Lords Sitting of 16 April 1985

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

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, before the commencement of business I should like to take the opportunity to inform the House that I am summoned to attend a meeting of the Privy Council on Wednesday, 17th April. Accordingly, I trust that the House will agree to grant me leave of absence for that day.

Nuclear Attack: Effects
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are aware that the British Medical Association has examined the projections used by Scientists Against Nuclear Arms (SANA) and has stated that they give a more realistic estimate of the effect of nuclear weapons than those used by the Home Office; and whether their forthcoming circular on Civil Defence will use the SANA projections.
The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur): My Lords, we are aware of the SANA projections and the British Medical Association's acceptance of them. The figures are derived from American casualty models which, in our view, are not wholly appropriate to the United Kingdom.
Lord Jenkins of Putney: My Lords, does not the noble Lord agree that even though these projections may not be entirely in accordance with those used by the Home Office, they are serious enough for the Home Office to take them into consideration in their forthcoming circular? Will they look at this whole question again? I think the noble Lord may discover that in London, for example, in the event of a severe nuclear attack the survival rate would be in the order of 10 per cent. If that is so, will the Government look again at their whole defence policy?
Lord Glenarthur: My Lords, the Government's policy of deterrence aims to prevent any attack of the kind which the noble Lord envisages happening in any case. That is the policy upon which we rest.
Lord Ennals: My Lords, does the noble Lord the Minister accept that the BMA concluded that the Home Office figures very significantly under-estimated the effect of blast, heat and radiation on the population in the event of a nuclear explosion? In view of the talks
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that have taken place between the BMA and the department, can the noble Lord enlighten us as to whether the department now has accepted the position of the BMA, or can he tell us where the talks now stand?
Lord Glenarthur: My Lords, the United States' calculations applied to rather different criteria. They applied to an unwarned population, mostly located in houses of light construction. The original Home Office figures applied to a warned population—that is a significant difference—in United Kingdom houses of heavier construction. So far as the review of blast damage, and the effects of blast is concerned, it is a substantial review; it necessarily takes a long time to complete.
Lord Jenkins of Putney: My Lords, in view of the fact that the Government have no shelter or evacuation policy, what is the purpose of warning the population? In replying to that question will the noble Lord say when his new circular on Civil Defence is to be expected?
Lord Glenarthur: My Lords, the circular will come out shortly. So far as figures for casualties are concerned, the noble Lord will be aware, and I am sure that many other noble Lords will support the fact, that many millions will survive any nuclear attack, and our policy is designed to prevent that kind of attack or any other happening.

Homelessness: Government Policy
2.39 p.m.
Lord Grimond: 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 proposals they have for housing the homeless.
Lord Skelmersdale: My Lords, Local Authorities have specific duties towards the homeless under the Housing (Homeless Persons) Act 1977. It is for them to decide, in the light of the guidance we have given them, how to fulfil these duties and how to use the housing investment resources available to them.
Lord Grimond: My Lords, is the noble Lord aware that that seems to me to be a slightly academic answer? Is he not aware that homelessness is one of the greatest human tragedies in this country? Is he aware that it is costing the local authorities millions of pounds a week to house these people? Is he aware that it is impossible to ask young people to go about seeking employment when they can neither get accommodation nor pay for it? As the noble Lord is putting the blame on the local authorities, would he not consider allowing them to use all the proceeds from the sale of council houses for either reconditioning accommodation or building new houses? Would he not also consider freeing the tenancy laws so that more tenancy accommodation can be offered?
Lord Skelmersdale: My Lords, yes. I can at least agree with the noble Lord, Lord Grimond, that this is the greatest human tragedy. As I outlined in my original Answer to the noble Lord, Parliament has given to local authorities specific duties on homelessness. My own view is that it would be inappropriate to allow local authorities to use all their capital receipts when they have vast numbers of empty local authority houses which have been out of use for more than a year. Countrywide, there were 25,300 properties empty for more than a year. As I said yesterday; 9,000 of these were in London.
Lord Shinwell: My Lords, is it reasonable for the Minister to pass the buck to the local authorities when the local authorities have had their grants reduced and are being asked to accept the responsibility for expenditure, etc? Will he take note of this? We very often complain about the absence of human rights in other countries. That was the subject of a debate quite recently in your Lordships' House. I know that concerns the Government, as it does every one of us. In those circumstances, are not other countries entitled to refer to the absence of human rights when almost 100,000 people in this civilised country of ours are homeless?
Lord Skelmersdale: My Lords, for a start I would take issue with the noble Lord's figures. The fact that 100,000 people are homeless at any one moment does not mean that the problem of homelessness is of that extent. By definition, once people have been found houses by a local authority they disappear from the figures that have been quoted by the noble Lord. But equally, of course, other people come in; so it is a constantly changing situation. So far as passing the buck to local authorities goes, Parliament gave a specific duty to local authorities in this respect. All that I am doing is reminding the House and them of it.
Lord Graham of Edmonton: My Lords, will the Minister not accept that the best way to house the homeless is to enable councils to build more houses? Against the background of an appalling situation—the Minister is well aware that 1,200,000 families are on waiting lists, that 1,100,000 houses have been declared unfit for habitation and that there are 80,000 homeless families, one third more than in 1979, every year—why do the Government persist in reducing the HIP allocations and curtailing the ability of councils to spend their own money?
Lord Skelmersdale: My Lords, it sounds a very easy answer (does it not) to allow councils to build more and more houses. But the figures I have given for empty properties and properties empty for more than one year would only be added to by building these houses. In regard to reducing the capacity of local authorities to spend money on housing, I would point out that from 1979 to date such spending has been reduced by 26 per cent. I might remind noble Lords opposite that in their last period of Government it was reduced by 45 per cent.
Lord Orr-Ewing: My Lords, yesterday my noble friend gave figures showing that in London there were 30,000 empty council houses. Surely something can
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be done to make these more available. Can he not encourage the local authorities? Can he not now start looking again at the Rent Acts which have been very inhibitive and which have encouraged the under-use of housing? Many people with large houses in which rooms are available will not let those rooms to people in need of housing because they fear that they will never get possession of the house again. Is it not time to start to release this potential which is unused and which would be welcome to those who are currently homeless?
Lord Skelmersdale: My Lords, yes; of course it is. I hope that I made the point yesterday. As to releasing dwellings that might be available in the private sector, perhaps I may say that I was interested to learn recently of a scheme in Camden where the council is starting to do just this. I am not sure that everything about the scheme is absolutely perfect but certainly the council is working hard to alleviate the problem.
Lord Avebury: My Lords, will the noble Lord not agree that the fact that dozens of people are sleeping rough under Charing Cross arches and along the Embankment Gardens is a crying scandal and indicates the total failure of local authorities in London to deal not only with the problem of homelessness generally but with the particular question of homelessness among people with multiple problems? Will the noble Lord and his colleagues in the Department of the Enviroment call a meeting of all central London local authorities so that concerted action can be taken not just by the local authorities but by the Government and the local authorities together, with the guidance of which he speaks given to them, and finance made available to them, to solve these awful problems?
Lord Skelmersdale: My Lords, we are dealing with individual people. I know that there are some critically homeless people such as those living under the arches who do not fit into what the Establishment regards as a proper life. As to the idea of a meeting, yes; I should be perfectly happy to recommend the summoning of such a meeting. However, with such activities as the Government's hostels scheme, which has given 11,000 extra places in the last five years, I am not sure whether it would achieve very much. But I shall certainly look into the idea.
Lord Rhodes: My Lords, can the noble Lord assure those who work in this field in Manchester that our work will not be hindered by the abolition of the Greater Manchester Council?
Lord Skelmersdale: My Lords, the noble Lord, Lord Rhodes, asked me exactly this question in different words yesterday. I said then that the answer was, no. I am now able to say that the answer is still, no, because there is no reason why the boroughs should not provide exactly the same funds as the Greater Manchester Council is now providing.
Viscount Massereene and Ferrard: My Lords, would my noble friend not agree that many of the people we see sleeping rough under the arches and along the Embankment refuse to go into hostels? I have known

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gentlemen of the road, if that is the right way to describe them, who will not go into a house. They do not want a house. How are you going to force them into a house if they do not want to go into a house?
Lord Skelmersdale: My Lords, I am grateful to my noble friend for expanding on a point that I have just made.
Lord Blyton: My Lords, is the noble Lord not aware that a while ago a Minister of the Government said that people should get on their bikes if they wanted to look for work? Does the noble Lord not think that he should now tell them, in the light of the homeless figures, to take a tent with them?
Lord Skelmersdale: I am sorry, my Lords; I am not sure that I got the drift of the noble Lord's question. However, I made the point yesterday that it does not take a long period for people to find out whether there is work available for them in a particular area.
Lord Graham of Edmonton: My Lords, will the noble Lord accept that I am not raising a party political point? Twice, yesterday and today, he has drawn attention fairly to the thousands of council owned properties that are left unlet for a year. As someone, like many noble Lords, who has served on local authorities, will the noble Lord accept from me that no council deliberately gainsays the ability to raise rent from property that is lettable? Will the noble Lord not give an undertaking to look especially at the problems that inhibit a council making fit properties that it is currently not letting? Surely he will find that one of the main reasons is that money needs to be spent and that councils are being inhibited in getting that money through the HIP allocation of the Government.
Lord Skelmersdale: My Lords, I readily acknowledge the experience of the noble Lord, Lord Graham of Edmonton, as regards local councils. However, I am sure he will agree that local government is a matter of priorities. It cannot be a matter of good priority if these houses are left empty for so long.
Lord Wells-Pestell: My Lords, have the Government considered making inquiries of the voluntary housing associations in this country to see how many more houses they can build at the speed with which they do build them if they had more Government financial support?
Lord Skelmersdale: Yes, my Lords, I do not have the list in front of me, but there are at least nine research projects being carried out on exactly the sort of issue to which the noble Lord has just referred.

LSD: Control
2.51 p.m.
Baroness Masham of Ilton: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how big the
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problem of LSD is and whether adequate measures are being taken to control the supply.
Lord Glenarthur: My Lords, the Government are satisfied that Her Majesty's Customs and Excise and the police are taking all possible steps to reduce illicit supplies of the drug to a minimum. The available statistics and other reports suggest that the misuse of LSD is less widespread than it was in the early 1970s. However, there has been some increase in the last four or five years, and the Government will be keeping a close watch on the problem.
Baroness Masham of Ilton: My Lords, I thank the Minister for that interesting reply. Will he not agree that, with there being so much emphasis on cocaine and heroin, we should not forget the dangers of other drugs, such as LSD, with its appalling flashbacks, and also the dangers of injecting amphetamines?
Lord Glenarthur: My Lords, I certainly agree with the noble Baroness that one should not lose sight of other drugs, although, as she indicates, cocaine and heroin are perhaps the most serious. LSD is already a very tightly controlled drug. It is in Class A of Schedule 2 to the Misuse of Drugs Act 1971. Traffickers can therefore be punished by a sentence of up to 14 years' imprisonment, and this will be increased to life imprisonment in the Bill being introduced, with Government support, in another place. I can assure the noble Baroness that every step is taken to ensure that LSD does not become more of a menace.
Baroness Lane-Fox: My Lords, is my noble friend the Minister aware that LSD can be very easily concealed in food, as it was in my dinner in 1962 by a lady who, alas!, subsequently jumped to her death from a sixth floor? Is my noble friend aware that perhaps the public should be better informed of the effects of LSD?
Lord Glenarthur: My Lords, although I am not aware of the particular case to which my noble friend refers—and it sounds a tragic case—I am aware that LSD can be induced and used in very small quantities, and that that is one of the features of this particular drug. As regards education, I can tell my noble friend that an information leaflet is already produced by the Department of Health and Social Security which highlights the sort of effect that this drug has. A general campaign of education and information is already being undertaken by the Government.
Lord Mishcon: My Lords, apart from the general question of information and education, has the noble Lord the Minister anything to tell the House about the question of television programmes, and matters of that kind? I think the House would be most interested in that, because this was a controversial matter and some people were in favour and some were against. Have the Government made up their mind?
Lord Glenarthur: My Lords, I can tell the noble Lord that the advice leaflets came first and were issued in February. It is proposed to advertise, particularly as regards heroin, using the television, starting in mid-May. These drug issues are very serious issues. It is a

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very real problem, and there will always be some discussion as to which is the right method of dealing with it. But the Government believe that the policy now being adopted is the right one and that it should have effect.
Lord Inglewood: My Lords, can my noble friend say whether the supply of LSD in this country is largely or wholly imported, and, if so, from which countries, in the main? Can he say whether there is some processing or manufacture in this country?
Lord Glenarthur: My Lords, at the moment it appears mostly to come from within Europe, but there is some production of LSD in this country.
Lord Kilmarnock: My Lords, with the reduced Customs and Excise force, are the Government sure that they have their priorities right in spending as much time and energy as is spent on pursuing cannabis and possibly not leaving enough officers over for more serious and heavy drugs? Do the Government have any figures on recent seizures of LSD?
Lord Glenarthur: My Lords, I can give the noble Lord some figures on seizures. The most recent figures we have are for 1982, when there were 464 seizures: and in 1983 there were 518 seizures, but the actual amount that was seized was less in 1983 than in 1982. I believe that this bears out the point made by my noble friend just now, that it is very small quantities of this drug which are so dangerous.
Lady Saltoun: My Lords, do the Government have any plans to increase the number of dogs trained to sniff out drugs?
Lord Glenarthur: My Lords, I am not sure whether LSD specifically can be sniffed out, and, of course, the Question relates to LSD.
Lord Elystan-Morgan: My Lords, I should like to ask the Minister two questions. First, what is the best estimate currently held by the Government of the number of people in England and Wales now using LSD? Secondly, as regards the contention that the figures for addiction seem to compare well with a point in time about 10 years ago, do those figures take into account the fact that for thousands of people LSD appears to be a bridge between cannabis, heroin and cocaine and is used for perhaps half a dozen to 10 trips, and that addiction is not a particular feature of the use of this very dangerous drug?
Lord Glenarthur: My Lords, I cannot give the figures. It would be unrealistic to make the sort of assessment for which the noble Lord asks. As regards the noble Lord's point about LSD being a bridge, it is very difficult to say that LSD is any more of a bridge than some other drugs in this particular case. The real worry is that it provides what are known as flashbacks after three or four months or so, when the person who has had LSD suffers a very nasty experience as a result of a previous trip.
Lord Rodney: My Lords, in view of the very considerable profits that are made from trafficking in LSD and other drugs, can my noble friend the Minister tell the House what progress has been made with legislation for the sequestration of assets of drug traffickers?
Lord Glenarthur: My Lords, with respect to my noble friend, I think that his question goes slightly wide of the Question on the Order Paper, which is particularly concerned with LSD and the measures to control it. I take my noble friend's point and the interest that he has in it, and I shall certainly deal with it, if I can, in written form rather than now as I believe that it goes rather wide of the original Question.

Business
2.58 p.m.
Lord Skelmersdale: My Lords, at a convenient moment after 3.30 this afternoon my noble and learned friend the Lord Advocate will, with the leave of the House, repeat in the form of a Statement an Answer to a Private Notice Question on the death at Glenochil Young Offenders' Institution.

Tobacco Products (Advertising) Bill [H.L.]
Lord Pitt of Hampstead: My Lords, I beg to introduce a Bill to provide for a ban on all forms of advertising of tobacco products, and for purposes connected therewith. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Pitt of Hampstead.)
On Question, Bill read a first time, and to be printed.

Land Registration and Law of Property Bill [H.L.]
2.59 p.m.
The Lord Chancellor: My Lords, I beg leave to withdraw the Land Registration and Law of Property Bill, on which I think I owe the House a brief explanation. The main object of the Bill is to provide certainty and to restrict to a minimum the inquiries which it is necessary to make on the purchase of a house. The amendment put down by the noble Lord, Lord Mishcon, and the noble Lord, Lord Foot, if passed, would defeat the main purpose of the Bill.
I have had, I hope, a fairly friendly and frank discussion with the noble Lord, Lord Mishcon, and I have communicated with the noble Lord, Lord Foot. In the circumstances, I think that the only course is for me to seek leave to withdraw the Bill for the reason that I really do not think that we could get it through on the basis of controversy. Law reform is either by consent or not at all. I think that we can agree to differ about the merits of it.
Lord Mishcon: My Lords, I think that I, too, in view of the fair comments of the noble and learned Lord, owe an explanation to the House. It will be a short one.

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As I tried to make clear in a Second Reading speech from these Benches, there was great concern expressed in the legal profession and outside it that the Bill that the noble and learned Lord, with his usual capability, was piloting through this House would have removed protection from those who had a monetary interest in the home and who were possibly relatives of the occupier, or who might indeed be disabled people who had contributed to an extension of the house in question.
Because of that removal of protection, amendments were put down and the noble and learned Lord, as he rightly said, was good enough to see me and to indicate that if those amendments were indeed down at the Committee stage it would make it difficult for the Bill to proceed further. I can only comment upon it in the following way. I express my gratitude to the noble and learned Lord for his usual frankness, but I must say that in my humble view it is far better that the Bill should die rather than go on with its imperfections.
The Lord Chancellor: My Lords, is it your Lordships' pleasure that the Bill be withdrawn?
On Question, Motion agreed to.
Bill, by leave, withdrawn.

Business of the House
3.1 p.m.
The Lord President of the Council (Viscount Whitelaw): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That Standing Order 37 (Arrangement of the Order Paper) be dispensed with to enable the Motion standing in the name of the Lord Shackleton to be taken before the Motion standing in the name of the Lord Nathan on Monday the 22nd of April.—(Viscount Whitelaw.)
On Question, Motion agreed to.

Library and Record Office Storage Accommodation
3.2 p.m.
Viscount Whitelaw Viscount Whitelaw rose to move, That the report of the Informal Joint Committee on Library and Record Office Storage Accommodation, made to the Lord President and the Speaker of the House of Commons on 4th April, together with the Minutes of Evidence and Appendices, be printed.
The noble Viscount said: My Lords, I beg to move the second Motion standing in my name on the Order Paper. The purpose of this Motion is to authorise the printing and publication of the report which has been made to me and the Speaker in another place by the Informal Joint Committee on Library and Record Office Storage Accommodation. This committee was appointed in February last year. I am sure that it will be for the convenience of both Houses if their report is made generally available. Perhaps I may take this opportunity to express my thanks to all the members of the committee, and especially its Chairman, the noble Lord, Lord Trend, for all the hard work which they have put into this report.
Moved, That the report of the Informal Joint Committee on Library and Record Office Storage Accommodation, made to the Lord President and the Speaker of the House of Commons on 4th April, together with the Minutes of Evidence and Appendices, be printed.—(Viscount Whitelaw.)
Viscount Eccles: My Lords, as I may not be here when this House debates this report may I ask my noble Leader to bear in mind that space for books and other material used in connection with the work of this House is more important than space for the archives? If the records and archives encroach more and more on the available space here, this House will suffer.
Viscount Whitelaw: My Lords, I am grateful to my noble friend, who has unrivalled knowledge in this particular matter. I hope that he will read the report carefully. If it is debated when he is away, no doubt he will make his views known, as he always does, well and forcefully in the appropriate place.
On Question, Motion agreed to.

Child Abduction and Custody Bill [H.L.]
Report received.

Insolvency Bill [H.L.]
3.5 p.m.
The Lord Advocate (Lord Cameron of Lochbroom): My Lords, I have it in command from Her Majesty the Queen and his Royal Highness the Prince of Wales that they, having been informed of the purport of the Insolvency Bill, have consented to place their prerogative and interest so far as they are concerned on behalf of the Crown and the Duchy of Cornwall at the disposal of Parliament for the purposes of the Bill.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, I beg to move that this Bill be now read a third time.
Moved, That the Bill be now read a third time.—(Lord Lucas of Chilworth.)
On Question, Bill read a third time.
Lord Mishcon Lord Mishcon moved Amendment No. 1:
After Clause 7, insert the following new clause:
("Communications with liquidators to be privileged.
.—(1) This section applies to any communication made between the liquidator and any person for the purpose of determining any matter under section 7 above.
(2) In any legal proceedings other than criminal proceedings a communication to which this section applies shall be privileged from disclosure in like manner as if the proceedings had been proceedings before the High Court and the liquidator in question had been the solicitor of the other person concerned.").
The noble Lord said: My Lords, the amendment now before the House is one that I believe the House will consider to be important. It will be remembered that at an earlier stage there was a short but useful debate on the subject of privilege. The noble and learned Lord, Lord Denning, made his usual helpful contribution to the debate of a specialist nature by

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indicating that in his view—and the House followed that view—it would be wrong for privilege to be there where such privilege would defeat the possibility of a trustee in bankruptcy ascertaining all the proper facts that ought to be before him. The noble and learned Lord, if I remember him aright, made it perfectly clear however that questions of communication by the trustee of that privileged information were of course an entirely different matter.
What we are dealing with in this amendment is a rather different matter. It is the question of communications with the liquidators when the liquidators are investigating the possibility of disqualification proceedings or indeed wrongful, unlawful, fraudulent trading—call it what you will. One of the things that may well happen is that, in directing inquiries to various persons who may have had dealings with the company, they will be deterred from giving information to the liquidator which would be vital to him—and which it would be right that he should have—by virtue of the fact that that communication would not be privileged. Therefore, the amendment, which I hope your Lordships will think is a useful one, is there to see that communications with liquidators in regard to matters of that kind are to be privileged. I beg to move.
Lord Denning: My Lords, I am afraid that I should not be any more helpful about this than I was about the other. You have to visualise the position when a company is wound up. A liquidator is appointed to inquire into its circumstances, to see who the creditors are, who are the debtors, and furthermore in this particular context to see whether the directors have behaved or misbehaved. For this purpose, the liquidator has to communicate not only with the directors themselves but with the creditors, the accountants, and all those concerned in the running of the company.
Then, after doing that under this clause, if he thinks there is a case for applying to the court for removal or disqualification of a director, he reports to the Secretary of State—that is, to the department. They are the people who apply to the court. The Secretary of State or the department applies to the court to have the director disqualified as being unfit for service.
The important matter is clearly the communications which the liquidator has with his informants, with creditors or directors, or whatever they may be. This amendment requires a lawyer to understand it. I am not sure that I understand it completely. But the effect is that the liquidator is to be the solicitor and he is to be, so to speak, the solicitor for the person such as the director whom he is interviewing in order to obtain information. The communications between him and that person are to be privileged from disclosure.
In our courts there is a well-known rule of legal professional privilege whereby all communications between a solicitor and his client are privileged from disclosure. They must not be disclosed to anyone, but kept completely confidential. They may not be disclosed even to the court. As I understand the amendment, the communications such as I have mentioned are to be in that category. No one is to look
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at them or to be allowed access to them because they are to be treated as subject to legal professional privilege. I think that if there were such a privilege as this, it would stop the liquidator's mouth, it would stop him from passing to the Secretary of State all the important matters that the Secretary of State ought to know in order to decide whether or not to institute proceedings. I do not think that there should be such confidentiality between the liquidator and those people whom he interviews or sees. It should not be the same as legal professional privilege. He ought to be able to put the report fairly and frankly to the Secretary of State, so that the Secretary of State can take proceedings to have the director disqualified, if he thinks fit. I am afraid I cannot support the amendment.
Lord Lucas of Chilworth: My Lords, this amendment is a further expression of the concern of the noble Lord, Lord Bruce of Donington, to ensure the confidentiality of the report to be made by the liquidator to the Secretary of State; a concern which I indicated at Report stage that the Government share. As on that occasion, I am not able to recommend that your Lordships accept the amendment by which the noble Lord, Lord Mishcon, seeks to meet that previously expressed concern.
The noble Lord proposes that where a liquidator communicates with anyone for the purpose of determining whether or not the director's conduct should be reported to the Secretary of State for the purpose of the consideration of disqualification proceedings under Clause 7, the liquidator is to be treated as the solicitor of the person, including the director concerned. That communication is then to be treated as subject to legal professional privilege in any civil proceedings that might follow.
My understanding of the nature and incidence of legal professional privilege is somewhat slight. All I need say is that in broad terms confidential communications between a legal adviser and his client may not, without the consent of the client, be given in evidence by the legal adviser in a judicial proceeding if made either to enable the client to obtain, or for the adviser to give, legal advice or with reference to litigation which is taking place or which was in contemplation by the client. The privilege is that of the client and the effect of applying it to the relationship between the liquidator and the person with whom he has communicated will be to give that person—I should emphasise that this can include the director himself—a right of veto over the liquidator making any practical use of the information communicated for the purposes of either disqualification or court proceedings, such as wrongful trading. The director then could simply prevent any civil action being brought against him. That I am sure cannot be right and I would suggest that the amendment is not the way to achieve the aim of the noble Lord opposite.
We are considering whether the report by the liquidator requires any protection from unauthorised disclosure over and above that which already applies by virtue of general law. I can assure the noble Lord that if such protection appears necessary, appropriate provisions will be introduced. On that basis I would invite the noble Lord to withdraw his amendment.
3.15 p.m.
Lord Bruce of Donington: My Lords, the noble Lord has correctly apprehended the desire which we feel to protect the position of communications made by the liquidator concerning matters that have arisen in the course of his investigations. It may be that the text of the amendment that has been put down does not fully accomplish the purpose behind it. The purpose as described by my noble friend is to provide for privilege from disclosure in any other legal proceedings, communications to and from the liquidator, made in the course of his duty to inquire into the conduct of directors under Clause 7.
I do not like to fall foul in any way of the noble and learned Lord, Lord Denning, on matters of this kind because he is a considerable authority on them and I am merely an accountant. If he had told me that the whole question was covered under the Rules of the Supreme Court, in particular Order 24, or had I had that assurance from the noble Lord, Lord Lucas of Chi!worth, I should have felt more reassured because it was rumoured in the course of my investigations that such was the case. Perhaps I may cite Order 24/5/5, which reads:
"Some classes of documents, although they must be disclosed in the affidavit of documents as 'relating to matters in question in the action,' are nevertheless privileged from production and inspection. These may be conveniently summarised as: (I) documents protected by legal professional privilege; (2) documents tending to criminate or expose to forfeiture the party who would produce them; and (3) documents privileged on the ground of public policy".
If the noble Lord tells me that under that order there are already adequate safeguards as to the position of the liquidator, I shall be well satisfied.
The noble Lord will be relieved to hear that I shall not cite the actual paragraph under Order 24/5/14, where there are similar provisions relating to the protection of documents,
"tending to criminate or expose to a penalty".
Once again if the noble Lord informs me that the amendment is unnecessary because the matter is covered anyway, I shall be well satisfied.
Your Lordships will pardon me if I say that in such matters and in such an area I am but a child. All I am seeking is enlightenment and if the noble and learned Lord, Lord Denning, could advise me further on my suppositions I should be greatly obliged. All we on this side of the House wish to do is to give some form of protection to documents of this kind.
Lord Denning: My Lords, as the noble Lord has invited me to say something I should say that the rules about legal professional privilege will remain intact. I do not say that they cover all the matters in the clause, but the rules about legal professional privilege will remain intact whatever is in the Bill.
Lord Mishcon: My Lords, this is a complicated technical matter and it is very difficult for one to carry a debate further on matters of this kind. One puts a point of view. It is right that the communications to which I tried to refer when moving this amendment should be carefully looked at with a view to seeing whether special privilege should be given to them. It seems to be the feeling of the House, if I may say so, despite the very worthy contribution of my noble
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friend, that no special privilege should be given to documents of this kind and that one would have to rely in civil proceedings upon the ordinary rules which regulate the question of privilege. I feel the view of the House; it is coming through very plainly to me; and in those circumstances I beg leave to withdraws the amendment.
Amendment, by leave, withdrawn.
Clause 9 [Responsibility for company's wrongful trading]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 2:
Page 8, line 4, after ("step") insert (", which it was reasonable for him to take at the relevant time,").
The noble Lord said: My Lords, I beg to move the amendment standing in my name. This is an amendment dealing with Clause 9 of the Bill. It would perhaps be for the convenience of your Lordships if I drew your attention to an error in the printed form of the Bill as amended on Report. Correction slips have already been issued in respect of this but they may not have found their way into the copies which your Lordships may have before you. If one looks at Clause 9, on page 7, lines 29, 30 and 31, it will be found that, as at present printed, they are gobbledygook and completely meaningless because, owing to a printers' error, they found their way into this particular clause out of an earlier version of the Bill as amended in Committee. It is purely a setting-up problem.
As I say, the correction slip has been issued pointing out that on page 7, lines 29 to 31 should read:
"of the company, the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company's assets as the court thinks proper".
If one inserts those words, one finds then that subsection (1) of the clause makes sense.
Having said that, I would point out that the amendment I now bring forward is a comparatively small one dealing with line 4 of subsection (3) on page 8, seeking to insert after "step" the words:
"which it was reasonable for him to take at the relevant time";
so that the clause, if amended in this sense, would read as follows:
"The court shall not make a declaration under subsection (1) above with respect to any person if it is satisfied that after the condition specified in subsection (2)(b) above was first satisfied in relation to him that person took every step which it was reasonable for him to take at the relevant time, with a view to minimising the potential loss to the company's creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken".
This particular clause and this subsection might in certain circumstances find themselves open to interpretation by the court. Indeed, that is why the legislation is drafted. It becomes the law and the Bench therefore can only administer justice within the ambit of that law as laid down by statute, on the assumption of course that it has not been modified by case law in the interim. If one is investigating the past affairs of a company, particularly in the rather unfortunate circumstances of a liquidation, and if the attention of the Bench is drawn to the conduct of the directors in

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question under this particular clause the Bench has to take a view.
With hindsight, everything ought to have been done. It is very easy for anyone—very easy for your Lordships, very easy for me—to make judgments on the basis of hindsight because, with the history of everything laid before one, it is quite clear that step A should have been taken by the directors; that step B or step C and so on should have been taken. The whole thing is abundantly clear and is illuminated. But is that really what the legislation intends? And if it does intend that, is it right? I ask that because, viewed at the time the particular steps ought to have been taken, it may not be quite such a simple matter as it appears when looking back over the history of the whole and within the context of the events that have taken place since. We can all be very wise after the event; and it is this particular aspect of the clause to which I venture to draw your Lordships' attention.
I will not extend the arguments any further beyond saying this—and I may return to this theme at a later stage in our proceedings. I invite your Lordships to consider that there may be a possibility (and I put it no higher than that) that the Government are using this Insolvency Bill to act as a discipline upon directors. If they are, I think that possibly the emphasis is wrong, that the place to deal with directors' conduct is already in the Companies Acts themselves. Very considerable rules and restrictions concerning the conduct of directors are already laid down in the Companies Acts and various other Acts—the Protection of Depositors Act, the Consumer Protection Act, and so on. To try to import too much into the Insolvency Bill may perhaps be a mistake.
I have put it in the best way that I can. I am well aware that I may be accused of trying, as it were, to make the lot easier for delinquent directors. I am doing nothing of the kind. But it would be a very great mistake if we allowed ourselves to tilt over the other way too far. Like your Lordships, I am in favour of the enforcement of law, but I am also—as indeed are your Lordships—in favour of justice being done. The object of this amendment is to try to see that that can be done in the unfortunate circumstances that arise.
Lord Denning: My Lords, I support this amendment. I think that the courts would probably read in "reasonable" anyway when it says that a man must take every step to do this, that or the other. The court would say that that means every reasonable step. That is in the clause about wrongful trading. But there is an even stronger argument. In the earlier clause, Clause 7, which deals with the disqualification of unfit directors, there are very similar words. They are on page 5 at line 33. There the words are:
"that person took every reasonable step open to him with a view to minimising".
So there you have, in a very similar clause, the words:
"every reasonable step open to him with a view to minimising".
Surely we ought to have the same words in this clause; otherwise we will have the lawyers saying, "Oh, they meant something different in this other clause". It is surely better to have the same concept in the same
612
words in each of these parallel clauses. The words "took every reasonable step" are in Clause 7(3) and they ought to be the same in this clause. I support the amendment.
3.30 p.m.
Lord Meston: My Lords, I should like to support this amendment, which seems to me to add a valuable clarification to the words of Clause 9 and to be an aid to the interpretation of the clause. I thought that I had been very quick in spotting that Clause 7(3) referred to "reasonable step" whereas Clause 9 referred simply to "step", but the noble and learned Lord, Lord Denning, was ahead of me and I agree with everything that he said.
Lord Mottistone: My Lords, I, too, should like to support this amendment, which is a modification of my Amendments Nos. 16 and 17 which were moved on a previous occasion in order to bring Clause 9 into line with Clause 7. At the time my noble friend the Minister said that he did not think it was necessary to make the amendment because it did not change the sense. I invited him to consider that to talk about "every step" was too precise and demanded too much. The noble Lord, Lord Bruce of Donington, referred to the difficulties of retrospective consideration, when you can imagine all kinds of things that might have happened and which might not be reasonable at the time. This seems to me a very moderate alternative way of putting this particular phrase. I hope that the Government can be generous and accept it.
Lord Noel-Buxton: My Lords, I, too, should like to support the amendment as well as, as I did last time, my noble friend Lord Mottistone. The amendment is in substance the same as one which I put down at Committee stage. I spoke to it then and again on Report, and I do not propose to repeat today what I said on those two other occasions.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord, Lord Bruce of Donington, for explaining the printing error on page 7, at lines 29, 30 and 31, and for drawing attention to the correction slip. This amendment, as we have heard, is very similar to Amendments Nos. 16 and 17 which my noble friends Lord Mottistone and Lord Benson put down on Report but which were later withdrawn.
I have listened carefully to the arguments advanced by all the speakers in favour of this amendment and I have to say that I do not find them convincing. I should like to deal with just one point raised by the noble Lord, Lord Bruce of Donington. He asked whether this part of the Bill was intended to discipline directors, to some extent, and the answer is, yes. Certainly one of the objectives of the Bill is to draw more sharply to the attention of directors their responsibilities, particularly in relation to their duties and obligations to creditors. So, in some degree yes, there is a disciplinary element in it. I could not possibly agree with him that this is the wrong Bill in which to include that purpose. Clause 9 is intended to allow the court to determine whether a director should make a contribution towards the assets of the company in order to compensate those who have lost money as a result of the actions of a director.

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I do not particularly like to quarrel with the noble and learned Lord, Lord Denning, but on this occasion I feel I must, in that—I say this with great respect—I think he is making a mistake in accepting that the provisions of Clause 7 are for a purpose similar to those of Clause 9. The guidelines we discussed in Clause 7 are intended to assist the court and practitioners to decide whether a person's past conduct indicates that creditors need to be protected from that person's activities in the future. Clause 9, which we are discussing now, is concerned on the other hand with deciding whether a person's actions render him personally responsible for the loss to creditors. These are two somewhat different matters.
What the court is concerned to discover is whether, in a particular set of circumstances, the director took every step that a reasonably diligent man would have taken in the circumstances. In every situation different factors and circumstances will, I suggest, require different steps and it will be impossible to define these in advance and therefore to include them in any legislation.
Noble Lords have urged the acceptance of this amendment in order to prevent an unfair judgment being made with the benefit of hindsight, and being made to determine what steps a person should have taken when he first became aware that there was no reasonable prospect of the company being able to avoid going into liquidation. Quite frankly, we are satisfied that the courts are fully capable of employing the provisions of this clause to determine the steps which a reasonably diligent person, as defined by subsection (4), would have taken at the time.
Perhaps I may draw your Lordships' attention to that subsection. That provision requires every step to be taken which ought to be taken, and not any step which could have been taken. Subsection (4) sets out quite clearly exactly how the court can determine the circumstances. and perhaps I may quote from page 8 of the Bill. Clause 9(4) states:
"For the purposes of subsections (2) and (3) above the facts which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both—

(a) The general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company; and

(b) the general knowledge, skill and experience that that director has".

I have said on previous occasions that this subsection gives all the necessary guidance to courts and liquidators as to the steps which ought to have been taken. It gives guidance to directors, and my concern is that if the clause were to be amended in the way that is suggested, a director might assume, quite wrongly, that the additional words in some way indicate that it would be possible for him to do less than was expected of a reasonably diligent person. Acting on that assumption, he could in fact fail to act properly and could find himself having to contribute to the assets of the company.
It may or may not be of some comfort to the noble Lord opposite if I remind him that our minds are not totally closed on these matters, which we are keeping under review as part of the general consultation
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exercise which is taking place. If it is eventally decided that some safeguard needs to be built into the clause, the necessary amendment will be made.
I think that I have explained in some detail the reasons for the Government's view, dwelling particularly on the difference between Clause 7 and Clause 9 and emphasising the guidance which the courts already have within the context of this clause. Therefore I do not think, certainly at this stage, that the Bill should be amended in this way. I have suggested that we are continuing to look at these matters, and on that understanding, I would invite the noble Lord to withdraw his amendment.
Lord Mishcon: My Lords, I am reminded of the quotation "If not now, when?", having heard the noble Lord the Minister for the last 10 minutes or quarter of an hour put up a completely unnecessary defence—I say this most respectfully—by virtue of a brief that he has presumably received. Anyone exercising any discretion, having heard the speeches from all parts of the House, supporting this amendment, would have acted—and I use the word on purpose—reasonably, having regard to the time at which this debate took place: namely, Third Reading. That is exactly the sort of atmosphere that one wants to create in regard to looking at this amendment. There is no point in quoting Clause 7 and saying that there is a difference between Clauses 7 and 9. The fact of the matter is that we are dealing with words which import a judgment that has to be reached on the basis of what were the relevant facts and considerations at the appropriate time.
The whole point of this amendment—we think, and in all parts of the House it is thought, that it is absolutely proper that this provision should be in—is that under this Bill, in a case, where the director has behaved wrongly, the penalty for so doing shall be a personal liability in spite of the fact that he is a director of a limited company. That is an exacting penalty and a just one if the circumstances are right, but it is the duty of Parliament to see that the circumstances are clearly spelt out so that the court is in no difficulty at all.
The Minister seems to have forgotten that this clause actually provides that the court can exact this penalty in a winding up even if no application has been made. If the court sees fit, having regard to the circumstances before it, it can make a declaration of personal liability. All that this amendment says is that the court shall not make such an order if, looking at the time when certain decisions had to be taken, the director cannot be accused of not having taken every step which he reasonably could be expected to have taken.
Do we really want an argument before the courts that what this means is what Parliament has said? It does not say "every reasonable step". It does not say "most of the steps". It says "every step". One can well imagine the trouble that the court might be put to, with a complete waste of time, by somebody arguing that Parliament meant what it said. Parliament has said that it should be "every step", with the only saving words underneath "every step" being the words "that he ought to have taken". That is a very strict standard: "every step that he ought to have taken".

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Surely, as every speaker in this debate has said, the proper wording in this clause is as the amendment says:
"which it was reasonable for him to take at the relevant time".
Instead the noble Lord the Minister is saying, "Well, if in the light of experience or in another place we take the view that there shall be further safeguards, then we will consider it". As the noble Lord, Lord Mottistone, and others have said, we have had debates on words nearly related to this. There has been ample time for consideration. There appears—
3.45 p.m.
Lord Mottistone: My Lords, if the noble Lord will forgive me, I should like to say that one point that certainly did not occur to me until my noble friend the Minister spoke is that the qualification in Clause 9(3) about "step" exists in subsection (4), which makes a tremendous qualification of "step". The equivalent of subsection (4) does not appear in Clause 7. That is a substantial modification and perhaps there is no need for this amendment or the ones that I put down at Report stage.
Lord Mishcon: My Lords, woe unto the person who accepts the noble Lord, Lord Mottistone, as a support because he turns out on various occasions to be a rather wobbly reed! I have looked at subsection (4) and I invite the noble Lord, Lord Mottistone, if he would, to look at it again and then revert to his previous position, as I hope, of firm, stable support for what he said previously.
If your Lordships look at subsection (4) you will find that it does not have the protection that I seek to have, that my noble friend Lord Bruce of Donington seeks to have and that others who have spoken on this amendment seek to have. What does it say? It says that the steps which he ought to take are those which would be known or ascertained or reached or taken by a reasonably diligent person. Then there are two provisions. You have the general knowledge, skill and experience; and you have the general knowledge, skill and experience that that director has. You have a general test of skill, experience and knowledge; and then a particular test. It does not have in it the words which relate these facts, which the court has to look at, to the time at which they occurred. That is the addition that is made by this amendment. It is not in subsection (4).
I notice the noble Lord, Lord Mottistone, smiling in the way that he does. It is always so pleasurable to see it. I believe that smile is now one of conviction. If I have that conviction, before the noble Lord alters his mind I had better sit down. The noble Lord the Minister is asking for the opinion of the House to be taken if he does not accept—as I assume he does not accept—this amendment.
Lord Lucas of Chilworth: My Lords, with the leave of the House, perhaps I may say that I think the noble Lord opposite would not mind if I corrected him. He said that the court could make an order with regard to the director's contribution to the assets of the company. I am advised that the court cannot make a declaration of personal liability without there having
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been an application made. I do not want to repeat subsection (4) as the noble Lord opposite—
Lord Mishcon: My Lords, I am sure that it will be for the convenience of the House and the noble Lord the Minister if I were to interrupt him; otherwise I should not be so rude. I am grateful to him for allowing this intervention. It may be that in the mess-up of the type I have read something wrongly. If that be so, I am ready to withdraw that particular remark. But I have in my copy of the Bill the words:
"whether or not an application for such an order is made by any person".
I have that at line 30 on page 7. If the noble Lord the Minister says that it is not now in—has it been removed?
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Mishcon's noble friend, spent some time in his opening remarks explaining to us that it was not in, and he read it out to us. If I may continue, the noble Lord opposite chided me for reading subsection (4). He did the same. I suggest to noble Lords, particularly in the light of what my noble friend has said, that there is a misunderstanding as to exactly what subsection (4) says. If I may draw your Lordships' attention again to that, I think you will find that there is no necessity for this amendment.
Lord Mishcon: My Lords, with the leave of the House, I would say only that, as the noble Lord the Minister so graciously pointed out, there is an error in the typescript. I myself had not fully corrected my copy of the Bill and I withdraw any statement made in regard to there being a declaration or order that the court could make without a specific application being made to it. But it in no way affects the burden of my argument.
3.50 p.m.
On Question, Whether the said Amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 100; Not-Contents, 106.

DIVISION NO. 1

CONTENTS

Amherst, E.

Denning, L.

Ampthill, L.

Diamond, L.

Ardwick, L.

Donaldson of Kingsbridge, L.

Attlee, E.

Elwyn-Jones, L.

Bacon, B.

Elystan-Morgan, L.

Banks, L.

Ennals, L.

Barnett, L.

Evans of Claughton, L.

Beaumont of Whitley, L.

Ezra, L.

Beswick, L.

Falkland, V.

Birk, B.

Fisher of Rednal, B.

Blyton, L.

Fitt, L.

Bottomley, L.

Foot, L.

Bruce of Donington, L.

Gaitskell, B.

Buckmaster, V.

Gallacher, L.

Caradon, L.

Galpern, L.

Carmichael of Kelvingrove, L.

Gladwyn, L.

Chitnis, L.

Graham of Edmonton, L.

Collison, L.

Granville of Eye, L.

David, B.

Grey, E.

Davies of Leek, L.

Grimond, L.

Dean of Beswick, L.

Hampton, L.

Denington, B.

Harris of Greenwich, L.

617

Hayter, L.

Porritt, L.

Houghton of Sowerby, L.

Reilly, L.

Howie of Troon, L.

Rhodes, L.

Hunt, L.

Rochester, L.

Irving of Dartford, L.

Ross of Marnock, L.

Jacques, L.

Sainsbury, L.

Kennet, L.

Saltoun, Ly.

Kilmarnock, L.

Seear, B.

Kings Norton, L.

Serota, B.

Kinloss, Ly.

Shackleton, L.

Leatherland, L.

Shinwell, L.

Llewelyn-Davies of Hastoe, B.

Simon, V.

Lloyd of Hampstead, L.

Stallard, L.

Lockwood, B.

Stamp, L.

McFarlane of Llandaff, B.

Stedman, B.

McGregor of Durris, L.

Stewart of Fulham, L.

McNair, L.

Stoddart of Swindon, L. [Teller.]

Mais, L.

Mayhew, L.

Strabolgi, L.

Meston, L.

Strauss, L.

Mishcon, L.

Taylor of Blackburn, L.

Monson, L.

Taylor of Gryfe, L.

Nicol, B.

Taylor of Mansfield, L.

Oram, L.

Tordoff, L.

Phillips, B.

Walston, L.

Pitt of Hampstead, L.

Wells-Pestell, L.

Plant, L.

Whaddon, L.

Ponsonby of Shulbrede, L. [Teller.]

White, B.

Wootton of Abinger, B.

NOT-CONTENTS,

Alexander of Tunis, E.

Hives, L.

Allerton, L.

Hood, V.

Belhaven and Stenton, L.

Inglewood, L.

Bellwin, L.

Kitchener, E.

Beloff, L.

Lane-Fox, B.

Belstead, L.

Lauderdale, E.

Berkeley, B.

Lovat, L.

Boyd-Carpenter, L.

Lucas of Chilworth, L.

Brabazon of Tara, L. [Teller.]

Luke, L.

Caithness, E.

Lyell, L.

Cameron of Lochbroom, L.

Macleod of Borve, B.

Campbell of Croy, L.

Margadale, L.

Carnegy of Lour, B.

Marley, L.

Cathcart, E.

Marshall of Leeds, L.

Clinton, L.

Masham of Ilton, B.

Cork and Orrery, E.

Massereene and Ferrard, V.

Cottesloe, L.

Mersey, V.

Cox, B.

Middleton, L.

Davidson, V.

Milverton, L.

De Freyne, L.

Morris, L.

Dormer, L.

Mottistone, L.

Drumalbyn, L.

Noel-Buxton, L.

Eccles, V.

Nugent of Guildford, L.

Effingham, E.

Orkney, E.

Ellenborough, L.

Orr-Ewing, L.

Elliot of Harwood, B.

Pender, L.

Elton, L.

Portland, D.

Ely, M.

Rankeillour, L.

Enniskillen, E.

Reay, L.

Faithfull, B.

Renton, L.

Ferrier, L.

Rochdale, V.

Fortescue, E.

Rodney, L.

Fraser of Kilmorack, L.

St. Aldwyn, E.

Gardner of Parkes, B.

St. Davids, V.

Gibson-Watt, L.

Sandford, L.

Glanusk, L.

Sandys, L.

Glenarthur, L.

Savile, L.

Gowrie, E.

Selkirk, E.

Gridley, L.

Shuttleworth, L.

Grimston of Westbury, L.

Skelmersdale, L. [Teller.]

Haig, E.

Stockton, E.

Hailsham of Saint Marylebone, L.

Sudeley, L.

Terrington, L.

Hankey, L.

Teviot, L.

Harmar-Nicholls, L.

Thomas of Swynnerton, L.

Harvey of Prestbury, L.

Torphichen, L.

Harvington, L.

Trefgarne, L.

Henderson of Brompton, L.

Trumpington, B.

Henley, L.

Tweedsmuir, L.

618

Ullswater, V.

Whitelaw, V.

Vaux of Harrowden, L.

Yarborough, E.

Vivian, L.

Young, B.

Ward of Witley, V.

Young of Graffham, L

Westbury, L.

Resolved in the negative, and amendment disagreed to accordingly.

Glenochil Institution: Death of Inmate
3.59 p.m.
Lord Cameron of Lochbroom: My Lords, with the leave of the House, I shall now repeat the Answer to a Private Notice Question which is being given in another place by my right honourable friend the Secretary of State.
"Derek Harris aged 16, an inmate at Glenochil Young Offenders' Institution was found hanging from the window bars of his room at 10.25 p.m. on Saturday 13th April 1985. Despite strenuous efforts by staff, Harris was pronounced dead by the medical officer at 11.5 p.m. Mr. Harris had been sentenced at Aberdeen Sheriff Court on 11th February 1985 to three months detention at Friarton Detention Centre for offences of vandalism, breach of the peace, theft by opening lockfast premises and Road Traffic Act contravention.
"On medical advice he was transferred to Glenochil Young Offenders' Institution on 28th February. After a period under close observation, he was placed on ordinary observation on 26th March. He was to have been released from custody on Friday 19th April, but he was also due to appear at Aberdeen Sheriff Court on 9th May to face further charges. He was informed of these further charges on 11th April. Next of kin were informed of the death and police have investigated.
"As for all unnatural deaths occurring in prisons, a public fatal accident inquiry will now be carried out before the sheriff. This is a very tragic incident, which I regard with very great concern. It would not be appropriate for me to comment further on the detailed circumstances of this individual case until the fatal accident inquiry has taken place."
My Lords, that concludes the Answer of my right honourable friend.
Lord Carmichael of Kelvingrove: My Lords, may I first of all thank the noble and learned Lord the Lord Advocate for reading the reply already given in another place? I am sure that the whole House will share the Minister's shock at yet another death at the Glenochil complex.
Perhaps I may declare an interest in that I am the chairman of SACRO, the Scottish Association for the Care and Resettlement of Offenders, and yet another interest in that I am the vice-chairman of the All-Party Group on Penal Affairs in the Palace of Westminster. I and a number of Members from both Houses visited Glenochil some months ago. Although the material facilities at Glenochil could hardly be faulted, the record of Glenochil would suggest that we were obviously looking at the wrong things. This is also the case, I am sure, with Her Majesty's Inspector of

619
Prisons himself, who gave the institution a clean bill of health and an excellent report only last month.
The noble and learned Lord the Lord Advocate must be aware that a study of the problems of young offenders, much deeper than just improving the conditions of detention and trying to anticipate those in a serious self-destructive state of mind is needed. Will the noble and learned Lord the Lord Advocate convey to his right honourable friend the Secretary of State for Scotland the need to widen the terms of reference of the working party set up by the Secretary of State following the suicides of William McDonald and Angus Boyd in the past 14 months?
The question of sending young offenders back to the courts for re-sentencing really must be looked at if it is proved that custodial sentences are not suitable. This means that there will need to be more provision for non-custodial sentences, perhaps along the lines of the English day centres being extended to Scotland, and the whole range of alternative sentencing that is available in England being looked at by the working party.
Finally, will the noble and learned Lord the Lord Advocate not agree that now is the time to look also at the express wishes of the Scottish Prison Officers' Association for special selection and special in-depth training for all those officers who are likely to be working, or who volunteer to work, with young offenders?
Lord Grimond: My Lords, we on these Benches should also like to thank the noble and learned Lord the Lord Advocate for repeating this Answer to the Private Notice Question. We, too, express very deep regret at this tragic death and send our sympathy to all those concerned, and to the relatives of the boy. I think it should be said that sympathy is also due to those who run these centres, who really act under great stress and difficulty and must be very concerned about the chain of events of which this is the latest.
As the noble and learned Lord the Lord Advocate has said, there does not seem to be much that one can usefully say until the inquiries have taken place, but I wonder whether he could say a little about the working party, as opposed to the fatal accident inquiry. It was, I think, due to report in mid-summer. Can he be a little more definite about that? Will it be enabled to take into account not only the conditions at these centres and prisons but also the general policy of sentencing and the background to this chain of events, which must indeed be rather worrying for us all?
Lord Cameron of Lochbroom: My Lords, I am most grateful to the noble Lords, Lord Carmichael and Lord Grimond, for the reception they have given to the Answer of my right honourable friend to the Private Notice Question. Obviously I would join them in expressing our great sympathy to the next of kin for this tragic death.
The noble Lord, Lord Carmichael, asked me three questions. The first related to the present inquiry. As noble Lords are aware, any death in legal custody is the subject of a public fatal accident inquiry. As the noble Lord, Lord Grimond, has very properly said—and I would certainly echo his words—it would be wrong in
620
any sense at this stage to encroach upon matters which may be focused upon at that inquiry.
The working party on suicide precautions at Glenochil, to which both noble Lords referred, was of course set up by my right honourable friend in response to a recommendation by the Sheriff Principal at a fatal accident inquiry last year. It is reasonable that it should be permitted to complete its work. I am not in a position to say at present when that will be, although obviously one would hope that it would be as soon as may be after proper inquiries have been made. I would suggest to your Lordships that we should consider first any recommendations it makes in relation to Glenochil before considering whether there is any warrant for looking further into the matter.
The second point which the noble Lord. Lord Carmichael. raised was the question of remitting back to the courts in particular cases. I would simply respond in this way. As the noble Lord is well aware, the courts are required by law not to impose detention on a person under 21 unless, in the particular case, the court is of the opinion that no other method of dealing with him is appropriate. In forming this opinion the court must take into account information about the circumstances of the offender. In practice, this is provided in the form of a social inquiry report, which contains the full information that can be made available about the offender's background.
The third and last point which was made by the noble Lord, Lord Carmichael, was in regard to prison officers and in-depth training. I would echo what the noble Lord, Lord Grimond, said in this matter with regard to the sympathy which all noble Lords will have for those who run these centres. They are. I am certain, well trained, and have done their very best for the inmates. I do not think that at present there is any evidence to suggest that their training is in any sense inadequate. These are matters which have been ventilated, as the noble Lord opposite knows, at previous fatal accident inquiries. The only matter which the Sheriff Principal at the fatal accident inquiry last year thought might suitably be the subject of further investigation was that which was contained in the remit to the working party.
Lord Ross of Marnock: My Lords, as this is the third fatal accident inquiry to be set up in 14 months, the noble and learned Lord the Lord Advocate will appreciate the concern among prison officers. From what we have heard about what has been done and the way they have looked after this, I do not think that in this particular case one could fault the regime.
What worries me considerably is the concern felt by parents who have boys at this institution. There is to be a fatal accident inquiry. We have just had a report on this institution from the chief of the prison service in Scotland, and now this happens—in this case just days before the boy was going to be released. In many ways it is baffling. As my noble friend Lord Carmichael said, it may be that we have been turning our attention to the wrong matters in Glenochil.
How long will it be before the fatal accident inquiry takes place? Some statement must be made and something must be done right away. It is very difficult to allay the feelings of parents simply by saying, "There has to be a fatal accident inquiry and there will

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be a fatal accident inquiry", when we have had such inquiries before—two within one year. Now we are promised another.
Can nothing be done at the present time from the purely personal point of view in respect of this rather sad case? I have read quite a few things in the press about this case. The boy's adoptive mother died and then his adoptive father died. Clearly he was an unfortunate lad. It may well be that fears are being created which are quite unnecessary. I think that this is a very individual case, but can we not speed up the fatal accident inquiry if there cannot be anything quicker than that?
4.12 p.m.
Lord Cameron of Lochbroom: My Lords, I am grateful to the noble Lord for the views he expressed about the staff at Glenochil. One must be careful to distinguish between the circumstances of an individual death and the running of the institution itself. The noble Lord made reference to the recently published report by Her Majesty's Chief Inspector of Prisons. That report emphasised that the regimes at Glenochil were positive and purposeful. Indeed, the report found no evidence of an oppressive regime in either part of the institution. The inspector emphasised in the report that he found morale among inmates to be high.
As to the issue of the public inquiry into this particular death, it may turn to examine the kind of matters to which the noble Lord has just adverted. Obviously I can say no more on that matter other than that in so far as it lies within my power I have taken note of what the noble Lord said about the obvious concern of the public to know what has happened and about the need for a proper inquiry to be brought forward as soon as can reasonably he done. I assure the noble Lord that so far as that lies within my power I shall see that it is done.
Lord Wilson of Langside: My Lords, I hesitate to intervene because, unfortunately, I was unable to be present to hear the Answer itself. However, as I understood the question of the noble Lord, Lord Ross of Marnock, he was asking whether the fatal accident inquiry could not be expedited. Is there any good reason at all, in law or otherwise, why that inquiry should not be expedited? With great respect to the noble and learned Lord the Lord Advocate, he did not answer that question put by the noble Lord, Lord Ross of Marnock.
Lord Cameron of Lochbroom: My Lords, I endeavoured to do so. Obviously any fatal accident inquiry must be properly prepared beforehand, and no one will know that better than the noble and learned Lord, Lord Wilson, expecially with his experience in these matters. I am simply saying that I shall take steps to ensure that an inquiry is held with the appropriate information as soon as may reasonably he done.
I cannot say any more because these are early days. It may be that further investigations will turn up information which will require further examination. I assure your Lordships that I have listened to what has been said and have taken serious note of it. I am fully aware of the fact that there is public concern and that the best way to allay it is to have full information available at a public inquiry.
Lord Harris of Greenwich: My Lords, is the noble and learned Lord aware that many of us are deeply concerned about this particular episode? Is he aware also that there are few penal establishments in the United Kingdom which have had such a series of grave events as has this particular establishment? That being so. can the noble and learned Lord give any indication of when the working party report is to he made available? Secondly, will it be published? On that point, is the noble and learned Lord aware that many of us would not be content were the report not to he publicly available?
Finally, with reference to the point made by my noble and learned friend Lord Wilson, will the noble and learned Lord the Lord Advocate accept that many of us hope that every possible step will be taken to bring forward the date of the fatal accident inquiry, given the very special circumstances of this particular establishment?
Lord Cameron of Lochbroom: My Lords, again, I am very grateful for the points raised by the noble Lord, and perhaps I may deal with them in reverse order to that in which he put them to me. Obviously I can do no more than repeat my assurance to the House about the holding of an inquiry. So far as publication of any working party report is concerned, that must be a matter for my right honourable friend, and I can go no further than that before your Lordships.
So far as the noble Lord's first question is concerned, I would hesitate to make comparisons with any institutions elsewhere. I can say only that in so far as this incident involved a death in a detention centre, there have been only two unnatural deaths in detention centres in Scotland since the first was opened in 1960. Regrettable though those deaths certainly are—and I have already expressed my views about that matter—it should be remembered that in the past 25 years something of the order of 20,000 young men have experienced and benefited from the detention centre regime in Scotland. Perhaps that tends in part, if only in part, to put the matter in perspective.
Lord Ross of Marnock: My Lords, I wonder whether the noble and learned Lord can explain just one further point. He said that the boy was due to be released just six days after the date of this tragic event, but that he was going to face further charges in Aberdeen. Can the noble and learned Lord say how long the boy had been waiting for his case to be heard in respect of those charges?
Lord Cameron of Lochbroom: My Lords, I cannot today give that information to the noble Lord. However, I shall find out and let him know the answer. As my right honourable friend stated in his Answer, the boy was due to appear at Aberdeen Sheriff Court on 9th May to face further charges. He was informed of these further charges on 11th April.
Lord Carmichael of Kelvingrove: My Lords, perhaps I may briefly clear up one point. I suggested that there was a need for special selection and special in-depth training in respect of prison officers. I should make it clear that this is the wish of the Scottish Prison Officers' Association and does not necessarily reflect on the staff of any particular institution.
Baroness Masham of Ilton: My Lords, as a member of a board of visitors of a youth custody centre and as a full-blooded Scot, I should like to share with others in the concern felt over this very serious matter. Is the Minister aware that many young people throughout the British Isles who are in institutions for young offenders are very immature, disturbed and unstable? Will he try to encourage more emphasis on rehabilitation and treatment and on identifying the root causes of these problems? In the past year in young offenders' institutions, certainly in England, the emphasis has not been on rehabilitation.
Lord Cameron of Lochbroom: My Lords, obviously I am grateful for what the noble Baroness has said. I think I can say simply that, as I indicated earlier, in the matter of sentencing to detention a person under 21 the law provides that the court will not impose such a sentence unless it is of the opinion that no other method of dealing with the offender is appropriate. In the forming of that opinion, as I have also indicated, a social inquiry report is obtained in order to place before the court the full information about the offender. I think that that would seem to be the appropriate manner in which that information should be brought to the attention of the court.
Baroness Carnegy of Lour: My Lords, further to that answer, may I ask the noble and learned Lord whether anything can be done to help the prison officers in institutions such as Glenochil to cope with a situation where the stress of the period just before a boy's release—which is very great, particularly when the family background is of the kind which clearly pertained to this young man—is added to by the fact that he is going to face further charges? A social inquiry report in relation to the second series of charges comes too late. It seems that there is a very special problem here, where a person who is going to be released is under stress in any case, because release involves stress, and, in addition, is going to have to go through the whole thing again.
Lord Cameron of Lochbroom: My Lords, obviously I have taken note of what my noble friend has said on the matter. I have no reason to think other than that staff will always be aware of changing circumstances in relation to a particular inmate and that they will make their dispositions accordingly. However, I think that all I should say is that these might be matters which will be the subject of investigation at the public inquiry which will be held in due course. It would be wrong of me to say anything further on the matter with which this Answer is concerned.

Insolvency Bill [H.L.]
4.22 p.m.
Consideration of amendments on Third Reading resumed.
Clause 52 [Public examination of officers]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 3:
Page 38, line 28, at end insert—
("(7) A statement made by any person in answer to any question put to him in the course of his public examination shall
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not be admissible in evidence in any subsequent criminal proceedings against the person making the statement, except where the proceedings are in respect of a charge of perjury relating to the statement.").
The noble Lord said: My Lords, I should like to speak, if I may, to Amendments Nos. 3 and 4 together.
Amendment No. 4: Clause 119, page 98, line 3, at end insert—
("(6) A statement made by a bankrupt in answer to any question put to him in the course of his public examination shall not be admissible in evidence in any subsequent criminal proceedings against the bankrupt, except where the proceedings are in respect of a charge of perjury relating to the statement.").
The texts of the respective amendments are self-explanatory. They seek to provide protection for the officer of a company (in Amendment No. 3 to Clause 52) and to a bankrupt (in Amendment No. 4 to Clause 119) against self-incrimination while permitting full scope for public examination. I do not propose to speak at length on these amendments because, as I have said, your Lordships will find that the texts of them are self-explanatory.
The amendments are identical in text and deal with the position arising during a public examination in the case of officers of a company, under Clause 52, and of a bankrupt, under Clause 119. Before the noble Lord, Lord Lucas of Chilworth, gives the amendments his chilling and customary rejection, I should also say, almost as a matter of note, that they conform to the recomendations of the Scottish Law Commission.
With your Lordships' indulgence, I should like to read out what the Scottish Law Commission says on this very point. At paragraph 14.35, on page 213 of the report, the Commission states:
"The Law is faced here with a classic conflict between on the one hand. the need to protect the individual by not placing him in the dilemma of having either to tell lies or to harm himself or others, coupled with the need to secure that the evidence given on public examination should be given freely and without risk of the deponent being deterred by the possible consequences to himself and to others, and, on the other hand, the need to facilitate the prosecution of criminal offences".
The recommendation is made:
"On the whole, we consider that the balance of public interest lies in adopting a solution similar to that proposed by the Irish Bankruptcy Law Committee, which would compel all persons examined to answer all relevant questions but make their answers inadmissible against them in subsequent proceedings, except upon a charge of perjury in respect of such answers".
The Commission continues:
"We recommend, therefore, that the bankrupt or any other person examined in the course of the public examination should not be excused from answering questions the answers to which may tend to incriminate himself, but that those answers should not be admissable in evidence against the person examined in subsequent criminal proceedings, exept where the proceedings relate to a charge of perjury arising from the answers".
As one would expect, the lawyers have put it so much more lucidly than a mere accountant is capable of doing. Therefore, I shall not add anything further to the text I have read out. I beg to move.
Lord Denning: My Lords I hope that your Lordships will not accept this amendment. We are concerned with a bankruptcy case. A man being examined in a public examination is asked, for instance, "Did you know you had no money in the bank when you drew that cheque?" He answers, "Yes, I knew I did not have anything there." In a way he is incriminating himself, but it is most important information for the public and

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everyone to know. I do not know what Scotland has done in regard to bankruptcy proceedings, but in this country in 1927, in the case of In re Paget the Master of the Rolls, Lord Hanworth, affirming a decision of 1912, said:
"In the course of the public examination of a debtor the debtor is not entitled to refuse to answer questions put to him on the grounds that the answers thereto may incriminate him, the purpose of the Act being to secure a full and complete examination and disclosure of the facts relating to the bankruptcy, in the interests of the public and not merely in the interests of those who are the creditors of the debtor".
That is the principle of our English law so far as bankruptcy is concerned.
As regards other cases, the matter is much considered by the Criminal Law Revision Committee for England in its report relating to theft and related offences. It sets out two or three sentences on the ordinary principle before one comes to bankruptcy. Paragraph 203 states:
"There is a substantial argument that a person should not get any protection in respect of criminal proceedings merely because he has disclosed his offence in civil proceedings, even on compulsion".
In other words, there is a substantial argument, with which I agree, that you do not let a man get away with it simply because he is saying that it would incriminate him.
The report goes on to give a solution, apart from bankruptcy. It states:
"The right course in our opinion is to make the statement or admission in the civil proceedings inadmissible in evidence against the matter in the criminal proceedings".
That is the principle in Scotland, recommended by the Commission, and it is the general principle here.
The report then goes on to state:
"In the case of bankruptcy proceedings we have come to the conclusion that disclosure concerning an offence should not give any protection in relation to subsequent criminal proceedings for the offence".
I gather that it is that recommendation as it stands which is now being dealt with by the Government, and they are not putting in any protection here at all. I have studied the various statutes on the matter. There have been statutes which have given similar protection, such as the Bankruptcy Act and the Theft Act, but they are repealed by this Bill.
It seems to me that it is right, because bankruptcy proceedings are on a footing of their own. When a man is examined in bankruptcy proceedings, as in the case I have indicated, as to whether he knew there was not any money to meet the cheque, and all those kinds of matters, in the public interest such matters ought to be available if he is afterwards charged with an offence. It seems to me that that is the sensible way of dealing with it. It is in accordance with the recommendations made by a criminal law revision committee and therefore I oppose the amendment.
4.30 p.m.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord, Lord Bruce of Donington, for speaking to his two amendments together: I shall respond in the same way. I think it would be useful to have on the record the position in English law, as I see it. At Report stage, when we were dealing with other amendments tabled by the noble Lord opposite, in connection with public examinations, we established
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that under the present law a person must answer all questions which the court puts or allows to be put to him during the course of such an examination, even if the answers incriminate him. I am advised that the relevant authorities for this proposition are Section 15(8) of the Bankruptcy Act 1914, Section 564(2) of the Companies Act 1985 and case law, in particular the 1927 case of In re Paget, to which the noble and learned Lord, Lord Denning, referred and which we discussed during Report stage.
This requirement will continue under the new legislation, by virtue of the rules to be made under the powers contained in paragraph 17 of Schedule 4 and paragraph 25 of Schedule 6 to the Bill, and we remain convinced that it is right that this should be the case in view of the need to make the public examination an effective investigative tool and to ensure the full disclosure of facts in the public interest. The value of the public examination was ably described at some length by the noble and learned Lord, Lord Denning, on Report, and he has again alluded to it this afternoon.
The amendments that are now before us, although different from those tabled by the noble Lord during Report, would in effect modify the provisions of Clause 205 of the Bill by making statements made by a person during the course of a public examination inadmissible in evidence against him in any subsequent criminal proceedings. The only exception would be in relation to perjury proceedings in connection with those statements. This would be a complete reversal of the existing law in England and Wales.
Under the present law notes of a person's public examination, representing statements made by him during the course of such examination, may be used in evidence against him in any subsequent proceedings. The authority for this in bankruptcy is again contained in Section 15(8) of the Bankruptcy Act 1914 and for winding up in Section 564(5) of the Companies Act 1985. The only exception to this general rule is to be found in Section 166 of the Bankruptcy Act 1914, which excludes the use of such statements given in a public examination in bankruptcy as evidence in proceedings relating to the Theft Act.
Clause 205 of the Bill, as I attempted to explain in Committee, gathers together and re-enacts various provisions relating to the use of documents and statements as evidence in proceedings. The word "statement" as used in Clause 205 is intended to encompass statements made during the course of a public examination and therefore to re-enact the present provisions of Sections 15(8) of the 1914 Act and Section 564(5) of the Companies Act. The exception to the general rule to be found in Section 166 of the Bankruptcy Act, to which I have just referred, has not been included in Clause 205 because we are still considering whether it is an appropriate exception. It has its roots in the Larceny Act 1861 and has been carried into modern legislation by the Theft Act 1968, seemingly as a consolidating measure. The exception does not apply in relation to public examinations in a winding up.
Again, there is a body of case law interpreting the legislative provisions and this even extends to allowing a shorthand writer to give verbal evidence as to

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statements made by a person during his public examination, even if that person did not sign the notes of the examination. This was established in the 1896 case of Regina v. Erdheim. Statements made during the course of a public examination can only be used in evidence against the person who makes them.
The principal purpose of public examinations is to adduce evidence on oath from bankrupts or company officers on matters in respect of which the official reciever, trustee or liquidator has otherwise been unable to obtain adequate explanations. It is the duty of bankrupts and company directors to co-operate with and to make a full disclosure of relevant facts to the official receiver and office holders, as the case may be, to enable them to carry out their duties relating to investigation, the realisation of assets and the general administration of insolvency proceedings. Clauses 82, 120 and 151 of the Bill restate and enhance the present law in this respect.
As the noble Lord, Lord Bruce of Donington pointed out, the Bankruptcy (Scotland) Bill, at Clause 44(3), makes a provision on the lines proposed by his amendment. That provision, which does not appear in the Bankruptcy (Scotland) Act of 1913, is as he rightly said, based on a recommendation of the Scottish Law Commission and he also quoted the relevant parts. He also quoted—and of course correctly—the conclusion to which the Scottish Law Commission came.
However, the present law can be said to be based on the assumption that if a public examination is necessary to enforce co-operation and disclosure, there is no compelling reason for statements made by the examinee not to be admissible in evidence against him in any future proceedings which may be brought. On the other hand, it may well frustrate the expeditious bringing and conduct of such proceedings if that evidence is not readily available.
Due conflict is indeed a classic one, and we should wish to consider the matter very carefully. Of course I have taken very careful note of what the noble Lord said. Perhaps to the surprise of the noble Lord, Lord Bruce of Donington—I do not think in fact he was quite right but I will certainly ensure that I will not have a cutting rejection to this—I may say that we believe at this stage that it is possible to make a very strong case for retention of the present law. At the same time we recognise why the Scottish Law Commission recommended as it did. In view of what has been said, I am quite prepared to look at the matter again. With that assurance, I would ask the noble Lord to withdraw his amendment.
Lord Mishcon: My Lords, I am sure that the House will be grateful to the noble and learned Lord for his dissertation on the law as well as the conclusion that he reached.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord opposite. I regret that I am neither legal nor learned in that sense.
Lord Mishcon: My Lords, the noble Lord is doing very well and deserves the title that I gave him. We are most grateful to him for that dissertation on the law and certainly for the conclusion that he reached, which
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is really the fairly straightforward one that further consideration will be given to this matter. I wish only to emphasise, if I may, what is the basis of the amendment. I turn to the noble and learned Lord, Lord Denning, and quote his example of the bankrupt in public examination asked the question, "Did you know when you issued that cheque that it had no hopes of being met?" That is a question that is sometimes asked. Much more usual is the question, "When you received the proceeds of sale of this asset, what did you do with it, to whom did you hand it and in what coinage was it?" That is a very much more usual series of questions.
The dilemma so clearly explained in the passage quoted by my noble friend from the Scottish Law Commission was the desirability of truthful answers being encouraged and lies being discouraged. Obviously, if what is going to be revealed in answer to the question will get the man into trouble, human beings being what they are the chances are that the whole truth will not out. Possibly half the truth will out and quite possibly there will be a direct lie.
I know about the saving considerations of perjury mentioned in the amendment. However, is it not sensible to consider carefully the recommendation of the Scottish Law Commission? I think I am right in saying that the Irish Bankruptcy Law Committee also came to exactly the same conclusion. It may be that England and Wales are wiser than Scotland and Ireland. But the learned members of the commission and of the committee deserve the respect of having their views properly considered. The noble Lord the Minister has been good enough to say that he realises that there is a balance of advantage and disadvantage. I believe that I am correct in saying—my noble friend who moved the amendment has given me permission to say it—that we shall withdraw the amendment but hope very much that the consideration will be concentrated because it is very hard to find the right balance.
Amendment, by leave, withdrawn.
Clause 119 [Public examination of bankrupt]:
[Amendment No. 4 not moved.]
The Deputy Speaker (Lord Ampthill): My Lords, before calling Amendment No. 5, I should point out to the House that if it is agreed to I cannot call Amendment No. 6.
Schedule 3 [Preferential debts]:
Lord Mottistone Lord Mottistone moved Amendment No. 5:
Page 169, line 18, leave out sub-paragraph (1).
The noble Lord said: My Lords, with your Lordships' permission, I should like to speak only to Amendment No. 5 at this stage and reserve comment on Amendment No. 6 depending upon your Lordships' view on Amendment No. 5.
Amendment No. 6: Page 169, line 20, leave out ("twelve") and insert ("six").
Your Lordships will remember that at Report stage, when a Government Amendment, No. 235, was moved by my noble and learned friend the Lord Advocate, I commented on the great move forward

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that the Government had made in providing the amendment but expressed regrets that VAT in particular was still left with preferential treatment. I received support for this general view from the noble Lord. Lord Bruce of Donington, in his earlier statement on the same subject, and very strong support from the noble and learned Lord, Lord Denning. I felt therefore that having taken advice—I am advised, as your Lordships are aware, by the CBI in these matters—it was reasonable to pursue the point further with regard to VAT.
When speaking on Amendment No. 235, I made the point that I agreed that the so-called collector tax of PAYE was reasonably left in its preferential position because of the effect on individuals. PAYE, unlike VAT, is widely recognised to form moneys that do not, and never did, belong to the company. It is money that a company is required by law to deduct from its employees' wages, and it acts as an agent for the Crown in its collection. VAT, on the other hand, is the employers' own tax debt. It is in the nature of a business tax as opposed to a tax on individuals. Furthermore, VAT moneys are more clearly ascertainable by the company as compared with PAYE and National Insurance contributions that can only be clearly and precisely assessed at the end of the tax year.
4.45 p.m.
One of the Government's purposes in introducing this Bill was to help creditors. That being so, one of the greatest contributions towards fulfilling this would be to abolish the preference on VAT debts. I would particularly wish to stress the importance of the abolition of the preference so far as the small company creditor is concerned. Such companies depend heavily on getting a proportion of credit back in the event of a trading partner's insolvency. More often than not the recovery of the VAT debt by Customs and Excise will wipe out all that is left of the assets of the wrecked company. The effect of this on the other business creditors can be devastating.
I turn now to what my noble and learned friend the Lord Advocate said at col. 175 of Hansard of 2nd April:
"So far as VAT is concerned, on reaching a certain level of turnover a person has a statutory requirement to charge tax on supplies and to account for that tax to the Customs. Customs and Excise, like other revenue-collecting departments, cannot therefore choose their debtors, and it is limited in the measures that it can take to secure its debts".
The point here—and I take it—is that it is a question of whether the body concerned can choose its debtors. I would suggest to my noble friends that a small company may well be unable to choose effectively its debtors. One can imagine a small transport company in a given area which finds that it is only able to obtain its specialist transport needs from one customer. It therefore has to supply its service to that customer. It is effectively unable to choose its debtor. If that is the argument, I do not see why the Customs and Excise should be in a special position in relation to that small company.
We hear this phrase, "collector taxes". I suspect that it is a sort of developed phrase, an easy portmanteau word to describe a situation. It is not, so far as I know,
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a legal term to describe things. If it suits the revenue collecting bodies to lump together various taxes which they see as collector taxes, I would not have thought that it is necessary, or indeed fair, under the circumstances that I have described, automatically to assume that they should always be lumped together. I hope therefore that I shall have support for the amendment. I beg to move.
Lord Denning: My Lords, I should like to support the amendment. The general principle, as recommended by the Cork Committee, was:
"In our view, the ancient prerogative of the Crown to priority for unpaid tax cannot be supported by principle or expediency, and cannot stand against the powerful tide calling for fairness and reform".
The Government have conceded that in regard to income tax, rates and so forth. The Cork Committee lumped VAT together with PAYE and so forth as a collector tax. In the next paragraph, No. 1418, it stated:
"In these cases, the Crown's claim is for moneys collected by the debtor, whether by deduction or charge, and for which the debtor is accountable to the Crown; the debtor is to be regarded as a tax collector rather than a taxpayer".
I venture to suggest that that is a wrong conception of the nature of VAT. It was imposed by the Finance Act 1972, Section 2 of which says:
"Tax on the supply of goods or services shall be charged only where … and shall be payable by the person supplying the goods or services".
It is payable by the person who supplies the goods or services. He is the debtor to the Crown. When the builder puts 15 per cent. VAT on your bill, he is not collecting it for the Government: he is already the debtor to the Government for that VAT, and very often he may be able to cross-claim against it by way of the input matters which he has already had to pay to his supplier in regard to other goods. So he may not pay that VAT at all to the Crown or the Customs; he may have it offset by his input matters and the like.
Section 33 of the Finance Act makes it clear that, whether or no the amount of tax is chargeable, the tax is due from the person issuing the invoice. So the person who issues the invoice, the supplier of the goods or services, is the debtor, and not the person who receives them. Therefore, he is not collecting it for the Government at all; he is paying his own tax, which is imposed upon him like income tax and the like.
Therefore, I suggest that for once the Cork Committee was wrong in including VAT as a collector tax. It is not a collector tax; it is a tax on the man who is supplying the goods and services. I suggest that VAT ought not to be given a preference any more than income tax and other taxes. I support the amendment.
Lord Bruce of Donington: My Lords, it is unnecessary for me to add anything to what the noble and learned Lord, Lord Denning, has said. I have already had the honour of addressing the House on this question at earlier stages in the Bill, and I do not propose to repeat the arguments now. We on this side entirely support the amendment moved by the noble Lord, Lord Mottistone.
Lord Noel-Buxton: My Lords, I also support this amendment, moved by my noble friend Lord

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Mottistone. While the Government have thrown the burden of argument on those seeking change, I believe that this burden in relation to value added tax should have been discharged by now, especially having regard to what the noble and learned Lord, Lord Denning, and my noble friend have said. The abolition of the preference of VAT debts would indeed greatly help creditors, particularly the small company creditors.
The Earl of Selkirk: My Lords, I should like to say a few words. Insolvency takes very different shapes and forms, but there are many cases when the small tradesman, who perhaps has not been paid by the insolvent person, is very hard hit. Insolvency is not only a tragedy to the individual; it is a tragedy to those who, through no fault of their own, are caught up with it. They deserve a consideration which is superior to that given to our great national Treasury, with the £40 billion or £50 billion which it collects every year. It may be a matter of only a few pounds—perhaps £10, £20 or £50—but it may be quite a severe blow to the tradesman. There is an element of sheer generosity here which should have received much more consideration than the traditional line of Crown preference. I do not believe that this was meant to hit small tradesmen who have not been paid, or who are brought into difficulty through no fault whatever of their own.
Lord Meston: My Lords, I should like to echo that remark and in general support any amendment which chips away at Crown preference. The expression "collector taxes" is not a term of art. I believe that a person who pays and receives VAT makes a mistake if he ever regards that money as his own. He is only a temporary caretaker of the money and is already a debtor to the Government, subject to whatever slight set-off he can claim. I am told by the noble and learned Lord, Lord Denning, that I am wrong in that interpretation.
However, perhaps more importantly, we should not lose sight of the inevitable fact that reduction of Crown preference does not leave more room at the bottom of the ladder for the innocent unsecured creditors: it simply leaves more room in the middle of the ladder for the sometimes unmeritorious proprietors of the company who have secured their position with a floating charge. It is that defect which remains in this Bill as it leaves this House.
Lord Cameron of Lochbroom: My Lords, I am grateful to all noble Lords who have spoken on this matter. It is ground with which we have become increasingly familiar, and perhaps in some sense I can claim greater familiarity with it because I have spoken on it on two previous occasions, when we were discussing the Bankruptcy (Scotland) Bill. I discussed this matter with certain of your Lordships but not with all your Lordships who are here today.
I remain unconvinced by the arguments that have been advanced. I align myself entirely with the noble Lord, Lord Meston, about the care with which we must proceed here by way of looking at what appears to be a hard case and using that to aim at the wrong target. If I may say so, the noble Lord is absolutely right. Whatever one does with Crown preference
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merely means that more will inure to the benefit of those who are otherwise secured. The plea which my noble friend Lord Mottistone makes for the small trader who cannot choose his debtor, either, and who apparently is unable to get credit, or secure his credit, will not be assisted by some form of movement of this kind. It may well be that the issue is one which can be dealt with otherwise.
I return to the point which was made at the beginning, that this is not a collector tax. With the very greatest deference to those who have argued otherwise—and here I include the noble and learned Lord, Lord Denning—certainly that was the view of the Cork Committee, and obviously I have taken aboard in the arguments that have been advanced in this House in the past the very high regard that he has paid to what was said by that committee and, indeed, the expertise that was available to it.
However, may I also pray in aid another committee, one which was prayed in aid earlier this afternoon by the noble Lord, Lord Bruce of Donington—the Scottish Law Commission. The Scottish Law Commission also reported on the matter of Crown preference. Admittedly they reached a different conclusion. This is what they had to say at paragraph 15.8:
"Althoug value added tax has different features from tax collected under the PAYE system, the collection system is essentially"—
observe that they say "essentially"—
"the same, that is, the supplier in the case of the one and the employer in the case of the other is an involuntary collector".
That is to say, they regard those two taxes as being collector taxes; there is no difference in principle between the two.
5 p.m.
The mood, as I had picked it up, of your Lordships' House at Committee stage was that a number of your Lordships seemed to accept that taxes of that kind can be loosely described as taxes where monies are held in trust for the Government, and that it was proper—as the Cork Committee said—that those taxes, and the monies collected by virtue of them, should be treated as preferential debts in insolvency. Of course the Government have accepted that directly assessed taxes should not enjoy preferential treatment. It is clear that your Lordships welcome that concession as a good concession, and I understood that a fair compromise position had been reached. The Government took that decision on the basis that the taxes that were held on a quasi trust basis would retain an element of preference.
I would suggest to your Lordships that there is no logical distinction to be drawn between VAT and PAYE. It is proper to remember that it is the trader's customer who pays the tax so that it is a tax, as the noble and learned Lord, Lord Denning, properly said, on supply, but is a tax which is taken from the customer and paid to the supplier, and it is accounted for as such by the supplier. That makes no difference to the nature of the tax.
It is only because of the way that the accounting periods have been fixed that the trader has the facility in the meantime to use the money temporarily for his own purposes, but as the noble Lord, Lord Meston, indicated it is money that can be looked at as

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impressed with a trust. That being so, the customer of the trader certainly regards the trader, the supplier, as the collector of the tax.
Looking at PAYE, there again it is remitted, or accounted for, by employers on a monthly basis. Strictly speaking that is the employer's money. It starts off being his money. He pays it over in a sense to the employees. He is then asked to deduct part of it and to account for that on a monthly basis to the Inland Revenue. In like manner as VAT, if he pays the employee weekly there is a period of time during which he does not require to remit monies, and he may use them in a sense as being part of his own funds impressed with the trust. It is the same concept as that which is available in VAT.
Accordingly I would strongly submit to your Lordships that there is no distinction in principle between PAYE (which would of course remain as Crown preference if my noble friend's amendment were carried) and VAT. The Government's concession was made clearly on the basis of a distinction between assessed taxes and those taxes which are collected taxes where there is this element of trust: that element to which the Cork Report made specific reference and which it regarded as being the proper justification for the distinction made between assessed and collector taxes.
That being so, I would suggest to your Lordships that all the arguments advanced by noble Lords and noble and learned Lords in this debate are fully answered. For that reason I would invite my noble friend Lord Mottistone to accept that there is no distinction in principle between PAYE and VAT, and to withdraw his amendment. I am grateful to him for having brought forward the amendment. He properly gave notice at Report that he would wish to consider the position. He has done so and he has put forward reasons which I trust I have answered for your Lordships. With that assurance, I would ask him to withdraw this amendment.
Lord Mottistone: My Lords, before my noble and learned friend sits down perhaps I may refer to his opening remarks about the small trader. He is perhaps the one for whom I have the greatest sympathy. My noble and learned friend commented on the small trader and finished by saying, "and would be dealt with otherwise". Can my noble and learned friend expand on what he means by "otherwise"?
Lord Cameron of Lochbroom: My Lords. I accept that I may not have expressed myself very well. I was taking up a point made by the noble Lord, Lord Meston, about concern for the small trader, which I fully understand, and which has been voiced in your Lordships' House on other parts of the Bill. I am simply saying that the small trader with no security will not obtain any real advantage from the avoidance of this part of Crown preference, because any funds which would be freed of Crown preference would immediately be made available to other preferred creditors.
The point that the noble Lord, Lord Meston, was making was that the way in which to protect persons of that kind may be at another part of the Bill which deals with the question of giving preference at an
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earlier stage, and we have talked about fixed debts and floating charges. There were answers made by my noble friend Lord Lucas at that stage with regard to those arguments. I am simply saying that to use that kind of argument, the small trader argument, as a gun at this target is firing at the wrong target. The true target is elsewhere.
Lord Mottistone: My Lords, my noble and learned friend said that he was not convinced by the great weight of argument that came from all sides of the House. I find it hard to be convinced by him. On the other hand, I do not think that this is the time to press this further. I hope that I shall find a more ready acceptance of the next amendment. I beg leave to withdraw this amendment.
Amendment, by leave, withdrawn.
Lord Mottistone Lord Mottistone moved Amendment No. 6:
[Printed earlier.]
The noble Lord said: My Lords, on the assumption that my noble and learned friend's arguments about the position of the Customs and Excise and its taxes are accepted, the other point is the question of how long should be the period of preference. On that point there was even stronger argument at the last stage of the Bill. My noble friends Lord Noel-Buxton and Lord Selkirk came in strongly for a shorter period of the order of six months.
My noble and learned friend the Lord Advocate said on 2nd April, at col. 175 of Hansard:
As I have already indicated, 12 months is the present rule and a rule which has been present for some considerable time. I suggested in Committee that it is for those who seek to move on to some shorter period to justify the need for such a change".
I have read carefully what has already been said. and I hope that I may now convince your Lordships that there is justification for a shorter period.
The Government justification of the 12-month period for reference for VAT on the grounds of administrative convenience, given that this is a financial year period on which income tax is based, would only be tenable if insolvencies occurred at the end of the tax year and if VAT were collected yearly, as opposed to quarterly as the situation now is. Accordingly, what I should like to see would be a limit for preference reduced to six months, which is a generous period by any standards as it allows for a three-month period between payments, plus a further three months. This is long enough to enable a reasonably diligent VAT collector to make his inquiries and to set in train the procedures for recovery in the event of default.
To give an illustrative example of Customs and Excise general practice: at the end of an accounting period of three months, taking January to March inclusive, a business must pay over the VAT collected by it; that is, by the last day of the month following the end of the accounting period, the last day of April. If it defaults the commissioners should normally issue an assessment as soon as possible but not later than four to six weeks' later. In this example that is by the period 1st to 15th May at the latest. The issued assessment must mature for 30 days before a demand notice for immediate payment is made; that is, by the period 1st to 15th June in the example that I have given.

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Normally three clear working days are allowed for response to this by the debtor, whereupon authority to levy distress can be issued under the England and Wales Regulation 58 and the Scottish Regulation 59 of the VAT General Regulations 1980.
It will be clear from this example that the whole process of VAT debt recovery can take place comfortably within six months, even allowing for reasonable extensions of time at each stage. It will be noted that most ordinary creditors do not have these additional powers of distress in the event of default by a debtor. So because we are talking about timescales which are of a special type related to VAT it seems only reasonable that the shortened interval of six months, which my amendment calls for, is reasonable as a good compromise position. My noble and learned friend,on more than one occasion in his remarks on the last amendment, said that he thought that the removal of preference from the assessed taxes and retaining it over collected taxes was a reasonable compromise. I would suggest to him that a six-months' period in these VAT circumstances is also a reasonable compromise. I beg to move.
Lord Bruce of Donington: My Lords, we on this side of the House entirely support the amendment proposed by the noble Lord, Lord Mottistone. I was a little puzzled during the course of the exchanges that the noble and learned Lord had with the noble Lord, Lord Meston, concerning the position of the unsecured creditors. It appeared that the noble and learned Lord was arguing that if Crown preference were abolished it would not affect the unsecured creditors, anyway, because those who held the floating charge would take the money. I trust that the noble and learned Lord will agree that that is rather an oversimplification of the position.
In the first place, a number of companies or firms go into liquidation in respect of which no floating charge exists. So clearly if Crown preference is reduced there will be more money available for the unsecured creditors, unless the total asset realisations do not reach the total of the preferred debts, when they would all tend to abate equally. Even in the case where there is a floating charge what the noble Lord says is not entirely true, if I may say so with respect. On the realisation of the floating charge and on the assets being sold there may be a surplus arising on asset realisation which exceeds the liability secured by the floating charge. With respect, the argument that the noble and learned Lord put forward is not so generally applicable as he, perhaps quite unintentionally, sought to convey. Otherwise the whole argument against the abolition of Crown preference is entirely useless in any event. We support entirely the amendment put forward by the noble Lord, Lord Mottistone, and sincerely hope that other noble Lords sitting elsewhere in your Lordships' House will see fit on this occasion to support it.
5.15 p.m.
Lord Denning: My Lords, I, too, support the amendment. Even though we have to submit to a
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preference for VAT, why is it 12 months? I only need to read paragraph 1423 of the Cork Report to find:
"In these circumstances, we have reached the conclusion that the present 12 month period for preference is excessive, and propose that it be shortened. We consider that in future the period for preference for each tax should be related to the intervals between returns.".
That is just what the noble Lord, Lord Mottistone, was saying. The returns may be quarterly but let us compromise on six months. That is a very sensible way and will give some way of reducing this preference. I, too, support the amendment.
Lord Meston: My Lords, I support this amendment as a sensible compromise. I apologise if I have been the source of an over-simplification. The point I was trying to make was that to remove Crown preference does not automatically benefit those at the bottom of the ladder. It may or may not benefit them, depending upon the number and the size of the other secured creditors who are on the middle rungs of the ladder. Perhaps that is by the by in the context of this amendment. It is certainly a sensible amendment.
Lord Noel-Buxton: My Lords, I, too, support this amendment moved by my noble friend Lord Mottistone. My noble friend Lord Erroll of Hale and myself moved in Committee similar amendments which I hope we fully explained at that time and which accord entirely with what my noble friend Lord Mottistone proposes today.
Lord Cameron of Lochbroom: My Lords, at the outset I accept entirely what the noble Lord, Lord Bruce, says about what may happen in certain cases. Perhaps I should merely plead that I am only a lawyer and not an accountant; and therefore when it comes to figures I would defer to what would be the conclusions reached in certain instances where certain figures arise. I can only plead that I did not state categorically that it would arise in every case; I merely said it would arise in certain cases. It would be very likely to enure only to the benefit of preferred creditors. I can only say, with the noble Lord, Lord Meston, that that is by the by in the amendment with which we are now dealing.
I remind your Lordships that this is a specific amendment to Schedule 3. It affects only that part of Schedule 3 which relates to value added tax. It does not affect any of the other preferential debts which remain. For instance, it does not affect the sums due on account of deductions of income tax which under paragraph 1 will remain due for the period of 12 months next before the date. It does not apply to the debts due to the Customs and Excise under paragraph 2(2) in relation to car tax or in relation to general betting duty or bingo duty under paragraph 2(3). It does not apply to social security contributions, all of which are fixed by reference to the period of 12 months.
It has been urged upon the Government that there should be some compromise, but, as I think I said in argument before, the Cork Committee recommended a reduction, and the noble and learned Lord, Lord Denning, has very properly reminded us of that. But that reduction was over all the area of collected taxes. When speaking on this in the House previously, I pointed out that the Cork Committee provided no

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reasoning for the reduction that they recommended from 12 months to three months. Certainly—and, again, I think that I have put this forward—there is really no logical basis for suggesting that the limit should simply be related to the interval between returns. Indeed, as my noble friend Lord Selkirk reminded the House last time, insolvency does not occur in relation to accounting periods.
The period of 12 months has been a compromise which the Crown has accepted for a considerable period of time. While my noble friend Lord Mottistone has properly sought to persuade the Government that in relation to VAT there should be a reduction from 12 months to six months, I am hound to say that I could find no logical argument being produced by him for such a reduction while leaving PAYE and the other taxes to which I referred at 12 months. If it is to be a compromise, then I say that your Lordships already have a compromise in the Bill as it stands; because if the basis for a preference is accepted by your Lordships (as, indeed, I think it has been accepted already in relation to the collector taxes) then this is money which in some ways is impressed with a trust. Then, logically, the Crown would be entitled to take credit for all such monies which are impressed with a trust; but, in fact, it has limited it to 12 months.
That being so, I would simply suggest that to have some different period of preference for PAYE, on the one hand, and VAT, on the other, is simply inconsistent, illogical and in some sense, one might say, even productive of injustice. Why is it that the creditors should achieve some benefit from the reduction of Crown preference for VAT and none from the other? Of course, that is an argument which noble Lords opposite would no doubt say is for reducing it over the whole. But that is not the amendment before the House today, and I am simply pointing out that there is an illogicality.
I would simply invite your Lordships to say here that the use of the word "compromise" is not a substitute for argument. There is really no logical reason why VAT should be treated in any other, different way from that of the other taxes which will remain as Crown preferences. Therefore, with that submission, I would suggest to your Lordships that the Government have always, even in the present Bill, adopted a wholly reasonable attitude in relation to Crown preferences in respect of those taxes which are impressed with this sense of trust and that nothing has been said today that would logically lead to treating VAT in a different sense.
I would therefore urge my noble friend to withdraw the amendment. Once again, I am very grateful to him for having allowed this matter to be ventilated, but, in my submission, with this amendment he would really produce an absurdity which cannot either in logic or in reason be supported.
The Earl of Selkirk: My Lords, before my noble and learned friend sits down, may I ask him one question? He has very frequently used the word "trust". If my noble and learned friend goes into a shop and buys, say, a pair of shoes on credit, does that not create the element of trust, or is it only a question of morality?
Lord Cameron of Lochbroom: My Lords, I would simply respond to my noble friend by quoting, if I may, from a passage in the Cork Report which I think has been mentioned in previous debates. It is in paragraph 1418, and it says:
"In certain special cases, however, such as PAYE, National Insurance contributions, value added tax and car tax, different considerations obtain. In these cases, the Crown's claim is for moneys collected by the debtor, whether by deduction or charge, and for which the debtor is accountable to the Crown; the debtor is to be regarded as a tax collector rather than a taxpayer. Unless some measure of priority were accorded to the Crown for moneys collected on its behalf, or they were to be regarded as impressed with a trust, they would go to swell the insolvent's estate to the advantage of the general body of creditors."
What the Cork Committee was saying, as I understand it, was that there is something equivalent to a trust, although I accept entirely the point which I think my noble friend was seeking to make. There is, in fact, in law, no trust created; but it is looking at the matter in a broad, realistic frame of mind.
Lord Mottistone: My Lords, I was interested that at an earlier stage my noble and learned friend called upon those seeking to move for a shorter period to justify the need for such a change. He mentioned again in his recent speech that Cork had not justified the need for change. I spelled out at some length why it seemed reasonable that six months, in practical terms, was a good reason for change. My noble and learned friend did not refute that in any sense whatever, so I take it that he accepted my argument as being a good reason for change.
He concentrated his objection to the amendment on the fact that we were relating it only to VAT and not to the other taxes which are still within the preferential list. There are two reasons for that, the most important of which is that I have always understood that when it comes to Third Reading, one should limit one's amendments to the very few for which one has built up a good case and of which one has given proper warning over the whole period of the time. The only amendment in this area of reducing the time interval that was left at the end of the Report stage was the VAT amendment. It seemed to me, therefore, that it was not reasonable to cover the other taxes that might or might not remain.
I would have thought that that was not much of an argument, particularly in view of the fact that this Bill will now go to another place to receive the full treatment. If your Lordships agree (as I hope you will) that the arguments in favour of six months are amply proven, it will be up to the Government to make whatever changes are necessary in another place to bring the other taxes into line.
It would seem to me that, if one reads the Cork Report, one of the reasons that perhaps led them not to specify in detail why they thought these reductions would be reasonable was that they were dealing with a whole series of different taxes for which different reasonings and different intervals might be more appropriate. I think that that is another reason why it has perhaps been rather a weak argument from the beginning.
As to the question whether 12 months is a compromise, my noble and learned friend said at an earlier stage that the 12-month rule had been in force

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for a considerable time. If that is so, it is not really a sort of compromise to leave it there if you are seeking to make some sort of change. Legislation is all about change. So I find that argument very weak indeed. Accordingly, much as I regret it—because I was hoping very much that at this stage we might get some sort of move on the part of the Government, in view of the fact that they did not wish to take our very good arguments for removing VAT altogether from the preferential list—one has now to find out from the House what it thinks about this. Accordingly, I beg to move.
5.31 p.m.
On Question, Whether the said Amendment (No. 6) shall be agreed to?
Their Lordships divided: Contents, 101; Not-Contents, 90.

DIVISION NO. 2

CONTENTS

Amherst, E.

Killearn, L.

Ampthill, L.

Kinnaird, L.

Attlee, E.

Kirkhill, L.

Bacon, B.

Lawrence, L.

Banks, L.

Llewelyn-Davies of Hastoe, B.

Beaumont of Whitley, L.

Lloyd of Hampstead, L.

Bernstein, L.

Longford, E.

Beswick, L.

Lovell-Davis, L.

Birk, B.

McGregor of Durris, L.

Blyton, L.

MacLeod of Fuinary, L.

Bottomley, L.

McNair, L.

Brockway, L.

Marsh, L.

Bruce of Donington, L.

Mayhew, L.

Buckmaster, V.

Meston, L.

Caccia, L.

Mishcon, L.

Caradon, L.

Monson, L.

Carmichael of Kelvingrove, L.

Mottistone, L. [Teller.]

Collison, L.

Mountevans, L.

Craigavon, V.

Mulley, L.

Croham, L.

Nicol, B.

David, B.

Noel-Buxton, L. [Teller.]

Davies of Leek, L.

Northfield, L.

Denning, L.

Perry of Walton, L.

Diamond, L.

Ponsonby of Shulbrede, L.

Elwyn-Jones, L.

Raglan, L.

Elystan Morgan, L.

Rhodes, L.

Ennals, L.

Ritchie of Dundee, L.

Ezra, L.

Rochester, L.

Falkland, V.

Ross of Marnock, L.

Fisher of Rednal, B.

Saltoun, Ly.

Foot, L.

Seear, B.

Gallacher, L.

Selkirk, E.

Galpern, L.

Shinwell, L.

Gladwyn, L.

Somers, L.

Glenamara, L.

Stallard, L.

Graham of Edmonton, L.

Stedman, B.

Gregson, L.

Stewart of Fulham, L.

Grey, E.

Stockton, E.

Grimond, L.

Stoddart of Swindon, L.

Halsbury, E.

Strabolgi, L.

Hampton, L.

Taylor of Gryfe, L.

Harris of Greenwich, L.

Taylor of Mansfield, L.

Hatch of Lusby, L.

Tordoff, L.

Henderson of Brompton, L.

Walston, L.

Houghton of Sowerby, L.

Wells-Pestell, L.

Hylton-Foster, B.

White, B.

Irving of Dartford, L.

Wigoder, L.

Jacques, L.

Wilson of Langside, L.

Jeger, B.

Wilson of Rievaulx, L.

Jenkins of Putney, L.

Zouche of Haryngworth, L.

John-Mackie, L.

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NOT-CONTENTS

Alexander of Tunis, E.

Hives, L.

Allerton, L.

Hornsby-Smith, B.

Belhaven and Stenton, L.

Ironside, L.

Beloff, L.

Lane-Fox, B.

Belstead, L.

Lauderdale, E.

Bessborough, E.

Lucas of Chilworth, L.

Brabazon of Tara, L.

Lyell, L.

Broxbourne, L.

McFadzean, L.

Bruce-Gardyne, L.

Macleod of Borve, B.

Cairns, E.

Margadale, L.

Caithness, E.

Marley, L.

Cameron of Lochbroom, L.

Marshall of Leeds, L.

Campbell of Alloway, L.

Maude of Stratford-upon-Avon, L.

Campbell of Croy, L.

Carnegy of Lour, B.

Mersey, V.

Cathcart, E.

Milverton, L.

Coleraine, L.

Morris, L.

Cottesloe, L.

Nugent of Guildford, L.

Cox, B.

Orkney, E.

Davidson, V.

Orr-Ewing, L.

Denham, L. [Teller.]

Pender, L.

Donegall, M.

Rankeillour, L.

Dormer, L.

Rawlinson of Ewell, L.

Drumalbyn, L.

Reay, L.

Dundee, E.

Renton, L.

Ellenborough, L.

Rochdale, V.

Elliot of Harwood, B.

Rodney, L.

Elton, L.

St. Aldwyn, E.

Enniskillen, E.

St. Davids, V.

Erroll of Hale, L.

Sandys, L.

Faithfull, B.

Shuttleworth, L.

Ferrers, E.

Skelmersdale, L. [Teller.]

Ferrier, L.

Soames, L.

Fortescue, E.

Sudeley, L.

Fraser of Kilmorack, L.

Suffield, L.

Gainford, L.

Teynham, L.

Gardner of Parkes, B.

Thomas of Swynnerton, L.

Gisborough, L.

Trefgarne, L.

Glanusk, L.

Trenchard, V.

Glenarthur, L.

Trumpington, B.

Gowrie, E.

Ullswater, V.

Haig, E.

Vaux of Harrowden, L.

Hailsham of Saint Marylebone, L.

Vickers, B.

Vivian, L.

Hankey, L.

Whitelaw, V.

Henley, L.

Yarborough, E.

Resolved in the affirmative, and amendment agreed to accordingly.
An amendment (privilege) made.
5.39 p.m.
Lord Lucas of Chilworth: My Lords, I beg to move that this Bill do now pass.
We may from time to time have had our differences about the way in which reform of insolvency legislation should proceed, but I believe that the very full and careful consideration given to this substantial measure has once again underlined the reputation of your Lordships' House for a determination to improve the quality of legislation brought before it.
At the outset, perhaps I may, on behalf also of my noble and learned friend the Lord Advocate, express gratitude to all noble Lords who have contributed to the task of scrutinising this Bill. Those contributions have raised matters which I and colleagues shall consider before the Bill makes progress in another place. In doing so, full account will be taken of the volume of detailed and helpful comment on the Bill which has been received by my department. I am sure that the result of this process will be to enhance significantly the effectiveness of this measure.

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Before I say a few words about matters which remain outstanding, I should like to express appreciation of the non-contentious and constructive spirit in which noble Lords have spoken during our debates. I believe that our discussions have been all the more effective as a result.
The Bill's provisions to the effect that in future a person will not be qualified to take office as an insolvency practitioner unless he holds a certificate authorising him to act have been widely welcomed. The new arrangements will do much to remove dissatisfaction with the present absence of checks on those who may act as insolvency practitioners. In response to the point put to me by the noble Lord, Lord Bruce of Donington, regarding restrictions on acting where associates are involved, I confirm that we are looking at the definition of the term "associate" to ensure that it is not too widely drawn. I am grateful to the noble Lord for focusing my attention on this matter.
I now turn to the provisions of the Bill which introduce new penalties in cases where directors have behaved improperly. I believe that it is generally accepted and welcomed that the existing law on insolvency must be strengthened to reinforce the duty that directors have to consider the interests of creditors. Changes have been made in the Bill to reflect the view of your Lordships that the disqualification provision must apply to all directors whether their companies are being wound up voluntarily or by order of the court.
Nevertheless, I have to say to noble Lords that the Government are not convinced as to the wisdom of the amendment to Clause 7 of the Bill which was made during Report at the instigation of the noble Lord, Lord Benson, and which has the effect of inserting guidance to the court about the matters it should take into account when considering a disqualification order. I say at once that I recognise and understand the concern that directors should know where they stand and that those who have acted honestly and reasonably should not be at risk. There is no disagreement between us on that latter point. However, I repeat that we are not convinced that the amendment which was agreed by your Lordships is well judged and we shall be considering this question further as the Bill makes progress.
Turning to the Bill's provisions concerning administration orders, the new procedure will add to the options open where a company is in financial difficulties. I think that this reform is generally considered useful. The discussions we are having with practitioners in the insolvency field should enable us to bring forward technical improvements in due course. I should add that I was grateful to the noble Lord, Lord Mishcon, for bringing to my attention some of the views of practitioners. I regret that it has not so far been possible to meet the point of the noble Lord, Lord Bruce of Donington, that the appointment of an administrative receiver should be allowed between the presentation of an administration order petition and the hearing of that petition. I assure him that the Government will bring forward an amendment to this effect.
The Bill also introduces simplified and modernised
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winding-up and bankruptcy codes, including revised voluntary arrangement procedures. The Bill's provisions in these areas are of course very detailed and extensive, and I should again like to express my appreciation of noble Lords' diligence in examining these provisions and in raising a considerable volume of substantive and technical points. A number of these have already resulted in amendments to the Bill and I assure your Lordships that those matters which remain unresolved are receiving further examination.
We are, for example looking very carefully at the question of the family home in regard to bankruptcy. As I indicated to the House on Report, a working paper on this subject has now been issued. A copy has been placed in the Library and a copy has also been sent individually to those noble Lords who took part in the debate on the matter both in Committee and on Report. The working paper contains the Government's view as to the scope of the amendments which should be tabled in another place which we feel strikes the right balance between the interests of creditors and the bankrupt's family. That view is obviously subject to the comments which will be received from a number of bodies, and I hope that those of your Lordships who have particular views will also make those known either to me or to my honourable friend.
At the same time we are looking very carefully at the jurisdictional issues in connection with the ability of creditors to present bankruptcy petitions. I should like to say in this connection that I am appreciative of the contributions made by the noble Lords, Lord Bruce of Donington and Lord Meston, to our consideration of these matters. It would be an oversight if I did not also express my appreciation to my noble friend Lord Selkirk for the close eye which he has kept on the draftsmen of this Bill and to the noble and learned Lord, Lord Denning, for his absorbing and influential observations on a number of matters, whether in sympathy or, from time to time, entirely out of sympathy with the Government's proposals.
Finally, the Bill now contains new provisions in the area of Crown preference, and I think it will be widely agreed that these represent a substantial measure of reform, though I have to exclude from those remarks the matter upon which your Lordships have just given your judgment. I was, in fact, referring to the earlier element. Many noble Lords gave the Government the benefit of their views on the matter of Crown preference, but I should, I think, acknowledge the contributions made by my noble friends Lord Noel-Buxton, Lord Erroll of Hale and Lord Mottistone, and again my noble friend Lord Selkirk, whose amendments were the principal focus of our debate, particularly in Committee.
I believe that this measure is an important and valuable one. In the Bill we have a worthwhile and much needed update of legislation which dates hack 70 years or more. I believe that the Bill will go to another place with still much work to be done upon it, but certainly in an improved state from that in which it arrived in this House in January. My Lords, I beg to move.
Moved, That the Bill do now pass.—(Lord Lucas of Chilworth.)
5.50 p.m.
Lord Bruce of Donington: My Lords, we on this side of the House are quite conscious that the Bill as it leaves your Lordships' House is a considerable improvement on the one that was originally presented to us. In particular, the reassertion by your Lordships' House of the fundamental principle that in the United Kingdom a person does not have to prove himself innocent but has to be proved guilty, and the elimination of automatic provisional disqualification, are matters for which the whole House can take some credit. As I said, the Bill is now, thanks to the efforts of your Lordships in all parts of the House, a much better Bill than when it came. However, I cannot disguise from your Lordships my own view that it is still not a very good Bill. I must reiterate my view—and I have already said this strongly many times—that it would have been far better if the Cork Report, which was published over two years ago, had been debated in both Houses of Parliament so that the Government could have had the views not only of Members of another place but also of those of your Lordships who have wide interests in commerce, trade and industry, so that they could have been taken into account prior to the Government coming forward with their own proposals.
Moreover, it will not have escaped your Lordships' attention on detailed examination of the Bill that it is still very much an enabling Bill. Much still has to be known as to what will be comprised in the rules that are mentioned on no less than 50 occasions in various parts of the Bill, and also as to the various statutory instruments that are envisaged in it. It would have been far better if the Bill had been much more comprehensive and if there had been a great deal of pre-debate.
Your Lordships will recall that one of the recommendations of the Cork Report, to which a very justifiable tribute has been paid from all quarters of your Lordships' House, was about the establishment of insolvency courts. Many of the troubles and difficulties of the various branches of the judiciary could have been solved if it had been decided to have special insolvency courts with specialist people dealing with the issues involved. The Bill itself, as it has passed through your Lordships' House and particularly after the rejection by your Lordships of automatic disqualification of directors, contains, quite properly, very stringent provisions as to the qualifications of insolvency practitioners and of all those who act as liquidators and receivers, while in the matter of reporting it has laid very heavy responsibilities indeed upon them, in default of which there are quite a number of penalties, aside from the penalties involved in withdrawing their licence to practise. So a very great responsibility has now been placed upon them.
Perhaps it is unfortunate that, although these new and very welcome reforms about the qualifications, activities, powers and duties of insolvency practitioners have been laid down, the Government have not taken equivalent steps to make sure that they can operate at all. The Cork Report gave the Government the opportunity, by the levying of a charge of 10 per cent. of floating charges, for there to
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be funds available in various companies that go into liquidation. In addition to providing relief in respect of unsecured creditors, it would have made sure that there were sufficient funds for insolvency practitioners to operate at all.
What has now happened is that we have a car of a kind, not quite the Rolls-Royce that we should have liked but, at any rate, a passable vehicle that will travel along and that can be steered. But the Government have not provided the petrol, because no insolvency practitioner, even one with the most altruistic sense of public duty, can possibly be in a position to function as an insolvency practitioner unless there are funds available to pay him. It just will not happen.
Since the noble Lord's principal objective in bringing forward the original Bill was to relieve the official receiver of a number of duties in the insolvency division and a number of responsibilities which made a profit of £2,700,000 last year, the Bill as now constructed, without making proper provision by adopting the Cork Report's recommendation of 10 per cent. trust money held out of the floating charge, has made it very difficult for the insolvency practitioner to function at all over quite a wide area.
I do not know what the other place will do about this. They may well think—and it would he unwise and, indeed, improper of me to make any suggestion as to what conclusion they may arrive at—that the Bill ought to provide some propellant to enable insolvency practitioners to function in circumstances where their services are most definitely required, particularly in reporting on delinquent directors, in reporting on their conduct and in reporting on all those responsibilities that are laid on them under the Bill. That is one point.
The other point that I was bound to notice—and I plead guilty as an accountant to noticing it perhaps more than many of your Lordships who are not so intimately connected with the profession—was the resistance by the Government to asserting the paramount necessity of companies keeping proper books of account, in accordance with the provisions of the Companies Act. Your Lordships will recall that I sought to put forward an amendment to make that a prime responsibility, a breach of which would have rendered a director liable to serious penalties.
I do not know whether the Department of Trade thinks with two minds upon these matters, but I observe with some dismay that a document which may feature in the debate that is to be held tomorrow afternoon—if it appears on the Order Paper—Burdens on Business, contains a suggestion of some relaxation of auditing standards. I ask the Government: did that section of the Department of Trade and Industry that was concerned with the conduct of directors have any contact with that portion of the Department of Trade which issued this document, Burdens on Business, which advocates a relaxation of auditing standards?
It is absolutely certain that a relaxation of auditing accounting standards, and of the rules as they are now laid down, would greatly accelerate the number of bankruptcies and liquidations that occur, because, as I have indicated to your Lordships—and those of your Lordships who have had experience of trade and commerce know this perfectly well—one of the first attributes of a successful business is that correct and

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adequate records are kept. Otherwise, it is impossible for the mangement and the directors to know what is happening. It is impossible for them to be able to guide the business in the correct way. I personally regret that the amendments that I put forward in that respect were not incorporated in the guidelines which many in my profession consider absolutely necessary.
An endeavour has been made to use this Bill to discipline directors. This is quite proper. But never let it be forgotten that there have been Acts on the statute book since 1948 which have not been used by successive Governments and which could have brought delinquent directors to book long ago, without the application of the clauses in this Bill. I think in particular of the derisory number of prosecutions that have taken place even though the attention of the authorities has been drawn to them. It is to be regretted that this relaxation is contemplated, and I hope that in due course, perhaps in another place, the Government may amplify their attitude.
I should like to thank the noble Lord, Lord Lucas of Chilworth, and the noble and learned Lord the Lord Advocate for the way they have steered the Bill through this House, particularly in the late hours when patience tends to become a little short and one tends to become a little fatigued. For my part, I should like to thank them for the way they have conducted it. I am sorry that the Bill is not better but I am very glad that the House has parted with a better Bill.
6.1 p.m.
Lord Denning: My Lords, in parting with this Bill, perhaps I may say just a few words. Insolvency is a disagreeable subject. It is a slough of despond not only for those who fall into it but for the lawyers and accountants who have to deal with it and try to pull them out. For more than 80 years the law has been in a mess. There was that excellent report by Sir Kenneth Cork, and I should like to thank the Government for the extent to which they have implemented that report. Many of the report's most important proposals are implemented in this Bill and I am sure that they will do a great deal of good for the future and make it easier, I hope, for the lawyers and accountants to follow.
There are of course some disappointing things—we know there are some disappointing things—but on the whole it is an excellent reform of a piece of the law which greatly needed reform, and I should like to thank the Government for bringing it forward.
Lord Meston: My Lords, perhaps I may join in thanking the noble Lord, Lord Lucas, and the noble and learned Lord the Lord Advocate for the trouble they have obviously taken in dealing with the enormous number of amendments which have been put forward during the course of the Bill. I venture to agree that it has been considerably improved during its passage through your Lordships' House, albeit the genesis and progress of this Bill have called into some question the whole mechanism of law reform in this country. It is a matter of particular regret that the Government were not able always to accept the recommendations of the Cork Committee.
I feel a mixture of disappointment and relief that the Government are apparently keeping in reserve a large
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number of amendments for another place. It is also a matter of some disappointment that the Government have not felt able to express more sympathy for the plight of consumer creditors. But I am particularly grateful to the noble Lord, Lord Lucas, for writing to me with a copy of the consultation paper relating to the family home. I am most grateful for his response to both my amendment on that topic at Committee stage and the similar amendment moved by the noble Lord, Lord Bruce, at the Report stage.
The impact of insolvency upon the family home is a matter on which the Cork Committee itself took consultation, reported and recommended. It is slightly a matter for regret that the Government did not accept the wisdom of the Cork Report without reservation. I certainly hope that the Government will keep an open and a sympathetic mind in this matter. Action on this point will ensure that, whatever else emerges from this reforming legislation, the opportunity is not lost to make an important social and legal reform to protect the truly innocent victims of insolvency.
Lord Mottistone: My Lords, I too should like to congratulate my noble friend Lord Lucas of Chilworth and my noble and learned friend the Lord Advocate on the stalwart way in which they defended their corner throughout these debates and on the charm with which they sought to say the unpalatable. I am sorry that there were occasions when I had to take the side against them, in order, I assure them—this is absolutely serious—to ensure that the Government were aware of where they might themselves be going into error.
I think it was a very good point that they made in producing a new Clause 7 for us. This was a splended reaction to an obviously amateur Clause 7 which was so ably thought up as well as presented by the noble Lord, Lord Benson. I noted that my noble friend said that the amendments to that clause which we sought to achieve and did achieve on Report were going to be considered further. I should expect that in the same way as the original new Clause 7 in Committee was considered further and a better one produced.
I would hope very much that the Government will do what they did then, which is to build upon what has been achieved in Clause 7 as it now stands and not, dare I say? petulantly sweep away what we put in. I think that there is a good deal of sound sense in it, and the fact that we got a majority in this House to agree with us surely means that it would be most unwise not to take the benefit of the wisdom of this House and build upon what had been achieved, rather than do something desperate like taking it away.
The same would, I hope, go for the amendment that we have just achieved on the preferential treatment of VAT. I hope that that too will be built upon and not in any sense disregarded and thought not to be of importance.
I believe, I think rather more strongly than the noble Lord, Lord Bruce, that this Bill is not only very necessary and a splendid way, albeit perhaps not brought forward as soon as people would have liked, of implementing the Cork Report, but, as it now stands (with a need perhaps for a little tidying up) a very good Bill which will achieve two main objects. It will deter

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the wrongdoer or the inadequate and unfit doer, but it will not frighten off the chap who is trying to make a success of a company which is in difficulty. It must stay that way and that is what it is all about. I hope very much that when we get it back, it will not have been torn about too much.
The Earl of Selkirk: My Lords, I should like to thank the noble and learned Lord the Lord Advocate and the noble Lord, Lord Lucas, for the amendments affecting Scotland which were carried. I know that the Scottish Law Society will be very grateful to them for what they have been able to do. I should like particularly to congratulate the noble Lord, Lord Lucas, on his manner in conducting an extremely complicated Bill about which I expect he knew nothing whatsoever six months ago.
On Question, Bill passed, and sent to the Commons.

Trustee Savings Banks Bill
6.9 p.m.
Report received.
Clause 1 [Preliminary]:
Lord Taylor of Gryfe Lord Taylor of Gryfe moved Amendment No. 1:
Page 1, line 9, after ("banks") insert ("other than Trustee Savings Bank (Scotland) Limited which is hereby excluded from this Act").
The noble Lord said: My Lords, some noble Lords may feel that this amendment was fully discussed at the Committee stage of the Bill. I apologise for its reintroduction this afternoon, but since our debate new factors have emerged and as these raise matters of fundamental importance, I feel that the House should have this further opportunity to consider the full implications of the Bill and the proposed amendment. Indeed, I am encouraged by the Division which took place in this Chamber only an hour ago to believe that the House will pay due heed to reasoned amendments on what I regard as a matter not of party politics but of good administration.
Two factors have emerged since we discussed this matter in Committee. One is the publication of the annual accounts of the Trustee Savings Bank group, to which I shall return; the other is the emergence in Scotland of widespread disatisfaction about these proposals. One in four of the entire population in Scotland has an account with the Trustee Savings Bank in Scotland. They have more than two million accounts in TSB (Scotland). While these proposals have not received much publicity until now, I can assure the Minister that in the past few weeks there has been very considerable activity and very great concern about the fact that the depositors who created this bank and this wealth have not been consulted about the fate and the future of their business. If this bank had been a public limited company, the shareholders would have held an annual meeting to decide whether this was the right course or the wrong course for their company. In this case, because of the Trustee Savings Banks' peculiar structure, depositors are not enfranchised to determine or influence the course of their business.
I understand that a number of depositors in Scotland are taking legal advice on their rights in the matter and that the Bill may be challenged in the courts, though I confess that I have no part in those proceedings.
This is not a wrecking amendment. I agree with the necessity for restructuring the TSBs because their new role in banking and new services require a change in the structure in order that they may play their full part in the banking business. They are no longer a part of the National Savings organisation. It is right that the TSBs should have answerability to the Bank of England and not to the Treasury. It is right that they should be able to issue shares like any other PLC. This amendment is not designed to destroy that concept. It is designed simply to secure the independence of TSBs in Scotland to enable them to make similar arrangements for the conduct of their business.
It is my submission that TSB (Scotland) can stand on its own feet as an independent bank and make an even greater contribution to the expansion of financial services in Scotland. I shall argue that this exercise in further centralisation of financial services, which is implied in the proposals, is unhealthy and undesirable. Edinburgh is the second largest financial centre in Europe. It is second only to London. It has under fund management more than £30 billion in its institutions and banks. Foreign banks have recognised its significance. There are no fewer than 30 foreign banks with offices in Edinburgh. Edinburgh handles 23 per cent. of the investment trust business of the United Kingdom, 20 per cent. of unit trust business, and 14 per cent. of the life assurance business of the United Kingdom. The financial services sector is the greatest growth sector in the Scottish economy. No fewer than 80,000 people are employed in Scotland in financial services.
As was said earlier, the TSB has a long history. It was established 175 years ago in Scotland. It is solidly based in our towns and villages and is very much a community affair; indeed, it has been said that it reaches parts which other banks do not reach. It has a lively management. It is making remarkable progress. It employs 3,000 people. It had an operating profit last year of £32 million. TSB (Scotland) has assets of £1.4 billion and deposits of more than £1 billion. So it is a sizeable bank and it is perfectly able to operate independently and efficiently.
It will be argued by opponents of this amendment that TSB (Scotland) will continue to exist under the new arrangements, but I must insist that the structure proposed in the Bill will destroy the independence of TSB (Scotland). The TSB holdings board under this Bill will be elected by shareholders but TSB (Scotland) directors will be appointed by that central board. In a sense it will be a poodle. In saying that, I do not mean to minimise the activities of the very good men who operate TSB (Scotland); they are excellent men. But by necessity, and because of the proposed structure, TSB (Scotland) directors will be appointed by the TSB operating from London.
In case your Lordships have any doubts about this matter, I shall quote from the TSB annual report which has just reached me, in which the chairman, Sir John Read, writes:

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"As a holding company hoard it will exercise ultimate control over the profitable development of the Group's activities. It will have responsibility for the formulation of Group policy and for providing the organisation and management structure to meet the Group's needs".
That is a clear definition of the new power relationship within the trustee savings banks. This is the fundamental issue before us.
6.15 p.m.
I should like to quote one or two additional, factors which might justify the House in resisting, even at this stage, this very dramatic change. Three years ago in Scotland there was a proposed takeover of the Royal Bank of Scotland. I am sure that the Minister will state that the TSB hoard in Scotland is favourable to these proposals, but that was also the case with the board of the Royal Bank of Scotland. However, the shareholders disagreed and the takeover was referred to the Monopolies and Mergers Commission, which looked at the implications of transferring a Scottish bank to London or Hong Kong. This is what the commission concluded:
"We foresee a detriment to the public interest in Scotland in the case of either merger arising from the removal of ultimate control from Edinburgh. We also think that there is value in preserving such independent local centres of business initiative and opinion 'as survive in the United Kingdom. Scotland and Scottish banking have an honourable record of innovation, and we believe that the independence which fosters such innovation is best preserved by leaving full control of the bank in Edinburgh".
I suggest that the matters considered by the Monopolies and Mergers Commission and the recommendations ad conclusions of that commission which were accepted by the Government in that case are relevant to the proposal now being discussed.
There is in Scotland, thankfully, a very powerful organisation called the Scottish Development Agency. It is supported by Government funds. It has an excellent record. It was initiated by a Labour Government and has been consistently supported by the present Government. It has identified the financial services sector as a vital element in regional growth. Indeed, it has received some encouragement and assistance from the Bank of England in pursuing this matter with great vigour. At the same time as the Scottish Development Agency is busy pursuing the development of the financial services sector in Scotland, the Government are in this proposal seeking to diminish that effort. I suggest that there is a certain inconsistency here.
I could quote at some length statements made my Ministers. A Minister at the Department of Trade and Industry, Mr. Alex Fletcher, who has some responsibility for financial matters in the Government, said recently:
"I am anxious therefore that Scotland should be equally innovative in this new financial revolution and I am looking to brokers, bankers, investment managers and businessmen throughout Scotland to show Britain the way".
To diminish the Trustee Savings Bank in this way is certainly not encouraging that train of thought.
I hope that the Minister will feel that there is sufficiently good reason to take this back. It is not an exercise in Scottish nationalism. Anyone who knows my position in Scottish life and politics will recognise that I am not much given to supporting the Scottish
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National Party or the Scottish national movement. It is a question of good administration. What I propose is a protest against greater centralisation, and is intended to encourage in Scotland the continued growth of the innovation, the imagination and the exercise of power which is traditional in Scottish banking. I beg to move.
Baroness Carnegy of Lour: My Lords, the noble Lord has again brought in front of your Lordships' House the amendment that he moved in Committee, giving as the grounds for justifying this break with our normal convention that new information is available as a result of the publication of the annual report of the TSB.
I obtained the impression in Committee that the Committee felt that in some way the Government and the TSB had been ignoring Scottish interests, that they did not remember the importance of Edinburgh as an important financial and commercial centre, and that the noble Lord's proposal that it would be quite easy at this late stage to remove TSB (Scotland) from the Bill and to legislate separately for it subsequently would be a viable proposition.
I do not think that the noble Lord made it clear to us—although I am sure he meant to—that the arrangements in this Bill have taken a decade to develop. The TSB began in Scotland as a movement for small savers and it spread to the rest of the United Kingdom from Scotland. However, as time went on the need to enable the customers to have the full services which are only possible in a bigger group became evident. The noble Lord has now said that the smaller bank-25 per cent. of the size of the whole bank—would be adequate to provide these services. However, it was the view of TSB (Scotland), and TSB generally, that it would be enormously to the benefit of Scottish customers if the arrangements proposed in the Bill could find fruition. The TSB persuaded the Government to legislate and it has taken 10 years to arrive at this point.
The arrangements are proposed because they are in the best commercial interests of Scottish customers. The Scottish board met last week and confirmed that it is 100 per cent. in favour of the proposals. Twelve thousand staff outside Scotland are ready for the legislation; as are 4,000 staff inside Scotland. The unions are in favour. They, and the customers—those in Scotland and outside—will have preference in participation in the flotation of the company when it comes. This is a last-minute and, with the greatest respect to the noble Lord, Lord Taylor, a politically motivated move. Nationalist interests have been hard at work during the past few days. When asked for his view on what was going on, the general manager of TSB (Scotland), Mr. Ian McDonald, is reported by the Scotsman as saying:
"My concern would be if we took the Scottish bank out we would be eaten up eventually. As part of the larger TSB group we will be a predator rather than a prey."
He adds that since TSB (Scotland) will have its own banking recognition it will be running its own affairs. A senior member of the Scottish board to whom I spoke last week said:
"It will be a total disaster if at this point this amendment is accepted."
I hope that the House will reject the amendment.
Lord Grimond: My Lords, I must with respect take issue with some of what the noble Baroness has just said. To begin with, let us make it clear once again that those of us who support the amendment are in favour of the general tenor of the Bill; which is, as the noble Lord, Lord Taylor, said, to enable the savings bank to change its nature and to take part as a normal bank in the wider banking business. We are not against that. We believe that the amendment does nothing to derogate from that. The Government are missing an opportunity. They are not being asked to harm the Bill in any way.
The noble Baroness said that the depositors are in favour of this Bill. I do not know how she knows that because as far as I know they have not been asked. If she has evidence of some poll that has been taken of all the depositors I will willingly defer to her.
Baroness Carnegy of Lour: My Lords, I said that the employees and the unions were in favour. The depositors cannot be consulted.
Lord Grimond: My Lords, we shall have to refer to the Official Report tomorrow. I thought that the noble Baroness mentioned depositors. To my mind the depositors are the most important people: I shall come to the question of ownership in a moment. Moreover, I am not clear that any poll has been taken of the employees. It might be that their union leaders have said so, but to say that the employees of the bank are not in favour of the amendment is going too far. The employees of the bank may be in favour of the general purposes of the Bill but they might equally be in favour of it if Scotland were taken out of the Bill and, with a separate Bill, put in a position of independence with essentially the same powers as are given to the bank in this Bill. I see absolutely no evidence that the employees would be opposed to that.
I can well believe that the directors are in favour because as far as I know the directors are appointed. That is one of the complaints we make about the present set-up in the Bill. As the noble Lord, Lord Taylor, said, the directors were in favour of being taken over but were overruled, and rightly so in my view, in the national interest—the national interest, I may say, not only of Scotland but also of Great Britain.
Having, I hope, made it clear that we are not against the Bill and having, I hope, made it clear that there has been no poll or referendum among the depositors or employees of the savings bank and that although they may well be in favour of the Bill they might also welcome the bank remaining under Scottish control, let me now say a word about ownership. We had considerable discussion about ownership at a previous stage. Ownership is no doubt important, but it is not absolutely vital. What is vital is control. If the noble Earl the Minister looks into it, he will find it extremely difficult to establish who owns the Tote. The Tote is a very effective body and we know who controls it. It is control which matters, and control is passing to London. There is no conceivable doubt about that. The Scottish Savings Bank is going to be the subsidiary of a London controlled company. The directors are not going to be elected by any democratic process by shareholders, or anyone else, but are to be appointed from London.
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The noble Earl is a Scottish Peer, so I believe. The Earls of Gowrie, up to a certain point, had a distinguished history. Like certain other noble families in Scotland, they blotted their copybook rather severely, but they were not alone in that, and had to leave the country in a hurry. I dare say one or two of them left their heads behind, but that has happened before in Scottish history. However, the noble Earl is a Scottish Peer and I am sure he is very susceptible to the view that Scottish financial institutions should remain under Scottish control.
6.30 p.m.
As has been pointed out, it is the Government's policy to build up Edinburgh. Here we have an essentially Scottish institution, founded and financed by Scotsmen. The point at issue is whether its control should be handed over to London or whether it should continue to be under Scottish control in Edinburgh. I should have thought that in every way from the Government's point of view the case is overwhelming for keeping it as an independent institution, for initiating a certain amount of decentralisation, and for keeping it as a Scottish institution without in any way derogating from the powers which are supposed to be given.
Unlike the noble Baroness, I am very surprised that there has not been more alarm in Scotland over this matter. The Scots seem to be fixed on the idea that they must have a Parliament. Of course the Scottish Parliament was not very much of a thing when it existed and, indeed, was not widely admired by the Scots. However, since then they have somehow got their ideas fixed on a Parliament. I believe that the great fund of energy, good will and legitimate sentiment which exists in Scotland should be concentrated on specifically Scottish institutions such as its law, its education and its universities and now its opportunity in the financial sector and the possibility that it really will become a great new source of financial services.
This would seem to me to be something around which all of us who are not Scottish nationalists but who are Scottish patriots can coalesce. This seems a golden opportunity for the Government to forward the whole of that sentiment and feeling. It seems that since we last discussed this the situation has changed in that people are coming to realise that an opportunity is being missed, and missed for no good reason—not for any party political reason, but simply because the Government did not think.
If this Bill is passed in its present form, as I understand it, there will be no safeguards for the Scottish Savings Bank at all. As I understand it, it could be abolished and totally taken over by the central London bank. It could be sold by the holding company. So far as I know, there will be no safeguards against this. Therefore I beg the Government, if they are really determined not to accept this amendment—and I certainly urge them to accept it—at least to see that when the Bill is implemented some safeguards are written into it to ensure that the Scottish Savings Bank will continue to be Scottish in whatever form is possible, even as a subsidiary of London.
Baroness Elliot of Harwood: My Lords, I should like to support the amendment which has been ably moved by the noble Lord, Lord Taylor of Gryfe, and supported by the noble Lord, Lord Grimond. I am sorry to disagree with my noble friend Lady Carnegy of Lour, but I do so on this occasion. I listened with interest to the original debate. I was impressed, but not to the point to which I am today. I am impressed by the changes that have taken place since we had that debate and by the arguments which have been put forward by the noble Lords, Lord Taylor and Lord Grimond. I think that it would be a great pity and something which we would deeply regret if the trustee savings banks just went down to be one of the many banks which are operating from the City of London.
I can remember very well, as we all can, when the Royal Bank of Scotland was supposed to be going to be taken over by another bank. I forget exactly which one it was, but I think that it was the Hong Kong Bank or something like that, miles away. I am glad to say that that was stopped and that the Royal Bank of Scotland is still with us and still an operating bank. It is one of the banks with which I deal myself, though the Bank of Scotland is the one in which I have most interest. I think it would be a great pity, if, in this Bill, the opportunity was not taken to establish the Trustee Savings Bank as an independent bank in Scotland with all the associations that we know it has all over the country. We have a very large clientele in Scotland. Appointments, elections and so on would all take place in Scotland. I think that we would miss a very great opportunity. I hope that the Government will give more thought to this.
The TSB employs about 3,000 people. Last year it was very successful and made a profit of £32·6 million. It is a very successful enterprise. As we know, it has a great number of clients. I think this is an opportunity that we should not miss. I hope the Government will have second thoughts about this. I hope that we shall be able to persuade them that this would be greatly to the advantage of the bank and of the people of Scotland and that the consequences would be very valuable.
I should also like to add to what the noble Lord, Lord Grimond, has said. I am not a Scottish nationalist. I never have been and never will be. I am a patriotic Scot who lives in Scotland. I support this amendment not because it is one of the efforts of the Scottish nationalists; the Scottish nationalists have absolutely nothing to do with me or nothing to do with this amendment. However, I have been approached by a number of people who are anxious about this matter. They are people who are in business in Edinburgh and are interested in banks in Edinburgh. I have changed my mind. At the beginning I did not support this amendment of the noble Lord, Lord Taylor. However, as I say, I have changed my mind. I think this is an important matter. I have had approaches from important people all wanting this to happen. I very much hope that my noble friend Lord Gowrie will consider this again and that he will support this amendment or at least agree to look at it again.
Lord Bruce-Gardyne: My Lords, I should again declare an interest as a director of the Central Trustee Savings Bank. I listened with great care to the speech
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with which the noble Lord, Lord Taylor, introduced his amendment. I must confess that, unlike my noble friend Lady Elliot, I could not actually detect all that much more additional information or supporting evidence than that which persuaded your Lordships a month ago to reject this proposition by a margin of three to two. I must confess that I hope your Lordships will not be of a mind to change that decision this evening.
We have heard numerous references to the precedent (if I may put it that way) of the Royal Bank of Scotland affair. I confess that at the time I thought that the outcome of the Royal Bank of Scotland affair was a rather desirable one. That was not perhaps entirely for the same reasons advanced by the noble Lord, Lord Taylor, the noble Lord, Lord Grimond, and my noble friend Lady Elliot, but because it actually got the Bank of England out of a rather awkward hole. However, it was a hole of its own contriving. It was hard to see how that could have happened otherwise.
I must say to the noble Lord, Lord Taylor, that, as I recollect it, I do not think there was the great rebellion of the shareholders of the Royal Bank of Scotland, to which he referred. As I recollect it, what happened was that there was a great alacrity to accept the first offer that came along from the Standard and Chartered Bank until the Hong Kong and Shanghai Bank came along with a much better one. There was perhaps little surprise at the fact that that offer received preference. I recollect that there was a great deal of enthusiasm in certain quarters in Edinburgh for the absorption of the Royal Bank of Scotland into the stomach of the Hong Kong and Shanghai Bank.
Perhaps we may revert for a moment to the nature of the amendment itself. The fundamental objection to this amendment to the structure which is suggested for the TSBs—the TSB in England and Wales, TSB (Scotland), TSB (Northern Ireland) and the TSB (Channel Islands)—in the Bill emerges from the consensus of opinion within the TSBs themselves. I speak here with some feeling because, as I mentioned to your Lordships when we discussed this question in Committee, I was responsible for these matters in the Treasury over a rather key period in the preparation of the Bill. It is perfectly true that on the issue of mutuality, which we discussed extensively at the Committee stage, I and the Treasury had a view which we did not hesitate to communicate to the TSBs. That view, as I explained when we were discussing these matters in Committee, was that the mutuality route would not provide adequate accountability for the sort of bank that we envisaged this bank becoming after flotation and after escaping from the maw of the Treasury.
We may have been wrong. We argued about it in Committee. I have no intention of going back over the argument now. I would, however, seek to put to your Lordships the point that on the issue of structure, as opposed to the issue of mutuality, the solutions devised were not imposed by the Government. They were the choice of the TSBs themselves, including TSB (Scotland). I would remind your Lordships that the trustees of TSB (Scotland) agreed unanimously again last week that they stood by their original decision and did not wish that to be changed.

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Of course, noble Lords opposite have argued that this ignores the interests and wishes of the depositors. The noble Lord, Lord Taylor, seemed at one point to be equating depositors and shareholders. That is not, it seems to me, an entirely appropriate equation. Obviously, the nature of risk undertaken by the depositors is of a completely different order. The rights and ownership of the shareholder are quite different by definition from those of depositors. What is, however, incontrovertible, I believe, is that it is the wish, so far as we can judge, of all those engaged in the TSBs in Scotland that we should not seek to make a change of this nature at this very late hour. I must say to your Lordships that I find this unsurprising. I agree with the noble Lord, Lord Taylor, that TSB (Scotland) is of a size, significance and profitability to be able to stand on its own two feet.
On the other hand, it is very hard to imagine that a separate flotation for the TSBs in Scotland would realise proportionately the same value as the flotation of the TSBs in Scotland as part of TSB plc. That, after all, must be, and can be, a legitimate consideration of employees and, for that matter, of depositors who, under the terms of the proposals that the TSB put to the Government, are to have priority access when the flotation occurs.
There is one last point I wish to make. I am sure that I shall then have said enough. The noble Lord, Lord Taylor, referred to the efforts of the Scottish Development Agency in seeking to expand the financial services sector in Scotland. I must admit that I do not share the noble Lord's unlimited enthusiasm for all the works of the Scottish Development Agency, nor do I believe that it has always proved itself a model of commercial prudence or wisdom. Nevertheless, I accept that this is a sector that it has identified and to which it rightly attaches great importance. The noble Lord fairly quoted my honourable friend the Parliamentary Under-Secretary. However, when the noble Lord says that the Government are seeking to diminish the financial services sector in Scotland if the Bill is passed in its present form, I am bound to say that I do not see the logic of that or how that conclusion can be deduced from the proposal before your Lordships. I believe that there is nothing in the arguments that we have heard which should be conducive to your Lordships taking a different vote tonight from that taken a month ago. I hope very much that that decision will be confirmed this evening.
6.45 p.m.
Lord Stoddart of Swindon: My Lords, I rise to support the amendment moved by the noble Lord, Lord Taylor of Gryfe. Indeed, I said at Committee stage that I believed that the noble Lord had put up a very convincing case. He has elaborated on that case this afternoon and has made it, in my view, even stronger. I have no doubt that the noble Lord will deal with some of the points that have been made, notably by the noble Baroness, Lady Carnegy of Lour, and the noble Lord, Lord Bruce-Gardyne. There have been assertions from the noble Baroness and the noble Lord that people in Scotland show no signs of wanting this amendment.
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In particular, the noble Lord, Lord Bruce-Gardyne, said that the directors of TSB (Scotland) did not want it and, indeed, that they supported the present arrangments. I am not sure that that can be stated absolutely. So far as I know, there has been no real consultation with either the staff or the depositors of the bank. Unless those people, particularly the staff, have been consulted, it is difficult to know whether or not they would be in favour of this amendment. After all, directors of banks and other institutions have been wrong before. I am not at all sure that the directors of TSB (Scotland) know the views of the Scottish people or, indeed, of the depositors of their banks. They have no way of knowing because they have not taken soundings. I have no doubt, however, that the noble Lord, Lord Taylor of Gryfe, will reply fully to those points when he winds up.
I suppose that I am an Englishman intruding into a debate monopolised so far by Scottish people. I suppose that I can excuse myself by saying that at least I have Scottish antecedents. However, I am certainly aware, because I have been told so by my colleagues, of the growing feeling in Scotland with regard to this matter. There is a growing awareness as people in Scotland have been alerted as to what is happening about the issue in question. There is increasing opinion that this amendment is sensible and that it should be passed by the House because it will assist the trustee savings banks and benefit the Trustee Savings Bank (Scotland) in particular.
Prior to the Bill—it is the present position—there was a confederal structure in the TSBs. There was a central board with autonomous units co-operating together to improve the service and the image of the trustee savings banks. What is proposed in the Bill is a new central board with shareholders who will in future make the major decisions affecting all the TSBs throughout the whole of the United Kingdom. This means that investment decisions will be taken by the central board. Undoubtedly, its strategy as a public limited company will be to invest in the most lucrative business in the most prosperous parts of the country. That is the danger to Scotland. That is the danger to the development of TSB (Scotland).
Lord Bruce-Gardyne: My Lords, I apologise for interrupting the noble Lord, but I just wonder whether he is aware that the financial institutions based in Edinburgh have always been celebrated as investors—not in other parts, and certainly not in Scotland; not even in other parts of the United Kingdom, but overseas and mainly in North and South America. So there is no comparison with that situation.
Lord Stoddart of Swindon: Indeed, my Lords, I recognise that point absolutely, and in fact I think it probably is a case in favour of this amendment. What the noble Lord is in fact saying is that the Scottish people are pretty canny financially, that Edinburgh is a great financial centre and that they are so canny that they can handle their business very well. What the amendment seeks to do is to allow them to continue to do it independently. The Bill itself, as I understand it, will create the central board which will have its headquarters in London. That board will not have its

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headquarters in Edinburgh. That is the point I was seeking to make and I am most obliged to the noble Lord, Lord Bruce-Gardyne, for helping me to make that point more succinctly.
As I was saying, the strategy of the new public limited company will he to invest in the most lucrative business in the most prosperous parts of the country. Scotland may very well lose out by such a strategy. Indeed, it is likely that Scotland will lose out, for the most prosperous areas which provide the most lucrative business lie south of Watford, not north of Hadrian's Wall. That is something with which all of us present in this House would agree at the present time.
It is certain that the real decision-making will be removed from Scotland, and yet another twist will be given to the ratchet of total financial control over TSB affairs from London. It is most unfortunate that this should be so. Scotland is unique in that it has a history. Like other noble Lords, who have spoken, I am no Scottish nationalist. I think that they are an irrelevance. Nevertheless, we cannot ignore the fact that Scotland has a history of nationhood which was not completely compromised by the Act of Union.
Much of our legislation has to take account of Scotland's own unique history and there is every reason why this piece of legislation should also do so. That is what the noble Lord, Lord Taylor of Gryfe, is asking the House to do. I believe that his case should be very seriously considered by your Lordships. I believe that it gives a fresh opportunity for another look to be taken at the amendment, and I trust that when we come to vote, as I hope we certainly shall, the House will take a different view from the one it took at Committee stage.
The Earl of Selkirk: My Lords, the noble Lord, Lord Grimond, said that he agreed broadly with the tenor of this Bill, and I fully agree with him. The noble Lord, Lord Bruce-Gardyne, no doubt did a very fine job at the Treasury in getting this going. I accept that. But it is a very seriously wrong trend. It is all very well to talk about bankers and depositors but does anyone look at money from the point of view of the Scottish economy?
I shall quote the words of my predecessor Commissioner of Special Areas in Scotland. He asked: "Is anything to be done to provide a source of loan capital?" That is the basis of any form of employment or activity. We talk about employment investments overseas and in South America, but it is very difficult to drag money out of London into an area in Scotland. What is this Bill doing? It is taking about £1½ billion out of Scotland and putting it in a bank in England. That is the main purpose of this Bill.
A noble Lord: No, my Lords.
The Earl of Selkirk: My Lords, is that not right?
A noble Lord: No.
The Earl of Selkirk: My Lords, it is very nearly that. I shall again quote from the Monopolies and Mergers Commission's Report. In conclusion, they refuse the Standard Bank the possibilities of going there, and
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they say that its effects on the
"initiative and business enterprise in Scotland would be damaging to the public interest".
In other words, if the centre of management were moved fron Edinburgh to London, it would damage that. Further on they explained why and stated:
"The adverse effect would arise from the fact that with the change from scattered shareholdings to a single or dominant shareholder, ultimate control would shift from the present management to that of the new parent company. Whatever formal definitions of management responsibility were laid down, the last word would rest with the parent",
and that is where it will rest now.
It is said that some 2 million from Scotland are gathered together in this place. Is this wise from the point of view of the economy? Is it really wise, no matter what the shareholders say? I am not interested in that. I am interested in this. The two things that you want for employment in this country are initiative and money. A great deal of the highest initiative from Scotland comes down to London. The rewards are better, the opportunities are better. If anyone doubts that, look at the telephone book and see the number of people with Gaelic names who are now occupying themselves thoroughly in London.
This is a misguided Bill in principle. It is not the way anybody who is interested in the economy of Scotland would ever have agreed to go on. Your Lordships may remember the Toothill Report. It asked: "What do the people in London do?" When the directors start a new company they ask: "Where shall we put it? A car distance from London is a nice convenient place, so say 50 miles from the company". That is in the mind of all directors who are in control. It does not necessarily follow—there may be other reasons—but it is very widely practised.
This Government should think a little harder. I am not saying that they are not trying to help unemployment. This is against the interests of unemployment outside London and I have got to say that. If I had been a Commissioner for Special Areas I should have made no end of a row if this sort of thing had been done at that time. There is no one making a row now. It is not so much the interests of the TSBs as the interests of the very economy itself that are involved. Therefore, I hope that the Government will look at it again.
7 p.m.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, while that particular point about employment is fresh in the minds of the House, perhaps I may answer my noble friend. The fact of the matter is that the holding company may be in London. It will not be a very large organisation, but the bank, with all the economic activity and employment that that implies, will of course be in Scotland. I am answering the point while it is fresh in our minds, and I shall come back to it as my own argument progresses.
As has been acknowledged on all sides, this amendment is identical with that put forward by the noble Lord, Lord Taylor of Gryfe, in Committee. There was a very full discussion then, with a clear majority against the amendment of 113 to 76, and a similar amendment was debated at length in another

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place. I say that only because I wish to apologise to the House if those who heard my comments on the substance of the amendment in Committee now find me a little bit boringly repetitive. In the circumstances, as this is virtually an identically tabled amendment, I am afraid that that is inevitable.
However, first, I should like to make one new point. As drafted, this amendment would not have the effect which the noble Lord, Lord Taylor, is seeking. His purpose is to strike out of the Bill the body known as the Trustee Savings Bank (Scotland); that is, the present Scottish TSB. TSB (Scotland) is one of the "existing trustee savings banks" to which line 9 on page I of the Bill refers. However, the noble Lord's amendment mentions by name the intended successor company to TSB (Scotland); namely, Trustee Savings Banks (Scotland) Limited. The word "Limited" means, of course, that the body so described is a company established under the Companies Acts, whereas this part of Clause 1 deals with existing trustee savings banks which are not companies. In short, the noble Lord has got the name wrong and his amendment would be ineffective for that reason were it to he adopted. Perhaps I owe the noble Lord an apology for not having made this small but nevertheless important point in Committee; I would have done so had I known he would return to the charge even after unsuccessfully dividing the House. But I felt it then more appropriate, as indeed I do now, to concentrate on the principle rather than on the drafting. However, as the noble Lord has reverted to this matter, I feel that I must emphasise that his amendment would not work in practical terms.
Secondly, I should perhaps go into rather more detail on the consequence which this amendment would have for TSB (Scotland)—assuming for the moment that, contrary to what I have just been arguing, the amendment did work practically. As the noble Lord, Lord Grimond, acknowledged in Committee, it would not be sufficient just to leave TSB (Scotland) out of this Bill. That would leave TSB (Scotland) in its present unsatisfactory constitutional position as a trustee savings bank under the old TSB legislation, and it would deprive TSB (Scotland) of the opportunities which the Bill creates. I say to my noble friend Lord Selkirk that I do not think that that would be a very exciting prospect for employment in Scotland.
The Earl of Selkirk: My Lords, the Government could quite well introduce an additional Bill to put the matter straight. We agree that the tenor of the Bill is good.
The Earl of Gowrie: My Lords, my noble friend has a very relaxed view of what Governments can do in the way of finding time for additional legislation. It is hard enough to get any kind of legislation into the queue these days, let alone something which, in the Government's own judgment, is perfectly well covered by the legislation for which they have been able to find time.
As I was saying, this would put the Scottish TSB into the old unsatisfactory position and deprive it of the opportunities which the Bill creates. But what is even
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more serious is that this Bill provides for the repeal of the old TSB legislation as the reorganisation and flotation provided for in the Bill proceeds. When the relevant parts of the Bill are brought into force, the old TSB legislation will therefore cease to exist. If TSB (Scotland) were still in operation on the old basis at that time, it would of course effectively be put out of business.
I think that it would be quite wrong to take TSB (Scotland) out of this Bill and to leave it in cold storage, operating under legislation which Parliament has decided in principle to repeal, until such time as an alternative Bill for Scotland is worked out and legislative time becomes available; and, as I have pointed out to my noble friend, that is not always easy. Surely this would not be in the interest of TSB (Scotland), its depositors, the Scottish financial community in general, or indeed the Scottish economy in general. I do not make too much of these points, though I believe that they are substantial, and I think that it is important that the House should be clear about the consequences of what is proposed if this amendment is carried.
Perhaps I may now turn to the merits of the amendment. I should perhaps first say that the amendment rests on a misconception of the future structure of the TSB group, and this is why I was registering dissent in body language, as it were, when my noble friend Lord Selkirk was talking about taking a valuable part of the Scottish economy out of Scotland and plunking it down in England. TSB (Scotland) Limited, the successor bank in the jargon of the Bill, will not be a subsidiary of TSB (England and Wales) Limited. Both these banks will alike be subsidiaries of the holding company and, as I have said, that holding company will not itself be a bank. Indeed, the Banking Act 1979 will specifically prohibit the holding company either from calling itself a bank or from behaving like a bank.
There will, of course, be a small headquarters staff based in London, but the operations of TSB (Scotland) Limited will be run from Edinburgh as the operations of the present Trustee Savings Bank (Scotland) are now. Indeed, it would not be at all in the interests of the TSB group to run things differently or to make its Scottish subsidiary an insignificant pawn in some City of London game. In the first place, those who argue that Scottish financial interests are in some way under threat seem to me to be taking a remarkably pessimistic view of the capacity of Scottish institutions to hold their own. As the noble Lord, Lord Stoddart of Swindon said, the Scottish are pretty canny financially and indeed have become figures in legend for this canniness.
In the second place, the TSB holding company in London will, in its own interests, wish to retain a powerful Scottish bank because otherwise it will lose supporters and customers in Scotland on whom the holding company relies for business and profits. I believe that that substantially answers both the noble Lord. Lord Grimond, and my noble friend Lord Selkirk on the point about the Scottish economy.
The Earl of Selkirk: My Lords, perhaps I may ask a question. As I read it, that is a very important statement. Will this be a separate joint stock company

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in Edinburgh or will it simply be a subordinate company to the holding company?
The Earl of Gowrie: My Lords, it is a bank, and the bank is one of a number of banks owned by the holding company. I think that that is a fair description.
Lord Ross of Marnock: My Lords, will the noble Earl make it perfectly clear that what we are trading is independence for being a subsidiary of a holding company, which inevitably has final control of policy?
The Earl of Gowrie: My Lords, the reason that I do not think we are doing any such thing is that the holding company is a company that has a number of banks. It needs those banks to behave vigorously and independently as banks in their areas of influence. As I argued previously, the holding company is not a bank. Perhaps if I could elaborate my argument a little further it may deal with some of these points.
The Bill will enable the TSB group to reorganise on the basis which was announced as long ago as August 1982. The trustees of the then four Trustee Savings Banks (Scotland) were parties to the decision which the TSB movement announced at the time. I note from the Scotsman newspaper that the trustees of TSB (Scotland) have as recently as last week reaffirmed their commitment to the proposals in the Bill. Indeed, far from being a poodle if it stays in the TSB group it will, I think, be predator rather than prey, as Mr. Ian Macdonald, its chief general manager, said of TSB (Scotland) only a few days ago. I note that the chief general manager of TSB (Scotland) therefore is of the opinion that the future of the Scottish bank will be more secure inside the United Kingdom group than it would be on its own. Even the most passionate Scot in this House is not suggesting—and everyone has reiterated that this is not a Scottish nationalist issue—that in some way it should be taken out of the United Kingdom context.
I also do not accept that there have not been consultations. There were wide consultations within TSBs for several years before the reorganisation plans were decided, as my noble friend Lady Carnegy of Lour has said, and the plans have been given considerable publicity since 1982. There were few comments until very recently, again as my noble friend said, though there has been some rather frenzied agitation in recent weeks.
May I say to the noble Lord, Lord Taylor, that no new information, as he appeared to be suggesting, has been brought forward since the Committee stage. There may have been some skilful lobbying by certain parties brought forward since the Committee stage, but no new infomation whatsoever.
I should like to pay tribute to the key role which the Trustee Savings Banks in Scotland have always played within the TSB movement, and I believe that it will continue. In the past, TS banks in Scotland have provided one kind of local service; that is to say, a savings medium for depositors. But as I emphasised strongly in Committee, the counterpart to that has been their role as a channel of Scottish savings to central Government in London.
If TSB (Scotland) is to make a really effective
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contribution, it must operate in Scotland on the other side of the balance sheet, as it is already starting to do, by lending locally. As a member of the future group, TSB (Scotland) will be in a positon to make a valuable contribution to the Scottish economy. We share the view of TSB (Scotland) that the concerns which have been expressed about its future independence are grossly exaggerated and, indeed, betray a surprisingly defeatist point of view. The Government are therefore unable to accept the purpose behind this amendment, and I hope that the noble Lord will decide not to press it.
The Earl of Selkirk: My Lords, could the holding company dissolve the company in Edinburgh at any time it liked? The noble Earl's statement is interesting, but nothing is in the Bill.
The Earl of Gowrie: My Lords, the holding company could only dissolve aspects of the other banks, in my judgment, if it went off its head. The idea of the holding company is to have a vigorous banking group. As the noble Lords, Lord Taylor and Lord Grimond, and others have said, there is perhaps no area where banking is more vigorous in the world, let alone in the rest of the country, than in Edinburgh.
7.15 p.m.
Lord Ross of Marnock: My Lords, I should apologise as I was not here at Committee stage because of illness, but I have been listening fairly carefully to the arguments presented. There is a misconception on the Minister's part, and on the part of the noble Baroness, Lady Carnegy, if it is thought that all who have spoken in favour of this amendment—including the noble Baroness, Lady Elliot, the noble Earl. Lord Selkirk, and others—are dupes of some political movement, and that it was politically motivated, according to the noble Baroness, Lady Carnegy.
The Earl of Gowrie: No.
Lord Ross of Marnock: My Lords, I think that the noble Baroness, Lady Carnegy, can rise and speak for herself, without the Minister helping. I have the words written down, and she said that it was "politically motivated".
Baroness Carnegy of Lour: My Lords, I did indeed say that. There has been a tremendous Scottish nationalist campaign in the last fortnight to get this going, ably assisted by the Alliance, and now it seems that the main Opposition party has got on the bandwagon as well. My noble friends, I would claim, are misled.
Lord Ross of Marnock: My Lords, the main Opposition parties here have not been the only speakers today. Is the noble Baroness, Lady Elliot, politically motivated, or a dupe of some political lobby? Similarly, is the noble Earl, Lord Selkirk, so weak that he cannot make up his mind about these things? I would never accuse my once noble friend Lord Taylor of being politically motivated about this or anything else. We are able to make up our own minds as to whether something is good or had for Scotland.

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All we have to do is read the report on the last banking worries in Scotland to see what the Government at that time felt when they would not allow an important merger, which of course was what was wanted by certain people in banking circles. It is not what they want, what they see as the future, on which we have to make up our minds here. We have to take the broad view as to what is right for Scotland.
I can remember that my children had deposits in what was then called the Glasgow Savings Bank. It is unfair to be told by anybody that this has just come along at the last minute when we are persisting, so far as I can see, with a point of view that we put forward earlier and before all this hullaballoo started—which has never reached me—about political motivation.
One thing I want to say to the noble Earl, Lord Gowrie, is that if we discussed this before and he saw a powerful defect in its drafting and its consequences, he did not do the House any service by not mentioning it. It is part of his duties to guide the House in relation to such a weakness. He said that he was too busy talking about the principles. But today that was the first thing he spoke about, and it was an important point that he made.
I have never been terribly worried about drafting in that respect, because these things can be put right. This could go to another House and the Government could change it there. They did it on the Scottish local government Bill, when this House threw out the great Strathclyde. It reappeared in another place. This was done on Third Reading. By means of a Lords' amendment when we discussed it, it was changed, and Strathclyde was retained. We could make those changes if we accepted this amendment even though the Government were not satisfied about the drafting.
It was unfair to talk about this being a last minute affair, and unfair to talk about it having been subject to political motivation. I spent a long time trying to get decision-making in Scotland. Here we are taking decision-making out of Scotland. That is the important point; and it is in respect of an organisation which has its roots in Scotland, in Scottish communities, and in Scottish people.
We do not require Scottish national parties to tell us what to do. There are going to be new oportunities. It may well be, as the noble Earl, Lord Selkirk, said, that we require a Scottish Bill—and we are prepared to wait for that—to get the new freedoms that this new Trustee Savings Bank will have. But please appreciate exactly our concern!
Time and time again we have seen Scottish organisations removed from Scotland and quickly losing their influence within Scotland. Time and time again we have seen factories coming in which have proved to be only branch factories, with no decisionmaking—and I can remember that it may well have been in Canada in respect of Massey Ferguson. From that point of view you can judge what importance we place on this amendment. I certainly support it.
Lord Taylor of Gryfe: My Lords, the noble Lord, Lord Ross of Marnock, has been so compelling in his arguments, particularly in relation to the drafting difficulty mentioned by the Minister, that I do not
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require to elaborate upon that matter. Presumably we shall return to this Bill at Third Reading, and if the House decides in favour of the principle involved—and it is quite clear what the principle is—I assume that the drafting difficulties can then be overcome.
The noble Baroness, Lady Carnegy of Lour, made a number of statements, but all of them were pure conjecture. For example, she quoted the phrase, "This is in the best commercial interests of the trustee savings banks". She quoted some friend of hers in the TSB movement who said that it would be a disaster if this does not go through. There is no evidence to prove that. This is purely imagination on the part of the noble Baroness. Does she assume that a Scottish bank of this size is not viable?
I should say that I am engaged in banking in Scotland and I have a fair idea of the viability of Scottish banks. In fact last year the Trustee Savings Bank, this modest bank in Scotland, earned more than the Clydesdale Bank in Scotland, a well-established financial institution. There is no doubt that the management of the TSB (Scotland), with its substantial investment and assets, is certainly capable of becoming a third force in Scottish banking, if we assume that the only other independent banks are the Royal Bank of Scotland and the Bank of Scotland. Her case in that respect was answered effectively by her colleague, the noble Lord, Lord Bruce-Gardyne, because he has no doubts about the viability of that bank.
I should say a word about the consequences of the rescuing of the Royal Bank of Scotland. I quoted the Monopolies and Mergers Commission's judgment on the Royal Bank of Scotland. As a result of that the Royal Bank of Scotland did not deteriorate after the intervention of the Monopolies and Mergers Commission. Indeed, it has shown a great liveliness. It has developed into a merchant banking international association and it has given a great impetus to the Royal Bank of Scotland to remain independent: an impetus that it would not have enjoyed if it had been absorbed into one of the great financial institutions whether it was Standard Chartered or the Hong Kong Bank. I suggest that the establishment of this bank in its independent status can be an encouragement to innovation and development, particularly under the excellent management which the TSB (Scotland) now enjoys.
It is said that the trade unions support this. I suspect that the affiliation of the Labour Party is much closer to the trade unions than is the noble Baroness, Lady Carnegy of Lour. The trade unions in this case are United Kingdom trade unions, but at no stage have employees in the Trustee Savings Bank (Scotland) been consulted in this matter. I should have thought that with the commitment of the noble Baroness, Lady Carnegy, to consultation at grass roots and consultation at the workplace she would have accepted that the trade unions on the job have not been consulted in this case. Indeed, I should have thought that the commitment of the noble Baroness to decentralisation philosophy would also have encouraged her to support the proposition that is now before us.

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The critical issue was the point raised by several noble Lords, including the noble Earl, Lord Selkirk, and the noble Lord, Lord Ross of Marnock. It is the power relationship of the new company. I quoted earlier the chairman of the TSB group, who simply says:
"As a holding company board it will exercise ultimate control over the profitable development of the Group's activities. It will have responsibility for the formulation of Group policy and for providing the organisation and management structure",
to carry that out. Is that not complete control at the centre? It may be exercised by a small body of people and the detailed day-to-day work of the bank may be operating in Scotland, but the centre of power is now being removed to TSB Holdings and that is the issue now before us. This is critically important for Scotland.
I give one more quotation from the Monopoly and Mergers Commission's report:
"We believe that an important factor in Scotland's economic difficulties has been the progressive loss of morale which the taking over of large companies has caused; and we accept that this is damaging to Scotland. Entrepreneurial spirit and business leadership depend critically on self-confidence, and on balance we believe that such self-confidence is weakened by this take-over".
That is the issue before this House—whether one believes that decentralisation contributes to growth, imagination and the retention of employment in Scotland or whether you are prepared to surrender that important principle to create just another high street bank. I call on Members of this House to make that judgment now.
7.25 p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 67; Not-Contents, 54.

DIVISION NO. 3

CONTENTS

Attlee, E.

Jacques, L.

Banks, L. [Teller.]

Jenkins of Putney, L.

Beaumont of Whitley, L.

John-Mackie, L.

Beswick, L.

Kilbracken, L.

Bottomley, L.

Kilmarnock, L.

Brockway, L.

Kinloss, Ly.

Bruce of Donington, L.

Kirkhill, L.

Carmichael of Kelvingrove, L.

Lawrence, L.

Collison, L.

Lloyd of Kilgerran, L.

David, B.

Lovell-Davis, L.

Davies of Leek, L.

McIntosh of Haringey, L.

Diamond, L.

MacLeod of Fuinary, L.

Elliot of Harwood, B.

McNair, L.

Elwyn-Jones, L.

Meston, L.

Ennals, L.

Mishcon, L.

Falkender, B.

Mulley, L.

Falkland, V.

Munster, E.

Ferrier, L.

Nicol, B.

Gallacher, L.

Perry of Walton, L.

Galpern, L.

Ponsonby of Shulbrede, L.

Glenamara, L.

Raglan, L.

Graham of Edmonton, L.

Ritchie of Dundee, L.

Grey, E.

Rochester, L.

Grimond, L.

Ross of Marnock, L.

Hampton, L.

Saltoun, Ly.

Harris of Greenwich, L.

Selkirk, E.

Hooson, L.

Stedman, B. [Teller.]

Houghton of Sowerby, L.

Stewart of Fulham, L.

Irving of Dartford, L.

Stoddart of Swindon, L.

666

Taylor of Blackburn, L.

Whaddon, L.

Taylor of Gryfe, L.

Wilson of Langside, L.

Taylor of Mansfield, L.

Winstanley, L.

Tordoff, L.

Winterbottom, L.

Walston, L.

NOT-CONTENTS

Beloff, L.

Hornsby-Smith, B.

Belstead, L.

Hylton-Foster, B.

Boardman, L.

Inglewood, L.

Brabazon of Tara, L. [Teller.]

Lane-Fox, B.

Brougham and Vaux, L.

Lothian, M.

Broxbourne, L.

Lucas of Chilworth, L.

Bruce-Gardyne, L.

McFadzean, L.

Cairns, E.

Mersey, V.

Caithness, E.

Morris, L.

Cameron of Lochbroom, L.

Mottistone, L.

Carnegy of Lour, B.

Mountevans, L.

Colwyn, L.

Newall, L.

Cox, B.

Onslow, E.

Crathorne, L.

Orkney, E.

Cullen of Ashbourne, L.

Orr-Ewing, L.

De La Warr, E.

Rankeillour, L.

Drumalbyn, L.

Renton, L.

Enniskillen, E.

Sandford, L.

Faithfull, B.

Skelmersdale, L. [Teller.]

Ferrers, E.

Sudeley, L.

Gisborough, L.

Suffield, L.

Glenarthur, L.

Swinfen, L.

Gowrie, E.

Trefgarne, L.

Hanson, L.

Trumpington, B.

Harmar-Nicholls, L.

Ullswater, V.

Henley, L.

Vivian, L.

Hives, L.

Zouche of Haryngworth, L.

Resolved in the affirmative, and amendment agreed to accordingly.
7.33 p.m.
Lord Banks Lord Banks had given notice of his intention to move Amendment No. 2:
Page 2, line 35, at end insert—
("( ) Provision shall be made for two directors of the holding company's board to be appointed by the employees and similar provision shall be made in the case of local boards.").
The noble Lord said: My Lords, this amendment is not moved. My noble friend and I wish to support Amendment No. 8, which has a similar purpose.
[Amendment No. 2 not moved.]
Lord Houghton of Sowerby Lord Houghton of Sowerby moved Amendment No. 3:
Page 2, line 39, after ("day") insert ("which shall not be earlier than 1st January 1986").
The noble Lord said: My Lords, I beg to move Amendment No. 3. The decision which the House has just taken has very serious reverberations throughout. My amendment is intended to ensure that there is reasonable time for opinion to emerge from the various interests that are concerned. What we have been listening to on Scotland is the problem of consultation generally. There has been just as much consultation in Scotland as there has been elsewhere. The unions have been consulted but the depositors have not. The difficulty is in consulting depositors who are not organised. There are large numbers of them and there is great difficulty in providing a satisfactory vehicle of communication.
The consultation has been with the trustees of the local boards and they have tried to gather opinion as they have gone along to formulate eventually the

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request for this very big change to be made. But at the root of the Scottish problem is the root of the English problem: the difficulty of consultation and the lack of adequate consultation, anyway. My amendment is intended to ensure that the vesting day shall be sufficiently far ahead to allow opinions to formulate about certain matters which the central board will have to consider.
It probably is not fully realised that the whole operation is in the hands of the Treasury in the end, because under Clause 1(3),
"The vesting day shall be appointed by the Treasury by order made by statutory instrument after consulting the Central Board".
I assume that a statutory instrument has to be laid before Parliament, and this one will presumably be under the negative procedure; namely, that it would be open to a Prayer for annulment within the specified period if there was enough consensus of opinion in either House of Parliament to do so. I stress that because the Treasury hold the linchpin of the whole operation by being in control of the vesting day.
I want to ensure that there is no undue haste in accomplishing the transfer because I want to give reasonable time for depositors in particular to formulate any opinions that they wish the central board to consider regarding the conditions of the flotation. I shall come to the conditions of flotation in later amendments. But this amendment is to enable the time to be there for opinions to be brought to bear upon the central board on matters which are very important to the depositors and which raise many difficulties of administration. I am really having to move the horse before I can describe the cart; but that is the way we do things in Parliament. We nearly always have the horse before the cart. And because it comes earlier in the Bill than the cart, I have to move the horse now; and I am trying to get it moving.
There is really no controversy about this because I understand that the vesting day in any case could not be earlier than November, and that is pretty late in the year. Nevertheless, it may not be long enough. I hope that I can at least get an assurance from the Government that the vesting day would not be fixed at such a date as to prevent full consideration being given by all concerned, and especially the central board, in the light of any opinions that may be expressed to it, about the conditions under which shares shall be made available to acquisition by depositors. That is really my main interest here.
The unions are properly organised. They have a voice, they are not short on representations, believe me, in this and other matters. They are organised and they have a collective voice that they can put to the central board; and they can do it just as well in Scotland as they can do it anywhere else. But the depositors are in a different position entirely. They do not belong to any union, there is no requirement to convene a meeting of them. I do not know how a meeting of them could be convened properly and constitutionally under the structure of the Trustee Savings Banks. If we were dealing with a building society, all this would have to go to a properly convened meeting of the shareholders. However, in the case of the Trustee Savings Bank there is no such body to be consulted. Depositors are not members;
668
they do not have votes. There is no means of deciding what qualifications they may have to be brought together. It can only be done in the same way as the Leader of the Conservative Party used to be appointed—that is, the emergence of opinion, the emergence of a consensus and the emergence of some representations that the board might have to consider.
That is my case, and I sincerely hope that we can have an assurance that the vesting day—and I understand it cannot be earlier than November because there is such an enormous amount of work to be done on the flotation and the preparations for it in any case—will be fixed so that there will be time for the board to consider whatever may arise in the intervening months.
My final comment is this. There has been too little publicity about the whole enterprise that we are considering in the House tonight. There have been specialist journals and there were special columns devoted to it some time ago, notably when the White Paper came out. But the general mass of depositors, I should say, are in ignorance of what is going on. They have no means of knowing. I am a depositor and I have had no communication from the Nottingham Trustee Savings Bank, of which I have been a member for donkey's years, about anything—no communication whatsoever. I imagine that most depositors are in the same position. In those circumstances, how can I know? I should not have known what was going on had I not studied the parliamentary drill and the White Paper, because so little publicity has been given to this in general publications.
I leave it there. I do not want to make unnecessary difficulties about this amendment, but I just want to be assured that there will be no undue haste in doing it. I believe it certainly will not be before November, but it should be longer than that if possible, although I realise that the choice of opportunity has to be taken into account for very important financial reasons. I shall listen to the noble Earl's reply with great interest. I beg to move.
The Earl of Gowrie: My Lords, I have only a brief point to make on this, but that does not mean to say that I have not in turn listened with great care to what the noble Lord, Lord Houghton, has said. However, it seems to me that it is not really needful to circumscribe the TSB's freedom of action in the way the amendment suggests. They have said, as he has acknowledged, that the flotation should be late this year or early next year, but the essence of the legislation is that this should be a matter for them.
Lord Houghton of Sowerby: My Lords, that is not a very satisfactory reply, because, as I said a moment ago, since the Treasury hold the reins on the change because they are in charge of the vesting day, then somebody on the Government side should be able to give some assurances about the considerations they will take into account in deciding on the vesting day. In fact, as I also said a moment ago, the order for the vesting day has to be by means of statutory instrument, and that can only be introduced by the Government; and the Treasury are going to decide the day.

669
In those circumstances, cannot the Minister assure the House that when the Treasury come to fix the vesting day they will want to take account of what has happened in the intervening period regarding the consideration of matters which come later in the Bill; namely, the conditions under which shares may be issued and at what price, whether certain share options should be given to depositors and whether any preferential treatment should be given to the depositors? All these are matters which the Treasury can take into account in deciding on the vesting day.
The Earl of Gowrie: My Lords, perhaps I could have put my answer more clearly than I did to the noble Lord. and I apologise. It is in fact as I implied: it is the TSB that will decide the vesting day. The Treasury will just make the instrument formally.
Lord Houghton of Sowerby: My Lords, in those circumstances there is no point in going on with the amendment at the moment because I do not want to divide the House on it at this particular time. However, I can say that I am not satisfied with the Minister's reply. I was not aware that it was going to be a pure formality: that the board of the Trustee Savings Bank would say, "we want the vesting day to be on a certain date" and the Treasury would say, "Very well, we will lay the necessary instrument". I thought there was more behind Clause 1(3) than is implied by what the Minister has said. However, I beg leave to withdraw the amendment because I will probably have something to say about this at a later stage of the Bill
Amendment, by leave, withdrawn.
7.45 p.m.
Lord Jacques Lord Jacques moved Amendment No. 4:
After Clause 1, insert the following new clause:
("Provision for charities.
. The directors of the holding company of the new T.S.B. group shall in consultation with the Treasury appoint three trustees. For every ten shares sold by the new T.S.B. group one share shall be vested in the trustees. The trustees will be responsible to the directors of the holding company for the distribution of the income from the shares to charities which are likely to improve the lot of working people.").
The noble Lord said: My Lords, I beg to move Amendment No. 4. Throughout a long period of years the Trustee Savings Banks up and down the country have taken a very active part in the life of the local community and have considerably benefited charities which have been associated with the lives of the working-class depositors, who have been the backbone of the bank. This is recognised in a letter which is published in the White Paper which preceded this Bill. It is from the chairman of the bank, Sir John Read, to the Chancellor of the Exchequer; and in paragraph 14 he says that the bank has undertaken to set up TSB charitable foundations. He goes on to say:
"These will continue the TSB's traditional role in contributing to the life of the community by assisting local needs of many different kinds".
So this is acknowledged by the bank itself, and they say:
"It has not merely been a tradition but a tradition which will be continued".
The purpose of this amendment is to pinpoint the extent to which there should be asistance to charities
670
and also to say by what means it should be given. As the mover of the amendment, I have the onus of doing two things: first, of satisfying the House that the amount is correct (that is, one share in 10) and, secondly, of suggesting that the way of doing it by means of trustees is the best way.
At the Committee stage it was explained to the Committee that the bank will retain whatever monies are paid by the shareholders for the new shares. I repeat that whatever the shareholders pay will be retained by the bank. The bank will belong to the shareholders, and so it follows logically that, if those are the true facts, the shareholders will get their money back in the form of assets within the bank. In turn, that means that they will get the present value of the hank as a complete gift—completely free. For example, if X represents the present value of the bank and Y represents the amount paid by the shareholders for the shares, then the new value of the bank will be X plus Y; that is, the present value plus the money paid by the shareholders. But the shareholders will get that for just paying Y, which means that they get X, the present value of the bank, completely free, as a gift.
The Minister had to acknowledge the logic of my argument. His only reply was, "Ah, but the shareholders may not be able to realise that base value at any time because at any point of time the market value of the shares may be less than the base value". That is, of course, no real answer because that applies to every shareholder in every company. The plain fact is that as far as the base value of the shares is concerned, the shareholders are getting the present bank completely free of charge. It includes £700 million in reserves which have been created over the years by the depositors.
With such generosity it can surely be said that to allocate 10 per cent. to the kinds of charities which will benefit the lives of the people who have built up this bank over the years is very modest indeed. The amendment merely says that for every 10 shares that are sold one only shall be vested in trustees; and that the income on those shares shall be used to benefit charities which will help to make the life of working class people better than it is.
This general principle is not denied by the hank because in paragraph 14—from which I have already quoted—it is proposed to have some special shares for the purposes of the charitable foundations. Therefore, the general issue of the income from particular shares being used is not something that is foreign to the ideas behind the bank.
Why do I say it should be done by vesting these shares in trustees? The reason is that the bank has already indicated that it intends to carry on with the present name of Trustee Savings Bank. It would be quite wrong for Parliament to authorise something which is completely misleading. I submit to you that if there are no trustees, and if everything is vested in shareholders, then it is quite wrong to call it a Trustee Savings Bank. We have no right to be a party to that. One purpose of this amendment is to justify the continued use of the name. If, as the amendment proposes, there are appointed by the bank three trustees who shall be responsible for the allocation of the income from one share in ten to the kind of

671
charities that have benefited in the past, that will make it a Trustee Savings Bank in the future.
My Lords, I believe it is very important that if we are going to have a bank which is a Trustee Savings Bank and is known to be a Trustee Savings Bank it should, in fact, be a Trustee Savings Bank. This is a way in which it can be done at a minimum of cost and with a small benefit to those charities which have benefited in the past. I beg leave to move the amendment.
The Earl of Gowrie: My Lords, the Trustee Savings Control Board have made it clear that they would like to endow charitable foundations. Wearing another hat, no one is more glad of that than I. I hear a murmur of support from the noble Lord, Lord Mishcon. The National Theatre will be a beneficiary, and I shall be delighted if it is. However, that is a matter for them and for the shareholders in the new TSB Group plc. The charities proposal was set out in the reorganisation plans when they were announced in August, 1982, and it was repeated in Sir John Read's letter to the Chancellor published in the White Paper at paragraph 14.
My Lords, we have considered very carefully whether it is appropriate to provide for the endowment of charities in the Bill. We have concluded that it is not necessary to do so and that it is best to allow the TSBs to take their own decisions under their own powers and those of the new companies. It is surely a matter for the charities once they are set up to decide how to use their funds under the usual law relating to charities, and there seems to us to be no need to make specific provisions for them.
On the point about the name that the noble Lord, Lord Jacques, made, it is already legal for a company to use the word "trustee". That is a matter of existing company law. There seems no reason, therefore, why TSB should not keep their name as they themselves —or rather as the Government—wish. This provides an admirable sense of continuity and a tradition which is important.
Lord Stoddart of Swindon: My Lords, I should like briefly to support the amendment moved by my noble friend, Lord Jacques, and indeed supported by other noble Lords. While I appreciate very well what the Minister says, that the trustees themselves will wish to decide where the charitable monies should go, what my noble friend is seeking to do is to ensure that a given amount of money and a given number of shares are made available to the trustees in order that they will have a sure income from dividends paid on those shares which are to be paid to charities. It seems to me that my noble friend is right to try to write this into the Bill specifically, because we have no way—in spite of the assurances given by Sir John Read in his letter—of knowing what level of support will be given by the new TSB plc to charitable organisations. If it is written into the Bill, then, of course, we are laying down what will be a minimum to be provided.
Therefore, I hope that the noble Lord will think again. If my noble friend decides to press this amendment to the vote he will, of course, get our support.
The Earl of Gowrie: My Lords, I am still foxed as to why the noble Lord thinks that this plc company should be put in a different position from any other.
Lord Stoddart of Swindon: My Lords, the answer is very simple: there is nothing like it and there never has been anything like it, so we really cannot but put it in a different position from anything else because it is something entirely new, something entirely unique. We have no precedents to guide us, no precedents to work to. Therefore, I would have thought that we could introduce unique measures into this particular Bill.
The Earl of Gowrie: My Lords, we are now engaged precisely in an exercise to make it less unique.
Lord Stoddart of Swindon: Until we pass the Bill—
Lord Beswick: On a point of order, my Lords, are we not engaged in Report stage and not Committee stage?
The Earl of Gowrie: That is indeed right and I apologise to the House. The noble Lord put points to me directly, as I thought, and so I felt obliged to answer them.
Lord Jacques: My Lords, the Minister has made two points in reply to me. I want to reply to both points.
First of all, he says that as far as the amount is concerned it should be a matter for the bank. I would dispute that. The Treasury has promoted the Trustee Savings Banks and has used them for 150 years; Parliament has approved that, and Parliament has some responsibility at this point of time when the TSB is being handed over to a new body of shareholders. I would entirely disagree with the Minister on that point.
Secondly, he tells me that the bank could use trustees, that that is legal. I have never suggested that it is illegal. What I am suggesting is that it is misleading, and therefore immoral.
I should like to put a question to the Minister: would the Government agree to any new bank calling itself a Trustee Savings Bank under the Banking Act 1979? Of course it would not. It would regard it as completely misleading if there were no trustees, and therefore it will be completely misleading if we substitute, as we shall in this Bill, shareholders for trustees.
This amendment is a very simple way out. For every 10 shares, one shall be used to give an income for charities and for that purpose there shall be three trustees. It is worth paying this price to make the Trustee Savings Bank something different from the other High Street banks and, in addition, to justify the use of the name "Trustee". I believe that this is a really worthwhile amendment, and it is in the interests of the bank. I shall therefore ask the House to make a decision accordingly.
8 p.m.
On Question, Whether the said amendment (No. 4) shall be agreed to?
Their Lordships divided: Contents, 54; Not-Contents, 36.

DIVISION NO. 4

CONTENTS

Attlee, E.

Llewelyn-Davies of Hastoe, B.

Banks, L.

McIntosh of Haringey, L.

Beaumont of Whitley, L.

MacLeod of Fuinary, L.

Beswick, L.

NcNair, L.

Bottomley, L.

Mishcon, L.

Brockway, L.

Mountevans, L.

Carmichael of Kelvingrove, L.

Munster, E.

David, B.

Nicol, B.

Davies of Leek, L.

Northfield, L.

Elwyn-Jones, L.

Perry of Walton, L.

Falkender, B.

Ponsonby of Shulbrede, L. [Teller.]

Gallacher, L.

Galpern, L.

Raglan, L.

Glenamara, L.

Rhodes, L.

Graham of Edmonton, L. [Teller.]

Ritchie of Dundee, L.

Ross of Marnock, L.

Greenway, L.

Shackleton, L.

Grey, E.

Stedman, B.

Hampton, L.

Stewart of Fulham, L.

Houghton of Sowerby, L.

Stoddart of Swindon, L.

Hylton-Foster, B.

Strauss, L.

Jacques, L.

Taylor of Blackburn, L.

John-Mackie, L.

Taylor of Gryfe, L.

Kagan, L.

Taylor of Mansfield, L.

Kilbracken, L.

Tordoff, L.

Kilmarnock, L.

Walston, L.

Kinloss, Ly.

Whaddon, L.

Lawrence, L.

Winstanley, L.

NOT-CONTENTS

Beloff, L.

Henley, L.

Belstead, L.

Hives, L.

Brabazon of Tara, L. [Teller.]

Hornsby-Smith, B.

Bridgeman, V.

Inglewood, L.

Brougham and Vaux, L.

Lane-Fox, B.

Bruce-Gardyne, L.

Lucas of Chilworth, L.

Cairns, E.

McFadzean, L.

Cameron of Lochbroom, L.

Mersey, V.

Carnegy of Lour, B.

Rankeillour, L.

Cathcart, E.

Renton, L.

Colville of Culross, V.

Sandys, L.

Colwyn, L.

Skelmersdale, L. [Teller.]

Cox, B.

Sudeley, L.

Elliot of Harwood, B.

Suffield, L.

Gardner of Parkes, B.

Thomas of Swynnerton, L.

Gisborough, L.

Trumpington, B.

Glenarthur, L.

Ullswater, V.

Gowrie, E.

Zouche of Haryngworth, L.

Resolved in the affirmative, and amendment agreed to accordingly.
8.8 p.m.
Lord Banks Lord Banks moved Amendment No. 5:
After Clause I, insert the following new clause:
("Share holdings for deposit holders and employees.
. From the vesting day 25 per cent. of the shares in the TSB Group shall be held in trust for holders of deposits in the TSB Group and employees of the TSB Group, the trustees being elected annually in equal numbers by appropriate Associations of both groups.").
The noble Lord said: My Lords, this amendment provides that from the vesting day 25 per cent. of the shares in the TSB group shall be held in trust for
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holders of deposits in the TSB group and employees of the TSB group, the trustees being elected annually in equal numbers by appropriate associations of both groups. A similar amendment calling for 49 per cent. of the shares to be held in this way was moved during the Committee stage by my noble friend Lord Taylor of Gryfe. That amendment was defeated on a Division, but because we thought that the same proposal on a more limited scale might have a stronger appeal for your Lordships, and because we felt that there was more to be said about the arguments advanced against the earlier proposal, we tabled this amendment.
The amendment stems of course from the widespread dismay at the abandonment of mutuality. It provides a way in which both depositors and employees can share in the control and prosperity of the enterprise. Although of course it falls far short of mutuality, it may be said to go a little way towards it. The Government have made it clear in previous debates that they wish for widespread participation and would welcome it on a broader basis than we suggest in this amendment, but our complaint is that they have not provided any satisfactory method of bringing it about. All they have offered is priority for depositors and staff in the purchase of shares but we have no confidence that that will result in a substantial shareholding by depositors or staff.
On 11th November 1984 the Sunday Times in a leading article said:
"By abandoning its mutual status the TSB jettisons its basic difference from the high street clearing banks".
This amendment would maintain a basic difference while falling far short of the mutuality which the Page Committee desired. Twelve and a half per cent. of the shares would be held on behalf of employees and 12½ per cent. would be held on behalf of depositors. The trustees would allocate dividends earned on these shares on an agreed basis. In the case of the employees, length of service and position held might be the determining factors; and in the case of depositors the size of deposit and the length of time as a deposit holder might be appropriate factors.
In the course of the debate in Committee the noble Earl, Lord Gowrie, said that it would be inequitable to distribute all or even a portion of the proceeds of the sale of shares among those individuals who happened to hold TSB accounts at a particular date. Of course, in this amendment it is not proposed to do so. Shares would be held in trust collectively for the whole body of depositors and the whole body of staff. Only when the trustees came to pay out the proceeds from dividends in the manner which I have just described would the depositors or the staff benefit individually. No individual ownership is envisaged.
The noble Earl, Lord Gowrie, also said that it would be difficult to see how a bank would operate satisfactorily as a bank with a bizarre structure of the kind proposed. I do not think that he advanced any reason why the structure should be called "bizarre". It is not bizarre for shares to be held in trust for employees. That is not new; that is not startling; that is something which already exists—for example, in the case of the John Lewis Partnership 100 per cent. of the shares are held on behalf of the employees. In other

675
companies smaller percentages of shares are held in trust on behalf of the employees. I see no reason why a similar procedure should not operate for depositors, particularly with a tradition such as the TSBs have.
The noble Earl also asked: how do the trustees maintain their specified minimum percentage structures if, for example, there is a rights issue? If the trustees wish to increase their percentage by purchasing shares in the TSB on the open market, or if they wish to lower their percentage by declining to take up a rights issue, I see no reason why they should not be free to do so. They would of course be obliged to continue to hold the original shares in trust.
The noble Earl also asked during the Committee stage: what influence would directors appointed by trustees exercise over the company? It seems to me that one might just as well ask: what influence would directors appointed by the shareholders exercise over the company? It is certainly in the interests of everyone—shareholders, staff and depositors—that the business be conducted on a sound and successful basis. The noble Earl also put this question: how could the new company hold its own against competitors with such a restrictive provision written into a statute affecting it alone? The suggestion is that if there is some rule regarding a particular company that a certain percentage of its shares must be held on behalf of the employees, that somehow puts it at a disadvantage. One might well ask: how does the John Lewis Partnership manage to hold its own against its competitors? It seems to get on all right. It is our belief that the TSB would be greatly strengthened by the direct involvement of its staff and depositors. Because we believe that, we have presented to your Lordships this amendment. I beg to move.
8.15 p.m.
The Earl of Gowrie: My Lords, the noble Lord puts his argument in a very moderate and persuasive way but I cannot get over the fact that the amendment is the same in principle as that debated in Committee except that the percentage of shares to be held by the proposed trustees is 25 per cent. rather than 49 per cent. While I admit that a 25 per cent. holding is somewhat less objectionable than the 49 per cent. holding which your Lordships rejected in Committee, the fundamental difficulties of principle that the shareholding arrangement, which I have to say I find bizarre, would produce, do I think remain.
There is no reason in equity to allocate this benefit to those persons who happen to be depositors or staff at the time of flotation, if that is what is intended. If however it is intended that the shares will be held in trust for all individuals who will at any time in the future be depositors or staff, it is far from clear what purpose that would serve or how the system would actually work. The fact is that the trustees, whether they are elected or not, are unlikely to provide an adequate system of accountability. How, for instance, does one make a rights issue to trustees? How in real terms, and not just in sentiment, can one apply the proceeds of the shares which the trustees hold to the benefit of depositors and staff? If that means ploughing their share of the dividends back into the bank, the effect will surely be to benefit the other conventional
676
shareholders because the bank will be able to afford a bigger dividend. On the other hand, the proposed divisions between two types of shareholder seem likely to damage the interests of the bank as a whole. In my judgment it would be wrong to impose such a system by statute in perpetuity, and I therefore hope that the noble Lord will not press his amendment.
Lord Banks: My Lords, I am bound to say that I am very disappointed with that reply. It seems to me that I answered in advance some of the points which the noble Earl raised as objections. I explained how the system would work. I think I made it very clear indeed that the shares would be held for the employees, that that would not just mean those who happened to be employees on the particular day, and that the same applied in regard to depositors.
If the principle were entirely new, and if there were no firms at all where shares are held in trust for the employees, I might understand the perplexity of the noble Earl. But since that is not the case, I cannot understand it. It does not seem to me to be a valid objection, and I should therefore like to test the opinion of the House on this issue.
On Question, amendment agreed to.
Clause 2 [The Central Board and the reorganization]:
Lord Houghton of Sowerby Lord Houghton of Sowerby moved Amendment No. 6:
Page 3, line 15, at end insert ("or, in the case of employees in post and depositors having credit balances on a date or dates to be fixed by the Central Board, is to be on terms and conditions exclusively applicable to them.").
The noble Lord said: My Lords, with this amendment it will be convenient to take Amendment No. 7.
Amendment No. 7: Page 3, line 15, at end insert—
("( ) Any determination of the Central Board under subsection (2) above may include provision for rights in shares or share options, free, discounted to less than the full consideration, or paid for on deferred terms for the staff in post and for depositors holding credit balances on a date or dates to be fixed by the Central Board.").
These amendments reveal a retreat on my part from those I moved in Committee. In Committee I proposed that it should be mandatory upon the Central Board to provide in the flotation for preferential terms to be given to depositors and so on. That was resisted by the Minister and after further consideration I decided to withdraw the amendments.
I now go to another position and ask for a clarification of the powers under the Bill to do the things set out in the two amendments. There may be some doubt about this. I referred to the point at the Committee stage. I quoted from the explanatory statement issued by the Treasury which was revised last March and which was different from the original version. I quoted an extract from the revised Treasury brief for March, which I referred to at column 698 of the Official Report of the proceedings on 21st March. It read:
"The Central Board's powers extend to determining whether the consideration due on the transfer of any shares or rights to shares in connection with the reorganisation is to be for full consideration or discounted or whether that consideration is to be paid or left unpaid for any period".
I then asked the Minister about the power which the Central Board would have in this connection in respect of the relevant part of the Bill, which is Clause 2 on page 3. The noble Earl replied—and I now quote from column 704:
"As the Bill stands, TSBs have the power to offer depositors cheaper shares if they want to do so. But that is a matter for them to decide. We should have no objection if they decided to do so".
The noble Earl went on to refer to Sir John Read's letter, which gave an undertaking that depositors would be offered priority. But the Minister added at column 705:
"There is no basis on which Government or Parliament should require TSBs to offer cheaper shares to depositors".
The amendments now on the Marshalled List no longer require the board to do anything. All I am seeking is a firm assurance that the Bill as it stands enables certain things to be done. In order to make that clear without any peradventure I set out in my two amendments what I believe it is proper that the board should have the power to do. So there is really no difference between us here, except regarding the degree of clarity which I seek to contain in the Bill.
Amendment No. 6 seeks to insert at line 15, on page 3 the words:
"or, in the case of employees in post and depositors having credit balances on a date or dates to be fixed by the Central Board, is to be on terms and conditions exclusively applicable to them".
That is, some issue of shares exclusively applicable to employees or depositors.
In Amendment No. 7 I go on to add to line 15, on page 3 the words:
"Any determination of the Central Board under subsection (2) above may include provision for rights in shares or share options, free. discounted to less than the full consideration, or paid for on deferred terms for the staff in post and for depositors holding credit balances on a date or dates to be fixed by the Central Board".
This amendment would extend the description of the preferential treatment which the board may, not shall, give and which it shall have the power to give to depositors and employees. I do not say that it goes any further than the assurance given by the noble Earl; I am saying that my description is at least clearer than his assurance. I do not see that there are any grounds for dispute between us. I am not requiring the board to do anything, but I am requiring the board to be explicit about its powers.
In fairness I ought to say at this point that at Committee stage I made reference to the position of the Central Board, with Sir John Read as its chairman, being a little remote from the proceedings in this House, and I asked why we could not get closer to him. Sir John noted that comment and very kindly invited me to meet him and his colleagues at the Central Board of the Trustee Savings Banks. I had a very long discussion with them and put my point of view very fully. I did not ask for assurances. It would be improper of me to disclose in our debate in this House what was really a private conversation, but on the question of the powers I believe it can be said that point which the Central Board wants to be clearer about is the same as that which I want to be made clearer. I understand that the Central Board has been assured that it has the power. The question is: does it really have that power?
In these circumstances where is the difficulty in accepting these two amendments, which would make absolutely clear the different and varying options which may be offered and which are within the board's powers to offer? I sincerely hope that we are not going to have a dispute over words. Sometimes Ministers resist amendments to a Bill on the ground that the substance of the amendment is already in the Bill. One never understands why Ministers want to resist an amendment that will make sure that the substance is in the Bill. I have not put anything in these two amendments which runs counter to that which the noble Earl said was within the power of the board to do. In those circumstances I believe it is incumbent upon the House to ensure that those powers are spelt out in this Bill. All concerned would then know what options the board has. I shall deal with this latter point in my closing sentences.
It is important that all concerned, on reading this Bill, should know what it really means and what options are open to the board to adopt. Such persons may then bring to bear upon the board proposals as to what the board might do in respect of certain categories of depositors and, from that point of view, for employees as well. To have this opportunity hidden within the ambiguity of a Bill is not proper publicity. I want publicity. I want depositors to know what the board proposes to do. I want them to understand what are the implications for them. I want them to understand also what they may ask the board to consider in this particular direction.
I am sure that the board will consider the various options when the time comes, but obviously it will have to consider them in the light of the circumstances which exist at the time the change takes place. I am not tying the board's hands in any way in these two amendments. I am not committing the Government or the board to anything, but I am indicating, for the knowledge and understanding of those who wish to comprehend what the Bill does, that various options are open to the Central Board if it wishes to take them up.
I feel very strongly that the great difficulty with this Bill—I shall not call it the mischief, because it is a difficulty—is the problem of communication. We had all this out in the case of Scotland earlier today and it is probable that it may well arise again later. There is no means of communication with the vast army of depositors whose interests are at stake here and who have a right to be heard if they can collect voices and bring them to bear on the Central Board.
In my view it is not fair and it is not satisfactory for the board to have to proceed solely on the kind of advice which it is given by local trustees who may or may not be in touch with depositors. This is the problem, and I want there to be some assistance in at least resolving any doubts as to what the board has the power to do. I sincerely hope that we will receive a favourable response from the noble Earl on Amendments Nos. 6 and 7.
The Earl of Gowrie: My Lords, I am advised that the amendments are technically wrong from the drafting point of view, but I have a great deal of sympathy with what the noble Lord said. I am of the view, and so are

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my advisers, that the Bill gives the board the powers that the noble Lord requires, and does so clearly. However, in view of what the noble Lord said I will look at the wording again to see whether it can be made a little clearer still.
Lord Houghton of Sowerby: My Lords, I am very much obliged to the noble Earl, and I need say no more except to thank him and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 7 not moved.]
Lord Stoddart of Swindon Lord Stoddart of Swindon had given notice of his intention to move Amendment No. 8:
After Clause 3, insert the following new clause:
("Worker directors.
. The Trustee Savings Bank Group Board and each of the Boards of the subsidiary companies shall contain three worker directors the qualifications of whom and the method of appointment to the Boards shall be on a basis agreed with the employees themselves and their trade union representatives.").
The noble Lord said: My Lords, I have to admit that I am now in something of a quandary about Amendment No. 8, because the passing of Amendment No. 5—I assume the Government have accepted that—gives the employees of the TSBs a considerable voice; in fact, trustees will hold on their behalf, and on behalf of the depositors, 25 per cent. of the total shares of the new TSB plc. That is a very powerful position for them to be in. Under the circumstances, if it is in order, it would perhaps be as well for me not to move this amendment on the understanding, of course, that the Government will not seek to alter Amendment No. 5 in any way at Third Reading. I hope the noble Earl will agree that if the Government did so move to alter the decision arrived at by Amendment No. 5 it would then be in order, and there would be no objection, if the House decided to annul Amendment No. 5, to move Amendment No. 8 at Third Reading. If that is understood, I will not move Amendment No. 8 now.
The Deputy Speaker (Lord Aberdare): My Lords, if the noble Lord wishes to have a reply, he must move his amendment and withdraw it later.
Lord Stoddart of Swindon: My Lords, I formally move Amendment No. 8.
The Earl of Gowrie: My Lords, in addition to my other shortcomings this evening I do not want to be in trouble for constitutional abnormalities. On the surface, I think that what the noble Lord has said is reasonable enough. I hope he will take that as sufficient an assurance from me. I cannot conceal that the Government are opposed to his amendment. If I have to make clear my opposition to his amendment at a later stage, I will be doing so in good faith on the basis that I have now said I am opposed to it. However, it would appear that it is not necessary for him to press the amendment now, and, therefore, I hope that he and I are in agreement on this matter.
Lord Stoddart of Swindon: My Lords, is it now in order for me to withdraw the amendment? It is, I understand. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Representation of the People Bill
8.33 p.m.
Lord Glenarthur: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Glenarthur.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Clause 19 [Timing of elections]:
Lord Glenarthur Lord Glenarthur moved Amendment No. 30:
[Printed earlier: col. 1215.]
The noble Lord said: I spoke to this amendment with Amendment No. 18. I beg to move.
On Question, amendment agreed to. Clause 19, as amended, agreed to.
[Amendment No. 31 not moved.]
Lord Sudeley Lord Sudeley moved Amendment No. 32:
Before Clause 20, insert the following new clause:
("Reduction of minimum age requirement for local authority candidates.
. In section 79(1) of the Local Government Act 1972, for the words "twenty-one years" there shall be substituted the words "eighteen years".").
The noble Lord said: The arguments for this amendment are very simple, and I shall produce them quickly. It has been accepted that men and women who reach the age of 18 are fit to vote. However, due to an oversight candidates wishing to stand for public office cannot do so until they have reached the age of 21. If it is accepted that persons of the age of 18 are fit to judge candidates, should it not also be accepted that they are fit to be judged as candidates? Were the Committee to reject this idea it would then, on the same basis, have to reject the idea of the vote for men and women at the age of 18.
Secondly, can the Minister clarify and confirm that a person could stand for election in a local authority election, with which this amendment is concerned, before the age of 18 but could then find that he could not take up his seat? If that is the case, surely the Minister must accept that that is a very odd position. I beg to move.
Lord Glenarthur: I think I can be fairly brief with the amendment proposed by my noble friend. The minimum age both for voting and for standing as a candidate at parliamentary elections (although we are not specifically dealing with them now) and local elections was 21 until 1969, when it was reduced to 18. The minimum age for candidature was unchanged. There does not seem to have been any demand for a reduction in the minimum age for candidature when the 1969 Act went through Parliament, and the

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position has remained the same to the present day. I think that such demand is an important factor to be considered.
As regards parliamentary elections, we feel that it is primarily for another place to initiate changes in the minimum age of its Members, and I shall not go into that now.
It is important that a person should gain experience eleswhere before taking part in any election, whether for local government or central Government. There are those of your Lordships who might agree that young people, whether they are 18, 19 or 20, have more pressing claims on their time. I know that to some extent I did. As regards my noble friend's specific point, no, one cannot stand for election until one is 21. I hope that clears up any misunderstandings he may have. It is important that people get experience of life. That is something which all of us need before we stand in any capacity to be an elected representative. I hope my noble friend will understand that, and that he will not press the matter on this occasion.
Lord Tordoff: I apologise to your Lordships for being somewhat the subject of slow communications in this building. I support this amendment in the name of the noble Lord, Lord Sudeley. I think that the Minister is being a little patronising to young people. The fact is that a number of people of this age group are deeply interested in politics and are anxious to become involved at an early age. I am sure that they should be encouraged to do so. To be a candidate at 18 might not be acceptable to the electorate, but that is the electorate's choice.
If the question were the other way round and one were arguing about voting ages, perhaps the Minister might have a more logical case. I would not agree with it, but he might have a more logical case. In the circumstances, if you are to have the ability to vote at 18 then the ability to stand as a candidate at 18 seems utterly logical. I hope that the Government will reconsider.
I do not accept the argument that candidatures for either local government or, indeed, the other place are a matter only for another place. I think this is not one of those matters to which the noble Lord, Lord Mishcon, referred at earlier stages of this Bill, when we were really bound by arrangements that were made between the two parties. I think we are in a different circumstance on this occasion.
Lord Sudeley: There are two points I should like to make in reply to what the Minister has said. The first is that this is a non-party matter. Therefore, in rejecting the idea of people being able to stand as candidates for local authority elections, or, for that matter, parliamentary elections, I think the Conservative Party is giving some political ground in a rather unnecessary degree to the two other political parties, the Liberal and Labour parties. The other point I should like to make is that the Minister has provided arguments against candidates standing for local authority elections. The arguments are much the same for local authority elections as for parliamentary elections. If the Minister had spoken on the previous amendment on parliamentary elections I think his arguments would have been much the same.
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Perhaps I may quote from what my right honourable friend the Home Secretary has said about candidates between the ages of 18 and 21 being able to stand for parliamentary elections. The Home Secretary said on Saturday, 16th February 1980:
"The last Speaker's conference that looked at electoral law in 1972 to 1974 recommended by a small majority that the minimum age for standing in parliamentary elections in the United Kingdom should be reduced from 21 to 18. The recommendation was not enacted by the last Labour Government who apparently took the view that this was not sufficient support for the introduction of this reform. But I believe that it is now time to reconsider this whole question".
The Home Secretary then continued:
"In my view, the case for changing the law is a strong one. I find it difficult to see why young people who are entitled to vote and who are regarded as full citizens should not be allowed to present themselves to their fellow citizens for election to office".
In accordance with the flow of the speech of my right honourable friend the Home Secretary, part of which I have quoted, I should like to press the amendment to a Division.
Lord Glenarthur: Before my noble friend presses this amendment to a Division I should like to say to him three things. First of all, I should like to say to the noble Lord, Lord Tordoff, that in no sense was I trying to be patronising. That was not at all the sense of what I was trying to say. What I was merely trying to say was that at the age of 18 one may be interested—this was one of the points the noble Lord raised—but just by being interested one does not necessarily have the experience which is necessary to take part in an assembly of that kind.
The second point, if I may go on to develop it before the noble Lord intervenes, is that although we occasionally receive letters from young people who would like to serve on local councils—I have to stress that it is occasionally—there does not appear to be the kind of demand for change in a downward direction which my noble friend Lord Sudeley seems so convinced that there is. If there is not that demand, I do not really see that it is right to make a change of the kind which he now proposes in this amendment. I think it would be unfortunate if we were to introduce a change like this. I think it would make a major change to the way in which representation on local councils exists. I do not think it would necessarily be for the good of the local council, though I can quite understand that it would be for the good, educatively speaking, of the person who particularly wished to be a member of it.
That is why I feel that it would be a mistake for the noble Lord to press the amendment at this stage. The fact is that primarily there has been no demand for this change. That is where my case rests, but I know that the noble Lord, Lord Tordoff, wishes to intervene.
Lord Tordoff: I am grateful to the noble Lord the Minister. I hope he does not feel I am being difficult in saying that it is a slightly patronising argument. I am not saying that he is necessarily being patronising. However, at the end of the day the judgment rests with the electorate. If the electorate says, "This person is too young to represent me", that is entirely up to the electorate. However, there is illogicality in being able to vote and to make the choice.

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The real power in the electoral system lies in the power of voting. People then have the right to say, "I am sorry; you are too young to represent me". If people say that, then they are entirely entitled so to do. Quite clearly the noble Lord the Minister would take that view. In his own personal capacity as an elector of local government—which he has the right to be—presumably, from what he says, he would say, "No, this person is too young to represent me".
Perhaps I may say this about the demand. The fact is that the youth movements of all the political parties—the Young Conservatives, the Young Socialists, the Young Social Democrats and the Young Liberals—are all anxious to see this change made. I think that in an age when we wish to encourage responsibility in our youth, when we wish to assist them to become involved in the democratic processes rather than be on the streets demonstrating in other ways, we should move in this direction. Although there are no great demonstrations at the moment calling for candidatures at 18, nevertheless I believe those people who are active in politics and wish to cut their teeth on politics, particularly at a local government level, should have the opportunity so to do. If people can vote at 18, why on earth are we making the distinction between their being able to vote at 18 and not being capable of being members of local government at 18?
8.45 p.m.
Lord Glenarthur: Perhaps I may respond again to that argument. I accept the noble Lord's point that it is for the electorate to decide—or they can decide ultimately when it comes to an election—whether or not they wish to vote for a person of any age. Of course I accept that argument. I have listened to what the noble Lord, Lord Tordoff, has said and I have listened to what my noble friend has said. My noble friend quoted from remarks made by my right honourable friend the Home Secretary—remarks of which I was not personally aware but which I should like to study.
I know that my noble friend feels that he wishes to press this. However, my feeling is that it would be better if I could think about this for a minute and then perhaps on reflection, and having studied what has been said by the noble Lord on this occasion, look at it again at a later stage of the Bill. However, as I understand it, from what transpired in another place and notwithstanding the importance of your Lordships in these affairs, I do not believe that there will be the support for it in another place that I suspect my noble friend would like.
I should like to study what my noble friend has said, particularly in regard to his quotation from what my right honourable and learned friend said. Without any commitment whatever—and I stress that to my noble friend Lord Sudeley—I should like to study it. On the basis of that undertaking that I shall study it, I hope he will see fit not to press this amendment at this moment. I give him the undertaking that I shall consider most carefully what he has said. However, at the same time I give him no undertaking that it will be possible to meet his particular wishes.
Lord Sudeley: Perhaps I may ask the Minister if he can assure me that he will write to me before the Report stage of the Bill with his consideration; and, depending on that, I can decide whether or not to re-introduce this amendment on Report stage.
Lord Glenarthur: Yes; I shall certainly give my noble friend the undertaking that I shall look at it and then write to him about it. Perhaps if he studies what I have to say when I have been able to reflect upon the quotes that he has made, that will satisfy him and he will then, as he says, be able to consider whether or not to bring this amendment forward at a later stage.
Lord Sudeley: I thank the Minister very much for that assurance. I hope that his answer will be favourable and that it will not be necessary for me to reintroduce the amendment at Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 [Summoning new Parliament: effect of demise of the Crown]:
Lord Glenarthur Lord Glenarthur moved Amendment No. 33:
[Printed earlier: col. 1215.]
The noble Lord said: This amendment was spoken to with Amendment No. 18. I beg to move.
On Question, amendment agreed to. Clause 20, as amended, agreed to. Clauses 21 to 23 agreed to.
Schedule 3 agreed to.
Clause 24 agreed to.
Schedule 4 [Miscellaneous amendments of the principal Act]:
Lord Glenarthur Lord Glenarthur moved Amendment No. 34:
[Printed earlier: col. 1215.]
The noble Lord said: This amendment was spoken to with Amendment No. 18. I beg to move.
On Question, amendment agreed to.
Lord Tordoff Lord Tordoff moved Amendment No. 35:
Page 37, line 29, insert—
("(c) After subsection (1)(c) there shall be inserted—
"(d) to provide for the supply to a Community Health Council free of charge one copy of the register of electors covering the area of the Council." ").
The noble Lord said: I have already indicated to the Minister in a conversation that we had earlier today that this is very much a probing amendment. There are under the substantive Act, the Representation of the People Act 1983, in Schedule 2,
"provisions authorising or requiring the registration officer to supply such persons as may be prescribed copies of the electors lists, register and other documents or prescribed parts of them, whether free of charge or on payment of a prescribed fee".
This amendment seeks to ask the Minister whether the Government are prepared to implement that provision in regard to community health councils. Community health councils are charged with carrying out certain surveys of the population for which it is necessary that they have electoral registers. To have to

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buy electoral registers from the returning officer is a very expensive exercise for them. It is my belief, and it has been suggested to me, that this is perhaps an area in which registers should be provided free of charge to community health councils. I wish through this amendment to ask the Minister whether this has been given consideration and whether the Government are prepared to contemplate giving the registers free. I beg to move.
Lord Glenarthur: I can perhaps most conveniently deal with this amendment by saying that community health councils could already be provided with free copies of the register under my right honourable friend's existing powers. To that extent the noble Lord's amendment is unnecessary. However, the general principle is for only those directly concerned with the electoral process to receive free copies: the political parties, candidates, local councillors, Members of Parliament, and so on. Community health councils would not fit particularly easily into this pattern.
Although I cannot anticipate too far ahead. I have taken note of what the noble Lord has said. We shall be making a new set of Representation of the People regulations once the Bill is enacted. These will deal with, among other things, the supply of copies of the register. Perhaps the most satisfactory course would be for the noble Lord to take the matter up, if he so wishes, when the usual consultations take place on those regulations. I do not think that I can anticipate ahead any further than that, but I hope that what I have said provides the kind of reassurance for which he is looking.
Lord Tordoff: I am most grateful. I hope that the noble Lord understands that so far as the community health councils are concerned this is a tool of the trade which they find difficult to get in any other way. I understand that the basis of free copies relates really to the electoral process. I hope, however, that the fact that we have had this short exchange in the Chamber will be taken on board by his right honourable friend. With the assurances that the noble Lord has given, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Glenarthur Lord Glenarthur moved Amendment No. 36:
[Printed earlier: col. 1215.]
The noble Lord said: I spoke to this amendment with Amendment No. 18. I beg to move.
On Question, amendment agreed to.
Lord Mishcon Lord Mishcon moved Amendment No. 37:
Page 45, line 4, at end insert—
(". In section 167 (application for relief), in subsection (1), the words "else, if in respect of a payment made in contravention of section 78(1) or (2) above or of paragraph 1 of Schedule 4 to this Act," shall be omitted.").
The noble Lord said: More and more, county courts have their jurisdiction extended in order that there can be cheaper and, one hopes, speedier justice. When we are considering the provisions of this Bill, there is a great opportunity, in my submission, to keep down the expense of something that is very troublesome to all political parties and hits in particular the minority
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parties, if I may so call them, or even independent candidates.
The situation, to state it briefly, is that after an election is over and somebody, whether the candidate or the agent, finds that he has inadvertently broken electoral law, there is a procedure by which an application can be made to the court for relief from the penalties involved. There are a few cases where the county court is given jurisdiction; but in the main, the offences that have occurred, many of them purely technical, at present come outside the county court jurisdiction. An application has to be made to the High Court with very considerable expense indeed. The lowest costs involved, I have found, are somewhere in the region of £1,000. Very often, the costs can be much more.
This is a great opportunity to give the county court jurisdiction here. I should make clear that the county court judge, if he found that he was dealing with a serious case, could immediately refuse relief and refer the matter to the Director of Public Prosecutions for consequential proceedings to follow. I hope that the Government will seize this opportunity. I beg to move.
Lord Tordoff: We touched on this matter obliquely at an earlier stage of our Committee proceedings. Although what the noble Lord, Lord Mishcon, says does not really bear on the kind of cases that I had in mind at the time, the underlying principle overlaps. The proposal would have our support.
As I said on the earlier matter, there is no way in which people from these Benches or any other Benches in this House would wish to condone serious electoral malpractices. But the law on these matters can become extremely technical. There can be small problems in the electoral process that need to be sorted out after an election. It seems right and proper that there should be a simple and cheap way to put them right. I commend the noble Lord's amendment.
Lord Glenarthur: As perhaps has been indicated by the remarks of the noble Lords, Lord Mishcon and Lord Tordoff, this amendment deals with a somewhat technical issue. It might be convenient if I explain the background before going on to say why, much as we sympathise with the noble Lord's amendment, we do not think it is possible to amend the law in the way he would like.
As I mentioned on an earlier amendment, certain offences under the Representation of the People Acts are described as "illegal practices". They include various voting offences and offences in relation to election expenses, including failure by a candidate or his election agent to have the name and address of the printer and publisher printed on an election publication. One of the consequences of an illegal practice is that if a successful candidate is convicted of one, his election is void and a fresh election must be held.
Of course, illegal practices, particularly failure to observe the imprint requirement, often happen with no evil intent, and that is why the 1983 Act allows a person who has committed an illegal practice to apply to the courts for relief from the consequences if his action arose from inadvertence, accidental miscalculation or from some other reasonable cause of a like nature. In most cases applications have to be

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made to the High Court which can be very expensive, but some applications in respect of very trivial contraventions of the law may be made to the county courts. Why not then allow more applications to be made to the county courts, as the noble Lord's amendment proposes, so saving the candidate the cost of a High Court action?
I think the answer to that question is this. Although most applications for relief relate to minor oversights of electoral law, illegal practices are potentially serious offences. I am sure that the noble Lord will not dissent from that view. An election can be declared void if a candidate is found to have committed them. Parliamentary election petitions and applications for relief from the consequences of an illegal practice are triable only by those High Court judges currently on the rota for the trial of an election petition. There would be difficulties if a county court was allowed to entertain and perhaps to grant an application for relief while an election court was trying the same issue on the trial of an election petition. The applications which may currently be made to the county courts would not prejudice the trial of an election petition in the same way. I said that I was sympathetic to the noble Lord's amendment. Accidents do, in the course of an election campaign, of course happen. That is why there is a right to make an application for relief.
However, the fact that applications may be made and are often granted should not, I think, blind us to the fact that serious issues may be raised, and that a right of application to the county court would have the effect of short-circuiting the long-standing arrangements for the questioning of an election through the trial of an election petition. As I am sure the noble Lord, Lord Mishcon, will agree, this is not a party issue and we should like to help if we could, but we do not really see that there is an alternative but to let the arrangements stand as they are.
I started by saying that this was a complex, technical issue. I hope that I have been able to give the noble Lord some reassurance that, by not being able to make the change which he recommends, we are really safeguarding an important principle, and I hope he will not feel it necessary to press this amendment.
9 p.m.
Lord Mishcon: I recognise the principle which the noble Lord the Minister very correctly stated in relation to the remarks that I made in support of the amendment. Of course, there can be serious cases, and as I said, where there are serious cases the county court judge would obviously refuse relief and hand the papers over to the Director of Public Prosecutions. If I may say so—and I say this with the utmost deference—I can only interpret his remarks as being somewhat derogatory to the standing of county court judges, who surely are able to deal with these matters, which are not terribly complex in regard to law, in exactly the same way as a high court judge.
Now, it may very well be felt that this would be unimportant to wealthy parties and wealthy
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candidates—and I am not scoring any silly points when saying that; some people may indeed deem my own party to be a wealthy party, although I can assure the House that the Treasurer of that party at the moment would not agree with that definition. But, having said that, I would ask the noble Lord, the Minister, since this is an important matter, important, as I said, for all those who belong to political parties, and it may be we shall see again the day of the independent—if I may speak personally, it is a day that I shall welcome myself, but that is a purely personal view.
I would ask the Minister if he will be good enough at least to indicate that he will consider, between now and Report stage, whether at least some more matters cannot be referred to a county court than happens at present, and whether indeed he cannot reconsider the whole principle of what I have tried to deal with in this amendment, because it is a great opportunity to deal with the matter. We shall never be able to deal with it by a special Act of Parliament. Here is an opportunity, and I would hope that he would at least tell me that he is prepared to look at the debate that has occurred today and see whether, by co-operation, something useful cannot turn up at Report stage. If he were to give me that indication, I tell him in advance that I should ask the leave of the Committee to withdraw the amendment.
Lord Glenarthur: I note most carefully what the noble Lord has said. I think I said twice when I spoke before that it was a technical issue and one on which quite clearly I could not give any particular undertaking now. What I can tell the noble Lord is this: I shall certainly read with great care the points that he made when he proposed his amendment, and I shall consult with the experts concerned on whether or not there is any particular give. I am afraid I suspect there is not, but I would not like to prejudge the issue without having read most carefully the points he has raised, and I hope that will satisfy him.
The issue of whether or not there would be more scope for moving towards county courts is something which I am not familiar with myself. Naturally, it was certainly not any intention of my remarks to be derogatory about judges in county courts—of course not—and I am sure the noble Lord really realises that that is the last thing I should want to be. But it is technical; it is something I should like to read about. I shall read his remarks and perhaps I may correspond with him. If I do not satisfy him, of course, it will be up to the noble Lord to take the matter forward in due course. I hope he will be satisfied with that.
Lord Mishcon: The noble Lord has acted with his usual courtesy and kindness and I merely ask him if he will kindly see that the letter reaches me at least before Report stage, so that I can consider my position. I ask the Committee's leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 38 to 40 not moved.]
Schedule 4, as amended, agreed to.
Clauses 25 to 29 agreed to.
Schedule 5 [Repeals]:
Lord Glenarthur Lord Glenarthur moved Amendment No. 41:
[Printed earlier: col. 1215.]
The noble Lord said: I spoke to this amendment with Amendment No. 18. I beg to move.
On Question, amendment agreed to.
Schedule 5, as amended. agreed to.
House resumed: Bill reported with amendments.

Royal Bank of Scotland Bill
Brought from the Commons; read a first time, and referred to the Examiners.

Reserve Forces (Safeguard of Employment) Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at seven minutes past nine o'clock.