Lords Sitting of 16 November 1983

Preamble
The House met at a quarter past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Gloucester.

Lord Grimond
The Right Honourable Joseph Grimond, having been created Baron Grimond, of Firth in the County of Orkney, for life—Was, in his robes, introduced between the Lord Byers and the Lord Chitnis.

Lord Eden of Winton
The Right Honourable Sir John Benedict Eden, Baronet, having been created Baron Eden of Winton, of Rushyford in the County of Durham, for life—Was, in his robes, introduced between the Lord Lyell and the Lord Boyd-Carpenter.
The following Lords took and subscribed the Oath or made the solemn Affirmation:
John Francis Hervey, Earl of Mar and Kellie;
John Edward Terence, Lord Sandhurst.

Public Assets: Investment of Sale Proceeds
2.43 p.m.
Lord Beswick: 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 percentage of the money raised by the sale of public assets will be invested in new capital projects.
The Chancellor of the Duchy of Lancaster (Lord Cockfield): My Lords, in accordance with Section 1 of the Consolidated Fund Act 1816, receipts are not hypothecated to a particular purpose. Receipts from sales are used in accordance with the Government's overall economic policy.
Lord Beswick: My Lords, I am much obliged to the noble Lord the Minister for his historical review. He puts a persuasive case to cover a most unsatisfactory state of affairs. I wonder whether the noble Lord has been able to read of that most interesting conference held yesterday, organised by The Times and a leading firm of accountants, the report of which in this morning's issue of The Times starts:
"The drive to cut public spending has fallen most heavily on capital projects, which are easiest to cut. Everyone agrees this is the wrong way round".
Did the noble Lord see the headline to that report, which was:
"It's time to rebuild Britain"?
Is it not a fact that the noble Lord and his Government are not rebuilding Britain, but are selling it off?
Lord Cockfield: My Lords, so far as the first supplementary question asked by the noble Lord, Lord Beswick, is concerned, the position is that the Consolidated Fund Act 1816 has now lasted 167 years. So far as his second supplementary question is concerned, public sector expenditure in the current year is estimated at £11¼ billion. The noble Lord will find the figures in Volume 1 of the Public Expenditure Survey Paper, at paragraph 31. Compared with this, disposals this year are estimated at £1¼ billion only. Public sector investment is therefore many times the amount of disposals. So far as the noble Lord's point about The Times newspaper is concerned, I read not only the report which appeared in this morning's paper, but also the long, informative and interesting article which appeared in yesterday's newspaper as well.
Lord Morris: My Lords, does my noble friend not agree that as the original acquisition of these assets was either directly or indirectly by way of taxation of earned income or the spending of taxed income, to suggest, as the Question does, that the proceeds of realisation be tied to capital projects is nothing if not spurious?
Lord Cockfield: My Lords, I am grateful to my noble friend for his observations. The money to acquire those assets came, of course, from the general flow of Government receipts, whether revenue receipts or capital receipts. The position is as I explained it to the noble Lord, Lord Beswick: one cannot attribute any particular item to any specific item on the other side of the account.
Lord Beswick: My Lords, can the noble Lord tell me of one year in those 167 years that he reviewed in which the Government of the day sold off assets at the rate at which they are now being sold off?
Lord Cockfield: Not without notice, my Lords. But it is not at all clear from the noble Lord's Question whether he thinks we ought to be selling public sector assets at a greater or lesser amount.
Lord Diamond: My Lords, although one accepts what the noble Lord the Minister has said about non-hypothecation of one item on one side of the national accounts to one item on the other, is it not the case that the Government are now embarking on a totally new policy which requires completely new thinking in terms of housekeeping? Is it not the case that the Government ought to regulate their housekeeping in the same way as everyone else does—by having regard to money coming in from the sale of assets in relation to current spending? Is it not the case that the Minister has once more given us only a partial answer? He has not indicated at all what the other side of the capital account is—theloss of capital from depreciation, and so on, which is not shown. Nor has he said that the amount which the Government are currently bringing in of £ 1¼ billion bears any relation whatever to the £40 billion which the Government propose to sell if they can.
Lord Cockfield: My Lords, the noble Lord holds a number of extremely interesting and somewhat controversial views on this matter, as indeed he does on a number of other subjects. I realise that the noble Lord is very dissatisfied with the state of public accounts—a matter to which perhaps he ought to have directed his attention during the years when he was Chief Secretary to the Treasury. But I think the most important point is that there is a fundamental difference of philosophy between the noble Lord and his noble friends on that side of the House and noble Lords on this side of the House. Noble Lords opposite believe that there is something particularly meritorious in public ownership. We take the view that, while in certain circumstances public ownership may be unavoidable, assets ought so far as possible to be held by private citizens.
Lord Shinwell: My Lords, may I ask the noble Lord for further clarification so that we can understand the position? When an industry is privatised the Government divest themselves of economic responsibility; that is what the noble Lord the Minister has said. In those circumstances, when an industry leaves the national sphere and is invested in private hands should not the general public—we and the people generally—have a right to ask the Government how the money is being distributed, and not to be told that the money is used in a general way by the Government without knowing exactly to what use it is being put?
Lord Cockfield: My Lords, the point the noble Lord raises is, of course, basically the same point raised by the noble Lords, Lord Beswick and Lord Diamond. The simple truth of the matter is that there are large flows into the public accounts and large flows out of the public accounts, and it simply is not possible to attribute an income flow and match it with a specific expenditure flow.
Lord Underhill: My Lords, as the Minister has stated that in his view assets should be in the hands of the private sector, could he explain to the House why the Government propose to nationalise London Transport?
Lord Cockfield: My Lords, the Government do not propose to nationalise London Transport.
Baroness Gardner of Parkes: My Lords, is the Minister aware of the situation in the National Health Service whereby assets cannot be realised to their full value due to planning restrictions, and yet these funds are badly needed? Could he inform me whether he knows of any action that is being taken to remedy that situation?
Lord Cockfield: My Lords, I think the point my noble friend raises strays somewhat far from the Question on the Order Paper.
Lord Taylor of Gryfe: My Lords, could the noble Lord the Minister tell us whether the figure quoted of £11 billion of capital expenditure in the public sector represents an increase on previous years in view of the requirements in the public sector for substantial capital expenditure to keep industry going?
Lord Cockfield: My Lord, it is an increase in cash terms, yes. But the figure is in fact the public sector capital expenditure; it does not include the expenditure by the nationalised industries, which for the current year is estimated to account for a further £6.9 billion.

Scottish Farm Tenants: Land Purchase
2.54 p.m.
Viscount Massereene and Ferrard: 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 think it satisfactory to allow farm tenants of the Department of Agriculture and Fisheries for Scotland to buy their farms at one third of the official valuation.
The Minister of State, Scottish Office (Lord Gray of Contin): My Lords, public ownership of these estates now serves no useful purpose and, as my right honourable friend announced in 1980, it is the Government's policy to dispose of them. In order to encourage the tenants concerned to acquire their homes and land, the selling price in appropriate cases has been fixed at 30 per cent. of the open market, vacant possession agricultural value as assessed by the district valuer.
Viscount Massereene and Ferrard: My Lords, I thank my noble friend the Minister for that reply. I appreciate the need for the necessity to divest the state of being landlord to agricultural tenancies. However, does he not agree that this is an expensive way of doing it? Is it not a burden on the taxpayer because, as I am sure my noble friend must be aware, some of these tenants have received grants from the Highlands and Islands Development Board to stock their farms? Does not my noble friend agree that this arrangement will eventually dry up the availability of more vacant farms for tenancies because the existing tenants will surely take advantage of the huge profit to be made by selling their farms? Does not my noble friend also agree that the proprietors who buy these farms will not readily re-let them?
Lord Gray of Contin: My Lords, perhaps I should explain to my noble friend that the cost of administration has now reached a figure in the region of £1 million per year. Tenants of the land settlement estates are being offered a very substantial discount in order to encourage them to buy their holdings. I think my noble friend was suggesting that because of the circumstances there might be a clawback; but I should point out to him that any clawback or any pre-emption stipulation would have quite the opposite effect. It would discourage sales when the Government's objective is to dispose of all its leasehold and landlord units.
Lord Blyton: My Lords, is the noble Lord aware that Conservative policy over the past four years has been to sell council houses at a discount that is calculated according to the length of the tenancy? What is wrong, if that is the philosophy, for a tenant farmer who has

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worked his land for years having the same privilege as council tenants?
Lord Gray of Contin: My Lords, perhaps the noble Lord has not quite understood the situation, which is that so far as those holdings are concerned approximately three-quarters have been bought. This represents some 700, which is very satisfactory and means that the tenants have been taking advantage of the very attractive terms which the Government have offered.
Lord Leatherland: My Lords, may I ask the Minister whether he thinks that it might be unfair to the Scots to ask them to put their hands too deeply into their own pockets?
Lord Gray of Contin: My Lords, I think that the figure I have given will assure the noble Lord that many Scots know a good bargain when they see one.
Baroness Nicol: My Lords, in view of the Answer we have been given, may I ask the Minister to say whether it is the Government's intention to extend this principle to England and Wales?
Lord Gray of Contin: My Lords, I am afraid that I must tell the noble Baroness that I find my remit in dealing with the Scottish Office as much as I can master at the moment; but I shall make inquiries on her behalf and write to her in due course.
Lord Mackie of Benshie: My Lords, will the Minister tell the House whether tenants can sell the farms straight away?
Lord Gray of Contin: Yes, my Lords, the tenants have the right to sell the farms immediately. There is no question of pre-emption. However, it must be remembered that the tenant sells a very substantial part of his own right to the holding when he sells, and that is reflected in the price.

British Nationality Act and Travel Restrictions
2.58 p.m.
Lord Geddes: 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 action they have taken in relation to the British Nationality Act 1981 with respect to (a) the refusal by the Canadian Government to grant entry, even as a visitor, to a British overseas citizen and (b) the insertion by the Hong Kong Government, at the request of Her Majesty's Government, of the words "Holder is subject to control under the Immigration Act of 1971" under "observations" on page 5 of a British Dependent Territories' Citizen's Hong Kong Government Passport.
The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne): My Lords, may I apologise in advance for the length of this Answer.
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A Canadian Order in Council of 15th April precludes the issue of a visitors' visa to any person whose passport or other travel document does not give the holder the right to enter the country on whose authority the document was issued, although the passport is accepted for settlement. We expressed our concern to the Canadian Government and I am happy to say that they have now agreed to admit British overseas citizens as visitors where the visa officer is satisfied that the purpose of the visit is legitimate and that the visitor will be re-admitted to his country of normal residence at its conclusion. We have been assured that amended instructions will be given to Canadian visa officers.
On the second part of the Question, we have agreed that the endorsement "Holder is subject to control under the Immigration Act 1971" need no longer be inserted on page 5 of passports issued to British dependent territories' citizens. This of course includes those issued by the Governor of Hong Kong.
Lord Geddes: My Lords, given that my Question was effectively double-barrelled, may I thank my noble friend the Minister most sincerely for those replies. With regard to the second part, and conscious of the next Question on the Order Paper, may I ask whether my noble friend is aware that my Question was perforce tabled three and a half months ago—that is, before the situation was satisfactorily resolved as regards Hong Kong? Will my noble friend confirm that the endorsement that "the holder has the right of abode in" the relevant British dependent territory is now inserted in all British Dependent Territories' citizens' passports? Will he further confirm that no situation even remotely similar to that referred to in part (b) of my original Question still exists or will recur for any British Dependent Territories' citizen?
With regard to the first part, and assuming that the prime use of a passport is to facilitate travel, would my noble friend comment on the validity and usefulness of passports that do not have returnability on them?
Lord Trefgarne: My Lords, let me answer the last of my noble friend's supplementaries first. The answer is, no: a British overseas citizen's passport provides (as do other British passports) clear evidence of the holder's identity and national status. It is a valid travel document and no problems such as those referred to in the Question have to our knowledge arisen anywhere else. On the other point that my noble friend raised, I can confirm that all new British dependent territory passports, as issued, will include the revised wording, and existing passports will of course be amended as they come due for renewal; but anyone who holds one of these passports and wants it changed right away can have that done.
Lord Mishcon: My Lords, does the noble Lord the Minister remember the warnings, given by my noble friends and myself at the time of the passing of the British Nationality Act, that we were indeed creating divisions and misunderstandings in our Commonwealth? Does he remember the remark of the noble Lord, Lord Boyd-Carpenter, that we were slapping Gibraltar in the face, and that the slap remained until this House carried an amendment? Is he prepared to reconsider at some time the disadvantages of that Act?
Lord Trefgarne: My Lords, I remember only too well the proceedings on the British Nationality Act to which the noble Lord refers and indeed the interventions of my noble friend Lord Boyd-Carpenter on the question of Gibraltar. As the noble Lord rightly says, an amendment was carried in your Lordships' House in that connection. But the matters referred to in the Question, as it happens, do not, strictly speaking, arise out of that Act.
Lord Jenkins of Putney: My Lords, has the noble Lord seen the notes issued by the Action Group on Immigration and Nationality dated November 1983 on the workings of the Act in relation to passports? If he has not done so, will he read them and consider the possibility of amending the Act to remove some of the difficulties and injustices which are currently arising?
Lord Trefgarne: My Lords, I cannot claim to have seen the document to which the noble Lord refers, but if he will send me a copy, I shall be happy to look at it.
Lord Paget of Northampton: My Lords, is not the truth of the matter that we are all racists now and that every Government is equally determined to control racial immigration?
Lord Trefgarne: My Lords, that is a view for which I fancy the noble Lord will not find much support in your Lordships' House.

Starred Questions
3.2 p.m.
Lord Reigate: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask the Leader of the House whether he is aware that on Wednesday, 27th July, the first available date for tabling a Starred Question was 14th November.
Lord President of the Council (Viscount Whitelaw): Yes, my Lords, and I quite understand my noble friend's concern. But it is, I fear, inevitable that the Summer Recess should disrupt the normal pattern of Starred Questions.
Lord Reigate: My Lords, I thank my noble friend for that helpful Answer, but would he not agree that the important thing about a Question is that it should have some topicality, which it cannot do under these circumstances? Would he consider that the period for tabling a Question should be limited to a calendar month without making allowance for the Recess?
Viscount Whitelaw: My Lords, that of course is a matter for the House to decide. I understand that the rules are set out in Standing Order No. 40. No Question may be put onto the Order Paper for a date more than one month ahead; but in reckoning that period no account is taken of any time during which the House is in recess. If, however, the House was to change that and decide that the Recess should not be
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left out, that would be perfectly possible but it would require an amendment to Standing Order No. 40.
Lord Ponsonby of Shulbrede: My Lords, since the new system for tabling Questions has been introduced, can the noble Viscount confirm that there has been a greater opportunity for Peers to table Questions at an earlier date than was previously so?
Viscount Whitelaw: My Lords, that is certainly true. I think that there has been a considerable improvement since the new arrangements were made, which was of course before I came to my present position. The Order Paper indicates that the first available date for putting down a Question is now 8th December, which, after all, is only three weeks ahead. If we disregard the question of the Recess, I think that shows that the situation is reasonably satisfactory. If the House wished to pursue the question of the Recess in this connection, it would be perfectly proper for the Procedure Committee to consider it.
Lord Renton: My Lords, would it not ease the situation, however slightly, if we each limited ourselves to one Question, or double-barrelled Question, per day?
Viscount Whitelaw: My Lords, I am entirely in the hands of the House in these matters. I accept at once that the arrangements that have been made for the number of Questions that may be tabled and the times at which they may he tabled have made a considerable improvement. I am told by some noble Lords that I am too reasonable about the time for which I am allowing Question Time to continue. I am totally in the hands of the House. I seek to judge the mood of the House on every particular question. If it is said that I am too reasonable, I know that I am perhaps considered not sufficiently reasonable by those to whom I am being reasonable, and very unreasonable by those to whom I am less reasonable. I understand all that, but I shall continue to do my best.
Lord Alport: My Lords, would my noble friend consider asking the Procedure Committee whether it would be possible to add a fifth Question, which should be tabled not more than seven sitting days and not less than three sitting days before it is answered?
Viscount Whitelaw: My Lords, that can of course be considered, but I understand from my noble friend the Chief Whip—who is always willing quickly to advise me on such matters—that that was considered by the Procedure Committee and was rejected. That does not mean that the committee might not change its mind on a future occasion. The matter could certainly be looked at.
Lady Saltoun: My Lords, would the Procedure Committee consider having the fourth Starred Question tabled at a week's notice? Would it not perhaps reconsider the matter?
Viscount Whitelaw: My Lords, the noble Lady raises another point which would inevitably extend the period for Questions, but as I say, it is in the hands of the House. I am advised that the House feels that 20

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minutes or thereabouts for Question Time is about right. If the House wants it to be further extended, that would be possible, but it would impinge on the debates thereafter. I am advised that that is not what noble Lords want.
Lord Derwent: My Lords, may I suggest to my noble friend the Leader of the House that if we lengthen the period of Question Time it would be very bad for the temper of the House?
Viscount Whitelaw: My Lords, that is a matter for noble Lords as to how they judge their Questions. It is entirely a matter for the House whether we have more time for Questions. I am in your Lordships' hands. I am prepared to discuss with any noble Lord personally or through the usual channels whether this is something that is wanted. I am so far advised that it is not, so I hope that we shall be able to continue some arrangement on the same lines. I shall certainly consider all the points that have been put during this exchange.
Lord Molloy: My Lords, may I agree with everything that the noble Viscount has said? I think that we are moving towards a reasonable solution to some of the problems that confronted the House. In my judgment the noble Viscount's behaviour has been par excellence. Just one little thing seems to irritate Back-Benchers on both sides of the House, and that is the issue of the Private Notice Question. Such Questions always seem to be acceptable if they come from a particular Bench, commonly known as the Front Bench. But there is no reason to say that the Front Bench is more informed or knowledgeable than any other Bench. If a Private Notice Question is submitted other than from the Front Bench, does the noble Viscount consider that nevertheless it deserves whatever attention it ought to command?
Viscount Whitelaw: My Lords, I think I should make the position—which perhaps the noble Lord does not quite appreciate—clear. In my duty as Leader of the House I have to consider a Private Notice Question put down by any noble Lord, irrespective of the Bench that it may come from. Of course, I do that. I have to be guided by the convention of the House that the matter must be urgent and topical. I have to consider it on that basis. Indeed, I do just that. In case there should be any doubt, I add that if a Private Notice Question is accepted in another place that raises different issues. The noble Lord may now be referring to that.
Lord Jacques: My Lords, is the noble Viscount aware that the House generally is very pleased at his tolerance, which is in accordance with the traditions of the House?
Viscount Whitelaw: My Lords, I am grateful to your Lordships. I am acutely conscious that when one marches up one day, one goes down the next. I shall do my best to continue on an even keel.
Lord Reigate: My Lords, will my noble friend note that practically all the supplementary questions have
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been totally irrelevant to the Question that I asked first of all? Will he consider submitting all the issues raised to the Procedure Committee?
Viscount Whitelaw: Of course I will, my Lords. I am sorry if I have done what I constantly tell all my fellow Ministers they must not do: that is, to stray outside the original Question. I realise, therefore, that my previous answer was all too correct.

Business
Lord Denham: My Lords, with the leave of the House, I should like in the normal way to say a brief word about the timing of the two short debates this afternoon standing in the names of my noble kinsman Lord Spens and the noble Lord, Lord Jacques. Following the principle that the mover should be entitled to approximately 15 minutes and that the Minister should rise to reply no later than 20 minutes before the scheduled end of the debate, may I suggest that other speakers in today's debate should limit their speeches to a maximum of 11 minutes as regards the debate of the noble Lord, Lord Spens, and 14 minutes as regards the debate of the noble Lord, Lord Jacques, respectively? Perhaps I should point out that, if any noble Lord should speak at greater length, he will do so at the expense of later speakers in that particular debate.
Standard Chartered Merchant Bank Bill
Read a third time, and passed, and returned to the Commons with amendments.

Cyprus
3.11 p.m.
Lord Spens Lord Spens rose to call attention to the situation in Cyprus; and to move for Papers.
The noble Lord said: My Lords, we are to be honoured today to listen to the maiden speech of a very remarkable man, my noble colleague sitting on these Cross-Benches, Lord Tonypandy. I hope he will indulge himself in the freedom of speech which we all enjoy here, free from the shackles of an office in another place which were inclined to restrict his utterances to little more than, "Order, Order!" I wish him great success in his maiden venture in this Chamber.
I feel I owe the House an apology for being so lucky in the draw for short debates. I believe this is the fourth one I have achieved. It is certainly the second one on Cyprus, because I introduced a debate on Cyprus three years ago. The Motion which I put down for today's debate I put down right at the beginning of this Parliament, in June. I had just returned from a 10–day visit to North Cyprus and I realised that things were impending there which, in fact, happened yesterday. I hoped we would have had the opportunity of discussing that situation before the events of yesterday, but I am afraid I was beaten by a short head.
I think that what I should try to do now is to explain why yesterday's events happened. I am afraid your Lordships will think I am a little bit biased in so doing, but I have had many talks with President Denktash and his colleagues, and I believe that they are all genuine. I am sorry, however, that this event has happened so quickly because, when I was over there in June, I urged President Denktash—and he agreed with me—that there should be a referendum of everyone on the Turkish side before this unilateral declaration was made. I was waiting for that to happen. Unfortunately, political events made that, I will not say impossible, but they made it I think tactically easier for the Turkish Cypriots to take the action they did very quickly yesterday.
There are two myths circulating about the cause of the present stalemate in the island, and I want to try to dispel them. The first is that the problems of Cyprus only started with the Turkish intervention in 1974. The second myth is that, prior to 1974, Greeks and Turks lived happily together and could go back to that situation today.
Taking the second myth first, I should like to suggest to noble Lords that, as regards the Turkish Cypriots, a book which I placed yesterday in the Library explains very well the of events even earlier than 1960 up to the present day. It is called, The Road to Bellapais, The Turkish Cypriot Exodus to Northern Cyprus, by Pierre Oberling, who is a professor of history at the City of New York University.
One has only to glance at this book to see how serious and how long the troubles have been. At page 58 of the book, the author talks about civil war between Greek and Turkish Cypriots as early as 1956.You only have to look at the chapter headings of the book to see what has happened since then. Independence was given to Cyprus in 1960, with a treaty of guarantee signed by Greece, Turkey and Her Majesty's Government, in the form of the noble Lord, LordCaradon—who I am very sorry to see is not here today.
Looking at the chapter headings, "The Rise and Fall of the Cypriot Republic" is one of them, and that only relates to the period 1960 to 1963. The next heading is, "The 1963/1964 Crisis", and that crisis occurred because there was a co-ordinated attack on Turkish Cypriots by Greek Cypriots in December 1963. I think it started on 21st December and went on until about April of 1964. During that time, Turkish Cypriots were kicked out of their homes in more than a hundred villages all over the country. That might not have been so bad if they had been allowed to build other homes elsewhere, but the Cyprus Government, led by the late Archbishop Makarios, declared building materials to be of strategic importance, and would not allow them to get building materials to build new homes. So there were about 30,000 Turkish Cypriot refugees looking for homes from 1963 until after the events of 1974. That is a fact that I think people forget.
The next chapter in this book is called, "The Crisis of 1967". There again, there were attacks on Turkish Cypriots by the Greeks and, this time, Turkey very nearly had to intervene. However, when they sent over one or two planes, that stopped the Greek Cypriots continuing their attacks and the crisis
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finished. In the book there is a map which shows how the Turks were pushed into enclaves all over the country in the late 1960s. Crowded together in those enclaves they almost starved, though not quite. But if your Lordships read the United Nations reports, you will see that there was trouble over feeding them, and economic sanctions were brought against them by the Greeks. They survived, but they did not live happily ever after with their Greek neighbours. I am certain that they would never do so again. I hope therefore that the myth that this might happen has been dispelled.
The first myth—that the crisis started with the Turkish intervention in 1974—has been more or less explained away by what I have just said. What happened was that on 15th July 1974 there was a coup d'état organised by the Greek colonels in which, as your Lordships might remember, Archbishop Makarios was dethroned and more or less had to escape from the country. For five days there was an enormous slaughter of Greek after Greek. The Turkish Government, worried about the safety of the Turkish Cypriots, begged the British Foreign Secretary to come under the Treaty of Guarantee and help stop what was happening. The British Foreign Secretary, I am afraid, did not do so. So, on 20th July, Turkey came in alone, using its rights under the Treaty of Guarantee, to protect the 150,000 Turkish Cypriots on the island. If one compares that with the action of the United States a few days ago in going into Grenada to protect only 1,000 United States citizens, one really cannot blame the Turks for doing what they did.
Lord Trefgarne: My Lords, if the noble Lord will allow me to intervene briefly, may I ask whether he will say to which right under the Treaty of Guarantee he is referring?
Lord Spens: My Lords, I believe I have the Treaty of Guarantee here. I shall have to look it up. The right is, I think, in Article III, or perhaps it is in Article IV. Article IV states:
"In the event of a breach of the provisions of the present Treaty, Greece, Turkey and the United Kingdom undertake to consult together with respect to the representations or measures necessary to ensure observance of those provisions.
"In so far as common or concerted action may not prove possible, each of the three guaranteeing Powers reserves the right to take action with the sole aim of re-establishing the state of affairs created by the present Treaty".
That is Article IV of the Treaty of Guarantee.
It was under that article that Turkey sent in its troops. Of course, when an army goes in, it does so in force. That is what happened. There was a lot of bloodshed on both sides. But, after the fighting, peace came, and there have been nine years of complete peace, certainly in North Cyprus. It is the safest place, at the moment, anywhere in the world. There is no crime, or hardly any crime, and I recommend your Lordships to visit the island. There is still a small British population. We know them as "the ancient Brits." I understand that they are about to issue a statement supporting what happened yesterday.
The reason for what happened yesterday was that for nine years no one recognised the Turkish Cypriots. Everyone allowed the Greek Cypriots to pretend to be the Government of all Cyprus. But that was never the

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case. Even if it was the case, it was quite contrary to the basic law of the constitution of 1960, which Her Majesty's Government again had guaranteed to keep. I am afraid that they never took action to keep that basic law, as it was written, giving the Turkish minority their rights to places in the Parliament and places in government. So they have been frustrated.
Their frustrations amount, I think, to three. The first is that no one has taken them seriously, and they have become fed up with that situation. The second frustration—and, I think, a more serious one—lies in the fact that they have been suffering from an economic blockade imposed by the Greeks. Economic sanctions have prevented their airport from being recognised as an international airport. Their seaports have been blacked. That has frustrated them and frustrated their economy. They do not want the situation to continue for much longer. I hope that my noble friend Lord Energlyn will elaborate on that point.
The third frustration is that throughout the inter-communal talks the Greeks have never considered the Turks to be in any way partners to those talks. They have always considered them to be a second-rate minority, whereas the Turks feel that they must be partners. Their action yesterday, they hope, will put them into that position.
My time is up. I see the Chief Whip glaring at me. I shall therefore conclude by saying that I hope that the British Government and the British people will not act too soon and too quickly to try to reverse what happened yesterday. They will not be able to do so; it is a fact. It is only putting into a more constitutional form a situation that has existed for nine years. I wish the Turks well.
The Earl of Perth: My Lords, before the noble Lord sits down I should like to ask him whether, under Article IV, the declaration of UDI is in his view lawful.
Lord Spens: My Lords, I am quite certain that it is not lawful under that article. My Lords, I beg to move for Papers.
3.30 p.m.
Lord Cledwyn of Penrhos: My Lords, we are more than usually grateful to the noble Lord, Lord Spens, for selecting this subject for debate because it could not be more timely in view of yesterday's critical developments. I appreciated the noble Lord's speech, but I must tell him that I cannot accept his interpretation of events. We are now able to examine the full implications of the action and to hear the Government's reaction to them. I know that the House is looking forward very much to the speech of my noble friend—my very old friend—Lord Tonypandy, who for many years has taken a close interest in the affairs of Cyprus. We shall be most interested to hear his comments and advice.
One matter became clear immediately after the news of the declaration of secession came through—namely, that all parties in both Houses deplored and condemned the action, as did most countries in the world. It was an act which broke the
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treaties of 1960 and which contravened resolutions of the United Nations. Whatever the arguments that the Turkish Cypriot leadership may advance, or the Turkish Government for that matter—and the two have always worked closely together and there was sympathy for some aspects of their cause—the fact is that this unilateral step, and the finality which the Turkish Cypriot regime attach to it, bring a new and dangerous dimension to the problem of Cyprus.
Before I come to the new situation created by secession, it is as well to consider the events of the past few weeks so as to get the matter in perspective. The House will recall that we debated Cyprus on 20th April and we then reviewed the prospects for a long term settlement which would bring stability to the island. We recalled the invasion of 1974, to which the noble Lord, Lord Spens, has just referred, and the establishment of the Attila Line. That in itself is an unrealistic boundary from every point of view, specially the demographic one. The United Nations condemned the invasion without qualification because it was an act of aggression by Turkey and because also it broke the treaty which guaranteed the independence and security of the Republic of Cyprus. This should be made clear now—namely, that the partition of the island, which yesterday's declaration seeks to make permanent, was forbidden by the treaty which laid down that unilateral action by any one of the three powers—Greece, Turkey and the United Kingdom—was only permissible for the purpose of maintaining the terms of the treaty itself.
The noble Lord, Lord Spens, takes a different view of that; but he must remember that the view was taken clearly by a great majority of the members of the United Nations that Turkey was in breach of the treaty, and that was the view taken by Her Majesty's Government at the time. Turkey broke the treaty which she herself had signed. Turkey has now, as we understand, supported the declaration although the Government had said that they opposed a unilateral declaration. It is said that the Turkish Government were unaware of the intentions of Mr. Denktash and his colleagues and were taken by surprise. Their immediate favourable response to the actions of Mr. Denktash is not conducive to a constructive meeting between the guaranteeing powers.
We must accept that the progress made since our last debate in April has been disappointing, although the Secretary General of the United Nations, Senor Perez de Cuellar, has made strenuous efforts over the last few months to get the parties together in a reasonable frame of mind. Both sides have, it is true, been intransigent, but the possibilities of a settlement underwritten by the United Nations were clearly there. Senor de Cuellar certainly deserves the utmost praise.
Perhaps we should also recall that in May the United Nations General Assembly called for the withdrawal of all the occupation forces from Cyprus. The voting was 103 for, 5 against, and there were 20 abstentions. It was at that point that Mr. Denktash started talking about the declaration of an independent state, against overwhelming world opinion. Again, in June, the Security Council extended the mandate for a peacekeeping force by six months, and in August the Greek and Cypriot leaders met to discuss Mr. de Cuellar's proposals for a bizonal federation. No

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action followed this meeting although the Secretary General met Mr. Denktash and President Kyprianou several times. I mention this to show that no one can argue that there was no movement or that no effort was being made to find a solution. Strenuous attempts have been made throughout the last few months by Senor de Cuellar to find a settlement. The Secretary General has shown a courage and a willingness to take initiatives which in my view are wholly admirable. One can understand that he must feel dismayed and frustrated at this time. We must also concede that neither the Turkish nor the Greek Governments made things easier for the Secretary General. It was a poor example of international co-operation.
However, prospects took a better turn a fortnight ago with the United Nations initiative to convene a summit meeting. This had the strong support of President Papandreou and Mrs. Thatcher, and Turkey had indicated support as well. Mr. Denktash himself had suggested this initiative to the Secretary General and Mr. Hugo Gobbi (the United Nations envoy) was due in Cyprus to discuss the details with both Mr. Denktash and President Kyprianou. Many spoke of this effort as a last chance to obtain a settlement, and it is one of the tragedies of the situation that it was never given the opportunity to develop.
As we look to the consequences of the Turkish Cypriot action, may I repeat what I said yesterday—namely, that we support the initiatives taken by the Government thus far. They appear to us to have been right and to have been swift. We do of course have special responsibilities as one of the guaranteeing powers and there are historical associations with Cyprus, our NATO commitments and our bases there, and we also make the largest contribution to the peacekeeping force. I do, however, believe that the next step and the main initiative must once again come from the United Nations.
I have read the declaration from the Turkish Cypriot régime and while much of it is, inevitably, propaganda, there are points which deserve attention. For example, the declaration says:
"The proclamation of the new State will not hinder, but facilitate the establishment of a genuine federation",
and later:
"The good offices of the United Nations Secretary General and negotiations must continue";
and it promises:
"to remain faithful to the principles of the United Nations Charter".
Those are extracts from yesterday's declaration.
We should—and I am sure that this will be the Government's intention—support the Secretary General in an effort to get the parties together in the hope that they will make a genuine effort to find a solution. The proposal for a bizonal federation should still provide a basis for serious discussion; but it could only succeed if both Greece and Turkey give it support. They are both members of NATO, but one begins to think that this has been more of a hindrance than a help to a solution.
I hope that the new Turkish Government will take a more constructive attitude. The Turkish Government have a crucial role to play in this matter. We sympathise with them and with the people of Turkey
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upon the terrible tragedy which recently befell them and we wish the new Government and the new Prime Minister well in what must be a very difficult task. We also hope that they will move towards democratic and co-operative policies. It would make NATO a more comfortable partnership if they would do so. And NATO itself would benefit from a solution in Cyprus. Entrenched partition in Cyprus will not help. Partition would be a running sore; it never solves problems; it is an admission of defeat wherever it exists, and even if its boundaries are declared to be permanent, it never creates a permanent political solution. We are perhaps more aware than most of the potential dangers of partition.
It will be said that the treaty is now a dead letter; it will be said that the United Nations is ineffective. Many—perhaps most—will assume quietly that the declaration and the new arrangement will drift into permanance. I hope not. That would indeed be a triumph for wrongdoing and for international disorder. The danger and likelihood is of communal strife between Greeks and Turks in Cyprus. It is in the interests of both that they should reach an understanding. The economy of Cyprus also demands this and the Turkish area would greatly benefit from a closer relationship. It is a mistake to think that the Turks of north Cyprus have prospered since partition. It is the Greeks in the south who have prospered most, and economic co-operation between the two areas is needed very quickly mostly in the interests of the Turkish Cypriots of the north. There are good reasons why an early and realistic exchange of views is, therefore, essential.
We are also conscious of the refugee problem, which may now become more acute. And, as I said yesterday, there are British citizens about whom we shall be glad to have news; their safety is always our close concern. Therefore, we urge the Government to use all their efforts in support of a strong and urgent United Nations initiative to convene a meeting of the parties in an effort to resolve this unhappy and complex affair.
3.40 p.m.
Viscount Tonypandy: My Lords, I ask the indulgence of the House as I seek to address it for the first time. Every noble Lord who has made his maiden speech in this House will know exactly how I feel at this moment. I made my original maiden speech to another place in this very Chamber 38 years ago, and, naturally, I see on Benches here people who were in that 1945 Parliament; so memories crowd in on me.
I hope your Lordships will forgive me if, in passing, I say that I love another place. I was there a long time; and, with all its foibles and its frailties, it is a good place. I shall always have it written on my heart that I had the privilege of being Speaker and of leading the Members of that House to the Bar of this House, when your Lordships looked so formidable and, of course, impressive.
Already I have learned to love this Chamber. Noble Lords, with their courtesies and their kindnesses, have made it quite clear to me that the sharp clash of party political opinion can take place in a civilised atmosphere; since I have been a Member of this House no attempt has been made to drown an argument by

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noise alone. I believe that this Chamber bears witness that democratic debate in a peaceful atmosphere diminishes the strength of no one's argument. To the contrary, it adds to the significance of the debate.
In sitting on the Cross-Benches in your Lordships' House, as does my noble friend Lord Maybray-King, I follow a long-established custom designed to support the current Speaker of the other place. As a former Minister in the Commonwealth Office and as a regular visitor to Paphos, Cyprus, for many years, I wish to thank the noble Lord, Lord Spens, for initiating this timely debate. I should also like to thank both the noble Lord and my old friend Lord Cledwyn for their kind words this afternoon.
The unhappy diplomatic blunders in the policy on Cyprus of long ago belong to the history book. We now have a new situation. My heart aches for the people of Cyprus. I think of those who lost everything when they had to leave their homes. The noble Lord, Lord Spens, referred to Turks who had to leave their homes. I have met the refugees from Famagusta and Kyrenia, and I admire beyond measure the way in which they have rebuilt their lives, and in which they have restored the economy of Greek Cyprus.
I do not believe that the declaration of independence by Mr. Denktash could have come as a surprise to the Foreign Office, to Nicosia or to Ankara. There have been plenty of warnings. However, as the noble Lord, Lord Cledwyn, has reminded the House, talks were under way and the United Nations had made it quite clear that it desired, not partition but an understanding between both sides.
It may well be that in making his declaration Mr. Denktash has exploited the political situation in Turkey during the interregnum between power passing from the military dictators to civilian rule under the Prime Minister, Mr. Ozal, in early December. Of course, it is a moment of opportunity for activities of this sort, but it is my belief that, without the assurance of Turkish support, the declaration would not have been forthcoming; and I think that they owe it to the allies in NATO to realise that, in any case, the Middle East is an explosive area, and that further troubles of a military character could lead to imponderables that are too frightening to consider openly and at length.
However, the part of Cyprus that was taken by the Turkish tanks and soldiers is 37 per cent. of the whole of Cyprus. When we bear in mind the major British sovereign bases in Cyprus we must realise how unfair this declaration by Mr. Denktash is to the Greek Cypriot population there. I rejoiced to read that the Prime Minister had led the world in condemning the action taken. We have major treaty obligations (to which reference has been made) to the territorial integrity of Cyprus. We failed to fulfil our obligations in the previous crisis, and, therefore, I join with the noble Lord, Lord Cledwyn, in hoping that Her Majesty's Government will feel that this time they can use the United Nations and NATO to ensure that conversations among the Greeks, the Turks, ourselves and the Secretary General of the United Nations should take place.
I realise that the necessity for NATO bases in Turkey is a factor in people's minds, and it makes the
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Government's task in negotiations more difficult. But our national honour is involved in this matter and, in my opinion, the national honour of Turkey as an ally in NATO is also at stake. She ought to realise that she endangers the whole of the Alliance by the attitude which she is taking.
I conclude by making a plea to Mr. Denktash and to his Excellency President Kyprianou. They both hold power in their respective areas and with regard to their respective peoples. But it is in the greater interests of Cyprus that both of them should realise that this is not a time for pride, that it is not a time for bigotry, and that the future—which does not belong to them but to the young—cannot afford the partition of that small island. I pray that the endeavours of Her Majesty's Government will be successful in ensuring that the federal state, to which President Kyprianou had already agreed and which, as the statement by Mr. Denktash indicated, is possible, will come about, and that we shall be able to work on that. We dare not let the situation slide so that Cyprus can suffer the agonies that we suffer in a part of the United Kingdom.
3.50 p.m.
Lord Kennet: My Lords, chance gives me the honour of following on the noble Viscount, Lord Tonypandy. His voice is known and loved by millions. His career, his integrity, and his political gifts are known and admired by tens of thousands, and his personality has brought warmth and pleasure to all those who know him. He was a fine Speaker of the House of Commons, and he has made a fine maiden speech here. He is very welcome.
From 1960 to 1974 we saw in Cyprus the failure of a federation of communities—that is to say, of communities joined all the way up from top to bottom. Both communities were to blame. Majorities are usually more to blame when community relations break up, and though there was great blame on both sides yet the Greeks were the majority, and we should not forget that.
In 1974 Greece, a guarantor power under the foundation treaties, with a stupid military régime in charge in Athens which was already tottering, staged a coup d'état and placed Nikos Sampson in power in Cyprus. This was not the work of Greek Cypriots; it was the work of kalamares, as they call Greeks from Greece 500 miles away. It was done in pursuit of the dishonoured dream of Enosis, which had already long since been abandoned by all sane people.
The Greek colonels fell over their own feet immediately, but this did not stop Turkey from invading, and what a change there has been since then. Perhaps they had a right under the treaty to go in while Sampson was still there, but they certainly had no right to build up an invading army of 40,000 men; they had no right to take 39 per cent. of the land of the island given that they are only 18 per cent. of the population; they had no right to ignore a stream of desperate appeals from the United Nations to stop, stop, and stop, and not to advance inexorably right down into the south until they hit the British sovereign base, where they are still today.
Perhaps for a few weeks or months after that unjustifiable and extreme action there could have been a hope of a new kind of federation of communal

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territories; that is, the two territories joined only at the top. Now, unfortunately, even that hope has gone. There is now an iron curtain across the island, engagingly called the Attila Line by its builders. It is a heartrending thing. It looks exactly like the Russian one, only scruffier.
Like the noble Lord, Lord Spens, I have had the advantage of a recent visit, only last month, in which I was able to visit both sides of the island as well as the British sovereign bases. There is only one gate in the island. That is in Nicosia. You have to cross there if you are going to cross at all. Immediately on the Turkish side of this gate the first thing you see is a signpost saying, "To the museum of barbarism" where relics of a Greek massacre of a Turkish family many years ago are lovingly preserved. No such thing appears anywhere in Greek Cyprus. Indeed, I think all visitors are struck by the strong spirit of optimism, of economic achievement, and of a refusal to be resentful or to whine or groan about what has happened to them, which is to be found among the Greek Cypriots.
Two hundred thousand Greek Cypriots were driven from their land and their homes in the north, and Anatolian peasants were brought in by the northern Turkish régime to take their places. It is true that a perhaps proportionate number of Turks found life in the south in the legitimate Republic of Cyprus impossible and went north. That was a population exchange.
We want to be as even handed as we can of course in all such matters as this, but even handedness must not blind us to obvious illegality. The Turkish Cypriots rely on the support of an invading army from Turkey which still, even today, numbers over 20,000 men. The Greek Cypriots, on the other hand, are well advanced in the process of removing Greek officers from Greece out of their own National Guard, and replacing them by Greek Cypriot officers. Cyprus is a Commonwealth country. It is one-third under illegal rule backed by an invading army, and that third has now illegally declared its independence as a sovereign state, which is impossible. It is bad weather, my Lords, for Commonwealth islands.
The United States and to a lesser degree we ourselves have often stood back from the flood of United Nations resolutions, culminating in the one of May this year which has called upon the Turks to take their army away, and has called upon Turkish Cypriots to undo their illegal instruments and to remove their illegal iron curtain. The American and British standing back reflects reality. There is a wider consideration than communal conflict in Cyprus, and that is not only the Commonwealth: it is also NATO. NATO has so far been able to contain—just—the two peoples, Greeks and Turks, who have not been able to make lasting peace for more than 1,200 years.
Turkey needs NATO, for Turkey's main fear is Russia. And so is ours, and we need Turkey in NATO. But Greece's main fear is not Russia; it is Turkey. It is not Russia which lays claim to Greek islands and to the Greek seabed round them, and it is not Russia which nine years ago invaded an independent country where 82 per cent. of the people are of Greek extraction. That was Turkey. These are the facts, and we must all live with them.
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The new entity created, or announced, by yesterday's deplorable declaration, of which more than half is a sustained, high-pitched litany of abuse against the Greek Cypriots, will in any case be friendless in the world—except for Turkey, which has regrettably already recognised it, and a few more or less remote Islamic countries who know little of Europe and the Levant.
There is a further danger than that, something even wider and probably graver. The danger is that Turkey itself, by its continuing illegal actions, might become a pariah state able to converse only with other pariah states. The position of one of those within NATO will be difficult indeed. That would be grave. How grave we cannot see. We must just hope that it does not happen. The Government, I think, are taking the right courses, but perhaps most of all the new Turkish Government in Ankara must be helped to see the danger I was outlining for itself. It is a danger for the whole of the West, to which Turkey so ardently aspires to belong.
The new Turkish Government—elected with what degree of democracy the world will be in due course judging, but elected unlike the one before—should be an element of hope. It was because of this hope that I, for one, read with a mixture of laughter and despair the reported remarks of Mr. Turgut Ozal in The Times of Saturday, before the declaration, when he was interviewed by a Times journalist. I quote The Times journalist:
"I asked if there was any significance in the fact that the map of Turkey used as a symbol by his Motherland Party includes northern Cyprus. He said there was not. 'You see, if we had not shown Cyprus, some people would have said "Why did you not show Cyprus?" ' ".
Well, so they would. The people who would have said that are the people who wish to maintain the option of an outright Turkish annexation of Cyprus into the state of Turkey, or at any rate of northern Cyprus into the state of Turkey. The fact that that remark could be made, even in the innocence of having won an election three or four days before, even before assuming the responsibility of power, by the man who will be the Prime Minister, bodes ill. I repeat that we believe the Government are on the right track. We cannot know, nor do we expect to be informed, what they are saying to the new Turkish Government, but we can only hope that they are speaking very seriously and straight from the heart.
4 p.m.
Lord Drumalbyn: My Lords, in the brief time I have at my disposal I should like to start by congratulating the noble Lord, Lord Spens, for introducing this debate. I should also like to thank the noble Viscount, Lord Tonypandy, for the wonderful speech that he has given to us today. We all feel it was a great privilege to have heard it.
The quarrel within Cyprus is a matter not only of sadness but of deep anxiety for this country. It is not only that we are involved in Cyprus through our bases at Dhekelia and Akrotiri, which play a valuable part in the NATO system of defence: it is that Greece and Turkey are both valuable partners in NATO, and the value of that partnership is not enhanced by their

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failure to agree about Cyprus. Furthermore, both countries are friends of ours—and, I believe, good and loyal friends.
As for Cyprus itself, that republic is a member of the Commonwealth, though I fear that it is unlikely to remain so if, for the first time in history, Cyprus becomes, in defiance of the treaties, part of the Greek state. That is what the Turkish Cypriots believe the present régime in Cyprus wants, and there is plenty of evidence to support that belief. The question is not, "Will the Greek Cypriots carry Enosis to its logical conclusion?", but, "When will they do so?" This is the Turkish view. The Turkish Cypriots, led by Mr. Denktash, can be forgiven for wanting to get out from under Greek domination, which they consider not only unjust but illegal under the constitution. We should bear in mind that the Zurich agreement establishing the Cyprus constitution in 1959, negotiated and agreed between the Greek and Turkish Governments, was backed by a tripartite treaty—or, rather, two treaties—which rules out, first, Enosis;secondly, partition; and, thirdly, division. When I say "division", I mean the division of Cyprus into two parts.
According to Miss Nancy Crawshaw's book, Cyprus Revolt, which is in the Library and which is worthy of attention, no change could be made in the 27 basic articles of the constitution, agreed by Greece and Turkey at Zurich and confirmed by the document signed and initialled at Lancaster House on 19th February 1959, prior to legislative approval in each signatory country. No change is possible in those articles; yet changes have been made, and I am bound to say that they appear to render the present Greek Cypriot régime illegal and unconstitutional. The constitution itself is basically bipartisan. Surely the fact that the Kyprianou régime has ignored the entrenched rights of the Turkish Cypriots is a direct and deliberate breach of the treaties. This, I acknowledge, has its legal aspects, but it is not only legal aspects that count in this matter.
Not unnaturally, the Turkish Cypriot community were not content to be treated as second-class citizens, deprived of any say in the destiny of their country and, indeed, of any share in the benefits of citizenship. Quite recently they set up an administration which this country, as well as the official Cyprus Republic, has pitilessly ignored.
The northern part of Cyprus, which has been referred to and which comprises between 37 and 40 per cent. of the island, has been subjected to much worse than discrimination by the south. For a régime which claims responsibility for all the inhabitants to set out deliberately to make life so difficult as to be impossible for a large section of the population for which it is responsible is, to my mind, quite shocking. The result is that the north, in comparison with the south, as has already been mentioned, is very poor. Admittedly part of the reason for its poverty is that the north has had to keep a large military presence to defend itself against the south, but it was the conduct of the régime which brought upon itself the advent of the Turkish troops.
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Whatever the legal niceties of the situation in Cyprus, the reality is that constitutionally Cyprus is divided into two parts—one predominantly Greek, and the other predominantly Turkish. Cyprus is one island containing two peoples, speaking two different languages, having two different religions, two different cultures, two different social systems, I believe, and separate education systems. They are two separate entities.
The constitution recognised that. What the constitution did not do was to implement the reality on the ground. But to a large extent the Cypriots themselves have since implemented it by population movements out of the southern half of the island and also from the north to the south. I think that on both sides there was great cost in loss of property. The tragedy is that the two partners could have existed together peacefully but for the outside interference, first by the Greeks and then by the Turks, not to mention the guerrilla activities of one Grivas. I merely observe that whenever the Greeks try the Turks too sorely, they get the worst of it in the end.
The question is: what should be done now? The obvious course is to renegotiate the treaties, as the noble Lord, Lord Cledwyn of Penrhos, has indicated, and to have talks. Possibly the constitution should be changed to that of a federation. This, I believe, is what Mr. Denktash has been advocating and working towards. I found it astonishing that this morning the Cyprus High Commissioner claimed on the BBC news that the Cypriot Government had been in favour of this; but it is good to know that they are now.
The second course could be to approve, or at least reluctantly to accept, the secession, perhaps in the hope that the two sides will come together again in the not too distant future, when their positions are much more equal. The snag about this is that it might mean that one side would be lost from the Commonwealth. The Commonwealth is not an alignment. It contains millions of Christians and Moslems. So perhaps the island is itself in some way typical of the members of the Commonwealth. I hope that they will both remain.
The third possibility is to reaffirm the existing treaties and to go back to the Zurich constitution. That is not so preposterous as it sounds, though it would be very difficult. The fact that the Greeks and Turkish Cypriots are no longer living cheek by jowl should in the main make it easier than it used to be when they were. This could be a fresh start, given the will.
The fourth possibility is to renegotiate the constitution so as to provide for a cantonal system rather than a federation of two states. The one thing not to do, I submit, is to try to force the Turkish Cypriots to adopt any particular system, or to say to them, here and now, "You and you alone are in breach of the constitution and the treaties; and we shall have nothing to do with you until you submit to the régime"—what I believe to be the illegal régime—which at present exists in Cyprus". I do not think that that would be at all tenable.
During the debates in the Commons on the Zurich settlement, the late Lord Boyd of Merton called for a policy of partnership and communal autonomy. I believe that unless that can be achieved, the future for Cyprus is dim. May I just say to all concerned that

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there are plenty of olive branches available in Cyprus, in Greece, and in Turkey.
Lord Kennet: My Lords, before the noble Lord sits down, will he courteously answer for me one point? He said that the poverty of the Northern Turkish zone in Cyprus was due to the need felt by the Turkish Cypriots to keep a large army. Does he not know that the expenses of the Turkish army in North Cyprus are paid, as to 100 per cent., by Turkey, and, indeed, that the civil administration of North Cyprus is paid, as to 85 per cent., by Turkey?
Lord Drumalbyn: My Lords, I am not certain whether I was aware that the expenses of the civil administration were paid by Turkey. I am not at all certain whether Turkey will go on carrying that liability. I did know that the Turkish troops there are paid for by Turkey.
4.13 p.m.
Lord Brockway: My Lords, my opening sentence must be a welcome to the first speech in your Lordships' House of my noble friend Lord Tonypandy. I have been honoured by friendship with him over many years, from Tonypandy itself to the Houses of Parliament. We were all charmed by his speech and most of us, I think, agreed with his conclusions. His membership adds distinction to this House.
It is eight years since Turkishtroops occupied the north of Cyprus. Then, the Turkish Cypriots were only 18 per cent. of the population. They occupied 40 per cent. of the area of the land. Yesterday, representatives in that area declared it a separate state. They did so in Famagusta. Ten years ago, when I visited Cyprus, Famagusta was almost entirely occupied by Greek Cypriots. With the exception of Turkey and, perhaps, one or two Moslem states, the whole world has denounced the action of those in Northern Cyprus who have declared their area an independent state. It is surely now a test of whether world opinion can change what has happened. In another place yesterday the Foreign Secretary stated the Government's proposals: a resolution at the Security Council urging all nations not to recognise the new, declared state; and renewed talks with Greece and Turkey who, with us, were guarantors of the territorial integrity and independence of Cyprus.
I want to suggest that in view of the enormity of the action which has been taken, those proposals by the Government are inadequate. The key to the situation is Turkey. It gave what The Times this morning describes as grudging recognition to the new state. It has a new civilian Government. I want to suggest to this House this afternoon that pressure upon it could change the whole situation—pressure, first, by the declaration of the United Nations almost isolating it in the world; pressure, secondly, by the fact that the West, and in particular America, gives it so much military and economic aid; and pressure, thirdly, through its membership of the EEC and NATO. From all those three sources, enormous pressure could be brought to bear upon the Turkish Government to change its attitude of recognition of the new independent state.
If this radical denial of international law is not altered, there could be in the background the
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possibility of economic sanctions both against Turkey itself and against the new independent state. The Government have suggested in view of this situation that they should renew, very belatedly, their talks with Greece and Turkey. I believe that after the kind of pressure which I have suggested—pressure from not only the United Nations, but also the West and, in particular, America, the EEC and NATO—such talks might he of value. We could then urge the Turkish Government, who are so much dependent upon assistance from the world, to withdraw their recognition and to withdraw their troops (totalling more than 10,000) which are now in Northern Turkey. If that situation were reached, then the inter-community talks could be resumed under the guidance of the Secretary-General of the United Nations; and one might move to a solution of this problem.
4.20 p.m.
Lord Maybray-King: My Lords, as one old friend, I find a particularly peculiar and rich pleasure in expressing my congratulations to the noble Viscount, Lord Tonypandy, for his excellent maiden speech today. He has served democracy in another place wonderfully and he now begins, I hope, to serve democracy again in the House of Lords.
I am glad that the noble Lord, Lord Spens, has again raised the grave problems of Cyprus in the debate which he has initiated today, although his speech has made me very sad. I found it impossible to recognise in his speech the situation as described by the noble Lord, Lord Brockway. In February 1980 many noble Lords, of whom I was one, spoke on Cyprus. It would be wrong for me to make the same speech today as I did then or the speech that I made on Cyprus in 1978 or even in 1975. But very little has changed during those years. The same problems remain and the last two days have sharpened almost every issue in those problems.
For years after the noble Lord, Lord Caradon, had admirably governed Cyprus on our behalf, some Greek Cypriots, among them Archbishop Makarios, pursued a will-o'-the-wisp which they called Enosis, unity. I believe in unity and I believe in the unity of Cyprus but the Greeks at that time by Enosis meant the unity of Cyprus with Greece; and as a considerable minority of Cypriots are Turkish Cypriots, Enosis could never have happened with the consent of Turkey. But most Greeks, including Makarios himself, learnt the folly of that conception. A good constitution was created, with Makarios as president and with a Turkish Cypriot as vice-president. In those days, when I frequently visited Cyprus, the situation was working—not well: it creaked, and neither side was playing as it should—but left alone I think Cyprus could have become a happy island of Turkish and Greek Cypriots.
Then came tragedy. The fascist colonels in Greece set up a dictatorship and tried to create a diversion by supporting a madman, Sampson, urging him to seize Cyprus as a Greek Cyprus. With a fanatical gang, helped by the Greek colonels, he tried to seize power in Cyprus. The coup was to include the assassination of Makarios: a very grim tribute to the merit of Makarios. Turkey rightly feared—and here for once I

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say a word in favour of Turkey—that a group of Enosis supporters taking command of Cyprus was dangerous to the Turkish Cypriots; and so they occupied a portion of Cyprus. But they are still there all these years later, the army of occupation of Turks.
However, the coup fizzled out; Makarios escaped assassination; and Greece is now a democratic country. The colonels are in gaol; and Turkey, too, is a democratic parliamentary country, these last few days. Both are members of NATO, and it is to be hoped that Turks and Greeks, apart from those in Cyprus, could reach accommodation. But what the Turks and Turkish Cypriots will not accept is that Enosis is dead; that almost all—if not all—the Greek Cypriots want is a unified Cyprus in the peace that Denktash speaks about in his declaration, independent and free—unity without Greece and unity without Turkey.
If Denktash really wants the two peoples to live side by side, as he says he does, the first thing that must happen is that the Turkish army (far more than the 10,000 mentioned by the noble Lord, Lord Brockway) should withdraw its occupation forces. I believe that the new democratic Turkey ought to agree to this. The UDI document of Denktash—and what an ominous term is UDI to those of us who remember Rhodesia!—speaks of 20,000 Turkish Cypriots who were driven from the south into the north. However, it makes no mention of the 100,000 Greek Cypriots who were driven from northern occupied Cyprus into the south—many of them evacuees now cared for by the Cyprus Government, but first living in squalor. I have met many of them. In my own city of Southampton live many Cypriots who have lost everything in the part of Cyprus that was occupied by the Turks.
I mentioned in an earlier debate the victims of the civil war who are reported missing. A month ago I received another delegation of Greek Cypriots. Two of them have brothers who were missing in the violence and they know nothing about them. We have tried for some time to get information from both sides so that those who may have lost somebody at least know whether they are alive or dead.
Greek Cyprus now is flourishing. Turkish Cyprus, with the help of Turkey, is still not flourishing. I believe the two communities could come together and build a very prosperous Cyprus indeed. I hope that nothing will be said in these critical days which will exacerbate the tensions. In the words of Denktash,
"The two peoples of the island are destined to co-exist side by side. We can, and must, find peaceful solutions to all our differences through negotiations on the basis of equality."
I believe that the co-chairmen—Greece, Turkey, Britain and the United Nations (the Security Council)—can really step in now and bring together these dissident bodies. But I believe that, as a first step towards peace, Turkey must withdraw its troops from Cyprus. The world we live in is a world of crisis after crisis, any one of which could start the great explosion we are all afraid of. I believe that here is an opportunity to deal with such an explosive point and to end it honorably and peaceably to both sides. Denktash, the leader of the Turkish Cypriots, and President Kyprianou, can yet become friends.
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Therefore I wish the Government, supported as they are by almost everybody in both Houses, every success in all attempts that they make to contribute to a peaceful solution of the problem that suddenly has become so dramatic.
4.30 p.m.
Lord Newell: My Lords, I should like to add my minuscule congratulations to the noble Viscount. Lord Tonypandy, on his excellent, uncontroversial and beautifully delivered speech. We all hope, I know, to hear him many times again.
I have not visited Cyprus since 1979, when I was very glad to be able to spend a whole week on either side of the island. As many speakers have said, not very much has changed since that time, but yesterday's announcement of the declaration of independence by the Turkish Cypriots is but another page in the turbulent history of the island of Cyprus. As a guarantor power—the only really neutral one, for the Greeks favour the Greek Cypriots and the Turks help the Turkish Cypriots—it is sad to think how seldom we have taken any initiative.
I have to say that I blame the British Government of 1974 for doing nothing at a crucial time in the history of Cyprus. The then Foreign Secretary, Mr. Callaghan, failed to take any positive action whatsoever and it is because of this fact, more than any other, that the present situation has arisen. Although I do not condone the action of the Turkish Cypriot Parliament, I cannot help feeling some sympathy for a group of people who had been so continuously and vindictively ostracized by some Greek Cypriots because of political and racial ideology. I believe that if, as I have suggested on many other occasions, the British Government had shown just a spark of interest in helping both sides, they would almost certainly have reached an agreement long ago.
Lord Cledwyn of Penrhos: My Lords, I am grateful to the noble Lord for giving way, and I apologise for interrupting his speech, but perhaps he would accept, as would the whole House, that the circumstances in Cyprus in 1974 were very different from the circumstances as they are today, and that hindsight is a very easy matter.
Lord Newell: My Lords, hindsight is indeed very easy, but I am afraid it does not alter my opinion. It has been obvious for a long time that Greek and Turk would not agree without a strong chairman in whom both had faith. This was the role that we should and could have played. So there is yet another large question mark now hanging over Cyprus: which nations will support the newly declared state of Northern Cyprus? How will the Islamic nations react? I hope to be in Turkey next week and I shall look forward to hearing the latest news. The new situation will undoubtedly anger the Greek Cypriots but it was, in my opinion, inevitable, and in many ways it changes nothing. I repeat, in many ways it changes nothing. Perhaps there will be a little bit of change, because if the Turkish Cypriots can receive some support from outside, they may be able to rebuild their slender economy. Meanwhile, the Turkish Cypriots owe it to their friends to continue a positive attitude towards

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peace between the two sides in Cyprus. When they are stronger, they will, I am sure, want to continue negotiations for a joint overall administration of their island.
However, I am not here to adjudicate over the rights and wrongs of one side or the other but to raise one important issue which is so very vital to the future of individuals in Cyprus—individuals who will one day either benefit or suffer from the actions of their predecessors. I wish to refer to the need for the teaching of English in schools in Cyprus, which the present situation will in no way change. Since the division of the country, no Cypriot has learned the language of the other half, so the only language of communication between Cypriots on either side of the Green Line is English. Everyone wants stronger links between the two sides and with ourselves. Eventually federation may come about, but English is essential as a common language.
The standard of English teaching in Northern Cyprus has fallen and is falling to a disastrous level, and this fact is acknowledged by all concerned. The United Kingdom spent only £381,000 on educational development in Cyprus, with £136,000 going, as a proportion of the population, to the Turkish side. But because of a lack of good teachers of English the money is not being used in the best way. There is, indeed, a fee support scheme which is available to all eligible students from Cyprus, but without good English many Cypriots cannot possibly apply unless they have managed to live over here and pick up the English language.
Surely there is an organization which could help the teacher training college in Northern Cyprus, which is pathetically inadequate for its purpose. Are the Government able to point a way to finding a group who might be able to help in teaching teachers to teach English? We still have some obligations to all Cypriots and we owe it to them to ensure that they at least have a proper ability to speak English. The fee support scheme is likely to benefit many more Greek Cypriots than Turkish Cypriots, although I know that all Cypriots start with an equal chance in the eyes of the Foreign Office. But inevitably it is not enough to cover the costs, and the poorer Turkish Cypriots have greater difficulties.
The real need is for support for the teacher training college in Northern Cyprus—a totally unpolitical establishment where so much needs to be done. We must consider people as people and not just as the end product of their political masters. The Government have many reasons for disliking yesterday's events, but I hope they will find ways of increasing the teaching of English in Cyprus, especially in the North.
4.37 p.m.
Baroness Jeger: My Lords, I am very glad to follow the noble Lord, Lord Newall, because I share his dismay about the falling-off in the teaching of English in Cyprus, which means that the two communities cannot talk to each other. If people cannot talk to each other, what hope is there for the future? We are all indebted to the noble Lord, Lord Spens, for bringing this subject forward for debate today. I have always known that he is very close to Denktash, but I never knew that he was so close that Denktash would fix his
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announcement for the day before the noble Lord's debate was due to he held in this House.
The noble Lord said that we must go back to the time before 1974.Some people believe that the troubles began only then. I know more history than does the noble Lord. I believe that we should go back to 1581, when, with the explosion of the Ottoman Empire, the Turks invaded Cyprus and have stayed there ever since. We might even go back to 1191 when King Richard Coeur de Lion gave Cyprus to Berengaria as a wedding present. We have been involved with this beautiful, tormented island for a very long time. I was sorry that the noble Lord, Lord Spens, spoke in such disparate tones about the Turkish and Greek Cypriots. I have been to Cyprus very many times. I would say, as Othello said when he was asked about his experience in Cyprus:
"I have found much love among them".
I have friends in all parts of Cyprus, both Turkish and Greek. I have friends in both communities, not only in Cyprus but in Camden Town as well. I remember the time when Denktash, Kyprianou and Clerides were young law students in London. We could eat, drink and talk together. The artificiality of the present divide seems to me to be an unnecessary wickedness. I had the honour to be present in 1960 at the Ledra Palace Hotel for the departure speech of the then Sir Hugh Foot, now Lord Caradon. The independence of Cyprus was being celebrated. On one side of Sir Hugh Foot sat Dr. Kucuk for the Turkish community and on the other side Archbishop Makarios for the Greek community. Our hopes were high that the constitution for which we had taken the main responsibility would be imposed. I do not know why those hopes have been dashed in that disastrous way. If there was time, I could explore some of the experiences and some of the things which have happened, but this is a short debate.
I will only say that I am most anxious that today no noble Lord will take for granted that there has to he divisiveness between the Turks and the Greeks. I am a member of a body called the Friends of Cyprus. We have arranged conferences in London for Turkish Cypriots and Greek Cypriots, who come here for discussions. We have held such conferences for architects, engineers and journalists. Is it not a shame that they have to come all the way to London to talk to each other because they cannot do so at home?
When one gets down to human relationships, one does feel that there is hope. We are talking about a tiny island. If the noble Viscount, Lord Tonypandy, whose interest I very much appreciate, will forgive me, it is an island only half the size of Wales. It is nonsense to talk about partition, and the announcement made yesterday does mean partition. That partition—the separateness of northern Cyprus can only work if that area becomes a colony of Turkey, as it exists only because of the thousands of Turkish soldiers who are there still.
The noble Lord, Lord Spens, referred to the American intervention in Grenada. I hope that the American soldiers there will soon be able to go home. But we are 10 years on in Cyprus, yet the Turkish army is there still. When we hear that the Turkish so-called parliament in the north of Cyprus is in favour of yesterday's declaration, I must remind your Lordships that every Turkish soldier in northern

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Cyprus had a vote for that poll. And every imported mainland Turk from Anatolia or wherever also had a vote. There is a deliberate attempt to destabilise the demography of Cyprus. If we could persuade the Turkish Government—and I have high hopes of the new Turkish Government—to get the army out and allow Turkish Cypriots (among whom I have many friends) to say what they want, then we might get a very different answer.
I hope very much that in the discussions about Turkey's closer association with the EEC, this situation will be a factor. If the word "Community" means anything, it cannot mean that one member of the Community invades and keeps troopson the soil of another. And if "Commonwealth" means anything, it cannot mean that we allow that situation to continue. I am very worried about the atmosphere in which many young Cypriots are growing up. When I go there, I try to talk to them about what has been said by United Nations and about the resolutions which have been passed. But their answer is, "So what?". I deplore that mood of cynicism, but I understand it. If we allow a situation to develop in which there is no follow up to all the resolutions and statements, then it does undermine the authority of United Nations.
Then there is the question of NATO. I can think of nothing better for NATO than for Greece and Turkey to work in harmony together. I have heard it said since yesterday that we might as well write off the 1960 treaties to which we were guarantors. I may remind your Lordships that it was under the 1960 agreements that British sovereign bases were established in Cyprus. If we are to tear up the 1960 agreements then we have to ask ourselves the question: what about the agreements regarding the bases, which were an integral part of those agreements?
I have said that partition is not viable in that little country. For instance, most of Nicosia—the Greek part—gets its water from Morphou, which is in Turkish hands. Famagusta, which is in Turkish hands, depends on Larnaca for its sewerage. There are areas of Cyprus, such as the central plain, where the wheat grows. In the north, there is fruit. In the south there are the factories which make clothes. This needs to be one united country, and there is no reason why it should not be. The Government made their views known speedily, and I am very glad about that.
I will raise just one further point which I should like the noble Lord the Minister to answer. I should like to know what consultations are being held in the United States of America about that which has happened. We know of United States' anxiety in the Middle East, and this seems to me to be a tinder box in the unstable situation in the Middle East. Will the United States continue exporting arms to Turkey? What assistance are Her Majesty's Government giving in economic aid to Turkey? Is there any way in which the Government, in discussing the position of Turkey in the EEC, can bring these points to bear?
I must finish by reminding this House of Resolution 3395 of United Nations, which urged upon all the powers concerned:
"To undertake urgent measures to facilitate the voluntary return of all refugees to their homes in safety".
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That must still be our objective, and I hope that it is still the objective of Her Majesty's Government.
4.47 p.m.
Lord Energlyn: My Lords, this will unquestionably be an historic debate recorded in Hansard for two reasons. First, because of the maiden speech of the noble Viscount, Lord Tonypandy. Secondly, because of the declaration of independence of Mr. Denktash. For me personally, this history will be warm because of the noble Viscount's maiden speech, if I may be so bold as to say that.
Any geologist who is interested in the earth's interior is fully acquainted with Cyprus because it is the most important island geologically for those who study the earth's interior. In a previous debate on Cyprus I advocated the idea of putting down a bore hole to tap the hot rocks of Cyprus to create a geothermal power station whose power could be used for the mutual benefit of Greeks and Turks alike. The small island needs for its buoyant economy more water and more cheap electricity.
That idea was received with considerable favour by the Turkish Cypriots but I received no response whatever from the Greek Cypriots. That was my first experience of the lack of interest of the Greek Cypriots in the welfare of the Turkish Cypriots. Therefore, I am a little sad to find that the Government and many of your Lordships have tended to over-react to this precipitate act of Mr. Denktash. I tend to follow the noble Lord, Lord Drumalbyn, who said that this could be a fresh start. If it does no more than clarify the situation, it will make both sides face reality.
The reality is that for the past nine years there have been two separate communities. What is important and touching to me is that they are two communities who have lived side by side, divided by an artificial line, and there has been no bloodshed. I am not prepared to adjudicate as to who is responsible for that, but the fact is that they have lived side by side without bloodshed.
I therefore turn to the reasons why there have to be two separate communities, and. for brevity, these reasons are very clearly set out in the declaration announced yesterday. I quote:
"The bi-national character of the legislative assembly of the partnership state has been abrogated by force and armed violence. The right to elect and to be elected to this Assembly has been under the de facto monopoly of the Greek Cypriots for the last 20 years. The executive organ of the so-called Republic of Cyprus has also come under the monopoly of the Greek Cypriots. The joint exercise of executive, the power by the elected leaders of both communities has been abolished by brute force in 1963. For 20 years ministerial seats belonging to Turkish Cypriots have been unlawfully occupied by Greek Cypriots".
It goes on in that vein, until ultimately one must reach the conclusion that undue pressure has been brought to bear on the Turkish Cypriots and this has resulted in their having no real say in the Government of Cyprus. That seems clearly to indicate why they gradually parted, and now we have concentrations of Greeks and Turks in the two parts of Cyprus. That dramatic situation with the so-called invasion by the Turkish army has resulted in two communities, who have managed to live without bloodshed side by side.

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But when we come to examine the economy of both of these areas I think it is as well to look at some of the facts. The noble Lord, Lord Kennet, mentioned the fact that the Turkish Army is paid for by Turkey. Yes, it is. He should also have gone on to say that the Turkish Government introduced subsidies into the economy of the northern area of Cyprus, which is true. But when you come to look at what happens in the southern half of Cyprus—which is buoyant, and, as the noble Lord, Lord Maybray-King, pointed out, very buoyant as compared with the north—there is a very simple explanation; that because the southern half of Cyprus is the recognised Government of Cyprus it receives all foreign aid and none of it goes to northern Cyprus. A fifth of' the cash flow of southern Cyprus is foreign aid. This is all denied to the Turkish Cypriots. So that their entitlement is something to which one should give serious consideration.
Be that as it may, we then look at the activities of the Greek Cypriots. Because they are the state they can impose laws which cover the whole island. So consequently no airline is permitted by the Greek Cypriot Government to fly into any aerodrome north of the line. So the tourist industry is completely denied air transport. The Turkish Cypriots on five occasions contracted with an airline to fly produce in and out of northern Cyprus. They were only allowed to come in once, and they were threatened by the Cyprus Government that their licences would be withdrawn if they continued this operation. Again, on the question of imports and exports, the Cyprus Government maintained that it was illegal for any ship to import produce into any port that was described as a Turkish Cypriot port. These laws were so vicious that sea captains have been imprisoned. That is true.
A Noble Lord: Of course.
Lord Energlyn: They can do that by law, but the Turkish Cypriots have no reciprocal muscle to respond.
Baroness Jeger: They have got Famagusta, the biggest port in Cyprus.
Lord Energlyn: But, my Lords, they do not imprison ships' captains who happen to come to Famagusta. So it seems to me, trying to be as impartial as I can, that the Greeks have irritated, if that is not too harsh a word, the whole livelihood of the Turks in this manner, because they happen to have the status of government.
So, as the noble Lord, Lord Drumalbyn, says, we come to a point where there is no longer any grey; we now have two straightforward issues; should there be two separate governments or is there a possibility of there being a sensible government established in that island?
Lord Kennet: My Lords, I am obliged to the noble Lord for allowing me to intervene. He has given a very accurate and vivid description of a rather successful blockade by a legal régime against the usurping authority which brought a foreign invading army on to a part of its territory.
Lord Energlyn: My Lords, I take Lord Kennet's point, but we are not talking about two different countries, we are talking about two communities. It is the imposition of the legal muscle of one community upon the other that I am talking about, not two countries. Does the noble Lord concede the point?
So in conclusion, my Lords, I would urge the Government to take a cool look at this, and to look upon this as a refreshing and challenging start of something that can be really constructive in that fabulous island.
4.58 p.m.
The Duke of Portland: My Lords, I have been advised that it is desirable that I should mention the following for the record. In July 1923, I was Secretary to the British Delegation at the Lausanne Conference. We were about to sign the Treaty which we had finished—it dragged on for several months—when Ismet Pasha, and later Inönü, put forward a demand for a clause to be included that if we ever gave up Cyprus, or left Cyprus, we would hand it back to Turkey. We had held it before the First War as a sort of protectorate, but the Ottoman Empire never abandoned sovereignty.
Sir Horace Rumbold, who was the chief delegate, almost had an apoplectic fit with rage at the prospect of having to remain on in Lausanne and sent back a message that we would never give up Cyprus, which was vital to our interests, and he hoped that the matter would not be pressed. He refused to put anything in writing. I thought I would mention this, my Lords, just for the record.
5 p.m.
Lord Banks: My Lords, perhaps I can begin by saying to the noble Lord, Lord Energlyn, that he ought to consider the conduct of the Greek Cypriot Government in Cyprus by looking at it from their point of view: namely, that they see within their territory what they regard as a rebel Government maintained by the armed forces of a foreign power. I think any Government in that situation is bound to act in the way he mentioned against what they consider to be a rebel Government.
I join in thanking the noble Lord, Lord Spens, for raising this important matter once again and for doing so at such an appropriate time. The debate has been overshadowed by the action of the Turkish Cypriot estate yesterday in declaring independence. As my noble friend Lord Kennet made clear earlier, we on these Benches, like so many others in other parts of the House, deplore that action. We feel that it must make a solution more difficult even though the Turkish Cypriots say that they still want a federal state and still want to talk with the other community.
The basis of the 1960 settlement was that there should be no union with Greece, that there should be no partition of Cyprus, and that Cyprus should be united and independent. Of course, as we have been reminded by many noble Lords, our own Government is a guarantor of that settlement with Greece and Turkey. The invasion of Cyprus by Turkish troops in 1974 and the division into two virtually separate states—one legally recognised throughout most of the world and the other not—was clearly a breach of that

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settlement, whatever the Turkish Cypriot grievances may have been, and I readily concede to the noble Lord, Lord Spens, that the Turkish Cypriots had genuine grievances. But there was always the hope—
Lord Drumalbyn: My Lords, I was about to intervene but realised that the noble Lord had said Turkish Cypriots. I beg his pardon.
Lord Banks: Yes, my Lords, I think there have been grievances on both sides and I would not for one moment seek to deny that. There was always the hope that agreement between the two communities would end that breach and in February 1977 President Makarios, as he then was, and Mr. Denktash agreed certain guidelines: Cyprus should be independent, non-aligned, bi-communal and a federal republic.
There were, of course, serious problems over the question of the area which each zone was to occupy. At present we know that 36 to 37 per cent. is occupied by the Turkish state although the Turkish population is about 18 per cent. There were problems over representation in the institutions of the proposed federation. But I think that more fundamental than those was the difficulty over interpreting the phrase "bi-communal". Was there to be a single Government with two regions, each with a certain amount of autonomy, as the Greek Cypriots wanted, or were there to be virtually two separate states linked by a kind of co-ordinating machinery, as the Turkish Cypriots wanted? In plans put forward by the Turkish Cypriots there would have been two armed forces and no single commander. There would be no commander of both forces but merely a system of liaison. That fundamental difference was argued about year after year and, as the noble Lord, Lord Maybray-King, reminded us, in our debates in 1976, 1978, 1979 and 1980 in this House we had to admit that there had been no progress.
Recently a new initiative was taken by the Secretary-General who went further than his predecessors in assessing the possibilities for discussion by fixing maximum and minimum parameters within which the discussion might take place. For example, there was to he either a Greek Cypriot President and Turkish Cypriot Vice-President, with a division of 60–40 in favour of the Greeks in the federal executive, or the Greeks and the Turks were to alternate the presidency, with the membership of the executive being 70–30 in favour of the Greeks. The lower House was to be elected by proportional representation or there was to be a 70–30 representation of the communities in favour of the Greeks in that body. As regards area, the Turks were to have either a minimum of 23 per cent. or a maximum of 30 per cent.—somewhere between those limits—instead of the present 36 per cent.
What I suppose we must ask ourselves today is whether this new initiative, put forward as recently as August, has been brought to an end by the action which took place yesterday. It is true, of course, as the noble Lord, Lord Spens, said, that the Turkish Cypriots are merely seeking to legitimise the status quo. Nevertheless, that very act, if it could be brought about, would produce legal and political consequences
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of considerable difficulty. I suppose that, as a number of speakers have said, the differences on the ground will be small.
The Turkish Cypriots say that they still want a federal state, but one wonders whether any federal state that could possibly be acceptable to the Greek Cypriots can be achieved starting from the base we now have of two entirely and virtually separate states within the island. Are we not back to the old question of whether there are to be two states or one? Of course, events on the island are inevitably influenced by Greek/Turkish relations and Mr. Papandreou, the Prime Minister of Greece, has recently underlined the difficulty of reaching an agreement while the Turkish forces remain on the island.
I ask the noble Lord, Lord Trefgarne, how, in the situation I have described, do the Government see their role as guarantor? Do they feel that, apart from denying recognition to the state which has declared itself independent, no action should be taken against that state? For example, the noble Lord, Lord Brockway, mentioned economic sanctions. I am not advocating that, but I am asking whether the Government have a view on that. Do they feel that the United Nations or the guarantor countries should take action, or should the Government seek to get them to take action, in any way against the Turkish state? Do the Government feel that having deplored the action and having denied recognition their main function must be to get both communities talking again, in spite of almost insuperable difficulties, on the Churchillian ground that. "Jaw, jaw is better than war, war"?
There is no doubt that a happier state of relations between Greece and Turkey, while it would not solve the problem, would greatly assist. Is there a case for a wider conference, including the guarantor countries as well as the two communities, perhaps under the auspices of the United Nations? That was suggested by the noble Lord, Lord Cledwyn of Penrhos, and by the noble Viscount, Lord Tonypandy, in a maiden speech which we much appreciated. One thing is clear. While Turkish troops remain in Cyprus we cannot expect the matter to be solved by the communities alone.
5.9 p.m.
Lord Trefgarne: My Lords, when the noble Lord, Lord Spens, was successful in the ballot and elected to debate the question of Cyprus I am sure that neither he nor any of your Lordships realised how timely such a debate would be. Obviously your Lordships will expect me to devote much of my speech to yesterday's news of a purported declaration of independence by the Turkish Cypriot community. Nevertheless, I think it right to begin by setting yesterday's events in a broader perspective.
Before doing so, may I add my words of appreciation to the noble Viscount, Lord Tonypandy, for his maiden speech, which has so much enhanced and decorated our debate today. I hope that we shall hear the noble Viscount again very soon and often thereafter.
Cyprus was last debated by your Lordships on 20th April, when my noble friend Lord Belstead explained the Government's view of the Cyprus problem at that time. The debate came at a crucial point, just before

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the debate on Cyprus in the United Nations General Assembly in May. My noble friend, in looking forward to that debate, appealed to the parties involved to ask themselves whether their actions would bring a Cyprus settlement any nearer or would push it further away. Subsequent events have shown how justified were my noble friend's fears. The United Nations debate came and went. It did not bring a settlement any closer. I still hope, despite yesterday's events, that we shall not in future see that debate as having pushed the settlement further away. But the plain fact is that since that debate there has been no further meeting of the two communities. There have also been many other serious developments.
But there was one element in the United Nations resolution which we regarded at the time as extremely positive. Although we abstained on the resolution as a whole, because we believed it would not help the search for a solution to the Cyprus problem, we voted in favour of one particular paragraph, the sixteenth. This paragraph endorsed the publicly declared intention of the United Nations Secretary General, Sr. Perez de Cuellar, to strengthen his personal involvement in the search for a solution to the Cyprus problem. The United Kingdom Permanent Representative, in his explanation of vote at the United Nations, said that, in keeping with our firm support for the Secretary General, we very much welcomed this intention. The Secretary General's personal involvement in the problem represented a ray of hope for a number of reasons. In the first place, Sr. Perez de Cuellar is an international statesman of wide renown. Secondly, he has himself served in Cyprus as Dr. Waldheim's Special Representative, and knows the problems of Cyprus well. Thirdly, it became increasingly clear over the summer that some new impetus was necessary to get inter-communal discussions going again.
In early August, Sr. Perez de Cuellar presented some new ideas to the two communities. The details were confidential. But we understand that he suggested to the two parties a basis on which to concentrate initial discussion in resuming inter-communal negotiations. We understand that this concerned the three important subjects of territory, the legislature and the executive. We believed that this move by the Secretary General presented the two sides with an opportunity to make progress and we urged them to seize it. I am afraid that I am not able to discuss in detail how the two sides reacted to the Secretary General's ideas: their comments were made confidentially to the Secretary General.
I would simply wish to make two points. The first is that, for real progress to be achieved, it was clear that both sides would have to make difficult—perhaps painful—concessions. Whatever the structure and details of a future solution to the Cyprus problem, it has always seemed most unlikely that either side could obtain everything it wants. Secondly, I said that the Secretary General's ideas presented the two sides with an opportunity. It would be over-dramatic to suggest that this was the last opportunity that the two sides will ever have. But, as yesterday's developments underline, the passing years do not make things any easier; rather the reverse. This opportunity was one which should not have been missed.
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As your Lordships will now know, after the United Nations debate Mr. Denktash began to threaten to declare an independent Turkish Cypriot state in Northern Cyprus. The British Government took these threats very seriously both in the summer and when they were renewed in the last few weeks. We made it very clear to Mr. Denktash, and to the Turkish Government, that we were opposed to any such move. We believed that it would make a solution to the Cyprus problem more difficult to find. We told Mr. Denktash that a declaration of independence was in the interests neither of Cyprus as a whole nor of his own community. We told him, and the Turkish Government, quite unequivocally that we would not recognise a purported new state and that a declaration of independence would amount to secession, which would be incompatible with the 1960 treaty arrangements. Most of our major allies agreed with our views and made similar representations.
In our case, diplomatic representations by our Ambassador at Ankara and our High Commissioner at Nicosia were reinforced at a high level. For example, the Turkish Foreign Minister, Mr. Turkmen, was in London in July. My right honourable friend the Secretary of State for Defence visited Ankara last month. My noble friend Lady Young visited Cyprus also last month and spoke personally to Mr. Denktash. Indeed, were she not abroad at present she would, I am certain, have welcomed the opportunity to tell your Lordships about her visit. On all these occasions we made very clear to the Turkish Cypriot leadership and to the Turkish Government the strength of our views. It is a matter of great regret to us that these representations seem to have had no effect.
During this period we also kept in close touch with the Governments of Greece and Cyprus. President Kyprianou visited London in July and Prime Minister Papandreou of Greece was here last week. Both discussed the Cyprus problem with my right honourable friend the Prime Minister. Indeed, as your Lordships may have seen, President Kyprianou is to come to London again tomorrow and I think will again be discussing matters with my right honourable friend the Prime Minister.
This short survey of the background to yesterday's declaration leads me to the British Government's view of what has occurred. My right honourable friend the Secretary of State for Foreign and Commonwealth Affairs made a statement in answer to a question yesterday in another place. My noble friend Lord Lyell repeated the Statement in your Lordships' House. The Government have made it clear that we deplore this action by the Turkish Cypriot community, particularly as it came at a time when the Secretary General, at Mr. Denktash's suggestion, was preparing the ground for a summit meeting between the two communities. We will not recognise the new state which they claim to have established.
My right honourable friend also explained some of the actions we are already undertaking to deal with what has now happened. My right honourable friend the Prime Minister yesterday sent a message to the President of Turkey urging him to help to secure a reversal of the declaration made by the Turkish Cypriots. My right honourable friend the Foreign and

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Commonwealth Secretary has also sent messages to the Foreign Ministers of Greece and Turkey calling for consultation with ourselves as fellow signatories of the 1960 Treaty of Guarantee. That is the answer to the point raised by the noble Lord, Lord Banks. In addition, as I think noble Lords already know, we are seeking an early meeting of the Security Council and have circulateda draft resolution deploring the move.
I turn now to some of the other points that have been made during the course of the debate. The noble Viscount. Lord Tonypandy, and indeed the noble Lord, Lord Kennet, focused on the role of Turkey and the position of that country in NATO in the light of her activities in Cyprus. I can see that the Turkish Government were under strong pressure to recognise a Turkish Cypriot state but their decision to do so is one that we deeply regret. We hope that it will not be followed by other states. My right honourable friend the Foreign Secretary has today summoned His Excellency the Turkish Ambassador to convey to him our views in this matter.
There are many channels by which our views may be communicated to the Turkish Government, but in NATO (to which several noble Lords have alluded) our primary concern is to counter the Soviet threat. We hope and believe that this concern will be of paramount importance to both Greece and Turkey also. We must not permit the Cyprus dispute to disrupt the co-operation among NATO allies.
As I have said, we much regret Turkey's decision to recognise the so-called state. The next step must be the consultations proposed with the guarantor powers to which I have referred. We shall consider further action in the light of those consultations. We must of course ask whether whatever we do will help to find a solution to the problem or push it further away. Incidentally, I understand that Turkey has indeed agreed to these consultations under certain circumstances and we hope for a formal response from the Greek Government later today.
The noble Baroness, Lady Jeger, asked me about consultations with the United States. We are indeed in close touch with the United States Government. They have shared our dismay at the purported declaration of independence and share our desire to see a solution to this problem.
The noble Lord, Lord Cledwyn of Penrhos, in his earlier remarks expressed understandable concern—which I share—over the safety of British residents in Cyprus, but I am happy to say that we have no reason to believe that these developments present any direct threat to British citizens in the island. We are, of course, watching the situation very carefully. Indeed, as my noble friend Lord Lyell said yesterday, there are about 200 British subjects in Northern Cyprus. We also share, of course, with the noble Viscount, Lord Tonypandy, sympathy for the Cypriot populations, Greek and Turkish. Undoubtedly, as the noble Lord, Lord Kennet, said, there have been many cases of suffering and ill-treatment in the past but clearly the solution to these problems lies in the long-term solution to the Cypriot problem generally.
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My noble friend Lord Newall also made an interesting suggestion about the provision of teacher training, particularly to the Turkish Cypriots. I will ensure that this matter is studied very carefully and followed up as best as may be.
What then of the future? A most important objective must be to attempt to secure the reversal of the action of the Turkish Cypriots. We must also continue to give our firm support to the Secretary-General of the United Nations, who has all along played a key role in the search for a solution to the Cyprus problem. We are in close touch with him and we stand ready to do anything which he considers might help. At the same time, however, we wish to discourage any action which will lead to a deterioration of the situation on the ground in Cyprus. The last few days have been sad ones for the island, but we remain convinced that a solution can and must be found. It will be found only when the two communities are prepared to show the will and the flexibility to make the necessary progress.
Our efforts will continue to be devoted towards ensuring that, despite the regrettable events of the last two days, a solution will still be found to the problems which have bedevilled the lives of the two communities in Cyprus for far too long.
5.21 p.m.
Lord Spens: My Lords, I think I have 20 minutes of your Lordships' time and I could spend that time in answering in detail the various speeches which have been made. I do not propose to do that. All I want to do is to thank all the speakers for their contributions. I think what we have heard today has been, and will be, very useful.
There is only one little thing I am sorry about. That is Lord Trefgarne's last statement that the British Government are going to try to seek to reverse the situation that happened yesterday. I do not believe that they will be able to do it and I think they will be wasting their time. What is much more important is using that situation to bring the two sides together, and I am quite certain that the Turkish Cypriots are willing to negotiate on the basis of the partnership which they have now established, by creating this separate state.
May I quote just two or three extracts from the part of the declaration which I was given yesterday:
"The Proclamation of the new State will not hinder but facilitate the establishment of a genuine federation. The new Republic will not unite with any other State. The new State will continue to adhere to the treaties of establishment guaranteeing alliance. The good offices of the United Nations Secretary-General and negotiations must continue.".
I am quite certain that that is what the Turkish Cypriots want to happen. They do not want to become part of Turkey. They want to remain in Cyprus, but they want to remain as their own separate community in Cyprus dealing with their neighbours, the Greeks, with as much friendliness as is possible between the two. I wish them all the goodwill in the world in their endeavours for something like that to be brought about. My Lords, I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Employment Measures and Inflation
5.24 p.m.
Lord Jacques Lord Jacques rose to call attention to the necessity of reducing unemployment without increasing inflation; and to move for Papers.
The noble Lord said: My Lords, I look forward to the debate with some pleasure and especially to the maiden speech of my noble friend Lord Dean of Beswick. The Family Expenditure Survey shows that whereas in 1971 there were 11½ million people living on the margins of poverty, by 1981 that number had increased to 15 million. The greatest increase was in those families where the head of the household was unemployed. There is also little evidence that the benefits that are paid to the unemployed act as a disincentive in their seeking work. Fifty-nine per cent. of the men who have been out of work for more than a year are receiving benefits which are less than one half of the wages that they received when they were last in work. Those who are receiving a greater proportion of benefits are doing so because they were receiving exceptionally low wages.
The poverty caused by unemployment is only one aspect. The demoralisation is probably more important, especially for the young—for the school-leaver who is ready to join the adult world and finds there is no place for him. He has little incentive to obey the rules of the society which cannot find a place for him and he has plenty of time in which to break those rules. That is a danger. Unemployment is demoralising even among the adult population. The great bulk of our men and women want to go to work. They regard the benefits they are receiving as handouts and do not like living on handouts; and many of them feel rejected by our society.
Even on the fringe where you have the idle, they are also demoralised because they are encouraged to be idle. I claim that all unemployment, regardless of the circumstances, is demoralising.
We cannot solve this problem by the application of Victorian prescriptions. Our economy is quite different from that of the nineteenth century. First of all, there is a much greater willingness on the part of the public to take responsibility. Consequently, there is far greater public investment and public expenditure. What is equally important is that both sides of industry are now organised in a way in which they were not organised in the nineteenth century, and without formal agreement they can quite easily synchronise their actions. Consequently, our markets are quite different. We have no laissez-faire markets. In all our markets there are institutions which have got enormous market power. Those are the new circumstances and it is no use applying pre-Keynesian economics to those circumstances. If we are going to solve this problem we shall need post-Keynesian economics and not pre-Keynesian economics.
I believe that in the long run, if we are ever going to get full employment and maintain it, we must have quite different industrial relations from those which we have now. We need industrial relations in which the worker is not regarded as a worker but as a partner in the business. I believe that the Japanese in our midst are demonstrating what our Government should be
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sponsoring. In the words of the general secretary of the TUC in Wales, the Japanese inform the workforce, they consult with them and they regard them as partners in the business, not just as servants. They do not take the attitude that they themselves are the bosses. They seek not to offend. They avoid threats and laying blame. They try to carry people along with them. Because of that they are able to achieve things which many employers cannot. For example, there are very tough terms for lateness and for absenteeism.
The Japanese get complete flexibility in the workforce by agreement with the workers, and because they treat workers as responsible people, they get a responsible response. In one agreement between the electricians' union and the Toshiba company, there is a provision that, should there be a difference between the union and the company, it will be referred to an independent arbitrator, that both sides will represent their case and that the arbitrator will make an award either to the company or to the union. There is no compromise and both parties agree to accept the result. That is the kind of industrial relations that is needed if we are going to have full employment and to maintain it. With that kind of arbitration, you get a responsibility that you do not get in the ordinary course of events. Neither side can afford to make extravagant claims or counter-claims because the arbitrator will make his award to the other party. It brings a new discipline into industrial relations. That is what is needed if we are ever to have full employment.
I should also emphasise that we need to have full employment. It should always be remembered that Beveridge made his calculations about the welfare state on the basis of 2½ to 3 per cent. unemployment, not on the present figure of 12 to 13 per cent. We are being carried along at the moment by North Sea oil taxation. When that oil dries up, we shall have great difficulty in maintaining our welfare state unless there is full employment with people paying taxes instead of drawing benefits. We have gradually to prepare for that situation. In the meantime, there are things that the Government ought to do. Both sides of industry—not just one side—are pleading with the Government for actions that are needed to prevent a continued increase in unemployment. First, the most elementary step is that the insurance surcharge should go. That is a tax on employment. It was all right when we had full employment, but it is no longer tenable.
Secondly, we are a nation endowed with rich deposits of energy—our coal and now North Sea oil. We know how to use the raw materials of energy because of long experience. We are in a very advantageous position. We also have industries that use a great deal of energy, for example, paper, chemicals and glass. In the case of glass, energy costs are 23 per cent. of the total. They are very important costs. If we are endowed with this great resource of energy, we could use it to make our industries more competitive. Instead, we find that our industries, which are heavy users of energy, are failing to compete, especially with European countries. This is because, in some cases, competitors are getting energy cheaper, even though those countries have not been endowed, as we are, with plentiful supplies.
The Government are giving too much attention to the immediate effects of the public sector borrowing

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requirement. It would be better, in the interests not merely of the unemployed but of the whole country, to take a longer view and to make those industries more competitive. Because of the multiplying effect, there would eventually be more people paying taxes and fewer people drawing benefit. The PSBR would be enhanced to a far greater extent than if we take a narrow and immediate view.
Thirdly, there is the issue of interest rates. If we are to solve our unemployment problem, the sooner we realise that we have to invest in this country on a far greater scale than for many years, the better. We know, like the Government, what has to be done to get interest rates down. We have to control the exchange rate. It is important to control the exchange rate and not to facilitate investment in Japan and the United States. We have to encourage employment in this country. These are things that can be done without greatly increasing inflation. There are public works that ought to be done. We are behind with them: they need doing. It is known that we shall have to do them sooner or later. To do those public works now would mean, at the very least, that we have a huge discount through saving on unemployment benefit. Every businessman knows that, when you have a substantial discount, that is the time to buy.
The multiplying effect of a moderate investment of the kind I have described would increase considerably the number of people paying taxes and reduce greatly the number receiving benefit. I remind the Government that they are in a better position than any postwar Government to deal with Britain's problems. The Governments of the 1970s had to bear the consequences of importing the hardware to enable the oil to be produced. Paying for the hardware led to balance-of-payments problems. Let there be no mistake. Many of the balance-of-payments problems of the Governments of the 1970s were incurred to enable oil to be produced in the 1980s.
The Government now are in a much more favourable position. The oil is now flowing. The balance of payments is protected rather than jeopardised, as it was in the 1970s by the import of hardware to produce oil. Furthermore, the Government have a huge income in taxation from oil. No Government in the post-war period have had those facilities to help in dealing with the problems of our country.
What are we doing with this bonanza? We are using the money to keep people unemployed instead of using it to employ them. If we continue in this manner, when the oil dries up, we shall have only one thing to show for that bonanza—an airport in the Falklands that is under-used. My Lords, I beg to move for papers.
5.40 p.m.
Lord Rochester: My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Jacques, for having introduced this Motion. It will not be possible for anyone on these Benches to speak after the noble Lord, Lord Dean of Beswick, has made his maiden speech, and so I should like to say how much we are looking forward to hearing him.
I want to compliment the Government on their achievement in reducing the rate of inflation, even
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though it has been done at a cost in terms of increased unemployment, in particular among young people, which in my view is no longer tolerable. Indeed, I wonder whether the House is fully aware of how the composition of unemployment continues to worsen. In the first place, more than one in three of those on the register have been unemployed for more than a year, and that proportion is rising all the time. As the Economist pointed out two weeks ago, in the last three years it has in fact doubled. That is bad enough, but even worse is the fact that about one in four of the long-term unemployed are aged under 25.
Of the few Government schemes available to the 1,200,000 people who have been out of work for more than 12 months, I suppose that the most significant is the community programmed, which is providing temporary employment for only about one in 10 of them. It is reasonable to suppose that the great majority of all these people are unskilled, and as recent research by the Policy Studies Institute has shown, the longer particular individuals are out of work the less likely they are to find jobs and the more rusty become such skills as they possess. The social cost of this sustained unemployment in terms of crime, physical and mental sickness, and the general demoralisation—to which the noble Lord, Lord Jacques, has already referred—may not be quantifiable. However, I fear that its long-term consequences could nevertheless prove catastrophic.
I am a strong supporter of the youth training scheme, which is struggling to provide school-leavers with certain basic skills. But increasingly the heart of the problem is shifting to those aged between 18 and 25. At this stage I should like to ask the noble Lord, Lord Cockfield, a specific question: What plans do the Government have to follow up the youth training scheme in 1984, and to cope with the increasing proportion of unemployed people who are aged under 25 and who have been out of work for more than a year? In this connection I suggest that it might be preferable—and I look for no answer on this point this afternoon—to alter the conditions of the young workers' scheme so that it no longer competes with the youth training scheme, but applies only to those who have left the YTS and are looking for a permanent job.
Although today he made little or no reference to the point, the noble Lord, Lord Jacques, has consistently advocated in this House an incomes policy as a means by which unemployment can be reduced without increasing inflation. The noble Lord knows that for my part I have often joined with him in arguing that there is need for consultation between Government, employers and unions, aimed at securing the widest possible understanding and acceptance of the overall increase in incomes which at periodic intervals the country can afford. The noble Lord, Lord Cockfield, does not see it that way, and I am realistic enough to recognise that for the next four years at least no progress is likely to be made on those lines, although I am fearful about what will happen to the Government's pay policy—or the lack of it—if and when recovery is fully under way.
The noble Lord, Lord Jacques, talked about the need for partnership in industry. What I would urge is that, in support of their own desire to ensure that increases in pay are limited to those justified by

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improved productivity, the Government will do all that they can to further the cause of employee participation. This can be done in keeping with the spirit of Section 1 of the Employment Act 1982 (which I was able to play some part in introducing) by encouraging the development of arrangements aimed at increasing the involvement of employees through share schemes and, even more important in my view, achieving a common awareness among managers and other employees of the financial and economic factors affecting the performance of their company. What is more, I should like to see much more being done to promote a clearer understanding among those employed in the public sector—where the Government can give a direct lead—of the relationship between pay, prices, productivity, investment and employment.
Last week the CBI held its annual conference, and I was much impressed by remarks reported to have been made there—and highly relevant to the Motion before us—by the president and the director general of that organisation. Sir Campbell Fraser, a well known supporter of the present Government, observed that the calm acceptance of 3 million people out of work was just not good enough. Sir Terence Beckett expressed the hope that the next Budget would help to increase public investment and said that the structure of the economy was not being maintained intact, but was increasingly shabby and expensive to operate. He added that business was slowly getting better, but that recovery was patchy and there was a possibility that the economy would run out of steam in the second half of next year. He urged the Chancellor of the Exchequer—asthe noble Lord, Lord Jacques, has already done this afternoon—to announce the early removal of the remaining 1 per cent. national insurance surcharge. The earliest opportunity to do that looks like coming tomorrow, and I very much hope that it will be grasped.
Along with the noble Lord, Lord Jacques, I am alarmed by the prospect of general increases in the price of gas and electricity and their effect on inflation and unemployment, and in particular on poor people who have to spend a higher proportion of their income on fuel than do other people. As one who was earlier employed in a part of the chemical industry of which the main business is the production of chlorine, I have good reason to fear the effects of an increase in the price of electricity in that energy-intensive industry where the price which is having to be paid for electricity is still well above that payable by most of this country's European competitors. At this point I should like to ask the noble Lord, Lord Cockfield, another direct question. Are the Government willing to seek some means of sparing industries, such as chemicals, steel and paper, from increases in the price of energy which are bound to damage further their international competitiveness?
In a letter to The Times published on 10th November Sir Terence Beckett wrote:
"What British business needs now is a reduction in those overhead costs which it is not itself responsible for. That is all we are asking the Government to do; the rest we will look after ourselves".
Later in the same letter Sir Terence added:
"total manufacturing employment is still declining, for the record, by nearly 14,000 a month on average. And company liquidations in
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the third quarter of this year, 17 per cent. up on a year earlier, were at the highest ever recorded level".
I hope that the Government will heed those words.
Short of agreed pay determination arrangements, neither we on these Benches nor, indeed, your Lordships' Select Committee on Unemployment, have ever claimed that proposals aimed at reducing unemployment can be introduced without any cost at all. What we do say, and what the unemployment committee recommended, is that carefully selected schemes for increasing employment opportunities should he introduced at a cost that would be well within the margin of error of the public sector borrowing requirement. There cannot be a substantial increase in investment within the private sector until there is a rise in orders and in profits. It can be done only in the public sector, and in my view timing is crucial.
Investment in such industrial necessities as road building and maintenance cannot be delayed indefinitely. If we wait until recovery is in full swing and there is a surge in the demand for labour, the effect will be bound to be inflationary. Why, therefore, do we not start now, while labour, plant capacity and savings are all available? Such essential investment in this country's infrastructure would have over consumer expenditure the great advantage that it would not involve the risk of purchasing power going into imports. It would provide jobs, both skilled and unskilled, in our hard pressed building and construction industries and I suggest that in the private sector generally it would increase the volume of orders, unit costs would fall, and profits and investments would rise.
For my part, I cannot believe that there are not identifiable projects of this kind in the public sector which would provide an adequate return on capital in just the same way as in the private sector. If such a policy continues to be unacceptable to the Government, then, as Mr. Ian MacGregor was advocating only yesterday, surely it should not be beyond the ingenuity of the City of London to select for investment a number of infrastructure projects, harnessing people and resources for the purpose in a way which might eliminate altogether the need for public borrowing.
In all fairness, I have already congratulated the Government on their achievement in reducing the rate of inflation. I beg them now to exploit that success by heeding not only my words, but the advice of many of their own supporters in the front line of industry who, in this matter of investment in the public sector, are imploring them in some way or other to give the country an imaginative lead.
5.52 p.m.
Lord Mancroft: My Lords, we have a wide field to cover and time is at a premium, so I propose to confine myself to one aspect only, and that is the number of illusions about this problem which are hindering our attempt to solve it. The noble Lord, Lord Jacques—and I found very little to disagree with in what he had to say to us drew attention to the fact that it is not only a national problem but also an individual tragedy. I add to that that it is a worldwide

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problem. All manufacturing countries are suffering the same difficulty.
I think we are agreed that it is no good shouting political dogmas at each other and that it is no good trying to solve the problem by soap box catcalls. I think that the last general election proved that we must all try to solve the problem together. I should like to add my words of tribute to those of the noble Lord, Lord Rochester, to the very vigorous attempts of the Government to solve the problem and in no way to minimise the dangers that we face.
However, when we look, on the one hand, at the size of the problem, we look, on the other hand, at the calls for greater modernisation, for greater streamlining of managerial and work force activities, and for the need for greater technology, computerisation and dataprocessing. What does a worker in one of the Rover company factories that are situated around the Midlands, who is about to be thrown out of work, think about that? He says, "You are asking me to support this programme of modernisation; you are asking me to work myself out of a job; you can hardly blame me for not giving it much enthusiastic support". But this is an illusion, and it is a very old one. He is not working himself out of a job by supporting modernisation.
I am happy to see the noble Lord, Lord Sainsbury, in his place. He gives his name to that distinguished firm which last week published a report in which we are informed that after 20 years' hard work at modernisation Sainsbury's have produced 30,000 more jobs. Surely that is a satisfactory answer from a firm of that calibre. The firm goes on to add—and I hasten to add that I do not own any shares in it; this is purely gratuitous—that it is seeking profitability, but a profitability with a social purpose, which is a cliché—perhaps like all clichés—very soundly based.
This illusion is not new. Exactly 500 years ago this year in the great city of Florence in 1483 the wool workers burnt Somerset wool because they thought that its greater workability would put them out of work. It did not; it gave them much more work. The Luddites—the followers of Ned Ludd in the Midlands—in 1815 broke their looms because they thought that this modernisation, this mediaeval computerisation, would put them out of work. It did no such thing. I can only hope that the employees of Rover will realise that if they follow this policy of modernisation, it may help them to put more Rover cars on the roads and fewer Japanese and German ones.
Between the wars, when I was first taking an interest in politics, there was a hideous slander that used to go around that you could not give certain people bathrooms in their houses because they would only keep coals in the bath. I never knew anybody who kept coals in the bath, and I never knew anybody who knew anybody who kept coals in the bath. Perhaps I moved in the wrong social circle!
But today we hear another slander (to which the noble Lord, Lord Jacques, referred), suggesting that people will not look for a job because it is simpler to go on the dole; that you can get nearly as much money with much less work by going on the dole. I have never
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met anybody who actually wanted to stay unemployed and on the dole. I have never met anybody who has met anybody who wanted to do that; but that is something which, if it is true, ought to be put right, and put right soon.
For the past 25 or 30 years I have worked in service industries, and one notes—and other people note it too—the other illusion: why is it that, with 3½ million people unemployed, we find shortages all round in the catering industry? One seldom—if ever—sees an English waiter. When I went to get my train home the other evening from the Parliament Square tube station there was a notice saying that they regretted delay on the Circle line. I asked why and was told that it was due to a shortage of guards and drivers. A puzzle! Have noble Lords ever tried dialling for the Directory Inquiries' service at the weekend when you could not find a telephone number? Have you ever wondered why you cannot get an answer? It is due to shortage of staff. That is an illusion that needs to be put right.
The word "moonlighting" is well known to all of us. I have never actually met a moonlighter, although I read about them all the time. They are called "cowboys"—a sad reflection on the very honourable and hardworking cowboys. However, the other day in a case of tax evasion and avoidance and generally fiddling of VAT which was being heard in Bristol Crown Court, I noticed that the defendent said: "Why shouldn't I? Look what is going on in the City of London. Look at Lloyd's and at the Stock Exchange". That was a little harsh, but it is an illusion that needs putting right. That is not the social welfare to which the annual report of Sainsbury's refers. There is no sense of social purpose there.
I should like to refer to another illusion. Did noble Lords see two or three days ago in the newspapers that London Weekend Television is paying between £60,000and £80,000 a year to some of its employees whose job is to edit football video film? I wonder what the future unemployed workers of Rover think about that. I do not even know what editing football video film involves. I suppose it means cutting out the respectable parts of the play, concentrating on the rioting in the streets of Luxembourg and those terrible pictures when a goal is scored of players jumping about, hugging and kissing each other. If I had done that when I played outside right for my school's second XI, I should have been expelled at once. That is another illusion that needs contradicting.
However, the one that worries me most of all is the size of the golden handshakes which are handed out now and again to those whom the law prevents you from sacking. What do the unemployed workers at Rover think about the size of the golden handshakes? What do they think about the enormous salaries that are paid to some managing directors and chairmen of companies? I am sure that the labourer is worthy of his hire. I know all about taxation; I know that he takes home very little but pays an enormous amount of tax. Many companies include in their reports figures of take-home pay and taxation paid. But how many unemployed workers at Rover actually read company reports?
I hope that this debate will help to dispel some of these illusions which are I think making it difficult for

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us to tackle the problem as sincerely as we should all wish. They may be small points, but they are damaging and I hope that we can put them right.
6 p.m.
Lord Dean of Beswick: My Lords, rising to make a maiden speech in this illustrious Chamber is something of an ordeal, even though one has made numerous speeches in another place along the corridor. First, may I thank noble Lords from all sides of the Chamber for the kindness and consideration they have shown me since I took my seat a fortnight ago. Perhaps I may digress for a few moments from the subject under debate to compliment the noble Viscount, Lord Tonypandy (although unfortunately he has had to leave the Chamber) on his maiden speech. Mine, as your Lordships are aware, is the second one today. I should also like, in complimenting him on his speech, to place on record my appreciation of his services in another place, and for the kind and considerate way he dealt with Back-Benchers like myself. He had no favourites, and both the most powerful in that Chamber and the humblest BackBencher received the same consideration. He left a record there as Speaker that any of his successors will have a job to live up to.
May I also thank the noble Lord, Lord Rochester, for his kind wishes when speaking in this debate earlier; and also the noble Lord, Lord Jacques, for the subject he has introduced for debate. Unemployment is the subject which, if judged in a social context, is the most vital and urgent problem facing us as a nation today. I had the good fortune, when a Member of another place, to obtain an adjournment debate on unemployment in the city of Leeds travel-to-work area. This was on Thursday, 28th April this year. I cite the city of Leeds because it is an area in which my former constituency was included, and also because what happened in that great city, both industrially and commercially, can be applied to the nation as a whole.
It is an area of diverse industry mainly relying on the clothing, engineering and chemical industries for its industrial base. It has an excellent record of industrial relations. It is by no means a high wage area, with normally a below national average number of unemployed in percentage terms. I was able to show, however, despite its record, that between 1979 and 1983 unemployment in Leeds doubled and was equal to the national average at the end of that period. Two of the most alarming features were the increased unemployment among young people and the steady and ominous increase in the long-term unemployed.
Little did I realise, when speaking in that debate in April, that in less than two months I would myself be joining the dole queue. I can tell your Lordships that it is a shattering experience for one who, since leaving school at the age of 14, has never been unemployed. We can debate unemployment in this Chamber today, and we can debate it again; they will debate it in another place, and debate it again. But the trauma of standing among young people at the Job Centres and watching the despair registered on their faces, and the trauma of having middle-aged, highly-skilled people come to you who know they will never work again, is an experience I do not want to repeat. It certainly taught me something about the problem.
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Before becoming involved full time in politics I spent the whole of my working life in Manchester, another great city of the North. The area in which I grew up and learned my trade was the largest engineering centre in Europe just prior to and after the Second World War. Manchester now stands almost deserted in industrial terms. Factory after factory and company after company have gone out of existence despite a first-class record for industrial behaviour, quality of goods and moderate wage settlements. It is a fallacy to blame high wages for this process taking place. It is accepted that in engineering some of the most skilled workers, such as people who manufacture machine tools, were in fact suffering the lowest wage rates.
I see my old friend and colleague, the noble Lord, Lord Lee of Newton, here. During the period I mentioned, which is when Manchester was perhaps industrially at its busiest, he was heavily engaged in organising the largest engineering factory in the Greater Manchester area. I believe that there were about 24,000 people employed at that time. It must sadden him to know that that number is now down to less than 5,000, and that they will suffer another blow following the announcement today that 650 more jobs are going in the turbine generating division of the General Electric Company. Those jobs will be lost between Rugby, Manchester, and Larne. I say that to kill some of the optimism that there has been that things are on the upturn, because if things are bad in the turbine manufacturing industry then it is the base that is bad; and therefore those predictions cannot be too great when looked at from that angle.
I welcome the Government's initiatives for the young unemployed, but I believe that they are, at best, a cosmetic exercise, with no firm hope at the end of the tunnel. Only an expanding economy providing real jobs can alter that. As for the adult group of unemployed, to which I have already referred, unless urgent action is taken some of them may never work again.
It is within the power of the Government to expand the public sector in a way which will make a significant impact on the present disastrous situation. The noble Lord, Lord Jacques, in opening the debate, referred to the public sector and the jobs that it could provide. It seems ludicrous that with 400,000 building trade workers drawing unemployment benefit there are growing queues and waiting lists. It seems nonsense that we under fund our railway system to a greater extent than any of our sophisticated competitors. I know that perhaps this is a simple equation, but it would be far better to transfer the £17 billion which is being spent on unemployment and related benefits to the creation of jobs by house building, road building, repair and extension of our railway system, roads, hospitals—you name it. The jobs are there if we will only put the money into them.
There is no point in the Government wringing their hands and saying, "It is not our fault". I would not for one moment ascribe to them the total fault of the unemployment situation today in a world recession. But I have seen figures from responsible people showing fairly and squarely that 50 per cent. of the increase in unemployment is directly attributable to present Government policies. The sooner they start to

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move away from those policies, the better. It is on record—and I think that the noble Lord, Lord Jacques, referred to this—that both the CBI and the TUC have recently, in varying degrees, called for such a policy. The reports from some quarters that the economy is improving are viewed with skepticism, and certainly are not believed by most people concerned.
There was another important debate in this Chamber yesterday, and it was on the increase in crime. There is a correlation between that debate and what is causing that increase and what we are talking about today. Police chief after police chief in the country has come out firmly with the opinion, with figures, that where there is an increase in unemployment then, correspondingly, there is an increase in crime in the area. The Law Lords, the courts and the legislative bodies can pass and administer all the laws they want, but one of the best ways to start to get those figures moving downwards immediately would be to get the young people to work with some fulfilment in life.
I do not wish to take the full 14 minutes, and I do not want to make too controversial a speech on a day like this. I am most grateful for the hearing that I have been given, and I close on a warning note. Unless we take action now, it may well be that those people who are bearing the adversity of unemployment with patience may cease to do so—and I do not think that they will wait forever—and may resort to action both through the ballot box and by other means alien to us as a democratic nation. Time is not on our side. The time to act is now, to stop the present situation before it gets any worse. I thank noble Lords for the kind and considerate hearing they have given to me.
6.10 p.m.
Lord Harris of High Cross: My Lords, it is my pleasant duty on behalf of the whole House to congratulate the noble Lord, Lord Dean of Beswick, on his quite admirable maiden speech. I am sure we are all glad to hear and to see that he already feels so much at home among us after his escape from the other place. His speech was succinct, was well argued, was well informed, was plainly heartfelt and was gracefully delivered. He comes here with wide knowledge of local government and trade unions and I am sure we all look forward to hearing his contributions to our future debates.
I should also like warmly to congratulate the noble Lord, Lord Jacques, on the delightful way that he opened this short debate. I commend him especially on the progress I detect in his emphasis on the need to tackle unemployment without increasing inflation. I wonder whether we may hope this initiative from the Labour Benches marks a move towards a new and much needed consensus. If so, I should like to put forward with my usual humility four propositions to open the way for the expansion of employment.
My first proposition which the noble Lord, Lord Jacques, agrees with is simply that unemployment can be reduced. I assert this against the Jeremiahs like Mr. Francis Pym, who recently argued that the new technology must permanently reduce the demand for labour. As Mr. Samuel Brittan never tires of pointing out, this unhistorical view rests on what he calls "the
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age-old lump of labour fallacy" which, in plain terms, fails to allow for the almost limitless possibilities of increasing standards of living. No doubt we shall continue in future to benefit from shorter hours, longer holidays and perhaps from earlier voluntary retirement. But such developments will create an enormous additional demand for more leisure goods and services, including more education, entertainment, travel, tourism, transport, more yachts, to say nothing of such minority indulgences as swimming pools and holiday homes, and what about more hunting, shooting and fishing?
My second proposition which is also implicit in the noble Lord's Motion is that inflation is not the friend of employment, but its enemy. Even Left-wing economists, I see, are now less inclined than recently to favour the easy panacea of boosting monetary demand. This is for the simple reason that experience around the world has taught that its lasting effect is to raise costs and prices rather than to increase output and employment.
Today, under the Government's medium-term financial strategy, there is no shortage of monetary demand. Whichever measure is taken, the money supply is increasing sufficiently to finance demand for more production. Indeed, there is plenty of British demand for foreign cars, kitchen equipment, ships; we may have noticed in shipbuilding recently a demand that British industry could supply if it were more competitive. If British prices were lower existing purchasing power would buy more of the products of British labour. Despite the remarkable progress in productivity over the last two or three years, we still have a long way to go in reducing costs. We cannot dodge the fact that approaching 90 per cent. of all costs, 90 per cent. of the value added in British industry, is accounted for by wages and other expenses of employment.
The need is not crudely to reduce wages, but rather to reduce the labour costs per unit of output so that, as the noble Lord has said, we can rebuild profit margins without pushing up prices. The moment employing more people is more profitable, more people will be employed.
My third proposition is that a large part of the official statistics of those without jobs is explained by what economists have described as voluntary unemployment. I fear this will come as a shock to noble Lords, but I turn to The General Theory of Lord Keynes, which I know many of your Lordships still hold in high regard. In the second chapter of Keynes' great work he described voluntary unemployment as arising from,
"The refusal or inability of a unit of labour … to accept a reward corresponding to the value of the product attributable to its marginal productivity".
In plain English what that means is that workers are voluntarily unemployed if they hold out for a wage above the market value of their labour. Keynes went on to explain that such excessive wages might be due to trade unions, to the level of social benefits, to legislation on minimum wages or even to what he called "mere human obstinacy". Alas, there is still a good deal of that about, and not only on the Labour Benches.

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This leads me to my fourth proposition which is that a consensus favourable to the reduction of unemployment must ceaselessly proclaim the logical link between jobs, productivity and pay. A recent vivid example is provided by the continued tragic decline in British shipbuilding. At Swan Hunter's the workers voted against a survival plan because it would require the ending of demarcation rules. I thought the most revealing episode on that occasion was the candid admission of a trade union leader who said:
"It would mean the destruction of the trade union structure".
I can only say, in that case, the sooner the better. I would certainly welcome an increase in partnership and a selective advance in co-operative ownership along the lines that the noble Lord, Lord Jacques, favours. But I should not wish to blame shortsighted and obstinate trade unions as the only reason labour is priced into voluntary unemployment.
It seems to me absolutely incontestible that wages councils have forced up pay, especially for school-leavers and part-time workers, so as to destroy jobs and the associated opportunities for training and promotion. From such clear-cut examples, it follows that anything which adds to the cost of employment without increasing production reduces the prospects of getting people hack to work.
From this vantage point, I would still say that the burden of government is the greatest destroyer of jobs. If we just take income tax, and include the employers' national insurance contribution, the marginal cost is more than 50 per cent. starting on earnings little above supplementary benefit levels. Such a levy simultaneously raises the charges against production that must be covered from prices and reduces the take-home pay of workers so as to make employment relatively less attractive for many low paid workers than social benefits. I insist, against all the protestations that we have heard and will hear in this debate, that high income tax operates perversely both to depress the demand and the supply of labour. The noble Lord singled out the national insurance surcharge as a tax on jobs. In this respect, it is no different from other taxes paid by employers which have to be incorporated into their costs.
In conclusion, I would say that if the Government cannot help by cutting taxes, especially on low earnings, we have no alternative but to slog it out by reducing total costs per unit of output and restoring profit margins as the best inducement for firms to take on more labour. Meanwhile, let the Government and their critics ponder that we see in many countries, if we look around the world, that unprecedented unemployment has been associated with an unparalleled volume of legislation and regulation to protect employment, to enforce minimum wages, to improve working conditions, to raise social benefits and to obstruct the flexibility of the labour market.
I have no doubt that if we could sweep away most of this well-intended interference and even abolish the Manpower Services Commission, and radically reduce income tax on wage earners and their employers, it would have at least two beneficial results. In the first place, it might temporarily deprive noble Lords on the Labour Benches of the power of speech—but I am not too confident that would work with the noble Lord,
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Lord Molloy. But that would be a temporary phase and they would undoubtedly recover their powers of speech in time to welcome the second effect which would be a powerful reinforcement of economic recovery and higher employment.
6.20 p.m.
Viscount Hanworth: My Lords, on two previous occasions I wanted to give the speech that I am going to give on much the same lines as it is today. Today, I almost wondered whether I was going to be able to give it because I have either a very bad cold or 'flu. I start with the proposition which I believe cannot be challenged by any economist. It is that the more people can work usefully for the longest possible time, the richer a nation should be. Theword "usefully" of course needs to be underlined. It is therefore clear that there is something unsatisfactory in the working or the side effects of our western capitalist system. Economists should focus their attention on this problem and also on the still wider problems of the world economy in relation to the developing and poorer nations. If we cannot at least alleviate the latter situation on a permanent basis, then our western monetary system—and much else in my view—is doomed.
Secondly, returning to the immediate, unacceptable level of unemployment, we should put in the forefront of our minds the proposition that keeping people unemployed, taking into account unemployment benefit, loss of tax revenue and other less obvious factors, costs the nation around 75 per cent. as much as it does to employ them. My third proposition is that unemployment could be reduced to under a million quite quickly if we were prepared to accept the side effects and disadvantages of possible methods of doing so. An obvious and hardly useful truism, one may say. Nevertheless, I believe that every possible solution must be kept under review because the side effects, disadvantages and opposition to a possible course of action may become less than it is in the present case.
There are several courses which come in this category. The obvious one is a degree of re-inflation which, if carefully controlled, my party and many others believe could be done without appreciably increasing inflation. One of the ways of doing this would be to increase public spending on essential work such as the renovation of our sewers; but there are many other areas which do not require increased imports or infrastructure. Other possibilities are abandoning chronic overtime and early retirement. These two were considered in the report by our Select Committee and there is likely to be a financial penalty unless those concerned accept some financial loss.
I believe, however, that there is an immediate possibility, with job sharing and part-time working, if the Government make it easier both for the employer and the employed. Many people these days, particularly married couples with children, would be prepared to accept less than full-time jobs for both husband and wife. Job sharing with an otherwise unemployed person needs thinking about. Two men working on a three-quarter time basis should produce one and a half times the work of one man. If the firm was paying the one man full wages and the Government chipped in at 75 per cent. of the cost of keeping

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the other man unemployed, both men could receive full wages.
Yes, I know that the flaw in this idea is that you cannot have some people working full time and others three-quarter time for the same wages. But there may be ways round the problem. If something on these lines could be worked out, we could almost solve our unemployment problem overnight.
This leads me on to the education field. I know that the number of pupils and students has decreased; but for years we have wanted to decrease the size of classes. Why not an agreed proportion of teachers on a three-quarter time and pay basis? In the manufacturing and export industry, we must remain competitive with foreign nations who have lower wages. It follows that all methods of increasing productivity must be accepted, both for export and also for home consumption, unless tariff barriers are erected against imports. There is then regrettably a direct equation between increased productivity and increased sales.
If the two do not match, then redundancy is inevitable. The same does not apply to purely domestic projects and services; and it is here where I believe there is the possibility for real, worthwhile reductions in unemployment—which, as I have said, might be on a no-cost basis to the Government. In all this, it should be said that we still face the 19th century attitude of some people, and of course of the unions. I hope that the unions will increasingly look to the long-term benefits of their members because at present many think only of the immediate and short-term future.
Finally, I should like to sound a note of warning for the future. It is to be hoped that our present problem of unemployment may be soluble; but what I believe will be a far more intractable problem in the future is that of finding work or occupation for those of low or lower IQs. Laborers, in the simple sense, are being replaced by mechanical diggers; petrol pumps are being automated—and who wants a dumb waiter except in an auction?
6.30 p.m.
Lord Molloy: My Lords, I should like during my few remarks to express my appreciation to my noble friend Lord Jacques for opening this debate. I should like also to express appreciation, gratitude and congratulations to my noble friend Lord Dean of Beswick. I could well have made that kind of speech a couple of years ago. The fundamentals are precisely the same, and, like him, I speak from some experience.
I do not mean this in a particularly nasty way, but it seems to be an awful coincidence that, along with a few millions of my fellow Britons, I have to remark that the only time we experience unemployment of this size is when there is a Tory Government. People scratch their heads and ask, "Why is it that this sort of thing happens to us with a Government of businessmen?" Even now Conservatives are asking that. I think that this might perhaps be a subject suitable for examination by the noble Lord, Lord Harris of High Cross. I go out of my way to listen to the noble Lord every time he speaks in this House, not because I agree with everything that he says but because he compels me to think; and he is very challenging when he takes
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one tiny aspect of, say, industrial relations. Although the point may be small, by the time he has finished with it, it is fairly massive.
The noble Lord reminds me of the rugby commentator who, when the Welsh captain, J. P. R. Williams, scored a brilliant solo try against the English rugby team, criticised him for the fact that for half the distance he ran he had his socks down. When the noble Lord, Lord Harris, talks about the wicked, awful people in the shipbuilding industry of our nation, I think of them as the men who built the Royal Navy and who, in the Falklands crisis, rapidly converted large ships so that they could join that magnificent force. Of course, lines of demarcation have been sources of irritation and have been the causes, I think, of unnecessary strikes. But we have to say to ourselves that this situation arises not because a particular trade in this complicated industry is afraid of being wiped out, but simply because it is afraid of how many of its workers will no longer be able to contribute, to build ships for the British Navy—I do not think that it is a had thing to get worried about—or the British Mercantile Marine, due to some change in method. Also, those workers are not prepared too lightly to accept that the alternative to that great craft and skill is the dole queue.
While we are on the subject of shipbuilding, I would point out that the noble Lord, Lord Harris of High Cross, forgot to mention the massive irritation that was caused in the shipbuilding industry regarding a ship that was converted into a very necessary form of cargo vessel. It went to the Falklands, and later returned home. Instead of the same British shipwrights and shipbuilders converting it back again, it was sent by the Government to the Malta shipyards. There is patriotism for you! So do not let us think it is all on one side.
The Government have a very difficult task; in particular, so do those Ministers, such as the noble Lord, Lord Cockfield, who every day, I am quite certain, are trying to find some answer to this problem. It would be absurd stupidity to say that the Government do not care, or that people such as the noble Lord, LordCockfield, and other Ministers with similar responsibilities, do not care. But some of us on this side of the House feel that we need a new tack. When the Government have departed from monetarism to some degree, as they have, it has been to the benefit of the CBI, small businessmen, the nation, and the unemployed; so why be afraid? Why not move further away from this awful system? The Motion calls for what is almost an impossibility: the necessity of increasing employment without increasing inflation. Quite frankly, I do not know whether that can be done, but I believe that it would help the nation if it were seriously attempted.
I have said in your Lordships' House on many occasions that we still ought to look to see whether the situation that now confronts our island race has occurred before. The answer is, yes. I was one of the young, skilled artisans who were on the dole at the time; and this is what frustrates some students in our universities when they read about the 'thirties. How did we overcome it? One answer is immediately on everybody's lips. It was not a perfect answer, and it did not immediately create full employment without any

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form of inflation. Of course not. However, it got us back on the road to solid government and lifted up the morale of a great people—that is, the great people of the United States under Franklin Delano Roosevelt.
If we were to look more closely at what was achieved—and, if I may say so, speaking parenthetically, I have searched; and I am sure that the noble Lord, Lord Harris, and many other notable economists in this House could help us here—since the years of the New Deal, we should see that there has been only one evaluation by an historic scholar and economist of repute that has in any way been condemnatory of the New Deal. Democrats and Republicans have built their new America on the foundations of the New Deal.
The crisis in 1928, when Roosevelt was Governor of New York, was absolutely appalling. One discovers that poverty-striken Arabs in the streets of Cairo were collecting money to send to starving children in New York. Yet they overcame it; and they did so because they were prepared to do something about the economic "polio" which the nation had, and which unfortunately their great President had. I find it absolutely remarkable that the United States could throw up a leader from the upper classes such as Roosevelt—struck down in the middle of his second presidency with polio—and that he was able to carry on building up a nation, when millions of unemployed, and even more millions on short-time work, were it seemed, slowly suffocating that nation. In the United States corn was burnt to keep people warm; 7,000 farmers lost their farms in six months; local authorities just had no money at all. No equivalent of rates came in: they had nothing.
We do not suffer that situation in this country—at least, not yet—and I hope to God that we never shall. The noble Lord, Lord Mancroft, made a point about morale which I think is very important. It may not be an important economic argument, but I have heard in working men's clubs and on the terraces of rugby-football grounds the argument which has been submitted by the noble Lord, Lord Mancroft, put forward by those who are on the dole. Why do we not deal with it? Did your Lordships read in the paper the other day about a golden handshake that a bloke had got? What do they call the thing? Is it a review body? When I was working I would have had to work 10 years to get his increase in pay in that situation. When people see what is happening, of course they get upset and angry. It is understandable. One would think that people on a couple of hundred thousand a year would say, "Hold—we will not have one halfpenny more." I would deplore any evil person being given a chance to get among our unemployed and whip up frenzy and hate against our Government. I am not a supporter of the present Government, but I would deplore that kind of activity, and I hope that they will heed very carefully the submission of the noble Lord, Lord Mancroft, this evening.
I think that my country is entitled to a New Deal, and I believe that even the present Administration, if they had the courage, could present a new deal for Britain. I should support them the moment they embarked upon it, if they were simply to design a broad programme to stimulate recovery by giving
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relief to small businessmen, to parts of industry, and to working people. America got out of the mess. If I may say so, I was doing some reading only the other day in preparing for this debate. Lord Mancroft's speech reminded me that in the United States of America it was compulsory for the upper echelons not to have massive increases in their top salaries. I hope it will not be necessary for us to introduce legislation. I hope we shall be able to appeal to those in the top salary echelons to do this; but they must remember that, if necessary, we shall legislate to prevent any form of greed.
Public spending increased in the USA, especially for the needy. There was the development of public works and the creation of the Tennessee Valley Authority. At the very beginning, there was a national recovery administration plan which protected wages in the United States. During the early 1930s Roosevelt decided that child labour should he abolished. We shall not have to abolish child labour; that is not the size of our problem. But it was the size of the Americans' problem, and they overcame it. Guarantees were given that workers would be allowed to join unions, and all forms of collective bargaining were encouraged. Once everything got under way the result was amazing. The building industry completed the Great Boulder Dam and hospitals, town halls and schools were built. Picks, shovels and machinery had to he manufactured. On and on went this run-away return to full employment. An examination was carried out into what this meant for industries associated with the building industry in the United States. When full employment returned it meant that machinery, chisels and hammers had to be manufactured. The wheels of industry started to turn again. Families were then able to buy clothes for themselves; they had been unable to buy any for 10 years. So the clothing industry started up again. There was inflation at the beginning, but in the end it evened out. We know today that that despairing nation in 1933 is now the richest and most powerful nation in the world. I want my country to be the richest and the most powerful country in the world in terms of sane, sensible thinking. I believe we can quite easily achieve that objective.
I end with one appeal. The Government are beginning to realise that they can no longer entirely worship monetarism. A great deal has been said about "spend and prosper". An examination of the new deal in the United States shows that in the end "spend and prosper" works. I do not believe that any Government can generate recovery and abolish unemployment in a couple of years. However, I believe that a Government who are determined to do it will have the courage to look at every alternative to see whether they can pick from the best what will achieve the one thing which unites us all in this Chamber: the abolition of mass unemployment and the economic recovery of our nation.
6.44 p.m.
Baroness Vickers: My Lords, first I should like to thank the noble Lord, Lord Dean of Beswick, for his maiden speech. Regrettably, I was not in the other place at the same time as he was, but I shall have the pleasure of catching up on him here. I should also like

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to say a word about the noble Viscount, Lord Tonypandy. I served under him for so many years. Not only was he very gracious to one in the House; he even came down to Plymouth to preach a sermon in the Central Methodist Church in order to save my soul. So I am very grateful to him. It is very nice to see the noble Lord, Lord Barnett, on the Opposition Front Bench, because, even though we have always been in opposition, everything he has said has always been extremely pleasant.
We are grateful to the noble Lord, Lord Jacques, for the way he has drafted his Motion. It has given us so many opportunities to express different points of view. I want to draw attention to unemployment in rural areas, especially unemployment among the young. In previous years, particularly before the war, it was normal for many young people to follow their parents and go into farming, in the same way as miners' sons followed their fathers down the mines. However, as a result of mechanisation in all forms and different attitudes towards work on farms, employment has been greatly reduced. A job which used to employ several men—I am thinking in particular of harvest time—can now be done by one or two machines in only a few days. And jobs outside farms—hedgecutting, for example, on the side of roads—are now done mechanically; but hedge cutting used to give a great many people excellent employment. We now have very few blacksmiths, gamekeepers, river keepers, full-time gardeners or village shops.
I have here a few figures from Devizes in Wiltshire which relate to permanent jobs obtained by young people. In 1980–81, 43 per cent. obtained permanent jobs. In 1981–82, the percentage went down to 41. Regrettably. in 1982–83—from April to October—the figure went down to 35 per cent., but I am glad to say that at the moment the current figure is 46 per cent. This is not at all satisfactory. It means that a great many young people are leaving the countryside and going to the towns, as they did in the days of the industrial revolution—though, I am glad to say, in not quite such large numbers.
I like to be practical, so I lent my vegetable garden to the job centre. I have had many young men working in it for several years now. I have never taken a penny in rent nor any of the seeds, because I believe that they should be ploughed back and the produce sold. Unfortunately, however, not one of them wanted to take a permanent job as my gardener. This was nothing to do with me personally. It was not that they had taken a dislike to me. I am glad to say; but they did not want to take a permanent job with anybody as a gardener. This makes me wonder how well we choose people for these jobs. I have had to employ a part-time gardener. He has another job during the week and comes to me at the weekend. A young fireman comes to cut the grass on his days off. My object was not to employ people who already had jobs. I wanted to employ somebody who had been trained and who therefore was a new recruit to work experience.
I should like to discuss how these work projects are arranged. In Wiltshire, there are 10 project teams, based in selected towns, each consisting of an adult and four trainees. They carry out various tasks, enumerated as tasks of benefit to the community, skill
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training, painting, decorating, bricklaying, minor construction and horticultural work; and also work of an environmental nature. Furthermore, there is catering, which was mentioned by the noble Lord, Lord Mancroft, and caring skills, office practice and needlework. There is also a theatre workshop in which the young generation do scenery painting.
On the other hand, we have very industrious young people. I should like to mention one family consisting of eight children. The mother has had to bring them up alone; the father deserted them. There are five girls and three boys. Every one of them has a job. One of the boys was a chef but unfortunately he lost his job. What did he do? He went off to Greenham and laid bricks there for £100 a week. When that job finished he went to another situation, where he also earned good money. I am glad to say that now he is a chef again. He is in a very good restaurant in Wiltshire, has a flat of his own and earns £120 a week.
So there are methods, if you have the will, by which to obtain jobs. This boy had many disappointments over the jobs for which he applied. Very often the problem is that young people are not taught at school how to set about looking for a job. I have here a leaflet, again from Wiltshire, which says, "How will I start on the scheme?" The answer is,
"After an initial interview you will join a one week introduction course during which time you will be told all about the scheme and what work experience and training courses are available. We will then decide how you will spend your 12 months on the scheme".
I must say that I would be very scared if it was my first interview and I was told that I had to make up my own mind in that way. The difficulty is that we do not have enough career officers. I am not blaming the career officers themselves because they often have another job to do and undertake career training and advice only in their spare time. But I also believe we do not obtain enough outside help in regard to finding jobs for young people at an early time.
More employers—more industrialists—should visit schools and should explain in detail what their type of work is. Farmers should go along and do the same. There are plenty of other people—from the nursing service and so on—who could talk to young people and give them some insight into what their future lives might be. This would give them a chance to consider a career and make a suitable choice. In other words, they would gain confidence in choosing. First, the young people should meet at an early time a careers officer in schools, and I hope that we shall get more fully trained career officers. They should also have adequate, accessible information, and an appropriate range of opportunities in their local environment.
The Further Education Unit, through the work of the National Institute of Careers Education and Counselling, sponsored an exploration of the concept of a personal guidance base. I hope that this may be carried out because employment will be increasingly difficult for a young generation, and they do need considerable counselling by people with real knowledge of the subject. The Further Education Unit went on to mention the various terms they were considering, the progress that might be made by young people, and how such schemes might be assessed. One suggestion was in terms of motivating young people to learn to contribute to society. Providing them with a

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valuable range of skills was another. Preparing them for employment and for periods of unemployment, and for continuing their learning, was yet another. The importance of recognising the risk of future unemployment and understanding its cause was a point raised by the noble Lord, Lord Molloy.
I should also like to mention the subject of apprenticeships because I believe they should be discussed, especially in the case of rural workers. Most apprenticeships nowadays, I consider, are too long because education in schools has greatly improved. I know, for instance, that in the Royal Dockyards they cut the length of their apprenticeships when they found out how much better educated young people were. For those working on farms, it is absolutely essential to have an apprenticeship in engineering because the vast number of accidents on farms is very frightening. This is because farm workers do not have a thorough knowledge of the machinery they have to use or of how to repair it. I would like to see a good apprenticeship for all farm workers who will have to manipulate machinery.
One might also consider whether young people should be given some kind of award. Many suggestions have been made about certificates saying what a person has done and has not done. I should like to see a scheme on the scale of the Duke of Edinburgh Award so that young people have something to show for all the hard work they have done—something to show their parents and their friends; everyone likes to receive a little reward.
In rural areas, the youth training schemes should aim to encourage young people to gain employment in their own rural environment, in order to help build up the country communities again. It is very depressing to find, in village after village, weekend cottages belonging to people who just come to stay in them from Friday to Monday. That sort of thing spoils the community because it does not create extra work for the local people. If we can achieve more employment for young people in rural areas we may be able to keep such areas alive.
I hope that the suggestions I have made will not offend those who are at present working in the various training schemes. I admire what they are doing despite many difficulties, but I should like to see action taken which would strengthen organisations for the training of the young in rural areas, in order to reduce unemployment.
6.55 p.m.
Lord Barnett: My Lords, I hope that your Lordships will forgive me for making another "maiden speech" so early after my first from the Back-Benches. I do not know whether it has anything to do with the fact that my first maiden speech did not entirely agree with everything that is in my own party's policy!
I am delighted to have this opportunity to speak because, apart from anything else, it enables me to congratulate, first, my noble friend Lord Jacques for having introduced in so excellent and constructive a way this debate on such an important topic. Secondly, I am particularly delighted to have a chance to pay a personal tribute to my noble friend Lord Dean of Beswick for his maiden speech. Almost anyone
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hearing it would have been as moved as I was—and I am sure all noble Lords on this side of the House and, I imagine, many Lords opposite were moved—to hear about his personal experiences upon finding himself unemployed so recently. We have debates about unemployment both in another place and in your Lordships' House but most of us have no real experience, fortunately, of that particular situation. We are very grateful for that.
For my part, I have found the debates in this House to be much easier, one might say. I was grateful to the noble Baroness, Lady Vickers, for her kind remarks about my manner in another place when we were together there. I must say that it will be even easier to be pleasant in this place, it seems to me.
I agree with much of what has been said in this debate although not with everything; that will not surprise your Lordships. I did not quite agree with everything said by the noble Lord, Lord Harris of High Cross, although not necessarily in the way he would imagine, when he spoke about the disincentive effect of high national insurance contributions and high taxation at low levels of income. There is some truth in that, and to some extent I disagree with the recent findings of the Policies Study Institute in a study they did for the Department of Employment. They said—and I quote:
"The level of benefits was not found to have any relationship with labour market activity".
There may be some little effect, but on the other hand I feel that the noble Lord, Lord Harris of High Cross, tended to exaggerate the effect of the levels of tax and national insurance contribution as an important factor in the level of unemployment.
I certainly agreed with many of the illusions about which the noble Lord, Lord Mancroft, spoke—particularly the illusion about the effect of modernisation. I hope that many of my old friends and colleagues in the trade union movement will recognise that modernisation and cash limits—which I had a little to do with—were not intended to work and are not working against their interests but rather in their interests; in improving the industrial scene, making us as a nation more productive, and ultimately finding more jobs for our people.
On the other hand, as the noble Lord pointed out, it is also understandable that while we in this place may be able to consider this matter in broad terms, for the one man who is made unemployed in the interests of modernisation it is 100 per cent. unemployment for him and it is not easy for him—or for her—to take a broader view. He or she can only be concerned—understandably—with his or her situation and wants to see us in this House and those in another place do something about it.
I take it that everyone who has spoken in this debate—and indeed those noble Lords who have not done so—would agree with the vital need stated in the Motion moved by my noble friend Lord Jacques to reduce the appallingly high number of the unemployed; and to do so in a sustained and steady way while avoiding inflation taking off again. One has to concede that no Government-certainly not one of which I had the honour to be a member—have been able to find an answer to the three economic problems

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that have faced all Governments. They have not been able (as a juggler might say) to keep the three balls of employment, inflation and economic growth all in the air, and dealt with, at the same time. Nobody has managed to achieve it yet, and it would be as well for all of us who are critical of what any Government do to bear that in mind.
On the other hand, I am bound to say from what has happened in the last four years that I fear that the Government appear to have taken the view that bringing down the rate of inflation will of itself, as it were, cure unemployment and create the right conditions for higher growth. I am bound to say to your Lordships and to the Government that there is absolutely no evidence from experience here or elsewhere to justify such a conclusion. In any event, if there were need for further evidence we have the proof, and we have it in abundance, from what has happened in the last four years. We have seen that during the process of bringing down the rate of inflation there has not only been no economic growth but at times there have been negative rates of economic growth, and unemployment has risen to its present appalling level. So we can see for ourselves what that kind of policy has achieved.
In the short term there may well be some increase in economic growth(indeed, I hope there is) and there may be (indeed, I hope there is) some fall in unemployment during the course of, for example, the next 12 months. In this Short Debate I do not want to get bogged down in what I would consider to be a futile argument about whether growth in the next 12 months will be 1 per cent., 2 per cent., 2½ per cent. or 3 per cent. I just hope that the Government are right and that we shall have 2 to 3 per cent. growth, and that unemployment will to some extent come down.
But I want to deal with two questions arising from that assumption, and not, as I say, with what rate of growth we shall have next year. First, if the Government are right, what are the reasons for that growth; and secondly, what are the long-term prospects if the Government are right and we get that level of growth in the coming year? As to the first question, I start with where growth is not likely to be coming from. Sadly, if the Government are right, the source of growth will certainly not be from exports. We cannot foresee—I certainly do not think the Government can foresee—an export-led growth in the next 12 months. The figures are quite clear. This is a Short Debate, so I will not bore the House with the figures, but the volumes of exports in recent months have mostly been down on the 1982 figures, while imports have been well up. So it does not look likely that the growth we are going to see is going to be led by exports.
Then, again, the source does not seem likely to be from a substantial increase in the growth of private capital investment. I wish it were otherwise; I wish there were going to be a growth in private capital investment. There might be some: indeed, I hope so, because unless we see a substantial growth in manufacturing investment then the growth in the next 12 months is hardly likely to be sustained. Again, the figures are not helpful. Total fixed capital formation was lower in 1982 than it was even in 1979. The same applied to the first half of 1983, which was down on
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the same period in 1979. I hope—and it seems possible—that there will be some small increase in manufacturing investment; but it will be so small (and I doubt whether the noble Lord, Lord Cockfield, will be able to tell us anything different), certainly as a proportion of total demand, as to have little or no impact in making us believe that growth is going to be led by a huge increase in private capital investment.
Certainly the growth is not going to come from the public sector capital investment. We do not yet know the results of the public expenditure exercise, but I do not know that anyone in your Lordships' House will be expecting to see that the Government have managed to bring down the level of public expenditure as previously envisaged while allowing capital expenditure to increase. To put it mildly, it is unlikely, I fear, for the same reasons as those for which I was criticised by the present Chancellor when I was Chief Secretary to the Treasury and when I made substantial cuts in public expenditure, and for the same reasons as those for which I was criticised when cutting capital expenditure rather than current. But even without any new cuts the figures we have for public sector capital expenditure again show that in 1982 the figures were down even on 1979, and that the same applies again in respect of the first half of 1983.
So if it is achieved, if the Government are right and we do achieve some growth in the coming 12 months, there is only one source, and we all know what that is. It is going to be a consumer-led increase in economic growth. Indeed, we see the evidence all around us in the booming consumer durables; but if we do not trust our own eyes the figures are available to tell us the story. Volume expenditure in the first half of 1983 is well up on that for the similar period in 1982, and the money comes from some modest growth in earnings over and above the rate of inflation and from something which should concern the Government and certainly noble Lords in this House. A large amount of it comes from a substantial fall in personal savings as a percentage of GDP. We have seen it fall from 10.46 per cent. in 1980 to 6.25 per cent. in the first quarter of 1983. So the cause of any growth now achieved cannot by its very nature be sustained.
My second question about what happens in the longer term answers itself. The growth must inevitably decline, and I fear unemployment would rise again if those policies are persisted with. As I have said, I do not pretend it is easy to achieve the three economic objectives to which I referred at the outset. But I am bound to say that if we are going to continue with the kind of policies we have had in the last four years we not only cannot see an answer to the three conundrums, as you might say, but we can see the situation getting worse and worse—and this at a time when we have a Government that came into office with absolute certainty as to the solution they were offering the nation.
It is sad for the nation—and it is certainly sad for me—that they have failed. But it is much worse for the nation because of what they have done in the process of failing. I refer to the fact that, despite all the virtues to which this Government and the Prime Minister pay lip service, particularly that of ensuring that the nation lives within its means, in the last four years this Government have allowed the nation to live beyond its

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means with a vengeance. The Government have indeed led the nation in a great eating of the seed corn, with catastrophic consequences for the future. The disastrous increase in unemployment; the low, at times negative, rates of economic growth; and the cuts in public services, might have been understood, even accepted, if there were any evidence that the hair shirt the Government unevenly imposed had resulted in a dramatic improvement in economic performance, and if we could now look forward to sustained growth and a steady reduction in unemployment.
Whatever they may claim in the short term, the Government can make no such claim for the long-term consequences of their policies. Indeed, the miserable record of the past four years was itself only sustained, as I think my noble friend Lord Jacques said, by the use of the North Sea oil bonanza. One shudders to think what would have happened to our balance of payments without it. Yet North Sea oil production, we were told by the Minister for Energy in a recent Answer to a Question in another place, will peak in the next two years. Instead of using this great national benefit to boost capital expenditure in the public and private sectors and prepare for the day not so far off when the oil starts to run out, the Government have ensured that we have eaten that seed corn by allowing personal consumption to grow, for some, far beyond the rates of the economic growth they have achieved.
It is a policy that is the very opposite of everything that the Government are supposed to stand for. It is living beyond our means in the worst of all kinds of ways. The Chancellor said it himself. He has indicated that there are not likely to be any tax cuts next year. That is understandable, because personal tax cuts next year would give a further twist to the spiral of growth in personal consumption and the consumer-led boom we are now seeing. The Government have dug a hole, which they cannot now get out of, by their excessive views on public expenditure.
I make it clear to this House that I do not go back in any way on what I have done in the past as Chief Secretary to the Treasury or on what I have said at any other time. We must control levels of public expenditure. But there is an enormous difference in resource terms; in finding resources, at the present time and with the present state of our economy, for increases in capital expenditure without allowing public expenditure to get out of control. There is enormous difference. I accept responsibility for what I have said, notwithstanding what the noble Lord said recently in answer to another Chief Secretary when he spoke—wrongly, as I am sure he now recognises—on the question of how revenue is used. To some extent I accept the responsibility of introducing cash limits in the way that I did which did not distinguish between capital and current expenditure. But that is no excuse for the current situation, because if the Government cannot get us out of the hole they have dug by increasing personal consumption and by getting us into an export-led boom there is no other way than through increasing capital expenditure, as a number of noble Lords have said in this debate. Yet because of their obsession with a particular level of public expenditure they are unable, without eating their words, to do it. I very much regret to see that that is the
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situation into which they have led themselves by their, to say the least, somewhat dogmatic approach.
In a longer debate I should certainly hope to indicate other ways in which we might at least do better as a nation. For the moment it can only be said without fear of contradiction that, if the policies of the past four years are persisted with, there can he no long-term prospect for a sustained reduction in unemployment without increasing inflation. Indeed, the very reverse will be the case. This, despite the enormous misery that has been inflicted on millions of our fellow citizens.
I know this is a pleasant place where one does not make serious criticism, but I hope that I may conclude by saying, in as non-controversial a way as I can, that Ministers with any responsibility would need to be pretty insensitive not to feel some sense of shame for what their policies have achieved in the past four years.
7.14 p.m.
Lord Cockfield: My Lords, this has been an interesting and instructive debate and it has been marked by a number of distinguished and thoughtful contributions. The discipline exercised by the time limit has, I think, noticeably improved the quality of the debate even if it has somewhat reduced the quantity.
May I in particular congratulate the noble Lord, Lord Dean of Besvvick, on a distinguished maiden speech. We all listened to him with very great interest and his description of the problems facing the cities of Leeds and Manchester, of which he has very close personal knowledge, was particularly interesting. We look forward to the opportunity of hearing from him again on many occasions in the future.
I was glad to see from the Motion on the Order Paper that the noble Lord, Lord Jacques, now recognises that the Government are entirely right in their policy of ensuring that inflation should not be increased. Of course, we go somewhat further than the noble Lord and believe that inflation should be reduced. But we welcome his conversion so far as it goes. We share, of course, the noble Lord's concern at the position of the unemployed. I would not accept some of the noble Lord's descriptive material. In particular, perhaps I might say that unemployment benefit will be increased by 8½ per cent. in November and it will then stand, in real terms, at a higher level than it did at the time we took office.
If by saying, as he does in his Motion, that unemployment needs to be reduced he means that we would all most sincerely wish to see unemployment reduced, then so far as this objective is concerned there is nothing between us. Where we part company is in our analysis of the part that Government can and ought to play. In this connection I was particularly struck by the speech of my noble friend Lord Mancroft with his reference to the illusions which hinder our attempts to deal with these problems. I entirely agreed with him when he said that modernisation and new technologies create jobs and do not destroy them. Very much the same point was made by the noble Viscount, Lord Hanworth, in what he described as his four-times delayed speech.

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I start by defining the role of Government and the role of industry as we see them. The function of Government is to provide the right framework within which the economy has to operate. It is the function and responsibility of commerce and industry, of management and of workers, of businessmen and entrepreneurs, to seize the opportunities, to improve productivity and competitiveness, to expand output and thus to create more employment and new employment. That is the way that unemployment is reduced.
At this point may I dispose of what I describe as the old fallacious solutions, many of which have been paraded once again this evening. First, reflation; that is, a substantial increase in Government expenditure. The only conceivable result of such a policy would be to increase inflation, push up interest rates and thus, after a brief period, reduce output and increase unemployment. I entirely agree with the comments of the noble Lord, Lord Harris of High Cross, on this point. We cannot dismiss the consequences of an increase in Government expenditure of this character. We cannot simply dismiss them as side effects which ought to be tolerated, as the noble Lord, Lord Han worth. suggested.
Viscount Hanworth: My Lords, I did not say that. I said that there were side effects and we ought to go on considering whether these side effects were acceptable. I did not say that they were acceptable.
Lord Cocktield: My Lords, if the noble Lord agrees that they are not acceptable, there is nothing between us. It is very important in this connection to look at what has happened.
If one looks at the decade of the 1970s, money incomes increased by something like 345 per cent. During that period output increased by 17 per cent. only. This was a period in which repeated attempts were made to increase demand. There was no shortage of demand whatever: but virtually all the additional money which was pumped into the economy in this way simply came out in the form of inflation. The one thing that it did not do was to increase the level of output. There is no reason to suppose that precisely the same would not happen again. Indeed, as the noble Lord, Lord Hams of High Cross, said, there is no shortage of demand at present.
The second point is incomes policy. This is the spavined, broken winded nag of economic policy. It has been tried seven times, and seven- times it has failed. With that sort of form, if anybody wishes to put his shirt on it he is likely to lose it. The noble Lord, Lord Rochester, at least admitted—and I am glad that he did—that in the next four years we are not likely to see any reappearance of an incomes policy. Of course if his point is that it is highly desirable that people should understand the facts of economic life, I am entirely at one with him. The more that people understand the way that the economy works, the better it will be for all of us. The thing that one cannot do is to impose either by statute or under the guise of voluntary action a form of incomes policy of the kind which has been tried and which has repeatedly failed in the past.
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May I take also the question of import controls? We export 30 per cent. of our total output of goods and services. This is one of the highest figures for any industrialised country in the world. If we went in for import controls we should be wide open to retaliation and we should be the losers from such a policy. There is no question about that at all. In certain instances where our industries are seriously damaged by imports from low cost countries, often employing unfair trading practices, we take action wherever it is legitimate for us to do so. But any form of generalised import control will make the position of this country more difficult and not easier. It will increase, and not reduce, unemployment. So much for the answers that we do not want.
I turn briefly to the answers that we do want. It is the proper function of the Government to provide these. It is the function of the Government to maintain sound money, to reduce inflation and to keep it on a downward path. This is essential if there is to be confidence, if people are to trust the future, if they are to be able to plan ahead and if they are to invest for the future. Reducing inflation requires sound financial and monetary policies. These we have followed. The success is there to be seen. Inflation has come down from a peak of 22 per cent. to 5 per cent. now. Next year inflation will resume its downward path. We must be resolute to keep it that way. I was grateful to the noble Lord, Lord Rochester, for his recognition of the importance of this point.
I turn next to interest rates. The level of interest rates is determined by both international and domestic factors. We cannot control what happens in the international field but we are responsible for what happens at home. Excessive borrowing by the Government means high interest rates. Less borrowing means lower interest rates. We have reduced drastically the size of the Government's borrowing requirement as a proportion of total national product. Interest rates have come down by seven percentage points since the peak of 1981. Base rates now stand at their lowest level for five and half years.
The noble Lord, Lord Jacques, raised the question of fixing, stabilising or pegging exchange rates. We had a most interesting debate on this issue in your Lordships' House as recently as Monday. One of the major problems is that if you try to stabilise exchange rates by a device such as the exchange rate mechanism of the EMS or by some other device you shift the pressures from exchange to interest rates. If your domestic policies are right, you are likely to end up with the right mix of interest and exchange rates; but if you set out to control exchange rates when your domestic policies are wrong, or where there is a lack of convergence between your economy and the economies of other countries, you end up with instability of interest rates in place of instability of exchange rates. The CBI has argued with some justification that that instability is just as damaging as instability in exchange rates.
Next I come to Government expenditure. Over the years Government expenditure has absorbed too big a proportion of the national product. It grew after 1979 but never quite reached the peak of 46 per cent. scored under the LabourGovernment. But now at last Government expenditure is on a downward path.

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Much Government expenditure is unavoidable and provides services that people want. But you can have too much even of a good thing. Expenditure in the public sector has to be supported out of the wealth generated by the private sector. You simply cannot have a healthy economy where more and more has to be supported by less and less. So we have Government expenditure as a proportion of output on a downward path. It must continue that way.
I deal next with the labour market. If an economy is to operate efficiently it is essential to improve the operation of the labour market and to remove rigidities and artificial constraints. Our trade union legislation is directed to reducing the excessive power of trade unions to cause industrial disruption or to take action which prices their members out of jobs. There is an important—and indeed essential—part for both employers and workers to play here. Constructive trade unionism directed to looking after the true interests of its members rather than playing politics could make a substantial contribution to improving our competitiveness and creating new job opportunities.
Let us consider enterprise, initiative and innovation. We have abolished a whole string of controls on pay, prices, dividends, exchange control and hire purchase controls. We have introduced 100 measures to help trade and industry, particularly new small businesses. We have introduced enterprise zones, 24 of which have now been authorized. We give massive support to science and to research and development. Total Government expenditure on research and development this year will exceed £4 billion.
Training is a subject that was raised by a number of noble Lords. We need a skilled workforce to take advantage of the opportunities particularly in new industries and new technologies. The new youth training scheme will cost £1 billion a year and will bring nearly half a million employed and unemployed young people into a single integrated programme of high quality giving training for work. I can assure the noble Lord, Lord Rochester, who raised this point, that the youth training scheme will continue. The Manpower Services Commission will watch the position carefully to see whether any changes are necessary in the light of experience.
As for the long-term unemployed under 25, the community programme was started in October 1982 to provide employment opportunities for the long-term unemployed. By the end of October 1983, 106,000 places had been filled. This represents a considerable achievement on the part of the Manpower Services Commission. Places have been filled rather faster than expected, and my right honourable friend the Secretary of State for Employment will be proposing an additional £10 million for this service by means of adjustments made elsewhere. My right honourable friend has also announced that the programme will run for a further two years from October 1984 on the basis of 130,000 filled places for the long-term unemployed.
The noble Lord, Lord Jacques, suggested that the national insurance surcharge should be abolished. We have made clear our dislike for this particular tax. Perhaps it would be unkind to remind him that it was
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introduced and increased by the Labour Government. It stood at a rate of 3½ per cent. when we came into office. We have now reduced it to 1 per cent. and my right honourable friend the Prime Minister has said that we will abolish it during the lifetime of the present Government, but I cannot at this stage be more specific than that.
The noble Lord, Lord Rochester, raised the question of energy prices. The Government has already done a great deal to assist industry with energy costs. Industrial electricity prices have been frozen for 1983–84 and new load management schemes have been introduced which offer reduced tariffs. Gas contract renewal prices have risen only 3½ per cent. in the last three years. Heavy fuel oil duty has been frozen for the last three years.
It is essential that—I have been talking about the part played by Government—we improve our competitiveness. Here the level of pay settlements is crucial. In the last 20 years our share of world trade has been halved and import penetration of our home market increased dramatically. This has been one of the main reasons why unemployment in this country has been higher than in most other countries. But it is not sufficient for pay settlements to be modest. Other countries are improving their position, too. Pay settlements have come down substantially but they need to come down much further. Pay, of course, is not the only factor. We must improve productivity. We need better design; better quality; higher standards; more aggressive salesmanship at home and abroad. We need to produce the right goods; of the right design; of the right quality; and at the right price. All these are matters within the responsibility and competence of industry itself. Success here means success in export markets and in home markets alike and it is this success that we can build increased output and increased employment.
We are too much inclined as a nation to complain about our lot; too much inclined to dwell upon our difficulties and our failures. Complaints, once justified, continue to be trundled out long after they have ceased to have justification. Let us instead concentrate on the things that are right. Let us take credit for our achievement. Let us build upon our successes. The British economy is not plunging downhill into recession. On the contrary, our feet are now firmly on the path leading up and out of the recession. This is really the answer to the noble Lord, Lord Barnett, in his claim that Government policies were not producing the results. Just look at the record today compared with early 1981: output up by 5 per cent.; industrial output up by 6½ per cent.; output of chemicals and man-made fibers up by 10 per cent.
Lord Barnett: My Lords, would the noble Lord care to tell us why he is comparing the position with 1981 rather than with, say, an earlier year?
Lord Cockfield: My Lords, I am comparing it with 1981 for the very simple reason that that is when we reached the bottom of the recession. If you are looking at the path of the economy, you look at whether one is going up or down. The noble Lord's gaze is firmly fixed on the past when we were going down. The position for two years now is that the economy has

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been recovering and I hope this will give the noble Lord some encouragement because I am going on like this.
Output of chemicals and man-made fibers is up by 10 per cent.; output of engineering and allied industries up by 6 per cent.: total investment up by 7 per cent.; productivity in manufacture, up by 17 per cent.; inflation down to 5 per cent., the lowest rate since the 1960s; interest rates are down by 7 percentage points since the peak. All this adds up to recovery; not recession.
Unemployment, tragically., still remains much too high, but not as high, for example, as in Belgium, the Netherlands, Ireland or Spain. and only moderately above the EEC average. Even here there are encouraging signs. In many industries employment is now increasing—nearly 150.000 new jobs in the service industries, for example, in the first half of this year. Vacancies are at their highest level since early 1980. Short time working is less than a quarter of what it was two years ago. Overtime is on the increase. Total employment, including self-employment, is increasing and the underlying trend in unemployment may be leveling out.
No one would dissent from the aspirations expressed in the Motion itself. We are all against sin and in favour of virtue, but good intentions need to he backed by sound policy. We in this Government have those policies. The policies we are following are the right policies to maintain sound money, reduce inflation, and increase output and employment on a sound, enduring, long-term basis, and these policies are working.
The noble Lord, Lord Barnett, is a distinguished ornament in the City of Manchester. May I, therefore, quote to him the words used by Emerson nearly 140 years ago of the City of Manchester:
"This aged England: I see her not dispirited, not weak, but well remembering that she has seen dark days before: indeed, with a kind of instinct that she sees a little better on a cloudy day, that she has a secret vigor and a pulse like a cannon."
Viscount Hanworth: My Lords, before the noble Lord sits down, would he agree that this is a short debate and that he has not really dealt with the contributions of individual speakers in any great detail? All that he has usefully said could really have been said in 15 minutes.
Lord Cockfield: My Lords, I must take issue with the noble Viscount. I have endeavoured—admittedly in a comprehensive form—to answer most of the points that have been raised in the debate, including the points raised by the noble Viscount. There is a problem in a debate of this sort because there is some limitation on time. Although I have spoken longer than I would normally have done due to the courtesy of noble Lords in keeping their own speeches so brief, I felt that it was not really appropriate for me to go on at any much greater length.
Lord Molloy: My Lords, before the noble Lord sits down, does he not think that he might have mentioned the massive anguish among small businessmen? In the period that he talked so glowingly about, there has
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been a massive increase in suicides and the largest rise in bankruptcies since the First WorldWar. Was it not worth mentioning that that matter, too, is to be tackled?
Lord Cockfield: My Lords, so far as businesses are concerned, there are always casualties. One greatly regrets seeing this happen. The number of new businesses starting up is greater than the number of businesses that fail. We have gone to very great lengths to give help and encouragement to provide incentives for small businesses. As I mentioned in my speech, we have introduced 100 measures of this kind.
Lord Jacques: My Lords, as there is another debate to follow, I shall rest content with congratulating my noble friend Lord Dean of Beswick on a distinguished maiden speech, and also my noble friend Lord Barnett on his first speech from the Dispatch Box, which was indeed distinguished. I also wish to thank all those who have taken part in the debate. Although I am not wholly happy that there has been the amount of agreement which I had expected, I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Contemporary Art and Tax Legislation
7.42 p.m.
Earl Haig Earl Haig rose to ask Her Majesty's Government whether they will consider tax legislation as an incentive to relieve the financial hardship suffered by many living artists at a time of recession and to promote the sales of contemporary art.
The noble Earl said: My Lords, I believe that no Member of your Lordships' House would deny the importance of the artist in our society. In an age of mass production, he has understood his cultural heritage and used his techniques to interpret life in terms of symbols and in terms of feeling and personality. The Russian painter Kandinsky once described content in painting as:
"The communication of what is secret by what is secret".
Kandinsky left Russia because artists were being denied the right to express themselves and because only those artists who were willing to interpret politically acceptable themes were provided for. Here, in this country today, although the artist is secure from the point of view of freedom of expression, he is less secure from the material point of view. Artists have a fine record of being ready to sacrifice the material things of life in order to practise their art. Many of them have had the courage and the toughness to continue working in spite of adversity. In this country today, at a time of recession, many of them need every penny for material things, and the chances of survival are slim.
I must declare an interest as a practising painter. From the knowledge of my profession, I can help to pinpoint some of the problems that many artists are facing—problems which force them to look for other means of earning a part-time living, as teachers, as art critics, by working in a gallery or museum, or simply by applying for national assistance. Many artists who are allowed to register and to receive supplementary

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benefit suffer from a dilemma whenever they receive income from sales, commissions, grants or awards. Are they to declare their receipts and risk prosecution at a later stage or do they simply hide their receipts?
Opportunities for part-time employment do not come easily. But when chances do arise to supplement income by other work, things can be difficult under the present taxation system. Many artists cannot claim expenses since they are liable to be written off as hobby painters by the Inspector of Taxes. These expenses are growing fast while the returns on exhibitions are diminishing. The commission in most galleries on sales has now reached the level of at least 40 per cent. This increased gallery commission is due to rising overheads which, in the past 10 years, have risen tenfold. Opportunities to exhibit in galleries are becoming scarcer, and the cost of materials has risen steeply during the past 10 years. For instance, a canvas prepared by Winsor and Newton of modest size, say 24 inches by 36 inches, today costs over £23 excluding VAT, compared to just over £4 in 1972,
Framing costs have increased likewise and the price of paints and brushes has risen. So the cost of painting big pictures is prohibitive. The galleries are having to confine their exhibitions to business-making ones so that artists who are relatively unknown, but who should be given opportunities to exhibit, are being cut out. It is only when an artist's work is considered to be an investment that there is a chance of selling and the chance of an exhibition. The owner of the gallery where I exhibit in Edinburgh tells me that, with the exception of one or two exhibitions a year, the gallery makes a substantial loss in putting on exhibitions of contemporary art. This is only offset by the dealing aspect of the business where expensive and lucrative pictures are bought and sold. My dealer tells me that he knows of no other dealer of any repute in the world who makes a serious commitment to the showing of contemporary art who does not also deal from a back room.
My purpose is to sound the Government about what proposals they have in mind to regenerate the market for contemporary work and which would foster a demand. At present, the whole machinery is slowing down because the finance needed to drive the machinery has disappeared. Both the public sector side of patronage, through the Arts Council and local authorities, and the private sector need a boost. It is with the sphere of private patronage that this Question is concerned.
The public sector funding through the Arts Council, enjoyed by only too few practising artists, should not be reduced. Having served myself for some years on the Arts Council, I know how important and useful its work is. In that sphere, the artist comes under the discretion of committees, whereas in the private sphere, about which I am talking, his work is considered by individual people. Having said this, let us not forget the part which the public sector played at the time of the great American depression when the careers of many budding young painters of the New York school were saved by an enlightened scheme in which murals were painted for public places. Last year, during a less severe recession in America, the private sector market for contemporary work fell
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drastically, which shows how vulnerable the artist is to the ebb and flow of money.
While on the subject of commissions for public buildings, perhaps I might add that the President of the Royal Academy, Sir Hugh Casson, has particularly urged me to press the merits of a scheme whereby a percentage of the cost of each building should he spent on embellishment, as happens in several other countries. The main responsiblility for carrying out such a scheme would be upon the architects, and it is interesting that it has the support of such a distinguished architect as Sir Hugh.
I should like to refer briefly to the need to preserve so far as is humanly possible state support for our schools of art and design, many of which are suffering cutbacks. At a time when there are many new techniques, new materials and new ideas afloat, money is needed to provide adequate teaching staff and adequate resources for students while in the art schools. Business training also is needed to prepare them to face the colder climate prevailing in the outside world.
Last May, our Conservative Party Manifesto contained the following sentence:
"We shall examine ways of using the tax system to encourage further growth in private support for the arts and heritage".
My Question tonight urges the Government to encourage a little faster the growth of private patronage for the visual artists. It urges the Government to give some kind of financial boost which will encourage bankers, businessmen, private collectors and industrialists to buy or commission new works of art which, in turn, will encourage galleries to offer more opportunities for one-man shows.
We are extremely fortunate to have my noble friend Lord Gowrie answering for the Government as he has particular experience and knowledge of the matters under discussion. If my noble friend accepts that there is a need for the introduction of new tax legislation to stimulate private patronage, perhaps he will consider some of the options available to him. I should like to suggest six possibilities.
The first possibility is that original works of art be no longer subject to VAT. Indeed, VAT adds greatly to the complications of the art dealers and customs officials, since some artists are registered and others are not registered. I understand that in many cases dealers are made to charge VAT on all sales, whether or not the artist is VAT registered, in order to facilitate the keeping of records. All this confuses the non-registered artists and reduces their chances of sales, since their prices have to be raised to the same level as the prices charged for the registered artists, which include VAT.
The second possibility is that artists with consistent records, who are not registered and who are working part-time, should be able to reclaim VAT on the cost of materials. The third possibility is that the Government accept the suggestion made to the Pile Committee, which is in line with a Canadian concession, whereby any person is able to spend up to 2 per cent. of his or her gross income on works to be allowed against taxation. Fourthly, there should be clearer and fairer rules whereby part-time artists can claim losses against business income so that they would be less dependent upon individual tax inspectors. Any artist

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making a profit in two out of five years should be considered to be a genuine professional artist, able to claim expenses against income.
The fifth possibility is that companies be allowed to make capital donations to galleries registered as charitable organisations and claim relief, as happens in America. This would enable galleries registered as charities to be given new works which would be available for public viewing, instead of piling up in artists' studios. The sixth possibility is that businesses be allowed to purchase works of art to decorate and embellish their offices on terms which would enable the depreciation value of the works to be set against tax. Offices would be allowed to buy works to a given sum.
I realise that works may appreciate rather than depreciate in value, but there could be some stipulation whereby a buyer under this scheme would derive no financial benefit by a sale. This would remove the element whereby works are bought with an eye on investment rather than on quality or enjoyment. Any criticisms on the grounds that this proposal would encourage the supply of work for the benefit of a relatively small number of privileged people might be blocked by a stipulation whereby, if the work was later sold, the amount received from the sale would be given back to the Government.
On behalf of the artists I would urge my noble friend to find a way to help artists. My noble friend is in a position to know what is possible when dealing with a not altogether sympathetic Treasury and Department of Inland Revenue. We know that he is sympathetic to our problems and that our concern is his concern. My reason for putting down this Question is to urge my noble friend to press on with finding some solution to our difficulties.
7.54 p.m.
Lord Strabolgi: My Lords, we must be grateful to the noble Earl, Lord Haig, for raising this important Question this evening. The noble Earl is a practising artist, and a very distinguished artist at that. He has spoken with great sincerity and deep knowledge of the tax problems as they affect the professional artist today. The noble Earl touched on one or two of those problems, and I should like to develop what he said.
Many tax inspectors try to prove that the artist, even the professional artist, is actually exercising a hobby and is not entitled to offset losses and certain overhead expenses against income. There seems to be no uniformity of approach throughout the country. I understand that some inspectors try to argue that the artist is not engaged in a profession and that this is some casual source of income. The burden is on the artist to convince the inspector in every case.
I should also like to support what the noble Earl, Lord Haig, has said about VAT, which drives up the price of an artist's work. and to ask the Minister—whose presence we welcome here this evening, and who is also a Treasury spokesman—if consideration could be given to exempting original works of art from VAT in the same way as books are exempted. In France and Sweden the first sale of an artist's work is exempted from VAT, and so I do not
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think it would be very difficult to try to give that concession in this country. Why do we always have to lag behind other countries in this and other respects?
Can something also be done to arrest the decline in the number of part-time artist teachers in art schools? At a time of recession and cuts, when there are reductions in the teaching staff of an art school it is usually the part-timer who has to go. The Department of Education and the local authorities seem unwilling or unable to grasp what that great inspector of the old LCC art schools, Mr. Tomlinson, knew so well: that it is more interesting and stimulating to be taught by a practising, working artist, and that he is usually a much better and more inspiring teacher. Students nearly always prefer to be taught by a working artist, and I can vouch for that personally as someone who at one time had the privilege of being taught by both Henry Moore and Graham Sutherland, when both, at the beginning of their careers, were part-time teachers at Chelsea in the early 1930s—and excellent teachers they were.
Training in the fine arts is surely important even from the most materialistic point of view—and I think that this should appeal to the Government—since industrial design often stems from the fine arts and depends on them. We neglect the fine arts at our peril as an industrial nation, and, as the noble Lord, Lord Cockfield, said just now in the last debate, we need better design. It is important, too, that a proper balance should be struck between what we spend on preserving our past heritage, and keeping it within these shores, and what we spend as a nation on our present creative activity. France is currently spending the equivalent of £4 million on acquiring contemporary French art. Too often we tend to look almost exclusively back to the past and to forget that our present will he their past for future generations who will judge us to some extent according to the artistic legacy we leave them.
The stimulation of patronage is all important if both the artists and the galleries are to survive. As we all know, the Contemporary Arts Society has done much to encourage corporate patrons to purchase contemporary art, but more needs to be done to open up sources of support on a significant scale—as is done in the United States, where very generous tax concessions are given to donors of works of art and to galleries. Tax concessions are also given to industrial companies. The value of works of art owned by industrial companies in America amounts to many millions of pounds.
In order to encourage the collector of modest means, who is just as important, the possibility of organising something like art lotteries, such as have existed for a hundred years in Sweden, should be examined, as should the provision, too, of interest-free loans, such as operate at the Arts Council's Hayward and Serpentine Galleries and under the Welsh Arts Council's scheme to enable private buyers to spread payment over a number of months.
But much more remains to be done to raise the general public consciousness of the attractiveness and possibly even the financial advantage of acquiring original works of art, although they should always be bought because you like them and not as an

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investment. One significant way in which the patronage of artists can be extended and their work brought before the public is by commissioning works of art for public spaces, and over the past five years I understand that the Arts Council's scheme for grant-in-aid for this purpose has encouraged considerable activity in this area.
However, unlike some European countries and several states in the United States, this country has no legislation providing for a percentage of the building costs of public buildings to be spent on art works; that is, art works which are both inside and outside the building. If legislation could be introduced, it would open up a considerable area of patronage not yet available. Therefore, I hope that the noble Earl, Lord Gowrie, will give our artists some encouragement this evening. I trust that the noble Earl the Minister will never forget that he is just as responsible for encouraging the arts of the present as for helping to preserve those of the past.
8.2 p.m.
Lord Beaumont of Whitley: My Lords, I too, should like to thank the noble Earl for initiating this debate. I am rather overcome by the expertise in the art world which has been shown by the speakers so far and which no doubt will be shown by the speakers who are still on the list. I cannot boast any such expertise myself, except possibly my wife's expertise, because at the moment she is representing the Contemporary Art Society in Scotland and buying pictures from contemporary painters with the funds of that extremely-to-be-praised body, and thereby possibly doing more for contemporary painters than we are in your Lordships' Chamber. But I suspect that we may have a longer lasting effect, because I think that a great many things can be done and a number of them should be close to the heart of a Conservative Government.
The fact that we have a Minister for the Arts, whose heart and soul we know is in this matter and who is on the side of those who are speaking today makes it the more important it is that we underline those areas where it is quite clear that this Government should be making progress because they have motivation to do so.
First, the Government claim to be, and to a certain extent have shown that they are, on the side of small business. The artist today is the small businessman par excellence. He may not always be pleased to be called that, but nevertheless that is what he is and in so far as he can be helped to be a successful small businessman, that should be part—and I am sure it is—of the Government's intentions.
There is also the necessity or the desire, which I am sure the Government have, to make the artistic community more reliant on themselves and less so on that queen of quangos, the Arts Council. That is not to denigrate in any way the Arts Council, but given that the Conservative Party has this particular interest in encouraging private enterprise and the field outside quangos, I think it is very good that we should try to find as many sources as possible. I know that in fact the Minister is spending a great deal of his time doing this.
Thirdly, it is good for this Government to he concentrating on this because, like every Government before them, they are keen on trying to expand our
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industry and our exports. The existence of a number of practising artists provides a pool of talent for design and for commerce which is a beneficial background. The beneficial background of arts and crafts helps to increase the ability of our industry to produce the goods which are needed and which are aesthetically desirable.
Fourthly, I think there is a need—and I believe the Government realise there is a need—to do something about contemporary art, because I do not think that we shall have a thriving art market in this country unless we have thriving contemporary art. There are signs of a very real danger that the position held by this country until recently of being the hub of the art market of the Western world may alter as, for instance, insurance shows signs of doing and the City shows signs of doing. Art, too, may be under threat and the possibility of the art market moving to other countries should not be lightly passed by. However, the noble Lord the Minister will probably know more about that than I do.
I also have a list of suggestions which I think the Government might take up. Some of them overlap those mentioned by the noble Earl, Lord Haig; some overlap what the noble Lord, Lord Strabolgi, said. Like them, I shall be brief in explaining them. However, even if the Minister cannot immediately give us a great deal of encouragement—I hope he can give us some—there are signs that at the end of the debate there will be a great deal of material which he can take away. None of these ideas which we are putting forward from the various Benches round your Lordships' House is, of course, new, or hardly any of them are new. But they are ideas which, to a certain extent, are receiving a wide range of backing. As this consensus is rising in the parts of the community which are interested in the arts, so it encourages a Minister who is on the side of the arts to try to push forward some needed reforms.
The first matter I would mention, which has already been mentioned, is the droit de suite, or the possibility of having a taxation on subsequent sales of an artist's work. That can either be in the form of copyright, which goes back to him, or it can actually be a tax which goes to the help of the arts as a whole. I should have thought that the first was the more preferable of the two, but in Europe both methods are used in a number of different countries, and it is something which certainly ought to be introduced in this country in one way or another. We have paved the road with public lending rights for books; I think we ought to go on to the droit de suite.
Secondly, there is the question of VAT, which has been raised by all speakers so far. I should particularly like to take up the point made by the noble Earl, Lord Haig, about agents being required by the Customs authorities to charge VAT on smaller artists, even where those smaller artists—and I do not think that the noble Earl mentioned this particular point but it is absolutely vital—themselves cannot claim back the VAT for the materials because their income is too small to he under the VAT scheme. This is a real injustice and something which ought to be put right as soon as possible, and I should have thought that there was no reason why it should not be done.

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Thirdly, there is the easing of the ability of companies who wish to do so to make commissions to the arts against tax. The present rulings by the income tax authorities as to what is admissible and what is not admissible, although logical in their way, militate against enlightened patronage. There is not all that much enlightened patronage that we can afford to turn down or discourage that which there is.
Fourthly—something I do not think has been mentioned—there is possibly the need for a copyright collection agency. This is a subject which has not come up very much, but Art law (the service which has helped a lot of artists over the last few years and which I shall come to in a moment) has had 2,000 cases over five years dealing with the infringement of copyright in industry and in publishing, and in all sorts of ways. On the whole, artists have no particular help with this, and it is difficult for them to seek redress. But they have been able to use Art law. Unfortunately, Art law has now ceased to operate because it no longer had any money; but there is a need for this kind of protection, and there is a precedent for a copyright collection agency which could possibly be supported partly by the Government or. Perhaps, by the Arts Council. It is an idea which certainly should be taken up and urged on behalf of artists.
The abolition of part-time teachers, or the fact that the employment of part-time teachers in art schools is dying out, has already been mentioned. It is a British phenomenon. It does not. I gather, happen in many other parts of the world, except the other side of the Atlantic, and it has been tremendously important. The influence of live artists, as has already been mentioned, is good in itself. The mere fact that it keeps artists working, and working in a productive way, and keeps them off the dole and keeps them from the unemployment queues, is surely worth while.
I have talked already about the income tax authorities. There is need for criteria to be given to the income tax authorities, possibly after informal talks with the Arts Council, to exclude the hobby artist and, therefore, to be able to support more wholeheartedly the full time artist who exists and needs support. We can no longer follow Duchamp's remark that if you say you are an artist, your are. One can have some sympathy with the revenue authorities if they do not entirely accept that: but the answer to it is not just to have a hotchpotch, as we have at the moment; the answer is to lay down guidelines.
Also in this field, there is the question of bursaries and grants. From time to time there is doubt whether or not these are taxable. If they are ex gratia, they are free of tax; if they are regarded as income, they are subject to tax. This is unclear even with Arts Council bursaries and grants.
Finally, I have been helped in compiling this list by the people who have been running Art law for the last few years. It was an admirable body. It fell between the stools of subsidy and self-sufficiency. On a subsidy of £10,000 a year, which it had for a little time, it managed to release something like £200,000, or maybe even a quarter of a million pounds, of useful advice to artists. It was a great mistake to let this body disappear. It is not really the fault of the Government
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as such, but I have no doubt that the Government themselves could do something to renew the work of Art law.
Altogether, there is a vast range of areas in which the Government can act and in which, if they have the will, they can achieve something. There are probably objections to every single one of the suggestions I have made; but objections are meant to be overcome, and when the aim is worthwhile a good Government overcome them. The aim in this case is undoubtedly worthwhile. Over the last 20, 30 or 40 years this country has become a haven of the arts. It has lived down the reputation of being a Philistine country, which it had for so long. It leads the world in a great number of areas, and visual art is not one in which it is far behind. It would be a good thing for art as a whole, and for this country, if the Government were to give it and its artists the encouragement they need.
8.16 p.m.
Lord Hutchinson of Lullington: My Lords, I, too, am most grateful to the noble Earl for initiating this debate. It is most gratifying that it should be initiated by someone who is a practising artist. It must be, I would have thought, almost unique in this Chamber. It has also been a great privilege to have heard in this Chamber the speeches that we have heard so far this evening on this subject.
I must at once declare a direct interest in the subject matter of this debate, because not only have I had a lifelong love of the visual arts but I have, at the moment, the privilege of being the chairman of the trustees of the Tate Gallery. That gallery is the one most intimately involved in the country, I suppose, in the purchase of contemporary art. We do not deal in works; we are not allowed to sell; and the money that we spend on the purchase of works of art, for the most part, comes from the taxpayer. For those reasons, perhaps I am able to look at the present tax arrangements in relation to contemporary art with a modicum of personal detachment.
Before so looking, I should like to make one or two general observations. Whereas I am, and always have been, acutely aware of the difficulties which have already been referred to in the financial situation of the great majority of practising artists, and indeed craftsmen, nevertheless there has been a substantial improvement in their lot over the last two or three decades. There are many more artists practising in this country now than there have ever been. There are many more outlets for their work by way of commercially and publicly supported gallery spaces up and down the country. There is a slowly increasing number of patrons: not only such bodies as the Arts Council, the Government art collection, the Tate Gallery itself and other provincial museums. but a large number of unlikely commercial firms who are buying contemart work, as the noble Lord, Lord Strabolgi, has said, through the Contemporary Art Society.
What is still missing, unlike in many European countries and across the Atlantic, is a broadly-based section of the art-loving population with a real and sustained enthusiasm for privately purchasing works of art—and that was referred to by the noble Earl, Lord Haig, in introducing this debate. I think that that

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is largely due to the small amount of space in reviews in newspapers and periodicals which is given to the work of contemporary artists, and, I am bound to say, to a certain lack of enthusiasm, passion and love in the writings of art critics which might well communicate itself to potential purchasers.
But the buying of contemporary art still largely depends on relatively small groups of people and institutions buying a unique object. It is that which distinguishes this form of purchase from other commercial purchases. In the market for prints it is of course much less so, and here again there has been a very great expansion in the past 20 years.
Having said all that, nevertheless I know very well the problem of artists, which has been referred to in relation to supplementary benefits, and their present inability to register as artists. I know the dilemma to which the noble Earl, Lord Haig, has referred. It comes as a great shock to me to hear that the organisation Art law has packed up. I did not understand that it had already done so. I should like to pay a great tribute to the work it has done. It is a complete disaster to great numbers of artists in this country and for institutions if that is really so. The work that that organisation has done for individual artists and for art institutions is absolutely out of proportion to the skeleton staff with which it has run; a staff which has largely consisted of lawyers—solicitors and barristers—working in their free time and giving free advice to artists over innumerable numbers of legal problems which have come their way. The Arts Council suddenly ceased to support it on the basis that it was only a service organisation. It is no doubt as a result of that that it has met its demise. If the Government can do anything to support that organisation they would repay a thousand fold the tiny amount of money it needs to carry on.
Returning to the centre of this debate, the first and most strangely unacceptable matter which occurs to us at the Tate Gallery, and which has already been referred to before, is that whereas books, magazines, composers' compositions (good, bad or indifferent) are zero-rated for VAT, the works of visual artists—who use canvas, paper, metal, wood or stone, and so on, to convey their unique works of imagination—paytax at the full rate. The noble Earl the Minister will know that I have had some correspondence with his predecessor on the question of VAT. I have recently continued that correspondence with him. I know he will forgive me if I take this opportunity to say in public some of the things which I have said to him in private.
It is the first purchase of an author or composer which is zero-rated, but the effect of that is to free from the tax everything that has gone into the work. The simple fact is that books are zero-rated and are free, but paintings and sculptures are not. Is the Minister really prepared still to justify that discrimination?
Once an artist's turnover reaches a certain point and he has to register for VAT, particularly in the case of a sculptor buying the complex materials of his trade, it may be many, many months before he can sell his completed work and recoup his VAT payments. He will then have to pay possibly 40 per cent. or 50 per cent. commission to a gallery and on top of that pay 15 per cent. VAT. As far as my gallery is concerned, and public museums, such a museum is treated as provid
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ing a free service and not conducting a business. Thus related inputs are not deductible. Therefore we carry the full rate of VAT. When I say "we", that is the taxpayer pays the tax on the purchase of works from living artists.
If artists and dealers sell abroad they are not troubled by VAT and nearly every successful dealer in this country has built up a significant foreign clientele. The result is that many British artists' work simply goes straight to the dealer and out of this country. Thus so many of our greatest artists and most successful contemporary artists have a reputation abroad far higher and far greater than the reputation they bear in this country. I wonder whether that is not one reason why nearly all the substantial collectors of modern art are presently to be found outside this country.
The next fact which irks us at the Tate Gallery is that when we buy the works of dead artists for the British historic collection we pay no VAT, but when we buy for the modern collection from contemporary artists we pay the full rate of 15 per cent. I ask the Minister again can he really support this discrimination? A third matter which irks us is that we observe secondhand works of art passing through dealers' hands where VAT is levied only on the dealer's margin. Yet, if we bought direct from the artist, we would have to pay the full rate of VAT. I hope the noble Earl will not tell us when he replies that the Government cannot now extend the zero rating provisions and, because VAT is charged on all commercial transactions on the sale of goods and the provision of services, that no exceptions can be made, for if exceptions are made, the floodgates will be open and he, the Minister for the Arts, can claim no priority.
We all know that VAT is broadly based. We all know, first, that in 1972 books were exempted by a political decision. We all know that, secondly, since then there have been innumerable ad hoc exceptions, especially in regard to the export of goods. Thirdly we all know that recently, when it looked as though the nation might lose a great heritage building, in a period of days the VAT (Works of Art) Order 1983 was tabled exempting from VAT disposals from historic houses. It can be done and it was done. I should like to urge upon the Minister, knowing where his heart lies in this matter, that it should be done in relation to those matters which I and other speakers have raised this evening.
When we import works of art—and our national duty at the Tate Gallery is to build up our collection of modern foreign art—we enter a tax jungle. One example—and there is no time now to go into many others—is that a work which already has been disposed of by its creator, or his estate, attracts no VAT if the disposal was before 1st April 1973. But if that work has been kept by the artist or forms part of his estate at death—we all know that artists very often keep back their most original and interesting work—if we acquire such a work by purchase, gift or bequest we must pay 15 per cent. VAT. This is no small burden, because, for instance, an outstanding work by a contemporary American artist may well be worth 300,000 dollars. If left as a gift to us—that is in reality a gift to the nation—it would attract VAT of no less than 45,000 dollars.

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I would say to the noble Lord that not only does that thwart the wishes of the testator but it is hardly an encouragement for us to set up an organisation for the encouragement of gifts from our American friends to museums over here. I would ask the Minister, first: Why not exempt first sales by living artists—and this has already been mentioned—as is done in France and various other countries? I understand that there is a UNESCO recommendation to this effect. I would ask the Minister, in passing, what the Government have done in regard to that recommendation. Secondly, why not exempt all gifts and bequests to national collections?
Thirdly, why not permit the purchase of works from abroad free of VAT when they are already free of import duties and so create a reciprocity and thus help British artists in selling their work in the same way? Indeed, the Minister may know that there is an EEC regulation which I hesitate to spell out—it is the Sixth Council Directive of 17th May 1977—which places this obligation on all members of the Common Market. I would ask the Minister again whether there has been any agreement on such a directive up to date.
Before sitting down, I would also like to support the idea (which was mentioned by the noble Earl in initiating the debate) of the embellishment of public buildings, an idea which has been particularly supported by the President of the Royal Academy, Sir Hugh Casson. I should also very much like to hear from the Minister what are his views on droit de suite mentioned by the noble Lord, Lord Beaumont, whereby the artist will obtain some small percentage on the resale of his work when, as so often happens, the work was originally sold for a contemptibly small sum and then, a few years later, when the dealers and the buyers realise suddenly that this is a work which in every way is highly desirable, it is resold at a very substantially increased price. At the moment, the artist sees absolutely nothing of that increase in value.
Other matters have been raised. I should like to support all those matters which have been put forward by the noble Lord, Lord Beaumont, and the suggestions that he has made. I would submit that all these matters are exactly within the remit of the Minister for the Arts. I know that the noble Earl has a very particular love for the visual arts. I know that he has a very particular experience and knowledge of the market in the visual arts, and I know, too, that he has a very particular fascination for economic and fiscal problems. I know that he is a man of imagination and determination.
I can only say that there are at this moment very many persons involved in the world of art and, above all, and always, the artists themselves, and they, as of today, have a real belief that the new Minister for the Arts may really be able in the months to come to make a great contribution in sorting out the complications and injustices of the whole tax system, and particularly the VAT tax system, which weighs down on the artists of this country. It has already been said that, whatever we have achieved in this country in the last 10, 15 or 20 years, and whatever we have not achieved in this country, economically there can be no argument whatever that, as far as the arts are concerned, this country stands pre-eminent.
8.34 p.m.
The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie): My Lords, although it has been a brief debate, this has been an extraordinarily fascinating one. It is probably as well for the Inland Revenue and the Chancellor of the Exchequer that Money Bills do not have to go through your Lordships' House. Many years ago when I first became interested in painting—a love which has remained with me all my life, although even at the age at which children can do virtually no wrong on paper my own paintings were various shades of khaki on mud—I ran into a large and vibrant landscape in the wilds of Donegal which I took to be by a local painter. It turned out that it was, in fact, a painting by my noble friend Lord Haig. I looked at it and have stayed in the house where it resides on many occasions. It has long been my ambition that when eventually released from the cares of office, and from the salaries of office, I might be able to afford to purchase a picture from my noble friend. I urge all of you to do so; because not merely is he a painter in your Lordships' House but he is an inordinately good one.
I welcome the chance to pay that personal tribute to him but also to pay tribute to him for raising the debate in the way that he did, for making many suggestions to the Government in an informed and moderate way but also in a way that stimulated other noble Lords. I shall try to comment on as many of these issues as I can, given the lateness of the hour.
I would ask your Lordships to remember that all tax changes, however desirable—and I am the first to recognise how many anomalies there are in all taxation systems—represent forgone revenue; and it is difficult for any Government to make concessions in one sector which can so easily be held unfair to another sector. I will return to that important point in a moment. In general, as a Government, we believe that the rules of taxation need to be simplified rather than made additionally complex. There is always the problem that concessions and the boundary disputes that thereby arise—andsome will always arise—have the overall effect of complicating the taxation system. They also give rise to a loss of income. This has to be considered in an economy such as ours where a very great deal of art support is publicly funded. But I do not believe that in any way at all we have an ideal tax system. I would, as I have said, like it simpler and more equitable, and therefore the suggestions which have been made are in general most valuable and interesting, and we will as an Administration look at them very hard.
May I start by saying to my noble friend that he was quite right to take the Government's manifesto commitments as a test. We mean what we say in our manifesto and we shall be judged accordingly. Our record to date I believe is good in this area. Since 1979 there have been significant changes. There has been a substantial reduction in the minimum covenanting period for gifts to charities, including arts charities. I hope that the wife of the noble Lord, Lord Beaumont, for whose efforts I have the greatest regard and I have some knowledge of them, will benefit from those efforts accordingly by this significant change.
The Government have also simplified the requirements for public access to conditionally exempt works

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of art, particularly in the case of houses not regularly open to the public, and have provided much clearer information about such relief. They have also provided substantial tax reliefs for endownments for heritage property, including works of art, and, in addition (as the noble Lord, Lord Hutchinson, reminded us) last summer a VAT concession was introduced in respect of the disposal of works of art from historic houses in the case of private treaty sales and acceptances in lieu. That has indeed been widely welcomed, so I do not think this is a record to be ashamed of, and of course I hope very much to build upon it.
Theoretically there are two options open to the Government. Either we seek very fundamental changes in the present tax structure or we operate within the overall present framework and seek to make modest improvements. The tax changes which have been suggested in the report of the Select Committee of another place, and which have to some degree been argued here tonight, would fall into the former category of being fairly fundamental. They would enable individuals and companies to spend a percentage of pre-tax income on their own selected causes. Of course that could not—and should not—be restricted to the Arts. That expenditure—unrestricted, as I say—would be allowed against general taxation.
As everyone knows and as many have mentioned tonight, this is very broadly the American system and it has engendered a great deal of private and corporate support of activities throughout American society. But it is not the British system. We start from the proposition that the state collects and disposes of the money required to run essential and other services, supplemented—and the supplementation is of increasing importance—by earned income, private covenanting and business sponsorship. The transition from one system to another would be a massive operation, and the upheavals of the transitional period would undoubtedly damage many worthy causes, institutions and operations which at present are reasonably well run under the existing arrangements.
However, I can say that as a firm enthusiast of open societies and capitalist economies, I should like us to move steadily and without disruption towards something a good deal nearer to the United States system, as it has for a long time seemed to me that public spending through fiscal arrangements is overall a freer system than public spending by means of direct subvention. But I must say that such a move would take more than a generation to achieve, and I remind the noble Lord, Lord Strabolgi, in particular that it would in no way be welcomed unconditionally by most present Arts organisations, as it would inevitably mean a loss of funding in terms of direct subvention at one stage or another.
So I think the more realistic option, in present terms, is to look closely and continuously at the taxation system that we have and see what modifications might improve it. It is in this sense that I welcome some of the suggestions that have been made tonight, and I can assure the House that the Government will continue to look at the various possibilities.
Let me comment very quickly on a few of the suggestions that your Lordships have made. Much
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mention has been made of course of the proposition that original works of art should no longer be subject to VAT. My noble friend talked of this, as did the noble Lord, Lord Strabolgi. The noble Lord, Lord Hutchinson, devoted a great part of his extremely persuasive speech, if I may say so, to the problems of museums and other bodies engendered by the VAT system. As the noble Lord, Lord Hutchinson, anticipated, VAT is a highly efficient tax. It is designed, and operates, as a broad-based revenue tax and it would be very difficult to keep that consistency and efficiency of operation the moment one started introducing special reliefs. Existing reliefs are limited for the most part to items of significant and continuing expenditure by ordinary families: food, house prices, rents, public transport, fuel and children's clothing.
In this context, much though I should like to see works by living artists regarded as the essential fare of living, it seems to me it is very difficult to justify singling them out for special relief. This is where the problem of any exemptions from broad principles does in fact occur because the very difficulty about the book exemption—which, as an avid reader and purchaser of books, of course I in no way regret—is that it does provide an exemption. Here I agree with the noble Lord, Lord Hutchinson, that it is indeed difficult to justify the difference of that exemption with other works of art.
But what I think he is suggesting would lead to other claims for exemptions which again would be hard to defend; and so, if you like, the domino theory would come into effect and the overall efficacy of VAT would be very greatly reduced. However, I can say from my experience in the Arts market that what the noble Lord, Lord Hutchinson, has told us about the incentives to sell abroad are of course absolutely right. This does seem to me to be extremely difficult to defend. For that reason, while I doubt whether there is very much I can do about it, I certainly do not propose tonight to defend it.
I come now to the recommendation of the Pile Committee, which was mentioned by my noble friend: the question of donations by individuals being allowed against taxation. This is in essence the American approach, which I have referred to; and any percentage—whether 2 per cent. as Pile suggested, or a higher amount suggested by the Select Committee —would represent a major change. It is essentially a proposal for tax deductibility for single donations by individuals to support the Arts; and successive Governments have taken the view that tax relief should go to payments made to charities, including of course Arts charities, under deeds of covenant. Again, perhaps this is where we should see some significant growth in activity in terms of the creation and maintenance of Arts charities.
The present Government have followed the Goodman Committee's recommendations in reducing the period of charitable deeds of covenant from seven to four years and in providing for higher rate of tax relief generally. The case for going further at the present time—which of course would have implications for other charitable payments—has not really been established. I believe the argument of many corporate finance directors that there is no real change

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from seven to four years is not well founded and that charitable bodies should continue to prod them vigorously.
May I say in passing at this point to the noble Lord, Lord Strabolgi, that of course I am aware that many distinguished artists—many of whom are friends of mine—supplement their incomes by passing on their skills in teaching. I am sure that will continue.
Lord Strabolgi: My Lords, I am sorry to interrupt the noble Earl, but the point I was trying to make was that with the cuts in education, including the art schools, if a member of the staff has to leave it seems to be the part-time artist who is asked to do so. This is something that the Department of Education and the Government do not seem to understand. They do not appreciate the importance of the part-time artist as a teacher. The noble Earl does, I know, and I hope that he will try to get this over to his colleagues and to the local authorities.
The Earl of Gowrie: My Lords, in spite of spending constraints and such market factors—if I may put it that way—as falling pupil rolls, the overall spending of local and central Government on education is still very large, and I do know that there is the temptation to dispense with the part-time artist. But, given the relatively low cost of part-time artists, it should be possible for most authorities to resist these temptations. I hope they will pay heed to what the noble Lord says. He will appreciate, however, that I cannot require them to order their budgets in this way. I can simply point out that, in relation to total spending on education, spending on the arts is small and that the maintenance of a corps of part-time teachers should be possible.
Lord Beaumont of Whitley: My Lords, the noble Earl is deploying an extremely good and detailed reply to the debate as a whole, but a very important point has been raised. In his reply the noble Earl seems to be skating over the fact that these part-time teaching posts have been disappearing at a rate of knots over the last few years, and are still disappearing. He and I both know artists who have still got such jobs, but I know for a fact that a survey in the art teaching profession which covered the whole country showed that these jobs have disappeared. I would be the last person from these Benches to say that the Government ought to be forcing on local authorities exactly what they should do in this particular way, though I am surprised that the noble Earl, speaking from those Benches, is prepared to defend that point of view at this particular point in time. Nevertheless, is there nothing that the Government and the Minister for the Arts can do to tackle what has already been seen to be a very grave problem indeed? It is not a minor matter; it is a very important matter.
The Earl of Gowrie: My Lords, what the Government can do and what the Minister for the Arts can do and, indeed, has done is to point out, as I have already said, that against the overall funds which are available the process of axing part-time artists, which I fully acknowledge has taken place to some degree, need not be necessary. But I cannot enforce this method of
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spending, as the noble Lord, Lord Beaumont of Whitley, has acknowledged, on local authorities. What we can do is to draw the situation to their attention and to generate, as no doubt this debate will help to generate, public pressure that they should not make economies in that particular direction, or should do so with the greatest care and vigilance.
Tax relief is not given for purely personal expenditure which any individual chooses to incur. Surely it would be wrong that the tax system should subsidise the expenses of pursuing a particular hobby, whether the hobby be a high art form like painting or the manufacture, say, of corn dollies. But the losses of a professional artist, whether he is part time or full time, from his profession are in fact allowable for tax. Whether what is done amounts to the carrying on of a profession is a question of fact. Evidence of commercial exploitation would be looked for. An individual must show a real and substantial attempt to market works for profit. I do not believe there is a basis for changing this rule at present, though I shall look carefully at what has been said.
I turn to single donations by companies. This option is arguing for a tax deduction for single donations by companies rather than individuals to apply to the arts. The same objection applies, I believe, as applies to donations by individuals. It is true that tax deductions for single donations by both individuals and companies are given in the United States, but America does not have the deed of covenant system and, as I said earlier, does not of course make the overall levels of public subvention that we do. Companies can make donations to the arts by means of deeds of covenant and I urge them to do so.
The issue of company tax allowances for the purchase of works of art was raised. I was very interested in what my noble friend had to say on the subject. A business can already deduct for tax expenditure incurred for the purpose of earning its profits. Expenditure of a capital nature may qualify for capital allowances. I am not wholly clear what has been recommended: whether the concession would be a deduction or a form of capital allowance. I have to acknowledge that, either way, it would involve extending tax relief to items of expenditure which I believe it would be slightly difficult to argue were strictly necessary for the purpose of generating profit. Again, any concession sought in respect of paintings could set a difficult precedent for allowing all manner of non-business expenditure, and there would be questions of fairness and equity in respect of other art forms. However, I view with some interest what my noble friend said and I shall continue to give it more thought.
May I now say something about tax credits. The concept here does, on the face of it, appear to be attractive but in fact the proposal would involve considerable complexity, particularly in terms of who would be entitled to redeem a credit and over what period; to whom would credits be transferable; and how would their loss of value through inflation, over a long time span, be treated? The noble Lord, Lord Beaumont of Whitley, and also the noble Lord, Lord Hutchinson of Lullington, asked me about the droit de suite. I am afraid that the noble Lord, Lord Beaumont of Whitley, somewhat anticipated my reply when he said that objections were raised to every suggestion he

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made. The noble Lord is a pessimist, and pessimists usually find that the world works out in the way they want it to work out. However, we do see great practical problems in any proposals for artists to share in the profits from transactions after the initial sale.
Wearing my other hat as a Civil Service Minister, I see one of them. This would certainly require many enforcement staff. That is an additional cost which would be borne by the estate of the arts as well as by the rest of us. In respect, too, of the copyright collection agency, I believe the Government would be reluctant to embark on yet another quango. However, the noble Lord might await perhaps a little less pessimistically the Government's overall proposals on copyright following the consultations which we are undertaking on the Whitworth Report.
I do not believe we should confine our attention to the ways in which the tax system supports the arts, because the arts are broad based and rely on many other incentives. Under present arrangements, the lion's share of subsidies is provided by central Government either directly or through the rate support grant to local authorities. But there has also been a very substantial growth in business sponsorship, and this is a trend that I expect to see continue. At present, the level of business sponsorship is variously estimated at £14 or 15 million a year, as against some £½ million only seven years ago. I fully believe that there is scope for much more growth. One of my main objectives is to encourage that growth and to emphasise to businesses, large and small, the mutual advantages that can he obtained from association with arts bodies.
To this end I have strengthened my own Ministry in its business sponsorship role and am campaigning actively up and down the country on the need for closer business involvement. But it is a marriage of two parties. The arts have to sell themselves and to be ready to market their product in a way which is attractive to business. At the same time, business should recognise that the arts offer a great deal of community value to the area in which they operate and can play a significant role in the marketing effort of the company which sponsors them.
I think, therefore, that we must increasingly look at a mixed economy in the arts—that is to say, greater box office, more private patronage and support by friends, additional business help and a continuation of central and local government support. This diversity of finance is one of the great strengths of the arts and is something to be encouraged. New developments will increasingly come not from more public funding in an area when it is a struggle to maintain it—and we will win that struggle—but from increased private support, perhaps triggered by elements of matching public resources in some cases.
Looking around the arts scene, the most striking feature to my mind—and the noble Lord, Lord Beaumont of Whitley, recognised this—is that it is currently so varied and active in spite of that which has been said about all the difficulties created by limited funding. There has been a resurgence of art activity since the war in this country, and I must pay tribute to the part which the Arts Council has played in engendering that. While London remains the hub of that activity, inevitably in a smallish country, it is
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spread increasingly throughout Great Britain. Moreover, it cannot be said that the arts are in any way parasitic. They have great earning potential, and the "high art" which on the whole receives the majority of public support is itself a seed bed for developments which percolate through the field of arts and entertainment.
I do not doubt that there are very real links between the interest in dance and the development of a musical such as "Cats" and the subsidized sector such as the Royal Ballet; and nor do I have any doubt about the connections between success in serious and so-called pop music. And, of course, the contribution of the arts to television in terms of writing, acting and producing talent is enormous. These are all reasons why the arts are a vitally important part of our society at the present time and why the Government attach such value to their health.
In conclusion, I wish to say that it is difficult to devise any system which is totally fair to all individuals or sectors. The essence of the taxation system is that it should create a broad measure of parity among all manner of sectional interests. If we begin to tamper with that system too radically and seek exemptions in too many particular cases, we risk not so much the merits of diversity but the confusions and expense of special pleading. I believe that we should seek salvation overall, not so much in terms of tax changes, which may in the short term help one group or another, but in terms of shifting the balance in the economy as a whole towards more wealth-producing and productive activities. In the longer run this is the safest way of engendering the lower taxes and the higher disposable income that can be used to benefit the community at large.
Our best efforts should be directed towards generating wealth which will enable individuals and groups within the community to give that degree of additional personal stimulus without which no artist and no subsidised venture can satisfactorily survive for long. I recognise with all the speakers in this debate that the tax system has a contribution to make to this end; and I shall try to see that its contribution is maintained.

Severn-Trent Water Authority Bill
Returned from the Commons with the amendments agreed to:
House adjourned at two minutes past nine o'clock.