is an option which will appeal to a great many young people, and particularly to those many who not only accept but enjoy structured programmes.
The qualifications that I have are subject to the replies which I hope the Minister will be able to give to my questions. The Statement refers to there being available 5,200 places, at any rate in the first instance. Could the Minister give an assurance that the number will be carefully restricted to around that figure in order to obviate the burden that, as I see it, would otherwise be imposed on the fighting services, and also to invalidate the accusation that has been made that this is simply back-door conscription?
Secondly, the Statement refers to the opportunity to join one of the services. Would the Minister say
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whether this means it is only one of the services which is going to operate the scheme, or will young people have the opportunity to be trained in all three of the services? If so, do all three of the services welcome this commitment? Thirdly, could the Minister give an assurance that the young trainees will not be trained in any sensitive or operational areas? Will training be confined to Great Britain, and not include Northern Ireland? Fourthly, would the Government consider extending this opportunity by offering training in the police services, with the obvious benefit that this would have to community relations?
Finally, is the Minister aware of references that were made by a Back-Bench spokesman from the Government Benches in another place, speaking on the seven o'clock programme on BBC's Radio 4, when he spoke of the services acting as "probation officers manque"? Would he agree that that was a singularly inept reference, even though he made it in a negative sense? It will be inaccurate and insulting to the prospective young trainees themselves, who are not, in all but a very few cases, likely to have been before a court; and secondly, it is inappropriate and unwelcome to make a comparison of that sort with the totally different work and skills of the probation service.
The Earl of Avon: My Lords, I am grateful to both noble Lords for their response. I hope I may be able to persuade the noble Lord, Lord Hunt, that his qualified welcome can in fact become a generous one. The noble Lord, Lord Bishopston, asked about the MSC. Yes, they were indeed consulted. Perhaps I might explain about the money. The Ministry of Defence, in common with civil employers participating in the scheme, will receive a subvention from within the cost of the YTS programme as a whole of approximately £17 million if the 5,200 come in in a full year. That is to cover the cost of training and the payment of £25 per week allowance. Given the decision of the Ministry of Defence to reduce food and accommodation charges, some costs will be borne by the MOD—possibly in the nature of £1 million, as I said earlier.
The noble Lord, Lord Hunt, asked about the burden of training placed on the regular army. The whole point of the 5,200 is that that is the figure which the armed forces themselves at the moment believe they could fit into their training programmes. Therefore, that has been the guideline: they themselves have put forward this figure, and it has in no way been imposed upon them. I honestly do not think we can describe 5,200 as backdoor conscription, because, of course, conscription would involve figures of some 200,000.
About the services themselves, all three services are taking people and, again, the vacancies are split up on the same basis, as I said in the earlier reply. The Royal Navy is anticipating to take up 500, the Army 3,700 and the RAF the balance of 1,000. So far as sensitive areas are concerned, it is not intended to send these personnel to any sensitive areas, and we shall be particularly guided by the fact that people under 17½ who are in the Army are not normally allowed out of the United Kingdom, anyway. I am not sure about the police service, but I will certainly bring that aspect to the attention of my right honourable friend the Home Secretary.

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I fully agree with the noble Lord about the radio excerpt which he quoted. I find it totally misleading and very strange, because the armed services are at the moment very qualified people, there is virtually a waiting list to get in, and only the best are accepted. I think I can say to both noble Lords that it is not only the Ministry of Defence that is making a scheme available. At the moment, a lot of organisations are considering a scheme or are offering places under the Youth Training Scheme. These include the Royal Mint, the Ordnance Survey, off-shore supplies offices and some 12 to 15 other organisations, so there will be a follow-up outside the Ministry of Defence. I hope that I have answered most of the questions put by noble Lords.
Lord Shinwell: My Lords, may I ask the noble Earl whether this so-called voluntary scheme is an admission by the Government that there is not the remotest chance of solving the problem of unemployment among young people? May I ask him therefore why the Government describe it as a voluntary scheme? Is it voluntary, when young people who are unable to find employment are forced to accept any opportunity which would, I hope, provide them—although this has not been mentioned—with food and accommodation? I want to ask further—we have had no details—who will train these young people? I ask that because of my knowledge of what happened when I was associated with the War Office and the Ministry of Defence.
Do we have regulars available for that purpose? Is the noble Earl aware that to train one volunteer will require, in one way or another, three or four regulars? Do we have them? I also want to know whether these so-called volunteers will be provided with food and accommodation, where the accommodation will be and who is to pay for it. Are these people to pay for it out of the derisory sum which they are to receive, or will the Government provide it all? Finally—I ask this question because I realise that there are so many details to go into—are we likely to have a debate on this very important topic?
The Earl of Avon: My Lords, of course, this is not basically a scheme to solve unemployment. It is a scheme of training for youth today. It is a voluntary scheme because, as I explained in an earlier answer to the noble Lord, Lord Hunt, there are a number of other opportunities open to these young people which are being offered at the moment. Therefore, in no way are they forced to accept this scheme. The noble Lord asked who will do the training. The point about the 5,200 vacancies is that this is a capacity which the Army believe they can absorb into their present training structure. As regards food and accommodation, I said in my opening remarks that the total sum per week is £25, out of which the Army will be deducting £10 for food and accommodation. The volunteers will also be fully equipped and clothed by the Army. So far as a future debate is concerned, there will be an Instrument before the House so there will be an opportunity, if anybody prays against it, for a debate.
Lord Boyd-Carpenter: My Lords, will my noble friend allow me to give unqualified support for this intelligent and practical scheme and, at the same time, to ask him two questions as to its operation? The first question is as to whether, within the limits of numbers to which my noble friend referred, the young persons concerned will have an opportunity to express a preference for which of the services they should join for training. Secondly, and almost by way of converse to that, in the event of this scheme being, as I think it may well be, over-subscribed, will the services themselves have power to discriminate and select between one applicant and another?
The Earl of Avon: My Lords, details of the training itself have not yet been finished. In answer to my noble friend, I think it best to say that it would depend on the capacity of the training organisations in the chosen fields, when the youngsters apply, and on their own aptitudes. In the RAF, it may include for instance, MT driving, typists, administrative clerks, painters and finishers. In the Royal Navy it is hoped to train some youngsters as communicators, dental assistants or even medical assistants, and in the Army there is scope for training in light engineering. So that anybody will be able to opt for training. But, of course, the vacancies will be very limited in each area.
Baroness Gaitskell: My Lords—
Lord Molloy: My Lords, may I comment on what the noble Earl has just said and say that this is not an answer to unemployment? We can understand this, because this Conservative Government—
Lord Boyd-Carpenter: My Lords, is this a question?
Lord Molloy:—have no answer whatsoever to unemployment. Would the noble Earl agree that what made this scheme possible—and I beg noble Lords to listen to this—was the policy of Her Majesty's Government, which has thrown nearly 3 million out of work and cannot find gainful employment for a large proportion of the youth of this country? If it were not for the massive failure of this Government—
Noble Lords: Question!
Lord Molloy:—to provide employment for youth in the first place, this scheme would be of no use whatsoever. But there were alternatives which the Government could have used. Is the noble Earl aware that the Prime Minister herself turned down a scheme—
The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers): My Lords, I wonder whether I may interrupt the noble Lord, Lord Molloy, because he will know that on a Statement it is customary to ask questions in order to elicit information about the Statement. He really is in danger—I say this with the greatest respect—of turning this into a debate on unemployment, which is a further subject, and which really is inopportune.
Lord Molloy: My Lords, I fully appreciate what the I noble Earl has said, and I know his embarrassment

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about the unemployment situation. But may I ask the noble Earl this question? There were alternatives, and may I ask whether they were considered? I know that one was considered and rejected by the Prime Minister. That was the industrial Civil Service scheme, under which unemployed youth could have been absorbed into the industrial Civil Service to learn skills which would be of use to them afterwards. But was there not also a possibility of encouraging our youth to join our Territorial Army in a similar capacity? In the Territorial Army, they could have followed those other schemes and, at any moment when there was a change of Government, and when they could be provided with gainful employment, those years or months of training might have been useful to them when they returned to civilian life. Therefore, would the Minister agree—
Earl Ferrers: My Lords, I really must interrupt the noble Lord, Lord Molloy. If I may quote the relevant part of the Companion to the Standing Orders, it says this:
"Ministerial statements are made for the information of the House, and, although brief comments and questions for clarification are allowed, such statements should not be made the occasion for an immediate debate, unless the House so order".
On behalf of the House, I have asked the noble Lord to restrict his remarks to questions for clarification upon the Statement, and I am sure that it will be appreciated if he would do so.
Lord Molloy: Then, my Lords, may I ask one final question? Can the Minister say when these young men who enter this scheme will be returned to normal gainful employment, to the real benefit of our nation?
The Earl of Avon: My Lords, the noble Lord will not be surprised if I say that I disagree with many of the opinions which he has expressed. The noble Lord asked about the schemes turned down by the Prime Minister. I have no knowledge of these, but I read out the names of some of the other organisations which are considering a scheme. These were listed by my honourable friend the Minister of State for the Treasury, Mr. Hayhoe, in a Written Answer in Hansard of 12th April.
The noble Lord asked about the Territorial Army. We would of course encourage that in every way, but I should remind the noble Lord that the Territorial Army is part-time. There is little, therefore, that it could do to help with youth unemployment. However, may I say (slightly out of the side of my mouth this matter) that I very much hope that this kind of scheme will encourage boys who are keen on the army to continue afterwards in the Territorial Army. That is very much one of the hopes that we have for the scheme. So far as the length of time is concerned, this is a scheme for one year.
Lord Rochester: My Lords, I notice that in the Written Answer to which the noble Earl has just referred the Government set out, among other organisations, Ministry of Defence civilian establishments, including the Royal Dockyards and the Royal Ordnance Factories, which are considering offering places under the Youth Training Scheme. May I ask the noble Earl whether the Government are satisfied
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with the overall response to the scheme by the Civil Service, local government and other organisations outside the private sector of industry?
The Earl of Avon: My Lords, I am sure that the noble Lord will realise that he is going outside the scope of this Statement, but so far as the Ministry of Defence is concerned I can say that once the decision had been made they bent over backwards to make it a practical and sensible scheme.
Lord Bishopston: My Lords, may I ask the Minister to reply to two questions that I put to him, which I think he overlooked? One was about a gratuity at the end of the period of service. I also asked the Minister for an assurance that those who are unemployed will not be pressurised, at the expense of their benefits, to go into this or any other scheme.
The Earl of Avon: My Lords, I rather hoped I had answered the noble Lord's question about pressure. There will be no pressure and no enforcement at all. And there will be no gratuity.

British Shipbuilders Bill
4.23 p.m.
Report stage resumed.
Lord Lloyd of Kilgerran: My Lords, if I may continue the debate on the first amendment to the British Shipbuilders Bill, first may I thank the noble Lord, Lord Trefgarne, on behalf of my noble friend Lord Simon, for his letter of 6th April, which dealt with two points which had been raised by my noble friend Lord Simon when speaking to the Question, Whether Clause 2 shall stand part of the Bill?, at the Committee stage. It has been emphasised on this side of the House that this is essentially a bad Bill. It is irrelevant to the needs of the country; it adds nothing to its productivity; it gives no assistance at all towards increasing the wealth of the nation. Therefore, I strongly support the main theme of the amendment moved so clearly a few minutes ago by the noble Lord, Lord Bruce of Donington.
I should have thought that in the circumstances surrounding the recent history of disposal of national assets the Government would have welcomed an amendment to the Bill along the lines indicated by the noble Lord, Lord Bruce of Donington. Some such amendment—that the Government will make arrangements relating to the valuation of any assets to be disposed of—would surely demonstrate to the public that through experience the Government had learned at least one lesson about prudent financing in respect of the disposal of assets. If the Government were to put down an amendment along these lines—not necessarily in the words of the amendment which is before the House; the noble Lord, Lord Bruce of Donington, indicated that he was not committed to its exact wording—I believe that it would assist them. It would avoid them getting into an even more unfortunate position. Indeed, it might improve the Government's position. They would not be criticised in the way that the noble Lord, Lord Bruce of

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Donington, has criticised them so severely this afternoon.
The media, the press and the public have shown themselves to be dissatisfied with the present statutory arrangements for the disposal of national assets, and I should have thought that an amendment similar to this one would have been helpful to the Government. Prudent financing of the kind indicated in this amendment seems to me to be all the more important in view of the speeches of Ministers both at Second Reading and in Committee. At Committee stage on 29th March the noble Lord, Lord Glenarthur, said at col. 1465 that, inter alia, the Government were seeking to
"open the way for flexible arrangements with private enterprise".
The noble Lord said that with great confidence. Therefore, I am tempted to ask: with whom will these flexible arrangements be made? What are the branches of industry with which the Government are going to be associated? If the Government have certain companies in mind, perhaps they would disclose them at this stage.
At Second Reading, on 7th March, the noble Lord, Lord Trefgarne said at col. 7 that the second element of the Bill empowers the Secretary of State,
"to direct British Shipbuilders to dispose of assets and to limit or cease activities".
Again I am tempted to ask (the noble Lord, Lord Bruce of Donington, had this in mind when he spoke earlier): to whom will the Secretary of State dispose of these assets? Do the Government already have in mind to whom they propose to dispose of them? I see that the noble Lord, Lord Trefgarne, shakes his head and whispers "No" to me across the Floor of the House. Therefore, the disposal of assets is a very sensitive area. That is undisputed. I should have thought that it would have helped the Government if they had put into the Bill a broad indication of the statutory arrangements that they have in mind. They must have in mind some improvement to their past methods of assessing the value of these assets. Therefore, they should put into the statute something about arrangements for obtaining a true and fair value of the assets along the lines suggested in this amendment.
Lord Molloy: My Lords, much of what I wanted to say has already been said by the noble Lord who spoke for the Liberal Party. However, I wish to make one or two points, which I hope the noble Lord will take on board and answer. The irrefragable case submitted by the noble Lord, Lord Bruce of Donington, simply calls for an independent arbitrator. To deal with what? No less a person than the Prime Minister herself said that the Government have no money; it is the people's money, which they pay in taxes. We all agree with that statement. But there is some doubt as to whether the people's money is going to be used judiciously. It cannot be used 100 per cent. judiciously. The very existence of the Bill means that the people's money, which has been paid to the Treasury over the years, is going to be dished out to a few privileged persons. In my judgment, this in itself is almost a criminal act. Nevertheless, we on this side of the House have got to look at what we can do to ease the size of the crime.
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I hope that that which my noble friend Lord Bruce of Donington has submitted in his amendment will at least be considered by the Government, and not be simply rejected out of hand, having been looked at for only a couple of minutes in the course of our debate this afternoon. The amendment asks for the establishment of an arbitrator. If the noble Lord who is to respond for the Government has any real concern for—as the Prime Minister herself has said—the people's money, then he ought to be big enough to say that we cannot dismiss this amendment without taking it back and examining it in depth on the basis of the submissions made by my noble friend Lord Bruce of Donington and by the noble Lord on the Liberal Front Bench.
Lord Boyd-Carpenter: My Lords, I cannot recall—although I am sure that the noble Lord, Lord Molloy, will be willing to make up for my lack of recollection—whether at the time when the Government of the day used what he called "the people's money" compulsorily to acquire these shipyards, he showed similar concern for the disposal of "the people's money" at that time. The noble Lord, Lord Molloy, will recall, as the House will recall, that the Government of the day nationalised the shipbuilding industry on the grounds of their general political policy. They tried, although I think somewhat unsuccessfully in this case, to give a fair price to the previous owners—some of them were very badly treated.
Lord Molloy: My Lords—
Lord Boyd-Carpenter: The concern then was not with what the noble Lord so picturesquely called "the people's money"; the concern was with the doctrine of public ownership.
Lord Molloy: My Lords—
Lord Boyd-Carpenter: Does the noble Lord, Lord Molloy, wish to make another speech?
Lord Molloy: My Lords, I am very grateful to the noble Lord, Lord Boyd-Carpenter.
Noble Lords: Order!
Lord Glenarthur: My Lords, this is Report stage and I believe that the noble Lord, Lord Molloy, will be out of order if he speaks a second time.
Lord Boyd-Carpenter: My Lords, I will therefore pass on to make one further point. The policy of the present Government, as I understand it—and equally (I hope the noble Lord, Lord Molloy, will accept) dictated by their view of the public interest—is to secure denationalisation or a return to the private sector for these important enterprises. I hate the term "privatisation"; it is a horrible word. It is perfectly clear from the tone of the speech made by the noble Lord, Lord Bruce of Donington, that it was with every intention of making this much more difficult to do that this amendment was put forward.
I will leave one further thought with your Lordships. It is surely extraordinary, in this week of all weeks, that

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noble Lords should be seeking to interrupt or delay the process of denationalisation in the shipbuilding industry. This week we have had a very unhappy revelation concerning the lack of competitive power of the publicly-owned British Shipbuilders in the case of Cunard's "Countess". It must be a matter of enormous regret to every patriotic citizen of this country that, at a time when the owners of this ship very naturally and properly are anxious, after her war service, to get this ship back on to their profitable Caribbean business, no British shipyard was able to match the timing which the co-operative Malta dockyard has claimed to be able to do.
When one considers the history of the British shipbuilding industry, without falling back into reminiscences, I had some direct experience of this subject some 28 years ago when I was Minister of Transport. It was then the biggest and most efficient shipbuilding industry in the world. It is enormously depressing that for the refitting of this great ship it has been necessary for the owners, if their timetable is to be met, to go abroad to Malta. If that does not leave in your Lordships' minds at least a suspicion that the shipbuilding industry under public ownership is uncompetitive, then nothing will.
Lord Beswick: My Lords—
The Earl of Longford: My Lords, I wish to raise a point of order. It is a long time since I have raised a point of order in this House but I feel bound to raise one now, as an "old timer" here.
The noble Lord, Lord Boyd-Carpenter, referred to my noble friend Lord Molloy. My noble friend then rose to put him right. The noble Lord, Lord Boyd-Carpenter, kindly gave way, whereupon the noble Lord who appears to be in charge of the House called my noble friend to order for some mysterious reason. My noble friend, with remarkable docility and great propriety, then gave way. I want to know under what authority or under which rule my noble friend Lord Molloy was called to order. Why was he silenced at that moment?
Lord Glenarthur: My Lords, if I hurt the noble Lord's feelings in the way that I expressed what I thought was the wish of the House, then I apologise. As I understand it, the convention is that noble Lords speak only once at Report stage. But if the noble Lord, Lord Molloy, was seeking only to elucidate my noble friend Lord Boyd-Carpenter, then he was right and I was wrong.
Lord Molloy: My Lords, may I just say that the noble Lord, Lord Boyd-Carpenter, and I are among those noble Lords who, when we are challenged on any point, immediately give way; he cannot get out of the habit because of his long experience in another place. I was only going to say that the noble Lord inadvertently credited me with certain words which I used but which I made transparently clear were the words not of myself but of the noble Lord's right honourable friend the Prime Minister. I just wanted to make that point.
Lord Beswick: My Lords, I should like to get back to the amendment that is on the Marshalled List. I
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should like to say to the noble Lord, Lord Boyd-Carpenter, that the question of Cunard's "Countess" has absolutely nothing to do with this amendment. Nor, for that matter, has the question of privatisation anything to do with this amendment. The question of privatisation has been settled in principle by another place and we are not controverting that. What is at issue here is whether the process of sale shall be conducted in an efficient manner to give the best possible results to the British public—a point on which he and I agree.
My noble friend Lord Bruce of Donington said that the present Government make a big issue out of efficiency and getting value for money, and I agree with him. In this particular Bill, in the same clause, it is laid down that,
"It shall be the duty of British Shipbuilders so to exercise its powers … in the most efficient manner".
It seems to me most extraordinary, if that is laid down in the Bill as a duty resting on British Shipbuilders, that there should not be an equal duty upon Her Majesty's Government to conduct the sale of these assets in the most efficient manner.
I am bound to say, having looked at some of these events and having been closely concerned with at least one of them, that I find it difficult to accept that, up to now, the disposal of public assets has been carried out in a very efficient manner. This amendment seems to me to be a quite cold, clinical and open method of disposal. I would have thought that it should have commended itself to your Lordships' House.
The noble Lord, Lord Boyd-Carpenter, spoke about public money. May I tell the noble Lord about one particular item of public money, because I feel very strongly about this? It was involved in the sale of British Aerospace. We there had, in my time, an item off £50 million which had been set aside for payment of dividends on the public dividend capital. Had British Aerospace not been sold off, or partly sold off, or its constitution changed, that £50 million would have gone into the Treasury. In fact, it was not put into the Treasury but was part of the process of massaging the assets in order to secure a ready sale on the market.
The noble Lord, Lord Boyd-Carpenter, or others may say that putting money back into reserves instead of paying them out as dividends, even to the Treasury, might be in the best interests of the corporation later; but not so when one is proposing to give half of the corporation away to the City.
Then there is another case—that of British Airways. British Airways are now planning to write off £1,000 million of their debts; £800 million will be written off by the Treasury. Again, noble Lords will tell me that reconstructing capital is not unknown. If you reconstruct the capital of a company in order to have it efficient in the interests of the same shareholders in the future, that is one thing, but if you reconstruct the capital of an organisation like this simply to make possible the disposal of shares, not for any commercial reason but in pursuance of a party policy, that is quite different. The noble Lord said that British Shipbuilders was nationalised in the first place in pursuance of party policy; that is quite right. I think the Government are quite right, in accordance with party policy—they have a majority—to dispose of

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these assets. But surely we all must agree that the disposal should be in the most efficient manner.
I do not see how you can fault the amendment in the name of the noble Lord, Lord Bruce, except in certain detail; the principle of it must be right. This is not a party matter. Anybody who has any reservations about the criticism that is being made of this disposal of assets should read what was said by the Treasury Select Committee. I remember the noble Lord, Lord Boyd-Carpenter, telling us on one occasion—I remember all the words the noble Lord says in this House—how authoritative and important the Treasury Select Committee were and what respect we should pay to them. I believe he himself was chairman of it at one time.
Lord Boyd-Carpenter: No, my Lords, the Public Accounts Committee.
Lord Beswick: Yes, my Lords, the Public Accounts Committee. But the noble Lord did say, he will agree, how authoritative this committee was. I invite noble Lords to read the account that that Select Committee published about the sale of British Aerospace and then come to this House and tell me that the sale was conducted in the most efficient manner. It just was not. I put to the House that we have before us an amendment which does make sense. It is nothing to do with party politics, it is not concerned with any arguments about the Cunard "Countess " and is not seeking to set aside the principle of privatisation. It is simply saying that we should do what is intended to be done in a reasonably efficient manner. I hope very much that the noble Lord who is responding for the Government will be able to say that the principle of this amendment is accepted.
Lord Howie of Troon: My Lords, I should like very briefly to support my noble friend Lord Beswick in the very sober comments he had just made. A few moments ago, before he spoke, the House became a little over-excited. Both my noble and old friend Lord Molloy and my old friend and adversary on the other side of the House, the noble Lord, Lord Boyd-Carpenter, spent a number of years in another place where they learned bad habits, and just for a moment their bad habits came uppermost this afternoon. I think that on reflection both of them perhaps overreacted to the situation. My noble friend Lord Bruce moved a very sober and a very sensible amendment, and it was very adequately supported by my noble friend Lord Beswick. I thought that in the exchanges between my noble friend Lord Molloy and the noble Lord opposite, Lord Boyd-Carpenter, the Treasury Bench got a little over-excited, too. I think that the Treasury Bench should relax and soberly reflect on what Lord Bruce actually said and what Lord Beswick actually said, rather than the excitement that was generated by my noble colleagues on both sides, and consider whether or not there is more in this amendment than they at first thought. I think in that way the reputation of this House would be greatly enhanced and the furtherance of this Bill would be greatly improved.
Lord Trefgarne: My Lords, we have had a wide-ranging debate. if I may say so, on this amendment. I make no complaint about that, but I hope your Lordships will forgive me if I confine my reply to the essence of the amendment as I see it. These complex amendments—because we are, as the noble Lord said at the outset, considering three amendments—would have far-reaching effects upon the ability of the Secretary of State to exercise his powers of direction. It is central to our purpose in introducing this Bill that those powers would be used in the long-term interests of the industry. This is the purpose of these powers. It is, for example, our intention that the powers would be used to build upon the strengths of the industry and not for any purposes extraneous to the industry's needs. In using these powers we would be concerned also to safeguard the interest of the taxpayer.
If these amendments were accepted they would seriously inhibit and delay implementation of a direction to dispose. The concept of a willing seller and willing buyer price is one which is readily grasped in a market where a standard commodity is regularly traded. But in this industry every shipyard is unique and rarely does ownership change. A market price is very difficult to determine. Without such a determination, however, a direction would not be enforceable short of arbitration, and I cannot envisage arbitration in these circumstances, with each party no doubt wishing to table specialist merchant bank advice, being other than a lengthy process. The effect of this amendment, therefore, would be to impede use of these powers and to cast doubts upon the ability to enforce a direction. Such delay and doubts would seriously harm the industry. While the enforceability of a direction and the eventual ownership of a company were open to considerable uncertainty, there would be damage to management and employee morale, difficulties in long-term planning, and potential contracts for our shipbuilding industry could well be lost. Indeed it is more than likely that in these circumstances the potential purchaser would not be prepared just to wait in the wings.
It may be argued that if British Shipbuilders agreed a price a willing seller/willing buyer price would have been established and that therefore there would be no doubt about the enforceability of a direction. But I do not think that this follows. If British Shipbuilders willingly participate in a sale, the question of enforceability does not arise; indeed a direction would not be necessary. If, however, a sale were subject to a direction requiring BS to sell, then they could not be considered as a willing seller, even if they accepted the price. Given the unique nature of the assets, a willing seller/willing buyer price would still be as difficult to establish and the ability to enforce an order would remain open to doubt.
I hope that in the light of the difficulties I have described, which relate specifically to the amendments before your Lordships, the noble Lord, Lord Bruce, will see fit not to press the amendment.
Lord Bruce of Donington: My Lords, I must express my immediate regret that the noble Lord has not seen fit to accept this amendment. The arguments that he has adduced about the loss of time in the process of determining a fair price certainly cannot stand up to

329
any kind of examination at all. We have already said, and indeed it has been reinforced by the noble Lord, Lord Lloyd of Kilgerran, that this Bill itself and the whole process of privatisation adds nothing at all to the country's productive capacity; it has no impact whatever on that. All that it really means, within the context of what the noble Lord has already said, both at Second Reading and at Committee, is that an opportunity is given to private capital to acquire companies which have an assured profit on a cost-plus basis, and are virtually on that account alone gilt-edged. To pretend for one moment that that influences British Shipbuilders' prospects of obtaining orders, or indeed affects its reputation professionally, is, as the noble Lord knows, a complete nonsense.
In point of fact, the management of British Shipbuilders has various experts in a managerial, technical and financial control capacity, and indeed in an ordinary production and works capacity. All this is well known and acknowledged. The personnel who run British Shipbuilders are some of the finest managers and technicians in the country. That point has very often been acknowledged by the noble Lord opposite.
It is not the mere name of British Shipbuilders or the abstract personality of the corporate bodies composing it, which have perpetual life precisely because they are abstract bodies; it is the actual people who work the industry who carry the respect and the work. To think for one moment that their reputation or the future of British Shipbuilders will be affected by the adoption of this procedure is, as the noble Lord well knows, completely wide of the mark and is entirely irrelevant.
All that the amendment seeks to do is to make everything open, fair and above board. As my noble friend Lord Beswick was kind enough to indicate, it is not even a party matter. It is purely a national question of doing the right thing in the right way. If the noble Lord had any experience at all of determining share values and asset values, I assure him, as one who has been engaged in this process professionally for a number of years, that he would find that it is not as complicated as he would think. It is a matter susceptible of the application of the normal professional rules.
One thing of which I am certain and one thing on which the House may perhaps accept my assurance, is that, when the professionals who are skilled in the art of valuing enterprises and share prices are involved in this, they employ far more talent than, I regret to say, is available in the general administrative grade of the Civil Service, or even among some Ministers themselves. They know what they are doing.
I regret, therefore, that the noble Lord has not seen fit to accept the amendment and I also regret very much that I am forced to press the amendment to a Division.
4.52 p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 63; Not-Contents, 108.

DIVISION NO. 1

CONTENTS

Amulree, L.

John-Mackie, L.

Ardwick, L.

Kagan, L.

Aylestone, L.

Listowel, E.

Banks, L.

Lloyd of Kilgerran, L.

Beaumont of Whitley, L.

Longford, E.

Beswick, L.

Lovell-Davis, L.

Birk, B.

McCarthy, L.

Bishopston, L. [Teller.]

McIntosh of Haringey, L.

Boston of Faversham, L.

Milner of Leeds, L.

Briginshaw, L.

Molloy, L.

Brockway, L.

Nicol, B.

Bruce of Donington, L.

Peart, L.

Caradon, L.

Phillips, B.

Collison, L.

Pitt of Hampstead, L.

Cooper of Stockton Heath, L.

Ponsonby of Shulbrede, L. [Teller.]

Diamond, L.

Donaldson of Kingsbridge, L.

Roberthall, L.

Ewart-Biggs, B.

Rochester, L.

Fisher of Rednal, B.

Scanlon, L.

Gaitskell, B.

Serota, B.

Gallacher, L.

Shinwell, L.

Gladwyn, L.

Stedman, B.

Gormley, L.

Stewart of Alvechurch, B.

Hampton, L.

Stewart of Fulham, L.

Hanworth, V.

Stone, L.

Harris of Greenwich, L.

Strabolgi, L.

Hooson, L.

Underhill, L.

Howie of Troon, L

Wallace of Coslany, L.

Hunt, L.

Wells-Pestell, L.

Jacques, L.

Wigoder, L.

Jeger, B.

Wilson of Langside, L.

Jenkins of Putney, L.

Wootton of Abinger, B.

NOT-CONTENTS

Alexander of Tunis, E.

Hornsby-Smith, B.

Alport, L.

Hunt of Fawley, L.

Ampthill, L.

Hylton-Foster, B.

Avon, E.

Ilchester, E.

Belhaven and Stenton, L.

Killearn, L.

Beloff, L.

Lane-Fox, B.

Bessborough, E.

Leatherland, L.

Boyd-Carpenter, L.

Lloyd of Hampstead, L.

Caithness, E.

Long, V.

Campbell of Alloway, L.

Lucas of Chilworth, L.

Campbell of Croy, L.

Lyell, L.

Cathcart, E.

McAlpine of Moffat, L.

Chelwood, L.

Mackay of Clashfern, L.

Clitheroe, L.

Malmesbury, E.

Coleraine, L.

Mancroft, L.

Cox, B.

Massereene and Ferrard, V.

Cullen of Ashbourne, L.

Melville, V.

Daventry, V.

Merrivale, L.

Davidson, V.

Mersey, V.

De L'Isle, V.

Milverton, L.

Denham, L. [Teller.]

Minto, E.

Derwent, L.

Molson, L.

Drumalbyn, L.

Mottistone, L.

Ebbisham, L.

Mountgarret, V.

Ellenborough, L.

Mowbray and Stourton, L.

Elliot of Harwood, B.

Moyne, L.

Elphinstone, L.

Murton of Lindisfarne, L.

Elton, L.

Nelson of Stafford, L.

Ferrers, E.

Newall, L.

Fortescue, E.

Northchurch, B.

Fraser of Kilmorack, L.

Nugent of Guildford, L.

Gainford, L.

O'Brien of Lothbury, L.

Gardner of Parkes, B.

Orkney, E.

Garner, L.

Orr-Ewing, L.

Glanusk, L.

Plummer of St. Marylebone, L.

Glenarthur, L.

Grantchester, L.

Portland, D.

Gray, L.

Rankeillour, L.

Gridley, L.

Renton, L.

Hailsham of Saint Marylebone, L.

Romney, E.

St. Aldwyn, E.

Halsbury, E.

St. John of Bletso, L.

Hives, L.

Salisbury, M.

Home of the Hirsel, L.

Sandford, L.

331

Sandys, L.

Taylor of Hadfleld, L.

Sempill, Ly.

Terrington, L.

Skelmersdale, L.

Teynham, L.

Somers, L.

Thorneycroft, L.

Spens, L.

Trefgarne, L.

Stamp, L.

Trumpington, B.

Strathcarron, L.

Vaux of Harrowden, L.

Strathspey, L.

Vivian, L.

Sudeley, L.

Ward of Witley, V.

Swansea, L.

Westbury, L.

Swinton, E. [Teller.]

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendments Nos. 2 and 3 not moved.]
5.2 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 4:
Page 4, leave out lines 10 to 15.
The noble Lord said: My Lords, this amendment has been put down for purely exploratory reasons, and I do not intend to speak on it at all. I would appreciate it if the noble Lord would explain the circumstances that he has in mind that would occasion the use of subsection (6)(b). As he will see, it gives power to the Secretary of State to give directions to secure:
"that the share capital of the company is increased by the sum and in the manner so specified and that any share or shares representing the whole or any part of that sum are issued to the Secretary of State or to a nominee of his".
If the noble Lord would be kind enough to explain the practical application of that particular paragraph within the context of the clause as a whole I would be most grateful. At the same time, perhaps the noble Lord would explain, when
"any share or shares representing the whole or any part of that sum are issued to the Secretary of State or to a nominee of his",
what consideration will be forthcoming for the particular shares that are issued either to the Secretary of State or to his nominee.
Lord Glenarthur: My Lords, perhaps I can explain to the noble Lord, Lord Bruce of Donington, the purpose of paragraph (b) of the new Section 4B(6) which this amendment would delete. Both paragraphs (a) and (b) of subsection (6) are intended to prevent our warship building yards coming under foreign control. If British Shipbuilders decided to dispose of a warship building yard or the Secretary of State directed them to do so, paragraph (a) would enable the Secretary of State to direct British Shipbuilders to amend the articles of association of the company in such a way as, for example, to restrict the size of foreign shareholdings or the nationality of the directors.
Paragraph (b) would enable the Secretary of State to direct British Shipbuilders to create a special rights preference share to be held by the Secretary of State or his nominee. Holding such a share would mean the Secretary of State's consent would be required before the relevant articles of association could be changed. This would ensure that even after disposal the restrictions on, for example, the size of foreign shareholdings in the new company could not be lifted without the Secretary of State's consent. I think that I should point out that the powers under paragraphs (a)
332
and (b) would be used only for national security reasons which would not breach our obligations under the Treaty of Rome.
The noble Lord, Lord Bruce of Donington, talked about consideration, or what might be the results or proceeds of any disposal. I think that was the drift of the argument that he was putting forward—the consideration for any shares that may be sold. The answer is that the consideration would go to British Shipbuilders. British Shipbuilders at corporate level, or one of the subsidiaries, whichever is the owner of the property being sold, will receive the proceeds. As a group, British Shipbuilders consumes rather than generates cash, and depends on the taxpayer to meet deficits. The proceeds received by British Shipbuilders arising from any disposal could go to reduce this deficit to the benefit of taxpayers, who have put into British Shipbuilders over £700 million. Alternatively, the proceeds could be re-invested in the industry. This would depend on opportunities for profitable investment at the time, and no assurance can be given now about how the proceeds which will go to British Shipbuilders will be used.
The noble Lord explained that it was a probing amendment. To accept it would mean that, even though the Secretary of State could safeguard against British Shipbuilders disposing of a subsidiary to foreign ownership, there would be nothing to prevent the newly privatised company changing the articles of association in such a way as to lift these restrictions. I hope that, in the light of that explanation, the noble Lord will see fit to withdraw his amendment.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for the explanation that he has given, which has supplied the House with a good deal of information which did not arise from this amendment but which is very welcome all the same. There is just one small technical point that he did not clear up finally. When the shares are issued to the Secretary of State or to his nominee, what cash passes? Does the Secretary of State pay for the shares that are issued to him? The noble Lord said that they would be a rights issue, but a rights issue presupposes that the Secretary of State already holds some shares; otherwise, rights would be of no value. Would the noble Lord just explain? It is a purely technical point. I do not want to press him too hard upon it, but I should like to know how it works in that way. I am looking at the accounting entries as well as the passage of cash.
Lord Glenarthur: My Lords, with the leave of the House, I think that the information the noble Lord seeks is that it is a special preference share for which there is no consideration—that is, no cash. I hope that clarifies the point he raised.
Lord Bruce of Donington: My Lords, no, not entirely, but perhaps the noble Lord will solve this matter by correspondence. I am most grateful to him for the information he has given to me and to the House, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.8 p.m
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 5:
Page 4, leave out lines 22 and 23 and insert ("which shall be laid before Parliament after being made and shall cease to have effect at the end of a period of twenty-eight days beginning with the day on which it was made unless during that period they are approved by resolution of each House of Parliament").
The noble Lord said: My Lords, this amendment seeks to ensure that when there is exercise of the powers which the Secretary of State takes under Clause 2 to order the cessation of activities of British Shipbuilders, or a change in them, or to order a disposal, then any regulation by virtue of which that direction is given should be subject to the positive approval of both Houses; in other words, that it should go through under the affirmative procedure.
It will be within the recollection of the House that the noble Lord, Lord Trefgarne, attached importance to the exercise of powers under Clause 2. Clearly, the exercise of the powers to direct were not trivial matters in his mind, because he explained that any delay in their exercise would have disastrous consequences for the industry as a whole. He gave a whole catalogue of woes that would follow any delay in the exercise of the powers taken under Clause 2. As the Bill now stands, Clause 2(7) states:
"Any power to make orders conferred by this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament".
That is, of course, the negative procedure. I venture to suggest that the important exercise of powers under Clause 2 certainly warrants the adoption of the positive procedure and requires the Secretary of State to come down to both Houses to obtain Parliament's consent. This is all a matter of relative priority. It is not a matter necessarily of precedent in other nationalisation Bills. The House is always careful to guard its position as a check upon the Executive and in important instances normally insists on the affirmative procedure, sometimes under rather peculiar circumstances.
Noble Lords will recall that, in the Companies Act 1981, the positive procedure is there in order merely to change a name eligible for inclusion in a schedule to the Act. I should like to draw your Lordships' attention to the debate that took place on 16th December in your Lordships' House, when the noble Lord, Lord Lyell, rose to move that the regulations laid before the House on 24th November 1982 be approved. This was merely for the addition of a couple of words to what must be regarded as a comparatively obscure schedule to the Companies Act of 1981. Yet, in the Government's view, it merited the affirmative procedure. Indeed, a debate took place upon it. It was disposed of in one of those glorious periods that commence at 7 o'clock in the evening and go on until about 8 o'clock when your Lordships disport themselves elsewhere for refreshment. It was disposed of during that time by the affirmative procedure.
If the affirmative procedure is initiated by the Government on what, on any grounds, must be regarded as a very trivial matter, how can they possibly resist the application of the affirmative procedure in what the noble Lord, Lord Trefgarne, has described as the exercise of most important and, indeed, nationally
334
significant powers contained within Clause 2 of the Bill? I hope, notwithstanding the representations of the Parliamentary counsel, his own senior civil servants and all the upper agencies of his department, that the noble Lord will see fit to assent to this reasonable request. It is made in no partisan spirit. It is made in the best traditions of the proper exercise of checks and balances in this House and in another place. I hope sincerely, therefore, that, on this occasion, the noble Lord will feel disposed to accept the amendment.
Lord Campbell of Alloway: My Lords, any lawyer, by his instincts and training, must support the affirmative procedure as preferable in the interests of serving as a check on the Executive. One would not be true to one's training if one did otherwise, but it is certainly for me a preference: it is not an article of faith on which I would go into a Division lobby against the Government. On the other hand, I am not prepared to sit silent while so important a subject is under debate.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne): My Lords, this amendment is clearly designed to wreck Clause 2 of the Bill. The noble Lord, Lord Bruce of Donington, has proposed a constraint that, despite his reference to the Companies Act, has certainly not appeared in any comparable previous legislation. Most, if not all, of the orders to discontinue or restrict activities, or to dispose, would relate differently to members of a specific class. Therefore, to apply the affirmative procedure to the orders could make them hybrid. They would thus be subject to the procedure for private or hybrid Bills. To have to adopt such laborious and time-consuming procedure would surely be an unnecessary encumbrance. It would blunt the effectiveness of the powers, if not remove their effectiveness altogether. I do not think that I need to say more in reply to this amendment. I hope also that I have persuaded my noble friend Lord Campbell of Alloway. I hope that your Lordships will not agree to the amendment.
Lord Campbell of Alloway: My Lords, before the noble Lord sits down, I accept totally that if there is this problem of hybridity—
Lord Trefgarne: My Lords, my noble friend needs the leave of the House.
Lord Campbell of Alloway: With the leave of the House—
Noble Lords: No.
Lord Trefgarne: My Lords, if I may intervene, my noble friend cannot speak, I believe, even with the leave of the House.
Lord Bruce of Donington: My Lords, I very much regret the attitude of the noble Lord, Lord Trefgarne. I believe that a constitutional principle is involved. I do not accept the observation that he has made concerning hybridity and the rest. The noble Lord knows perfectly well what are the effects of the affirmative order. It is widely used. I shall not say more. I propose to divide the House.
5.18 p.m.
On Question, Whether the said Amendment (No. 5) shall be agreed to?
Their Lordships divided: Contents, 44; Not-Contents, 91.

DIVISION NO. 2

CONTENTS

Ardwick, L.

Listowel, E.

Beswick, L.

Longford, E.

Bishopston, L. [Teller.]

Lovell-Davis, L.

Briginshaw, L.

McCarthy, L.

Brockway, L.

McIntosh of Haringey, L.

Bruce of Donington, L.

Melchett, L.

Caradon, L.

Milverton, L.

Collison, L.

Molloy, L.

Cooper of Stockton Heath, L.

Nicol, B.

Elwyn-Jones, L.

Peart, L.

Fisher of Rednal, B. [Teller.]

Phillips, B.

Gaitskell, B.

Pitt of Hampstead, L.

Gallacher, L.

Ponsonby of Shulbrede, L.

Gregson, L.

Scanlon, L.

Houghton of Sowerby, L.

Serota, B.

Howie of Troon, L.

Shinwell, L.

Jacques, L.

Stewart of Alvechurch, B.

Jeger, B.

Stewart of Fulham, L.

Jenkins of Putney, L.

Strabolgi, L.

John-Mackie, L.

Underhill, L.

Kagan, L.

Wallace of Coslany, L.

Leatherland, L.

Wootton of Abinger, B.

NOT-CONTENTS

Avon, E.

Lawrence, L.

Beloff, L.

Long, V. [Teller.]

Boyd-Carpenter, L.

Lucas of Chilworth, L.

Caithness, E.

Lyell, L.

Campbell of Alloway, L.

Mackay of Clashfern, L.

Campbell of Croy, L.

Malmesbury, E.

Cathcart, E.

Mancroft, L.

Chelwood, L.

Massereene and Ferrard, V.

Clitheroe, L.

Merrivale, L.

Coleraine, L.

Mersey, V.

Cox, B.

Minto, E.

Craigavon, V.

Molson, L.

Cullen of Ashbourne, L.

Mottistone, L.

Daventry, V.

Mountgarret, V.

Davidson, V.

Mowbray and Stourton, L.

De L'Isle, V.

Murton of Lindisfarne, L.

Denham, L. [Teller.]

Newall, L.

Derwent, L.

Northchurch, B.

Drumalbyn, L.

Nugent of Guildford, L.

Ebbisham, L.

O'Brien of Lothbury, L.

Elliot of Harwood, B.

Orkney, E.

Elphinstone, L.

Orr-Ewing, L.

Elton, L.

Portland, D.

Ferrers, E.

Rankeillour, L.

Ferrier, L.

Romney, E.

Fortescue, E.

St. Aldwyn, E.

Fraser of Kilmorack, L.

St. John of Bletso, L.

Gainford, L.

Salisbury, M.

Gardner of Parkes, B.

Sandford, L.

Garner, L.

Selsdon, L.

Glanusk, L.

Sempill, Ly.

Glenarthur, L.

Skelmersdale, L.

Grantchester, L.

Spens, L.

Gray, L.

Stamp, L.

Gridley, L.

Strathcarron, L.

Hailsham of Saint Marylebone, L.

Strathspey, L.

Sudeley, L.

Halsbury, E.

Tenyham, L.

Harvington, L.

Thomas of Swynnerton, L.

Hives, L.

Trefgarne, L.

Home of the Hirsel, L.

Vaux of Harrowden, L.

Hornsby-Smith, B.

Vickers, B.

Hunt of Fawley, L.

Vivian, L.

Hylton-Foster, B.

Ward of Witley, V.

Ilchester, E.

Westbury, L.

Lane-Fox, B.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
5.25 p.m.
Lord Rochester Lord Rochester moved Amendment No. 6:
Page 4, leave out lines 44 and 45 and insert—
("(3) Section 18 of the 1977 Act (annual report) shall be amended as follows—
(a) after subsection (1) there shall be inserted the following subsection—
"(1A) The report of the corporation under subsection (1) above shall contain a statement describing the action that has been taken during the financial year to introduce, maintain or develop arrangements aimed at—

(i) providing employees systematically with information on matters of concern to them as employees,

(ii) consulting employees or their representatives on a regular basis so that the views of employees can be taken into account in making decisions which are likely to affect their interests,

(iii) achieving a common awareness on the part of all employees of the financial and economic factors affecting the performance of the corporation,

(iv) otherwise encouraging the involvement of employees in the corporation's performance."

(b) after subsection (3) there shall be inserted the following subsection—")
The noble Lord said: My Lords, this amendment, No. 6, arises from one which was moved by the noble Lord, Lord Bruce of Donington, at the Committee stage of the Bill in which he sought, unsuccessfully, to reverse the Government's decision—taken by eliminating the whole of Section 2 of the Aircraft and Shipbuilding Industries Act I977—to repeal among other existing British Shipbuilders' statutory duties one which obliges the corporation, in the words of the statute:
"to promote industrial democracy in a strong and organic form".
In supporting that amendment my noble friend Lord Simon reaffirmed that we on these Benches and, indeed, our allies, are very keen to see more progress made on employee involvement. My noble friend Lord Simon recognised that the phrase used in the Act was a somewhat nebulous one, but said that since the requirement already existed its removal would give the impression that the Government did not want to see the matter followed up.
In replying to the debate the noble Lord, Lord Trefgarne, said that British Shipbuilders' subsidiaries would be required to report progress on industrial democracy following the amendment to the Companies Act 1967 introduced by the recent Employment Act, and he expected British Shipbuilders to do so as well. This amendment is designed to ensure that that expectation is realised, and in saying so I am not in the least seeking to disparage whatever the corporation is already doing in this field.
With two substantial exceptions the wording is the same as in Section 1 of the Employment Act 1982, which requires companies employing more than 250 people to describe the action that has been taken during any financial year to develop employee involvement in certain specified ways. The first exception arises from the fact that British Shipbuilders are not a company and the corporation cannot, therefore, be brought within the scope of the Companies Act 1967. For that reason the amendment before us aims to fulfil the same purpose by imposing

337
a statutory duty on British Shipbuilders to state in their annual report what progress has been made in this field.
The second exception follows the first. Since British Shipbuilders are not a company, involvement of the corporation's employees in its performance cannot be encouraged through an employee share scheme. In this amendment the words,
"otherwise encouraging the involvement of employees in the corporation's performance"
have therefore been substituted for those used at the relevant point in the Employment Act.
I should not be moving this amendment if it was not aimed at making progress towards a more important objective which I hope the noble Lord, Lord Trefgarne, and indeed many others on the Benches opposite, will support. Section 1 of the Employment Act 1982 follows closely the amendment on employee participation which I moved, and which the House agreed to, at the Report stage of the Employment Bill last July. In welcoming the new clause which the Government introduced at Third Reading of the Bill on 13th October last I regretted that, through being obliged to use the vehicle of the Companies Act, it was not possible to extend to the whole of the public sector the requirement to report on progress made in developing employee involvement. I said that because in my view the need for progress in this field is even more urgent in the public than in the private sector of industry, and the nation would benefit greatly if that need could be met. I expressed the hope that, as opportunity offered, we would be prepared to remedy the defect.
When the new clause was considered by another place on 25th October, one of those who spoke was the honourable Member for Kidderminster, Mr. Esmond Bulmer. In a Private Member's Bill he had earlier sought, without success, to achieve much the same objective as that ultimately secured in the Employment Act. At col. 768 of Hansard of 25th October he said:
"I am sure that in due course the Minister will wish to address himself to a glaring omission in the Bill's approach—the exclusion of the public sector. There is a greater problem in the public sector in terms of 'us and them' than in the majority of private companies."
I move this amendment not primarily because of what it can be expected to achieve in British Shipbuilders, but as an indication to those responsible for running all nationalised industries and public services that more should be done to encourage the involvement of employees as the most effective way in which their motivation and performance can be improved. It may be said that it would be wrong to place this duty only on British Shipbuilders and not on other parts of the public sector; but it is difficult to see how all the elements making up the public sector could be brought within the scope of a single Bill for this purpose. If they can, and if the Government are prepared to give an undertaking that they will introduce the necessary legislation at the earliest opportunity, I shall, of course, withdraw this amendment.
However, I should like to ask the noble Lord who is to reply the direct question: what are the Government's plans for developing employee involvement in
338
the private sector? Failing a satisfactory response, we as a House should surely act wherever we can, and this Bill gives us the chance to do so in the nationalised shipbuilding industry. Further, it may be claimed that there is no need for the amendment because there are relatively few people employed in the corporation as such, and anyway it is the Government's intention in due course to move British Shipbuilders back into the private sector of industry. But that intention might not be realised for some time—or, indeed, at all.
In any case, surely nothing is to be lost by accepting this amendment now. Indeed, in my view it would be inconsistent with the decision which the House has already taken in principle on this matter if the amendment is not now agreed to. I cannot think of any technical flaws in it which might make it unacceptable to the Government, but if there are any I shall gladly withdraw it so that they can be remedied at Third Reading. At the very least I hope that, if the Government cannot accept the amendment today, they will agree to take the matter back for further consideration between now and Third Reading of the Bill, which I understand is to take place in a week's time. I beg to move.
Lord Aylestone: My Lords, briefly, I should like to support my noble ally in this amendment. I think it is recognised by everyone in the House that one of the main troubles in industry is lack of communication, and anything that we can do to improve what is known as "industrial democracy" will help in solving problems within industrial relations. I fail to understand why—and perhaps I have not read the detail of the Second Reading debate as I should have done—the Government thought it necessary to repeal that section in the Aircraft and Shipbuilding Act 1977 which required the corporation to engage in industrial democracy. It was taken out completely. I am sufficiently charitable to hope that at a later stage the Government may still decide to insert something.
But failing that, we have in front of us the amendment moved by my noble friend, which is in line with a decision taken by this House on an amendment of the Employment Act 1982, when this House decided, on a vote, to put in a clause providing that in its annual report every company in the country with more than 250 employees should report on what it is doing in the field of industrial democracy. That was carried by this House; and, as is usual, of course, we accepted the Government's view that in its form the amendment as moved in this House was not quite acceptable. So the Government came forward at a later stage—I believe on Third Reading—and included what is now in the Employment Act 1982. This amendment does precisely the same thing in respect of this Bill, and I hope that this House will repeat the action that it took on the Employment Act, and carry this amendment.
Lord Beswick: My Lords, briefly, I should like to support this amendment. I do so partly because of what was said at an earlier stage of the Bill about the wording of the 1977 Act, which is removed by this Bill. I understand that a number of my noble friends and noble Lords opposite were a little worried about the expression "industrial democracy in a strong and organic form". I think that conceivably I was to blame

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for this. To reminisce, there was a certain amount of enthusiasm among certain of my friends for having in a Bill a cut and dried scheme of industrial democracy, but I felt it was a mistake to impose from above. My argument was that it had to grow from below, and I used the expression "organic". It is not a word which the parliamentary draftsmen customarily use, and I rather think that it was picked up from the discussion that we then had. But there was merit in my thinking. I am absolutely certain that if we are to get industrial democracy which lasts and which takes root, it must grow up from below.
If we have that idea, I find it difficult to believe that anyone can find anything to fault in this amendment. It is a modestly worded amendment. But, as I see it, the idea of the noble Lord is not simply to have this in relation to British Shipbuilders. He is endeavouring to create an atmosphere in which it is taken as the ordinary course of things that in any organisation—public, private or whatever—it is naturally thought that one should encourage the involvement of employees in the organisation's performance, or that we should try to achieve a common awareness on the part of all employees. If we can do that and take it for granted that that is done, I think we shall find that we are on the way to what I should like to see as a form of industrial democracy. I should have thought it inconceivable that the Government could find a reason for rejecting this amendment. I hope they will tell us that they will take it on board.
Viscount Massereene and Ferrard: My Lords, in this House I have always fully supported the sentiments behind this amendment. But with respect to the noble Lord, Lord Rochester, did he not make a slip of the tongue when he asked what plans the Government had in regard to industrial democracy in respect of private companies? Surely he meant to say the public sector, did he not?
Lord Rochester: My Lords, with the leave of the House, if I may respond, it may be that there was a slip of my tongue. If so, I apologise, and I am most grateful to the noble Viscount for drawing the attention of the House to it. I did indeed mean what he is suggesting.
Viscount Massereene and Ferrard: My Lords, private companies for some considerable time, and I think almost all private employers in a private capacity, have always tried to explain to their employees the economic factors, and to take them into their confidence on various aspects that concern the employees. I do not know whether this amendment is correctly drafted or not. It appears all right to me, but I am not a parliamentary draftsman, and there will not be any future stage on this Bill, apart from Third Reading.
However, this is a process that must come about. There are a lot of employees who are only interested in their wage packet, which is quite natural, and they are not really interested in the performance of the company. On the other hand, a great number of employees, perhaps even a majority, are interested in the progress of their company. The more that can be explained to them of the whys and wherefores, and
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why the company will not make a profit if such and such a thing happens, or will make a profit if something else happens, the better.
As we all know, we live in an extremely competitive world. Certainly as regards British Shipbuilders we do. I know they are different because they are not a company, and I do not really see how this amendment could apply to the present Bill. We have only to take notice of the Cunard "Countess". If the employees of the various firms under British Shipbuilders had been taken more into the firm's confidence, as with the setting up of the task force for the Falklands, they would have put their whole heart into it and the Cunard "Countess" might have been able to be refitted in this country. That is evidently not so now.
I remember when I was in a shipping company and we were building a ship. It is true that we could have got better terms abroad, but we did not because we felt that it was slightly unpatriotic to do so. I do not want to criticise in any way the leadership of Cunard, because obviously they are under tight deadlines to start cruises, and they must go to the shipyard which can refiit the ship in the shortest possible time. Foreign currency coming from meeting that deadline for their cruises will probably more than repay the British economy for their decision. But, of course, it is sad that it will cause a loss to British shipyards. I have rather gone off the point, which I should not have done. I should like to say that I heartily endorse the sentiments behind this amendment. The more the employees in any industry can be told of any aspect which concerns them, the better.
5.45 p.m.
Lord Bruce of Donington: My Lords, noble Lords will forgive me if I do not follow the line pursued by the noble Viscount, Lord Massereene and Ferrard, save to say that he reminded me of the story, which is perhaps apocryphal, attending the election to the presidency of the United States of the late President Hoover. He, on being asked a question at an election meeting, would ponder deeply and then say, "Well, yes. And then again, no". Thereby securing the support of a sufficient majority of the electorate to return him to office.
If the noble Lord, Lord Trefgarne, is disposed to reject this amendment on the grounds that, if he accepted it, the Government would have to amend a lot of other Acts to bring them into conformity, I sincerely hope that he will not. He will recall that this amendment itself was occasioned by the deliberate deletion from the 1977 Act of the provision referred to by my noble friend Lord Beswick relating to the promotion of "industrial democracy in a strong and organic form". I do not propose to repeat the arguments that I used in the Committee stage on this Bill because they have already been covered very adequately by the noble Lord, Lord Rochester, and my noble friend Lord Beswick. I sincerely hope that the Government will agree to this amendment.
The fact that it is designed to apply to a corporation not covered by the Companies Act is quite apposite because the corporation itself, by virtue of its control of the various companies concerned, which are themselves responsible under the Companies Act, as the holding company has power over the policies of its

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subsidiaries. Therefore, it is quite proper for this kind of amendment to be incorporated.
I myself would have preferred the amendment to have been in a slightly different and more comprehensive form. Indeed, my party also would have preferred it to be a little more definite in some respects. But it represents progress in what we consider to be the right direction. If the noble Lord, Lord Rochester, takes the matter to a Division—on the assumption that the noble Lord does not accept the amendment—we on this side of the House will support the noble Lord, Lord Rochester.
Lord Campbell of Alloway: My Lords, I wholly support the spirit behind this amendment as expounded by the noble Lord, Lord Rochester, for it seeks to introduce into the public sector principles of employee involvement, adapted albeit, which as regards the private sector are embodied in Section 1 of the Act of 1982. Not only that, as a matter of principle it serves a useful and constructive purpose in marking a signpost: a signpost which points the way towards a new approach in industrial relations in the public sector.
However, there are objections. Can it be right to adopt a piecemeal approach, industry by industry, as this amendment seeks to do, starting with the shipbuilding industry? Must we not have a general approach to industrial relations in the public sector? Is not this question of employee involvement part and parcel of that general approach?
I hope the Minister will be able to endorse the spirit of the amendment, although it would be wrong to pre-empt legislation which may be on its way to deal with industrial relations in the public sector generally, by the extraction of a single ingredient of general policy for a particular industry because it happens not to be a company. There are other employees in the public sector who do not serve companies. This is an important question and a general problem, and although the amendment serves as a valuable vehicle for debate, I submit that it would not afford a useful addition to the statute book.
Lord Somers: I am no expert on this subject, my Lords, but I find it difficult to understand why an approach to it which is what the noble Lord, Lord Campbell, described as a piecemeal approach would necessarily be ineffective. Surely if one adopts a policy of that sort in one part of industry and the results are proved to be successful, other parts of industry will be all the more willing to adopt it. I should have thought that as an experiment it would be a good thing.
Lord Trefgarne: My Lords, securing genuine employee involvement is one of the main challenges facing management today. We do not believe that can be done by putting companies into a tight legal straitjacket. The Government view is that employee involvement is best achieved by voluntary means and that management must assess for itself exactly what arrangements best suit its circumstances.
British Shipbuilders have made considerable efforts in that direction. At national level BS regularly meets the trade unions to discuss the major issues facing the industry, at least every other month and more
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frequently when urgent strategic issues need to be discussed. At local level, every subsidiary of the corporation has set up consultative machinery which includes the joint monitoring of progress on productivity and other matters. Trade unions are also consulted in the process of the formulation of the corporate plan. The Government have consistently encouraged employers to devote more attention to communicating and consulting with their employees.
Lord Beswick: My Lords, may I ask the Minister to make it clear, before he leaves that passage, that what he has just recited has been done by British Shipbuilders in accordance with the requirement in the 1977 Act?
Lord Trefgarne: With respect, the noble Lord's intervention is out of order.
Lord Bruce of Donington: Why?
Lord Trefgarne: However, as your Lordships will be aware, the new Employment Act includes a provision requiring directors' reports of larger companies to contain statements of the sort described in the amendment. British Shipbuilders' 31 subsidiaries are Companies Act companies and will be bound by the Employment Act. Statements on employee involvement should start to appear in the annual reports of BS subsidiaries from January 1984.
The British Shipbuilders Corporation, which employs only about 1 per cent. of the group's manpower, is in itself not a Companies Act company, but its consolidated reports and accounts reflect Companies Act requirements. It is Government policy that the nationalised industries should do that. All the corporation's consolidated reports and accounts to date have included reports on employee involvement, and I would expect BS to continue that practice.
I argue, therefore, that the amendment, even in spirit, is not desirable. In all its essentials it would duplicate the requirements of existing legislation, and the amendment is therefore unnecessary. I would add, however, that if BS fails to publish adequate information about its affairs we would be prepared to consider the exercise of the Secretary of State's powers under Section 8 of the 1977 Act—that is, the power to require the furnishing and publication of information—and I hope, in the light of that last assurance and the earlier explanation I gave, the noble Lord will not press the amendment.
Lord Rochester: My Lords, I am grateful to all who have joined in this brief debate. I am disappointed by the Minister's response and as this is such an important matter I am anxious to make sure that I have fully understood what he said, before determining what I should invite the House to do. I understood him simply to say that British Shipbuilders' subsidiaries will be required to report progress on employee involvement as now laid down by the Employment Act 1982 but that, in the case of the British Shipbuilders Corporation itself, although he has the expectation, as I acknowledged in my opening remarks, that BS would take action of the same kind in reporting progress in their annual reports, that is no more than an expectation.

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The noble Lord added that if they failed to act with sufficient speed in the matter of communication to their employees, the Secretary of State would consider taking powers under the 1977 Act to ensure they improved in that regard. But he said no more than that and, if I have correctly represented what he said, his remarks did not go to the heart of the matter. It seems that BSC—maybe with only 1 per cent. of those employed in the shipbuilding industry as a whole—should be required to do no less than private companies in this regard.
Lord Trefgarne: My Lords, the noble Lord has more or less correctly interpreted what I said. To repeat it in short form, I said that 99 per cent. of the work force of the BS organisation was already covered by existing legislation. The remaining 1 per cent. already have the benefit of the practice of the main BS holding organisation, and if that main organisation failed to publish adequate information we would certainly stand ready to use the powers which are already available to us.
Lord Rochester: My Lords, I am grateful to the Minister for those comments, but I am not satisfied. I made it plain that I was moving the amendment not primarily because of what it could do in the corporation as such but as an indication to those responsible in all nationalised industries and in the public services—indeed, in the public sector generally—that more needed to be done in this direction. The Minister did not say anything to satisfy me on that count.
Here is here a glorious opportunity, as I see it, for the Government positively to give some encouragement to the development of employee involvement in the public sector. They are not taking it. It seems to me that the reputation of the House for consistency in this matter is at stake here. Indeed, the basis on which I have moved my amendment is dependent upon a section in an Act which was put forward by the Government last October. In those circumstances, I feel that I must press this point and divide the House.
6 p.m.
On Question, Whether the said amendment (No. 6) shall be agreed to?
Their Lordships divided: Contents, 60; Not-Contents, 67.

DIVISION NO. 3

CONTENTS

Amultree, L.

Gladwyn, L.

Ardwick, l.

Halsbury, E.

Aylestone, L.

Hanworth, V.[Teller]

Banks, L.

Harris of Greenwich, L.

Beswick, L.

Hayter, L.

Bishopston, L.

Hooson, L.

Briginshaw, L.

Houghton of Sowerby, L.

Brockway, L.

Howie of Troon, L.

Bruce of Donington, L.

Hylton-Foster, B.

Collison, L.

Jacques, L.

Cooper of Stockton Heath, L.

Jeger, B.

Diamond, L.

Jenkins of Putney, L.

Donaldson of Kingsbridge, L.

John-Mackie, L.

Gallacher, L.

Kagan, L.

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Lawrence, L.

Rochester, L.[Teller]

Leatherland, L.

Scanlon, L.

Lloyd of Kilgerran, L.

Seebohm, L.

Longford, E.

Serota, B.

Lovell-Davis, L.

Shannon, E.

McCarthy, L.

Shinwell, L.

McGregor of Durris, L.

Somers, L.

McIntosh of Haringey, L.

Stamp, L.

Northfield, L.

Stedman, B.

Ogmore, L.

Stewart of Alvechurch, B.

Oram, L.

Stewart of Fulham, L.

Peart, L.

Strabolgi, L.

Phillips, B.

Underhill, L.

Pitt of Hampstead, L.

Wallace of Coslany, L.

Ponsonby of Shulbrede, L.

Wigoder, L.

Roberthall, L.

Wootton of Abinger, B.

NOT-CONTENTS

Avon, E.

Hunt of Fawley, L.

Beloff, L.

Killearn, L.

Boyd-Carpenter, L.

Lane-Fox, B.

Brougham and Vaux, L.

Lindsey and Abingdon, E.

Campbell of Alloway, L.

Long, V.[Teller]

Cathcart, E.

Lucas of Chilworth, L.

Chelwood, L.

Lyell, L.

Coleraine, L.

Massereene and Ferrard, V.

Colville of Culross, V.

Merrivale, L.

Colwyn, L.

Molson, L.

Cowley, E.

Mottistone, L.

Cox, B.

Mowbray and Stourton, L.

Craigavon, V.

Murton of Lindisfarne, L.

Cullen of Ashbourne, L.

Northchurch, B.

Daventry, V.

Nugent of Guildford, L.

Davidson, V.

O'Brien of Lothbury, L.

De L'Isle, V.

Orkney, E.

Denham, L.[Teller]

Portland, D.

Drumalbyn, L.

Rankeillour, L.

Ebbisham, L.

Rochdale, V.

Effingham, E.

St. Aldwyn, E.

Elphinstone, L.

Sandford, L.

Ferrers, E.

Selsdon, L.

Ferrier, L.

Spens, L.

Gainford, L.

Strathcarron, L.

Glanusk, L.

Strathspey, L.

Glenarthur, L.

Sudeley, L.

Gridley, L.

Swinfen, L.

Hailsham of Saint Marylebone, L.

Teviot, L.

Teynham, L.

Harvey of Prestbury, L.

Thomas of Swynnerton, L.

Hives, L.

Trefgarne, L.

Home of the Hirsel, L.

Vaux of Harrowden, L.

Hornsby-Smith, B.

Vickers, B.

Resolved in the negative, and amendment disagreed to accordingly.

Closed Shop Agreements and Arrangements: Code of Practice
6.9 p.m.
Earl Ferrers Earl Ferrers rose to move, That the draft revised code of practice laid before the House on 2nd March be approved.
The noble Earl said: My Lords, the code of practice which is before your Lordships today is not new. It first came up for consideration in November 1980 and was accompanied by the code of practice on picketing. Both codes were designed to reinforce the measures in the 1980 Employment Act which had recently become law. But today we are only concerned with the code of practice on the closed shop. The law on picketing, which has been established by the 1980 Employment Act, has not been changed by the provisions of the 1982 Act, and the code of practice on this subject is

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not in need of amendment. Indeed, its provisions have secured widespread acceptance.
Unlike the code of picketing, the revision of the code of practice on the closed shop is necessary for two reasons. First, the code has to be updated in order to take account of the changes to the law on the closed shop which were made by the 1982 Employment Act. As a result of that Act, Section B of the code—which explains the main provisions of the law regarding the closed shop—has been extensively revised. Secondly, the existing code needs revision in the light of the abundant evidence that the closed shop is still causing substantial injustice to individuals.
The closed shop code of practice is essentially a set of guidelines which both employers and trade unions should follow in relation both to new and to existing closed shop agreements. The legal status of the code is set out clearly in paragraph 5. It imposes no legal obligations, and failure to observe it does not of itself make anyone liable to proceedings. But the provisions of the code must be taken into account in proceedings before any court or industrial tribunal where they consider them relevant. That is the code's sole legal effect.
This code reflects not only the views of the Secretary of State but also the views of those who commented to him on its content during the recent consultation period. As a result of those consultations, my right honourable friend made a number of changes to the text which are now incorporated in the code before the House. This makes it all the more regrettable that the TUC did not see fit to make any detailed suggestions on the code to my right honourable friend, unlike some of the non-TUC unions who did comment and whose views he took carefully into account.
I need hardly remind your Lordships that, since the code was originally approved in November 1980, abuses of the closed shop have, I regret to say, continued to occur, and to occur on a scale which could not have been foreseen when the code was originally drafted. The evidence of this abuse is quite clear. Perhaps I could begin with just one example—namely; the stance which was taken by the National Graphical Association on the TUC's so-called "day of action" on 22nd September last year. Your Lordships will recall that the day of action was in support of health service workers who were in dispute over their pay. On that day, all NGA members—and these are members of one of the biggest print unions who, by any stretch of the imagination, had no involvement in the health service dispute—were instructed by their union leadership to withdraw their labour for a complete shift. And this was done without their being consulted on the issue through a secret ballot or in any other way. Many of those who wanted to ignore this instruction were threatened that if they did so they would face expulsion from the union.
Your Lordships will be aware that almost all NGA members work in closed shops, and therefore the threat of expulsion from the union carried with it the almost certain loss of their jobs. Many of those NGA members who wrote to my right honourable friend the Secretary of State told him that they could not risk their own, and their family's, livelihoods by holding out against such pressure. They therefore felt
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compelled to break their contracts despite their clear wish not to do so.
I have no doubt that your Lordships will agree that this was quite deplorable. Certainly a large number of NGA members themselves seem to have thought so. Apart from letters to the Department of Employment, the November issue of the NGA's own journal itself admitted that letters had poured in on the subject, protesting at the high-handed way in which the union's leadership had acted. One such letter concluded simply:
"I am ashamed to belong to a union that gets its rather doubtful way by using threats of discipline".
That was a member of the NGA writing about his own union to his own union journal. To use the graphic phrase of the noble Lord, Lord McCarthy, there is nothing "hugger-mugger" about that.
It would be some consolation if the NGA was the exception which proved the rule. But unfortunately that is not the case. While they may on this occasion have been the worst offenders, the Department of Employment received well over 50 complaints in relation to the "day of action" from people and groups of people who had been threatened with disciplinary action—and that was, generally, expulsion—if they refused to strike on that day. Since then, many of those who defied those threats have been summoned to union disciplinary proceedings, despite the fact that the strike action on 22nd September was never endorsed by ballot in any of the unions concerned, and despite the fact that this secondary action was itself unlawful.
It has become clear that union leaders are increasingly prepared to use the power of the closed shop in order to force reluctant members to toe the line. I have given some examples of events which surrounded the so-called "day of action". But they are not the only ones. Similar tactics were resorted to, for example, during last summer's disputes on the railways. Despite the fact that neither the NUR nor ASLEF held secret ballots before those strikes were called, many of those who refused to strike have since been disciplined. The NUR alone has sought to discipline some 12,000 of its members—and we have seen how bitterly this action has been resented in the way that several hundred of those disciplined have seized on British Rail's pledge to protect their jobs and have resigned from the NUR.
More recently, similar disciplinary proceedings have been brought by both the Civil and Public Services Association and the Post Office Engineering Union against members who refused to take part in the one-day strike which was called last October against the privatisation of British Telecom. The Department of Employment has also received a significant number of letters from water workers, who complained that they too were forced to strike in the recent dispute, for fear of expulsion if they did not obey the union's strike call.
Noble Lords opposite may, of course, try to argue that very few individuals are in the event actually expelled from their unions and therefore that few in fact lose their jobs for refusing to strike. But that is not the point. It is abundantly clear from the letters which union members write to my right honourable friend the Secretary of State that for every union member

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who defies a threat of expulsion and refuses to take industrial action, there are dozens who, while not wanting to strike, simply do not feel able to stand up and become marked men. And who can blame them?
But if anyone doubts the scale of the resentment which trade union tactics like these generate, they need look no further than at recent events on British Rail—which, of course, the noble Lord, Lord McCarthy, knows so well. What has happened, quite simply, is that British Rail's pledge to protect the jobs of those who refused to strike last summer has allowed the true scale of resentment to come out into the open. The large-scale resignations from the NUR and ASLEF, the creation of a breakaway union and the welter of protest aginst the disciplinary measures imposed on those who refused to strike—which, in ASLEF's case, amounted to fining non-strikers £10 a day for each day they had worked in defiance of union instructions—all show what happens as soon as the threat of the closed shop is lifted, however slightly it is lifted.
Your Lordships may find it useful if I were to explain briefly how we have strengthened the revised code in order to counter these continuing abuses. Taking first the issue of union members being forced to strike, we have provided more specific protection by strengthening the advice given to trade unions in paragraph 61—paragraph 54 of the old code—on the circumstances in which they should not discipline members who refuse to take part in industrial action.
Two changes have been made. First, the code now makes it clear that disciplinary action should not be taken where there were reasonable grounds for believing that the industrial action was unlawful. This would have been relevant, for instance, to much of what took place on the so-called "day of action". Secondly, the old code had the effect of putting the onus on the individual to say precisely what was his reason for refusing to strike. The new code, by contrast, simply sets out a list of circumstances where unions should not discipline members, irrespective of the reason for the members' refusal to strike. The most important of these circumstances are those where there has been no ballot; where the action is unlawful or in breach of a procedure agreement; or where the action constitutes a serious risk to public safety and health. I find it hard to believe that there will be anyone in your Lordships' House who would want to argue that unions should have carte blanche to discipline members who refuse to take industrial action in those circumstances.
The guidance in paragraph 61 is of course, crucially important in relation to the right not to be unreasonably expelled from a trade union in a closed shop, which is provided by Section 4 of the 1980 Employment Act. As your Lordships know, the Act does not define what is to be regarded as "unreasonable expulsion", but it does make clear that in determining whether or not an expulsion was "unreasonable" a tribunal must take the code into account. What the new provisions will mean is that union members, who complain to industrial tribunals that they have been unreasonably expelled for refusing to take part in industrial action, will almost certainly win their case if there has been no secret ballot, if the action was
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unlawful, or if any of the other circumstances in paragraph 61 apply. That, I believe, will be a powerful incentive on trade unions not to take such action in the first place.
I should like to say a word on two other matters. The first is something for which we have all been eagerly waiting—except for the noble Lord, Lord McCarthy, who claimed to have had a "preview" of it—but which has now finally arrived. I refer, of course, to the Gennard Report. I am bound to say that it is a pretty hefty tome and I cannot claim—and here I am sure that I must distance myself from the noble Lord, Lord McCarthy, for the first time in this debate!—to be conversant with every word of it. It is a long report, but I am already struck by the balanced and measured way in which the professor has addressed himself to the subject. Looking at what the professor has said, it is far from being the rousing defence of the closed shop, which the noble Lord, Lord McCarthy, was perhaps hoping to read. In particular, Professor Gennard has not shirked—and I think we must thank him for this—from recalling some of the darker episodes to which the closed shop has given rise. One passage struck me in particular, concerning the activities of the former SLADE union, and perhaps I might be allowed to read it to the House. Professor Gennard notes, in chapter 4 of his report, how SLADE attempted to recruit members in 1975 among those who were employed in art studios and advertising agencies. What he says is this:
"after attempts to persuade employees to join the union, by distributing leaflets and by persuasion, met with little success, the union began the 'blacking' of work from art studios in printing offices, unless the employees in the studios concerned agreed to join the SLADE Art Union. Selective blacking, threats of blacking, and the introduction and operation of the 'Fair List' system resulted in SLADE being able to coerce into membership nearly 10,000 previously non-union members. In the process, it was able to force unwilling firms to concede a post-entry closed shop, without any provision for exemption from membership and against the wishes of the great majority of the employees and, in a large number of cases, against the wishes of every single person in these firms".
That is not me. That is Professor Gennard. I do not contend that SLADE's activities were typical. But they do show the power which the closed shop can give to those who are prepared to wield it unmercifully, and which Professor Gennard identified.
The other matter to which I should like to refer is our old friend "hugger-mugger". Your Lordships will recall, from our debates on the 1982 Employment Act, the intense concern of the noble Lord, Lord McCarthy, about the scheme for compensating the victims of the last Government's closed shop legislation. He painted a lurid picture of a slush fund showering money on a handful of bounty-hunters, avaricious martyrs and other colourful figures of his imagination. He complained that the whole procedure was shrouded in mystery and secrecy and was, as he put it, all "hugger-mugger".
I am glad to be able to give your Lordships an up-to-date report on the scheme. So far, a total of 416 applications have been received—a figure which is remarkably close to the Government's own estimate, which was, I might add, based on the research of Professor Gennard and Miss Helen Jackson. Out of this total of 416, 173 applications have already been approved and payments totalling £141,000, and

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averaging just over £5,000, have already been made. Again, this is in line with our earlier estimate.
I am delighted to be able to give your Lordships these figures—not just to satisfy the curiosity of the noble Lord, Lord McCarthy, but because the number of successful applications under this scheme is the clearest possible indication of the misery and the hardship which the closed shop can cause when it is allowed to operate without any legislative safeguards for the individual. That was the position which was created by the legislation of 1976, which we now know was in breach of the European Convention on Human Rights. And that is a position which should never have been allowed to occur, and which we should not allow to recur.
For our part, we have sought to introduce, first in the 1980 Act, then in the 1982 Act, and now in this code, some basic essential safeguards to prevent such abuses of the closed shop. Trade unions, who operate closed shops which enjoy the support of those whom they cover and which are operated decently and flexibly, have nothing to fear from this code or from the Employment Acts. The Acts and the code together seek only to introduce some minimum, essential safeguards, in order to prevent the kinds of abuse to which Professor Gennard has rightly drawn our attention, and, as such, I am sure that they can only be welcomed by the noble Lord, Lord McCarthy. But they are nonetheless essential, and I believe that this code in particular, by setting out the law on the closed shop clearly and concisely, and by setting out how closed shops should be operated, will be a major advance in protecting the rights of individuals, not against trade unions, but against the abuses which may occur in some trade unions. My Lords, I beg to move.
Moved, That the draft revised code of practice laid before the House on 2nd March be approved.—(Earl Ferrers.)
6.27 p.m.
Lord McCarthy: My Lords, I always hope for the best from the noble Earl and, in the first few moments of what he said, I thought I had got it. He said "That the code of practice be approved". I thought he said "be improved", because there is plenty of room for that. He then went on to say that the picketing code is not in need of amendment. We are not discussing that today, but I cannot agree. It is very much in need of amendment, because the objective of the formal provisions of this code of practice is precisely the same as that of the previous code of practice and the code of practice on picketing.
First, the Government say at the beginning of the code that they want to outline the provisions of the present law. Our argument in 1980, and it is more so today, was that the outline of the law contained in this code is unsatisfactory, tendentious and selective. It leaves out more than it puts in, and in a minute I will tell your Lordships what it leaves out.
Secondly, the code tells us that we are to have practical guidelines concerning the operation of the closed shop and related matters. I want to argue—more so than we have done before—that those guidelines are bigoted, ignorant and disingenuous. But most important of all, this code of practice, like the
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previous code of practice and like the picketing code of practice, still suffers from the major defect that there is no clear indication where the law ends and advice begins; or perhaps I should say that it is not clear what the Government's ideology dictates outside the law. It is not clear when this code is talking of the law, summarising the law or giving vent to the Government's own prejudices. I want to give some examples of that, too.
This is not because it cannot be done, because, as we have said before, it has been done in previous codes of practice. For example, it is done in the codes of practice of the Health and Safety Commission and, if one is allowed to mention the doings of the previous Conservative Government and to refer to their doings in a way which is not entirely critical, the code of practice for the 1971 Industrial Relations Act was, in this respect at least, clear and above board. It was quite clear in that code of practice where law ended and advice began, so the Government cannot say that it cannot be done.
Therefore, I am afraid that we have to traverse arguments which we have traversed in the past, except that we have one new factor—or perhaps it is not so new as all that. We shall be returning to the contents of the Gennard Report. The noble Earl cannot say that I raised this, because he raised it—except, of course, that I asked him in a letter written this afternoon if he would refer to the summary of the Gennard Report in Industrial Relations Review and Report. The noble Earl has not done that. Therefore, I shall have to return to it.
Let me turn first, therefore, to the law. We made the criticism before, and we make it again, that it is still not clear from this code of practice that to sign a collective agreement on the closed shop is a perfectly lawful activity. Nowhere does it say that a closed shop is not against the law. It is nowhere clear in this code of practice what the limitations are on the remedies which anyone can expect if they bring an action under the terms of the 1980 and 1982 legislation. Only later on in the code of practice are we told the form of those remedies: that they take the form of compensation. We are never told that there is no right to reinstatement, no right to work, no right to return to the job. That is not clear at all in the present code of practice. The way that the code frames these sections in relation to the law is to list a series of rights.
I suggest to the House that any non-lawyer, any reasonable man, any ordinary trade unionist, any ordinary worker reading that list of rights would think that they were pretty clear and pretty unexceptional, that they had ruled out all forms of closed shop and had given him the right to work or the right to reinstatement—which of course they do not do. They merely give the complainant the right to additional compensation. Therefore I say that it is what it leaves out, what it does not say and the way that it talks about rights so as to exaggerate the extent and consequence of those rights that we find tendentious and selective.
It is surely not surprising that this list of rights begins with rights which will not be available until November 1984, except that to get this clear in your mind you have to consult a footnote. So you begin with draconian rights which will be there only when the

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Government invoke the procedure for validating ballots on existing closed shops. It is not until paragraph 13 on page 6 that we are told of the limited nature of the remedies. Even then we are not told of their financial limits. We are not told the basis on which they will be computed by the tribunals. The whole presentation of this part of the code, I put it to the House, is in fact to present the non-lawyer with a feeling that there is here a series of absolute rights, absolute remedies. And the implication includes even the right to return to work.
There is also in this code of practice virtually nothing about the rights of the would-be trade unionist. Members of the House will remember that at the time when this legislation was going through the House we were told repeatedly that the Government were every bit as concerned with the interests of the would-be non-unionist as with the interests of the would-be trade unionist. You might have expected his rights to be spelled out with something like equal weight in this code of practice. In fact, we have eight pages and 400 lines to describe and exaggerate the protections offered to the non-unionist, while we have one paragraph of eight lines to tell us of the protections given to the would-be trade unionist. We are told that he cannot be unfairly selected on grounds of redundancy, or sacked for union activities. No guidance is given to him at any point on how to enforce those rights.
So much for the ballots, of which we heard so much when this legislation was going through the House. We come to the so-called practical guidance—in particular Section C, which was mentioned by the noble Earl. The first point to make, as I have already said, is that it is not made clear at this point in the code of practice that we are passing beyond law into advice. At this point there should be a caveat, and I invite the Government to insert it. They do not necessarily need to accept my words, but there should be some clearly prescribed statement that we are passing beyond law to advice. I would prefer a caveat which was to the effect:
"The contents of this section represent the prejudices of the Government. They are based on its conviction that every possible obstacle must be placed in the way of trade unions if its economic objectives of lowering the level of real wages are to have any chance of success. Anybody who does not subscribe to this implausible view of life which is contrary to all empirical studies of the labour market need not proceed any further".
I do not suggest that just that kind of caveat should be inserted, but I do suggest to the Government that there ought to be a caveat of some kind. As it is, we are just told:
"Practical guidance on closed shop agreements and arrangments".
Then, in precisely the same tone of voice, the code of practice goes on:
"Before there is any question of negotiating on proposals for a closed shop, employers and trade unions should take account of the following factors".
Precisely the same tone of voice is used here as has been used in the legal provisions. I suggest that that is disingenuous, I suggest that it is misleading and I suggest that it is still not too late for the Government to make this point clear.
So we go on to the advice that is actually given. I am looking at it almost at random. We are told, for
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example, that you must have overwhelming "support for the practice among workers" before you agree to discuss it—to discuss it, not grant it. We are told that this overwhelming support is not necessarily indicated by ballots alone. You could have a ballot with 80, 85 or 95 per cent. support. It would not necessarily follow that you had overwhelming support. It would not be done by ballots alone. I do not know how else it would be done, but it would not be done by ballots alone. Even if you had all this overwhelming support—not by ballots alone—the implication is that it is best to exclude a wide number of special groups: management, the professions, personnel staff, part-timers and—if you take into account the appendix on the freedom of the press—journalists and editors.
No attempt is made to argue why these particular groups should be outside. No discernible reasons are given. Yet nobody is told, "This is just our belief; this is just our prejudice; this isn't in our legislation". Precisely the same tone of voice is adopted—and so on. We are told that the employer should insist that the closed shop agreement makes provision to exclude action in a wide variety of circumstances: those who refuse to take part in industrial action, those who cross picket lines, those who might be forced into a union against their will. If one is led into a closed shop agreement, with all the legal qualifications that this Government have had inserted as a result of the 1980 and 1982 legislation, and if one says that one must put into a collective agreement a provision which says that the employer cannot sign any agreement which would force into a union any man against his will, one is bound to ask: what is the point of signing a union membership agreement at all?
Of course, the Government do not believe in union membership agreements, only they have not quite got there. But they use this code of practice to mislead people into believing that in fact they have got there. So we read on and we are told:
"It is essential to subject each agreement to a constant and continuous period of review".
One example which justifies a review of the procedure, as far as I can understand the wording, is if there is a trade union merger—it says if the "parties to the agreement change". That would normally happen if there were a trade union merger, or if a firm were taken over by another. Why that should be a reason to subject a closed shop agreement, which had passed all the tests imposed by this Government, to a period of review we do not know. And we are not told. The implication is that it is legal to do so. We are told you could do it at three months' notice, with no reasons given for it by either side. We are told that you could have a review and that you should have a review if it is not working satisfactorily. Who is to decide why it is not working satisfactorily and what justifies a review in those circumstances we are not told.
As I have said, I cannot go into all these prevarications. The list is longer, as the noble Earl suggests, than it was last time. At the time of the 1980 legislation and at the time of the 1980 code of practice, I calculated for the purpose of writing an article about the code of practice that the Government had put in 40 or more obstacles to the signing of a union membership agreement; 10 before the employer should entertain the possibility, 9 to narrow its scope

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and content, 8 to prolong negotiation, and 11 to interfere with its effective working—and none of these is law, but all of them reflect the prejudices of this Government.
So we come to Section D of the draft code of practice, which is more complicated, and the noble Earl has suggested. Section D is quasi-law. It is in effect the kind of provisions which the Government would expect industrial tribunals to take into account when they decide whether or not people have been reasonably or unreasonably excluded in accordance with equity and the substantial merits of the case. The Government are not really prepared to trust the tribunals to decide what the equity and the substantial merits of the case are; the Government issue them with a list of instructions. I suggest that, taken altogether, those instructions are impossible to include in any rule book introduced by lay organisations.
I will just make two points about those instructions. First, Section D admits the case, all of a sudden, for the pre-entry closed shop—especially the pre-entry closed shop for the acting profession. Noble Lords will remember that we had long debates about this point at Committee and Report stages of the 1982 Bill. We are told that to control entry to the union—which can only be done effectively in a pre-entry closed shop situation—might be justified if the number of applicants had long been so great as to pose a serious threat of undermining negotiating terms and conditions. We are specifically told, for example, that this would be the case in respect of actors. That, of course, is absolutely right and we pressed that point upon noble Lords when the Bill was before the House, in an attempt to do something to safeguard the position of the West End agreements and the acting profession in particular.
We were told that nothing could be done, although the pre-entry closed shop is no more per se unlawful than the post-entry closed shop; that nothing could be done to make it more easy to enforce. And yet here in the draft code of practice, the pre-entry closed shop is singled out in Section B for particular attack. In Section B, we are told that it is a dreadful thing which is particularly unfair and illiberal, and that although we may have to tolerate a conciliatory view towards existing pre-entry closed shops, no one should agree to sign any new ones.
As we sought to argue again and again in this House, in the acting profession new union membership arrangements have to be agreed and negotiated every day of the week. One cannot at one and the same time say that one sees the case for a pre-entry closed shop in the acting profession and then say that no new pre-entry closed shops should be entertained. Yet that is what it does say in the draft code of practice.
Second, in Section C of the draft code of practice, note that the Government—and this came out very clearly in the statements made by the noble Earl—are always against the use of trade union disciplinary functions when they feel that the trade union leaders or executives are encouraging, supporting or instructing people to strike. They must not let them strike in breach of procedure. They must not let them have an unauthorised strike. They must not have strikes without secret ballots. The Government always do this
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in the context that trade union leaders are assumed to be forcing their members out on strike.
The Government never give as an example of the unjustifiable power of trade unions their efforts to get people back to work and the exerting of their disciplinary functions over those who defy a decision to stop a strike and return to work. Those uses of trade union strength, power and authority are never the instances quoted by the Government; yet I suggest to the Government that—as in everything else—they cannot have the ha'penny and the bun. If they want to rob trade union leaders of their powers over their members and the use of the closed shop in this respect, it will not just be used to not get people out on strike; it will not be used to get people back from strike and to work. It is because most employers believe that that is the main way in which the sanctions of the closed shop are used that they support, on the whole, the closed shop practice.
This brings me to Professor Gennard. The noble Earl, Lord Ferrers—and I must be careful what I say—had the cheek, in a way, to refer to Professor Gennard by reading to me a quotation from his report. So that even now we are not to have the Gennard Report—after all this time.
Earl Ferrers: My Lords, if I may intervene, I cannot quite see why it is a cheek to read from Professor Gennard's Report. I thought that is what the noble Lord, Lord McCarthy, wanted.
Lord McCarthy: If the noble Earl will let me finish, my Lords, I will tell him why it is a cheek. All this time we have not been given Professor Gennard's report, and it seems as though we are not to be given it now—not to be allowed to examine it. It is now to be used against us, because bits of it are to be selected by the Government. They will be those bits that suit the Government, and they will be pretty little bits. Maybe we will have another three years in which all we shall know about the Gennard Report is what the Government are prepared to tell us about it. I think that is a cheek.
Earl Ferrers: My Lords, I thought that when the Employment Bill was going through the noble Lord, Lord McCarthy, said that I was the only person who had not read the Gennard Report; that I and the Secretary of State had not read it, but that he knew all about it. So it is quite extraordinary for the noble Lord now to say that he has not read it.
Lord McCarthy: I did not say that I had not read the report, my Lords; I said that the Government will not publish it. Those of us who know Professor Gennard, those of us who have attended seminars, and those of us who have read Industrial Relations Review and Report, know a very great deal about the report. But it is one thing to know and it is another thing to be able to belabour the report around the Government's ears because they have published it. Even now they have not published it. The Government are quoting those bits of the report they like. I repeat, I think that is a cheek.
What parts has the noble Earl quoted? He has quoted a bit about SLADE. This is very old stuff All

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this stuff about SLADE was published by a Government inquiry. As a result of that inquiry, the Government introduced Section 18 of the 1980 Act. By no means can this part about SLADE, selectively taken out of Professor Gennard's report, be quoted now to justify the kind of extension of restrictions on union membership agreements which I have been quoting this afternoon from the present code of practice.
To be fair to the noble Earl, he has quoted other examples: the NGA, the NUR, the ASLEF, the CSPA. We do not know whether Professor Gennard refers to these people, but if we are to take what he is reported to have said in Industrial Relations Review and Report for 8th February 1983, which contains a summary of his report running to six pages, Professor Gennard has explanations for these matters and says that they are indeed very exceptional. I have a serious question to ask of the noble Earl. I have given him notice of this question, and I have sent him a copy of the six-page summary in Industrial Relations Review and Report. My question is: now that the noble Earl has seen the Gennard Report, and now that it has been dredged up from the cellars, is the summary of the report which I sent to the noble Earl earlier this afternoon a fair summary? That is my first question. If it is a fair summary, then how on earth do the Government justify this draft code of practice?
Professor Gennard says six things: first of all, that there is no sign of contemporary expansion of the closed shop; it roughly covers the same proportion of union members as it did 20 years ago. According to Industrial Relations Review and Report, and he has it in his summary, there is no evidence of significant abuse of the exclusion power. Almost all exclusions are for persistent lapsing, for falling into arrears. I suggest to the noble Earl that people are kicked out of the Athenaeum for the same crime. Third, impressions to the contrary—including, presumably, those quoted by the noble Earl—are the result of undue publicity given to a small number of cases, very often publicised by such organisations as the Freedom Association and its allies in the press. Investigations by Professor Gennard—for example, of the attempt at mass exclusions by the bakers' union—show that if unions attempt practices of this kind they almost invariably blow up in their face, because you cannot abuse the power of the closed shop in this way. It is not a practical policy, and unions find that to be the case. That is what Professor Gennard says.
He also says that 90 per cent. or more of trade unionists in closed shops were there before the closed shops came and they would be there if the closed shops were taken away. The suggestion that we require a code of practice of this kind to force thousands or millions of our fellow-citizens into trade unions is nonsense. You might just as well suppose that the analogous closed shops in the professions force people into their organisations; that veterinary surgeons are forced into the Royal College of Veterinary Surgeons, that barristers do not want to belong to Inns of Court, that accountants would like to drop out of associations they must belong to if they are to appear before tax authorities. Of course not, nobody suggests it. People
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belong to these organisations because it is in their interests to do so, and that is why people belong to trade unions.
That is why managements do not resist closed shops on the whole, because they know they have certain benefits, that they help to secure observance of agreements, that they avoid multi-unionism, that in most existing UMAs—this is the final point that comes out in this summary of Gennard—there are similar safeguards for existing members and conscientious objectors and religious objectors to the kind which the Government have put in the legislation, and that we do not require to go further by this kind of inference through a quasi-legal code of practice or guide.
So what I suggest in conclusion is that the world of Gennard, as summarised in this article, on the whole, taking the whole of Gennard, not little bits quoted out of context, is the world of real life, and not the prejudices of the Secretary of State or the assumptions of the Prime Minister's economic advisers. The closed shop emerges from this study as a useful organisational device, for the most part important but marginal in the case of strong well-organised unions, essential only for those facing particular organisational problems—actors, seamen, building workers and so on. Such a view of the closed shop is not in fact compatible with the legislation the Government have introduced, in particular the 1982 Employment Act; it is certainly not compatible with this code of practice. Therefore, we do not at this late stage ask the Government to withdraw this code of practice. We ask them at least to undertake to re-write some of it, in particular to make it clear what the true position of the law is, the true extent of the justifiability of the closed shop and the limitations on the remedies, and most important of all, where the present law ends and the prejudices of the Government begin.
6.55 p.m.
Lord Rochester: My Lords, from these Benches I should like to thank the noble Earl for the way in which he has explained the draft revised code to us. In my view, this is not the time to debate once more the provisions concerning the closed shop which now form part of the 1982 Act. During the passage of that Act we gave the closed shop provisions broad support because we felt that they were reasonable responses to identified abuses of the 1980 Act, and because as Liberals we find the whole concept of the closed shop repugnant in principle and are, therefore, sympathetically disposed towards any workable restrictions of its operation.
However, in order to validate what I wish to say about the code of practice, I should remind the House that during the Second Reading debate on last year's Employment Bill I made it plain that in our view there were a number of difficulties which the Government's proposals could easily produce in practice. One such difficulty might prove to be the percentage of support required in ballots affecting existing closed shops before they could count as being approved. We considered that the figures of 80 per cent. of those entitled to vote or 85 per cent. of those voting were set at levels which were too high, and indeed for that reason we sought, unsuccessfully, in Committee to have them reduced.

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Speaking only for myself, I felt obliged to say also that experience in large-scale industry led me to doubt the likely effectiveness of periodic reviews of closed shops, and particularly to doubt whether the Government had drawn a sufficient distinction between the freedom of individuals to decide for themselves whether they wished to remain members of a particular trade union as opposed to any trade union. I retain those doubts, but the fact is that the provisions on the closed shop are now part of the law of the land and the code of practice is to be welcomed, at any rate in its purpose of providing practical guidance on questions arising out of the formulation and operation of closed shop agreements.
In my view, the new parts of the code offer management and unions a useful guide, in explanation and elaboration of the 1982 Act, in drawing attention to the rights of individual employees and in reminding both employers and trade unions of their legal liabilities if an employee's statutory rights are infringed by a closed shop. Indeed, in stressing those individual rights it may be that the code over-simplifies industrial problems that are in reality highly complex. As the Institute of Personnel Management has pointed out, an example of this is that whereas paragraph 37 of the original code states that in the application of closed shop agreements there should be due regard to the interests of the individuals as well as unions and employers, in paragraph 49 of the revised code there is recognition only of the interests of individuals. The problems which may arise from situations in which a number of unions are involved may thus have been given insufficient weight.
I suggest that, whatever, our attitude to the principle of having closed shop agreements, it is desirable that where they exist, or for that matter where they are terminated, they should be operated, or ended as the case may be, in a balanced way in which the legitimate interests of trade unions and employers continue to be safeguarded.
Like the noble Lord, Lord McCarthy, I am frankly disappointed by the paucity of practical guidance which is offered in Section C of the code, because it begs so many questions that are bound to arise in not more than 18 months' time. Let me mention a few instances where no advice is forthcoming as to what should be done. What happens if a trade union declines to co-operate in the holding of a ballot? What if there are demands for further ballots at frequent intervals because a company has been restructured or the minimum levels of support required for the approval of an existing closed shop have only just been exceeded or not been quite reached? If ballots reveal, as I am sure many of them will, that there is not sufficient support for a closed shop for it to be regarded as approved, what should then be done by the employer and by what might well be a number of trade unions which are competing for membership?
In such circumstances might there not be a recommendation that the closed shop agreements be replaced by others giving sole bargaining rights to a union or to a number of unions? Should it be suggested that certain facilities be afforded to unions to enable them to serve their members' interest? Could there be advice that there should be a transition to the practice whereby many well-run companies, before they agreed
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to the introduction of a closed shop, nevertheless used to encourage their employees to join an appropriate trade union? The company for which I once worked was certainly one. Or is there simply to be a free-for-all, at whatever cost to industrial relations?
It may be that the Government's response will simply be to place responsibility on employers and trade unions to act in all such situations as they think fit. For my part, I question whether in preparation for November 1984, or possibly earlier, that is good enough. The revision of a code of practice such as the one before us offers the Government of the day an opportunity to give a balanced and a constructive lead based on the practice now, or earlier, of companies generally recognised as having good industrial relations. In fairness to the present Government it must be acknowledged that they have not been helped by the failure of trade unions to engage in discussion on these matters. I would go further and say that, in my view, the TUC has been extremely short-sighted in its attitude on this point.
Nevertheless, I hope that the Government will give careful consideration to some of the points that I and, indeed, the noble Lord, Lord McCarthy, have endeavoured to make with a view, perhaps, to producing an amended code of practice before the date of implementation of the closed shop sections of the Employment Act. I am sorry that in its present form I cannot give the code more wholehearted approval than that.
7.5 p.m.
Lord Jenkins of Putney: My Lords, I am most grateful to the noble Lord, Lord Campbell of Alloway, who has been kind enough to allow me to say a word at this point because, unfortunately, I have an appointment from which I cannot escape and for which I am already late. However, I wish to trespass upon the kindness of your Lordships to be allowed to add a postscript to the eloquent demolition job which two noble Lords who have already spoken have done on the draft code of practice.
Whether it will ever be practised is another question altogether, but there is one thing that my noble friend pointed out on which I wish to ask for a little further explanation, if I may. It is this. My noble friend said that the code is not very clear when it is talking about what is legally obligatory and what is a question of an expression of the Government's opinion on what should take place. There is a point at which it appears to me to be seriously contradictory, and I should like the Government to say which of the two paragraphs which appear to me to contradict each other would be regarded as being applicable. It is absolutely vital that people should know what code is being expected of them. The two paragraphs are these. On page 19, under Section D, we see at paragraph 56:
"When determining whom they might accept into membership the factors to which unions may have regard may include the following".
Among other things it then says that they should consider:
"whether, because of the nature of the work concerned, for example, acting, the number of applicants or potential applicants has long been and is likely to continue to be so great as to pose a serious threat of undermining negotiated terms and conditions of employment".

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That is the condition, has always been the condition, and is likely to continue to be the condition, not only in the theatre but throughout the whole field of entertainment. In the early part of the present century Sir George Alexander, a notable theatrical impressario of the time, said that the economics of the threatre are founded on the proposition that the actor is normally unemployed. Of course, that is true. Those who wish to employ actors look through books which give guidance as to who is available. All of them are Equity members. In those books the actors (or their agents) describe themselves, and there are pictures of them. The employer looks through these books and the assumption is that the actor is available. It is conceivable, if the actor happens to be Ben Kingsley, that he is not. But generally the actor is available, and if the first actor is not the second will be.
That is the situation, and while the economics of the entertainment industry continue as they are that will continue to be the position. There always will be this pool of unemployed from which the employer picks the person he wants. It might be said with some justification that the economics of Thatcherism are leading to the situation in which the workforce as a whole is normally unemployed. A few years after Sir George Alexander, I believe it was Aneurin Bevan who said that the last refuge of casual labour is inhabited by domestic servants, barristers and actors. That was true at the time. In those days it was the last refuge. But the Government are trying to make everyone casually employed in a pool from which, once again, employers can select. The Government want to restore the kind of situation that was removed from the docks years ago. That is the Government's basic economic intention; so the economics of Thatcherism and the economics of the theatre are somewhat similar.
I now come to my question about which of the points in the code operate. I have just read out one paragraph which says that under certain circumstances a closed shop can operate, and that it is all right for it to continue to do so. But on page 15 we have paragraph 45, which says:
"Closed shop agreements which require people to belong to a trade union before they can be employed (the pre-entry closed shop) may particularly infringe the freedom of individuals to work. No new agreements of this type should be contemplated and where they currently exist the need for their continuation should be carefully reviewed as soon as possible and regularly thereafter".
What is the truth of the situation? Is it paragraph 56—that this is a situation which is recognised as a permanent situation and is allowed to go on—or is it paragraph 45, which says that this is something which ought not to happen and should be brought to an end as soon as possible? I think that clarification on that point is absolutely necessary; otherwise, people will simply not know where they are.
That is the brief case I wish to make. It is symptomatic of some other confusions to which my noble friend eloquently draws attention, but if on this particular point the noble Earl is able to say that 56 is the operative clause, as it were, and 45 is subsidiary to it, I think he will clarify something which will present itself at a later stage and on which anybody who has to interpret what the draft code means may find themselves in very great difficulty. Better still, rather
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than just having it on the record from the noble Earl, if he would agree to my noble friend's proposal to rewrite the code so as to make these points clear, I think he would do us all a tremendous service.
7.11 p.m
Lord Campbell of Alloway: My Lords, it is understood that the purpose of the code is not really to provide legal advice. How could it? Where does the law end and the advice begin? That is the question raised by the noble Lord, Lord McCarthy. In a sense, with the utmost respect to him, there must be an element of misunderstanding within his question. True, I go along with the noble Lord to this degree: that if practical advice is offered to trade unions—and, as I understand it, that is the purpose of the code—this advice should fairly reflect the impact of the law as interpreted by the courts. But it cannot really do more than that, and it should—and I am sure that my noble friend the Minister acknowledges this—seek to do that objectively, not only bringing into its remit changes in the law but also reflecting consultations. I also very much regret—the noble Lord, Lord Rochester, has referred to this—that the Government were not able to have the advantage of consultation with the trade unions over this, because this does raise certain difficulties to which I propose, if I may, to refer in deference to the position of the trade unions, as I see it.
While generally supporting the Motion, may I advance two suggestions—and two only—with a view to future clarification of these proposals for guidance? These appear at Section C, on page 12, pargraphs 33 to 36, concerning the trade unions. I am not going to address your Lordships on any other aspect of the code on which other noble Lords have already spoken; only on these two narrow issues. The problem arises to some degree out of two decisions of the courts: one in March and the other in April of this year; one of your Lordships' Appellate Committee and another of the Court of Appeal, presided over by the Master of the Rolls. Both decisions have been handed down since this code of practice (which is in effect an offer of practical guidance to the trade unions) was compiled. The respectful submission is that the draft as it stands, which is before your Lordships for your approval, fails to reflect the impact of these decisions and in that respect could to some degree mislead the trade unions.
The first point is this. It arises at common law, and it arises generally with reference to paragraphs 33 to 36. These paragraphs, as your Lordships appreciate, enjoin the unions to recruit voluntarily before seeking a closed shop, to satisfy themselves as to the wishes of their members, to consider whether sole recognition or bargaining rights may not be more satisfactory, and not to start negotiations for a closed shop that excludes other unions with a membership interest without consultation with other unions. Although the code of practice does not say so, here the department is adopting the "Bridlington principles". There cannot be any doubt about that. This it does without naming them. But in the recent decision of your Lordships' Appellate Committee—the case of Cheal—the House of Lords adopted the "Bridlington principles", naming them as such and holding that they in no way breached the common law of public policy and that they were a

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fair, legal and proper means of preventing inter-union poaching for members. Your Lordships' Appellate Committee further held that there was no breach of Article 11 of the Convention on Human Rights. But they went on expressly to exclude the incidence of their reasoning to a closed shop situation.
Therefore, this exclusion was not fairly reflected, if one looks at paragraphs 33 to 36. The reasoning of the House of Lords adopting the "Bridlington principles" was basically that freedom of association can only be mutual. In this context, as I have said, it was expressly stated that a different situation applied as regards the closed shop.
Then, if your Lordships turn to paragraph 23 of the document, you will see that it states that common law rights are not affected. I am not quite sure what that means. But the problem is that in the case of Cheal—I merely mention this to try to convince your Lordships that I am not really wasting your time—the court of first instance found one way; the Court of Appeal found the other; and then (after publication of this document) the House of Lords went back to the essential reasoning of the court of first instance.
As the impact of the common law has to be fairly reflected, as this code is to be a revision of a previous code which took effect on 17th December 1980, as Annex A, paragraph 23, purports to take in the application of Section 3 of the Act of 1982, and as these recommendations in paragraphs 33 to 36 impinge upon the common law, which has been altered since the publication of the draft, is there not some case, however slight, for revision and a measure of clarification?
The second suggestion is in relation to paragraph 34 in particular. Your Lordships will notice that at the end it says:
"A union should always consider carefully whether an agreement allowing them sole recognition…might not be…more satisfactory".
But within the seed of that suggestion there is a trap for the unwary. The trap was sprung by the recent decision of the Court of Appeal in the case of Carrington, reported on 18th March 1983. It is a simple situation to describe, but not very attractive or satisfactory. The reason for the dismissal of the union members by the employers in that case was that the union was seeking sole recognition. It was held by the Court of Appeal that in those circumstances the provisions of Section 58 of the Act of 1978, now Section 3 of the Act of 1982, did not apply. There was not an "unfair dismissal" under the Act, and there could be no compensation for any of the members. It is a serious and unsatisfactory situation if the unions are urged to give consideration to sole recognition. I should have thought that it would be reasonable to point to the trap that arises if they do. Although the judge held that the dismissal was "indefensible" it was not "unfair" for reasons which will be known to some of your Lordships. In this context, the substituted provisions of Section 58(1)(c) in Section 3 of the 1982 Act have no materiality whatever.
On these two small, limited points is it not right that in due course Section C—the advice to the trade unions—warrants a measure of clarification, and that
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Section C ought to be set in a truer perspective? One wonders whether, in due course, emphasis could be given to loss of livelihood in relation to the closed shop which takes it out of the general principle of the Cheal case. Perhaps some reference could be made to the problem that an attempt by a trade union to secure recognition may well result in the dismissal of its members, who, in those circumstances, will not be able to claim compensation. Perhaps it might also be possible to express recognition, as the House of Lords has, of the validity and the rectitude of the "Bridlington principles" explaining in so far as is possible—it is possible—the exclusion factor as it affects loss of livelihood related to the closed shop.
I welcome the document. I support the Motion. However, with respect, I join with the noble Lord, Lord Rochester, in suggesting that there is a case, in due course, for an amended code, and that there are matters that warrant clarification. As your Lordships know, I usually find myself not in agreement with the views expressed by the noble Lord, Lord Jenkins of Putney. I did however find that the point he raised was a difficult one requiring further clarification. Perhaps it is my ineptitude. If so, I shall be told in due course. However, it seems to me as a result of your Lordships' debate that there really are matters that warrant further consideration. I respectfully suggest that at some time in due course the formula of the noble Lord, Lord Rochester, might appear acceptable to your Lordships and indeed to my noble friend the Minister. It will perhaps be possible to secure an amended code after consideration has been given by my noble friend the Minister to the points mentioned in your Lordships' House and legal advice has been taken upon them. I am not seeking (how could I from my own Front Bench seek?) any undertaking. I can only express a hope. I do so in the spirit that hope springs eternal, that some day it may receive a favourable response.
7.25 p.m.
Lord Howie of Troon: My Lords, I do not wish to raise again the arguments that were deployed during the passage of the 1982 Act. The noble Lord, Lord Rochester, from the Liberal Front Bench mentioned some of these arguments in passing. However, I do not believe that I should allow some of the comments of my noble friend Lord McCarthy to pass entirely unremarked. I should like to say first something that I hope will please my noble friend. I believe that the general tone of the code of practice is unduly hostile towards trade unions and trade unionism. I am fairly sure that it is not intended to be so. However, on my reading of it, it is more hostile than it should be.
My noble friend drew an unfortunate parallel between trade unions and the professions and seemed to imply that the professions themselves were closed shops. This is not so. It may be that some professions are closed shops but the great majority of them are not. His parallel was interesting but not sufficiently precise for the purposes of this discussion. I should like to remind the House of one particular matter. In a book, which my noble friend will remember, "The Acquisitive Society", by R. H. Tawney, the noted social philosopher, published in 1923 or thereabouts, Tawney suggested that the model of the professional

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institution was the model that trade unions should adopt in their development. I thought that Tawney was right, and still think so. Had the trade unions adopted the model of the professional institution, many of the problems of industrial relations experienced in recent years might have been avoided. However, matters did not quite work out like that.
There is one matter arising from this discussion of professionalism to which I should like to draw attention. During the debate on the 1982 Act and also during the debate on the 1980 Act it was recognised, to a greater or lesser degree, I think, that there was a real dilemma between the obligations that a member of a profession owed to his professional institution and the obligations that he owed to a trade union of which he might be a member. Eventually the 1982 Act recognised that dilemma. The code of practice recognises it once again. For that, those of us who have considerable sympathy for professional men are grateful. We are thankful to the Government for that, despite the general hostility towards trade unionism of the code of practice.
I am not sure that legislation by code of practice is a good idea. A similar situation arose during discussion of the Water Bill two days ago relating to legislation by guidelines. There is kind of quasi-law—a code of practice, guidelines, criteria or guidance—that is not actually law but has to be taken into account by those who administer the law. It is not binding but it has to be thought about. I do not think that it is a proper way in which to conduct our affairs. If the Government wish something to be legal or illegal they should decide that something should be legal or illegal and they should phrase their law to ensure that something is legal or illegal. I suggest that it is not good enough to say that something should be taken into account and should be embodied in a code of practice or a body of guidelines. I seriously think that this is a practice which is increasing and it ought to be stopped.
7.31 p.m.
Earl Ferrers: My Lords, we have certainly had an interesting debate on this code of practice and I am very grateful to noble Lords for what they have said. I always enjoy listening to the noble Lord, Lord Howie of Troon, when he speaks on these matters. I could not help but recall his plea to his Front Bench on the Second Reading of the Employment Bill when he begged that they would not ask him to vote against the Employment Bill but only to do so when it was wrong! I value, as I am sure we all do, his independence of mind. That does not mean to say that there is necessarily any conflict of view, but we enjoy his independence of view.
I always enjoy, too, the speeches of the noble Lord, Lord McCarthy, and this evening was no exception. He is always so enthusiastic in his views. He said that when he first heard me speak he thought that he was going to agree with me because I had asked that the code of practice should be approved and he thought that I was going to say that it should be improved. We were in agreement because the code of practice which is before your Lordships is an improvement on the last one. Having said that, he of course then used quite the
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most extraordinary holocaust of adjectives. He said that it was unsatisfactory, tendentious, selective, bigoted, ignorant and disingenuous. That is quite a quiver full of adjectives to let forth about a modest code of practice and I am bound to say that I wondered why he felt that way. But, as I explained in my opening speech, this is not a code of practice aimed against trade unions: it is a code of practice aimed against some of the abuses by some of the trade unions which have occurred and which his friend Professor Gennard himself had identified. Then I realised what the real problem of the noble Lord, Lord McCarthy, was. Possibly he finds it somewhat difficult, if I may say so with the greatest respect, in reading, and perhaps it was in reading the drafts of Professor Gennard that the noble Lord got himself into a tangle. I suggest this because the noble Lord said to me—and he is always very courteous—that he had sent me a copy of the IRR review and had asked me to refer to it. That surprised me because I did not wish to be discourteous to the noble Lord and I looked at what the noble Lord had written in his letter. Perhaps he had forgotten what he wrote or perhaps he did not read what he wrote, because what he actually said, and I know he will not mind me quoting it, was this:
"I thought I should let you know that I intend to refer to the piece in the IRR review".
He did not ask me to refer to it. I did not want to steal the noble Lord's thunder by referring to it in advance of him. Had I done so I would really have explained his problem. The noble Lord, Lord McCarthy, said that I had referred to Professor Gennard with cheek. As the noble Lord, Lord McCarthy, had done nothing but constantly refer to Professor Gennard nine months ago, I did not find it at all cheeky to refer to him. If we were at school I should say that the noble Lord was a naughty boy, but as we are not at school I will not say that; I will say that the noble Lord was misguided.
What happened was that the review to which the noble Lord referred and of which he very kindly sent me a copy was a review which was printed on 8th February, It did not, therefore, take into account Professor Gennard's final report, because the report had not been made public then. The report was received by the Department of Employment not on 8th February but on 17th March. The noble Lord, Lord McCarthy, asked why we had not seen this report and he said how terrible it was that it had all been kept under covers and no one had seen it. I do not know what the noble Lord, Lord McCarthy, has been doing. I suppose he has been on holiday all during the Easter Recess and before as well. The report was received in the department of Thursday, 17th March, and it was placed in the Library on Monday, 21st March. It is now 14th April. So, with the greatest respect, the noble Lord has had plenty of time to read the report, and I thought that he would have read it from cover to cover, even if it was only the draft report. Anyhow, he has plenty of opportunity now to read the full report.
Lord McCarthy: My Lords, would the noble Earl agree that the summary in IRR is a reasonably accurate summary and, therefore, does not support the code of practice?
Earl Ferrers: My Lords, if the noble Lord will be good enough to contain himself a little longer he will

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hear me say that, no, I do not entirely agree that that is so. But I must continue with this very vexed point about which the noble Lord, Lord McCarthy, was so concerned. The report has been in the Library and it is available to noble Lords. My right honourable friend the Secretary of State has, therefore, satisfied the obligation and he has made this matter public. The noble Lord, Lord McCarthy, asked when it was going to be published. The question of its publication is a matter for Professor Gennard: I understand that he intends to do so later this year and such publication will have the Government's full support.
But the noble Lord asked whether this is a true record of Professor Gennard's report. I am bound to tell him that of course it is a record which was obviously made before the publication, presumably as a result of a draft, and it does not in fact concur entirely with what Professor Gennard said. For example, I can tell the noble Lord that in chapter 7 the report says:
"This survey showed that over the period 1970–81 the total number of people who lost their job as a result of the operation of the closed shop numbered at least 490. This may understate the total number of such dismissals".
Again, at page 295 it says:
"Certainly [the mangers] when asked directly whether they thought the closed shop reduced the number of unofficial strikes or the number of breaches of procedure, none was prepared to say yes".
Again, in chapter 7 of the report Professor Gennard says that up to a quarter of a million people were coerced into joining trade unions simply because of the closed shop. The report also highlights prominent instances of abuse of the closed shop—for instance, I refer to SLADE's recruitment tactics in the late 1970s. Those are figures and facts which have come out as a result of this report. While it would not be correct for me to go into individual items of what was published, all I will tell the noble Lord is that that publication was before the final report was made public.
The noble Lord, Lord Rochester, said that, like the noble Lord, Lord McCarthy, he was disappointed at the paucity of the guidelines. But I thought that the noble Lord, Lord McCarthy, was complaining that in fact the guidelines were too many and too strong. Had the guidelines been fuller, and had they been more precise, then I have no doubt that the noble Lord, Lord McCarthy, would have found even more to complain about.
The noble Lord, Lord Howie of Troon, referred to the fact that legislation by codes of practice was not a desirable way of legislating. There is nothing new in that. I see the reason why, but we have the Highway Code, which is a typical example and there are plenty of others. Indeed, there are many other occasions, such as those when the Government of the noble Lord, Lord McCarthy, produced the codes on time off for trade union activities, disclosure of information, and disciplinary procedures. All these were set out in the law, and then were given as guidance to tribunals.
It is important because the noble Lords, Lord McCarthy and Lord Jenkins, asked: where does the advice end and where does the law begin? I merely direct the noble Lord, Lord McCarthy, to paragraph 4 of Section A. In paragraph 4 it says quite clearly:
"Section B of the Code outlines the provisions of the law on the closed shop as it now stands…Sections C, D and E provide
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practical guidance concerning the operation of closed shops and related matters".
That is perfectly clear. The first part—Section B—says what the law is as it now stands, and Sections C, D and E give guidance. It is perfectly right that we should give guidance. The noble Lord will know that just as with the Highway Code, the code of guidance carries no legal effect. It advises people on how they ought to conduct themselves. If they do not wish to conduct themselves in that way, there is no legal compulsion on them—unless somebody goes to a court of law, and then the fact that the code of practice has not been used will, of course, count against them.
Lord McCarthy: My Lords, the difference is quite simple and I find it difficult to believe that the noble Earl does not follow what I mean by it. The fact is that this practical guidance is, as I said, written with precisely the same tone of voice as the sections on the law. It is not made clear in Section C itself that it is simply advisory and, unlike the Highway Code, it goes very considerably further in the legal position in putting restrictions on the operation of the closed shop. That is the difference.
Earl Ferrers: My Lords, I do not quite know how to get through to the noble Lord, Lord McCarthy, because it is only advice. The code of practice is only advice on how trade unions ought to conduct themselves. If they do not wish to conduct themselves in that way, that is fine—unless of course they get taken to a court of law, when the fact that they have not conducted themselves according to the guidelines will be taken into account.
The noble Lord, Lord McCarthy, said that we ought to introduce a paragraph which says that this represents the prejudices of the Government and those who do not agree need read no further. That was a charming intervention, but when the code of practice states what the law is at the moment, that is not the prejudices of the Government. When the code of practice is produced, that is not the prejudices of the Government. The code of practice is the Secretary of State's views, modified by those trades unions which have given their views. The noble Lord, Lord McCarthy, knows full well that the Trades Union Congress did not give any views; they did not take part in the consultation. I agree with the noble Lord, Lord Rochester; I think that they were wrong not to do so. It is not very impressive when, having not done so, the noble Lord, Lord McCarthy, comes up and complains that it is all wrong. If it is wrong, then they have had plenty of time in which to make their representations.
Lord Howie of Troon: My Lords, there are one or two passages, not in the explanatory part of the code of practice but in the later part, where the Government say that trade unions ought to do this, that or the other. It may well be that the Government's opinion is entirely correct and that unions ought to behave as the Government desire. But there is little point in putting that in a code of practice. It is, as my noble friend rightly says, no more than a matter of opinion. If the Government really desire that unions should behave in that way, it should be in the law and not in what is, after all, very little more than the kind of opinion that we might get and enjoy from the Government Front Bench.
Earl Ferrers: My Lords, that is a perfectly reasonable argument, but the reason it is not in the law is in order to try to make the law as flexible as possible. This is not compelling unions to do it; it is only advising them. The noble Lord, Lord Howie of Troon, wishes to go a great deal further, and it is interesting that he does, but that is not in the law for that very reason.
My noble friend Lord Campbell referred to two cases and he was concerned about the effects that these will have. I shall certainly take account of what he has said. I listened carefully to what he said and I shall draw his remarks to the attention of those responsible in the Department of Employment. But I think I can reassure him by saying that the department has, in fact, already considered the implications of both these cases, and its firm conclusion is that there is no conflict between the judgments in either case and the guidance in paragraphs 33 to 37 of the revised code of practice.
The noble Lord, Lord Jenkins, referred to Equity and the noble Lord, Lord McCarthy, I think also referred to the same paragraphs. I believe that the noble Lord, Lord Jenkins, was referring to a conflict between paragraphs 45 and 56. Possibly he was confusing two different issues. Paragraph 56 is concerned with general advice to trade unions and their treatment of applications for membership. The relevant statutory provision to which this advice relates is Section 4 of the Employment Act 1980—the right of individuals not to be unreasonably excluded from trade unions. Paragraph 45 relates to a different issue, which is the pre-entry closed shop, and in advising that no new pre-entry closed shop should be considered, paragraph 45 does not directly threaten Equity's closed shop which, as the noble Lord, Lord Jenkins, made clear, is of very long standing.
There were a number of individual points which the noble Lord, Lord McCarthy, mentioned, but I do not think that it would be appropriate for me to answer them all now, other than to say that I hope he did not think that my speech was bigoted; I hoped that he would not think that this code of practice is bigoted. It is not. It is a gentle, clear guidance as to how trade unions ought to be able to conduct themselves. As I said in my opening speech, and I repeat it now, there is nothing in this which those trade unions who behave reasonably and properly need fear. The only purpose of this code of practice is to prevent the abuses which everyone has seen and about which everyone knows. In the quieter recesses of the mind of the noble Lord, Lord McCarthy, I know perfectly well that he would agree that that is not unreasonable. I hope that your Lordships will approve the code.
On Question, Motion agreed to.

Agricultural Products Processing and Marketing (Improvement Grant) (Amendment) Regulations 1983
Earl Ferrers: My Lords, I beg to move that the Agricultural Products Processing and Marketing (Improvement Grant) (Amendment) Regulations 1983 be approved. These regulations are very short and make only one minor amendment to the principal
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regulations; namely the Agricultural Products Processing and Marketing (Improvement Grant) Regulations 1977 (SI No. 2112). They will extend for two years on an unchanged basis the existing arrangements whereby United Kingdom projects which qualify for a European Community grant under Regulation 355/77 have the necessary qualifying national grant.
There are certain projects for which the United Kingdom has no national scheme for grant aid but for which the European Community do give grant. It is part of the conditions of this Community grant that there should be an element of national contribution. In the United Kingdom we have provided this by the Agricultural Products Processing and Marketing Regulation. And this order merely extends the scheme, and this facility, by another two years. If that short explanation meets with the approval of your Lordships, I beg to move.
Moved, That the draft regulations laid before the House on 21st February be approved—(Earl Ferrers.)
Lord John-Mackie: My Lords, I shall not detain the House for long. Naturally we accept this order which, as he always does, the noble Earl, Lord Ferrers, has introduced very crisply. I have only one complaint. I have complained before about the official language in which these orders are written. Unless you sit down and read all the amendments you get thoroughly bogged down, as I did over this one, simple though one may think it is.
Council Regulation (EEC) No. 3073/82 amends No. 355/77 of 15th February 1977, and it has two sections to it. There is Regulation EEC 1820/80, which is not mentioned in the order which is laid before us. I thought I had better have a look at that to see what it does, because it says in Article 2 that it is increasing by 40 million ECUs some particular item, and by 240 million another item. I went and, at great length, I obtained the regulation. The legislation for that date was defined as affecting only Western Ireland. As the noble Earl will notice, it is on the same page as the same Council regulation, No. 3073/82, which is slightly confusing. However, that is all I have to say about it, and we naturally accept the order.
On Question, Motion agreed to.

Borrowing and Lending: ECC Report
7.52 p.m.
Lord O'Brien of Lothbury: My Lords, I have learned one lesson during an instructive evening. That is, if you want to make a speech, do not get yourself stuck behind a closed shop. I beg to move that this House takes note of the 21st Report of the European Communities Committee, session 1981–82. on the borrowing and lending activities of the European Communities. In moving this Motion, I must explain that the report was produced by Sub-Committee A of the European Communities Committee, under the distinguished chairmanship of the noble Lord, Lord Plowden. At the beginning of the present Session I succeeded the noble Lord as chairman of that subcommittee, and he, in turn, is now chairman of Sub-Committee D, on agriculture. He does not feel that it

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is appropriate for him to take part in our debate this evening; but I know I speak for all the members of the sub-committee when I say that the quality of this report is largely due to the noble Lord and to the great skill with which he steered the sub-committee.
The committee was encouraged to examine the subject of their report for a number of reasons. Your Lordships will be well aware that the Community finds it increasingly difficult to finance all its policy objectives within the confines of its present budget. Not surprisingly, therefore, pressure for increased financial resources is growing. On the other hand, there are many who are uneasy about the way in which the present financial resources are being deployed, and, in particular, about the large proportion of them which is devoted to agriculture. This arouses suspicion about the extent and purpose of Community borrowing, which, to some, might seem to offer an all too convenient way of avoiding budgetary constraints. Your committee felt that in this respect it was highly desirable to clear the air.
The committee's comments on the borrowing and lending activities are stated concisely in 41 short paragraphs. The detailed descriptions of the borrowing and lending instruments and the majority of the statistical tables, which are essential to an understanding of the subject, have been placed in seven technical annexes. This division is deliberate. The committee wanted to produce an authoritative source of information and reference on transactions of the kind embraced under borrowing and lending. They wanted to explain in detail how the institutions were created, how they work, and how they are co-ordinated. They wanted also to draw attention to the possible sources of Community loans for United Kingdom borrowers. But the committee recognised that not everyone would wish to know all the details, and that many readers would know them already. Those who simply want to know the committee's opinion can concentrate on the report itself.
As you will see from paragraph 3 of the report, there are now five borrowing and lending instruments. Three of these are Community institutions which were, from the outset, intended to engage in borrowing and lending. Indeed, one of them—the European Investment Bank—could by its nature hardly be expected to do anything else. The other original institutions are the European Coal and Steel Community and Euratom. Each of these provides finance for projects in pursuit of Community policies within its particular field.
The remaining two instruments have been developed more recently. First to emerge were EEC loans to assist members with balance of payments problems arising from the oil price rises after 1973. Unlike other European loans, balance of payments loans do not serve a "structural" purpose. They are granted on condition that the borrowing state takes steps to redress its balance of payments deficit, and these steps must be satisfactory to the Council of Ministers.
The second of the two newer EEC instruments is the New Community Instrument (NCI) or "Ortoli facility", which has operated since 1979. The basic purpose of this facility has been to help stimulate economic recovery by contributing to investment. It
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has been directed to the reduction of regional imbalances, improving employment prospects, energy conservation and supply, advance factories and housing, and small firms.
The amount of borrowing undertaken by these five instruments has increased steadily. In the last decade, it has risen from 692 million ECUs in 1972 to 3,280 million ECUs in 1981, partly because the advent of balance of payments loans and the Ortoli facility have added significantly to the total. Even allowing for inflation, growth has been much faster during the last ten years than it was during the much longer period from 1954, when borrowing began. This increased scale of Community borrowing, and the corresponding increase in the number and type of channels through which borrowing can take place, prompted the committee to ask in their report: might it all be going too far?
As your Lordships will see from the report, subcommittee A heard a wide range of evidence and paid visits to the European Investment Bank in Luxembourg and to the European Commission in Brussels. The committee concluded that the situation did not give rise to concern at the present time. During this decade of growth in borrowing there was an increase in the lending capacity of the financial markets. That leading capacity has increased faster than Community borrowing. In any case, Community borrowing is really quite modest compared with the borrowing undertaken by individual member states or compared with total borrowing on the international markets. Between 1977 and 1980 the growth in Community borrowing appears large, from less than 2½ billion ECUs to more than 3¾ billion. But as a share of total international borrowing this is in fact smaller than it was—from 2·5 per cent. to 2·2 per cent. More importantly, the cost of servicing EEC debt in 1981 was less than half of 1 per cent. of the EEC annual budget, which the market regards as available, if need be, for debt financing.
So borrowing by the European Communities has so far not by any means been excessively large. It also appears that the money raised, in the main by the European Investment Bank, has been on-lent with great care; so much so that not a single default by an ultimate borrower has so far occurred. Some might feel that this denotes excessive caution in lending policy, but that, I suggest, is not to be discouraged at this stage.
The future of on-lending at attractive rates for desirable Community purposes rests on the ability of the various Community instruments to raise funds in the international capital markets at the finest rates. With the whole Community behind them, and with the ability to call on the budget in case of need, this is assured, provided calls on the market are not excessively large or too frequent.
The Commission, for perfectly understandable reasons, is anxious to undertake creative initiatives, but the Council of Ministers and the board of governors of the bank, both consisting of the national finance ministers, have to be convinced of the desirability of more borrowing. They set the limits. Proposals for increased borrowing must be justified by reference both to the purposes of the borrowing and to

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the maintenance of the Community instruments as prime borrowers.
Having said all this, it remains the case that Community borrowing and on-lending falls outside the mechanism of budgetary supervision. It will, therefore, be of continuing concern to national Parliaments and perhaps more especially to the European Parliament, which is rightly sensitive about its ultimate responsibility for the financial affairs of the Community. Your Committee, my Lords, were made aware of the strong feelings of our friends in Strasbourg when, last December in Church House, we met the European Parliament's Committee on Budgetary Control, under the Chairmanship of Herr Aigner, to discuss Community borrowing and lending and related topics. I believe this was the first such meeting in London, and the vigour of the discussion showed how worthwhile it was. Clearly, the Members of the European Parliament aspire to a more assertive role in the borrowing and lending field. While your committee did not think it right to get mixed up in any argument between the European Parliament, the Commission and the Council of Ministers, we could not but agree that it was a legitimate area of concern for Parliaments and that it was likely increasingly to engage their attention in the future,
My Lords, before I turn to the position of the UK as a borrower of funds raised by Community instruments, I should like to emphasise that the committee took pains to probe the need for special Community agencies for raising funds in the international capital markets when so much financial expertise was available for this purpose, particularly in London. Our witnesses convinced us that the Commission, and especially the European Investment Bank, which raises funds both on its own behalf and for other agencies, were highly efficient and knowledgeable, both fulfilling an essential role in co-ordinating and implementing Community borrowing and lending policy. Between 1975 and 1981, the United Kingdom took some 26½ per cent. of loans made by the Community agencies. Sometimes such loans were attractive because they were obtained at a subsidised rate, as, for example, from the European Coal and Steel Community; with others, we simply benefited because interest rates in other markets from which funds had been raised were lower than in the United Kingdom. And then, when our foreign exchange reserves were low, both public and private borrowers were encouraged by cheap forward cover to raise funds abroad in foreign currency. As our circumstances have changed, the pressure to borrow outside the United Kingdom has declined and facilities for forward cover have become less concessionary.
At the same time, the question whether community lending ought to be confined to the poorer member states has come to the fore. In this way convergence of levels of development might be more speedily achieved. That is a possible view. It has been accepted up to now, however, that since rich states also have poor regions and Community lending policy has a strong regional element, the present position does make sense. On the other hand, enlargement of the Community will increase the number of member states which are not prime borrowers in the
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international capital markets. These countries could benefit most from Community borrowing. The report does ask whether those member states which themselves enjoy first-class ratings should in the interests of the enlarged Community, limit or restrain their calls on Community lending.
Another question raised in the report is the diversification of Community borrowing methods. Community borrowing and lending is conducted almost entirely on a long-term fixed-interest basis. There have been understandable reasons for this because the terms of lending need to match those of borrowing. There are times, however, when some borrowers would prefer variable-rate borrowing. This would not be possible in all member states, as official policy in some of them discourages the financing of investment other than by long-term, fixed-interest funds. To match what are sometimes the needs of borrowers not constrained in this way, however, consideration might be given to the diversification of methods of borrowing by the Community instruments. This would also have the advantage of broadening the sources of funds and ensuring that the markets will continue to accommodate increases in Community borrowing.
Finally, I refer to the "global" Community loans to banks or to Finance for Industry. This is a form of "wholesale" lending to a bank or similar intermediary, which then parcels out funds, "retail", to small and medium-sized businesses. It is an operation very much in tune with current economic thinking. I hope that the framework within which it works will be kept as flexible as possible. This applies also to the upper and lower limits within which such loans may be made and to the desirability of the greatest possible simplification of documentation and red tape consistent with proper scrutiny of applications for loans. It would appear that the global loan system is used very much more widely in France, for example, than has been the case in this country. It seems desirable that its use here should be encouraged.
My Lords, in seeking to emphasise a number of points made in this report, I hope I have not simply repeated at too great a length all it says. Although the committee felt that the report was worthy of debate, I doubt whether it has the makings of great controversy in it, and the small number of noble Lords feeling moved to speak on the subject this evening is perhaps sufficient evidence of that. Nevertheless, I hope that the House will agree that this has been a useful exercise and I beg to move.
Moved, That this House takes note of the report of the European Communities Committee on Borrowing and Lending (21st Report, 1981–82. H.L. 226).—(Lord O'Brien of Lothbury.)
8.6 p.m.
Lord Selsdon: My Lords, I am very grateful to the noble Lord, Lord O'Brien, for introducing this debate and to the noble Lord, Lord Plowden, for the initiatives that were taken. These have led to probably the most authoritative document currently available on the borrowing and lending of the Community and its institutions. Although I am a banker and I declare an interest in that I have arranged the provision of finance for the Community and have arranged

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borrowing from it, even I was surprised at the extent of the overall borrowing which seemed to have passed unnoticed through Parliament; whereas considerable fuss had been made about budgets. I think that at the moment the total borrowings are around £17 billion or £18 billion—a fairly large amount of money, although small in relation to international borrowing or the borrowings of individual countries. Against that, loans have been made of a similar amount; and those loans have been made, we have been advised, without a single default.
As a commercial banker whose banks have made provisions for bad debts of considerable amounts over time, one wonders how this has come about. One wonders, as the noble Lord, Lord O'Brien, has said, whether perhaps lending was too cautious; and one examines often to whom the Community institutions have lent and, in particular, the countries to which they have lent, countries to which no other commercial bank would have dared to tread. One concludes that there is considerable benefit from these borrowing and lending activities. The question is: to whom does this benefit accrue and how much benefit has the United Kingdom itself had from these activities? It is on this that I should like to concentrate.
Certainly we, the banking system in England, have contributed considerably to the borrowing of the Community. Relations between the private banks, the commercial banks, the merchant banks and the Community institutions are good. Indeed, they are among the most professional borrowers in the world. With a relatively small team, they are very competent, very swift in action and borrow at very fine rates. If anything, they may be criticised for borrowing too finely. It is interesting that, while we were giving evidence, I asked the question whether the United Kingdom was able to borrow at as fine rates as the Community as a whole—to which the response was, "Certainly, as fine today and probably even finer".
So the credit rating of the Community at this moment is of no real value to the United Kingdom in that we have good credit rating worldwide and our public sector borrowing requirement is coming down. In the past, one has noted that Governments often put together their public-sector institutions and nationalised industries; and that when they need to borrow they have used the Community instruments to borrow across the board. In general, the private, or productive, sector in the United Kingdom has not borrowed very much.
One asks why, when in Italy and other industrialised countries full use has been made of the financial resources of the Community institutions, British companies in general have not benefited. From evidence one has found that it was not necessarily the intention of Government that private sector companies should not benefit from these loans. It was more the mechanisms which now have been streamlined and, with the global loan facilities and others, there is a considerable potential for companies wishing to expand when, as we hope, industrial recovery takes place, to borrow money from the Community at longer term than they could borrow from commercial banks. The rates of interest, which historically were wide when our interest rates were high—sometimes as high as 18 per cent.—for borrowing from the
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Community would have been around 12. Now I gather the differential has risen to about 10 and 9½. Historically, one of the problems for companies borrowing was that they were borrowing in a basket of currencies. That was compensated for by an acceptable exchange risk cover system introduced by Government; but there were many who doubted whether this system of exchange risk cover would continue.
One of the questions I would ask my noble friend Lord Trefgarne is this. In the course of the evidence I got the impression, which I think was the wrong impression, that the Government were not too keen to encourage private sector companies to borrow from Community institutions. Indeed, not only were the Government not too keen in the past but the commercial banking sector was nervous about being involved with foreign public sector institutions which perhaps it saw as competitors in the commercial market. That has proved not be the case. At the moment I think there is considerable potential for the Community institutions in providing a source of valuable finance for industrial expansion in England. But, all in all, our companies have not borrowed very much or made very much use of Community facilities, and in general are probably not as aware of them as they should be.
Therefore, if one takes it further, here is a source of longer-term finance than would normally be available from commercial markets on very acceptable terms and conditions. The problem that we have found is not so much money—because governments and international institutions, as I have said before to your Lordships, often believe that the creation of a pot of money in itself somehow creates economic and industrial activity—but the problem at the moment is perhaps the shortage of propositions. The Community officials themselves will say they are starved of propositions for lending—so much so that the European Investment Bank not so long ago actually set up an office in London and now goes round trying to sell its loans, when we in England have often complained that there is a shortage of finance. So we are not making such good use of the facilities as we might.
The other area I turn to is where the Community lends, because it provides sources of finance in many countries where there are considerable trade possibilities, in addition to the European Development Fund. As your Lordships will know, the United Kingdom in general has failed dismally to take advantage of the contract opportunities and orders generated by the European Development Fund, as it has done in regard to the lending activities of the Community itself.
One can give many reasons for this. Perhaps it is lack of knowledge, but often it is sheer fear at being involved with countries which the private banking sector would regard as being non-creditworthy. More difficult, I think, is a sort of endemic disease in the United Kingdom. We have a public sector; we have a private sector; and never should they mix where money is concerned. The words "public accountability" are stamped on the back and the front of the football vests of all Government employees, and they are nervous of being seen together with any private organisation in taking any initiative. It is as though the

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public sector looks—if I can remember Tom Jones, whose intentions or designs were strictly honourable—as the phrase is:
"to rob a lady of her fortune by way of marriage".
That is true indeed on the Continent but perhaps not to the same extent. More and more often co-financing takes place between the private and public sectors in other countries of the Community, where the two move happily side by side for the financing of a new development at home or abroad.
These difficulties are not bureaucratic but probably more psychological. It has always been difficult in our country, which fears corruption and the misuse of public funds, for public money to be put alongside private money. Recently we have been encouraging the Commission, the European Investment Bank and other institutions to look more and more to the possibilities of co-financing rather than increasing their own borrowing and lending. Some of us have even queried the point of institutions borrowing from the private sector, which costs money and takes time, having an organisation to administer and lending out again to the private sector, when perhaps greater use of the guarantee mechanism, which might be cheaper and less burdensome, could be organised.
There are many possibilities, but one of the conclusions of the report which I totally endorse, though I was nervous myself in the beginning, is that there is no reason to fear the increased borrowing of the Community. The fact that it doubles every four of five years, I think, is irrelevant because in general the lending has been good apart from the obvious proof—there have been no defaults—and it has stimulated activity which would not otherwise have taken place. I tend to feel that stimulation has been more in other countries and areas involving companies from countries other than ours. But perhaps we should remember that many of them have been in the Community longer than we have and they know their way around the system better. Certainly I have found a tremendous willingness by all Community officials to try to help where financing is a difficult problem in getting a project off the ground.
I am grateful to the noble Lords who have helped with this report and to my colleagues. I hope that we may hear from my noble friend Lord Trefgarne some assurance that it is the Government's intention to encourage the private sector to make use of these facilities, recognising above all the current Government policy to encourage the growth of the small business and the success of the small business scheme.
8.17 p.m.
Lord Sheffield: My Lords, I rise as a member of the sub-committee of the Select Committee responsible for this report to support the noble Lord, Lord O'Brien of Lothbury, who assisted the noble Lord, Lord Plowden, in the conduct of this inquiry and who has inherited the task of presenting this report to your Lordships. He has done so with his accustomed clarity and thoroughness and leave me with little more to do than put a few glosses on what he has said.
The concerns which led the sub-committee to investigate this subject are set out on paragraph 6 of
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the report. In summary, it was presented to the committee that Community borrowing might get out of hand and put an unacceptable burden on Community resources. Secondly, though this concern was more delicately expressed, it was felt to be taking the bread out of the mouths of British bankers. Thirdly, it was thought that the borrowing and lending might not be properly co-ordinated and managed in view of the different entities which are authorised to engaged in these activities.
At a very early stage in our proceedings it became clear that these concerns—perhaps one could say fears—were groundless. The first concern—that relating to the size, actual and potential, of the borrowing—was effectively dealt with at the second meeting of the committee by some cogent and lucid testimony from Mr. John Nash, now with S. G. Warburg and formerly with the European Investment Bank, and some Treasury witnesses. I refer to paragraphs 16 to 38 of our report. That evidence showed conclusively that the total EEC borrowing in relation, on the one hand to the size of the market and, on the other hand, to the size of the Community resources was extremely small and likely to remain so.
The second concern, which was rather heavily emphasised at the outset in the written evidence of the British Bankers' Association, was not strongly pressed in their oral evidence and did not in my view in the event survive the scrutiny.
The third concern about co-ordination appeared prima facie to have something in it. But, after visiting the European Investment Bank and the Commission, we were, I believe, satisfied that the co-ordination was effective. I personally was left with the impression that some tension existed between the officials in Brussels and the officials in Luxembourg, but perhaps not more than is normal between bureaucracies situated in different places, and certainly not enough to affect efficient co-ordination.
As for the control of the nature and extent of Community borrowing, it is obvious that, since there is almost continuous supervision by the finance ministers of the Community and their principal officials, the risk of its getting out of hand is really minimal. This applies particularly to the loans made by the European Investment Bank, the European Coal and Steel Community and the so-called Ortoli facility. The balance of payments loans made within the European monetary system are quite different, and, indeed, as the noble Lord, Lord O'Brien, indicated, political in character, and do not pose a threat to the stability and efficiency of Community borrowing and lending activity in general.
Since the ghosts were so quickly laid to rest, it could perhaps be asked whether the effort put into this inquiry was worthwhile. The answer, I believe, is in the affirmative and for two reasons. First, there was enough concern to make it desirable to lay the ghosts, and I hope it will be recognised in this House and outside it that the exorcism has been effective. The thinness of the House this evening would appear to bear this out. Secondly, it was an important subject in itself, and I hope the Minister may agree that it was useful to assemble and digest all the information on a matter of public interest which has not hitherto been

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fully understood and appreciated by people who are not directly involved in it.
Finally, I should like to say a word or two about the United Kingdom's interest. There is no doubt from the evidence which we received that the existence of Community borrowing and lending facilities has been of benefit to the United Kingdom, especially in the public sector, and that the important element of additionality was present. Witness after witness testified to this, with the single reservation that the paperwork involved tended to be cumbersome and tedious. There was, however, nothing but praise for the helpfulness and efficiency of the Community officials dealing with these loans.
It is interesting, if one looks at pages 169 to 182 of our report, to note that in the nine years, 1973–82, the European Investment Bank channelled over £2,500 million to industrial, energy and various kinds of infrastructure development in the United Kingdom, and that this was some 25 per cent. of what the European Investment Bank lent in that period. Over 200 separate loans were made to local authorities, water authorities, the Coal, Gas and Railways Boards, the Post Office and the British Steel Corporation. There were global loans to the Industrial and Commercial Finance Corporation for on-lending to small and medium-sized businesses. Indeed, I personally had the satisfaction of signing the first of these loan agreements as far back as 1973.
There have been loans to individual companies and businesses over an extremely wide range. One finds in the list Express Newspapers, Hiram Walker whisky, Michelin (Belfast), the Co-operative Wholesale Society, British Insulated Callender's Cables and so on. Although, as the noble Lord, Lord Selsdon, has so well explained, the public sector outnumbered the private sector to a very large extent, by any standards this is an impressive list and a substantial achievement.
The committee noted with some regret that, for a number of reasons, Community borrowing in the United Kingdom was now likely to decline. At the time of our inquiry, Her Majesty's Government had just brought in some new rules governing this borrowing, and it was not at all clear what the effect would be on the level of United Kingdom borrowing in the future compared to the past, except that the direction was likely to be downward. By now, enough time may have elapsed to make more accurate predictions and perhaps the Minister will be able to give us one tonight.
It is natural enough for your Lordships' Select Committee and its sub-committees to look first and foremost at the United Kingdom's interest. Indeed, it is their duty to do so. But it is also desirable to look at the Community as a whole. The borrowing and lending facilities may now, and perhaps for some time in the future, be of marginal, though still in some cases welcome, benefit to this country. But the benefit to other Community members, particularly to the recently recruited Greece, and to Portugal and Spain when they come in, could be very great indeed. But it is, of course, desirable to satisfy ourselves that the system is sound, and properly supervised and administered, ahead of these prospective calls on Community
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facilities, even if we ourselves may no longer be a major user of them. The result has, I believe, been reassuring. In conclusion, I myself certainly found this inquiry of considerable interest and value, and I hope that the Government, and those of your Lordships who have had the time and energy to study this report, will feel the same way about it.
8.28 p.m.
Lord Roberthall: My Lords, I also am a member of Sub-Committee A, which was responsible for this report, but I do not feel any misgivings in endorsing what the noble Lord, Lord Sherfield, has said about the excellence of the report itself. Your Lordships' House is much more indebted than it sometimes realises to the Scrutiny Committee, which looks at all the relevant activities of the EEC, and it is well-known that the reports of that committee, of which this is an example, have a very considerable reputation in Community circles. Having had a long experience in my life of reports of this kind, I have no hesitation in saying that that high reputation will be maintained by this report.
The report itself is mainly a very useful work of reference. Anybody who wants to know anything about this aspect of Community activities, anybody who is concerned as a borrower, a lender or a student of the EEC, will find in this report almost everything that he needs, and in a more authoritative and well-informed way than is likely if he goes anywhere else. There is not a great deal to say about it. The committee considered that the lending activities are well-run, efficient and prudent. Looking around the world, one wonders how many of the great international financial intermediaries would be able to say that of themselves. And how delighted they would be if it were said of them.
The report makes only a very few and rather minor recommendations, some of which have already been dealt with by the noble Lord, Lord Sherfield, but in considering the activities of the Community it is interesting to ask what they are achieving in this sense: is anything happening, because of their activities, which would not have happened otherwise? This question has already been dealt with to some extent by the noble Lord, Lord Selsdon, and also by the noble Lord, Lord Sherfield, but it is an interesting subject and I should like to say a little about it.
At first sight, the existence of a new lending organisation will not make much difference if there are already a good many lending organisations. If you live in a town, want to borrow and there are five banks there already, should you hear that a new bank is coming to your town you would be very ill-advised to jump for joy because you would not get much better treatment from it than from the banks which are already there. In order to make a difference, therefore, the institution has to be a little different from other lending organisations. If there were no building society in a town and a building society opened a branch, there would be some reason for jubilation. If you wanted to buy or to build a house, you would get, on the whole, better terms from the building society. I leave aside the incursion a year or so ago of the commercial banks into this field because that activity is, I believe, being phased out.

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What benefit accrues because of the existence of these organisations? They were established, broadly speaking, to further the aims of the Community. The aims of the Community in the economic field are partly to increase the general prosperity of all members and partly to bring about convergence—that is, to build up the economies of the less well-off states and those in difficulty. Although they are not a very large part of the international market, the lending activities are, of course, quite sizeable. Because the Community institutions have such a very high credit standing they are an important part of that market. In that sense, all lenders and all borrowers will benefit from the addition to the market of a really first-class institution.
But that does not take us very far. What other benefits does it offer? They are of two kinds. First, because of the very high credit standing of the Community and its organisations they can borrow on finer terms than those members of the Community which are less successful but which are most in need of loans. At one time the United Kingdom encouraged borrowing there. They even went a long way towards meeting the main disadvantage of the loans—that is, the exchange risk. They made it possible to insure against the exchange risk of borrowing in other currencies, as you have to do when you borrow from the Community. A number of potential British borrowers were therefore able to borrow on somewhat easier terms.
Moreover, if one studies the appendix to the report which gives the direct experience of a number of borrowers, one finds that the existence of this source was a great convenience to a number of borrowers, although they all admit that they could have got the money somewhere else. The institutions were very helpful to deal with. They made a technical examination of the requests. One thinks of the less fortunate countries, like the underdeveloped countries: how helpful it would have been to them if there had been careful scrutiny of what they were borrowing for—and of the variety of terms. It is particularly interesting to read the testimony of the Shetland Islands. They were able to finance all that they had to do as part of the Community, as part of the oil terminal. They admit that they could have got the money somewhere else but it is quite clear that in a great many ways it was easier for them to do it in this manner. The testimony of other bodies is, I believe, much the same.
The first step, therefore, that the lending facilities take is to offer fine terms which can be of help to the countries which most need assistance. This is what is required if convergence is to be successful. It does not go very far. It would be much better if we were able to help the weaker members of the Community by means of grants or soft loans, like those made by the International Development Organisation. However, it goes part of the way, and it is conducted in a way which turns out to be helpful to the borrowers.
The second aspect, which is connected with the first, is assistance on balance-of-payments questions. Countries which are pursuing an investment plan in order to improve their general economic performance are always anxious to facilitate investment because it is thought, with a good deal of truth, that investment is
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the most obvious way to achieve growth. But many countries, as we ourselves know only too well, run from time to time into balance-of-payments difficulties. Although, from a long-term economic point of view, it is most unfortunate that Governments should cut their own investment programme in the public sector and put restraints on it in the private sector, politically it is much easier to do so than to cut consumption.
A country which gets into balance-of-payments difficulties ought, in order to make the best of it, to have time to soften the impact. The existence of these Community facilities can be very helpful, not only because of direct assistance for balance-of-payments reasons but also because one can borrow these in foreign currencies which can be added to one's reserves. In a critical situation this can be very helpful. The United Kingdom did that after 1977. Local authorities and nationalised industries were encouraged to borrow there and were able to add this borrowing to their reserves. It helped with this softening process.
What I have been trying to say is that there are real advantages for those countries which are absolutely first-class borrowers and which find themselves constrained in some way. Although there are not many activities in this country which would have been stopped altogether, had it not been for that facility some countries would have experienced hard times. Because the Community arrangements for borrowers on fixed interest rates are so flexible and because of the expert help that is provided, there are real advantages—similarly, from the balance-of-payments point of view. Since one of the main objects of the Community is to help poorer members—and that problem, which has been made worse by the extension to nine members, will be much worse after the extension to 12 members—we ought, therefore, to regard these institutions as, in a modest way, doing something for the broad objectives of the Community.
8.40 p.m.
Viscount Chandos: My Lords, in thanking the noble Lord, Lord O'Brien of Lothbury, for introducing this debate I must tell your Lordships that I thought I would have to apologise for missing the noble Lord's speech. But as the debate started rather later than expected I am glad I was able to hear it. Instead, I fear that I may have to apologise for leaving before the end of the debate, in which case I shall read the final speeches with great interest.
I believe that noble Lords on both sides of the House would agree that the capital markets wait for no man, and my working commitments in these markets are the reason for my rather unreliable attendance this evening. On the other hand, it is for the same reason that I have had the pleasure of working very closely, on occasions, with the borrowing entities of the European Community, and therefore with a number of the people who gave such interesting evidence to the committee. Therefore, I should at the outset declare an interest, like the noble Lord, Lord Selsdon, and acknowledge that a continuing and expanding borrowing programme by the European Communities might well keep me occupied in the future, even though many of my fellow bankers would suggest that the profitability of such employment is limited by the

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negotiating abilities of the officers of the European Commission and of the European Investment Bank.
I was very pleased to read the comments of William Hopper, a Member of the European Parliament, who gave evidence to the committee, and who is a fellow banker. He said he believed that the European Investment Bank was,
"the one institution of the European Community which is substantially beyond criticism; an exceedingly well run, professionally managed body.".
However, I should like to put forward a modified version of that statement; namely, that the staff involved in both the EIB and the Commission in the borrowing and lending activities of the Community have gained the admiration, albeit sometimes grudging admiration, of the vast majority of the bankers who operate in the international capital markets. I should like to support wholeheartedly the comments in paragraph 10 of the report's introduction concerning the skill and experience of those who work in Directorate-General 18 of the Commission. I believe that most bankers have at least as much to learn from the staff of DG 18 and of the EIB as vice versa.
Many noble Lords, particularly those who serve on the Select Committee or on one of the subcommittees, will have a far better idea than I of the efficiency and competence of the European Commission as a whole. I have often been amazed that such a large and often varied borrowing programme can be handled by the Commission and by the EIB with such small teams of people who, whatever their toughness in negotiations, have in my experience never failed to show great courtesy and helpfulness towards the banks with which they work.
I should also like to pay tribute to the noble Lord, Lord Plowden, chairman of the sub-committee which produced this report, and all those noble Lords who played a part in the sub-committee's deliberations, as I found that the report was an interesting and lucid description of what, even to someone who has been involved in the Community's borrowing activities, can still appear to be a confusing affair. I commend the report not only to the banks which aspire to assist the Community in raising funds but also to the potential borrowers of money, public and private sector companies alike.
Perhaps this raises the question of whether the multiplicity of instruments is really necessary and whether the criteria for the Ortoli facility and those for EIB loans are not so close that in the long run a more completely unified approach would increase potential borrowers' understanding and their likely demand for funds. The effective sub-contracting of the lending operations of the Ortoli facility to the EIB represents a major step in the direction of integration. If we look at the context in which the Ortoli facility was originally proposed and ultimately approved, the current position is probably quite satisfactory. Nonetheless, since I suspect that the Commission is constantly looking at new areas of potential lending and at new criteria for such loans—such as those to small companies—I hope that time and other resources will be devoted to developing the most effective overall marketing of Community funds to potential customers. As the noble Lord, Lord Selsdon, has said, as in
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the case of many sources of finance the greatest obstacle in the way of effective and fruitful utilisation of such funds is the lack of knowledge—and, just as often, the misunderstanding—of the possible finance available on the part of companies of every size.
The multiplicity of instruments is also justified in the report on the other side of the equation, in offering a diversified range of securities for potential investors to buy. With the original borrowers in the shape of the EIB and the Coal and Steel Community joined in recent years by the EEC itself (under two different facilities) and by Euratom, there has clearly been some expansion of the market's potential capacity, compared to the position that might have existed if only two names had continued to be used. On the other hand, investors in many parts of the world attach substantial importance to the liquidity of the securities which they purchase, and this is in some part dependent on the size of individual issues and the total amount outstanding in the name of any one borrower. It is for that reason, among others, that Government bonds in all the major capital markets in the world offer the greatest liquidity. I think, therefore, there is a fine judgment to be made between encouraging the maximum liquidity in the market for paper issued by the European Communities and the EIB, and varying the diet for investors with the four different names that are available.
I believe, therefore, that the Communities, while keeping this balance in mind, can contemplate an increasing financing requirement with some confidence, as both the written and oral evidence presented in the report shows very clearly. At one point two or three years ago, it would be fair to say that some resistance developed among investing institutions towards Community paper, and that of the EIB in particular. If such resistance was justified at the time—perhaps by the very rapid growth of public financing operations by the Community entities—the position has now improved through a greater exploitation of private sources of capital, on the one hand, and a heightened awareness among investors of the community's impeccable credit standing, on the other. I therefore share the views of the noble Lord, Lord Selsdon, that the growth of borrowing in recent years should not cause alarm and is sustainable at a similar rate in the future.
As the hour is late I should like to make only two further points. The first relates to the exchange risk guarantee schemes offered by the United Kingdom Government to public and private sector borrowers. The report highlighted the benefits of the Community's lending policies for countries with deficits on their current account balance of payments, but we should bear in mind that only in the case of one of the two facilities of the EEC is the covering of balance of payments deficits a primary objective. In the case of the Ortoli facility, Euratom, ECSC and EIB loans, the primary objectives are the stimulation of industrial activity, particularly in the areas of greatest unemployment.
While it is therefore understandable for a Government to be less enthusiastic about encouraging the utilisation of Community finance when its balance of payments position is strong, this must be seen as a restriction on the potential benefits to be derived from

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membership of the European Communities. It was therefore ironic that this Government, at the same time as battling almost constantly for refunds on our contribution to the Community budget, should be gradually reducing the encouragement and assistance available to borrowers in the United Kingdom to make full use of Community funds. An exchange risk guarantee scheme does not necessarily imply any element of subsidy, but could simply make available exchange cover on terms which provide sterling finance in line with the terms theoretically applicable to commercial borrowers.
Even if the terms involve no element of subsidy, I believe that the nature of the funds created by borrowing from the Communities, being medium to long-term funds at a fixed rate of interest, will be of interest to companies, particularly with interest rates now a fair bit lower in absolute terms that for some time in the past. I was, therefore, rather sad to see some of the evidence produced by the British Bankers' Association concerning the usefulness of the Community's lending operations, and I think the BBA has underestimated the potential contribution to the financing of industry that the Community can make, so long as some form of exchange cover is available on fair terms.
I believe that the Government should find it quite possible to apply an increased level of foreign currency borrowing by United Kingdom companies and public corporations to other uses that would enable sterling funds to be supplied to the actual borrowers with no cost to the revenue. The operations, for instance, of the Export Credit Guarantee Department expose the United Kingdom Government effectively to a substantial mismatch between fixed rate lending to buyers of United Kingdom goods and variable rate funding. I believe that there could be real virtue in the Government effectively setting funds raised by United Kingdom borrowers through the Community against such ECGD lending and providing in exchange the sterling funds that the original borrowers really require. I hope that the noble Lord, Lord Trefgarne, will not hide behind the shield of an arbitrary PSBR ceiling in considering such an approach.
I was also rather disappointed that the report did not give more prominence to the lending by the Communities to countries outside the Community, essentially those which are signatories to the Lomé Convention. The noble Lord, Lord Selsdon, mentioned this activity briefly in connection with the European Development Fund, and I believe that there is considerable scope for expansion of this, coupled with an increase in aid both from the Community and from individual member countries.
I hope that the Government will devote greater attention in the future to making full use of the Community funds for the benefit of United Kingdom industry, and at the same time to using the Communities as a vehicle for greater lending and aid to the developing world. I believe that the report presented by the noble Lords, Lord Plowden and Lord O'Brien, will have played an important part in encouraging this.
8.54 p.m.
Lord Bruce of Donington: My Lords, we on this side of the House are most grateful to the noble Lord, Lord O'Brien of Lothbury, for having taken this opportunity of introducing the report by Sub-Committee A of the European Communities Committee under the chairmanship of Lord Plowden. As a mere accountant and economist, I almost found myself in a strange world, listening, as I have, to the contributions that have been made by the learned community of bankers which is so fortuitously represented in this House by the noble Lords, Lord O'Brien, Lord Selsdon, Lord Sherfield and Lord Robertshall, and the noble Viscount, Lord Chandos. After the bankers have spoken, what can one possibly say?
I think the report is extremely valuable. It does, as the noble Lord, Lord O'Brien, indicates, contain a very considerable amount of data which indeed, as he himself said, is most revealing. I find it necesary of course to judge the contents of the report, which, by inference from the noble Lords' speeches, which were largely mutually congratulatory in nature, cast a very favourable reflection on British banks.
I did not detect one morsel of remorse from any of your Lordships in the banking community tonight for the most deplorable mess in which the international banking system has found itself. The speakers rejoiced in the rectitude shown by the Commission's borrowing and lending institutions in so far as operations in Europe are concerned. They were modest enough, of course, to refrain from calling to our minds their most appalling idiocy in the policy of lending to some countries, particularly in Latin America, where their very rash lending—indeed, to a point where in four countries the outstanding interest on the loans exceeds annual exports—has in fact precipitated a banking crisis of the first order. So they come to your Lordships' House tonight and say that, so far as the EEC is concerned, the EEC lending institutions are behaving with perfect rectitude, and indeed, so far as their dealings with the European Community are concerned, the British banking community are behaving with perfect rectitude also.
There is a danger of exaggerating the effects of the European borrowing and lending institutions, though I in no way question the fact that they have undoubtedly been of very great assistance so far as the United Kingdom is concerned, particularly to local authorities, which, a couple of years ago at any rate, were able to obtain funds from Europe at a rate significantly below that which was available to them from the British banking system. I observe that, presumably with an eye to self-preservation, the British banks speedily adapted to policies which resulted in a narrowing of the gap so that their fears that they might be pre-empted at some point by the European lending institutions were to some extent mitigated.
So far as the European Community is concerned, the whole matter should be brought into some proportion, as indeed the report itself points out. Between 1977 and 1980 the Community's share of total international borrowing fell from 2·5 per cent. to 2·2

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per cent., despite a rapid absolute growth. It goes on to point out by way of comparison that total borrowing in the international market by the United States approximated to 186 billion dollars of which the EEC borrowed 3·5 billion. So let us not exaggerate the extent of the European borrowing and lending institutions.
So far as the EIB is concerned, let us bear in mind that at paragraph 24 of the report it is indicated that:
"In 1980 it was estimated that the investment projects financed by the European Investment Bank would create some 34,000 permanent jobs and safeguard almost 15.000 more, chiefly in industry; though in the more difficult climate of 1981 these figures fell to 20,600 and 10,600 respectively."
My Lords, compared with the millions unemployed in Europe and the rapid growth of unemployment in Europe, and particularly in the United Kingdom, this is encouraging. We are talking now of 15,000 as against 15 million. It is encouraging, but hardly world-shaking. Of course, the fact of the matter is, as the noble Lord, Lord Selsdon, knows quite well, and, as I suspect, the noble Lord, Lord O'Brien, when he rereads the Bank of England quarterly reports realises, this is a very small contribution to the terrible predicament in which the working community in Europe and the working community in the United Kingdom find themselves.
I therefore would not wish to belittle in any way the activities of the European borrowing and lending institutions, but I do assert that if one of their purposes was the progressive redress of the gross disparity between the richer and poorer regions of Europe the effect of the European borrowing and lending institutions has been minuscule. In fact, ever since 1973 the gap between the fortunes of the poor countries of Europe and the richer parts of Europe has been progressively expanding.
I do not want to cast any personal discredit upon the noble Lord, Lord O'Brien of Lothbury, the noble Lord, Lord Selsdon, his colleagues, or indeed the noble Viscount, Lord Chandos, except to say that skilled though their professions may be, obscure though their methods of working may be, highly technical though their operations may be, highly complicated the language in which they express themselves, highly abstruse the reports they produce, highly delightful the artistic charts they produce from time to time, scatter diagrams and all, their impact upon the suffering humanity at large in Europe has not been very large.
I do not wish to be churlish in these matters. It is given to few of us in this House to have even the influence that the noble Lords who are members of the banking community have. After all, bankers, having the money, tend to be listened to by Governments who are incapable of addressing themselves to any intellectual arguments addressed to them, because money always talks.
I hope that the efforts of the European Parliament—and here I agree with the noble Lord, Lord O'Brien—to secure some kind of budgetary control over borrowing and lending operations will eventually prove successful. For many years, even during the time when I was a member of the Budget Committee in the European Parliament and for some time its rapporteur, we raised this problem. It was realised at that time, as it is undoubtedly realised now, that the I
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per cent. ceiling on the VAT base on which the parameters of European budgets are based would sooner or later prove inadequate to meet the ever-growing rapacity of the farming communities in Europe and in the United Kingdom, who are being progressively featherbedded by this Government in the most scandalous manner when one considers their attitude towards industry.
So, we sought at that time, and I believe the Budget Committee in the European Parliament is still seeking, some measure of control over borrowing and lending operations, mainly, I should think, from my conversations with many of them—and I still maintain personal contact with some of them—with the idea of getting national Governments to pull their fingers out in regard to providing more credit in Europe generally and relieving this miserable waste of human labour and human endeavour which is implicit in the current unemployment figures in Europe. It was thought at that time that an extension of the borrowing and lending operations would in fact help this situation, but, as I say, and as the figures in this report reveal, the real effect, although it looks very nice in ECU terms—and I am not sure how many ECUs there are to the pound, or pounds per ECU at present—is another matter.
There is one recommendation that I most certainly agree with. I do not know whether it is a recommendation, because the only formal recommendation is that the House considers the report, but one can gather that there was some general agreement in the Committee about the attitude of the United Kingdom's banks in regard to EIB projects. If one is seduced, as one sometimes is by the excellent literature that comes out in the promotion of the activities of the various development authorities, one gathers that, in addition to the aids to industry in the special development areas, in the development areas and the intermediate areas that are afforded relief under Section 7 of the Industry Act 1975, European Investment Bank loans are available on very good terms. The entrepreneur, the urgent seeker for the exercise of all that enthusiasm and energy that is implied in free enterprise, pricks up his ears and says, "Ah, I will go to Corby, Cumbernauld or South Wales, or wherever it is, and there I can get not only selective financial assistance under Section 7 but also European Investment Bank loans at a very reasonable rate".
What the Government literature does not state, of course, is that that all has to be guaranteed. The banks have to guarantee it. The commercial banks in the United Kingdom have to guarantee it, as is pointed out in the report with, I thought, an air of complaint. Moreover, if I am not mistaken, the commercial banks themselves in this country, who are so free with the granting of credit to insolvent countries, when it comes to lending in the United Kingdom demand guarantees of the directors or the companies whom they are going to guarantee to the European Investment Bank.
This sounds like rectitude carried too far. I am not complaining of the attitudes of the banks and their general expansion of credit in this country for consumer commodities, although I well recall the time when the only way to get a loan out of a bank was to prove conclusively that one did not need it. That, happily, no longer applies. But I gather there is a

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complaint in the report, particularly paragraph 40, where the United Kingdom banks consider that when they have given a guarantee to the EIB on a project which is eligible for EIB finance there is no need for the EIB to subject the borrower to the labour and cost of their particular procedures. With that I completely agree.
The other recommendation with which I agree, as do indeed all of us who advocate support for small businesses, is that the limits should be altered. The lower limit should be reduced to £5,000 and the upper raised to £250,000 generally. These are all excellent recommendations.
I must apologise to your Lordships if I have appeared to be a little jaundiced about the significance of the facts that are set out in the report. It does not detract in any way from my admiration for the very calm and meticulous manner in which the report has been compiled. This we have come always to expect of the secretariat of the committee, and indeed the subcommittees, and of its distinguished chairman. I do hope, however, that the lessons from it will be learnt. The principal lesson is this; if national Governments, who control, as indeed is brought out in the report, the activities of the banks in relation to the facilities made available by European borrowing and lending, were to have paid the same attention to their lending to the overseas countries who are now in danger of default, the world would possibly have been a much better place. But it does not detract from the value of the report, however limited we on this side of the House are afraid its impact will be.
9.10 p.m.
Lord Trefgarne: My Lords, I should like to add my voice to those of every member of your Lordships' House who has spoken this evening by way of thanks to the noble Lord, Lord O'Brien of Lothbury, for introducing this subject tonight, and to begin by saying that Her Majesty's Government were very glad to note that your Lordships' sub-committee had decided to investigate the subject of Community borrowing and lending, thereby breaking some new ground. The committee's report before us is an interesting and valuable contribution. I should like to pay tribute in particular to the sub-committee's chairman, the noble Lord, Lord Plowden, whose place, as we have heard, has since been taken by the noble Lord, Lord O'Brien, who has moved the Motion tonight.
The Community's borrowing and lending activities do not perhaps catch the headlines. But they are important, nevertheless, and they ought to be better known. The Committee's report, with its supporting material, should help to bring this about. It will be an invaluable source of material on the Community's loan activities to supplement the annual reports from the European Commission and from the European Investment Bank.
This is the first opportunity either House has had to have a general debate in the Community's loan policy. I should therefore like to make a few general remarks before turning to specific points raised in debate. Borrowing and lending was envisaged as part of the Community's business from the outset. The European Coal and Steel Community, set up in 1951, provided
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for loans to member states. The European Investment Bank was set up in 1958 under the Treaty of Rome, It is natural and appropriate that the Community should want to play its part in helping to distribute capital flows among its members. This represents a valuable adjunct to the other policies of the community, and of member countries, perhaps most specifically by helping to develop the poorer regions of the Community, and thus contributing to the Community's broad aim of achieving greater convergence of economic performance.
The foundation for the borrowing capacity of the Community lies in the credit of the member states. It is on the strength of that credit, which guarantees against default, that the institutions raise money in the capital markets. The two principal questions which I think we should have in mind in the various categories of loan activity are, first, whether the intervention of the Community is desirable and necessary, and, secondly, whether the loans can be raised in amounts and on terms which sustain the Community's credit standing. Specfically, this requires that the member Governments should be satisfied that the purpose for which the borrowing and lending is intended serves their objectives for the Community, supplementing national measures; and that great care should be taken to co-ordinate all the approaches in the name of the Community to the capital markets so as to secure the best possible terms.
So far as the first of these questions is concerned, all the borrowing and lending facilities have the full approval of member states. In the case of the European Investment Bank decisions are taken by the governors, who are Community Finance Ministers and other facilities are regulated by the Council of Ministers. As for the need to preserve the Community's credit standing, I am glad to say that we can be satisfied that European Community operations are handled with care and prudence by those concerned in the Commission and the European Investment Bank. I am glad to see that the committee also felt this to be the case as it reports in paragraph 38. We are not, however, in any way complacent, and the Government will continue to show a careful concern for these matters through our membership of the Council of Ministers and, for the European Investment Bank, through the board of governors of which my right honourable friend the Chancellor of the Exchequer is a member.
Perhaps I could quote two topical examples of the continuing process of co-ordinating progress with prudence. First, the Finance Council is on Monday to begin discussion of the co-ordination of Community financial instruments. My right honourable friend will be stressing the need for continuing care for the Community's credit standing in both the Commission and the European Investment Bank. The second example is that when the Council recently considered the proposals for further lending under the so-called New Community Instrument, or the Ortoli facility as it is more popularly known, and referred to tonight, they expressed their preference for a ceiling on the total available under the instrument, so as to make it quite clear that they would have the opportunity to keep progress under review. This does not in any way mean that the Council calls into question the

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usefulness of the facility. It simply means that we are concerned that markets should be reassured that the community's operations are well judged and are conducted in as prudent a manner as possible.
The New Community Instrument is, as it happens, also being considered by Finance Ministers on Monday, when it will be discussed with representatives of the European Parliament. As the committee notes in its report—the noble Lord, Lord O'Brien, referred to this—the European Parliament has taken a close interest in Community loan activities. Indeed, they would prefer a bigger role in overseeing them and have talked of integrating them into the Community's budgetary procedure. I think I interpreted the noble Lord, Lord Bruce of Donington, rightly when he spoke in favour of that idea. The Government's view is that the nature of the activities being financed under the various loan mechanisms means that what I might term political control is better exercised through the Council of Ministers. But we entirely endorse paragraph 13 of the report, which states that all these matters are of "legitimate concern" to the European Parliament as much as to member Governments and national Parliaments. Your Lordships will know that very great efforts are now made by the Commission to provide the fullest information each year.
The United Kingdom has in some years benefited from substantial amounts of borrowing from Community facilities. Indeed, since the United Kingdom joined the European Community in 1973 it has borrowed well over £4 billion from these sources. At present we are glad to be maintaining a modest but steady stream of borrowing, and in particular to see that the United Kingdom's private sector is finding the European Investment Bank to be a useful source of funds. So far as the EIB alone is concerned, United Kingdom borrowers have raised some £2½ billion since 1973; indeed, in this period we have been the second largest borrower. The loans have helped to finance industrial, energy and various kinds of infrastructure development in the United Kingdom. Financing in 1982 alone almost doubled with some £274 million being provided from the bank's own resources. That was a matter of particular anxiety to my noble friend Lord Selsdon, and I hope he will be reassured by what I have said.
The Government are particularly encouraging small and medium sized enterprises in this European year of so-called SMEs to look to the Community as a possible source of attractive finance, and this encouragement has recently borne some fruit. In 1982, under the global loans and mandate contracts already in force, 33 allocations, totalling about £20 million, were made for small and medium sized industrial and tourism ventures in assisted areas of the United Kingdom. In this way, we have added a European dimension to the measures we took in the Budget to help SMEs.
I should like now to turn to two specific recommendations made by the committee for improvements to the EIB private lending scheme. These recommendations are in paragraphs 39 and 40 of your Lordships' Select Committee report. I am pleased to announce that we have taken positive action on both these points.
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First, the committee recommended that the upper limit for the size of EIB loans offered through the agencies operated by the clearing banks and other financial institutions should be raised from £100,000 to £250,000. This we have now done. Secondly, the Committee asked for the maximum simplification of loan appraisal procedures. This is essentially a matter to be negotiated between the United Kingdom agencies and the Community institution concerned, but the Government share the view expressed by all the borrowers who gave evidence to the committee that the documentary requirements impose a considerable burden on loan applicants. We believe that there is room for further simplification of appraisal procedures, and anything that can be done to ease the burden would be warmly welcomed.
For the Government's part, we have looked at the way we operate our own exchange risk guarantee scheme. Let me say first that the Government well understand that the scheme is a vital element in encouraging British enterprises to take advantage of the loan funds available. As for the procedures, we have sought to ensure that these are simplified as much as possible. Indeed, applications for cover for European loans available through the banks are approved in a matter of three or four days. I understand that the banks are entirely satisfied with these arrangements.
I now turn to some of the points that have been raised tonight. The noble Lord, Lord O'Brien, made a number of interesting points in his thoughtful opening speech. Perhaps I could comment on just two of them. First, he floated the possibility that different methods of raising finance should be considered. I can assure the noble Lord that the Government are very much alive to this point. We have, in particular, encouraged the European Community institutions to look at the possibility of raising capital on variable rate terms. Secondly, the noble Lord commented that we have taken fewer so-called global loans than some other countries. I am glad to say that we have recently taken up more global loans—there have been agreements this year with the Midland Bank, National Westminster and the Industrial and Commercial Finance Corporation, and further agreements are currently being negotiated.
The noble Lord, Lord Sherfield, asked me about the prospective levels of United Kingdom borrowing from the Community. The Government's policy at present is to repay official foreign currency debt, so the borrowing of the public sector from Community sources will not be as large as it has been in the past. Nevertheless, the Government expect that the public sector will continue to borrow in significant amounts, although I should not like to try and place a precise figure on any forecast. So far as the private sector is concerned, the Government are happy to see a continuing stream of borrowing and they demonstrate their support through the exchange risk guarantee scheme, to which I have already referred. There was, indeed, a slackening of demand last year, so the exchange risk scheme was modified to provide a more attractive interest rate. We are seeing increasing signs that, as a result, interest is reviving among potential borrowers in the private sector.

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The noble Viscount, Lord Chandos, suggested that the benefit of borrowing from Community sources went some way to offset the United Kingdom's Community budget problem. The availability of borrowed funds from Community sources can indeed be a great benefit, as many of your Lordships have said tonight, but that does not redress the unfairness of the present size of Britain's contribution to financing the Community budget. Loans, after all, do not involve any permanent transfer of resources.
This has been a valuable debate on your Lordships' Select Committee's report. I can assure your Lordships that the points in the report and in this evening's debate have been carefully noted. The Government believe that the Community's capacity for borrowing and lending can and should continue to be put to good use for the benefit of the Community. We shall continue our support of these borrowing and lending activities so long as the purposes are sound and the Community's credit standing is maintained.
9.24 p.m.
Lord O'Brien of Lothbury: My Lords, I should like to conclude by thanking all noble Lords who have taken part in this debate. First, I should like to thank those fellow members of the committee who have joined with me in explaining the report to other Members of your Lordships' House. It is an agreed report, and, therefore, of course, we tended to agree; but I think it is fair to say that each member of the committee illuminated some aspect of the report which others had failed to do.
I am also grateful to the other Members of your Lordships' House who have taken part in the debate. No debate in which the noble Lord, Lord Bruce of Donington, took part could be dull. He suffers from a bad case of the "banks under the bed" bogey, and naturally enough it came up, although it is not very relevant to what we have been discussing tonight. But, never mind, it was interesting to hear. I think he needs a little instruction—perhaps a lot of instruction.
However, our report was designed to illuminate an area which was far from clear and which encouraged many fears. In future, anyone who discusses this subject has no excuse for discussing it on the basis of fear; they have facts. We have revealed that the exercise of European borrowing and lending is small, as the noble Lord, Lord Bruce of Donington, said. In some ways that is reassuring. Many people feared that it was over-large. It will get larger in the future, but I believe that it will be properly supervised, and we ourselves will see that in future it is looked at from time to time so that it does not get out of control. I am particularly grateful to the Minister for his final contribution, which was very helpful in many respects, and I am glad to see that the Government have already responded to the report in so many useful ways. I commend the Motion to your Lordships.
On Question, Motion agreed to.
House adjourned at twenty-six minutes past nine o'clock.