Lords Sitting of 23 July 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 Oxford.

HMS "Conqueror": Log
Lord Hatch of Lusby: 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 progress has been made in the inquiry into the loss of the log of HMS "Conqueror" and when they expect the inquiry to be concluded.
The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne): My Lords, I regret that I cannot add to the Answer I gave the noble Lord on 3rd July.
Lord Hatch of Lusby: My Lords, is the noble Lord aware that this issue goes back to last November? Is he really saying that the Royal Navy has lost a valuable document and that the Government have learnt nothing more about it since?
Two propositions have been put to me independently since the noble Lord last answered me on this subject at the beginning of this month, and one of them has been published. The first is that the log was never lost. The second is that a report has been received by the Government and referred to the Director of Pubic Prosecutions, but he decided not to proceed with it. Can the Minister say whether any report has been received from the inquiry? If not, when do the Government expect to receive a report from the inquiry?
Lord Trefgarne: My Lords, as I have told the noble Lord on a number of occasions, this matter is in the hands of the police.
Lord Mayhew: My Lords, does the noble Lord not agree that there was nothing discreditable, in a war situation, about sinking the "Belgrano", but that the Government would have done much better to be more forthcoming and truthful about the affair from the beginning?
Lord Trefgarne: My Lords, that is a view which has been expressed on a number of occasions, but it does not, I think, arise from the Question on the Order Paper.
Lord Harmar-Nicholls: My Lords, can my noble friend the Minister say whether the log of the "Conqueror" is the only log that has ever been mislaid or lost?
Lord Trefgarne: No, my Lords. There have been others, including one in 1797.
Lord Jenkins of Putney: My Lords, is the Minister aware that this matter has been in the hands of the police since last November? Does he anticipate that it will still be in the hands of the police next November? And what does he have to say about the November after that?
Lord Trefgarne: My Lords, I am afraid that I have no indication as to how the police inquiries are proceeding. Ministers have no power to interfere in such inquiries.
Lord Diamond: My Lords, has the case of the log lost in 1797 been cleared up yet?
Lord Trefgarne: My Lords, I am informed that the late, gallant Viscount, Lord Nelson, knew something about it.
Lord Hatch of Lusby: My Lords, is the Minister telling the House that we had to wait from 1797 until this Government were elected in 1979 before the Royal Navy lost a ship's log? Is he now saying also that the inquiry has discovered some evidence which is now before the police? The Minister was a little obscure on this point. He said that the matter is with the police. Does that mean that some discovery has been made by the inquiry, which I believe the Government set up, which has now been referred to the police? If that is the case, presumably there is some evidence as to how the log book was lost.
Lord Trefgarne: No, my Lords, the Government were not able to determine what happened to the log book. That is why the matter was referred to the police.

Holloway Prison: C1 Unit
2.41 p.m.
Baroness Ewart-Biggs: 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 have any plans to make alternative provision for the women confined in the C1 Unit of Holloway Prison.
The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur): My Lords, we accept the view of the Holloway Project Committee that C1 Unit is not currently meeting the needs of the prisoners there as well as it should. An urgent assessment will be carried out to examine the feasibility of reciting the unit in purpose-built accommodation, and immediate steps will be taken to improve conditions at the present unit.
Baroness Ewart-Biggs: My Lords, I thank the Minister for that Answer and also for his concern. Does he not agree that the report from the Holloway Project Committee, plus the recommendations from MIND and the NCCL, point to an even more positive and structured response from the Government? Does he not acknowledge the fact that in this unit there were in the last month alone no fewer than 20 self-

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mutilation cases and four attempted suicides? Does the Minister not agree that that points to an absolutely unacceptable situation in the C1 Unit, and that such is an affront to a civilised society?
Arising out of the report, can the Minister say, first, whether a site, plus supportive funding, has been earmarked for the rebuilt C1 Unit to which he has referred? Secondly, can the Minister say whether, in order to alleviate the present situation for the very vulnerable women within that unit, there will be additional funding for extra nursing staff and for more officers to take the women to the training unit and to the recreational facilities? At the moment there are not sufficient officers, because many of them are on escort duties and are unable to take the inmates to the facilities.
Lord Glenarthur: My Lords, the noble Baroness will be aware that the wing in question deals with women who are very highly disturbed. So far as a new site is concerned, I believe that the recommendations which the report contains are positive. Obviously we must look very carefully at them, and an urgent feasibility study will be carried out to assess the suitability of another site within Holloway. As regards staffing and other implications, the noble Baroness will be aware from the report that we are working closely with the DHSS and its experts.
Lord Donaldson of Kingsbridge: My Lords, is the noble Lord aware that it is in no way satisfactory to say that a feasibility study will be carried out? Immediate action is required to remove these women from where they are and to put them somewhere else. Is the noble Lord further aware that the All-Party Penal Affairs Committee wrote to the Home Secretary over a month ago making these points? I think that it has not yet received an answer; or, if it has, it has not yet reached me. When there are people mutilating themselves at this level of numbers it is a form of infection of the most dangerous kind. It cannot be left while a few scientists work out a feasibility study. Is the noble Lord able to give us a more satisfactory answer?
Lord Glenarthur: My Lords, I share the noble Lord's concern; I can promise him that. What is important is that we achieve the right answer at the end of the day. That is what has gone so sadly wrong in the past. I can tell the noble Lord that we have identified a site, but we cannot build on it overnight. For example, there may be all sorts of technical features, such as the existing drains, and so on, beneath the ground at Holloway, which must be looked at. That is why the feasibility study is being carried out. I assure the noble Lord that I am doing all I can to expedite it.
Lord Donaldson of Kingsbridge: My Lords, as long as we do not have to wait until the end of the day.
Lord Glenarthur: My Lords, I cannot be precise on the timing, but my right honourable friend the Home Secretary has made it perfectly clear that he is trying to achieve this with great urgency.
Baroness Lockwood: My Lords, can the Minister tell us what immediate steps are being taken to ensure that
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the women from C1 are able to take advantage of the facilities in the skill training unit? Is it a fact that they have not been able to take advantage of those facilities because of the lack of people to supervise?
Lord Glenarthur: My Lords, my right honourable friend has said that steps will be taken urgently to improve and expand the amount of space at present available for inmates' association and activities. In addition, work will be carried out on such things as the lighting, and so on, which at the moment are very poor. So that is in hand.
Lord Ennals: My Lords, may I associate these Benches with the deep sense of urgency conveyed by the noble Lord, Lord Donaldson? May I ask the Minister whether, apart from the representations made to the department by MIND for the closure of this psychiatric ward, he has seen the report by Charles Irving, the chairman of the All-Party Mental Health Committee? He said that a high proportion of inmates have suffered mental disorder and that prison should not be a dumping ground for the mentally ill. Cannot something be done by the National Health Service during the period when any rebuilding is to be done at Holloway? Is not the sense of urgency that great?
Lord Glenarthur: Yes, my Lords, I have seen the report to which the noble Lord refers. He will be aware that there are difficulties. Certainly life is made more complicated in some respects by the Mental Health Act and the fact that some people fall outside it. However, it is our belief that offenders who are mentally disordered within the terms of the Mental Health Act should not be in prison, and we are taking soundings and trying to look at a possible way forward for those who fall between the two stools.
In answer to the noble Baroness, Lady Lockwood, on the question of staffing, the level of staffing in the C1 unit as it exists, together with the balance between nursing and discipline staff, is now being urgently examined with a view to providing a full regime. I hope that that will reassure the noble Baroness.
Lord Hunt: My Lords, is the Minister aware that the situation revealed in the Question is a matter of great concern to the officers in the prison service who are working in Holloway prison? In no way should any blame be attached to the way in which they try to do their duties under great difficulties.
Lord Glenarthur: My Lords, I have visited Holloway and I am well aware of that fact. I, too, should like to express my thanks for the work that they do. It is very difficult, and some of the people with whom they deal are extremely disturbed.
Lord Hutchinson of Lullington: My Lords, may I ask one more question? Can the noble Lord confirm that 90 per cent. of the women in this unit are on remand and that 60 per cent. of that 90 per cent. will not be sent to prison or may not be convicted? To incarcerate such people in solitary confinement day after day is something that the Minister should be more concerned about than he appears at present. Surely something should be done forthwith to get these women into a situation where they can enjoy the

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privileges to which they are entitled as remand prisoners, which at the moment they do not receive at all.
Lord Glenarthur: My Lords, I am sorry that the noble Lord feels that I do not express concern, because I most certainly do. As I have just indicated to the noble Baroness, Lady Lockwood, the fact is that staffing levels are being urgently examined so that we can provide a full range of facilities and also provide appropriate and adequate psychiatric treatment, therapy and nursing care. However, as the noble Lord, Lord Ennals, indicated, there are those people who do not fall within the scope of the Mental Health Act and might not fall within the scope of the prison service.
Baroness Ewart-Biggs: My Lords, may I ask one more question relating to the Holloway project report? In view of the fact that there was a DHSS representative sitting on this committee, were there any proposals made by that department, the DHSS, for setting up units to assess mentally disturbed women as an alternative to the facilities in Holloway?
Lord Glenarthur: My Lords, all features of the report will be looked at most carefully, and the DHSS will certainly be consulted on matters in which they are involved.

Money Supply
2.50 p.m.
Lord Beswick: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. May I point out that a printer's error appears to have crept into the Question as it appears on the Order Paper? The reference in the second line should be to "money supply", and not "money supplied".
The Question was as follows:
To ask Her Majesty's Government whether, in view of the fact that the money supply has increased by 101·9 per cent. in the 5-year period to mid-April and that only 5 per cent. is accounted for by the increase of state minted coins and the printing of currency notes, they will now state by whom the remaining 96·9 per cent. of money was created and under whose authority.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, the correction makes all the difference!
My Lords, the additional 96·9 per cent. represents new bank deposits, created in the normal course of banking business. No Government authority is necessary for this.
Lord Beswick: My Lords, I thank the noble Earl for that reply, the implications of which are of course very far-reaching. Would the noble Earl not agree that at one time it was clearly understood and firmly enforced that the only authority in the country which was empowered to create money, either by printing notes or minting coins, was the Government of the day, the state? Now that credit transactions have largely superseded minted money and paper currency, is there
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not some reason for asking for an authoritative and objective commission to consider this matter and to see who is getting the benefit of this enormous amount of extra money that is being created each year?
The Earl of Gowrie: My Lords, the noble Lord makes an interesting suggestion, though, as he has said, for Question Time it is perhaps a little far-reaching in its implications. It seems to me that on the whole the economies of the Western world are benefiting from these new monetary habits.
Lord Tranmire: My Lords, are not the figures for the increase in bank credit and money supply disturbing when compared with the annual increase in output of 3 per cent? Will my noble friend have a look at this, as suggested by the noble Lord, Lord Beswick, and have an inquiry made into how money and credit come into circulation and the consequent burden of the increase in our national debt as a result?
The Earl of Gowrie: My Lords, the Government keep a very close watch on monetary aggregates, as the House would expect. I agree with my noble friend that there have been some rather eccentric movements in M3 recently, but I am glad to tell my noble friend and the Opposition that M0 has been behaving impeccably.
Lord Barnett: My Lords, can the noble Earl tell us what has been happening to M1, M2, M3, PSL1, PSL2 and PSL3, and which of them the Government think is right?
The Earl of Gowrie: My Lords, the Government think that the monetary aggregate indications of the present rates of inflation are broadly right and are a great deal better than the behaviour of any of the monetary aggregates when the noble Lord was Chief Secretary to the Treasury.
Lord Bottomley: My Lords, is the noble Earl aware that during the last war Government policy was fully to employ labour and materials to win the war? This was done with a modest increase in inflation. Can the Minister say why the present Government do not follow a similar policy to win the peace?
The Earl of Gowrie: My Lords, I shall be saying something along these lines in a very few minutes, when we come to debate the Finance Bill, but the situation has changed a little since the 1940s.
Lord Beswick: My Lords, would the noble Earl be good enough to draw a distinction between the Question which I asked and the one asked by my noble friend on the Front Bench? I am not querying the amount of money that has been created under these different guises. What I am asking is: who is getting the benefit of it? As things are, it would appear that it is the private banking institutions, and not the Government. In view of the fact that the Government have this enormous problem in public sector borrowing, would it not be right to have this matter more carefully assessed?
The Earl of Gowrie: My Lords, of course I am glad to acquit the noble Lord, Lord Beswick, of low political behaviour. The fact of the matter is that he is sceptical of whether the banking institutions should be the proper sources of supply in this area, and we are less sceptical. As I say, it is a somewhat knotty issue to take up in a question and answer session.

Business
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Trefgarne, with the leave of the House, will repeat a Statement that is to be made in another place on the future of the royal dockyards.

Education (Corporal Punishment) Bill
2.55 p.m.
Lord Denham: My Lords, with the leave of the House I should also like to make a short business statement. Her Majesty's Government have decided not to proceed further this Session with the Education (Corporal Punishment) Bill. They are now considering the appropriate course of action for next Session.
Baroness David: My Lords, may I be allowed to make a comment on that business statement? We are glad that the Government have agreed with the judgment of this House, and indeed with that of the local authority associations and teachers' unions, that the Education (Corporal Punishment) Bill was a ridiculous and unworkable Bill, and we are glad that it is not to become an Act. However, we regret that the Government have not thought fit to accept the amendment which was passed in this House on 4th July, when there could then have been a sensible Bill put on the statute book at the end of the Session, and parliamentary time would not have been wasted. As it is, I understand that parliamentary time will have to be devoted to it in the next Session.
All this time we are in breach of Article 2 of the European Convention on Human Rights. I remind that House that it is already three and a half years since the judgement of the European Court was given, and that even now there are more than 30 cases at Strasbourg which are at some stage or other, at a cost (so I am told) of about £120,000 per case, which I may say in parenthesis is the cost of 13 teachers annually.
May I make a plea that even at this late stage the Government have the courage to think again and accept our amendment, or something similar, and save a great deal of parliamentary time by getting something on to the statute book this Session, putting us to rights with the European Court and saving money which could very well be spent on the education service?
Lord Tordoff: My Lords, I echo the words of the noble Baroness, Lady David, and say that, although we are not unhappy to see this Bill go away in the form in which we last saw it, we are somewhat amused at the sight of the Government leaving the field in disarray. I am tempted to ask whether the Government are
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prepared to take the same steps with other Bills that are bad Bills, such as the Transport Bill—but I do not suppose they will agree with that. Nevertheless, we are grateful to the Chief Whip for making this statement to us today.
Lord Denham: My Lords, I cannot accept the interpretation of the noble Baroness as to exactly what it was that prompted your Lordships to take the decision that was taken about this particular Bill on another day. Also, I cannot accept the suggestion of the noble Lord, Lord Tordoff, that the Government are leaving in disarray. The Government have received the judgment over a particular small issue taken for various reasons by your Lordships' House, and they are, I think, doing your Lordships' House the credit of taking this matter away to look at it, to consider it and to come back with the best solution during the next Session.

Petition: Transport Bill and Buses White Paper
Lord Underhill: My Lords, I beg to present a Petition from the Nottinghamshire County Council, sealed with the seal of the council, which prays that your Lordships will reject any legislation to implement the proposals of the White Paper on buses and the Transport Bill.
Petition presented.

Finance Bill
2.59 p.m.
The Earl of Gowrie: My Lords, I beg to move that this Bill be now read a second time.
The Finance Bill gives effect to the tax changes announced by my right honourable friend the Chancellor of the Exchequer in his Budget last March. These are part and parcel of the Government's economic policy generally. It is a straightforward economic policy and extremely easy to understand. Its object is to keep down inflation and sustain economic growth; or, in other words, to ensure that the country does a bit better each year and see to it that any such improvement is sustained and not eroded by changes in the value of our money.
Our political system is an adversarial one and nowadays there are no less than three suitors for the hand of the public. Perhaps I should say four, because on a number of issues, not least economic policy, the Liberal and Social Democratic parties take distinct and differing views. Critics of the Government's overall economic policy—and we shall hear from one or two this afternoon—have to ask, and also to answer, three questions: first, is real growth desirable; secondly, is it taking place; and, thirdly, is it sustainable? If the answers to these questions are in the affirmative—if they are, "Yes"—I hope that noble Lords opposite will be honest enough to make speeches which say in effect: "I agree with what the Government are doing. I have these particular criticisms on points of detail". Let me put it to the

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House that there is no way of ducking that challenge. It will be interesting to see who ducks it and who faces up to it.
Is real growth desirable? There are people who feel that it is not. They normally argue their case on ecological grounds—that is to say, that the resources of our planet are not up to the depredations brought on them by our species. Here and there I have points of agreement with them. We need, for instance, to worry in a constructive way about population growth. The tragedy in Northern Africa is not just one of climate or politics. It is also a result of population outstripping natural resources even in relatively favourable times, let alone as now during a prolonged drought which may itself owe something to population growth. Here in the developed world, infinitely more fortunate as we are, population changes can nevertheless cause great difficulty. Take the issue of unemployment. At the present time the baby boom that followed the First World War is only just starting to come off the labour market. The baby boom of the 'sixties—which I fear I added to—has been on the labour market for some time. Of course, we have the resources to tackle such problems. But the problems are there. That said, I do not know of any serious critics of this Government's policy who contest the need for real growth.
Is real growth taking place? I challenge any speaker in this debate to say that it is not. Britain is entering a fifth year of uninterrupted economic growth. Since the Budget, the consensus of economic forecasts made quite independently of the Government is that growth this year will reach 3½ per cent. This is the fastest in the European Community and will probably exceed the American growth rate. The CBI is forecasting 4 per cent. growth and its June trend inquiry results showed export and total order books were at their highest level since the survey began in 1977. Last week the Economist had this to say:
"British industrialists make poor lobbyists. They have been telling the Government that high interest rates and a strong pound are bad for investment—just when investment is booming as never before. Sterling has gone up again; so have their grumbles. But they look like investing regardless. Total fixed investment grew 7.4 per cent. in real terms last year—the biggest rise since 1967".
So industrial confidence is high, and so is its reflection through investment. I believe that confidence in that investment will turn down if there is any serious prospect that the Labour Party will form a Government. At present, and even with the Government suffering the usual loss of support in midterm, that does not look very likely. But it is a worrying prospect and we in Government must do better and bang the drum a bit harder. In my experience, business does not necessarily mind a Labour Government from time to time. But it cannot live with a Socialist Government, and nor can the British economy.
I laid emphasis on real growth and the figures I gave were in real terms. This is why we must never ease up on inflation, and, in my judgment, it is irresponsible to try to persuade the public that just a little extra spending, a little more inflation, could ease things—for teachers, let us say, or for young people looking for jobs. It is true that inflation has increased since the Budget. A major factor was the unsustainable strength of the dollar at the beginning of the year. This had an effect on interest rates and mortgage rates and thence
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on the RPI early this summer. Changes in benefits this autumn will reflect inflation at that somewhat artificial rate—artificial because the underlying movement of prices remains low. Last month, for instance, prices rose by only 0·2 per cent.
The outturn is that the Government need to have a tight public spending round over the next year to compensate, if one likes, for artificially high requirements to be made on the public purse through these indexed entitlements. But that should improve next year. We should be able to reduce inflation towards 5 per cent. by the end of this year and get below that figure next year. Our long-term objective of course is to get it lower still.
Because inflation is much lower overall than it used to be, it may seem a bit abstract as an issue to some people, and we sometimes get complaints that the Government should attend to other issues and give priority to them. But business must be able to make plans within as stable a financial framework as possible, and our goods must be competitive at home and abroad. I like to think of inflation as a kind of tax: an unholy, unlawful, unvoted VAT. Governments in the short term do quite well out of it, as do unions with muscle. But most people and most countries do not, and no one does well out of it in the longer term. Without financial stability and competitive industry we have no chance of reducing unemployment on a lasting basis. The trade-off between inflation and employment is only briefly, if at all, in favour of jobs.
Looking ahead, as I have just been doing, we come to the last question: Is real growth sustainable? The answer, I think, is, "That depends". It depends on our stars and on ourselves. I am not going to spend much time star-gazing, but let us not forget that we are, if not a global village, much more mutually interdependent than we used to be. In many ways—in perhaps the most important ways—this is an excellent thing. Witness the way that people are more responsive now to global tragedies or injustices. It may be that our species will owe its survival to this responsiveness.
But interdependence can be a headache in small ways. I have already outlined the problems posed for the British Government's public expenditure plans this autumn by the strength of the dollar last spring. The American headache is deficit financing—running an overdraft. Most American commentators do not believe that the deficit can be sustained, and yet the American boom depends on it, and before long the American boom may start to wobble. The headache of the developing countries is debt. The scale of their debt may imperil the growth rates of our developed world, growth rates on which they, in turn, depend.
It seems to me that the European headache is that we think of rights and entitlements before we think of performance. That is why we have, throughout the Community, high unemployment, whereas the Far East and Pacific countries do not. I believe in social justice and equity, but I believe that it has to be earned and paid for. And one does not earn or pay for it without a pretty robust attitude to rewards and differentials. Those of us who work mainly for love are lucky. Most people work mainly for money.
Whatever happens to the world over the next few years, I think few people will argue in this debate that

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global conditions are so reassuring as to make us here in Britain relax from the hard grind of maintaining and perhaps expanding our markets at home and abroad. So sustainable growth depends mainly on ourselves. By "ourselves" I do not mean "our Government". Governments can help a little and hinder a lot. The longer I work in Government, I have to say, the more I should like to wind many of its activities down. For goodness sake let us not start falling back on the comforting socialist myth that the determining factor for economics is economic policy.
Wealth generation in Western societies in the late 20th century is about the interaction of some fairly simple phenomena. It is about information, adaptation, competition, profitability, reinvestment and communication. If one lines up those sights, one is on target for success. Be successful, whether corporately or individually, and one will be in a position to help—or to be required to help—others who are less successful. But do not patronisingly deny those others the chance to line up the sights for themselves.
This Bill provides a framework within which the country—not the Government—can get on with the job, and thereby create more jobs. It has three simple objectives. The first is to reduce taxes so as to improve incentives and create jobs, for example, by encouraging self-employment. The second is to encourage enterprise and innovation. The third is to continue the process of tax reform and to improve the administration and lighten the cost burden of our tax system. Let me say a brief word about each of these objectives in turn. With your Lordships' leave, I can of course go into greater detail when I come to wind up the debate.
First, taxes have been reduced so as to improve work incentives and create jobs. Personal allowances are now 20 per cent. higher after inflation in real terms than in Labour's last year, and the effect of this increase has been to take 1¼ million people out of tax altogether. When the new national insurance rates are implemented in October, it will be cheaper to hire people on wages of up to £130 per week. There are plenty of jobs to do in this economy. But unless lower-paid jobs are made more attractive in net terms to people, it is wholly unsurprising that they should prefer to register as unemployed.
We should have liked to do more in the reduction of taxes. It is easy, on a nice July day, to forget that this Budget was introduced just one week after the working miners—without any help from the Labour leadership, one might say—defeated Mr. Scargill. We would have lower taxes, and more jobs, without that dispute within the NUM. Nevertheless, I for one believe that the cost of supporting the right to work was worth every penny of the £2¾ billion on the PSBR. I do not believe that that money will need to be spent again.
The Budget also contained tax changes to encourage self-employment. Self-employment is rising fast. This Budget, by reducing Class 2 national insurance contributions and giving some tax relief to Class 4 contributions, will swell the rise. The self-employed now number more than 10 per cent. of the working population. They are dynamic and flexible, and our economy needs to encourage both virtues.
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Next, there is the encouragement of enterprise and innovation. Again, this is all to do with a general policy. Your Lordships will be pleased at the excellent reception my noble friend the Minister Without Portfolio's deregulation package has received. I am proud to have been working on it with him since its inception. In the present Bill the business expansion scheme is extended to research and development companies; there is a special set of measures for the high technology industries, and measures to encourage transactions in commodities and financial futures. These are very important to increase turnover on the London market and encourage our competitive position against similar markets abroad.
Lastly, we have introduced various tax reforms aimed primarily at simplifying the tax system and its administration. The largest element of these is the implementation of the changes to the enforcement powers of Customs and Excise which were based on recommendations of the Keith Committee. The changes are designed to achieve a fairer balance between the interests of the Government and those of the taxpayer. Other tax changes in the Budget included the abolition of development land tax, the extension and reform of capital gains tax indexation provisions and an overhaul of the ancient stamp duties.
In sum, this Bill is the legislative arm of a responsible Budget and a successful economic policy. It is successful because it is delivering employment as well as growth to the nation. Since the spring of 1983 the United Kindom employed labour force has risen by over 600,000. Those are new jobs, jobs not previously existing in the economy. Our critics say that many of these jobs are female or part-time. What on earth is wrong with that? It is perfectly clear, to me at any rate, that the traditional industrial employment—the man doing the same job for life and supporting his family on his wages—is disappearing all over the Western world. While I recognise the stresses and strains, the individual suffering which can occur during any period of economic change, I am convinced that the changes themselves are for the better.
If the Government were today presiding over a 1950s' style of full employment and traditional economy, in my belief we would be under attack for allowing a whole generation to suffer the boredom and degradation of repetitive manual industrial labour. Machines threaten man—I always think the Luddites had a point—but in the end they liberate them. Because we welcome change, as well as recognising the anxieties which it can cause, we are spending money in unprecedented amounts to move it forward and to alleviate its effects. I am thinking of course of the Youth Training Scheme, the Community Programme, the extra money promised to the education world, the National Health Service and the like.
We are also maintaining employment. Never forget that Britain has a very large labour force. About the same number of people in the age group 16 to 65 are in work in this country as are in work in the United States of America, and that is substantially more than our competitors in France and Germany. Of course there are problems for any economic policy, but at present it seems to me they are principally political. Bankrupt of any economic policy other than unwritten

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agreements with a handful of senior trade union leaders, the official Opposition have indeed made some headway in associating this Government with cuts—cuts in programmes which they simply cannot substantiate through the figures.
They argue for additional borrowing and spending. They argue against high interest rates and taxes. Even so relatively responsible a figure as the noble Lord, Lord Barnett, dismissed as derisory in our first Budget debate the three-quarters of a billion pounds which the Chancellor of the Exchequer gave back in this year's Budget. The noble Lord did not go on to argue that this could have been over £3 billion without the miners' dispute, and his leader is still at sixes and sevens over where he stands on the use of industrial muscle or the right of people to work. Reducing taxation, encouraging enterprise, improving competitiveness and getting good value for the public for the money which, after all, comes from them is surely the better way. It is also the way of this Bill, and I commend it to your Lordships.
Moved, That the Bill be now read a second time.—(The Earl of Gowrie.)
3.21 p.m.
Lord Barnett: My Lords, one cannot help but sympathise with the noble Earl. He has to defend the indefensible. He did so this afternoon by choosing his own three questions to answer, ignoring all the many others that are being asked not just in your Lordships' House but throughout the country. As his speech showed, the noble Earl has to pretend that everything is getting better while maintaining that anyone who disagrees with him is being both irresponsible and party political. If it were not that one had sympathy with the manner in which the noble Earl addresses your Lordships' House, one would see how ludicrous the argument is.
I have never argued that the problems of Government are easy. Certainly, at the end of his remarks, the noble Earl said that we have one or two problems, although he did not mention what they were. I concede, as I have always done, that all Governments have this problem of pretending that everything is for the best in the best of all possible worlds. That is what leads to the unpopularity of Governments, and particularly of this one. That is why the Government are being blamed when it is patently obvious that we have not got so happy an economic situation as the noble Earl leads your Lordships to believe. As it happens, your Lordships do not have a vote, as they do in Brecon and Radnor. Those voters showed exactly what they think of the problems that were ignored by the noble Earl.
I agree with the noble Earl that the extent to which any Government's policies can influence the major economic problems of the day are marginal. Governments get into serious electoral trouble by pretending that they have solutions and by pretending that they can achieve the unachievable. That is the impression that the noble Earl led us to accept today. I see that the noble Lord, Lord Harmar-Nicholls, nods both ways on that. But the great danger about the way in which the noble Earl presented the difficulties faced by any Government and particularly by this one, and
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the economic problems faced by our nation, is the danger to democracy itself through building up public expectations that no one, let alone this Government, can deliver.
The noble Earl elegantly tries to avoid saying that everything is marvellous. But the implication of his remarks and his selective use of figures indicated, as he led us to believe, that everything is coming right. The essential facts show that this is far from being the situation. The noble Earl selected some figures to show that income tax was much lower than it was in 1979. We all know that total taxes and national insurance contributions are substantially higher than they were in 1979. We also know, if we have contact with anyone involved in self-employment, that the Inland Revenue—I am not saying at the behest of the Government, because the Inland Revenue are a law unto themselves under the Taxes Management Act—are not making life particularly easy for the self-employed. Neither are the Government in the legislation that they have been introducing.
Apart from that, I take one of the questions raised by the noble Earl on economic growth. I agree with the figures that he gave to the House. However, your Lordships will know that this is very much only part of the problem that we face as a nation. If one looks at manufacturing output, a not unimportant matter, in what was once a major industrial nation one sees that it is not back to 1979 levels—I do not pretend that the 1979 levels were particularly high—but is now below them. Why did not the noble Earl ask us that question? He missed that one out. Why did he not ask the question whether it is right that public sector investment should be below what it was in 1979? Why did he not answer that question as well as putting it to us? It is because he knows the answer. It is down on what it was in 1979.
Why did not the noble Earl deal with the central problem that after six years of managing the economy, as we have been told, so well, and when everything is so great, we now have the highest levels of unemployment ever and astronomical levels of interest rates which are doing terrible damage to the economy and particularly to industry? I recently attended a lunch at which there were present bankers and leading industrialists. It was very interesting. The bankers thought that the Government could not do a lot to reduce interest rates. The industrialists said, "You had better get on with reducing them because we are finding it very difficult to deal with our competitors abroad faced by these levels of interest and by this exchange rate". I should like to turn to that matter, my Lords, as the central point I wish to make. I want to deal with the whole central position of the Government on inflation, money supply, interest rates and so on.
Before doing so, however, I should like to deal with the question of taxes and public expenditure which are apparently, or so we are led to believe, at the heart of what the Government are arguing about, or what the Cabinet are arguing about. We must, after all, believe what we read in the newspapers. There is an argument between the so-called consolidators, the wets and the dries, about whether there should be cuts in taxation or increases in public expenditure. There is one point on which I agree with the noble Earl. It is the problem

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of whether the Government have been cutting public expenditure. After all, the policy of the Government, above all else, when they came to office in 1979 was to cut public expenditure and to cut taxation.
In practice, they have increased public expenditure and they have increased taxation, as a percentage of GNP, from 36 per cent. to 42 per cent. Public expenditure has actually increased by 16.5 per cent. in real terms. Yet I must say that if any medals were being issued at the present time they should be issued to this Government for the remarkable feat of having increased public expenditure by this amount while persuading everyone in the country that they have spent the last six years cutting it.
So the noble Earl was quite right. The Government have, in fact, increased public expenditure. But, of course, they have, in another sense, also been cutting it. They have had constant cuts in some essential areas of public expenditure to offset the increases—the inevitable increases—caused by another arm of their policy that so massively increased the level of unemployment. That is why they have had the worst of all possible worlds. And no Government deserved it more.
There is much that is bogus in the argument between tax and public expenditure. Again, whatever the Government wish to do—even this Government—it can only be done, as the noble Earl said in another context, on the margin. How many will now recall that in the Budget, the Finance Bill of which we are now not debating, the Chancellor gave away, if that is the right term, in net tax relief, something like £ 1.5 billion? That was forgotten within a day, let alone weeks and months later. If there are to be any major cuts in taxation that would have real impact, one would have to cut taxation in current days by many thousands of millions of pounds. I do not believe for a moment that even this Government are going to be able to find that kind of money.
Nor, for that matter, are they going to be able to do much other than on the margin in the field of public expenditure. If they increased it or reduced it by some £2 billion or £3 billion, that would be a lot. It would be out of a total public expenditure level of some £139 billion. I am sure that your Lordships will have been interested to hear the noble Earl say that if it had not been for the miners' strike they would have increased public expenditure by £2 billion this year. I thought that that was what he said, but I shall read it with even greater interest tomorrow—and I am sure that he will, too.
As I have said, there is much that is bogus in the so-called "Cabinet argument" between tax and public expenditure. Most of us would want to see—and here we would agree with both the Prime Minister and the Chancellor of the Exchequer—lower taxes and national insurance on low incomes. Nobody would dispute that. The problem is the huge cost of any substantial increase in the thresholds that would be required when one realises that one could do so little with £1.5 billion.
However, generally the consolidators in the Cabinet are right to want to see increases in public expenditure on capital assets, not just because that is what the
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public apparently want but because they, like most politicians and most Cabinet Ministers, want to see increases in public expenditure and they want to see increases in tax as well. We know that to be so. That is my experience, and anyone who has been in the Treasury will know that that is the view of both spending Ministers and those who lobby for more money.
It is right that the consolidators should have their way on expenditure on capital assets as regards the infrastructure, for two reasons. One reason is that if they do not do so there will be a disastrous decline in the infrastructure in this country. Your Lordships do not have to take my word for it. A pamphlet has recently been issued; it is entitled The British Economic Base 1985 and is by W. A. P. Manser of the Federation of Civil Engineering Contractors. I see that the noble Earl is laughing. I suppose that he is a member of the Labour Party. I did not know.
The Earl of Gowrie: My Lords, the only reason that a very brief expression of mirth crossed my face was that any civil engineer worth his salt would be arguing for increased civil work.
Lord Barnett: My Lords, that is why the noble Earl, for example, wants to support the Government: it is not because he believes it; it is just because he is a member of the Government. That is the argument.
Lord Howie of Troon: My Lords, will my noble friend bear in mind that any civil engineer worth his salt would certainly wish for that type of expenditure, but only because it is needed?
Lord Barnett: My Lords, I am obliged to my noble friend. I was going to deal with what Mr. Manser said rather than with who he is, and then perhaps the noble Earl will deal with the matter. In his booklet he says:
"Britain's infrastructure, including railways, roads and sewers, which was deemed ill-cared for five years ago, is now sufficiently unkempt and at risk to give rise to public alarm".
Whoever Mr. Manser may be, those of us who go round the country with our eyes open will have seen that for ourselves and will know that to be true.
Therefore, I really complain just a little about the contemptuous dismissal of this report by the noble Earl just because the man happens to be a civil engineer. I should have thought that we would do well in this country to have greater regard for engineers, because then we may have a better industrial base than we have at the present time. However, it is not only a question of the infrastructure needing money spent on it. All of us know that on any analysis more money spent on the infrastructure will help private manufacturing industry and help jobs more than it would if it were spent on simple cuts in taxation. Therefore, I hope that the consolidators win.
I have little doubt that in practice what this Government will do will be the typical British way: both sides will win. We shall have little, selective, highly-publicised increases in public expenditure and some tax cuts by a massaging of the public expenditure and borrowing requirement figures in the way I have described to your Lordships on previous occasions.

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However, if there is to be a non-answer to the public expenditure/tax problem, it is surely well past the time for a rethink on the issue at the very heart of the Government's economic problems—that is, money supply with its crucial relationship to interest rates, inflation and exchange rates. I have never argued that we can ignore money supply; it is the degree of emphasis which this Government give to money supply that I query. I query the absolute certainty, the sublime faith—and I exclude the noble Earl in this respect—in the whole question of money supply.
There are only a few left with that kind of sublime faith, but unfortunately one is the Chancellor of the Exchequer. He still believes that we can do everything in the management of our economy with money supply. He was the architect of the medium-term strategy in March 1980, even before he became the Chancellor of the Exchequer. His aim was a progressive reduction in the growth of money in the economy in order to bring about a reduction in inflation some two to three years later.
Five years later money, as measured by cash or bank deposits, is expanding faster than the target which was laid down as long ago as 1980–81. Indeed, the first year is now expanding twice as fast as the target. Yet inflation was reduced from over 20 per cent. to 3·7 per cent. in mid-1983. It is now back to 7 per cent., and I think that the noble Earl, Lord Gowrie, is likely to be right in saying that we shall probably have it back to about 5 per cent., if not by the end of the year then shortly afterwards, but it will be nothing whatever to do with money supply.
No monetarist, certainly not the noble Earl, has ever explained why that should be the case. The truth is—and they hate to admit it—that they do not know whether the money supply is out of control, for one very simple reason: they cannot measure money supply. That is and has always been the trouble. How do you measure money supply? We had a brief exchange across the Dispatch Boxes this afternoon. The noble Earl sought to say that it was all better now than it was between 1974 and 1979. At some point perhaps he will explain to me how and by what measure. As I have said, the trouble always is that you cannot measure the money supply. I, for my part, do not blame the Chancellor of the Exchequer for the way in which the markets from time to time react to the money supply figures which come out on a particular measurement, because that is no fault of the Chancellor of the Exchequer.
However, the plain fact is that there have been very strange reactions in the market. There was recently a rise in one of the measures—that is, sterling M3—which took its annual growth rate so hopelessly wide of the Chancellor's target range of 5 to 9 per cent., and yet, despite that, the market decided that the pound should rise in value. That was the decision despite that massive increase in the money supply over and above what the Chancellor had wanted to see. That led City economists—not members of the Labour Party—like Malcolm Roberts of Laing and Cruickshank to argue that the obvious distortions to sterling M3 over the past few months now provided a golden opportunity for the Chancellor effectively to
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abandon sterling M3. I agree; I think that he should abandon sterling M3.
However, the problem is that if you are still a monetarist—which I am not—what do you put in its place? I noted that this afternoon the noble Earl apparently put what has come to be known as "Little Mo" in its place. That is a much narrower money supply measure that at the moment points to a firm monetary condition. However, it is a narrow measure and that is why others have looked at different measures such as, for example, M1, M2, PSL1 and PSL2. Others will probably argue along the lines, for example, of the CBI, who said recently:
"The Chancellor seems to be using Mo when he wants to demonstrate the success of monetary policy and sterling M3 when he wants to sound the alarm".
So the Government have tried to have it all ways. However, there would be much less alarm if they paid less attention to the obviously inadequate measure of money supply. We would have much lower levels of interest rates and we would have much lower levels of inflation because not only would it help industry and jobs but it would help industry by a more realistic exchange rate as well.
A lower interest rate in such a context would also meet one of the Government's own main objectives: it would effectively work like an income tax cut by reducing mortgage payments, thus increasing personal disposable income at a stroke. It might even make the Government popular—something which, frankly, I am prepared to put up with temporarily. It would be a price worth paying. The obsession with money supply is shown to be so hopelessly distorted that even a rights issue—such as, for example, Abbey Life—does great damage and so affects manufacturing industry and the chance of creating much-needed jobs.
Therefore, one is bound to ask why, in the face of this evidence, an intelligent man such as the Chancellor, supported by another intelligent man such as the noble Earl, still insists on such high interest rates? They are startlingly high in any context, certainly in international comparison. They are some 6 per cent. above those in Germany and Japan, and even the United States, with a huge budget deficit, is some 3 per cent. lower. They are higher than when the Government came into office in 1979, and despite all the economic recovery we heard of from the noble Earl, and six years of huge benefit from North Sea oil, we still have this massively high interest rate.
Why do we have it? The answer, I regret to say, is that cursed money supply. Because of that we have these penal rates to reduce demand for money and credit. But even that does not do the job because penal interest rates, as we have seen, have not choked off demand for money and credit. Instead it has had the perverse effect. High interest rates have attracted huge sums to banks, thus increasing sterling M3, and building societies, thus increasing PSL2 (which is the wider definition), and it just adds to the nonsense because companies then have to borrow more money to pay the higher interest charges.
This is the situation which has been created by this Government, with all the "great benefits" that we heard about from the noble Earl. But it is even worse than that. The Government could have cut public expenditure substantially more, so helping all of us,

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but the Government—indeed all of us—have to pay substantially more in net interest charges, and find that that is precisely the biggest and fastest growing area of public expenditure. Net interest charges have grown from 1979–80 figure of £3·4 billion to £9 billion, which is the Government's own estimate for 1985–86. That is the crazy situation to which this Government have brought us.
If that was not bad enough, or mad enough, a further consequence is that we are now back to high exchange rates, certainly on the weighted average if not yet on the dollar, and this in turn stems from the Chancellor's concern with what might be called the Government's only real success, inflation.
The Earl of Gowrie: My Lords, before the noble Lord leaves the question of the monetary conditions could he explain to us—as indeed I challenged him to do in my speech—why, if policy of this kind is far too tight and restrictive, and interest rates are far too high, business is investing at the pace that it is?
Lord Barnett: My Lords, the noble Earl clearly was not listening. He was looking at his brief. I did not say that the money supply was too tight. I said for obvious reasons, the reasons I stated, that you cannot measure it. I do not know whether it is too tight. What this Goverment are saying is that it is not tight enough, and that we must have higher interest rates. That is what I said. You can take whichever money supply measure you like. Your can take sterling M3 as a measure of the tightness of money supply, and find that it is too loose: you can take Mo and find that it is too tight.
When the noble Earl replies tonight perhaps he will tell us—I see that he will; I am delighted to hear it—which measure of money supply he is going to take. All I can tell him and your Lordships now is that because the Government are taking any particular measure they care to choose, and none is in any way accurate, we have the disastrous situation I have described. The plain fact is that in achieving the only real success, the one single success on inflation which all of us would want to see, they have done it at the expense of terrible damage, if not near destruction, to so much of manufacturing industry.
I doubt that I am alone in finding these very high interest rates in these circumstances a strange way to reduce inflation and create more jobs. Indeed those at the sharp end, the CBI, have made their views clear to the Government. I hope that those on Government Benches who share my concern might take note of the CBI and those in manufacturing industry. I hope they will use their influence to persuade the Chancellor that lower interest rates and the exchange rate are not a wet way of managing the economy; it is not a middle way; it is just, my Lords, a better way.
Viscount Eccles: My Lords, before the noble Lord sits down may I ask him a question? Does the noble Lord really think that high interest rates, especially the last time they were raised, had anything to do with money supply? It was the result of the exchange rate, and that is something quite different.
Lord Barnett: My Lords, the noble Viscount has misunderstood what his own Chancellor has been saying. The reason why he has been seeking to make
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the exchange rate higher through high interest rates is precisely at the heart of his economic policy. It is all down to this obsession with money supply, which I know the noble Viscount does not go along with.
3.45 p.m.
Lord Ezra: My Lords, the noble Earl, Lord Gowrie, started his speech, to which we all listened attentively as we always do, with three questions. I agree with the noble Lord, Lord Barnett, that many other questions could have been asked, but the noble Earl asked the three questions and so I shall start my remarks by trying to answer them.
Is real growth desirable? Yes, it is. Real growth is desirable so long as it develops in a way which takes full account of the environment and of people; that it serves people; that it enables people to live in better conditions and with better living standards. Secondly, is real growth taking place? Yes, there is a degree of growth taking place. But I would put in a caveat. That growth is to some degree engendered by the exceptional position we have as an oil producer, one of the largest oil producers in the world, and therefore that growth, shorn of the oil, would look very different.
That leads to the answer to the third question. Is this growth sustainable? The noble Earl said that he had some doubts about this. It depended upon external circumstances and our own efforts. I would say that it is unlikely to be sustainable in the light of present policies, again because of the oil problem.
Let us be clear about the oil. Some people think that it has been a good thing for this country, and others have their doubts. I have no doubt at all. Of course, it has been a good thing for this country. We have found a source of natural wealth, and with an enormous amount of skill we have developed it. The technology that has been developed in regard to North Sea exploitation is one of the technological wonders of the world. There is no doubt about that.
However, what one could question is whether, in the light of the fact that this is a wasting asset—at some stage everybody is agreed that this oil will diminish in quantity, and that the enormous revenues that it is generating will diminish—we have handled the situation in the right way having regard to the medium and longer term. This is the grave doubt that many of us have at the moment, and my remarks will be addressed to this. I shall try to be constructive, I shall try to pose some questions, and make some suggestions as to how policy should be modified.
I hope that the noble Earl, when he winds up, will not feel that the Government—or indeed any government—should not from time to time modify their policies. Any enterprise will do it. When external circumstances change it will take a new look at things and consider whether there should be a new emphasis in its policies. Indeed, if enterprises were not to do that they would soon be out of business, because external circumstances change, competitive conditions change, and it is those who respond most actively and most vigorously who achieve the greatest success. What goes for enterprises, I believe, goes for governments.
Therefore, my suggestion is that the time has now come for a major review of the thrust of economic policy. We are a country which in the past has

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achieved greatness on the basis of being the first to industrialise. We have subsequently over the years tended to diminish that great asset, and certainly in the most recent years—and it does not start in 1979; it goes back earlier than that—the size of our manufacturing capability has progressively diminished.
This is a phenomenon which is true of many other countries. But what is different between Britain and our major competitors is that, whereas the share of manufacturing industry in GNP in most major countries has diminished, in our case the actual manufacturing activity has reduced in absolute terms and in those other countries it has not. In other words, we are seeing a rapid diminution in absolute terms of our manufacturing base. I believe that the time has come when we must address ourselves seriously to that problem.
It is not enough to say that market forces will sort this out, that if we produce less manufactured goods we shall provide more services. That is sometimes alleged. In fact a large part of the service industries—who again have performed very well in recent times: let there be no mistake about that—and the services they offer are related to manufacturing industry. Without a strong and growing manufacturing industry, the service sector, and in particular the banking and insurance sectors and all those related activities, will suffer. So the two have to go together.
In a situation of this sort it pays one to consider what other countries are doing. Just as in an enterprise, if I may use that simile again, one would tend to consider what one's major competitors are doing, so I think should we do that. We have certain major competitors in world markets: we have America, Japan, Germany and France, to name but a few. If we take the Continental countries simply because they are nearer to us and conditions are more similar, it is a fact that in Germany and in France the general policy is to create the right framework within which industry can thrive; a policy to which this Government have said they are totally committed. Indeed that is absolutely right; that is what Governments must do. The difference arises in how they do it. Abroad they do it in a much more pointed and determined way. In Germany, through the Ministry of Economic Affairs, they identify those sectors which are particularly deserving of support and help and they stimulate and support a much greater degree of research and development than we do here. They have a much more extended and effective industrial training scheme. In the matter of industrial investment, in the matter of research and development and in the matter of training they are way ahead of us.
In France it is similar. Through the Commissariat du Plan, the planning commission, they work out a broad approach to the economic problems of the country. On a recent visit I paid to Paris with Members of your Lordships' House on the Select Committee on Overseas Trade it was made very clear to us that they regard their industrial activities as the absolute basis of the economic wealth of the country. There is a very clearly defined plan for ensuring that investment, research and development and training to support a
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regeneration of the industrial sector shall take place.
I should like to suggest that, while all these countries agree that the Government's role must be to create the right framework, there seems to be a difference in the way in which this is set about. It seems to me that in this country under the present Government the framework is so broad that at times it does not seem to have the right sort of impact. What industry is worried about at present, as the noble Lord, Lord Barnett, made clear, is the very high level of interest rates and the increasing value of the pound, which is making our goods less competitive.
The noble Earl quoted from the Economist. As it seems to be in order to quote from various newspapers today, I should like to quote from The Times of yesterday. This had a very interesting passage relating to the whole question of money supply, on which the noble Lord, Lord Barnett, was so eloquent a few moments ago. The Times said this:
"In its June quarterly bulletin, the Bank of England observed that in the second half of last year capital issues by companies dropped sharply, probably because firms were unwilling to tap the market in the run-up to the British Telecom flotation. This contributed to the surge in bank lending to companies and the apparent loss of control of (broad money) sterling M.3. This in turn was a factor in the sterling crisis and 4½ points base rate hike in January."
That is a very interesting analysis of the situation. It suggests reasons, which so far have not been forthcoming, as to why the money supply situation seems to have got out of control, why interest rates are so high and why sterling seems to be rising beyond the level which would be suitable for us.
The question that this obviously poses is how the Government will handle the much more massive flotation of British Gas. If these are indeed the reasons, the consequences of what has been done in relation to British Telecom—a flotation of about half the value of British Gas, as the Bank of England and The Times have indicated—I should have thought that the Government ought to proceed extremely cautiously on the flotation of such a large issue as British Gas if it is likely to have these kinds of tidal wave effects. I do not think this is the time or the place to discuss the merits or demerits of privatisation. It is the impact of massive flotations of that order on the rest of the market which is in question. We need to try to understand a bit more, as the noble Lord, Lord Barnett, pointed out, why the money supply situation seems to be so out of control and why we have these related factors of high interest rates and rising sterling.
Finally, I should like to mention the question of the infrastructure. This is something which we have debated on many occasions in this House. There are those who feel that more should be spent on it and there are those who feel that enough has been spent on it. I was personally somewhat encouraged about what appeared to be a relaxation of the Government's attitude on this vexed subject, because there have been reports in the newspapers of a recent meeting of the NEDC as recently as 10th July. It is said that there were presented at that meeting the departmental considerations of the NEDO document, with which your Lordships will be familiar because it was issued last January, which pointed to major shortcomings in repair and maintenance of public assets. It appears from newspaper reports—I am going by the Financial

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Times in this case—that the departmental Ministers present at that meeting generally concurred with the findings of the NEDO document. They admitted that much more needs to be done. So it would be interesting to hear from the noble Earl whether those press reports were a correct statement of what went on and whether it is now a fact that the Government are looking carefully at spending rather more than they have hitherto on the much needed maintenance and refurbishment of the fabric of the nation.
From all this, I feel it emerges that the time has come when a new look needs to be given to our economic affairs, when we need to be considering very seriously what steps we can take, without leading to inflation, to restimulate our industrial base and to study carefully what other nations are doing in this connection. We need also to take seriously the warnings which are coming from all sides about the state of the infrastructure. The noble Lord, Lord Barnett, referred to one recently published document from the civil engineering contractors which is a very serious document, and I suggest to the noble Earl that this be read seriously by the Government. Warnings are coming from all sides, from all professional bodies and trade organisations, about the risks that this country will run by allowing our basic fabric to get more and more into difficulty, rather than being maintained, refurbished and expanded as it ought to be. All the facts are there: what we need now is a comprehensive policy to deal with these matters.
4 p.m.
Lord King of Wartnaby: My Lords, I am reminded today really of the many hours that I have spent with the noble Lord, Lord Ezra, discussing that great industry, the mining industry, which we were concerned with together. I think that he has left me still concerned with it. However, he speaks eloquently and well and thoughtfully, as he did so often on the subject that he knows so well. It was in the debate on the Second Reading of the Finance Bill a year ago that I made my maiden speech here in your Lordships' House. I have not spoken here since. It made a deep impression on me but it was certainly not my intention that speaking should be an annual event. However, circumstances have conspired to keep me away from here at my desk rather more than I would wish.
When I heard the Budget speech of the Chancellor of the Exchequer, given in another place, I found a great deal in it on which to congratulate him. He abolished another tax: that on development land, which is excellent and right. He once again raised the starting point of income tax well above the rate of inflation, thereby once more liberating some thousands from the tax net. That is something that I heartily applaud. Given the Chancellor's absolute commitment to fiscal rectitude, it was remarkable that he made enough room for himself to be able to help the poorest-paid in that way.
There were in my opinion some disappointments in the Budget. The Chancellor, who is committed to tax reform, has postponed reform in two key ares: VAT and the taxation of savings. I was sorry, too, that yet another year went by without the standard rate of tax being cut—the sixth such year in a row. But I have no
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doubt of the Chancellor's determination to cut tax—nor of the Prime Minister's. The Government were elected on the promise to reduce income tax and neither the Chancellor nor the Prime Minister can doubt that this they must do. For one thing, the Government must do so to improve incentives. We have heard this truth many times but so far we have only paid lip service to its execution. But there is another and more pressing reason. Originally the impost of tax was directed at the well-to-do. Nowadays the heaviest burden of taxation rests on the shoulders of the relatively poorer sections of the population.
Income tax is now predominantly a tax on the least-well-paid and it is from those on or below average income that much of our tax revenue comes. A nurse, for example, getting £140 a week may be paying £40 a week in income tax and national insurance. This I am sure your Lordships will consider preposterous, to say the least of it. The Chancellor has brought them welcome relief by lifting the starting point of tax. However, there are two parts to the problem. One of these is the starting point; the other is the starting rate.
The basic rate in this country is also the starting rate—30 per cent. This is a higher percentage than when the Government took office. I believe that I am right in saying that only one other Western nation has a higher starting rate of tax; and that is Ireland. The impact of so high a starting rate acts as a disincentive, particularly to the unemployed and the low-paid, and the time has come to cut it. In this context, it is of interest to note that the rate of tax on a single person's income, once it creeps above £42 a week—and, in the married man's case, £67 a week—jumps immediately from nought to 30 per cent. And out of every extra pound above those earnings about 35 pence passes directly to the Government in tax and national insurance. In fact, the married man on £67 a week pays more in tax and national insurance on every pound of income than does his employer, who may be earning, say, £19,000 per annum.
It is from the starting rate, much more than from the thresholds, that people judge whether or not they are highly taxed. It is the high rates of tax which saps their will to work or to gain promotion. The Government have done well to raise the thresholds but now they must direct their efforts to cutting the rates. Cutting taxes is so often represented as being for the sole benefit of the rich. As my previous remarks have shown, this is opportunist propaganda. Given that the burden of taxation lies so heavily on the less-well-paid, then even small reductions in tax can be of significance to them.
I suggest that what happened for so many years was that promises were made to the poorer sections of the nation for ever more social security benefits in order to win their votes, but they have in large part had to fund those benefits themselves through higher taxes. At the same time the better off have been bribed with a range of exemptions and allowances to make their tax burden seem lighter. For the unemployed and the low paid this has led to ever greater expectations of help from Government, while the increasing benefits stifled their will to provide for themselves. On the other hand, those who can make use of exemptions and allowances are under the delusion that they are being assisted.

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Mortgage interest relief is an interesting case. I choose it as an example of the sort of distortion which we almost take for granted, but which means higher taxes for us all. If we had no such relief, tax rates could be lower for rich and poor alike. People think that they are better off because the relief makes it possible for them to afford a more expensive home. But because they can afford a more expensive house, the price of houses rises to reflect what the market will bear. As a result, they are no better off than if they had no relief and houses were cheaper. On the other hand, because houses are dearer as a result of mortgage interest relief, rents are higher. But the people who pay rent do not benefit from the relief, and many of them are on low incomes; so that the tax subsidy to the better off is paid for by the worse off, both through rents and through their taxes.
The relief for pensions is a similar sort of subsidy. Clearly, it benefits the higher earner and is also paid for by the taxpayer, both rich and poor. In my opinion this allowance has been a major factor in the decline of personal investment in shares while at the same time it has contributed to a great increase in the power wielded by fund managers, good and bad—a fact which has by no means always been to the benefit of the economy.
The Government have talked about their own ambition of moving towards fiscal neutrality. It is a worthy aim. After all, given that we need taxes, we should attempt to apply them so evenly that the economy functions without distortions as though taxation did not exist at all. It could be argued that the Government's efforts in this direction have been too timid and, because they have been too timid, the British people have been so unmoved as to reject them. Adjustments have been piecemeal, like the abolition of life assurance premium relief—an item which is too small in itself to enable reductions to be made in the basic rate of tax.
Changes like this, though welcome, create hostile groups or vested interests determined to defend their privileges. I believe that a bigger package of reform affecting a wider range of tax privileges might paradoxically have a better chance of commanding public acceptance. Just imagine for a moment if we did not have in place those reliefs on pensions and mortgage interests. Then, of course, there would be no need to have a basic rate of tax as high as it is today.
Of course, if we tried to abolish them now there would be an outcry. People ought, at least in my view, to be able to see what would be the point of making such a change. It would greatly increase people's spendable income and thereby give them a greater freedom of choice in how they spend their money. Furthermore, it would cause the financial institutions to increase their competitiveness. Then, if you told the taxpayers that their rate of tax would be cut, say, from 30p to 24p you would have the makings of a deal that they could accept. Sacrifice and the reward would come into balance. People might even clamour for the change. It is the sort of choice—high reliefs or low taxes—that ought to be put before them.
My ideas may seem radical, but I am not sure that they are different from the proposed policies on which
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this Government were elected. Those outside government may be of the same mind in that I believe that a committee of inquiry, chaired by His Royal Highness the Duke of Edinburgh, may well conclude that mortgage relief is not helping to give the poorest in society a fair chance to rent or buy their homes.
We must not get into such a frame of mind about what is and what is not politically possible that we refuse even to consider certain policy options. The world around us is moving fast. Six years ago our Government appeared to be leading the way among most Western nations towards radical economic policies. Not so today. Governments around the world of every colour have followed this Government's lead in recognising the need to free their economies from subsidies and distortions. Now they appear to recognise the need for radical reform more clearly than we do in this country.
For instance, New Zealand's Left-wing Government, having already abolished controls on prices, wages and interest rates, have removed subsidies to agriculture, private industry and nationalised corporations. Now they are turning their minds to tax reform, and I am informed that they plan to put VAT on everything, including food, and have already stopped tax relief on all new mortgages, private pensions and life assurance schemes.
We all know the difficulties which our Government here have faced. Nonetheless, it is disappointing that after six years of Conservative government in Britain the minimum rate of tax is still 30 per cent. President Reagan has announced his plans to reduce the top American rate to 35 per cent.—just 5 per cent. more than our starting rate—and he has further plans to have just three tax rates overall, of 15, 25 and 35 per cent.
There are those both inside and outside the Government who question whether they should consolidate on what they have achieved or go further towards the implementation of radical policies. Some fear the electoral consequences of being radical and continuing to implement the ideas with which they came to power. I do not believe those fears are well grounded. Where they have been radical, the Government have been successful. The revolution in home ownership has been, and is, popular. The Government have decisively and perhaps irreversibly shifted the pattern of share ownership away from the state. This, too, is popular and right. They are giving control of trade unions back to their members, which certainly is welcome and right. On every count the public has made known its approval, and in nearly every instance the Labour Party has had to trim its policies.
However, in those few instances where the Government have shillied and shallied they have lost direction and credibility. At times they have seemed confused as to whether or not to claim credit for increasing public expenditure on health and social security, and as a result they have been attacked on all sides when they ought to have been receiving credit both for their financial competence and for their recognition of key areas for the spending of taxpayers' money.

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Over taxation, the Government must show clarity of purpose. When this Government were elected—and I thank the Lord that they were—they were elected to reduce the burden of tax. They were not elected to consolidate. I urge them to go on with what they were elected to do.
4.17 p.m.
Lord Hatch of Lusby: My Lords, the noble Earl who opened the debate today stated that the basic policy of his Government was to keep down inflation and to sustain growth. I propose to take him on his own grounds. As my noble friend Lord Barnett has already pointed out, despite the fact that the major plank in the Government's armoury when they tackled these problems six years ago was to reduce public expenditure, that public expenditure has increased steadily throughout the life of the Government.
As I understand it—and I hope the noble Earl will correct me if I am wrong—the Government set out with the objectives of keeping down inflation and sustaining growth by the method of reducing public expenditure and increasing the competitiveness of British industry. But I would ask your Lordships to look at the public expenditure figures. By any test they have risen. Of course, they have risen. Take social security: that bill has risen by 30 per cent. Why? One has only to look at the unemployment figures to see why.
But this is only the surface story of the picture of this Government, because there is a hidden budget behind the published figures on public expenditure and on revenue. The hidden budget is the revenues which the Government have received, as the noble Lord, Lord Ezra, has pointed out, from North Sea oil. Those revenues, according to my reckoning—and again the noble Earl will correct me if I am wrong—have been to the tune of some £100 billion over the life of this Government since 1979. Those revenues from this year will decline. It is estimated that the balance of our oil will disappear in five years' time, by 1990; and by that time we shall be just about even. Therefore, the Government's hidden revenues, which they have had as this windfall over the past six years, have now reached their peak and from now will continually decline.
However, there is another aspect of this hidden budget. What have the Government been doing in order to increase their pocket money over the past six years? They have been selling national assets. According to the OECD survey of January of this year, the total amount of assets received by the sale of nationalised industries since this Government came into office has now reached £5½ billion. The Government are depriving themselves, and indeed all their successor governments, of the revenues that they would have obtained from the interest on these national assets in the future. So that will also decline—unless the Government have to go on selling the family silver by privatising gas, British Airways and perhaps even the Army, Navy and Air Force. Where will they turn for what has been, according to their policy so far, an essential addition to their normal revenues?
What has been the consequence of their stewardship of this vast amount of money—revenue plus the two windfalls that I have mentioned? The armed forces are
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better paid; the police are better paid; but not many more people, so far as the Government are concerned, and certainly not those in public employment. Perhaps the Government are intending before the next election—as the noble Lord, Lord King, has urged them to do—to reduce taxation. If they were to reduce taxation by some of the methods that the noble Lord, Lord King, mentioned, that would be applauded on this side. But neither this Government, nor, I must admit, any other Government before, have been able to reduce taxation without at the same time putting the major burden of taxation on the lower paid half of our employees. Of course this Government showed their own philosophy with their first taxation reductions, when they cut them off the top. That did not help a great deal the morale of the nurses and teachers about whom the noble Lord, Lord King, was speaking, who have had to continue to pay a high proportion of their wages in income tax.
What is the consequence of the policy that the Government have pursued, when it has been, as the noble Earl indicated, devoted to reducing and keeping down inflation and sustaining growth? The record can be very easily listed. The result is record bankruptcies and a relative decline in competitiveness which, I should point out to the noble Earl, has started again over the past two years. While there was some increase in competitiveness up to two years ago, it is now relatively in decline in comparison with our competitors. There is vast industrial decline over large areas of the country and a decline in capacity. If there were a time when industry was given the opportunity to revive, the capacity would simply not be there. There is record import penetration.
The noble Earl talks about growth. Yes, there is a growth in demand. How much of that is taken up by a constant increase in the purchase of foreign goods? For the first time in the history of this country since the beginning of the Industrial Revolution there is a deficit in manufacturing trade. In 1983, for the first time the United Kingdom was importing more manufactured goods than it exported. That figure became worse in 1984; and in the first three months of this year it has become worse still. And, of course, the most tragic of all is the record unemployment, with something like, in real terms, 4 million now unemployed.
I must say that I thought it was unpardonably arrogant of the noble Earl to lecture the unemployed about how there were jobs waiting for them. Where are the jobs? The noble Earl and the noble Lord, Lord Young, have been telling us continually how many new jobs have been created. The noble Earl was at least modest enough to admit that many of them are part-time jobs; and part-time jobs for women. What he did not say was the extent to which the increase, even of jobs of that kind—are these real jobs?—had kept up with the increase in the labour force. The answer is, of course, known to every noble Lord in this House. While the noble Earl and the noble Lord, Lord Young, have been trying to divert the country's attention from the fact that the trend in unemployment has been continually increasing, there has been nothing in the Government's policy which has even halted it. Therefore, the unemployed are being told by the noble Earl that if only they wanted a

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job there were jobs there for them. I would suggest that that is as insensitive—
The Earl of Gowrie: My Lords, I am simply interrupting because that is not what I said. I said that I did not blame people for not taking low-paid jobs if they could do better without taking them.
Lord Hatch of Lusby: My Lords, in that case, so far as I can see, the noble Earl is simply twisting the words around. If he said that he does not blame them then there must be jobs there. Then he is saying, not that the unemployed are drawing unemployment benefit because they cannot find a job, but that there are jobs there. This is the point I am making.
The Earl of Gowrie: My Lords, the noble Lord wants to distort my words. Of course some people who are looking for it cannot find work of any kind. A large number of people make the—from their point of view, quite sensible—economic decision not to take low-paid jobs. Everyone knows that. It is perfectly evident.
Lord Hatch of Lusby: My Lords, so the argument is precisely the same: that there are jobs if the unemployed want to take them or find it in their interest to take them. I would contest that. I would suggest that the noble Earl comes round with me to the North-West, the North-East, Scotland, Wales, Northern Ireland, the Midlands, and tells the unemployed what he has just told this House. I regard this as insensitive a public attitude as was the decision of the Government last week to ratify and apply the recommendations of the Top Salaries Review Body. I understood that it was the philosophy of the Government that Ministers and Members of Parliament and all leaders in industry and elsewhere should give a lead in wage restraint.
Apparently the Prime Minister has discovered a revolutionary theory of anthropology. There are apparently two species of individual in this country now: those who are rich but who need more money in order to work efficiently; and all the rest who are not so rich who need less money if they are to work efficiently. Is this the philosophy of the Government? And how does the noble Earl defend the decision that was taken only last week—I believe it is being debated at this very moment in another place—about the salary of our beloved noble and learned Lord on the Woolsack, the Lord Chancellor?
The end product of this policy was seen in that very philosophy: give the rich more in order to encourage them to work efficiently. The rest must have less. We must abolish the wages councils defending the under-21s. We must tell the teachers that there is only a certain amount of money, though we do not tell the generals or the judges that there is only a certain amount of money. We also tell the rest of the public employees the same thing.
I suggest to the noble Earl that he looks not just in the South-East, but in the North-West, in the North-East, in the Midlands and in the other areas of the country that I told him about. He will find that the members of his own party, the councillors of his own party, will tell him about the closing of hospitals, about the closing of hospital wards, about the needs of schools, about the need for paint for schools and about
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the need, apparently, for textbooks and exercise books in some schools that are short of them.
There are the appalling housing needs which I believe we shall see before the end of this week revealed from a high source in this country—housing which has been cut more than any other element of public spending since this Government came into office. There is also the need for roads and for the whole range of rural facilities. I suggest to the noble Earl that the policy that his Government have been putting into effect, the policy which I ask your Lordships to remember has been supported by the windfalls of North Sea oil and the sale of national assets, can be summed-up in one phrase: we have left behind a shabby Britain.
It reminds me of the words of Oliver Goldsmith. I know that the noble Earl appreciates quotations and I hope that he will get his officials to find a riposte when he comes to reply. Those words sum up the kind of Britain that this Government have left, with all the monetary advantages that they have been given over the past seven years. Oliver Goldsmith said:
"But now the sounds of population fail,
No cheerful murmurs fluctuate in the gale
No busy steps the grass-grown footways tread
But all the blooming flush of life is fled".
Viscount Massereene and Ferrard: My Lords, before the noble Lord sits down, he appears to imply that the Government, by selling off certain nationalised industries, have impoverished the economy. That is complete and utter nonsense. Nowadays, those industries belong to the people. They are not under the restrictions of civil servants. They are free and therefore they become far more profitable. They now belong to the people, but before they did not. With due respect to the noble Lord, I really thought that in the whole of his speech he completely got the wrong end of the stick.
Lord Hatch of Lusby: My Lords, I will only say to the noble Viscount, when he says that the nationalised industries now belong to the people, that it would be more accurate to say that they now belong to certain people with sufficient money to buy shares; to a very large number of institutions, whereas previously they belonged to the whole people, under the control of the elected Government—elected in order, among other things, to run industries and services which are for the national good and for the national benefit.
Viscount Massereene and Ferrard: But, my Lords, they made a whacking loss.
Lord Hatch of Lusby: My Lords, is gas making a national loss, is electricity making a national loss and is British Airways making a national loss? Why does the noble Viscount think that the Government are trying right now to build up those industries? It is so that they can sell them at the highest possible price.

Devonport and Rosyth Royal Dockyards
4.35 p.m.
Lord Trefgarne: My Lords, with your Lordships' permission, I should like to repeat a Statement that is being made in the other place by my right honourable friend the Secretary of State for Defence about the

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royal dockyards at Devonport and Rosyth. The Statement is as follows:
"On 17th April I outlined a number of options for the future management of the dockyards which have an annual turnover of over £400 million. They ranged from a trading fund in the public sector to full privatisation. I said at the time that the Government's preferred strategy was for a scheme of commercial management and I initiated a period of consultation with a view to a final decision before Parliament rose for the Summer Recess. I have now had the opportunity to consider the many representations submitted during the consultative period, including the timely reports of the Public Accounts Committee and the House of Commons Defence Committee.
"There is almost unanimous agreement that a significant change is needed in the way that the dockyards are run. Indeed the House will be aware that action has been called for in reports associated with the Mallabar Committee in 1971, with Hughes in 1973, with Brightling in 1978 and with my honourable friend the Member for Ashford in 1981. Last year we had the PAC stating that:
'We regard determined—and if need be radical—action as essential to resolve the fundamental issues still outstanding'.
But little has happened in consequence of the reports as there was no agreement as to how to proceed.
"The option of a Trading Fund would not in the Government's view go far enough in freeing management and workforce from the restrictions and interference of Government. Full privatisation today on the other hand would leave the Government with insufficient influence over a major establishment in the defence field at a time of considerable transition. Commercial management on the other hand has the advantage of freeing the local management from the more restrictive public sector constraints, of enabling the private sector to seek to expand the opportunities in the areas concerned while retaining a significant degree of accountability to the Royal Navy and particularly of securing a climate of maximum competition. The option of commercial management remains therefore the Government's preferred solution and we intend to proceed along these lines. I should tell the House that I am much influenced by the fact that this is also the preferred solution of the Navy itself.
"The Government are convinced that the right way ahead is to retain ownership of the fixed assets and to bring in commercial management to run them. I therefore intend to seek competitive tenders from competent British companies to manage the dockyards. These tenders, which would be for a period of some years, would be evaluated for their management and pricing proposals and would be expected to contain a strong incentive element. I am encouraged by the number of companies who have shown interest in these proposals, including those of the stature of Babcocks, Balfour Beatty, Costain, Plessey, STC, Trafalgar House, the Weir Group and other major industrial concerns acting either alone or in consortia. I hope to introduce the necessary
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legislation as early as possible with the intention of introducing commercial management no later than 1st April 1987.
"Regardless of the longer-term management structure for the dockyards there must be improvements in efficiency in the dockyards now. These will involve reductions in jobs. We believe that the majority of these will be achieved by means of natural wastage and voluntary redundancy. Compulsory redundancies will be kept to the minimum possible. I should also tell the House that my honourable friend the Under-Secretary of State for Defence Procurement has informed my honourable friend the Member for Gosport that we are making available to the trade unions today a consultative document proposing how best we might improve the efficiency of the Marine Services organisation.
"In view of the extra work associated with the Trident programme the problems at Rosyth will be relatively small and shortlived. But there will be a special problem at Devonport. We have already embarked upon a programme of help. We have set up a Devonport Development Unit which will be the focal point for the activity necessary to generate new jobs, and I have announced our immediate intention to make available for development two small but significant areas of land in prime positions in the city. My department is examining its expenditure profile with a view to identifying any opportunities for expanding local commercial activity.
"We are looking urgently at the potential of the historic and attractive site at Royal William Yard for development and the creation of employment. It should also be possible to identify other opportunities for expansion.
"Mr. Speaker, each dockyard will have a core programme of essential work as the basis for its long-term future. What commercial management will ensure is that the work is carried out in as cost effective a way as possible and that, through greater efficiency, the dockyards are in a position to win orders in a wider market than at present and expand their activities".
My Lords, that concludes the Statement.
Lord Graham of Edmonton: My Lords, I thank the noble Lord the Minister for repeating the Statement made by his honourable friend in another place. In hearing that Statement, we have the benefit of the report which was published last week by the Defence Committee. We can therefore view what the Minister has said today against what was said on 17th April and against the comments of the Defence Committee and the Public Accounts Committee on both policy and what has happened since.
Is the Minister aware that the report of the Defence Committee is the most damning indictment of a Secretary of State, and of a Department of State and its policy, that one could ever envisage? Is the Minister further aware of the unanimous decision of a committee on which sat seven Conservative and three Labour Members? How does the Minister view the severe strictures by the committee on the honesty and

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integrity of the Secretary of State's co-called consultation procedures? Does the Minister recall telling the House that:
"I cannot over emphasise the fact that we are today embarking upon a process of consultation, which will of course include the trade unions very fully"?—[Official Report, 17/4/85, col. 714.]
Against that assertion I draw the attention of the House to what was said by the committee in paragraph 19 of its report:
"The Committee accepts the view of a majority of witnesses that the time allowed for consultation was much too short. We further consider that the MoD's handling of the consultation process has been inept and insensitive".
Does the Minister also recall telling the House that:
"We have not brought forward a single proposal; we have brought forward a range of options and we look forward to hearing the views on them"?—[col. 716.]
How does the Minister now square that assertion with paragraph 20 of the committee's report, which states that:
"What is not acceptable is for Ministers to suggest that options are open, and to invite interested parties to discuss them, when those options have in reality been closed"?
Will the Minister comment on that? Further, paragraph 21 of the report states that:
"By its handling of the consultation process, however, the Government has forfeited much of the goodwill that might have been forthcoming for a resolute attempt to secure the long-term future of the yards. If genuine consultation has been attempted, it is hard to conceive of methods less calculated to lead to the Secretary of State's 'wide, constructive and fruitful discussion' than those which have been employed on this occasion".
Given those comments from such an authoritative source, surely the House will agree that the Secretary of State has been thoroughly discredited as a fit and proper person to hold such high office.
Although commercial management, which is at the heart of the report and the Statement, is the preferred option, how does the Minister answer the charges made of the gravest kind, particularly the charge dealing with strategic interests in paragraph 29 of the report? Will the Minister confirm the central point made in paragraph 29, where it states that:
"Efficiency and competitiveness are of course aims that should be vigorously pursued, but in the last resort they are secondary considerations set beside the needs of the Fleet and the defence of the nation"?
Does the Minister recall the scandalous situation revealed by the same committee last year concerning the security of certain Ordnance factories—one of the worst cases being the Enfield Small Arms factory? As the committee says, we now have a relegation of national security in the interest of false economies. Will the Government never learn? When will the Government put the interests of Britain's national security first and the interests of shareholders and private profits second?
4.45 p.m.
Is the Minister sanguine when spokesmen from the Ministry of Defence have told the committee that the preferred option was a high risk option, a greatly complex concept and a substantial problem? Other witnesses told the committee that the preferred option would be a huge leap in the dark.
If this Government have abandoned their first responsibility—that is, to national security—and are
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justifying such fundamental changes by the savings of public money, how does the Minister square that with the view of the committee expressed in paragraph 47, that:
"The Ministry's own figures, however, even supposing their basis of calculation to be valid, show that the savings likely to be made will not be substantial"?
According to the PAC, the saving would be of the order of about 1 per cent. on total expenditure.
The most damning indictment of the cavalier attitude taken to this crucial aspect of our national defence by the Government is found in paragraph 48, where the committee states:
"The sporadic issuing of hastily-written briefing papers throughout the consultation period, and the contents of those papers—many of which raise more questions than they answer—confirm the impression that much of the necessary information is not yet available within the Ministry of Defence. Neither Parliament nor the Trade Unions nor the public have been given enough information to enable them to reach a well-informed verdict on the options, or to contribute to a sensible solution".
The Statement mentions consultation. Can the Minister tell the House whether consultation in future will be any more meaningful than that which has taken place on these matters in the past? The Statement mentions the timely reports of the Public Accounts Committee. I suggest that they are not only timely but are devastating and condemnatory. The Minister speaks of a lack of agreement to proceed. Does he not understand that the manner in which the consultation has been carried out has certainly aided and abetted that lack of agreement?
In view of the Government statement that there is an intention to introduce necessary legislation as early as possible, I may say to the noble Lord the Minister that it is the intention of Members on this side of the House to oppose legislation that is based four-square on the Statement made today. We will oppose it and delay it as long as we possibly can.
Finally, in view of the savaging which the Government have received from the Defence Committee, led by Sir Humphrey Atkins, who is not only a distinguished former Chief Whip but also a former member of the Cabinet, will the Government, even at this stage, not go away and think again—think big, and think British—and then return to the House when they have done their homework and have learned to treat British interests, British dockyards and the British people with the respect they all deserve?
Lord Kennet: My Lords, the Government are right to echo the PAC in saying that a radical solution is required. I need hardly remind the Government that we on these Benches would have preferred the trading fund, which would have been pretty radical.
I come to the point. The course of action selected is hardly in accordance with the main thrust of the PAC and Select Committee reports, let alone the main thrust of the evidence received by those two bodies. As to the consultation afterwards, I have no need to echo what has been stated, perhaps in terms more suitable to a debate, by the Labour Opposition Front Bench.
The question of the commercial management comes to rest on the Falklands precedent. The Government showed themselves aware in this Statement of the need not to have

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"insufficient influence over a major establishment in the defence field".
Can the Government put their hands on their hearts and say that they are convinced that commercial management will give them sufficient influence in the event of another Falklands crisis? Would it have been possible to send the task force if there had been commercial management at Devonport and the other dockyards three or four years ago?
Can the noble Lord please elucidate on what is meant by the incentive element in the tenders? The Statement says that tenders invited from firms for the commercial management contracts,
"would be expected to contain a strong incentive element".
An incentive to whom, and to do what? It appears to me that here the Statement seems to descend into gobbledygook; and when it comes to Devonport the Government are whistling to keep up their spirits in the dark.
The Statement says that the Devonport development unit will be a focal point in the activities necessary to generate new jobs. What is a focal point? What is activity? Will the unit be funded in any useful way? What do these words mean? Again I quote from the Statement:
"My Department is examining its expenditure profile with a view to identifying any opportunities for expanding local commercial activity".
What does that mean? Does it mean buying tinned salmon in Plymouth and not elsewhere? If not, what does it mean?
Finally, can the Minister kindly explain what is meant by the dockyards trying to,
"win orders in a wider market than at present"?
Does that mean British merchant ships? Does it mean merchant ships from anywhere in the world? Does it mean foreign warships? We shall be glad to know.
Lord Trefgarne: My Lords, I am sorry that the noble Lord, Lord Graham, viewed the Statement with such distaste. As for his suggestion that the consultation period was inadequate or ineffective, while I agree that there were some sentiments of that kind expressed in the House of Commons Defence Committee report, nonetheless the fact is that we embarked upon a three-month period of consultation and I know of no one who wished to express views who did not have an opportunity to do so. I can assure the noble Lord that all those views were taken into account.
We start from the point of view, which I believe the noble Lord shares, that something needed to be done about the dockyards. They were not operating as effectively as they should have done. That is why we believed it necessary to move forward with as much speed as we reasonably could. In the event, we have adopted the middle way, if I may use that expression.
The most radical solution of course would have been total privatisation. We decided that that would not be appropriate. At the same time a less radical solution, but one which we think would have been so much less radical as not to have achieved the very necessary improvements in the performance of the dockyards, would have been a trading fund; although there were of course some important arguments in favour of that course of action, too. However, at the
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end of the day we concluded that the right way forward was the one which we indicated, I confess, as the preferred way forward when we made our original Statement in April: namely, the commercial management of the two dockyards concerned.
The noble Lords, Lord Graham and Lord Kennet, both referred to the need to maintain our strategic interests. The noble Lord, Lord Kennet, referred particularly to our experiences during the Falklands
conflict. I can assure both noble Lords that we are clear that the solution that we now propose will maintain our interests in a way that both noble Lords would wish. In any event, during the Falklands conflict private shipyards and dockyards supported the Royal Navy most effectively and I have no reason to believe that the solution we now propose for the royal dockyards will not do exactly the same if the need arises.
As for incentives, to which the noble Lord, Lord Kennet, referred, one of the real shortcomings of the dockyards as they are at present is their inability, as we see it, first, to deliver our ships on time; and, secondly, to deliver them within the budget price set. It is incentives to achieve a better performance in those areas that we shall be writing into the contracts that we set with the contractors.
The noble Lord, Lord Kennet, also asked about the wider market which is referred to in the Statement. That will be a matter for the commercial management of the dockyards in question when they take over in due course. We do not see any reason to impose any constraints upon them provided they remain able to meet the contract terms with the Royal Navy, which will include as necessary a provision to ensure that they can meet emergency requirements arising for the Royal Navy, which of course happen from time to time.
The noble Lord, Lord Graham, asked about the savings. He said that he thought they would be only 1 per cent, or so. The savings will be significantly more than that. As I said in the Statement, the turnover of the dockyards is of the order of £400 million a year and we expect savings in the early years of about £25 million per annum, possibly rising to £30 million or more once the initial costs of the changeover have been achieved.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that, far from having to defend himself against the charge of hasty action, it would seem to many of us that there is the much more serious charge against the Government of not having grasped this nettle earlier? Is my noble friend further aware that 17 years ago the Public Accounts Committee, of which I happened then to be chairman, drew the attention of Parliament and the then Government to the fact that it cost substantially more to build a frigate in the royal dockyards than it did to build a frigate of the same class in the private yards? The PAC suggested that action should be taken then, 17 years ago. Is my noble friend aware, therefore, that some of us are very glad to see action being taken now? The fury and indignation of the noble Lord, Lord Graham of Edmonton, recalled to some of us the observation of Prime Minister Salisbury:
"Heaven forbid that I should ever touch a vested interest".
Lord Trefgarne: My Lords, I am not sure that I need specifically to respond to the words of my noble friend. I am afraid that I was not around 17 years ago on the occasion to which my noble friend referred. Yes, it is the case that there were some important improvements which needed to be made to the royal dockyards, but now that we have determined the right course of action as we see it I hope that my noble friend will agree that we ought to proceed with all speed.
Lord Mulley: My Lords, those of us who have been concerned with defence will appreciate that the royal dockyards have been a source of problems, both financial and management, for not just the last 17 years. I remember the first Select Committee on which I served in another place, as long ago as 1950. It was concerned in a inquiry into the royal dockyards. I believe it has been a very long-standing problem.
However, it has not been due entirely, or even mainly, to the workforce or the local management. It was often due to the Royal Navy being under pressure and finding it difficult to send in its ships to the dockyards. When one has one's car serviced one cannot demand a service to suit oneself. One has to fit in with the programme of the garage if it is to be done efficiently and well. Unfortunately, in my experience we could never get the Royal Navy and the dockyards to work to their optimum efficiency.
At the same time, I am glad that the Government have recognised their strategic importance. Will the Minister explain how the Government found that unnecessary in their treatment of the royal ordnance factories? I should have thought that it is as important to retain control of certain aspects of the royal ordnance factories as it is for the royal dockyards. I would personally have preferred the trading fund approach which I introduced into the ROFs and which, in my experience, worked reasonably well.
What interested me immensely in this new form of privatisation, if I understand it aright, is that the assets will remain with the Government. That means—and the Minister will correct me if I am wrong—that if the private contractor needs new capital in order to do these jobs efficiently the Government will fund that investment. In other words, this is an innovation of privatisation in which the contractors will have a chequebook drawn on the Treasury. That seems to me to be a most interesting innovation. Clearly if the contractors argue that
they need new capital in order to do their job efficiently and the assets are the Government's, the Government must find the money. I wonder to what extent the estimate for the necessary capital investment has been considered recently in this short period of consultation.
The other worry, of course, is that once a contractor for a particular dockyard has his contract he is in a monopoly position. We are back to the old problem of having a private monopoly in a quasi-public sector, without it being subject to the normal controls that Parliament has over the Royal Navy.
5 p.m.
Lord Trefgarne: My Lords, the answer to the last part of the noble Lord's question is of course the important point that the contract will not be an open-ended one; it will be for a fixed time. The precise
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period of time has yet to be determined but it will not be open-ended, so that if a contractor is abusing his position in any way, then in due course he can be brought to book for it.
On the question of capital investment, the dockyards have of course been the beneficiaries of very considerable capital investment in recent years, not least with the proposed advent of the Trident system, and I am not anticipating any need for significant capital investment, in the medium term at least. If and when the time arises for some more capital investment, as doubtless it will, the Government will have to consider how best to proceed. It will rather depend on the contractual position at the time.
Lord Mayhew: My Lords, will the Minister tell us whether we are to assume that the Navy will have no representation on the boards of these companies? That being so, what arrangements have been made to ensure that the interests of the Royal Navy are fed into the big decisions of these companies, so that work for Britain has priority over much more profitable work for foreign governments?
Lord Trefgarne: My Lords, the most important avenue by which the naval interest will be secured, will of course be through the negotiation stage in the contracts, to ensure that the companies are required to make available such facilities as the Royal Navy will require for the duration of the contract. There will be a special department set up within the Ministry of Defence to oversee the implementation of the contract and to ensure that the very important interests to which the noble Lord has referred are properly covered.
Lord Bruce of Donington: My Lords, I ask the indulgence of the House in asking this question of the Minister, which arises from my membership of another place representing the constituency of Portsmouth North, in which I still retain an interest. As I understand it, one of the principal reasons for the step that has been taken is to free management and workforce from the restrictions and interference of government. Are we to infer from that that the restrictions and interference at the hands of the Government of which he is such a distinguished member have in themselves resulted in bad management of the dockyards? If indeed that be the case, then the remedy will lie in the Government's own hands: to cease to interfere in a way that inhibits the proper management of the dockyards. Is the noble Lord saying that the directions under which the new company will operate will be such that the Government will have no control over it at all?
Lord Trefgarne: My Lords, refitting ships is essentially a commercial operation, and I am bound to say that I think Ministers of any political persuasion are the people who are least well equipped to conduct commercial undertakings, and that is why we are moving in the direction which we are proposing. Incidentally, the noble Lord referred to Portsmouth, and in parenthesis perhaps I should say that the naval base of Portsmouth is of course not affected by these proposals.
Lord Ironside: My Lords, I am one who welcomes these proposals for the commercial management option, and if I may I should like to ask my noble friend two questions. First, he has said that the Government will go out to competitive tender for contracts involving some years of operation. I think that the House will be aware that the experience of GOCO contracts only really exists in the United States and that the contracts there are complicated. In this country we are in an evolutionary process with the dockyards and the commercial management proposals. Will the noble Lord give the House some assurance that the contractual arrangements will be kept simple? We are in this evolutionary period and we want to develop the best method of conducting this particular operation. I hope too that the contract period can be longer than five years and preferably eight years or even more.
The second question that I should like to ask my noble friend is whether he sees that successful contractors such as the names he has mentioned will, under the GOCO arrangement, be able to compete for capital equipment requirements in the dockyards as they are able to do if they also succeed as contractor operators?
Lord Trefgarne: My Lords, my noble friend asks for an assurance that the contracts will be as simple as possible. Certainly we should like to see them just that, but I have to warn my noble friend that there will be important features to these contracts which are to some extent perhaps unusual and which may militate against the pure simplicity that he has in mind. Not least among those important requirements is the one that was mentioned by the noble Lord, Lord Mayhew, concerning the need to ensure that the Royal Navy gets the service that it requires not only on a scheduled, regular basis, but on an emergency basis if that situation should arise, as doubtless it will from time to time.
There is a slight difference between what we are now proposing and the GOCO system to which my noble friend referred and which is much used in the United States. It is that the successful contractor will be entitled to use the facilities that he is managing for purposes other than just the Royal Navy's purposes, thus ensuring the most effective use of the assets that are available to him.
Lord Ironside: My Lords, perhaps my noble friend will answer the second question about whether the successful contractors will also be able to compete for capital equipment requirements when they arise?
Lord Trefgarne: My Lords, I am not quite sure what capital equipment requirements my noble friend has in mind but, if he would like to tell me privately, I shall look into the matter and let him know.
The Earl of Selkirk: My Lords, may I presume that the Navy will have similar access to both repair work and the building of ships to what they have at present in a private yard? That is to say, will naval officers be there from a very early stage in the carrying out of the work? If I may say so, I hope that this development will be successful and I am sure it is necessary. I
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certainly know that for perhaps 25 or 30 years the Admiralty was trying very hard to bring better organisation into the dockyards, and so far as I am aware it was not by any means wholly successful. I certainly remember the head of the boilermakers telling me something of the contempt that he had for the dockyard, though he had been trained in it, and of the pride in what he called "his yards" which were of course the private yards, which he considered very much more efficient than the dockyard. I remember that very vividly. Therefore I think it is right that an experiment of this sort should be carried out.
Lord Trefgarne: My Lords, I can assure my noble friend that the work will always need to be conducted precisely in accordance with Royal Navy requirements and we shall see to it that the proper machinery is put in place to ensure that that happens. But as my noble friend also indicated, it will also be open to the Royal Navy to put their work out to other commercial dockyards if and when the need arises.

Finance Bill
5.9 p.m.
Second Reading debate resumed.
Lord Williams of Elvel: My Lords, in response to the noble Earl's courteous and complete exposition of Government policy, I should like in my turn to pay a somewhat unexpected tribute to the Government, and to congratulate them on the constancy of stated purpose in their economic policy. I believe that nobody can complain that the Government have not stated and restated on many occasions, and with great clarity, the central thrust of their policy. If I may sum it up, it is that inflation must be defeated and the defeat of inflation is the best way to achieve growth and full employment.
All that is quite clear and understood. What is less clear in my mind are the methods that the Government choose to employ in achieving their stated aim. It used to be said, and still is said in certain quarters, that it is the Government's function to ensure a sound financial framework, and that if this is done the real economy will look after itself. It is perhaps said with somewhat less frequency than formerly because the problems of achieving such a framework have proved to be extremely difficult in practice.
To give one instance, if we look at the money supply figures for banking June, to which my noble friend Lord Barnett referred, we see that sterling M1 grew in the second quarter of the year at an annualised rate of 44·5 per cent.; that sterling M3, which is still the market's favourite monetary aggregate, grew during the same period at 23 per cent.; and that PSL1, which is said to be the Bank of England's favourite indicator, grew at approximately the same rate. Furthermore, net purchases of commercial bills by the Bank of England amounted to £0·5 billion and net gilt sales to the private sector were zero.
Apart from presenting the Bank of England not as a lender of last resort to the banking system but as a lender of first resort to the trading sector through its

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bill purchases, the picture that emerges is one of considerable confusion. This may be due to the Government over-funding in the early part of the year, which was much criticised and which is now being unwound. On the other hand, the existence of the Bank of England bill mountain appears to have the effect of discouraging clearing banks from lowering their base rates, since they believe that this will encourage what they call round tripping.
At all events, none of this makes very satisfactory reading for those who believe that the monetary aggregates bear a close and defined relationship to the future rate of inflation. Again those voices are heard less and less frequently in the land. This is perhaps a good thing since it means not only that greater rationality is entering into economic and financial thinking but that we can better understand exactly what the Government's present counter-inflation policy consists of.
Instead of predicting the sort of rates of inflation which the monetary aggregates that I have quoted might lead us to expect, the Government appear to be forecasting—and the noble Earl confirmed this—a decline from the present rate of inflation of approximately 7 per cent. to around 5 per cent. at the end of this year and to perhaps lower than 4 per cent. in mid-1986. In my view, none of those predictions is particularly unbelievable. They are in fact consistent with what outside commentators are saying.
However, the theory of a sound general financial framework producing these types of inflation figures must give way to something else. The only serious suggestion as to what that something else might be was prompted by the intervention of the noble Viscount, Lord Eccles, and was contained in the somewhat delphic statement made by the Chancellor of the Exchequer to the Treasury and Civil Service Committee of another place a week or so ago—and I quote:
"To the extent that the pound appreciates it would enable a lower level of interest rates to be consistent with monetary conditions exerting downward pressure on inflation".
In other words, counter-inflation policy mark 2 consists of maintaining interest rate differentials between sterling and other major currencies at levels which make sterling an attractive haven for international money. The market figures support this interpretation. The London Interbank offered rate for three months deutschmark deposits is at present 5.4 per cent. The equivalent rate for dollar deposits is 7.7 per cent., and the equivalent rate for sterling deposits is 11.75 per cent. It is these interest rate differentials that have caused the relative strength of sterling and will in turn continue to cause the relative strength of sterling if maintained.
Counter-inflation policy mark 2 has a number of dangers. There are three pre-conditions for the policy to work which I would enumerate as follows. First, the balance of payments must be protected from the relative over-valuation of sterling. Unless this is achieved, the process is self-defeating, since any serious balance of trading or payment deficit would weaken the currency in spite of the interest rate of differentials. Fortunately, as the noble Lord, Lord Ezra, pointed out, the Government have a cushion of
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North Sea oil and gas protection which has quite radically changed the underlying balance of payment position since 1979 and therefore appears to make us secure from the sort of sterling crisis with which we were only too painfully familiar in the 1950s, 1960s and 1970s. Not since the Spanish Government of the 16th century can any Government have been so fortunate as to have landed in their lap a source of foreign exchange and public revenues at such a fortuitous moment.
The second pre-condition of the working of the policy must be that the Government guess right about the movements of other currencies and their interest rates, particularly the dollar. We live in a world monetary system which is dominated by the dollar, and the Government have therefore to adjust their own interest rate policy relative to the behaviour of the dollar interest rate, which it is unable to affect. Last week showed the particular difficulty of this position.
On Tuesday the Federal Reserve let it be known that it had, in effect, decided to ignore excessive monetary growth in the United States economy in the first half year. The result was immediate euphoria in the United States bond markets. On Thursday, the chairman of the Federal Reserve Board announced that it would be "a serious misreading of the Fed's intention" to conclude that it had eased its stance on inflation. The euphoria in the bond markets changed to collapse. At the same time the release of second quarter United States GNP figures showed a growth of 1.7 per cent. against the flash forecast for the quarter of 3.1 per cent., which indicated a slow-down in the United States economy and hence a move towards easier interest rates; but that was accompanied by a statement by the Commerce Secretary calling for a 25 per cent. decline in the dollar exchange rate against other major currencies. Furthermore, and all in the same week, the President's deficit reduction measures were announced as being stalled in Congress and some congressional officials were predicting that it might be impossible to agree between Congress and the White House on a budget for the year.
One can only sympathise with those in the Bank of England watching these events and trying to pursue a policy of fixing interest rate differentials between sterling and the dollar. It is not in the least surprising that during the past week a confusing set of signals was sent out by the Bank of England and largely disregarded by the major clearing banks. That was the story of only one week. Every week is different and has a different story; yet in order for counter-inflation policy mark 2 to work, the storyline has to be not just closely followed but in many respects anticipated by those responsible for money rates in London.
The third pre-condition for such a policy to work is that a Government following it must be wholly impervious to its side effects. They must not be deflected by the inevitable exchange rate volatility when the storyline is guessed wrongly. They must not be deterred by the destruction of large segments of the domestic manufacturing sector due to high interest rates and imports that are cheap in sterling terms. Above all, they must not be distracted by the prospect of high, lasting and even growing unemployment as the policy takes effect. If they are distracted by any of those, and if they start talking about the middle way or

1133
of tempering the wind to the shorn lamb, the policy will be put in question and it will consequently fail.
Even if those pre-conditions are met and the Government persist in counter-inflation policy mark 2 over the next year or two, two serious problems still remain. First, the level of wage settlements in the trading sector is alarmingly high, in spite of pressures. Negotiators on both sides appear to pay no attention, as we were told that they would, to the monetary discipline being imposed by the Government. Not only are average settlements up by an underlying 7·5 per cent., but labour unit costs in manufacturing were up by 7·9 per cent. in the three months to the end of May. The inability of the Government to influence settlements, and the fact that they do not set out with a desire to influence settlements except in certain well-publicised cases, must be a matter of concern since it is an underlying assumption of the counter-inflation policy that realism will enter wage negotiations once the effect of international competitiveness is perceived, given the figures that I have just quoted. There must be a serious risk of an acceleration in the rate of unemployment if the counter-inflation policy is rigorously pursued.
This in turn leads to a second problem of a rather longer-term nature. We are advised on the highest authority to take no thought for the morrow. Yet in terms of economic policy this is not necessarily the most practical way to approach life. In the not too distant future, as the noble Lord, Lord Ezra, has pointed out, the balance-of-payments protection from North Sea oil and gas will start to be eroded and the current deficit in manufacturing trade, which will have been aggravated by the strict application of counter-inflation policy mark 2, will be fully exposed.
It is not enough to rely on service industry to make up the difference. As the Association of British Chambers of Commerce recently said, each 1 per cent. decline in manufacturing exports requires a 3 per cent. increase in the export of services to compensate. In any event, service industry without manufacturing does not make sense, as two distinguished captains of industry have recently pointed out, not least because 20 per cent. of service industry output goes to manufacturing as a customer.
I have deliberately not dwelt on the social aspect of the policy I have been describing, not because it is unimportant but because it is difficult to argue fully. One either cares about the level of unemployment and deprivation in distressed areas, or one does not. If you do not care, no amount of argument will make you do so. I have concentrated on the practical effects of what I believe Government policy to be, for the simple reason that I do not believe that it is viable in the long term. Inflation may be reduced from 7 per cent. to 5 per cent., it may be reduced to 4 per cent., or it may even go down to the figure that the Prime Minister has stated as her target of 3 per cent. The consequences of so doing, if the exchange rate is the mechanism through which this is achieved, seem to me woeful to contemplate.
5.22 p.m.
Lord Bruce-Gardyne: My Lord I must begin by apologising to my noble friend Lord Gowrie for
1134
missing the early part of his opening remarks. Your Lordships seem to have taken Questions at a spanking trot today and I must confess that I was taken by surprise thereby. Certainly I found myself very much in agreement with the second part of my noble friend's speech which I heard. I was interested in the contrast, as it seemed to me, between the attitude of the noble Lord, Lord Barnett, and the attitude just expressed by the noble Lord, Lord Williams. I should like to return to that in a moment.
First, I want to comment on what seem to me one or two perhaps not unimportant lacuna' in the Bill before us this afternoon. I revert to what my noble friend Lord King said in his remarkable and important contribution to this afternoon's debate when he referred to the undesirability of the Government being overwhelmed by the art of the possible in politics, and the anxieties he expressed about the Government being to some extent shaken off their nerve.
In two particular respects in connection with this Bill it seems to me that there is supporting evidence for that view. I was sorry that this year my right honourable friend the Chancellor did not in the end continue the work he began in last year's Finance Bill on progress towards a system of greater fiscal equality and fiscal even-handedness. I have to say to my noble friend Lord King that I think any of us who have served in the lower House have to recognise that politics can indeed be the art of the possible. One of the matters that I have found most depressing about the abandonment of earlier plans to extend or diminish the fiscal effectiveness of life offices and the like, and the fiscal treatment of the pension system, was that the Chancellor was I think clearly deflected from his original intentions by a massive lobbying exercise which overwhelmed the nerves of Members of another place on the Government's own Benches. I think perhaps the Chancellor had no option but to abandon his original, more radical intentions.
Again I think the same applies in the area of VAT, to which my noble friend Lord King also referred. Ever since I had something to do with the operation of VAT, I personally have yearned for a much more comprehensive tax, something much more akin to a straightforward expenditure tax which I believe would eliminate so many of the difficult anomalies in our present system. Now that my noble friend (if I may still so call him) Lord Cockfield, has mapped out a Europe sans frontiéres in which the anomalous position of the vast range of VAT zero rates which we have in this country would no longer be tenable, I must say that I wonder about the wisdom of the comment of my right honourable friend the Chancellor that, with the extention of VAT to newspaper advertising, he intended to make no further changes in the scope of VAT in the lifetime of this Parliament. I have always thought that that was the kind of pledge that one was best advised to avoid.
I believe the Government need to look more closely at the whole area of so-called tax allowances. I see that we are promised later this week a report from a distinguished committee, headed by no less a person than the Duke of Edinburgh, which will call in question the wisdom of mortgage interest relief and its retention. I know that this is an almost forbidden subject, not only on my own Front Bench but also, as

1135
I understand it, on the Front Bench of the party opposite. Nevertheless, when one contemplates the accumulated evidence of the diversion of so-called housing finance into purposes which have little or nothing to do with housing, when one considers the extent to which the availability of mortgage interest relief must be a contributory cause to the explosive growth of bank credit to the personal sector, and when one bears in mind also that, contrary to much popular belief there is no evidence that mortgage interest relief is of any great benefit to first-time house buyers, though it is undoubtedly a benefit to those later on in the housing chain, I believe that the case for reappraisal of this tax allowance, perhaps above all others, becomes stronger day by day.
I should like to welcome one item in the Finance Bill which does not seem to have attracted much attention. I suppose it does not fit into at least the Opposition's picture of what the Government are about. I refer to the shift in the weight of the employer's national insurance contribution from the lower paid to the higher paid. I think that was a remarkably brave step to take, particularly as no industry was likely to suffer more from that particular change than the newspaper industry in whose comments the Government were bound to be interested. Nevertheless, I believe it was a welcome and perhaps an overdue change.
I am delighted to see that the Government have now promised us a Green Paper on a reform of husband and wife taxation. It has for a long time seemed to me illogical that we give a positive fiscal bias in favour of the two-breadwinner families at a time of very high unemployment. I agree with noble Lords who have defended the large increase in part-time female employment. That is one thing. It is another thing to give a positive fiscal stimulus to the two-breadwinner families. I am glad that the Government intend to review the scope for reform in this area.
I want mainly to concentrate upon the comments of the noble Lord, Lord Barnett, and also upon the comments, in the same area, made by the noble Lord, Lord Williams. I must admit that the description of the noble Lord, Lord Barnett, of my right honourable friend the Chancellor was one that, for once, I found rather difficult to recognise. I was going to be tempted to quote what the Chancellor said to the Treasury and Civil Service Select Committee last week. But the noble Lord, Lord Williams, took the words out of my mouth, and I shall not repeat them. How the noble Lord, Lord Barnett, comes to the conclusion that my right honourable friend the Chancellor remains dedicated to the exclusive observance of the monetary statistics as the only guide to the achievement of lower levels of inflation, I am not sure. It certainly seems to me that the evidence, based upon what my right honourable friend said to the Treasury and Civil Service Select Committee last week, reiterates that, in practice, it is the exchange rate that is today at least as important an indicator in the Government's mind of the condition of credit and the condition of inflation prospects as any of the money supply figures.
We have even had money GDP elevated to some sort of substitute target. I have always regarded money GDP as a signpost and not as a target. I have always wondered whether you learnt much about the way you
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are progressing along a particular route by putting a signpost beside you on the dashboard. But that is apparently what the Government have done. It is a little unreasonable of the noble Lord, Lord Barnett, to accuse the Chancellor of being myopic in his obsession with sterling M3. Curiously enough, I believe that this might be a charge that could almost have been levelled more in recent months at the Bank of England. That is a strange reversal of roles since it was the Bank of England that traditionally worried about the exchange rate while the Treasury worried about the monetary aggregates.
I believe that there has been a shift in Government attitudes. It is a shift that I welcome. I thought that during the course of last autumn the markets were given too much indication of a determination to bring down interest rates at any price. The attitude of the authorities seemed to be that if the exchange rate steadied in its downward path for a moment, then interest rates would be thumped upon the head, and that if the exchange rate started to resume its fall, then interest rates would not be allowed, if the authorities could possibly help it, to rise. Once the markets had been given that sort of one way signal, they inevitably took it with the consequences that we recognise. There has been an important shift since then.
The noble Lord, Lord Barnett, said that if only the Government would cease to be so obsessed with the monetary aggregates, they would then get interest rates down and thereby achieve lower inflation. I must say that I find this a very large assumption. I would have thought that the most likely consequence of the sort of reduction in interest rates for which the CBI, for example, has been clamouring, would be liable to be a substantial drop in the exchange rate. Our experience from last year suggests that this feeds through relatively fast into a rise in domestic prices. Whether or not it would be possible to achieve the sort of drop in interest rates for which the noble Lord, Lord Barnett, was appealing, I would not know. But if it were achieved, I suspect that the impact on inflation in the medium term would be very much the reverse of what he was suggesting.
Of course, we have all heard the grim warnings, the increasingly strident warnings, from the CBI about the impact of the level of interest rates. My noble friend Lord Gowrie interjected in the speech of the noble Lord, Lord Barnett, to ask why, if industry was so seriously affected by the high level of interest rates, it was investing as if there were no tomorrow. So far as I could tell, he did not receive any response to that. I believe that the truth is that at a time when so many businesses are accumulating almost the legendary cash mountains and at a time, too, it is true, when we are approaching the end of a period of initial allowances, it is hardly surprising that there should be such a high level of investment. What does seem to me surprising is the high level of bank borrowing that persists to the corporate sector. I agree with the noble Lord, Lord Williams, that it is very hard to resist the conclusion that some of this—quite a lot of it—must be intended not for purposes of investment or for trading but for the more refined purposes of round tripping. It is very hard to avoid that conclusion.
What is clear, I believe, is that the CBI is clamouring not so much for a drop in interest rates for its own sake

1137
but because it holds the view that this would bring the exchange rate down, thereby making it easier for manufacturers and service industries to pass on the sort of earnings increases to which the noble Lord, Lord Williams, referred. I do not find it remotely surprising that the Chancellor should display relatively little enthusiasm for this approach. I would be very worried if he did display enthusiasm for it. I feel much more confident now that the Government are prepared to continue with a tight hold on interest rates and a tight hold on credit conditions generally until there is much more evidence that inflationary pressures—the sort of pressures to which the noble Lord, Lord Williams, referred—begin to abate effectively.
I wish to conclude by referring briefly to the other plea that we have heard from the noble Lord, Lord Barnett, and the noble Lord, Lord Ezra, for spending on the infrastructure. There has been much reference by both noble Lords to the reports of Mr. Manser and by NEDO. I have not had the privilege of reading Mr. Manser's report. I hope to do so shortly. I must say, however, that I found a great deal of logic in the suggestion of my noble friend Lord Gowrie that if the FCEC commissions a report, it is relatively likely that it will recommend additional civil engineering work.
As to the report of the NEDO staff, to which the noble Lord, Lord Ezra, referred, I do not know whether the noble Lord read the report. I did. It struck me as being a remarkably flimsy document. The staff of NEDO had gone round asking people like traffic officers on local authorities whether they could point to additional works that they could do if only they had additional funds. They were astonished to discover that these worthy gentlemen regarded themselves as the Cinderellas of the local government system. Really, it is a little naive to imagine that if you go around asking for anecdotal evidence from officers responsible for certain programmes, they will turn round and tell you that they have all the money that they want and see no purpose that could be served by having any more. Frankly, I do not think that the report bore out at all the sort of weight that was put upon it. We need much more clear and conclusive evidence than we have had to date that being held up for lack of funds is genuine work on the infrastructure that would serve a positive purpose, apart from the simple expectation that it would serve a make-work purpose.
Lord Ezra: My Lords, the report of the meetings of the NEDC on 10th July appears to suggest that more importance was attached to this document than the noble Lord, Lord Bruce-Gardyne, indicates.
Lord Bruce-Gardyne: My Lords, there was indeed evidence that importance was attached to the report. I just wondered how many people had actually read it. Indeed, if one reads it, I wonder whether it bears out the type of conclusions which the noble Lord and others seek to draw from it.
I wish to conclude my remarks by saying that I very strongly agree with my noble friend Lord Gowrie and disagree with the noble Lord, Lord Barnett, that there is every prospect of both a continuing rate of growth and a resumption of progress towards a much lower
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level of inflation. It is against that background that I think that, on overall balance, we can welcome the Bill.
5.41 p.m.
Lord Houghton of Sowerby: My Lords, I wish for a few minutes to deal with some of the matters which are in the Bill itself. I know that there is a certain freedom and a strong temptation to regard a debate on the Finance Bill as an occasion to study our economic and fiscal policies. However, when there are important matters in the Bill itself which should concern your Lordships' House, then someone ought to say what those matters are.
I listened with great interest to the speech of the noble Lord, Lord King of Wartnaby, and I wondered in what condition our system of personal taxation would be were it not for pay-as-you-earn. I also recall that never in our fiscal history have we introduced a system of tax deduction from wages and salaries except in wartime. We have utilised a scheme which was introduced during the war for the foundation of our permanent system of personal taxation. None of the thresholds of personal income tax, the rate hands, nor the top rates would be collectable in present circumstances but for the system of tax deduction from wages at source. Nor should we have had as successful a scheme of VAT had we not laid the foundations by the introduction of a widespread purchase tax also during the war.
That suggests that we rely—as we do—very heavily indeed for the success of our direct and indirect taxation systems upon the agencies of unpaid, conscripted taxgatherers. They are the employers who deduct the pay-as-you-earn. They are the traders who pass on the VAT to the customer at the time they are delivering the goods and receiving payment for them. An enormous proportion of our total revenue depends on this twin agency of taxgatherers. No wonder that, as time goes by, we realise that our taxation problem is not confined to getting the money out of the taxpayer, but is confined to getting the money out of the taxgatherer.
Attention has been drawn more than once recently to the fact that there are several billion pounds of tax collected under pay-as-you-earn or through VAT, which are outstanding, which have not reached the Revenue for weeks and weeks, and which are long overdue when they do come in. Indeed, there are several billion pounds-worth of tax in the hands of the unpaid taxgatherers which amount to a permanent interest-free loan. That is a situation which, in part, the Keith Committee on enforcement was asked to consider. That committee has reported at intervals in recent years and it has dealt in one large volume with the pay-as-you-earn problem and the VAT problem. It has looked at the powers of both the Inland Revenue and the Customs and Excise to enforce the efficiency of their collection of taxes. That is the matter to which I wish to refer because the first instalment of the Keith recommendations relates to VAT and they are to be found in the Bill before us this afternoon.
A whole section of the Bill creates for the Customs and Excise a new code of civil penalties. In fact it has transferred matters from the criminal to the civil fraud law invented for the purpose of the Customs and

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Excise to get their money in without recourse to the courts by using powers conferred upon them for surcharges; for penalties; for conduct involving dishonesty, serious misdeclaration, failure to notify, the unauthorised issue of invoices, breaches of walking possession agreements and breaches of regulatory provisions. All those matters now come under Customs and Excise law and have been withdrawn from the criminal law and the other branches of the civil law.
It seems to me that we are getting very near to the liberty of the subject and our system of jurisprudence in this field of the powers of departments to exercise powers which are generally in the hands of the courts. The Customs and Excise civil servants are given the power of arrest. We are witnessing a significant transfer of powers from the system of jurisprudence in the courts to the commissioners of revenue who, after all, are civil servants and are exercising their powers by letters patent.
Next year we are promised the second instalment of the Keith recommendations, which will deal with enforcement of income tax and allied taxes and with the problem of unremitted pay-as-you-earn. I imagine that certainly if next year the Finance Bill includes the recommendations of the Keith Committee Report it will contain some startling clauses which will be nearer still to the problem of the liberty of the subject in the taxes system.
What are we to do about this situation? All that the Keith Committee can think of is the stick—enforcement, enforcement officers, enforcement sections of departments. I wonder whether enforcement will achieve the desired purpose. After all, this vast army of unpaid, conscripted taxgatherers find their duties to the Government in many cases irksome, unrewarding and somewhat of a thankless task.
When looking at the report of a fairly large company I find an item which illustrates the situation in many companies throughout the country. The item is "Tax and levies collected on behalf of the Government". It says that the value added tax on sales amounts to £176 million and income tax and social security contributions deducted from employees amount to £52 million. That makes a total of £228 million in the year from that firm alone, which is three times its own liability for corporation tax, national insurance and rates.
I wonder whether we shall be able to continue this system, indispensable as it is to our taxation arrangements, on the basis of applying the stick and turning the screw on those who occupy a key position in the whole enterprise. Is there another way? Shall we have to find another way? I believe that we shall have to do so. The taxgatherer today, who is paid and salaried, is largely occupied in seeing that the unpaid taxgatherers are kept up to scratch. If the unpaid taxgatherer goes on strike, then the penalties under this Finance Bill can pursue him all the way to jail. But if a salaried tax collector goes on strike, he is welcomed back and told that all is forgiven. Is that the way we are going to conduct our tax collection affairs?
The penalties for neglect and delay are increasing, but we have been hearing about penalties all our lives. I remember first hearing about the scandal of tax
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evasion, and the intensification of enforcement that was needed, in 1905, when my father told me about it and when tax was 9d in the pound. In all the years since we have been talking about the same thing in the same connection, and not apparently achieving as much success as we desire.
I am not being frivolous when I suggest that we might try a modern approach to the unofficial, unpaid, conscripted taxgatherers. Offer them some inducement for prompt payment. Why not? Why should we assume that duties under statute law placed upon the citizen shall be discharged free of reward, with few thanks, and with penalties if he fails? That is what we do. "As long as you collect the money and hand it over promptly, we will send you a receipt. It will not even say 'with thanks'. But if you fail, then you will feel it on your backside, because we are going to punish you for failing in your obligations to the state."
This belongs to the Victorian era and beyond. It is not a modern system of debt collecting at all. We ought to offer, alongside a stiff tariff of penalties for neglect or default, an attractive tariff of discounts for prompt payment. Is there anything wrong with that? Would it not help? Would it not induce a better spirit among those who are doing this responsible task?
After all, it is agency work. It is not a personal liability of their own, it is agency work. Why should they not be rewarded for it? It would be regarded as a scandal if they all got the MBE, but we do not even do that. I have yet to see anybody in the Honours List for, "40 years of faithful tax collection free of charge, and without thanks hitherto". No, we do not get that. It is for, "political services", whatever they are.
This system that I have been thinking over for some time ought to be examined: inducements. The tax collector can no longer take the high moral line on the payment of tax. That is all gone. There is too much injustice in the tax system at the present time to leave any idea of obligation to pay on moral grounds. We have to be realistic. We are in a new age. We may call it materialistic, we may call it what we like, but we are moving into a new age where people are looking quite differently at their obligations to the state and to other people too. Anyway, there it is. I leave it to your Lordships to ponder on. Nobody else has mentioned it, and it is probably a refreshing interlude in an otherwise obscure debate on our economic affairs.
5.54 p.m.
Lord Harmar-Nicholls: My Lords, I found the noble Lord, Lord Houghton of Sowerby, refreshing. I could understand what he was talking about. I understood his message, and I cannot say that about a lot of the debate which went before. I have a great interest in what he said. Those who were in your Lordships' House in 1975–76 may remember that I tried to do the almost unforgiveable: I tried to persuade your Lordships not to pass the Finance Bill because the Government of the day had put forward a Finance Bill which I thought was out of order.
In that Finance Bill they had tacked on to a Money Bill the power to break into houses and desks. This was an infringement of freedom. I argued then that that tacking on, which was against the agreement of 1911, was in breach of the compact between the two Houses. If they wanted to interfere with the freedom of the

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individual, it ought to have gone through the two Houses in the proper way and be justified. That is pretty much along the same lines as the argument of the noble Lord, Lord Houghton.
I hope that my noble friend Lord Gowrie listened to what the noble Lord said and will pass on to his right honourable friend the Chancellor the constructive and sensible suggestion made by the noble Lord. Through the ages the most hated man in the community was the tax collector. When the kings wanted their taxes they had to send a posse of soldiers to go with the tax collectors to protect them from the anger of the people who had to pay the taxes. The result was that between the taxpayer and the tax collector there was this rift.
One of the problems in our industrial relations today is that the people who have the taxes deducted under statute, the people whose wage packet is that much less because under statute tax has been deducted, do not always understand the situation. Their anger at what they think is the lower level of money in the packet is directed at the employer who is paying the lot, rather than at the Government whose wasteful spending has caused that amount of deduction. I hope that what my noble friend has heard he will pass on. With that sort of inducement, rather than the stick, we might get tax collecting at a level where it would not be such a painful process, and would be better understood. I had not intended to say that, but was induced to do so because the noble Lord's speech was refreshing and good.
I wanted to say that for 34 years I have been listening to debates on Finance Bills, and for the first half of that 34 years I understood what the speakers were talking about. But it has now got to a level where I frankly do not understand the language. If my noble friends would admit it, I would bet that nine-tenths of them do not understand it—M1; Mo! My noble friend, who is an expert on these matters, said that he was not sure whether that was a signpost or a target. The experts do not understand their own jargon and their own language. How are we, who are not expected to be expert in this matter, supposed to go along with them?
I hope that, if it is possible, we can get away from this battle of research assistants. The noble Lord, Lord Barnett, is almost a research assistant in himself. We have always looked on him in that way and he has been very valuable. But it is now a battle of research assistants—the research assistants on the official response from the Opposition Benches; the research people who advise the Treasury. It is a battle of research assistants.
Lord Mishcon: They are not research assistants, my Lords.
Lord Harmar-Nicholls: That is the name that is given to these people who come over the Atlantic nowadays to tell us how to get on and do things. The point I want to make is that I would like the debate on the Finance Bill to be as I remember it. I should like to see contributions from people who are having to run businesses and having to run industries; the people who have to sign the cheques and be responsible if things go wrong, or have the responsibility of getting
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the money in to get the cheques honoured. I should like to see them playing a bigger part in these discussions on the Finance Bill.
We have many great industrialists who could give good advice if they wanted to, but they are never here. They ought to be here. We have had one, my noble friend Lord King, and, my word, what a valuable contribution he made as a consequence of knowing what it is all about! I should like to see them here, I should also like to see more people—and this is the only reason why I am speaking now—in my category, if you like—
Lord Mishcon: Oh, no!
Lord Harmar-Nicholls: That of course is the understandable response from a lawyer. The people I refer to as being in my category are those who still run their private companies, their family businesses. I am not talking about pople in the big league, who talk in billions. I am tired of billions. That word is so used that nobody understands the amount really involved.
This week I have had to make a decision as to whether or not we would spend £500,000 on certain refurbishing and certain extensions to do with a business which employs people and which is making a contribution. If that £500,000 goes wrong, I shall be responsible for it. It is in that context, having done that for 50 years—so I am not talking about my book—that I wanted to make a comment to the noble Lords, Lord Ezra and Lord Barnett, so that I could get their comments on what I want to say now. When they were pushing for more of the nation's money to be spent on infrastructure they made an appealing case and said that we ought not to let our infrastructure tumble apart because it needs all this money spending on it. That can be a very attractive argument, but it could have some kind of appeal which was damaging if it was not looked at in a little more depth from the point of view of those who have to pay for it.
When the Government of the noble Lord, Lord Barnett, was in power, and the noble Lord himself was Chief Secretary to the Treasury, and perhaps mainly responsible, they were borrowing all this money and the national debt went up more during the last five years of a Labour Government than it had risen in the previous 300 years. It went up from £45 billion to £95 billion and the interest on the national debt which was being committed was £9 billion a year. That £9 billion per year, I should tell the noble Lord, Lord Ezra, is just about the average income we have had from North Sea oil.
All of the income from North Sea oil has been utilised in paying the interest, not repaying the capital, on the money that his noble friend borrowed and spent. How can they go on suggesting that the income from North Sea oil ought to perform all the miracles it has sometimes been said that money ought to be spent on, when it is already in pawn? The extra borrowing in those years was not done because people had confidence in the way our country was being run and the way it seemed to be going. The strength of being able to borrow at all, our collateral, was the world's knowledge that we had North Sea oil and its potential. I should be a little chary of talking about how we should spend the income from North Sea oil better in

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the future. We have already spent it in the past and we ought to keep that clearly in mind.
The argument about the small businessman that I wanted to talk about is that in the days when that money was being borrowed and spent the tender prices quoted to us when we wanted something done in our small businesses went through the roof. We could not afford to pay the tender prices that contractors and the building industry generally wanted to do the work, because of the availability of these big contracts at almost any price where the money was going out pretty loosely. This week, and indeed this year, we are spending money in our small businesses—though I may have been spending only £2 million during the last three years and there are a few thousand in my boat who also are spending £2 or £3 million. However, if that is added together it amounts to the billions we talk about which might be spent on infrastructure. If it reaches the point where we are so spending taxpayers' money on infrastructure that it greatly puts up the tender prices, they may be doing work on the nation's infrastructure but the contractors will be pricing themselves out of the private market and therefore will not be adding to the employment market and adding to the nation's wealth which is just as useful.
Lord Ezra: My Lords, the noble Lord is very eloquent in his point of view about running a business. But the CBI put entirely the opposite case. The CBI said that if the infrastructure services—on which industry depends to move its goods, which ensure that we receive adequate water supplies and everything else—were not kept in good repair then the ultimate cost of putting that right, when leaving it could no longer be avoided, would be considerable. In the meantime much damage would be done to industry.
Lord Harmar-Nicholls: My Lords, I accept that absolutely. That would be a basis if nothing was being spent on the infrastructure. I am arguing that we have to be sensible in our expenditure on infrastructure. The noble Lord only has to get into his motor car and drive up to Leeds to find the number of times he is stopped while men are digging up the main road to repair some infrastructure, or in the side streets where they are putting in extra electric extensions or doing some such thing. Quite a lot is being spent on infrastructure.
In the old days when I could not afford the tenders because of the way his noble friend had put up the prices with his easy spending of money, what did I have to do? I had to make use of my own maintenance staff to patch up and do things because I could not afford the prices I was having to pay for new structures.
Lord Bruce of Donington: Oh!
Lord Harmar-Nicholls: My Lords, the noble Lord will know what I am talking about because he is an accountant. I have no doubt that the books he has had to deal with from which he has found this has happened have been innumerable. The reason I shall not withdraw on this is that I know what I am talking about. I am saying that if my noble friend and his right honourable friend the Chancellor are persuaded about the need for infrastructure beyond what is sensible at
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the present time, whatever may be gained in employment terms may be lost in employment terms in the private sector because people are paying extra money to have work carried out instead of making a contribution to increasing the wealth of the country.
I have a great respect for the noble Lord, Lord Barnett, but I do not know how intimately he has been connected with the small business structure that I am speaking about. But in my book I find that keen tendering for the work I want done is much more important than the interest rates that the bank charges. A keen tender price down to the level I can afford is more important to me than whether the amount I have to pay to the bank if I borrow money is 1 or 2 per cent. above or below a certain figure.
Many of the businesses, and mine is one—I hope it is because of reasonable management in the past—use their own money. Many of us do not necessarily use borrowed money, which is affected by interest rates. We do what private industry by and large usually does—not in line with the myth that when you make a profit you turn it into cash, go to Cannes or do some silly spending: we usually invest money again and nine times out of 10 the amount of help we want from the bank, where the interest rate is involved, is only a fraction of what we shall actually spend. The opinion I am giving to my noble friend is that if I could choose to live in an atmosphere where the tender prices are keen and acceptable, I should prefer that to a 1 or 2 per cent. reduction in the borrowing rate for money, that nine times out of 10 I do not want to borrow.
The only point I want to make is to balance up the persuasive arguments that have been used in this House and are continually being used outside urging that we must not let the infrastructure fall apart. Of course, we must not let it fall apart, but to pretend that nothing is being spent on it—when if we look in the Estimates we find that there is more being spent on it now than there has been for many years—is a misrepresentation of the facts. If we encouraged any Government to borrow more money, thereby getting in even worse trouble than we were in when we borrowed against North Sea oil, we should be putting round our necks many more problems than we should solve in a desire to help what we hope is only a passing problem.
I do not want the Government to neglect the infrastructure. I want them to pay proper attention to it so that we are not losing out. But I ask my noble friend not to be persuaded, because it is thought that there might be one or two cheap votes in it, to move away from his policy and thereby injure the private sector and the smaller businesses, which, at the end of the day, make up a bigger part of the productive capacity of this country than do the CBI or any of the other organisations.
6.9 p.m.
Viscount Chandos: My Lords, my relative youth and greater inexperience do not permit me to set this year's Finance Bill in the same historical perspective as the noble Lords, Lord Harmar-Nicholls and Lord Houghton. I hope your Lordships will forgive a speech which looks forward more than backward.
The noble Earl, Lord Gowrie, has introduced the Second Reading of this Finance Bill with his

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customary vehemence and vigour and once more argued the case for the Government's economic policies—indefensible as the noble Lord, Lord Barnett, said—to the height of his rhetorical abilities. It has been a long and sometimes heated session of your Lordships' House, now coming to an end. The noble Earl and his colleagues on the Government Front Bench have had to endure many setbacks and disappointments, as illustrated by the withdrawal of the Bill announced earlier today by the noble Lord, Lord Denham. Your Lordships' House quite rightly has no powers to amend the Bill before it today, even in the age of television, so rather than comment on any of the details mentioned in the Bill I will reply with enthusiasm and relish to the challenge proposed by the noble Earl to answer his three questions honestly and simply and, I hope, rather less patronishingly than the noble Earl himself posed the questions.
Is real growth desirable? Yes, it is, unequivocably and undoubtedly. There may be people in every walk of life, in every political party, including the noble Earl's own party, whose personal interests and priorities embrace ecological and environmental matters first and foremost. I am sure that they will be encouraged and reassured by the noble Earl's sympathy here and there for their views. My noble ally, Lord Ezra, in answering the noble Earl's first question in the same way as I, specified that real growth was desirable so long as it served the people of the country and was not at excessive cost to the environment.
If the innuendoes of the noble Earl about differences in economic policy between my own party and that of the noble Lord, Lord Ezra, related to the strong, well-argued case made by some members of the Liberal Party but also by members of the Social Democratic Party to consider most carefully the environmental impact of every type of industrial development, let me say this to the noble Earl. I welcome that critical questioning from within the SDP, from within the Alliance and from every other quarter. It is vital that business in both the private and public sectors as well as the Government themselves openly and fairly consider the environmental aspects of economic growth, without in any way implying a lack of commitment to that growth.
The Prime Minister frequently prefaces her bold and forthright assertions on economic policy with the phrase: "It's perfectly simple". The noble Earl, Lord Gowrie, in opening his speech claimed that the Government's economic policy was simple. Many of your Lordships may well agree that it is simple and that many of the measures applied are assuming a level of simplicity in the real world which is totally unjustifiable. Every decision in economic and social life requires many different factors and interests to be taken into account and it is best that these are aired openly and freely where their validity can most easily be judged. There is less disagreement between the Social Democratic Party and the Liberal Party on economic policy than between one wing of the Conservative Party and its centre, let alone between the extremities of dry puritanism and of wet paternalism.
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The second question was this. Has real growth taken place? My noble ally, Lord Ezra, has already answered that one better than I could, but not, I should hasten to add, any differently from how I would have answered. The noble Earl, Lord Gowrie, will find no evidence of these illusory differences between the two parties in the Alliance here. The Government would have had to display economic ineptitude and obduracy even beyond their actual record in order to achieve zero growth in the economy during the peak years of North Sea oil production. The devastation of the country's industrial and manufacturing base during this period has, however, been horrifying, far exceeding the shake-out and changes which none of your Lordships would deny were needed and still, selectively and through more thoughtful and careful policies, are needed.
Finally, is the economic growth sustainable? If the noble Earl, Lord Gowrie, means by that, "Can the Government replicate the last five years in the next five?" I believe that they can. But before the noble Earl thinks that the noble Lord, Lord Ezra, and I might disagree on the answer to this question, let me clarify my response. If the Government continue their current policies then I believe that there is every danger that the same type of economic performance will recur: a further decline in manufacturing industry, low growth in the non-oil service sector and continuing but soon declining contribution from North Sea oil production. Heaven, or an early general election, protect us from that!
The noble Earl, Lord Gowrie, and I have disagreed in the past as to whether figures quoted by him have been selective or not, so I will leave him to argue that point this time with the noble Lord, Lord Barnett. Let me just point out to your Lordships that the undoubted boom in investment over the last 12 months has been influenced very significantly by the changes to capital allowances for industry introduced in last year's Finance Act. And, while welcome, these will therefore inevitably tail off, irrespective of the fears of the business world about the risk of a Labour Government. Nonetheless, I will be happy to claim in your Lordships' House over the next few years full credit for the Alliance as our support consolidates and grows in maintaining investment confidence in the face of the two unpalatable and, I think, decreasingly likely possibilities of either the Conservatives or Labour parties having an outright majority after the next election.
On what the noble Earl has rightly called a lovely July afternoon, I think that I should find favour with all sides of the House and not just those who disagree with me if I kept my other remarks brief. On the Motion of the noble Lord, Lord Barnett, on the Budget which introduced this Bill last April, I said that the Budget was dull and unimaginative. And I was not alone either in your Lordships' House or among outside commentators. The Chancellor of the Exchequer has recently talked of the importance of following the middle way—perhaps a sign that he has now got his doubts about the virtues of the radical Right; though I have been told that we were meant to understand this reference to the well-known phase of the noble Earl, Lord Stockton, as being ironic. I wonder whether the noble Earl, Lord Stockton should

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allow such irreverent pilfering of his copyright to go unchecked. I am somehow reminded of the recent law suit in which two rival hamburger chains disputed the right to use the expression "Big Mac"; but perhaps that is both irrelevant and irreverent as a precedent.
The Prime Minister, the First Lord of the Treasury, must however take precedence over her Chancellor. She has recently reaffirmed the commitment of herself and her Government to more years of radical policies. In case I am accused of trying to find major differences of policy within the Cabinet when of course there are none, or at least not as much as between the Cabinet and many of the Conservative Party's most distinguished Back-Benchers in the House of Commons, perhaps I should compromise and suggest that the Government are pursuing policies epitomised by the radical Right, middle way. Judged by this magisterial phrase, or, for that matter, by any part of it, this is still a dull and unimaginative Finance Bill introduced by a mouse of a Budget speech.
The noble Earl, Lord Gowrie, found time during his speech, between asking the question which he thought would clean-bowl the batsmen at both ends simultaneously and concuss the wicket keeper as well, to mention some of the reforms, simplifications and incentives that can be found through careful research within the Bill. I am delighted that research and development can now be financed by business expansion scheme funds and that an attempt has been made to prevent property development from being so financed. I am still doubtful, however, that many new businesses are financed by business expansion scheme funds which would not otherwise have found backing, without the loss of revenue to the Exchequer associated with the business expansion scheme.
The simplifications to the astoundingly complex rules on capital gains tax are welcome but they still leave a maze of regulations and practices which baffle most taxpayers and enrich their financial and tax advisers. Perhaps I may therefore commend to the noble Earl, Lord Gowrie, the Green Paper published last week by the Social Democratic Party under the distinguished editorship of Dick Taverne, entitled Fairness and Enterprise, which I believe demonstrates genuine and potentially fruitful radicalism in simplifying the tax stystem.
Based on revenue-neutral assumptions, national insurance would be abolished and a higher standard rate of tax introduced. Business "perks" would be taxed at their real economic value and mortgage relief restricted to an amount equal to that saved by a standard (rather than by a higher) bracket taxpayer. Capital gains tax would ultimately be abolished, but gains over and above inflationary gains would be taxed as income. All forms of saving, and not just arbitrarily preferred forms, would be subject to tax relief. Capital transfer tax would be made to have effective "bite", rather than the unfair and disingenuous workings of it now.
The Economist, which the noble Earl, Lord Gowrie, quote approvingly in his opening speech in another context, suggested in the same issue that the proposals in our Green Paper could—and I would say should—influence the sadly unradical policies of the
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Government. The noble Earl, for the first time in my memory, has not quoted in his speech the fascinating book, Inside the Treasury, by the noble Lord, Lord Barnett. I would not wish to prevent him having the time to re-read it during his well-earned summer break, but I hope that he will still also find time to read the SDP Green Paper. If he does not read it, or if he resists its simple, radical and fair appeal, the country will be poorer for the time being; but I am confident that this would only delay, and not ultimately prevent, its ideas being incorporated into the much-needed reform of the country's tax system.
6.22 p.m.
Lord Bruce of Donington: My Lords, I must congratulate the noble Viscount, Lord Chandos, on the fealty he has shown towards his party. I congratulate him on his obvious comfort within the two parties that he has described. However, I disagreed with him somewhat in his description of the speech of the noble Earl, Lord Gowrie. I have not been unknown to attack the noble Earl on more than one occasion, but I must say that today, aside from when he dealt with the question of unemployment, I found his speech and his presentation most agreeable. The noble Earl was disposed to argue and to reason, and therefore, for my own part, I shall seek to respond in kind.
It is abundantly clear, despite the way in which the noble Earl dealt fleetingly with monetary policy as such, that the Government have in fact abandoned monetarism; and, of course, that is long overdue. Gone are the days when the noble Lord, Lord Cockfield, did not argue with but lectured your Lordships on the virtues of monetarism. Of course it is now well known—and, if I may say so, it was abundantly proved by my noble friend Lord Williams—that the behaviour of the money supply, however determined, and the rate of inflation, have both moved in diametrically opposite directions to what was anticipated. The money supply went consistently up, up and up, far beyond the various medium-term strategies that adorn the Vote Office every autumn—far beyond those—and yet, in spite of that, the rate of inflation went down.
The noble Lord, Lord Ezra, gave one quotation from The Times that was apposite to it, and, if I may, I should like (as it were) to "rub it in" by quoting to your Lordships the views of the financial editor of The Times from the issue of the 11th July, which I think disposes of the matter. He said:
"Although a stage fog surrounded Tuesday's money supply figures, it could not disguise the fact that by the Bank of England's own calculations £M3 has risen in the past three months at an annualised rate of 23½ per cent. This despite a regime of high interest rates which is meant to prevent such a thing from happening".
My noble friend Lord Kaldor in fact disposed of the monetarists' argument in the May and June issues of a publication called Challenge. I do not propose to flog the monetarist issue any more. It is as dead as a dodo: the Chancellor of the Exchequer knows it, and the noble Earl opposite knows it. What I will do, however, is to put a copy of the paper by my noble friend Lord Kaldor in the Library, and if the noble Earl, after having read it, finds any reason to dissent, then perhaps he can give a reasoned reply.

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I also wish to congratulate the Government on another point. It has at last been perceived that there is a connection between the exchange rate and interest rates. At one time we were told the Government were powerless to influence the economy in any way. I remember the eloquent arguments which came from the noble Lord, Lord Thorneycroft, when he threw up his hands and said, "There is nothing that Governments can do". Of course, we know perfectly well there is something they can do.
The question of interest rates becomes more important, and its association with exchange rates of more immediate importance, when one realises that we are in a rather different situation from that in which we were some 20 or 30 years ago. Today the money swilling around the world is 15 or 20 times as much as is required for the settlement of ordinary commercial transactions internationally. There are vast sums involved, and billions of pounds can change hands every day. Their movement across the exchanges causes rises in interest rates; there can be no doubt about that.
Therefore, it was all the more surprising—it all comes back to this, and, indeed, I hope I shall be able to carry the noble Earl with me—that the ridiculous decision was made in late 1979 to push up the interest rates by something like 5½ per cent. at one fell swoop. The results of that were immediate. Hot money —medium money, swill money, whatever you call it—flooded across the exchanges into this country, and the exchange rate (against the dollar in particular) progressively rose.
The money having arrived in United Kingdom banks at very high rates (which had in fact been set by the Government and not by the banks themselves as a matter of commerce) had therefore to be lent. Banks do not accept money on deposit on the basis that they are not going to re-lend it: they have to do so in order to make a profit. And not only did the money supply rise generally but, of course, very considerable sums were lent to other countries in the world on security which, in the light of hindsight, appears to have been highly dubious, and which is to some extent responsible for the internatonal monetary conditions that we are in today.
That occasioned this terrific rise in the rate of exchange, which meant that our goods became very much more difficult to sell abroad. In fact, as is now known—it is in so many commercial and economic journals now—the step to raise the exchange rate against the dollar to 2·40 and taking other currencies with it, though not to the same degree, was the most disastrous step that this Government ever took. In fact, that resulted in our manufacturing industry having great difficulties in exporting abroad. Concurrently with that, it acted as a subsidy to imports, particularly of manufactures coming into this country.
Lord Bruce-Gardyne: My Lords, will the noble Lord pardon my intervening before he leaves that point? Surely the rise in sterling against the dollar did not commence in the autumn of 1979. It commenced in the autumn of 1978 and was already accelerating well before the present Government took office. Would
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that not lead one to the conclusion that the second oil shock, so-called, had at least as much to do with the steep rise of sterling at that time as did the increase in interest rate?
Lord Bruce of Donington: My Lords, I am obliged to the noble Lord. I was not saying that all the rise to the figure of 2·40 which ultimately obtained was due to the interest rate factor to which I have referred. As the noble Lord said, it was rising for the very reasons which he has given. But this accelerated the rise. However, what was important was that the Prime Minister herself gloried in it. The Prime Minister regarded it as a virility symbol. She said in another place, "Now we can look the dollar in the face". The very height of the dollar at that time wrought untold damage not only to the exporting capacity of manufacturing industry in this country but also to its competition from imports.
High exchange rates have very frequently been justified, as the noble Lord knows perfectly well, by the fact that if they encourage imports that assists in keeping down inflation. That could be true if it did not at the same time destroy the same manufacturing companies' internal markets. The fact of the matter is that the subsidised imports consisted of only about 12 to 13 per cent. of our total imports. It was the completed manufactures that were in fact subsidised. So the manufacturing industry in this country was faced with undue competition from the finished article, from Europe in particular, and with difficulties in exporting abroad—and all for the sake of the maintenance of the dollar.
We know perfectly well now with hindsight that the exchange rate was fixed too high. The result, in the end, contributed very largely not only to the 66,000 liquidations that have taken place since that time but also to the 33,000 bankruptcies, and significantly towards the 4 million unemployed. That is what occurred.
What I want to be sure about is that we shall not make the same mistake again. What is happening now is that we have an interest rate that is very much too high, and completely unjustified. This is propping up the exchange rate in the United States. This morning the pound stood at 1·41 dollars; and as against the deutschmark it stood at 4·03. These are well above the rates that are normally regarded as competitive by British industry. I am afraid that if we persist in this policy the very tentative recovery that has taken place in part of the economy may again be strangled at birth. This is what the CBI are worried about.
Lord Harmar-Nicholls: My Lords, I hope that my noble friend will not overlook the fact that those rates also help imports. We are a great importing nation as well as desiring to be a good exporting one.
Lord Bruce of Donington: My Lords, I do not feel like arguing with the noble Lord now, if he will forgive me. If he will forgive my saying so, he came into the debate rather late. I am seeking in the main to reply to the noble Earl, Lord Gowrie, and to address my arguments essentially to him.
Lord Harmar-Nicholls: My Lords, to the House, I hope.
Lord Bruce of Donington: My Lords, and, of course, the House itself. Does the noble Lord wish to interrupt again?
Lord Harmar-Nicholls: My Lords, if the noble Lord invites me to interrupt, I was saying that it is not a matter of interchange between personalities. This is a discussion in the House. The noble Lord is talking to the House when he is on his feet at the Dispatch Box. That is all I wanted to say.
Lord Bruce of Donington: My Lords, those noble Lords who interpose in the speakers' list without notice, and without any comment on it, are not entitled to lecture me on the courtesies of the House.
So far as I can make out, the Government's reaction to all this is to resist what, in my view, are the quite legitimate and proper demands of the CBI. There ought to be an immediate reduction of interest rates by at least 2 per cent., possibly even 3 per cent. If that resulted in the pound weakening against both the dollar and the duetschmark to a point where they were competitive under normal commercial conditions, I suggest that this would be quite acceptable to British industry and it would at any rate not further retard the recovery that has taken place over I repeat, a very limited section of the economy.
The Government's reaction to the situation I have described—which has been caused in my view by a quite disastrous apprehension as to which levers of economic power should be used by the Government, and how—has been accompanied by a new factor. In spite of the fact that we have been told so many times by the Prime Minister herself that there is no alternative, we now find that there is a new task force whose specific work is the creation of jobs, a task force which within the old philosophy and certainly within the philosophy of the noble Lord, Lord Cockfield, was inconceivable, because by his definition governments could not create jobs, anyway. Here we have a situation where a new task force has been created to correct matters that must have been under the Government's own nose for the past six years at any rate.
We on this side of the House wish the noble Lord, Lord Young, and his task force the very best of luck. Any effort by any Minister or any Government that increases employment in the United Kingdom is very welcome. We are, however, crossing our fingers and hoping that something may be done. In the meantime—as indeed my noble friend Lord Houghton pointed out—we have the Finance Bill, which contains some very significant changes in VAT. Some 28½ pages, occupying 23 clauses in this Bill, have been devoted to VAT and are bound to make the procedure much more complicated. We wonder therefore whether the right honourable friend of the noble Earl, the Chancellor of the Exchequer, has been in close contact with the noble Lord, Lord Young, who in the White Paper, Burdens of Business, listed VAT difficulties as the highest burden of all on business. As I have said before, we now have a Bill that even further
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complicates it, and I am sure the House, would like to hear about the real position of the Government.
The other line that the Government have taken since apprehending, but not admitting, their own mistakes is enshrined in the Prime Minister's attack on members of her own Government, whom she has called somewhat irreverently—and I trust that she did not include the noble Earl among them—spineless spenders. I shuddered when I read that observation, and I wondered to whom the right honourable Lady was referring. Then I tried to identify the spineless spenders.
When we are discussing Government expenditure, and, in particular, when the Government are giving their own plans in respect of Government expenditure, it is divided into two categories. Expenditure which they do not like they always refer to as "taxpayers' money". For example, any further expenditure on kidney machines, any further expenditure on keeping hospitals open and any further expenditure on raising teachers' salaries to a fraction of what the top-paid people are apparently now to get is greeted immediately with the expression, "This is taxpayers' money that we have to safeguard". This is one category of expenditure. Expenditure which the Government do not like and want to reduce they always describe as taxpayers' money.
When it comes to expenditure which they are too spineless to cut, they always refer to it as percentages of the gross national product, or as percentages of the total budget, as though it is a matter of no concern. So I suggest that when the Prime Minister comes to consider the spineless spenders she should first consider that, in spite of her declaration at the commencement of her ministry that she wanted our money back, so far, net, we have had expenditure without any noticeable benefit of some £4,000 million, and, even after taking into account the arrangements come to at Fontainebleau, we are due to pay £898 million of taxpayers' money, as I shall call it, next year, £770 million of taxpayers' money the following year and £970 million of taxpayers' money the year after that. I would have hoped that the Government would have been a little less spineless, if I may use the Prime Minister's term, in getting our money back and in ensuring that we paid a more equitable contribution to the Community, bearing in mind the contributions of other countries.
Another example of spineless spenders are those concerned with the expenditure of £360 million in selling off British Telecom at half price. That was a waste of taxpayers' money which was completely unnecessary. The abolition of the GLC will cost the Government £166 million of taxpayers' money; their adventure in Lear Fan will cost them £57 million of taxpayers' money; and the bailing out of JMB will cost them that sum also. So I hope that when the Prime Minister refers to spineless spenders she will deal with those expenditures and will be able to reflect her own priorities as to what taxpayers' money ought to be spent upon. She will perhaps be able to explain why all these expenditures are carried out in priority over other more desirable objectives.
I take the noble Earl's point that we want to bring down inflation. May I suggest to him an immediate

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practical way of achieving the twin objectives of bringing down inflation and at the same time reducing taxation? All he has to do, in one simple step, is to bring the VAT rates back to what they were when his Government took office. As he will recall, inflation was running at an annual rate of 10·8 per cent. when this Government took over, and the following spring it had reached 22 per cent., of which four points were accounted for by the increase in VAT from 8 to 15 per cent. Here is the perfect solution to his problem. He could reduce taxation, which would benefit, in the main, people in the lower income groups; and he could bring down the inflation rate, possibly by between 2½ and 3 points—a very desirable political objective.
Of course, the Government will not do it. They much prefer to reduce taxation in a manner that benefits the rich more than the poor, because it is vital to their purpose to ensure the dominance of the powerful section of the community as against the poorer section of the community, including the 4 million unemployed who, I can assure the noble Earl, apart from a very few exceptions, would very much prefer to stop rotting their lives away in idleness than to draw unemployment pay.
6.48 p.m.
The Earl of Gowrie: My Lords, I was grateful for the early remarks of the noble Lord, who was nice to and about me. I think he was probably trying to shield me from the ad hominem remarks here and there—although we are quite used to them—in the speech of the noble Viscount, Lord Chandos. Unfortunately the noble Lord, Lord Bruce, rather let himself and the debate down towards the end by some rapid fire ad feminam attacks of a fairly predictable and probably cyclostyled nature and I rather lost the thread of interest in his earlier arguments.
There appears to be some instruction from on high, where the Labour Party, and sometimes the Alliance, is concerned, to refer always to 4 million unemployed. I have to say that I would greatly prefer that figure to he stretched to 10 million, 12 million or whatever the real figure of unwaged people is. It is certainly very considerably higher than 4 million. But there are not 4 million people on the unemployment register, which is the same whichever Government are in power. It is better to stick to the conventions we are used to.
Obviously quite a lot of politics is that of style and tone and we all differ culturally and artistically in the kinds of styles and tones that we like. I have just come back from a visit to the admirable and interesting socialist or social democratic—centre-Left, anyway —Government in Spain. The Ministers there were sad that they were having to take what they considered to be Thatcherite measures, but they were determined not to make any kind of virtue of them. That was a different approach in style and tone from our own.
Speaking for myself, I rather like governments, of whichever persuasion, who do spend money somewhat through clenched teeth. As a taxpayer, I do not find "taxpayers' money" an offensive term at all. I remember being rather pleased, when the present Government came into office, when my right honourable friend the Prime Minister was favourably
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compared by no less a figure than Mr. Philip Larkin—another person whom I admire—to Sir Stafford Cripps. Mr. Larkin said that he liked his politicians to have a somewhat austere view of public spending and he congratulated, ecumenically, both those figures on their approach.
The noble Lord, Lord Bruce of Donington, asked me—rhetorically I think, but I am happy to answer him directly—what I or the Prime Minister thought taxpayers' money should be spent on. It would not be an unfair political point to say that we have been spending it quite briskly in making up the cuts in infrastructure, as well as other things, which were imposed, by necessity no doubt, when the party which the noble Lord supports was in Government.
We have had, for instance, an increase of 23 per cent. in spending on hospitals, which followed a Labour cut of 35 per cent. Our spending on roads has risen by 25 per cent, and it went down under Labour by 33 per cent. I could go on with these rather tedious statistics. The fact is that no Government are opposed to public spending on sensible things as and when they can afford them. The argument is about what rate of borrowing or taxation at any given moment a programme of public spending can depend upon.
Overall, the debate, through being slightly shorter than our usual economic debates, has, if I may respectfully say so, been very interesting. I believe that my noble friend Lord Harmar-Nicholls was right to tease us about showing off about M0s and M3s from time to time. I have to plead not guilty myself. Although when I was answering a question from the noble Lord, Lord Beswick, I had to use a little of that jargon, I have tried to keep it out of my speech.
I say to the House, and particularly to the noble Viscount, Lord Chandos, that I was not trying to bowl anybody out with my questions. Nor were they rhetorical. It is fair to ask critics of the Government—and under our system there should indeed be critics of the Government—the three questions as to whether growth was good, whether it was taking place, and whether it was sustainable. In answering those questions myself I was simply challenging others to come in on them.
I totted up the score and was rather glad to conclude that most speakers took up my challenge. One or two did not. I am not sure whether the noble Lord, Lord Bruce of Donington, passed the test but I will carefully read what he said in the Official Report tomorrow.
Most noble Lords took up my challenge, and most came to the conclusion that growth was a good thing, that it was taking place, and—some believed—that it might be sustainable. Others were more sceptical. I myself simply said that it would depend on our stars—our external fortunes—but also very much on ourselves.
The other point of sharp disagreement between myself and some speakers—notably the noble Viscount—is the extraordinary talk of oil as if it were a purely fortuitous bonanza. To some degree all economic raw materials or assets are a purely fortuitous bonanza. What really counts is the activity they generate and how one makes use of them. I consider that the British economy—and I am not speaking about this Government, because oil was

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there during the previous Government as well—has made extremely sensible use of North Sea oil. It has used North Sea oil and its revenues as a cushion to the British people during a very painful transition in their economic circumstances.
The speech I perhaps missed most in our debate today was that made in the previous debate by the noble Lord, Lord Marsh, which both time and our parliamentary conventions forbid me from repeating now. The noble Lord pointed out in that speech that the transitions from an old manufacturing, employment-intensive, heavy industry to a different kind of industry were liable to take place and were taking place anyway; nothing could stop them, and we should thank goodness that oil had made those transitions a little easier for some of the people affected by them. When this period is looked at historically, that is what we shall be most grateful to North Sea oil for.
It also seems to me, as an economist of a kind, curious to be too puritanical about imports. Imports employ many people. Numerous people are involved in the distribution of foreign goods. Foreign goods seem to me to be no more virtuous or less virtuous than other goods. It is the total balance of exchange in an economy that one has to look at when one is trying to come to a judgment. If, for example, for the interests of unemployment, import barriers went up, it would not be very long before millions of other jobs were lost to this economy which we have gained through our presence in the open societies and the real world.
I will try to contain my remarks, because I was given a good run in the opening innings. I was asked about the overall tax burden. A number of noble Lords pointed out that in overall terms tax has indeed risen since 1979. They are quite right. Our priority on taking office, as we declared, was to restore financial stability in order to bring down inflation. Our main counter-inflation policy is keeping a watchful eye on the PSBR. That is not because, doctrinally or idealogically, we think that public spending is wicked; of course we do not. It is simply because we must take a decision, as any Government must do, as to how much can be afforded and financed at any given moment.
Initially that policy meant that some taxes had to go up. However, the overall burden has been stable since 1981–82. As to the interesting challenge by the noble Lord, Lord Bruce of Donington, in respect of VAT, that first Budget is controversial still. Technically it was tax neutral. People had some money handed to them in tax rebates while VAT was increased. It may be that the Government misjudged the fact that another important part of their economic policy, a part which I believe is supported by the noble Viscount and others in the Alliance—their industrial relations legislation—had not yet taken effect. It might have been wrong not to wait for that to happen, but that is water under the bridge.
The other point I have to make about the overall increase in taxation is that of course it has taken place, but it has taken place precisely because of that same phenomenon I have just mentioned—North Sea oil. About half the total increase has arisen from increases in North Sea oil taxes. That revenue was not handed
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on direct to the public as some people argued—notably the very interesting commentator, Mr. Samuel Brittain—but was used to reduce public borrowing for the reasons I gave earlier. It would have been very curious indeed if during a raw materials surge of that kind the commodity had not been taxed and therefore the total tax income had not risen to some degree.
I will not delay the House too much with the infrastructure argument, for two reasons. First, in his inimitable and combative way, my noble friend Lord Harmar-Nicholls made a number of extremely interesting and, in my judgment, sensible points. The second reason is that your Lordships have heard me speak on this subject before. My own feeling tends to be that a lot of infrastructural improvement is going on. However, as one who served in Northern Ireland and who grew up on the borders of Northern Ireland and the Republic, I am well aware of the folly of depending, for employment reasons, on such improvement. It does not give the right kind of jobs in sufficient quantity for long enough. One should do such work on its merits, and that is precisely what the Government are doing.
I mentioned private sector investment, and the noble Lord, Lord Barnett, and others challenged me about public sector investment. It is not perhaps at record levels but is holding up fairly well. In the economy as a whole, fixed investment is running at £55 billion and certainly there is no record of neglect. I myself do not find tax cuts incompatible with public spending. It all depends on getting one's sums right and on judging the money markets right. It is a difficult job in the modern world, as the noble Lord, Lord Bruce, and others, fairly recognised. I agree that the NEDC discussion was useful. Where it can be shown that an infrastructure project would produce an economic return and an improved supply side performance, its claims will be taken into account in the forthcoming round of public expenditure discussions.
In my own small but not unimportant field I have been criticised for cutting current expenditure from some of the museums which I fund precisely in order to release that money and additional money into their repair. I think that is good housekeeping, and I hope to be able to continue the second part while not being too stringent on the first.
There was much technical debate about interest rates. Again, this is not only a matter of judgment. It must be a matter of argument; but it is perhaps a little late for me to argue it closely in winding up. I tend at the moment not to see myself as a "wet" or a "dry", a consolidator or otherwise, but to be somewhat of the Bruce-Gardyne tendency; that is to say, I think that there is quite a buoyant amount of liquidity in this economy. I certainly agree with my noble friend Lord Harmar-Nicholls that when one has the management right, the product right and the markets right, one is a little less worried about interest rates and their levels than when one does not have those things right or is losing money so that there is an additional burden thereby.

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I agree, of course, that it would be nice to have lower interest rates, and I am delighted to say that they have been coming down in recent weeks. Most noble Lords have conceded that inflation will probably drop to about 5 per cent., and it would seem unlikely, therefore, that interest rates will remain at their present levels. However, we have a peculiar world where interest rates and exchange rate factors are linked. In spite of the strictures of the noble Lord, Lord Bruce of Donington, towards the end of his speech, the pound against the dollar has fluctuated about 30 per cent. this year alone, and I do not believe that that is due entirely to either the virtues or the vices of my right honourable friend the Chancellor of the Exchequer. Business and government are now living in a very different world from the one in which we all grew up so far as the movement of exchange rates is concerned.
I enormously enjoyed the speech of my noble friend Lord King, and I agreed with most of it. However, he complained about the level of interest rates, and it is only fair to say to him that similar complaints have been voiced in the past. If we had not held interest rates at the then levels, inflation would probably not have fallen to its present level. As inflation falls we should be able to ease the swings on the other side.
My noble friend Lord King mentioned taxes and pointed out (which caused me great rejoicing) that the heaviest burdens of tax are on the poorer sections of society. I consider it a failure of my colleagues and myself that we have perhaps not got this message across strongly enough. In most popular public discussions the words "tax cuts" suggest something involving wealthy people. In fact, as my noble friend Lord King reminded us, a nurse on £140 per week is paying perhaps £40 of that in income tax and national insurance. When we talk about tax cuts it is that kind of level in which we are interested.
We are also, of course, concerned about the unemployment trap, which was the subject of some debate and altercation earlier between, I believe, the noble Lord, Lord Hatch of Lusby, and myself. I am not saying—and I was not claiming in the intervention which the noble Lord was kind enough to allow—that there are not a great many people who are looking for work and cannot find it. That said, however, there are great differentials, not only between the North and South of Britain—I live on the edge of the West Midlands, and I can bear witness to that—but between job availability and whether it is worth taking a job on, in net terms.
I take a simple view. I believe that most people are highly sophisticated and intelligent in respect of their decisions on economic matters that affect them. If I am given a straight choice between earning £X a week for not doing very much or earning only £5 more for doing something unpleasant, I may decide to take up other pursuits. I think that most of us have had some experience of that in some parts of the country and the economy.
In response to the perhaps teasing suggestion —though I suspect he meant it seriously—of the noble Lord, Lord Bruce, about the task force for jobs by my noble friend Lord Young, this is not about job creation
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in the conventional sense; it is about trying to identify (I have been working as his deputy on this exercise) the obstacles to employment in our economy, and to clear them away. I should have thought that that was something to which we could all respond in quite an ecumenical spirit.
A number of noble Lords mentioned the contentious (as I fully acknowledge) Top Salaries Review Body awards. Of course, a little hyperbole takes place when anything is contentious. I think that the percentage increase for one individual has been used as an indicator, as if it applied to the whole award. Under the present staging arrangements the award is nearer 5 per cent. This is a very difficult issue, and there is no good time for catch-up periods, as anyone who has been involved in a pay policy will bear witness. My own view is that one cannot indefinitely have a number of great and good figures—none of whom, I should have thought, were the most loyal and dedicated appointees from Central Office, Transport House or, indeed, wherever the Alliance is currently situated—and reject their recommendations. The noble Lord, Lord Plowden, and others, have been looking across the whole economy at what people are paid and at their hours, rates and incentives. They came up with recommendations which we ha e not even fully accepted.
I do say very passionately that as Civil Service Minister I have been worried about the morale, incentives and targets for very dedicated young men and women who are doing a very good job. I am concerned about the growing inability of the public service to recruit and retain the high calibre people that it needs. The problems in this field are changing, and so must the responses. In economic terms the money is minuscule, as are the economic effects, but I acknowledge the political and public relations effects. It was a difficult decision for the Government. I believe that the Government made a wise decision and, for what these secrets are worth, I strongly recommended that this decision should be taken in the way that it was.
It is the first time I have had the honour and pleasure of debating with the noble Lord, Lord Williams. Of course, it is very good news to us who are interested in economic debates on this side of the House that we now have on the Benches opposite no less a person than the adviser to the Shadow Chancellor. I shall read with great care what he had to say. I must say that I was waiting with a certain amount of eagerness and interest for the current advice that the noble Lord is giving to my old friend (if I may so refer to him) Mr. Hattersley, but it did not come.
The noble Lord made an extremely interesting speech, but he was wrong on one point. The Government do not have a counter-inflation policy mark 2. We have the same policy, which has always been one of flexible response, including a flexible view of the monetary aggregates—certainly there is no theology there, but all Governments have to pay attention to them—and we are at present responding in the ways I outlined earlier. In response to the rhetorical questions I posed, it could be said that we are responding fairly consistently and with some result.

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We know that the right honourable gentleman, Mr. Hattersley, has been courageous and interesting in recently coming firmly out of the closet about pay policies. I was a member of a Government which operated a pay policy, and one of my first political tasks was to defend that policy and explain it at the Dispatch Box in your Lordships' House. I have to say that I was pretty sceptical about it then. It did not seem to me to have very good results; and, despite the fact that as a political animal I am delighted that the Labour Party is allying itself with pay policies because I think it will be very damaging to them, as a citizen, I rather hope that the Labour Party does not go down that course again, as I do not think it will work and the catch-up, as we see even in the last example, that I gave, is nearly always much more painful than the immediate results.
My references to Alliance divisions perhaps contained some mild teasing, but I have been trying to do some research on their economic policy. There is much that I respect, and some with which I agree; indeed some measures the Government have adopted rather in advance of the Green Paper, if I may say so. But the position on pay policy is very hedged about and very ambiguous.
Lastly, the noble Lord, Lord Houghton of Sowerby, kindly gave me notice that he would not be able to be here for the winding-up. As always, he made a witty and penetrating speech. I must say that I rather agree with the double standards that apply between the state and the individuals who finance it, and I thought his suggestions about the deductions, incentives, inducements and carrots for the unpaid tax collectors were admirable and interesting. Having said that, I do not think that I should say anything more, because I do not want to get into needless trouble with my employers. I have enjoyed the debate; I have learned a lot from it; and I look forward to returning to these issues in the autumn.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 18th July), Bill read a third time, and passed.

Agricultural Products Processing and Marketing (Improvement Grant) (Amendment) Regulations 1985
7.15 p.m.
The Earl of Swinton: My Lords, I beg to move that the Agricultural Products Processing and Marketing (Improvement Grant) (Amendment) Regulations 1985 be approved.
In producing that sentence, I should like to point out an error on the Order Paper. These are the Agricultural Products Processing and Marketing Regulations, and not the Agricultural Productions Processing and Marketing Regulations.
The amending regulations are a modest measure. They simply extend until the end of 1994 regulations previously extended in 1983. The further extension is necessary to ensure that they run concurrently with the
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Community measure to which they are linked; namely EEC Regulation 355/77, which has itself been extended to the end of 1994. The purpose of the amendments is to enable United Kingdom projects seeking Community aid to obtain the necesary national grant.
EEC Regulation 355/77 is, therefore, central to these amendments and your Lordships may find it helpful if I briefly explain its main provisions. Some noble Lords will already be familiar with the regulation as a result of the 1982 report on Socio-Structural Policy by the Select Committee on the European Communities. That report included a valuable summary of the operation of the regulation and its aims and objectives.
The regulation provides for common measures to improve the conditions under which agricultural and fisheries products are processed and marketed. It was due to expire on 31st December 1984 but the Council of Agriculture Ministers adopted an amending Regulation 1932/84 in June 1984 to extend it until 31st December 1994.
The regulation provides for a fixed sum of money each year, disbursed in the form of FEOGA grants to individual projects, for which applicants from all member states compete. The usual level of an award is 25 per cent. of the total cost of a project, though there are certain regional exceptions. The awards are announced in June and December each year. The Commission is alone responsible for selecting the projects to be aided. Their selection is based upon how well they judge projects to meet the aim of the regulation. That aim is to improve the incomes of farmers, growers or fishermen through improved marketing and processing of their produce.
One of the main conditions to be met by applicants is that any investment must fall within the scope of an approved investment programme. These are drawn up by the member states and set out their assessment of the priorities for investment in marketing and processing on either a regional or sectoral basis. We have a number of these programmes in the United Kingdom covering pigmeat processing, livestock markets, potatoes, horticulture, cereals, seeds, fish processing, eggs and poultry, and there are other programmes designed specifically for the particular needs of Scotland, Wales and Northern Ireland.
Examples of the type of investment aided under this measure are: the installation of modern quality control facilities, improved storage, grading and handling facilities, the rationalisation and relocation of livestock auction markets, investment in modern techniques for fish smoking, curing and further processing, and generally investment in developments which maximise the use of modern technology leading to improved returns to the farmers, growers or fishermen.
It is a condition of the scheme that individual projects must qualify for a national grant of at least 8 per cent. of the eligible costs if they are to be eligible to receive Community assistance at the full rate of 25 per cent. In the United Kingdom there are a number of grant schemes which qualify as a national grant for this purpose. Most commonly these are grants made to co-operatives under the Agricultural and Horticultural

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Co-operation Scheme, Regional Development Grants from the Department of Industry and occasionally grants from local authorities. However, not all applicants with projects which are otherwise eligible for consideration under Regulation 355/77 can qualify for these grants and it is in such cases that the improvement grant regulations apply. However, if projects do not receive FEOGA aid, they do not receive grant under the regulations.
About one-third of the projects awarded aid under Regulation 355/77 have received grant under these regulations. We wish to ensure that United Kindom projects will continue to benefit in this way in the future and the amendments under debate today are therefore designed to extend the arrangements. It is estimated that expenditure under these regulations may amount to about £1·5 million per annum.
To recapitulate, this is a continuation of a modest measure which enables United Kindom companies to take maximum advantage of FEOGA aid in the marketing and processing sphere. I commend the regulations to the House. I beg to move.
Moved, That the draft regulations laid before the House on 27th June be approved.—(The Earl of Swinton.)
Lord John-Mackie: My Lords, we are very much obliged to the noble Earl for explaining this scheme. If one listened carefully to the noble Earl going through all the various regulations, numbers, dates and one thing and another, one understood how really one would need a research assistant to research everything properly, which I am afraid I did not do. So I am obliged to the noble Lord the Minister for doing it for us and for explaining how all the various regulations tied together over the years. Anything that helps marketing, and of course processing, is very welcome, as anybody would know who listened to the noble Lord, Lord Sieff, when he opened the Royal Show appealing to farmers to make their marketing better. Of course, as he pointed out, they cannot do that unless they process their goods much better than they do at present, and he gave some instances which were very interesting indeed.
I should like to ask the noble Earl whether this measure applies to external marketing from the EC? There has been a considerable mooting of schemes to start what one might call the equivalent of the Wheat Boards of Australia and Canada in order to try to dispose of our surpluses in the EC which are becoming very embarrassing at the present moment. I wondered whether such a thing would be feasible on an international basis or on a country-wide basis here. I notice that the late chairman of the Cereals Committee of the NFU is suggesting a body in this country alone, but, as I have said, there is an idea that it might be better to have an EC body to try to market this produce abroad.
These grants for processing, and so on, are of a very wide scope. The Minister detailed them, and I had not realised that they were quite so wide. He said that fishing was included in the regulations, and I take it that he is right. I did not realise that, as we shall be dealing with fishing grants again in a moment. I can
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assure the Government that on this side of the House we welcome the grants for processing and marketing and would agree to the amendments.
The Earl of Swinton: My Lords, I am grateful to the noble Lord for the way in which he has accepted the regulations. I am glad that I was able to educate him a little. Perhaps when I am out of a job and he is looking for a research assistant he might bear me in mind.
The noble Lord was more fortunate than I was. I am afraid that with my job I was not allowed to go to the Royal Show, so I missed the opening and indeed all of it, though incidentally my noble kinswoman managed to win a first prize with one of her ponies.
I am still waiting hopefully for an answer to the noble Lord's first question. Yes, the external marketing is entirely EC, but a small percentage of non-EC input is allowed in projects. But it is for EC countries only and an internal Community measure. I think that I am right in saying that fishing is involved in that it is food processing—smoking fish and that side of it—rather than actual fishing. It is what is fished out rather than the people who are fishing. I commend the regulations to your Lordships.
On Question, Motion agreed to.

Fish Producers' Organisations (Formation Grants) (Amendment) Scheme 1985
7.21 p.m.
The Earl of Swinton The Earl of Swinton rose to move, That the scheme laid before the House on 1st July be approved. [27th Report from the Joint Committee.]
The noble Earl said: My Lords, this is an even more straightforward measure, I think, than the previous one, the purpose of which is simply to provide continued parliamentary authority for the payments which Community regulations allow member states to make to recognised fish producers' organisations in their early years in order to encourage their formation and to facilitate their operation.
By way of background it may help if I mentioned that Community regulations in the fisheries sector provide for fishermen coming together and setting up producers' organisations with a view to achieving more orderly marketing of their landings. Financial assistance to help these organisations in the first years of their existence was already a feature of the European Community's regime for the fisheries sector when the United Kingdom joined in 1973. At the present time there are 14 recognised fish producers' organisations operating in the United Kingdom. Eleven have received the full entitlement to formation grant. Specific parliamentary authority to cover the payment of formation grants in the United Kingdom was obtained in the Fish Producers' Organisations (Formation Grants) Scheme 1982—SI No. 498.
The need to seek approval for the present measure arises from the fact that, subsequent to this scheme coming into operation, a revised Council marketing regime for the fisheries sector became applicable. This is contained in Council Regulation 3796/81, which

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was followed by a number of implementing regulations. Legal advice was that it was necessary to amend the 1982 scheme so as to take account of the new regulations to the extent that they governed the payment of formation grants to recognised fish producers' organisations.
The amending instrument has been made under the powers contained in Section 15 of the Fisheries Act 1981, which allows Ministers, with the approval of the Treasury, to make grants for the purposes of reorganising, developing or promoting the sea fish industry. It will apply to all parts of the United Kingdom. The relevant Community regulations provide that 50 per cent. of the payments made by member states may be recovered from the guidance section of the European Agricultural Guidance and Guarantee Fund.
Basically, however, the amending instrument seeks only to allow Ministers to continue to make payments of the nature for which parliamentary authority has already been obtained. Financial provision has been made in the usual way for future payments and it is necessary that parliamentary authority be obtained so that the Government can continue to make payments to an important sector of the industry, which has a key role to play in the marketing of fish. I beg to move.
Moved, That the scheme laid before the House on 1st July be approved. [27th Report from the Joint Committee.]—(The Earl of Swinton.)
Lord John-Mackie: My Lords, the noble Earl, I think, said that these regulations were even simpler than the previous ones, but there are about six items on the back page which one has to follow before arriving at a conclusion. However, we shall let that pass.
There is no doubt that grants to start up organisations, particularly for processing fish, and so on, are a great help to fishermen and are welcome. I happen to have connections with the Western Isles. In fact I have a fisherman staying with me this week from the Western Isles. Not only does he fish for prawns and other shellfish but he helps to organise schemes such as those which are the subject of the regulations. He said that he was rather doubtful that processing shellfish came under the scheme. He does not know of anyone who has a grant to process and market shellfish.
The other point is that five years seems a long time to have to keep records for fishermen who are working people. The Minister did not give any reason for extending the period from three to five years, and perhaps he could deal with that. Otherwise we agree with the alterations to the regulations and the necessity for bringing them in now.
The Earl of Swinton: My Lords, once again I am grateful to the noble Lord for the way he has received the regulations. As far as timing, grant can be paid to recognised fish producers' organisations to assist in their formation and development during the three years following their recognition by the member state. The grant is calculated according to a formula laid down in the EC regulation. In the first year it can be 3 per cent. of the organisation's sales over the previous three years, or 60 per cent. of its administrative costs
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in its first year of operation; in the second year 2 per cent., or 40 per cent. of administrative costs in that year, and in the third year 1 per cent. of sales, or 20 per cent. of the running costs. It is on the record of how the organisation is going that the grant is paid. That is why it takes the time.
I can assure the noble Lord, and I hope he will assure his friend, that shellfish are covered by the regulations.
On Question, Motion agreed to.

Immigration (Bail) Bill [H.L.]
7.27 p.m.
Lord Avebury: My Lords, I beg to move that the Bill be now read a second time.
I do that in the ecumenical spirit to which the noble Earl, Lord Gowrie, appealed a few minutes ago, in that I hope your Lordships will assent to two propositions—that our prisons are grossly overcrowded and that it is wrong to keep people in prison when they have no right of appeal to a court of law against their detention. This Bill makes effective provision for the release on bail of persons detained under the Immigration Act 1971. Your Lordships may remember that we discussed a similar proposal exactly three years ago today in the course of proceedings on the Criminal Justice Bill 1982. But the only change in the law that we then made was that, where a person was the subject of a deportation recommendation by a court, the court was given power to release that person subject to conditions.
There are still several categories of person for whom there is no right of application for bail. They are: those held in custody awaiting examination by an immigration officer; those refused leave to enter Britain and awaiting removal; alleged illegal entrants detained with a view to their removal; overstayers following the making of a notice of intention to deport; persons who have completed a custodial sentence and are awaiting the pleasure of the Secretary of State on a deportation recommendation by the courts; persons who are given a non-custodial sentence but who nevertheless, as I shall show your Lordships, spend several weeks in prison before being finally deported; and, lastly, members of the crew of a ship or aircraft who are left behind when the ship or aircraft leaves.
There is no accurate information about the size of the population of Immigration Act detainees because the Home Office publishes statistics only of those who are picked up and taken straight to prison as alleged overstayers or illegal entrants. There are no figures available for those who are kept in prison after the end of a custodial sentence, but the number is substantial. In 1983 Ashford Remand Centre was reported as having held 661 Immigration Act prisoners, and it may well be that the unreported cases are those of people who are being held for much longer periods.
The Parliamentary All Party Penal Affairs Commitee, in its report, Too Many Prisoners, of June 1980, gave the total number of receptions into penal establishments under the 1971 Act in 1978 as 1,305 and said that that was an increase of 80 per cent. over

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the 1975 figure. Again it emphasised that the figures that it had did not include those held after the expiry of their prison sentences. The total for 1983, which is the last year for which there are complete figures available, shows that over a thousand were imprisoned under the Act and that they spent an average of six weeks in custody. My calculations are that this cost the taxpayer something over a million pounds, an argument which I hope may appeal to Ministers even if they are not convinced that it is wrong in principle and contrary to natural justice for people to be locked up for weeks without any opportunity of contesting their detention.
The proportion of those detained for more than two months also rose from 12 per cent. in 1982 to 20 per cent. in 1983. In 1984 the Home Office for the first time gave some figures of those detained following completion of sentences. We are grateful to them for that. They showed that there were 41 such persons held for more than two months. From a sample of cases dealt with by the Joint Council for the Welfare of Immigrants, the average was four weeks, but in February 1984 20 per cent. of those detained had been held in prison for more than three months.
I want to pay a tribute to the work of the Joint Council for the Welfare of Immigrants in exposing this scandal and particularly to the work that has been done by Mr. Ken Browne and, before him, Mr. John Plummer and also, with the help of the JCWI, Miss Stephanie d'Orey, whose publication, Immigration Prisoners: a forgotten minority, I think helped to bring this scandal to the attention of the general public.
Very few of the prisoners about whom we are talking here have a right of appeal against the decision to remove or deport them. Any person who is considered to be an illegal entrant is detained without right of appeal, and in 1983 half the total fell into that category. Those refused leave to enter, having arrived without an entry certificate, form another large category. The only detainees who can apply for bail are those who have a right to appeal.
Moreover, alleged illegal entrants are given no chance to contest the opinion of the Secretary of State that that is what they are. Yet, as the Minister knows, there are very many cases where, on the intervention of a Member of Parliament, the Secretary of State ultimately decides to let such a person stay. I remember one such case, which is not untypical, where a person who entered with a work permit as a cook from Hong Kong was declared to be an illegal entrant on the grounds that, when interrogated by Home Office agents, the proprietor of the restaurant in Hong Kong where he claimed to have worked as a cook for five years who, incidentally, could speak no English, agreed that the man had had only three years' experience as a cook and that he had spent the two years prior to that washing dishes. On this basis, the Home Office claimed that the man's references were false and that he had to be removed. If the Minister would like to look this up, the man's reference number is C230190. He was in the end allowed to stay following lengthy representations to the then Minister, Mr. Raison. Yet the former Minister, the noble Lord,
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Lord Elton, said the last time we debated the matter, at col. 1092 of Hansard for 23rd July, 1982:
"There seems no justification for providing a right to apply for bail for a person who does not have a right of appeal".
That is the point which is contested between us. He thought that where it was appropriate, an immigration officer or the Secretary of State would always exercise his discretion to release the detainee while the case was being considered. But, as I imagine the noble Lord the Minister may be expecting, I should draw attention again to the case I raised last time of Mr. Abdul Qayyum Butt, a former member of parliament in Pakistan, who spent 137 days in Ashford Remand Centre in spite of appeals to the then Minister, the Home Secretary and the Prime Minister before he was grudgingly allowed out on the condition that he would report to the police on a weekly basis for some months thereafter.
The noble Lord said last time that my proposals would have applied to,
"even people whom my right honourable friend has personally certified should be detained". [Col. 1091.]
Yet here was a man against whom the Secretary of State had aimed the powerful weapon of a personal certificate under Section 13(5), so that directions had been given for his removal as a person whose exclusion would be to the public good. In the end, as the noble Lord will perhaps know, after a protracted struggle and correspondence which fills three large boxes, Mr. Butt was admitted as a refugee. Will the Government say that the courts of England have no role to play in protecting such a man from virtually indefinite imprisonment?
Even if one were satisfied that the Home Office was doing its best to avoid unnecessary detention—and that is certainly not my experience—this would not satisfy the requirements of the International Covenant on Civil and Political Rights, of which Britain is a signatory. This provides in Article 9(4) that,
"Anyone who is deprived of his liberty by arrest or detention shall be entitled to take proceedings before a court in order that the court may decide without delay on the lawfulness of his detention and order his release if the detention is not lawful".
I understand that the United Kingdom appeared before the United Nations Human Rights Committee under Article 40 of the covenant in April of this year and at that hearing our omission to provide access to a court for this group of people was questioned in a paper submitted by Justice, although I am not sure what was the outcome of the deliberations, because I have not been able to obtain a copy. However, I think it would have been a very difficult point for the Government to answer, that we are in breach of our obligations under the covenant and also probably in breach of our obligations under Article 5(4) of the European Convention on Human Rights, the wording of which is similar, although I have not been able to discover whether any cases have been brought before Strasbourg under that particular article.
On the last occasion that we discussed the matter, the Minister said that Immigration Act detainees were in a special position because their claim to be in the country was in doubt. I suppose that what he meant was that they had a greater incentive than others not to appear in answer to their bail. But surely the courts are the right authority to decide whether a person should

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be released on bail, because they do that every day in the case of persons brought before them on criminal charges. They have to evaluate whether a particular individual would fail to surrender, or would commit an offence while on bail, or obstruct the course of justice. All that we are asking in this Bill is that they should do precisely the same for the detainees in question as for the rest of the population of individuals who come before the courts on criminal charges.
That the Home Office use the power of detention to excess is the firm opinion of the Joint Council for the Welfare of Immigrants, the National Council for Civil Liberties, the Immigration Law Practitioners' Committee and all those others who have studied this question. The JCWI assert that 70 per cent. of those detained ought not to have been if the criteria of the Bail Act 1976 had been applied, and, certainly in the cases that I know about, there is a strong propensity to detain in circumstances in which it is patently unnecessary.
If one takes the case of Mr. Y, Home Office reference Y 30641, he was admittedly an overstayer but he asked to be allowed to remain in this country on the grounds that he was married to a British citizen and had two children by her, with another on the way. The Home Office tried to have him arrested when they knew that proceedings for judicial review were being initiated on his behalf, and without waiting for the constituency Member of Parliament, Mr. Clive Soley, to make representations, as he had notified the Minister's office he intended to do. That was also incidentally a clear breach of the undertaking given in writing by the Minister, Mr. David Waddington, that he would always allow the constituency Member of Parliament to make representations and would consider them before any decision was finally taken to have somebody removed. As it turned out, Mr. Y had time to escape the clutches of the Home Office. He only agreed to return to the matrimonial home—
Lord Glenarthur: My Lords, I hate to intervene when the noble Lord has only just started his speech. I am put in a rather difficult position when the noble Lord refers to so many individual cases. There is absolutely no way that I can refer to these cases tonight, refute them or even put my case on them. I hope that the noble Lord will not draw out too many individual cases because it would take rather longer for me to research them.
Lord Avebury: My Lords, I assure the noble Lord that I am not going to weary the House with many individual cases. In fact, this is probably the last one that I shall draw to the attention of the House. I am seeking to illustrate, in the case of Mr. Y, that he had every incentive to respond to bail and not to go into the undergrowth, as the Minister said in relation to this proposal. I quote what the Minister said:
"People are detained after making a determined effort to beat the control. You simply can't release them and let them go back into the undergrowth".
My point is that a person who has strong family ties, as Mr. Y does, with a wife and two children and another on the way, is not going to disappear into this mythical undergrowth which would mean, of course, severing the family ties that he has established in this
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country and that are the very reason for his seeking to remain and that made him become an over-stayer in the first place. Mr. Y is a paradigm. He is not meant to be a case to which the Minister is required to answer on the Floor of the House immediately. I believe that he is fairly typical of over-stayers taken into custody following the making of a deportation order which may or may not have been personally served on the individual.
There is another group who, paradoxically, are held in custody when all they want to do is return home. Those are the prisoners whose sentences have expired while the Secretary of State is still considering a deportation recommendation by the court, even, as I said earlier, those given a non-custodial sentence with a deportation recommendation. For example, foreign shoplifters who are given a fine may nevertheless find themselves spending several weeks in custody. It is thought necessary to hold them for the time in which they are allowed to appeal against conviction and sentence and then for a further period during which they have a right of appeal against destination. Someone may be convicted in the magistrates' court of a minor offence such as shoplifting and be given a fine but nevertheless spend as much as six weeks in custody. An example was dealt with in an exchange at Question Time on 19th May 1980. I shall not go into details. I mention it merely for reference purposes. A person sentenced to a fine by the courts nevertheless spent over a month behind bars.
That it is unnecessary to detain so extensively as we do is confirmed by the experience of other countries. Without going into much detail, I shall mention the experience of France where a court order has to be obtained to hold someone in custody pending removal following refusal of admission or subject to an arrêt d'expulsion, the equivalent of a deportation order. If the person is held for more than seven days he must come before a judge, who may release him subject to conditions or, exceptionally, prolong the detention for not more than six days. Compare that with the case of Mr. Gurdial Singh. Obviously this is a case that the Minister does know about, because it has been reported. He was held for no less than five months following completion of his sentence, prompting the Divisional Court, which has shown itself mostly extremely reluctant to fetter the Home Office in the exercise of administrative power, to declare that it was lawful to detain only for the period reasonably required to complete the necessary procedures.
The evils that this Bill seeks to remedy could partly be dealt with by the more liberal use of waiver of appeals against destination; the more liberal use of temporary release, of temporary admission and of supervised departure. The fact that Immigration Act detainees have a better record of responding to bail and of surrender following temporary release shows that the risk would be very small. In 1977, 13 per cent. of those in custody following a recommendation for deportation made a supervised departure, while in 1983 the proportion had fallen to 1 per cent., even though the Minister described the procedure as one that,
"can offer considerable benefits in reducing periods of detention and lower costs".

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This would not be enough to satisfy the requirement that there should be access to a court of law for anyone detained in this country. It is a serious matter that we have been prepared to tolerate the extensive use of imprisonment without the sanction of a court of law and wholly contrary, I believe, to the traditions of English justice. Our current practice adds over 1,000 extra prisoners a year to a system that is already bursting at the seams and locates them in remand prisons where the pressures are most acute. All the organisations that have studied the problem have urged reform on the lines proposed, including the National Council for Civil Liberties, the Runnymede Trust, the Parliamentary All-Party Penal Affairs Committee, and Justice. I hope that these arguments will now commend themselves as well to the Minister. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Avebury.)
7.46 p.m.
Lord Mishcon: My Lords, the noble Lord, Lord Avebury, with his usual fervour, has moved the Second Reading of the Bill and has given a lot of detailed information to the House. I therefore propose, with very little exception, to speak in general terms as to the reason I support the Bill, as do my noble friends. There is one principle about which I should have thought there was no doubt. It is a principle that looms large in our traditions. It is a principle that has made us attack the regimes of other countries. The principle is that administrative detention is contrary to the whole principle of the liberty of the subject and goes completely contrary to the doctrine of habeas corpus. We all know what administrative detention can mean in various countries—the fact that the government machine itself, a civil servant himself, can either restrict or, indeed, increase the period during which someone is detained against his will. That is my general principle. I start with that.
I go on to consider, if I may, with your Lordships three other factors that are particular to this Bill. The first is that it must surely be in our own interests, in the present scandal of our prison population, that the Government are called upon to consider, week by week and month by month, people in prison in numbers far in excess of what we all know to be the absolute limit in regard to detention in prisons in anything like satisfactory conditions. We are well above the proper figures. We are up to about 48,000. That is a scandal. Representatives of the Government say, very understandably, that they have done what they can and that they have seen to it that courts do not imprison unless it is necessary. They have talked about non-violent crimes, saying that the committer of a non-violent crime should not, save in exceptional circumstances, be sent to prison. They have talked about shorter prison sentences. They have talked about building new prisons.
Must it not be a cardinal principle of any policy that you do not have in prison those who have committed no criminal offence but whose entry, if you like, into this country is questioned or whose stay in the country
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has been prolonged beyond the permitted stage or who have been ordered to leave this country and who are prepared to leave this country under some sort of official supervision? Why do they all, or most of them—and the noble Lord, Lord Avebury, mentioned the figure of something like 1,000 a year—find their way into our prisons, which are already overcrowded? That is my first point.
I turn to my second point which concerns our own interest in regard to race relations, which are such an important part of the way in which we wish members of our multiracial society to behave one towards the other. Is it not a cardinal principle that we should not allow our ethnic minorities—and let there be no mistake about it, in the main we are talking about our ethnic minorities—to think that, not only are people imprisoned for very considerable periods in regard to matters coming within the Immigration Act, but also they have no proper right of appeal in by far the majority of cases and that, when they do have an appeal, in the main it is to the adjudicator? They will ask, "Who appoints the adjudicator?" It is the Home Office which appoints the adjudicator and, to put it bluntly, it is the Home Office which has sent them into prison. Is that sensible public relations in regard to our race relations policy?
My third point returns to the principle with which I first started. There are those of us who are grieving at this moment at what is happening in South Africa. We are complaining, as did the EC Ministers, at the detentions which are taking place under the state of emergency. Is it for us to sanction the same type of imprisonment? I am not in any way likening conditions in this country to those in South Africa—there is no comparison of any kind. However, what we are complaining about in South Africa is, among other things, imprisonment by administrative order and without any of the courts being involved.
Having said all that, I understood the noble Lord the Minister to say, with perfect justification, that unless he had full notice of a case that was to be mentioned it was quite impossible for him to deal with it in the course of the Second Reading debate on this Bill. The noble Lord, Lord Avebury, who is always completely fair when he addresses this House would be the first to agree that that was a perfectly proper thing to say.
The only case which I shall quote is one which has been quoted previously. I shall not mention Members of Parliament or Ministers who may or may not have given various undertakings; nor shall I put the point of view of somebody who was in prison for a long time and therefore leave in doubt whether that particular point of view had been put properly. I shall mention one case so that your Lordships know with what we are dealing.
On 30th November 1984 a Nigerian called Mr. Johnson came out of Pentonville Prison. If his imprisonment has lasted until 1st December he would have been there a whole year. He had committed no crime and of that there is no doubt. He had committed no crime at all. No offence had been alleged against him and no court had authorised his detention. He was held under the administrative provisions about which I have spoken, conferred on the Home Office by the Immigration Act 1971 which this Bill seeks to amend

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in one particular in regard to bail. It meant that an official in the Home Office, by the issue of an order, or the failure to order a release, had kept that man in prison for a year. The only reason he ever came out of prison was that there was a threat of habeas corpus. If that threat had not been made, and if the Home Office had not been alerted to it, he might have been in prison for an even longer period than that.
Your Lordships may ask, "Why was he there at all? What was the provision under the Immigration Act which could allow this country to walk into the very deserved criticism that its great reputation for the freedom of the human being had been so assailed by a matter of that kind?" He was admitted to this country perfectly legally. He overstayed. He overstayed because he had a leg injury and he had to go into hospital to receive treatment. Because he overstayed he found himself in Pentonville Prison for nearly a year.
I do not want to make a point arising out of what may be an exceptional case. That it could happen once under the present provisions of the Immigration Act 1971—and, indeed, if it happened only once—would cause me to argue that that was a good reason for ensuring that we look at the procedure and do something about it.
What does the Bill do? I say with great respect that the Government, any government, ought to look with favour upon this Bill and I am not in any way talking in political terms about the Bill. If my own party were in Government I would say that they ought to do something or ought to have done something about this matter, and other governments of whatever colour in the past ought to have done something about it.
There is an opportunity for this Government not to argue in answer to the Bill, "Well, you know there could be cases where the man may slip through". That happens in our criminal law nearly every day. There could be such cases. However, the law in regard to bail is set down very clearly. All the Bill does is to say that there should be a procedure where, in the normal case, on a recognizance being entered into, the man or woman concerned should be allowed bail. It is for a limited period; it can be renewed and there can be conditions about reporting—all perfectly in order—to secure that the person does not abscond.
In order to cover the contingency of somebody who has escaped previously and who has not honoured his bail on a previous occasion, there is a clear provision in Clause 4 of the Bill that in such a case bail need not be given:
"the detainee, having on any previous occasion been released on bail … has failed to comply with the conditions of any recognizance or bail bond entered into by him on that occasion".
The Government may say, "But how can we protect the public? He may commit a criminal offence". There is an exception in Clause 4 where bail need not be granted; that is, if,
"the detainee is likely to commit an offence unless he is retained in detention".
One may say, "One does not know where he comes from. He may be the carrier of some germ". That is covered in Clause 4: if,
"the release of the detainee is likely to cause danger to public health".
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It might be said in the man's protection should bail always be granted? What happens if you find that he is suffering from some mental disorder? It is covered by Clause 4 of the Bill: if,
"the detainee is suffering from mental disorder and … his continued detention is necessary in his own interests or for the protection of any other person".
Then it may be argued, what happens if he is too young and for his own protection he ought to be in custody? It is covered in Clause 4 of the Bill: if,
"the detainee is under the age of seventeen … arrangements ought to be made for his care in the event of his release and … no satisfactory arrangements for that purpose have been made".
Then, what about the position where the authorities know that, although the person has not previously absconded, there are circumstances which make them reliably feel that he may not answer to his bail? There it is in Clause 4: if,
"the detainee is released as aforesaid [he] is likely to fail to answer his bail."
All those situations are protected. I am going to ask the noble Lord the Minister, whatever might have been the Government view in the past, to take the view now that this is the time—for the sake of public relations, for the sake of race relations, for the sake of justice and of our tradition in regard to the liberty of the subject and habeas corpus, and all those things that have been mentioned—to agree that this Bill has the right principle behind it; that there is no good reason for failing to support this Bill. I await with some interest what I hope will be a courageous reply from the noble Lord the Minister, and one in conformity with our great British traditions.
8.3 p.m.
Lord Glenarthur: My Lords, I am grateful to the noble Lord, Lord Avebury, for his explanation of his Bill and for the opportunity it gives me to explain the Government's position in relation to it, for although it is a short Bill and to the point, when compared with the existing bail provisions contained in the Immigration Act 1971 its implications are far-reaching.
I recognise at once that detention, particularly in relation to immigration, is an emotive issue. I therefore pay tribute to the noble Lord's desire to ensure that detention under administrative arrangements is kept to a minimum. That is a view we all share. There is no divergence of aim between us on that, and considerable efforts are continually made by all those concerned with detention to ensure that that is what happens. That said, I have to say at the outset that, however commendable the aims of the Bill are, they would have wide-reaching effects, perhaps not all of which have been forseen by those who might promote this Bill.
To go back to basics, if one accepts the need for immigration control—and there cannot be much dispute about that—then it follows that there will be times when, to safeguard the integrity of such control, it is necessary to detain those who seriously flout or disregard it. Equally, it is right and proper that no one should be detained by the use of administrative powers without good reason or for longer than is necessary. For that reason, the Bill deserves attention.

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But in the Government's view it would be quite wrong to proceed on the assumption expressed by some critics that the power to detain in immigration cases is used excessively, unthinkingly, or for longer than is necessary. Nothing could be further from the truth. Our policy continues to be to seek to use administrative procedures for release, sometimes on restrictions, wherever possible. While we do not have as much statistical information on the period of time spent in detention as we might like—and the noble Lord referred to this—I can say that, whereas previously the overall figures for persons detained under Immigration Act powers were not kept, we have, since September 1984, been keeping them and they will in due course be considered for publication.
As an interim indication of the effect of the new measures a comparison can be made between the position before and after August 1984 in respect of those detained in connection with deportation. In the period January to July 1984, 18 restriction orders and 41 detention orders were served, and the average number of persons detained for more than two months at the end of each month was 35. In the five months from August to December, the number of restriction orders served was 43, the number of detention orders served was 14, and the monthly average of persons detained for more than two months was 25. From January to the end of March 1985, 23 restriction orders and 11 detention orders were served. The average number of persons detained for more than two months at the end of the first four months of the year showed a steady reduction from 31 in January to 12 in April.
I am sure that this reduction will be welcomed by all
those who have expressed concern on the subject, not least by the noble Lord, Lord Avebury. This may perhaps go some way to indicate that there is not quite as much as the noble Lord suggests there might be in what he described as a scandal.
The noble Lord, Lord Mishcon, raised a particular matter concerning a Mr. Johnson. Since he was connected with deportation I can respond briefly to this. It is one of the cases to which the first report refers. Although I can certainly follow this up for the noble Lord, in essence may I say that the report starts off in rather a misleading way about this.
This gentleman had been convicted by a court of a
motoring offence when he was an untraced subject of a deportation order made about two years before for over-staying. Consequently part of the time that he was in detention he was in fact serving a sentence following conviction by a court. He was not subsequently released for good reasons which he would have revealed, I am told. Detention was prolonged by his appeal—during which time he was entitled to apply for bail by representations made on his behalf—and by travel document problems.
Although released on restrictions on 30th November he failed to comply with those restrictions by not reporting on 19th December as requested, and since then we have no trace of him. His travel document has not been used and there is no record of his embarkation. I think that that puts another and different light on it. I shall study the noble Lord's
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remarks, but clearly there is more to this case than meets the eye.
I think that to some extent it is unfortunate that this Bill should have been introduced to coincide with publication of a series of reports, of which this reference to Mr. Johnson is an extract from one. These are the reports by the Immigration Prisoners' Project. Those reports contain many misleading allegations, and there are others which are inaccurate or indeed outdated.
The reports have been issued without consultation with the Home Office, and take little or no account of the steps we are taking to reduce detention and improve procedures generally. But there are two more reports in the series still to be issued, and I am pleased to say that the representatives of the Immigration Prisoners' Project have taken up an invitation to meet with officials before these are published. I am sure that some good may come of that.
My reference to these reports is not intended to detract from any merit which the Bill might have. As we understand it, one of its main effects would seem to be to provide, for all those detained under Immigration Act powers, a presumption in favour of bail, rebuttable only in certain circumstances similar to those in the Bail Act 1976. The Bail Act, however, is specifically concerned with those who may be convicted of criminal offences. That is far from the case for the vast majority of Immigration Act detainees, and that difference needs to be borne in mind.
As the law presently stands, the right to seek bail under the Immigration Act 1971 exists only where the detainee is subject to an appeal to the independent immigration appellate authorities; or where the detainee is a passenger arriving at a port who has been held by the Immigration Service pending examination and a decision on admission has not been reached within seven days of arrival. In neither event does the right to seek bail carry with it the presumption that it will necessarily be granted.
The noble Lord, Lord Mishcon, expressed concern about the appointment of independent adjudicators. While my right honourable friend appoints the immigration adjudicators, which is the lower tier of the appellate authority, my noble and learned friend the Lord Chancellor appoints the upper tier, the tribunal members. We note the view that the adjudicators should be appointed by the Lord Chancellor, and we are at present considering that in conjunction with him.
The Bill would introduce a presumption in favour of bail to all those detained under immigration powers: that is to say, first, those detained pending examination at port of arrival; second, those under refusal of leave to enter; third, illegal immigrants; and fourth, those detained on the strength of detention or deportation orders. The noble Lord, Lord
Avebury, wanted to extend appeal rights to illegal entrants. Under the present law a person whom it is decided to remove as an illegal entrant may not appeal while in the United Kingdom. The establishment of a right of appeal in the United Kingdom for illegal entrants would have the effect of putting them in a more favourable position as opposed to a person seeking to

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enter the country lawfully who might then be refused leave to enter, and would appear to reward dishonesty over honesty. But I recognise that a case might exist for affording such a right on humanitarian grounds where the subject had been in the United Kingdom for a number of years and had established strong ties here. The proposal would require an amendment to the 1971 Act, which is not contemplated by the Government at present. It will be noted for further consideration should a suitable opportunity for amending the Act arise.
At the port of arrival, immigration officers have a duty under the Immigration Act 1971 to examine passengers in order to determine, among other matters, their admissibility to the United Kingdom. In the great majority of cases this can be and is done very quickly on the spot. But clearly there will be times when the immigration officer may not be able to complete his examination so quickly, and when he may therefore have good cause to detain; for example, in order to make inquiries abroad, to call for an interpreter, or to interview sponsors. Under the Bill's proposals, however, anyone so detained, for however short a period, would have the right to seek bail from an adjudicator with the presumption that this would be granted. That may not have been the main intention of the Bill but it is still one of its effects, and it is one which in the Government's view would seriously and unacceptably frustrate the operation of the control of entry to the United Kingdom.
Lord Avebury: My Lords, I think the noble Lord perhaps ought to give more explanation, because if the court is not satisfied that that person will respond to bail then it does not have to be granted. It is in the same position then as the immigration officer who decides on temporary release, in that the court evaluates the likelihood that a person will turn up when required to do so—for further examination, for example. If it thinks that that person will, as the Minister's honourable friend Mr. Waddington expressed it, "disappear into the undergrowth", then it does not have to grant bail. But in the vast majority of cases the immigration officer will already have considered an application for temporary release, and one hopes will favourably have entertained the idea, and therefore the number of cases coming before the courts will be very small.
Lord Glenarthur: My Lords, I think the answer to the noble Lord's point lies in the words in Clause 4, "substantial grounds". As far as I know there is no adequate definition of "substantial grounds", and they would introduce a problem which would be quite unacceptable.
Lord Avebury: My Lords, perhaps that is a Committee point.
Lord Glenarthur: My Lords, the noble Lord asks whether it is a Committee point. It is nevertheless a major part of the Bill. The noble Lord has the words "substantial grounds" clearly written into Clause 4. I am telling him now that in respect of the Bill as it is at present written, that would be the effect of it.
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Turning next to the category of passengers who are refused leave to enter, it is often possible for the immigration service to make arrangements for their departure without delay, thus keeping detention periods to the minimum. But under the Bill a detained passenger who was about to be so returned would nevertheless have the same right of application for bail to an adjudicator with the presumption in favour of the grant of bail notwithstanding the fact that he had been found to have no claim to be allowed into the country. At least there is nothing in Clause 4 of the Bill to exclude this possibility, which would not only frustrate the removal process and control generally but would also require additional resources.
Further—and I am sure this was not the intention of the noble Lord—the presumption that bail would be granted might all too easily result, for example, in the arrival of increased numbers of intending settlers, in the guise of visitors, in the hope that if leave to enter was not granted bail could be obtained as a means of securing release with a view to their absconding.
There is another significant area where the Bill as drafted would represent a considerable extension of the powers of the appellate authorities into areas where no statutory rights of appeal presently exist. As I have said, the power of adjudicators to consider bail applications in the absence of an accompanying statutory right of appeal exists only where a passenger is detained, and is still awaiting a decision about his admission after seven days. These occasions are very rare indeed. It follows that the Bill would have significant resource and manpower implications both for the independent appellate authorities and for the immigration service. If evidence was produced that administrative powers of detention were being used harshly or excessively, then it might be no answer to point out the cost and resource implications of any system which aimed to reduce the use of that type of detention; but that is not the position, and these important implications must be identified at the outset.
The Bill could therefore impose a potentially large and unacceptable additional burden on the immigration service, to whose staff it would fall in virtually all cases to appear before adjudicators to present the "substantial grounds" which I referred to for opposing bail, demanded by Clause 4 of the Bill. In the event that bail were to be granted, it would also fall to the immigration service to arrange for the taking of recognizances and any other associated procedures. That is an important manpower consideration to set against the need—I stress the word "need"—to have such a provision.
I understand that the appellate authorities do not keep statistics of the small number of bail applications currently made, but it is not unreasonable to assume that under the Bill, and with the presumption in favour of bail, the number would greatly increase. That of itself is not a reason for objecting to the Bill, but again the resource implications cannot be overlooked. As matters stand, bail applications (when there is a right of appeal to an adjudicator) have an immediate priority. Detained cases take priority over others, and rightly so. This would have to remain the position, and we certainly would have no wish to change it; but to maintain the service would either require greater

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resources, within both the appellate authorities and the immigration service, or involve delaying non-detained cases, which may be urgent for other good reasons, at the expense of bail applicants, Or even both. Apart from the additional staff required, it is likely that it would be necessary to set up new hearing rooms to ensure that no shortage in that area was contributing towards the length of periods spent in detention.
Lord Mishcon: My Lords, if the Minister would forgive my interrupting, if he is dealing with accommodation and things of that kind, and costs, has he compared that position with the accommodation in prisons that nobody can spare, and the cost of keeping people in prison?
Lord Glenarthur: My Lords, I am aware, as the noble Lord himself is aware, of the problems posed by the prison population; but we are talking about not all that many people and I have given some statistics to the noble Lord to indicate that what we are talking about here is a question of need. The principle is the important thing to deal with that particular need. The detail that I am putting on it is merely to indicate the sort of costs which might be needed should this Bill go through.
I do not think that I can go into further detail upon prisons generally. It is the practice for bail applicants to be escorted to the hearing of their applications and this would present problems both for the already hard-pressed prison service (to which the noble Lord, Lord Mishcon, has referred in the case of those detained in prison establishments), and for the arrangements made in other cases.
It is therefore quite clear that there is a considerable cost implication to the Bill. We recognise that administering detention with no provision for the grant of bail or for the seeking of release save by application of habeas corpus is an issue of concern. However, the Immigration Act 1971 already provides for bail in a number of situations. This Bill, with its wide-ranging definition of the term "detainee" and its presumption in favour of bail, would seriously frustrate the operation of immigration control as well as greatly increase resources.
This is not to imply any complacency with the present arrangements. As I have said, we are committed to the use of temporary admission and other administrative procedures for release wherever possible. This commitment, coupled with the arrangements for the review of individual cases involving lengthier detention, already provides, in our view, adequate safeguards. For all these reasons I have to tell the noble Lord and the House that even if the Bill receives a Second Reading it will not receive Government support at any future stage.
8.22 p.m.
Lord Avebury: My Lords, I very much welcome, first of all, the noble Lord the Minister's agreement that detention is an emotive issue and that he shares the aim that all of us on this side of the House advance, that of keeping detention to a minimum. I also very
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much welcome the remarks made by the Minister regarding the Government's intention to introduce when a legislative opportunity arises a right of appeal for alleged illegal entrants who have been in the country for a long time. Those are two most important undertakings given by the Minister which should be welcomed on all sides of the House.
However, I have to take issue with him on the remarks he made towards the end of his speech, and in particular his ex cathedra assertion that the Bill before your Lordships would seriously frustrate the operation of immigration control, which the noble Lord entirely failed to demonstrate. He has not given a single argument in favour of that proposition. On the contrary, if I may say so, his argument leading up to that assertion was self-contradictory, because if the proposals that we are now advancing would create a large and unacceptable burden on the immigration service, that must surely be only because a large and unacceptable number of persons are being detained under the administrative procedures at present applied by the Home Office.
Nor can he have it both ways in his arguments about costs; because the fewer people there are detained in custody in the prisons the lower will be the cost of maintaining them there. I believe that it now costs over £200 a week—and the noble Lord will correct me if I am wrong—to keep somebody in a remand prison. Therefore, if it is correct (as I am informed) that the average length of stay of these people in the remand system is eight weeks, every one of them is costing the taxpayer £1,600. I am sure the noble Lord is not going to say that to provide a right of appeal and a right of access to bail for a few of these people will impose anything like that cost on the taxpayer.
Moreover, the noble Lord omitted to reply to the remarks I made at the end of my speech about the greater use that could have been made of temporary release, temporary admission and supervised departure, all of which would result in a reduction in the number of people who need to apply for bail. As I said, the Home Office has not satisfactorily explained why all those who are detained following the end of a period of imprisonment and who normally spend additional periods in custody while the Home Office is making up its mind whether to accept the recommendation of the court for deportation, would be candidates for supervised departure. The vast majority of them would be delighted to go back home as quickly as they can.
Nevertheless, as has been shown, the vast majority of them have to remain in custody. In those circumstances, if the department the noble Lord belongs to is not prepared to use the procedure which the honourable gentleman, Mr. David Waddington, himself commended, it should face the challenge in the courts that those people would be able to apply for bail.
Lord Glenarthur: My Lords, perhaps I may refer—I ought to have done so earlier; and I apologise to the noble Lord—to the question of supervised departure. Our policy is to use the procedure in all suitable cases. There has been a drop in the number of supervised departures in 1983 following various particular difficulties. We are now seeking to ensure that

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supervised departure is used wherever possible. The numbers are unlikely to reach the levels of 1977–78. There has been a decline since 1978. It is also reasonable to assume that if the courts are more inclined to authorise release in appropriate cases the remaining detainees are less likely to be suitable either for release or for removal by supervised departure.
The trend towards reduction in detention seems right but its effect is to reduce the candidates for supervised departure. This needs to be recognised when one compares the figures for earlier years. I hope that will answer some of the noble Lord's points.
Lord Avebury: My Lords, only partially. As the noble Lord perhaps recollects, we correspond between us on a rather large number of prisoner cases. Some of these are concerned with the individuals who reach the end of their sentence and who would be only too delighted to go back to their countries of origin if the Home Office would only let them. So I do not accept his contention that only a small minority of cases are suitable to the supervised-departure procedure and that if you were to increase that percentage the likelihood of absconding would correspondingly increase.
If the Home Office was able (as it was) to allow 13
per cent. of those in question to depart by means of this scheme in 1977, why did the figure fall—the noble Lord has not explained this—to 1 per cent. in 1983 and why should it not be a very much larger figure than the 1977 one of 13 per cent? If the figure were approaching the 100 per cent. mark and nearly everybody who was not deported immediately on completion of his sentence could go by supervised departure, the number of cases that would come before the court would be very small and the whole edifice which the noble Lord attempted to raise on the burden that this would represent to the adjudication of the courts falls to the ground.
My Lords, I suspect we are not going to reach a conclusion on this matter this evening but that the argument will continue and, perhaps, will be illuminated by the process that the noble Lord described of a meeting between those concerned with the immigration prisoners' project and the Home Office, so that at least we can agree on facts. My cases were not drawn from the immigration prisoners' project, and I am not able to respond to the attack which the Minister made on the veracity of some of those cases. The ones that I mentioned come from my own files. I was careful to give the reference numbers so that if the noble Lord wishes he can check later on that what I said is true.
I still believe, in spite of the arguments of the Minister, that we face a substantial evil in detaining upwards of a thousand people every year without giving them any right of access to a court. I still believe, in spite of the fact that the noble Lord did not refer to this point, that we are in violation of our obligations under both the United Nations Covenant on Civil and Political Rights and the European Convention on Human Rights. I should have thought, in view of the fact that we have been called before the European Commission on a number of occasions and have come off worst on many of them, that this is something that
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the noble Lord might have touched on in his reply. However, I make no complaint of that. We can probably return to the argument in the course of further discussions on this Bill. I commend the Second Reading of this Bill to your Lordships.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Duty Solicitor Scheme
8.30 p.m.
Lord Elwyn-Jones Lord Elwyn-Jones rose to ask Her Majesty's Government whether they are aware of the delays in arranging matters essential to the initiation of the 24-hour duty solicitor scheme and what action they will take, in view of its proposed commencement throughout England and Wales on 1st January 1986.
The noble and learned Lord said: My Lords, the Police and Criminal Evidence Act, which Parliament passed last year, strengthened and extended police powers in important respects. In cases where a suspect has been arrested and detained in connection with a serious arrestable offence, for instance, access to a solicitor for advice and assistance may be delayed for up to 36 hours from the time of that person's arrival in a designated police station.
After anxious deliberation before accepting this, Parliament included in the Act's provisions a crucial safeguard for the citizen, which was designed to balance the increase in police powers. That provision is his right of access to legal advice from a solicitor when a person in a police station in custody for questioning has to consult a solicitor privately at any time. Delay in compliance with a request to see a solicitor is only permitted, first, in the case of a person who is in police detention for a serious arrestable offence; and, secondly, if an officer of at least the rank of superintendent authorises it. But, in addition, Section 59 of the Act provided for legal aid to be available to enable persons held at police stations to obtain legal aid and to get advice and assistance.
The Government accepted that solicitors would have to be given a guarantee of payment from public funds for this right to be made a reality and that the service to the man or woman in police custody would have to be free of charge. This, the Government conceded during the debates, was a major commitment both in policy and in financial terms, and it must indeed have influenced both Houses as the Bill went through Parliament.
The Law Society, on the strength of these undertakings, began planning for a national duty solicitor scheme to cover England and Wales, so that solicitors would be on call 24 hours a day. The Home Secretary announced that the 24-hour duty scheme would be implemented on 1st January 1986, when the Act itself would be implemented.
The amount of work involved in the operation of the proposed scheme will be considerable. Research and experimental schemes have produced estimates that from 316,000 to 369,000 persons may require legal advice at the 3,000 or so police stations in different parts of the country at varying hours of the day and night and at weekends.
Initially the cost of the proposed public service was massively underestimated. I understand that the Lord Chancellor's Department had forecast an annual bill of around £6 million; but in March of this year a pilot study was conducted, which predicted that the likely cost would be nearer £20 million, and some people indeed think that sum is too little if the work is to be done properly.
As time went on and decisions on the main issues kept being delayed by the Government departments concerned, it seemed unlikely that the Law Society would be able to implement a scheme across England and Wales by the 1st January 1986, which date the Home Secretary had announced for the implementation of the Act. An Early Day Motion in the other place drew attention to the risk that was involved.
I understand that the President of the Law Society wrote to the Home Secretary only last week to point out that the Law Society could make no further progress in preparing the scheme until the necessary Government decisions were made and announced. The president added that, since the Home Secretary had stated in another place on 7th November 1983 that effective arrangements must be made for a solicitor to be available at all times when legal advice might be sought, the Government should delay the implementation of the detention provisions of the Act beyond 1st January 1986, until an effective 24-hour duty solicitor scheme for police stations was in existence.
Other urgent representations were made to the Government both in another place and here. I put down my Unstarred Question on 17th July. There was also considerable press activity on this issue. Walter Merricks, who was a member of the Royal Commission on Criminal Procedure, wrote in The Times on that same day:
"Don't let this right be arrested"—
that is to say, the right to legal aid and advice for the person held in police custody.
Suddenly there appeared in the press at the end of last week a report—which has more of the quality of a Government leak than of an inspired guess, if I may say so—that the Home Secretary had arranged with the Chief Secretary to the Treasury that some £20 million would be available for the 24-hour duty solicitor scheme. We wait anxiously but hopefully to learn from the noble and learned Lord the Lord Chancellor tonight whether or not that report is true and whether he feels able officially to confirm that at least the money side fo the 24-hour duty solicitor scheme is going to be provided for on the lines that were referred to in the press reports of a few days ago.
However, apart from the financial aspects, there are other causes for concern to those who will be responsible for administering the scheme and to those who may hope to benefit from it. First, what provisions and arrangements are to be made for access by a friend or relative of the person in custody to the duty solicitor? Unless these are provided, there may well be occasions when the suspect detainee who needs legal advice will not be able to get it, particularly when
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he or she is voluntarily helping the police with their inquiries.
Secondly, what arrangements are to be set up for a country-wide telephone service for the operation of the scheme? The management consultants appointed by the Government to assist the Law Society advise that it is essential to have such a service, whether centralised or regionalised, for receiving calls from police stations and for the efficient and speedy deployment of duty solicitors. Only with a central or regional telephone service on those lines will it be possible to avoid having literally hundreds of solicitors standing by on duty, either at offices or in their homes, at considerable cost to the Legal Aid Fund and inevitable inefficiency in the use of the profession. The need for a telephone service is emphasised by experience in the Metropolitan Police Area over the past few weeks where the police have implemented parts of the Act for training purposes. A separate request has been made to the Government for funds to set up a central telephone service covering London for the rest of the year. We should like to know what response to that request may be expected.
Thirdly, what is proposed as to the eligibility of suspects held in detention for questioning—because that is what we are talking about—to receive legal advice and assistance? The Government have already agreed in principle that detainees will qualify to see the duty solicitor or their own solicitor without assessment of their means or the payment of a contribution. The Law Society has asked that the legal aid and advice regulations should be amended as a matter of urgency to cover the Metropolitan Police experiment and any others which occur before 1st January 1986 and indeed thereafter. Fourthly, are the proposed remuneration arrangements—if solicitors are to be expected to provide a 24-hour duty service overnight and at weekends—sufficiently generous to ensure that solicitors of experience and competence will take part?
These are some of the provisions that, in our submission, are necessary with regard to this exciting and vitally important body of safeguards for persons held in detention in police stations, whose alleged guilt has not yet been proved, many of whom will be acquitted at their trial either by a judge on a submission of no case or on acquittal by a jury. The right of the suspect held in police custody for questioning to get legal advice and representation if it is applied for will be one of the marks of a just society and one which must be ensured if confidence in our penal system is to be retained.
8.43 p.m.
Lord Hutchinson of Lullington: My Lords, it must be a matter of some regret that there is such a sparse attendance here tonight to discuss this very important Question which has been raised by my noble and learned friend Lord Elwyn-Jones.
For many of us in this House the central issue in the debates on the Police and Criminal Evidence Act was the right of a suspect to legal advice when in custody. The reason for this is very simple: the overwhelming weight of evidence that the majority of this continuing series of miscarriages of justice in recent years were caused by the making, or the alleged making, of false

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confessions by accused persons when in custody. The Government resisted all attempts quite simply to guarantee that no suspect should ever be held incommunicado in a police station and stuck to the exceptions for getting legal advice which are set out now in Section 58 of the Act, but promised the creation of an effective duty solicitor scheme to ameliorate the position in all other cases. So this matter goes, I would suggest, to the very heart of this Act and to the bona fides of the Government.
I wish to make one central point this evening; that is, that the provision of legal advice to suspects who have no solicitor of their own is inextricably bound up with the provision of advice to those who do so have. I have found among solicitors, certainly in London, that it is very generally felt—and I agree with their feeling—that it is no good setting up a scheme which remunerates solicitors for work in out-of-office hours on a duty solicitor basis which is not related to the rates of remuneration for solicitors who see the clients on a legal aid basis during the same hours.
At present there are two basic situations. One is the attendance at a police station, at the office, in court or at a court, to see the client and give advice which involves the use of the green form with a maximum remuneration of £50 in some exceptional circumstances, with an additional £15 for unsocial hours' attendance. The other situation is attendance at a magistrates' court in office hours on the duty solicitor scheme during working hours, which at the moment involves a roster and a flat-rate payment of £25 per hour which is a system which it seems works reasonably well and is very free from form-filling.
I must point out to the noble and learned Lord the Lord Chancellor yet again—and I am sure that he is tired of my pointing this out—that the degree of dissatisfaction, indeed of acute frustration, that is now being felt among solicitors and counsel at the level of legal aid scales will make the implementation of an effective duty solicitor scheme very much more difficult to achieve. In London the operation of the legal aid scheme in relation to criminal work by ordinary "criminal" solicitors is now almost impossible. It can only be done by wide use of cheap labour in the form of articled clerks and unqualified staff. There is no doubt whatever that standards have sunk and have been severely eroded as a result.
As to counsel, the polarisation of the Bar is now well under way between the commercial and specialist Bars depending on privately paid work and the ordinary common law and criminal Bars which depend largely on publicly-funded work. So frustrated indeed are the junior Bar, that at the annual meeting of the Bar next week an unprecedented attempt will be made to take over the Council by voting in a group of barristers backed by a manifesto pledged to take emergency action on the question of fees in the criminal courts. I therefore say to the noble and learned Lord the Lord Chancellor that unless solicitors are fairly and adequately remunerated for advice and representation the promise to set up the duty solicitor scheme will be but a hollow pretence.
I venture to suggest that the following are some of the essential considerations in setting up the scheme. Some of them have already been referred to by the
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noble and learned Lord. First, the remuneration for certified members of solicitors' staffs must include a proper stand-by payment for being on duty during out-of-office hours. Secondly, that must also include some form of compensation for loss of income during the following day and recognition of the absolute necessity to employ extra qualified staff if this scheme is to be effective. Thirdly, many solicitors and staff in London and in the big cities live far from the offices in which they work and far from the courts which they normally attend and provision must be made for accommodation and travel expenses.
Fourthly, there should be the provision—as has already been referred to—of communication equipment, of a central telephone facility, to enable calls to be made to a senior member of staff and by him to the appropriate junior members who will be required to attend in the different police stations. This facility must also be open surely to friends and relatives of the suspect as well as to the suspect at the police station.
Fifthly, there is the possibility of the designation of certain classes of case, particularly under the much deplored provisions of Section 25 of the Act—where, in certain circumstances, the police have power of arrest for the most trivial offences—where telephoned advice would be sufficient to fulfil the duties of a solicitor under the scheme.
The substantial increase in salaries of the judges has been justified on the grounds,
"that it is essential to recruit, retain and motivate the right people of the right quality".
I know that the noble and learned Lord sitting on the Woolsack, of all people, will appreciate most that the quality of the Bench, from the stipendiary magistrate to the Lord of Appeal, depends on the quality of the intake at the bottom of the legal profession. They are the men and women who must be recruited, retained and motivated, and unless the remuneration of solicitors under this scheme is fair and is sufficient, then the duty solicitor scheme will either fail or become one simply of third-rate or totally inexperienced practitioners, setting up a cosy relationship with the police at the local police station, and bringing the administration of the criminal law into some disrepute. So I urge upon the noble and learned Lord that these two aspects of proper remuneration for solicitors are given the most urgent and continuing attention.
8.51 p.m.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I am grateful to the noble and learned Lord for raising this Question this evening. While, no doubt, there will be a number of matters to be smoothed out and there will continue to be questions requiring answer even after the scheme comes into operation, and while I am quite sure that a full scheme of this size will throw up difficulties in practice not foreseen in planning, the Question and the Answer together will, I hope, succeed in getting rid of a certain number of anxieties and uncertainties, and in stilling the not unnatural subjects of speculation to which these have given rise.

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Neither of the two noble and learned Lords who have spoken gave me advance notice of particular queries, apart from the terms of the original Question, that they were going to raise. I make no complaint of this, but I have therefore had to prepare this answer in advance of such knowledge and, to some extent, must deal in generalities. In particular, I must say to the noble Lord, Lord Hutchinson, that this is not an occasion upon which I can discuss the remuneration of the Bar or of the Law Lords who are recruited solely from the Bar.
So I should begin, if I may do so, at the beginning. As the noble and learned Lord rightly said, the genesis of the 24-hour duty solicitor scheme was the Police and Criminal Evidence Act 1984. This was a Home Office measure which, to a large extent, I piloted myself through your Lordships' House.
Both my right honourable and learned friend the Home Secretary and I myself put the Act forward as a balanced set of proposals seeking to create a balance between the rights of the suspects and the rights conferred upon the police as an essential component of what was required in the course of their duty to protect the rights of the subject against criminal violence and dishonesty. Among the essential elements in that balance was the right of the person under interrogation by the police to access to legal advice. That right exists at present under the green form scheme. But the cost is relatively small; currently between £1 million and £2 million a year. But, as the noble and learned Lord has correctly stated, Sections 58 and 59 of the Act will dramatically increase both the exercise and the cost of the exercise of the right.
The Act and the code of practice provide that at all times both those arrested and those voluntarily helping the police with their inquiries at a police station should be told of their rights and given an effective means of exercising them. This may happen at any time during the day, and more particularly at any time during the night, or at weekends. Primarily, of course, the right is to contact one's own solicitor either privately or under the green form scheme, But it is rightly asked: what happens if the suspect's "own solicitor" either does not exist or cannot be contacted, which, of course, is particularly likely to happen either at night or at certain other times of the week? The answer is that the Act enables the Law Society to make arrangements for a scheme for a "duty solicitor" to be available at any time. This is no small undertaking, but the Government regard this scheme and the means of making it effective as an essential part of the "package" which they enacted in 1984. The Act comes into force on 1st January 1986, and we desire to see both elements of the scheme in force on that day, and not later.
Obviously, there have been difficulties. The Philips Committee—not, I say respectfully, the Lord Chancellor's department originally, although we took over the estimate of the Philips Committee—estimated the total cost, both of the own solicitor element and the duty solicitor scheme, at £6 million a year which did not seem to be excessive. On the basis of more recent researches, to which I think the noble and learned Lord referred, including work done on behalf of the
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Law Society, the true estimate seems more than £20 million rather than £6 million. This does not reduce my right honourable and learned friend's commitment. But it obviously involves a good deal more work for my right honourable and learned friend, and, indeed for my own office, in working out the details and securing cost-effectiveness.
The Government have decided to base their planning on two scales based on the difference between "arrestable offences" under Section 24 of the Act and more trivial offences which are not in that sense "arrestable". For arrestable offences, the suspect will be entitled to free legal advice and assistance up to a maximum of £90. Beyond the limit of £90, the solicitor will have to get authority, which is obtainable from the Law Society area office, for money actually and necessarily spent or incurred and the authority may be given so as to operate retrospectively in order to meet the set of circumstances envisaged by the noble and learned Lord.
For offences other than Section 24 offences, the limit will be £50 (exclusive of VAT). There will be no means test and no contribution. The solicitor will be able to charge this figure even though the green form has not yet been signed before the outward journey, in order to cover both advice and travelling. If the research is correct this scheme will not be cheap by any means. The take-up, according to my information, which does not differ very materially from what the noble and learned Lord said, is likely to be about 300,000 cases in a year; in other words, the cost is likely to be in excess of £20 million instead of the current £2 million or the Philips estimate of £6 million.
Total provision significantly in excess of £20 million is being made available for the additional cost of implementing the right to advice in the Act. That, I hope, answers the first of the series of questions raised by the noble and learned Lord. This will be found within the Government's overall planned expenditure total, the details of which are, as usual, to be discussed in the course of the autumn.
There is another complication which I must now mention and to which reference has already been made. The society, with the complete approval of the Government, retained management consultants to advise on the most efficient and cost-effective scheme. Their advice included provision for a central manned telephone answering system for the whole of England and Wales, which would be used to contact in any locality the duty solicitor there at any hour of the day or night. I have been pressed to add to that responsibility availability of the answering service to contact a suspect's own solicitor, and for the number of the answering service to be made widely available so that friends and relatives may also make use of it.
That arrangement would certainly more than treble the burden on the service and the management consultants have advised—in my view, quite rightly—that it would be unrealistic to introduce the first of those refinements, at least initially. I must confess to some doubts as to whether, as a matter of priority, the public would wholly endorse such a use of legal aid funds.

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Naturally enough, solicitors will expect adequate remuneration for the service they will be providing. It has been a matter of regret to me not to have been able to give adequate details as yet. However, it is clear that the Government will be bound to pay fair and reasonable remuneration for the work done, and the Government intend to honour that requirement.
In addition to levels of remuneration, obviously we have also to agree the structure of remuneration. Subject to what I have already said, the "own solicitor" option must be under standard green form conditions. The profession has put forward proposals for the structure of the duty solicitor scheme. We have already agreed this in principle and in greater part. When the scheme comes into effect, a solicitor will have to hold himself available to respond promptly to requests. During the period of duty this will of course lead to a certain disruption in his professional and personal arrangements.
Thus the Government have agreed, subject to discussion on detail, an arrangement for standby payments. That was another point raised by both noble Lords who spoke. In addition, and outside normal office hours, there would have to be paid some enhanced rate so far as advice on arrestable offences is concerned. This will be the first time, I believe, that any such arrangement has been made in a legal aid scheme.
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These are obviously delicate matters and I am sure that noble Lords would not expect me to negotiate them in this House in response to an Unstarred Question. Officials will have to do that with the Law Society. I hope to reach an agreement very soon.
I am grateful to both noble Lords for what they have said, and hope that I have gone some way to give them the information for which they asked. I have done my best to do so.

Interception of Communications Bill
Returned from the Commons with the amendments agreed to.
Sporting Events (Control of Alcohol etc.) Bill
Returned from the Commons with the amendments agreed to.

Bankruptcy (Scotland) Bill
Returned from the Commons agreed to with amendments; the amendments ordered to be printed.
House adjourned at three minutes past nine o'clock.