Lords Sitting of 27 November 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 Chichester.

Gibraltar: Queensway and Rosia Bay
Lord Merrivale: 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 development proposals have been received by the Director of Crown Lands in Gibraltar for the Queensway and Rosia Bay areas; what is the present position regarding the transfer of defence lands; and when development is expected to start.
The Minister of State for Defence Support (Lord Trefgarne): My Lords, proposals for the development of these areas, and a decision on when development should start, are matters for the Gibraltar Government. I understand that two proposals have been received in respect of the Queensway sites and one for Rosia Bay. We expect to make land available to the Gibraltar Government to meet their timescale.
Lord Merrivale: My Lords, I thank my noble friend for his Answer, which does not give very many details. Does he not agree that in effect the Ministry of Defence are dragging their feet regarding the implementation of the agreement signed by Sir Joshua Hassan and Sir Geoffrey Howe on 26th July 1983 on the provision of alternative facilities for the Services and the release of defence sites?
Lord Trefgarne: No, my Lords, I would not agree with that. On the contrary, since the agreement was signed we have agreed to speed up the provision of one of the sites from 4 years to 2½ years. My noble friend will of course understand that we have to re-provide the facilities on the sites in question before we can vacate them.
Lord Graham of Edmonton: My Lords, can the Minister be more specific about the timing, as the faster developments can progress the better, given that there are fears that the combined effect of the closure of the dockyard and the EC enlargement agreement will have adverse effects upon the economy of Gibraltar? Can the Minister say something about the jobs that are involved? For instance, how many jobs are likely to be created by the developments in tourism in comparison with the number of jobs that were lost and have been lost by the closure of the dockyard?
Lord Trefgarne: My Lords, the developments proposed on the sites in question are as follows. At Queensway, a large yacht marina, apartments, shop and restaurants. At Rosia Bay, a smaller marina, also with apartments. I dare say that a certain number of
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jobs will flow from those developments. But with regard to the naval dockyard, that is now running as a commercial enterprise and employs a number of people.
Lord Merrivale: My Lords, as my noble friend mentioned the Rosia Bay area, and as the Gibraltar Government's emphasis is on touristically orientated development, can the Minister say when the Rosia Mole and the adjacent areas of the Bay will be released so that the hotel development project may go ahead?
Lord Trefgarne: My Lords, we have not yet been asked for a date by which we should release that site, but if the Gibraltar Government want to bring forward detailed proposals we shall examine them urgently.
Lord Geddes: My Lords, is my noble friend the Minister satisfied that fully-qualified and disinterested advice has been and continues to be available to Her Majesty's Government in this context, with particular respect not only to valuation but to prudent future courses of action?
Lord Trefgarne: My Lords, I think that my noble friend is referring to the advice for which the Gibraltar Government are looking, and naturally the source of that advice is a matter for them.
Lord Graham of Edmonton: My Lords, can the Minister help the House by telling us anything about assistance which the Government will give in the proposed developments? Will the Minister tell us whether Sir Geoffrey Howe in his recent talks with the Gibraltar Government discussed and addressed himself to the problem of unemployment in general in Gibraltar?
Lord Trefgarne: My Lords, I cannot say whether that point specifically was addressed. However, with regard to giving help to the Government, the noble Lord will perhaps recall that these sites are being transferred to the Gibraltar Government free of charge.
Lord Wallace of Coslany: My Lords, can the noble Lord advise the House on what has happened to the plans that were produced by the British Government's own architects for the development of both these areas?
Lord Trefgarne: My Lords, I am not aware that there were specific British Government proposals for these sites. These were and remain Ministry of Defence facilities for which there is a continuing use. We have agreed to make them available to the Gibraltar Government at their request and will need to re-provide the facilities that are there at present.
Lord Geddes: My Lords, in view of my noble friend's reply to my supplementary question just now, may I ask whether it is the case that Her Majesty's Government will have no say or no view on plans put to the authorities in Gibraltar?
Lord Trefgarne: My Lords, these are matters for the Gibraltar Government. Certainly it must be for them, at least in the first instance, to make the plans. We shall be ready to offer the Government any advice if they ask for it.

Nuclear Weapon Testing: Moratorium
2.42 p.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will indicate publicly that they favour a moratorium on nuclear testing by the two superpowers and will abandon further tests on Trident warheads if such a moratorium is reached.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, we remain committed to seeking balanced, effective and verifiable measures of disarmament. Our experience since the 1950s suggests that moratoria on nuclear testing do not meet those criteria.
Lord Jenkins of Putney: My Lords, will the noble Baroness not make herself aware—indeed, I am sure she is already aware—that the Soviet Union imposed a ban upon itself in August of last year? There has been no suggestion anywhere that that self-imposed ban has not been observed. Are the Government further aware that the ban will cease if it is not matched by the United States by the end of this year and that an opportunity to bring the nuclear arms race to an end may perhaps be lost for ever?
Baroness Young: My Lords, I am aware of the ban, but the fact is that limited unilateral gestures are no substitute for long-term, durable agreements.
The Earl of Halsbury: My Lords, can the noble Viscount the Leader of the House say whether there is any difference of substance between this Question and the Question asked by the noble Lord, Lord Jenkins of Putney, the day before yesterday? What protection can the House be given against this duplicative and redundant type of Question?
The Lord President of the Council (Viscount Whitelaw): My Lords, the answer to the noble Earl's first question is that I do not know. My answer to his second question is that I shall certainly look into the matter.
Lord Paget of Northampton: My Lords, I was hoping that the noble Baroness would be able to give my noble friend an encouraging answer and say that we will follow the example of the Soviet Union and have a complete ban on tests until we want to do the next one.
Lord Gladwyn: My Lords, in what circumstances do the Government think it will ever be possible to have a ban on nuclear testing?
Baroness Young: My Lords, the noble Lord, Lord Gladwyn, would not expect an answer to a question such as that across the Floor of this House. He knows as well as I do that we are interested in making progress on arms control talks on this matter as well as on other matters. I have described in general terms the circumstances for which we are looking.
Lord Cledwyn of Penrhos: My Lords, do the noble Baroness and the Leader of the House not agree that my noble friend Lord Jenkins of Putney had a perfect right to put the Question that he did without interference, criticism or political bias from any other noble Lord in this House? That is one of the traditional functions of this House, and it is one of the privileges of being a Member of this House. Does the noble Baroness not agree?
Viscount Whitelaw: My Lords, perhaps the question put by the noble Lord the Leader of the Opposition is for me to answer. I believe that I gave a perfectly fair answer to the noble Earl who asked the question in the first instance. Of course I did not know that there was anything of the imputation which the noble Lord has suggested, nor do I seek to make one myself. I accept what the noble Lord says, but equally, if a noble Lord asks me to look into a question then it must be for me as Leader of the House so to do.
Lord Jenkins of Putney: My Lords, is the noble Baroness aware that the subject of this Question is one of the most serious that this country has to face in the world today? In the circumstances, is it not the case that the vast majority of the people of this country desire a ban on nuclear testing and that the Government seem to be alone in their refusal even to consider the matter seriously at all?
Baroness Young: My Lords, I have said enough to the noble Lord, Lord Jenkins, for him to know quite well that I take this matter seriously; and so do the Government. There is no more serious question than that of making progress in arms control talks and with matters such as the subject of the Questions which the noble Lord has put down. I do not know what the evidence is for adducing that which the noble Lord asserted in the first part of his supplementary question. I agree with him that many people—possibly a majority of people in this country—hope to see progress made in arms control talks. However, it is important not only that we should recognise that those talks must take place but also that the results of them must be balanced and verifiable.

Youth Employment: Inner City Areas
2.47 p.m.
Lord Molloy: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was follows:
To ask Her Majesty's Government what are their policies for the provision of youth employment in the major inner city areas in conjunction with training schemes and urban aid programmes.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, the regeneration of our inner cities is the key to employment for those who live there, including of course young people. The Government operate a range of programmes which contribute to that objective by promoting enterprise and generating employment.
Lord Molloy: My Lords, I am most grateful to the Minister for that reply. Does he not agree that the aid must match the need? Would it not be a good thing in addition for both private and public enterprises to be encouraged to give what help they can so that the dreadful period of unemployment we have seen recently will slowly abate?
Lord Young of Graffham: My Lords, I can only agree with the noble Lord, but it is of course quality of aid that is just as important as quantity. The Government are looking at the quality of the aid and the way in which it is provided as well as at the absolute amount of it.
Lord Rochester: My Lords, is the noble Lord aware that we on these Benches welcome the moves which the Government are apparently to make to encourage employers to take positive action in offering more jobs to people from the ethnic communities? Can the Minister assure the House that in doing so the Government will have particularly in mind the plight of young people in inner city areas?
Lord Young of Graffham: My Lords, the Government have in mind the plight of all young people in this country—whether they be in the city areas or in rural areas, and whether they be coloured and from the ethnic minorities, or not. It is important that we encourage all members of our community to enter into the enterprise culture. I suspect that in the inner cities it will be difficult to find employers who can give more jobs. What we shall have to do is encourage a sense of enterprise and self-employment, and encourage more small firms to bring back into the very centre of our cities that which created those cities in the first place; that is, a spirit of enterprise.
Lord Gisborough: My Lords, with regard to training schemes, does my noble friend the Minister not accept that there are a large number of young people who are not acceptable for training schemes by virtue of their poor performance or low ability? Will he consider setting up special training schemes to cater for those young people who are particularly difficult to fit in?
Lord Young of Graffham: No, my Lords. I refuse to accept that a large number of our young people are not acceptable on training schemes by reason of their inabilities. Many of our young, I suspect, may not have benefited from the 11 years of compulsory education which the state afforded them, but the fault lies not with them but with the education they received.
Lord Bruce of Donington: My Lords, will the noble Lord inform the House whether he is satisfied that the sources of venture capital to support new enterprises, particularly in these inner city areas, is adequate for the purposes he has in mind?
Lord Young of Graffham: No, my Lords, because we have two circumstances to contend with. One is the supply of venture capital and the other is the conditions of the inner cities to let enterprise flourish. I suspect that in many instances the level of rates and other activities in the inner cities are inimical to enterprise. We have to promote conditions which will let enterprise flourish and then ensure that we have an adequate supply of venture capital. The Government are addressing themselves to both those problems.
Lord Broxbourne: My Lords, arising from the previous supplementary question, is my noble friend the Minister familiar with—I am sure he is—the Pathway Employment Service operated by MENCAP to bring into open employment persons suffering from mental handicap? Does he appreciate that a measure of success has already been achieved? Will he lend his powerful and prominent assistance to these worthy endeavours?
Lord Young of Graffham: My Lords, I am well aware of that activity and I will do all I can to assist it, though I suspect that my noble friend overestimates my power and influence.
Baroness Seear: My Lords, does the noble Lord not agree that with regard to the category of youngsters to which the noble Lord, Lord Gisborough, referred—those who find it difficult to learn—the youth training schemes in category B, particularly those run by a number of voluntary organisations, are particularly appropriate? Will the noble Lord assure the House that there will be adequate resources for that category in the scheme?
Lord Young of Graffham: My Lords, I gladly give the noble Baroness that assurance. Of course they will be adequate. What we must ensure is that the successor scheme to the youth training scheme is a scheme that is employment based; that it is a scheme directed towards giving opportunity for employment to all young people. Those who suffer from some handicaps must of course have longer on the scheme than on the existing scheme, and I have no doubt they will have in the scheme to come. I assure the House and the noble Baroness that that will be so.
Baroness Phillips: My Lords, will the noble Lord accept that he has attacked the educational system, notably the teachers? The teachers have to struggle with an impossible situation which is not made any easier by the Government's refusal to accept their genuine case for some kind of recognition of their salaries.
Lord Young of Graffham: No, my Lords. I give no such assurance. What I did was defend the young of our country. I said that when we look at the quality of those who come out of school we should attack not the ability of our young but the quality of the teaching they receive. That, I believe, is something that most noble Lords will accept—that we should always blame the teacher and not the pupil. However, I stand open to correction, as I do on many other matters.
Lord Mackie of Benshie: My Lords, may I take it from the noble Lord's eloquent replies that he thinks there are no ethnic minorities in the inner cities who need special treatment?
Lord Young of Graffham: No, my Lords. Of course there are ethnic minorities as there are members of the general public in the inner cities, and outside, who need special treatment. There are many in our society who do. I was attempting to say that I suspect that if we look at the right kind of circumstances for young people which will motivate and guide them then we can—as the youth training scheme has adequately demonstrated—do much to restore all our young to a proper place in our society.
Lord Alexander of Porterhill: My Lords, will the noble Lord tell the House the extent of the reduction in the support by central Government of the educational system over the past 10 years? How many thousands of millions of pounds per annum less is it now than it was 10 years ago?
Lord Young of Graffham: No, my Lords, because that is not so. In terms of Government support per pupil, the amount has gone up year after year since 1979. In terms of teacher-pupil ratio it has gone down year after year. What we must never do—and what I hope your Lordships' House will never do—is confuse quantity with quality. We must ensure that the quality of teaching and the quality of the motivation of our young people get better. I am not sure that all noble Lords would agree that despite the additional spend over the years we are actually getting better value for it.
Lord Alexander of Potterhill: My Lords, will the noble Lord tell the House what is the percentage contribution to the education service by central Government this year as compared with 10 years ago?
Lord Young of Graffham: My Lords, I shall certainly write to the noble Lord and give him that figure, but I remind all in your Lordships' House that whether the contribution is made from central Government or from local government, it comes from the taxpayer and the ratepayer, and that it is our money. The source of it matters little. It is the quality and the use to which it is put that are important.
The Countess of Mar: My Lords, can the noble Lord say where this money is going to, because obviously it is not going into the schools? We have had reports of the large number of pupils in certain classes, especially for essential subjects such as English and mathematics; we have had reports of appalling conditions in school buildings; we have had reports of vandalism among young people because there are not enough people to look after them during the lunch hours, and so on. Can the noble Lord say whether the money has gone into administration or into practical teaching?
Lord Young of Graffham: My Lords, we have strayed a long way from the original Question. However, what I will say to your Lordships is simply that in England and Wales there are 104 employers in the world of education—the local education
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authorities. They receive the money, either from the ratepayers through the local rates or from central Government grants, and they ultimately take responsibility for the spend. The question should perhaps more properly be addressed to them.
Lord Molloy: My Lords, in acknowledging that this is a complex problem perhaps I may ask whether it is not a fact, despite the generous increase in urban aid during the past 12 months, that over the past three years, when this problem first started, that aid still constitutes a 13 per cent. reduction. In order to see that money is properly used, would it be possible for the Government to consider the establishment of an economic co-ordinating team to ensure that the right aid goes to the right place at the right time?
Lord Young of Graffham: My Lords, this is indeed a complex problem which, I suspect, cannot be explored in full during a Question. The facts are that the spend under the urban programme has increased between 1981–82 and this year from £210 million to £348 million, which I sense from my mathematics having benefited from a school education is a substantial increase, not a reduction. In certain partnership areas with which I am concerned as chairman of the city action teams we are now spending about £670 million on housing, the environment and employment. But neither the Government nor anyone in your Lordships' House would say that in spending all this money we are actually eliminating the problems. We are all concerned with the way in which we can improve the quality of our spend in order to begin to address ourselves to some very serious problems which exist in the inner urban areas and of which we have all become painfully aware over the past few months.
Lord Glenamara: My Lords, the noble Lord stressed the importance of small businesses, but in this context will he remember the other end of the scale? Is it not ironic that while the Government are rightly stressing and encouraging the formation of small businesses, at the other end of the scale businesses are swallowing up each other more quickly than ever before, usually to the detriment of the labour force? Can the noble Lord assure the House that when the Government are considering takeovers and amalgamations they will consider the effect on employment?
Lord Young of Graffham: My Lords, I can speak in your Lordships' House on many matters, but not on that particular one save to say that the only way in which employment will be maintained and even increased in this country is to concentrate on productivity and unit costs. I hope that the series of amalgamations which have been going on continually, at least for as long as I can remember, will have that as an objective.
Lord Molloy: My Lords, will the noble Lord say a brief word on whether it is possible to have some form of co-ordination on this difficult problem so that, as I have already said, we have the right aid at the right place at the right time? In my view, we should have a sensible co-ordinating committee, or examining committee, to see that that is achieved.
Lord Young of Graffham: My Lords, it is my task to co-ordinate Government activity in the inner cities. Yesterday I had a very hopeful meeting with the Association of Metropolitan Authorities. I found a great spirit of co-operation. I hope that we can move to seriously address ourselves to these problems.

Business
2.59 p.m.
Viscount Long: My Lords, it may be for the convenience of your Lordships if I say a word at this point about the arrangements for this afternoon's short debates standing in the names of the noble Lord, Lord Taylor of Gryfe, and the noble Lord, Lord Beswick.
It is customary in short debates that the mover is allowed approximately 15 minutes and that the Minister should rise to reply not later than 20 minutes before the scheduled end of the debate. In the case of the short debate standing in the name of the noble Lord, Lord Taylor of Gryfe, this means that all other speeches should be limited to a maximum of 12 minutes. If any noble Lord should speak at greater length it will be to the disadvantage of the subsequent speakers in the debate. In the case of the short debate in the name of the noble Lord, Lord Beswick, the number of speakers is such that it is not necessary to suggest a formal limit on the length of speeches, but noble Lords may feel that it would be in accordance with the spirit of the short debates if they were to try to keep within the 15-minute limit allocated to the mover of the Motion.

Privileges: Select Committee
3.1 p.m.
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That, in accordance with Standing Order 73, a Select Committee for Privileges be appointed; and that, as proposed by the Committee of Selection, the following Lords, together with the Chairman of Committees and any four Lords of Appeal, be named of the Committee:—

Beswick, L.

Caccia, L.

Campbell of Alloway, L.

Cledwyn of Penrhos, L.

Denham, L.

Diamond, L.

Ferrers, E.

Glenamara, L.

Hylton-Foster, B.

Ponsonby of Shulbrede, L.

St. Aldwyn, E.

Seear, B.

Shackleton, L.

Whitelaw, V. (L. President)

Wigoder, L.

—(Lord Aberdare.)

Lord Balfour of Inchrye: My Lords, on the last occasion when this third report came in front of your Lordships, my noble friend Lord Shackleton and I took some objection.
Noble Lords: Order, order!
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I think that the noble Lord may be wishing to rise on the third Motion.
Lord Balfour of Inchrye: My Lords, I apologise.
On Question, Motion agreed to.

Hybrid Instruments: Select Committee
3.2 p.m.
Lord Aberdare: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That, as proposed by the Committiee of Selection, the Lords following, with the Chairman of Committees, be named of the Select Committee on Hybrid Instruments:—

Beaumont of Whitley, L.

Beswick, L.

Brandon of Oakbrook, L.

Cawley, L.

Collinson, L.

Cork and Orrery, E.

Drumalbyn, L.

Fletcher, L.

Prys-Davies, L.

Stamp, L.

Teviot, L.

Wise, L.

—(Lord Aberdare.)

On Question, Motion agreed to.

Procedure of the House
3.3 p.m.
Lord Aberdare: My Lords, I beg to move that the Third Report from the Select Committee on the Procedure of the House of last Session be agreed to. In accordance with the wishes of the House, the recommendation of the Committee on ministerial Statements was considered and the Committee now recommends that there should be no distinction between those who speak from the Front Benches and those who speak from the Back Benches, but that in both cases comments or questions should be brief, and the Committee ask me to stress that this applies to both Back- and Front-Bench spokesmen.
Statements cause considerable inconvenience to those taking part in the main business of the day, especially when there is more than one Statement, and the Committee stresses that they should not be used for making debating points. If a debate is desired, then it should be arranged at a later date when all Members have had time to read and consider the Statement in detail.
The Committee also recommends that fewer Statements should be made and greater use should be made of the procedure for printing them in Hansard rather than repeating them orally.
The other matter which was referred back to the Committee on the form of Motions for Papers is still

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under consideration by the Committee, which will be reporting to your Lordships at a later date. My Lords, I beg to move.
Moved, That the Third Report from the Select Committee of last Session be agreed to.—(Lord Aberdare.)
Following is the report referred to:
ORDERED TO REPORT:—
On 3rd July 1985, the House referred back to the Procedure Committee item 1 (Form of Motion for Papers) and paragraph 2 of item 4 (Ministerial Statements) of the Second Report from the Committee for further consideration—(Official Report cols. 1186–98).
1. MINISTERIAL STATEMENTS
The Committee have reconsidered their recommendation contained in paragraph 2 of item 4 of the Second Report that only the spokesmen for the main political parties should enjoy the right both to make brief comments and to ask questions on Ministerial Statements and that other Members of the House should be entitled only to ask questions. This recommendation was criticised on 3rd July.
The Committee now recommend that the present procedure, reflected in the guidance given in the Companion page 73 should be endorsed, whereby all Members of the House may comment briefly on Ministerial Statements and that no distinction should be made between the rights of Front or Backbenchers. In so doing they stress that such exchanges should be brief and that it is the responsibility of all Members of the House (including Ministers and Frontbench spokesmen as well as Backbenchers) to ensure that any comments or questions are short and to the point.
Under the terms of Standing Order 33, Statements "should not be made the occasion for immediate debate". If this rule were adhered to, the interruptions to the other business of the House would be much reduced. If a debate is desired this can be arranged at a later date, by which time all Members of the House (and not only Frontbenchers) will have had the opportunity of reading and considering the Government Statement in detail.
They further recommend that the number of Ministerial Statements, which has increased, should be reduced and greater use made of the procedure for printing Statements in the Official Report without oral repetition.
2. FORM OF MOTION FOR PAPERS
The Committee have given further careful consideration to their previous recommendation in the light of the criticisms expressed in the House on 3rd July. They will report further on this matter to the House at a later stage.
Lord Balfour of Inchrye: My Lords, I apologise for having started my few remarks, but one of the penalties of extreme old age is deafness, as I am afraid some of your Lordships will find out later in their lives.
On the last occasion when this report came in front of your Lordships, my noble friend Lord Shackleton and I took objection and the Committee reconsidered the matter. I am glad to say that it has washed out the proposal which was made in the report. As your Lordships know, the proposal was that after Statements Front-Benchers should be privileged and allowed to make brief comment. All other Members who did not enjoy the charge of one of the parties were unable to make any comment. It seemed to me that we had introduced a new principle of controlled speech according to standing in the House, and we objected very much to it. Now everyone, be they Front-Benchers or Back-Benchers, will have equal rights to make brief comment.
The previous suggestion seemed to me to savour too much of sheep and goats, or, if you like, officers and other ranks, and I think it is generally unacceptable to
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the House—I hope so, anyway. Now all are equal and any noble Lord can make a comment on the Statement, provided that the comment is brief. The glorious quality of brevity is not always exercised but I propose to implement it now.
On Question, Motion agreed to.

Denationalised Industries
3.7 p.m.
Lord Taylor of Gryfe Lord Taylor of Gryfe rose to call attention to the case for ensuring that denationalised industries which become private monopolies (a) protect the consumer, (b) encourage United Kingdom suppliers, (c) practise good labour relations, (d) maintain widespread share ownership with maximum employee participation and (e) fulfil social functions which they performed before denationalisation; and to move for Papers.
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. This Motion does not argue the case for state versus private ownership. We have pursued that arid debate on a number of occasions recently in this House. The Government and the Opposition have taken up their entrenched positions; both are prisoners of their respective dogmas—and I leave it there. This debate is about the problem of private monopolies which follow inevitably from the privatisation of public utilities.
The experience of British Telecom and the alarming leak in today's Guardian of the proposed legislation in the Gas Bill cause us great concern, and suggest that this is perhaps the time to take stock of what has been happening before we proceed with new legislation. In the case of British Telecom, noble Lords will recall that a regulatory authority, Oftel, was set up with some responsibility for consumer protection and there was an undertaking that British Telecom charges would be limited to the retail price index minus three for the first five years. We were reassured by these undertakings.
On this basis, the average telephone user assumed that the increased charges would not go beyond 4 per cent. for last year and 2 per cent. for this year; but this is not so. Unfortunately, the formula was based on a basket of rates and British Telecom has a monopoly on all services except that there is a potential competitor on long distance carriers. The new rates which British Telecom have now introduced in November 1985 compared with a year ago suggest not 4 per cent. nor 2 per cent. but that cheap rate local calls will go up by 20 per cent., standard rate local calls will go up by 9 per cent. and calls of up to 35 miles' distance will go up by 31 per cent. These are the services used mostly by domestic subscribers. In the case of long distance calls, which are used substantially by big business and where there is competition, there will be a reduction of 2½ per cent. By this device the formula is observed but at the expense of the domestic user and to the advantage of large companies. That is an obvious abuse of monopoly power.
I turn now to the question of privatisation and its impact on British suppliers. That was a matter which was considered by the House of Lords Select

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Committee on Overseas Trade in its much publicised report. On page 76, paragraph 214, it states:
"The Committee are convinced that public purchasing can be used to great advantage to stimulate the manufacture of competitive and exportable goods and they received evidence of this being done by the NCB and the CEGB".
On page 335 of the written evidence the NCB states—and I am sure that the noble Lord, Lord Ezra, who is to speak later in the debate will confirm this—
"We are committed to a positive purchasing policy aimed at meeting our needs from UK suppliers and in 1983/4 only 2 per cent. of our total purchases were imported".
The average for all nationalised industries in this country was 3 per cent., but 97 per cent. of the coal board's requirements were purchased from United Kingdom suppliers.
The noble Lord, Lord Marshall, chairman of the CEGB, gave oral evidence to the committee, and he is reported on page 429 as follows:
"The CEGB spends several hundred millions a year on capital equipment and we manage to place 98 per cent. of our contracts with British industry".
This is not a cosy club. It is an essential matching of the requirements of great public utilities with the skill and resources available from British industry. The buyers from the NCB and the CEGB get value for money and they are able to make comparisons with foreign suppliers. But like all other public utilities in every other country in the world, they collaborate with domestic suppliers in specification and design. It is a fruitful partnership in the best interests of our nation.
Now let us look at British Telecom plc. Before privatisation, a similar partnership existed among the Post Office and Plessey and GEC. Together they spent £350 million on the design and development of System X digital exchanges which are now poised for mass production. But what has happened with British Telecom? It has recently placed a £100 million order for the competing System Y digital exchanges with Sweden and an order for additional equipment worth £25 million from the United States.
Oftel is concerned about those developments, and rightly so, since a House of Lords amendment to the Telecommunications Bill laid some responsibility on it in that field. The director general said:
"Any further shift on orders from System 'X' to System 'Y' should be limited to nominal amounts for a period of seven years so that the (UK) System 'X' manufacturers"—
which were not invited to bid on that contract—
"will have a further opportunity to adapt".
He suggested that there should be a maximum of some 20 per cent. on the total requirements bought from Sweden.
I know that the Minister will say that some of that work will be done in the United Kingdom, but the situation will have serious consequences for the traditional United Kingdom suppliers and will certainly damage their opportunities to sell their product abroad. Oftel points out in its report:
"It must be recognised that much of the main work to develop the next generation of Ericsson technology will be done in Sweden".
The director general also points out:
"Telecommunications technologies are so central to the current wave of technological innovation that a nation with no basic R & D capability in this field would … be lacking in one of the basic attributes needed to maintain a position among the leading industrial nations".
Oftel further state that:
"the System Y order increased the difficulties of maintaining an independent UK"
capacity in this field. That is a far cry from the CEGB, the NCB and the Post Office which felt some sense of national responsibility beyond their commitment to maximise profits. Despite those serious charges, British Telecom has so far ignored Oftel and rejected limits on its overseas purchases. That must surely be a matter of great concern to the Government; it certainly was of great concern to your Lordships' Select Committee on Overseas Trade.
I now turn to the question of wider share ownership, for on these Benches we support the efforts of the Government to secure that objective. It is perhaps the major justification for the whole privatisation exercise. But the question must be asked: is it being achieved? Let us look at what has happened to the small shareholder in the flotations so far. In the case of Cable and Wireless the number of shareholders owning 500 shares on the date of issue was 129,421. Today the number has diminished to 22,178, and they represent only 1·3 per cent. of the total equity, while shareholders with over 1 million shares represent 58 per cent. of the equity. In the case of Amersham International, 6,017 small shareholders representing 70 per cent. of the total number of shareholders held only 3·2 per cent. of the total equity, while 92 large shareholders, representing 1 per cent. of the total number of shareholders, held 65·52 per cent. In 1985 the initial 6,017 shareholders had shrunk to only 4,300, their share of the equity being 2·15 per cent., while the large shareholders now own 70 per cent.
A similar trend may be traced in British Telecom, despite the incentives to people to hold on to their shares. It is difficult to get information over such a short period, but I understand that a similar pattern can be detected, since the number of small shareholders has fallen by 5 per cent. in five months, and today the small shareholders in British Telecom represent only 1·5 per cent. of the total equity. That must surely be of concern to the Government, for they have made repeated and exaggerated claims for privatisation as extending the limits of property-owning democracy.
In the time at my disposal I am not able to elaborate on the devices and incentives that may be deployed to ensure that those objectives might be achieved. There is a wealth of international experience in this field, and I recommend to the Minister that that be examined. The acceptance of some of those incentive schemes for holding on to shares might encourage small investors to hold shares and resist the temptation to follow the stags.
The other provisions of my Motion I shall leave to other speakers, particularly in the field of labour relations and worker involvement. On these Benches we are concerned not simply to encourage employee ownership of shares but also to ensure a measure of employee participation in the policy-making of those great enterprises. By the creation of such large privately owned giants there is a danger of remoteness and alienation, and we should like to see some real experiments incorporated in these schemes for decentralisation.
Finally, let me say a word about social obligations. Noble Lords will recall that when we passed the Telecommunications Bill we insisted that a service should be provided in the housing estates and isolated communities. I am happy to say that so far as I can see this is being observed by British Telecom. But we must insist, in the case of gas, electricity and other potential monopolies, that similar obligations should be laid upon them and that they should be observed.
The terms of my Motion raise matters of great concern, I am sure, to all parties in this House. I hope that the Government will to some extent reassure us, in view of the information that I have provided, and so allay some of the anxieties that are deeply felt by all of us. I beg to move for Papers.
3.20 p.m.
Baroness Elliot of Harwood: My Lords, in a short debate, we are told that we must be brief and I propose to be brief. I listened with enormous interest to the noble Lord, Lord Taylor of Gryfe. I agree quite definitely with some of his remarks. I am not opposed to denationalisation, or the privatisation that people talk about today. I believe, however, that it contains a certain number of difficulties. In the case of gas, about which I intend to speak, I hope that the Government will learn from the experience of other denationalisation schemes and also from what the noble Lord, Lord Taylor, had to say.
With regard to gas denationalisation, I talk particularly from the point of view of the consumer. The noble Baroness, Lady Burton, and myself share the same great interest in the consumers' point of view. I have three questions. As regards prices, there should be strong consumer representation on the companies, or whatever the organisations are that follow the denationalisation of gas. This is of vital importance to the success of the companies. The number of users depends on whether consumers are satisfied. I hope therefore that this is an issue which will be examined carefully.
There is then the question of safety. As we all know, gas is one of those supplies that can be perfectly safe. But it can also be quite dangerous. I hope that whatever is done in connection with reorganisation, great attention will be given to safety. The responsibility of the companies, when all these changes take place, is very great. I should like to know who will be responsible for matters such as safety and new installations of gas. Who will be responsible for emergency services? These matters are vital to the consumer and I would draw particular attention to the emergency services. There have been dangerous explosions in various parts of the country. It is our hope that these will not happen again. But let us be sure that this will be one of the matters that the companies taking over responsibility for gas will be concerned about.
Another question that arises is where responsibility will lie in the new set-up for inspection in relation to safety and efficiency. This is extremely important. Will home service advisers continue to operate? This service makes a considerable contribution, especially where old people or disabled people are concerned.
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They need to have gas services adapted to their disability. I hope that the new companies will consider the disabled and people who have special needs.
I am sure that the Government will consider these matters and put them strongly to the companies that will be running the gas industry. They are matters that could be decided and insisted upon before the new organisation gets under way. Once the companies are operating, this becomes much more difficult. I hope very much that within the new organisation the interest of the consumer will be paramount.
3.25 p.m.
Baroness Nicol: My Lords, the noble Lord, Lord Taylor of Gryfe, is to be congratulated not only on giving us the opportunity to debate this subject today but also on his masterly speech in introducing it. I agree with almost everything that he said. I am only sorry that I cannot take his particular arguments a little further. I want to cover an aspect of privatisation that he did not mention—the effect on the environment of certain privatisation measures. The effect of the privatisation of certain industries on the environment could be very dramatic.
Section 11 of the Countryside Act 1968 states:
"In the exercise of their functions relating to land under any enactment every Minister, government department and public body shall have regard to the desirability of conserving the natural beauty and amenity of the countryside".
In privatised industries, this obligation would disappear unless special provision is made at the time of sale. Have the Government any intention of including this kind of provision at the time of privatisation?
The need becomes clear with just one or two examples. British Gas, who have already been very much discussed, are currently negotiating a pipeline through the New Forest. Consultations are taking place with the Nature Conservancy Council, with the Forestry Commission and with several local societies to minimise the effect of the pipeline on the environment and on wildlife. Under the Gas Act and freed from the provisions of the Countryside Act, which would be the case following privatisation, such consultations would not be necessary. British Telecom, for example, can now lay new cables without any such requirement and, so far as I am aware, without any need for planning permission either.
When we consider the search for new energy sources that we are about to embark upon—power stations, onshore oil or gas drilling and their associated environmental problems, including the disposal of waste—there can be no doubt of the continuing need to impose responsibility on the operators. It has to be remembered that in many cases they will not require planning permission for their activities. Perhaps the most dangerous aspect of privatisation of energy supplies is the imposition of the profit motive over every other consideration.
Energy conservation, which has been Government policy up to now, even if it has not been very successful, will no longer be an objective since increased sales will mean increased profits. We have seen how British Telecom pursue increased sales with telephone bingo. That is scarcely a national asset, one would have thought. Finally, the possibility of privatisation of the

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water industry has dire implications for the environment. Water authorities control vast areas of wetlands. Difficulties arise even now when drainage schemes are undertaken without full consultation in respect of the possible effects on wildlife. How much more might this happen if they are freed from all restrictions?
Those are just a few indications of the implications for the environment of the Government's present policies. The time for detailed studies on each one will arise when the Bills are presented. But this is an opportunity—I hope that the noble Lord, Lord Taylor of Gryfe, will forgive me for taking it—to remind the Government that an ever increasing number of us are on guard to protect our natural heritage and will expect the Government to take heed of this in their legislation.
3.30 p.m.
Lord Winstanley: My Lords, I am deeply grateful to my noble friend Lord Taylor of Gryfe for introducing these topics in so admirable a manner. I wait with eagerness to hear the answers to some of his questions, particularly those relating to British Telecom's charges.
Perhaps at the outset I could add one other question. I wonder whether, when gas is finally privatised, it might then become possible for the gas industry to sell gas to the Central Electricity Generating Board, which it now refuses to do. I realise that that is a matter upon which my noble friend Lord Ezra may differ from me, but I mention it in passing.
It is my intention briefly to focus my remarks on paragraph (a) of my noble friend's Motion, which relates to protection for the consumer and is not unrelated to paragraph (e), which is about social functions. With reference to (a), I have only two specific matters to raise. I wish to ask the noble Lord two specific questions arising therefrom, but may I first say a few brief general words. I believe that we are a little too preoccupied in your Lordships' House, and in other places, with this general question of whether essential services should be publicly or privately owned. I believe that what matters to those customers who are dependent on those organisations for goods and services is what kind of deal they get in terms of competitiveness, prices, sensitivity to complaints, and accountability, not merely who owns the shop.
Similarly, so far as the many employees are concerned, again, what matters is what kind of an employer they work for. Is that employer sensitive to their needs? Is that employer accountable? Is that employer approachable in the way to which the noble Lord, Lord Taylor of Gryfe, referred in his speech? Many of us will recall that in the days when the coal mines were nationalised there was a widespread and somewhat mistaken assumption among the miners that suddenly they owned the mines and would be working for themselves. It took very little time indeed for those miners to realise that the National Coal Board was not all that different from the old coalowners. I do not think that in this country we have yet devised a wholly satisfactory system of organising large-scale industries. I think we must all accept that the science-based industries, such as power generation and telecommunications, must be large scale in order to flourish. We have not yet devised a satisfactory
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system of organising large-scale enterprises to make them competitive, accountable to the general public, to their customers and to their workforce, and to make them satisfactory in the kinds of ways to which my noble friend was referring. My noble friend pointed to this issue in his closing remarks and I think that he did so very wisely.
Let me move on to the two general matters that I wish to raise. The first is the matter of Oftel—consumer representation in the new telecommunications business. Some years ago I had the honour of being a member of the Post Office Board, with special responsibilities for consumer matters on a board which was then responsible not only for post but also for telecommunications and Giro. I then became the chairman of the Post Office Board's Quality of Service Committee. I am sure your Lordships will understand that this committee was fairly busy. It made many reports, and some response has been made to some of these.
In those days it was not my function to usurp the role of the Post Office Users' National Council, which was there to represent the consumer and to deal with consumer problems, but inevitably I had to work very closely indeed with POUNC. I found that body to be extremely efficient, alert and highly conscientious. It gave a great deal of attention to complaints put to it by consumers and groups of consumers, businesses and so on. Sometimes I regretted that POUNC did not know enough about what was going on; and I think that it might have been better had the chairman of POUNC been on the Post Office Board rather than myself—but that is a separate matter.
We now have a new situation in which these responsibilities for consumer representation in the telecommunications industry fall in a quite direct way on Oftel. In reply to questions recently in your Lordships' House the noble Lord, Lord Lucas of Chilworth, made reference to the advisory committees which are being set up. I understand that we are in an evolutionary situation. I understand from talks that I have had with senior officials in Oftel that they are doing everything they can to devise a new formula, but I also know, as I think your Lordships know, that the customer has not yet been fully informed about precisely what is happening.
I think that POUNC took the most major steps to make itself available to customers. Customers knew how to approach it. It set up its local councils, which were staffed from local voluntary bodies which were in close touch with the public Citizens' Advice Bureaux and consumer organisations of that kind. Indeed, it established a network whereby the ordinary customer who felt aggrieved or let down at least knew that there was an avenue for the channelling of his complaint and that at the end of the day he would undoubtedly get a response. We are not yet in that position in relation to British Telecom as it now is. I hope that when the noble Lord, Lord Belstead, replies at the end of the debate he will be able to tell us the situation with regard to the establishment of these advisory committees regionally, the appointment of members to them, to what extent members of local voluntary bodies have been included on those committees, and what steps are being taken to publicise the existence of this consumer element in the new set-up for telecommunications.

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The second point I want to make is a relatively brief one; it relates to nationalised industries although it does not deal specifically with that subject. For many years I have worked with trading standards officers and with consumer advice centres, which, as your Lordships will know, in the metropolitan county areas were a county function as indeed they still are in the shire counties. In the metropolitan counties there is a great deal of uncertainty about precisely what is to happen. Who is now to run the consumer advice centres which exist in Greater Manchester, in Merseyside, and in metropolitan counties of that kind? What is to happen to the trading standards officers who work so hard in those areas?
I am reliably informed that at a meeting of the Labour-controlled boroughs in the Merseyside area it was decided that they would employ all the people presently employed—the trading standards officers and those in the consumer advice centres. I am also reliably informed by the treasurer of one of those Labour-controlled Merseyside boroughs that they took that decision before they knew how many people there were and before they had done any sums on the actual cost or where the money would come from. Therefore there was grave doubt as to whether the districts will perform those functions in an entirely satisfactory way.
I am sure we all agree that it would be quite extraordinary if we had a situation where in the shire county areas there were still trading standards officers and consumer advice centres but those places suddenly disappeared from the metropolitan areas. It is in the metropolitan areas that they are most desperately needed. I will say no more, but I hope that at the end of the debate the noble Lord will be able to tell me this. What steps are being taken in the different metropolitan country areas to make sure that the consumer advice centres continue, and continue just as well as they did under the old counties? Under what arrangements are they going to be continued? Who will employ the trading standards officers, who do a very important job in protecting consumers, very often for nationalised industries and sometimes when industries which once were nationalised have now become denationalised.
I hope that at the end of the day those questions will be answered. Once again, I thank my noble friend very warmly for introducing this subject, and I look forward with other noble Lords to hearing the answers.
3.38 p.m.
Baroness Burton of Coventry: My Lords, I should like to thank the noble Lord, Lord Taylor of Gryfe, for giving us this opportunity today. I should like to congratulate him on the excellent timing of the debate; and further to congratulate him on the first-class speech with which he opened it.
In October, British Telecom announced price increases. This was two weeks after the company had disclosed a 39 per cent. increase in profits for the first quarter to £443 million. To most people any increase at all following such a profit seems a gross abuse of monopoly power. I should like to thank the noble
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Baroness, Lady Elliot, for generously assuming that I should be dealing with the consumer aspect. That is what I hope to do in the time at my disposal today.
As I said in the House on 13th November, it is an abuse of what British Telecom is supposed to be doing. I want to ask whether those in charge believe that it is fair or just, or even what was intended when the licence was drawn up, to charge domestic subscribers more than it is allowed to do and to try to hide this by making it arithmetically correct by a lesser increase in the rates for business users?
I want to ask the Minister whether the Government are really incapable of understanding that less well-off subscribers find their telephone bills a burden as it is. They are certainly not in a position to buy shares in British Telecom, and see no reason for having a further increase in rates when such enormously high profits are being made. In their view, and certainly in mine, such profits should yield a reduction and not an increase. I refer to a much more authoritative source than myself because in the Financial Times on 19th November the main article on the centre page contained the following words:
"Many customers remain to be convinced, too, that what is good for BT and its shareholders is necessarily also good for them".
In the House on 13th November, the noble Lord, Lord Bruce of Donington, asked the Minister at col. 270 of the Official Report whether he was,
"aware that the figures for the price increases given to the House by his noble friend Lord Orr-Ewing, even though they may conform to the small print of the licence that was ultimately approved, certainly do not square with the repeated assurances given in this House and elsewhere that the price to domestic users would not rise by any more than the stipulated amount, and that they are in fact in breach of those undertakings?"
Fundamentally, that is what is worrying me in the context of the consumer, and it brings me on to the subject of Oftel.
Does Oftel approve of such tactics, and, if not, can it stop, change, or forbid them? Answering the first question for myself—and my answer is a much better answer than I would receive from any Minister—Oftel does not approve. The Director General, Professor Carsberg, on 6th November said that he hoped that in future British Telecom would make more modest increases "in its own commerical interests". Furthermore, he said that he expected prices to reflect cost savings "more fully in future".
Concerning my other query; namely, could Oftel stop, change, or forbid such abuses—I do not know. However, in the radio interview on 6th November, Professor Carsberg said:
"The pricing formula was designed to provide a protection to consumers and at the same time encourage BT to achieve greater efficiency by allowing it to keep profits resulting from that efficiency. However, this formula is in place only for a period of five years after which it will be re-assessed. At that time I expect a new formula to be adopted which would ensure a fair proportion of the benefits of BT's increased efficiency would be passed on to consumers".
I come to my first question to the Minister. Will the noble Lord tell the House whether that means that British Telecom can continue with such abuses of the ordinary consumer for a period of five years—indeed, until the formula is re-assessed? If such be the position, then I think we must look at the position of Oftel, the power that it has been given and what teeth it has been

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given to use this power. I think that there is no doubt that Professor Carsberg feels as we do, but can he do anything about it?
What about gas? The House will understand, and I believe sympathise with, what I had to say on the gracious Speech concerning protection for the consumer and the necessity for a regulatory body when nationalised industries are privatised. The noble Lord, Lord Belstead, was always very good at answering questions with which I persisted in bothering him, and I wonder whether I may remind him that I asked three questions in the debate on 12th November and I was told that they would be answered in writing. That was two weeks ago and although I have made written inquiry I am still waiting. Will the noble Lord, Lord Belstead, in view of the kind words which I have said about him, please expedite the reply?
The noble Lord, Lord Gray of Contin, assured us on 2nd July at col. 1044 of the Official Report, when referring to gas, that:
"It is the Government's firm intention that the regulatory arrangements to be established will adequately protect the consumer as regards prices and the terms and conditions of supply".
Oftel, in spite of Professor Carsberg, does not seem to have been able to do this. So what reliance can we place on Lord Gray's regulatory arrangements? I personally have no faith in Government protestations about helping the consumer and I think the House would agree that I have good cause to feel like that.
I said on 12th November, concerning privatisation of British Gas, that it seemed to me that some regulatory body must be set up, and furthermore that this must be independent both of the gas industry and of the Government. It should be accountable both to the public and to Parliament. Obviously, it must have the power to monitor what is going on in the industry, to make such information public, and above all to seem to take action on behalf of the consumer.
The Motion which we are discussing today speaks of nationalised industries which become private monopolies. It does not refer solely to the gas industry or to any particular industry. I have spoken of the necessity for establishing a regulatory body to deal with the privatisation of British Gas, and so I now come to the next question for the noble Lord, Lord Belstead—and it is, my Lords, only the second one! Do we have one such body for the gas industry only or do we have one general body to regulate public utilities in the United Kingdom? I think that my mind moves towards the latter, but I am quite certain that the privatisation of British Gas cannot be proceeded without—and I repeat "without"—a regulatory body, whatever subsequently grows from it.
However, where does that leave the consumer? I asked in our debate on 12th November whether, for example, the National Gas Consumers' Council would continue either as at present or strengthened. It may be that we have a regulatory body and also a consumer one. I do not know. It all requires much thought, far more than we have time for today. Personally, I should like to see the establishment of a strong, tough, regulatory body that, to quote the noble Lord, Lord Gray, once more:
"will adequately protect the consumer as regards prices and the terms and conditions of supply".
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It may be that I want the impossible. I want a strong, tough, regulatory body composed of, or containing, strong, tough, consumer-minded members, which is not at all the same thing as consumer representatives. However, such a solution could, I think, be a considerable factor leading to the adequate and proper—yes, my Lords, proper—consideration for all we ordinary consumers in the world of monopoly and big business.
In conclusion, may I ask the Minister whether he noted the letter on gas privatisation in today's edition of The Times, from the Director of Age Concern? Does the noble Lord realise that what I have been saying is quite correct and that it is the people at the bottom end of the queue who always suffer? We on these Benches—and, I think, the whole House—feel very much that that should not be the case.
3.48 p.m.
Lord Beloff: My Lords, the noble Lord, Lord Taylor of Gryfe, in moving his very welcome Motion and giving us the opportunity for this debate, said that he did not wish to reopen the much vexed question of nationalisation versus privatisation, and I do not intend to breach his request that we should not do so. However, it seems to me that in the framing of the Motion itself there is an assumption which is worth examining, because it relates to the substance. I am referring to the assumption that somehow nationalised industries that are monopolies have met the major criteria which he sets out, and that the problem is created by the transfer of ownership.
Personally, I do not see where the evidence for that assumption lies. It seems to me that state monopolies have shown an equal disregard of consumers—for instance, of consumer needs—and have shown sometimes an equal capacity for (I shall not use the word "mendacity"; because perhaps that is too strong a word) sharp practice in denying consumers what they are entitled to. Let me give a specific example from an industry which has not been mentioned and which, so far as I know, is not at present on the list for privatisation—British Rail. About a week ago there appeared in the press a glowing statement from one of the chief executives of British Rail about the tremendous achievement of bringing about a new through service from the North to the Kentish ports, which would avoid a change of stations in London. So far, so good.
One might ask why, since the track, and so on, has been available for many years, this particular moment has been chosen to launch that service. I know the answer. The answer is that this is a smokescreen to conceal the fact that at the same time British Rail are going ahead with the abandonment of an existing through service, avoiding London, which links Manchester, via Birmingham, Oxford, Reading and Gatwick, with Brighton.
Those who are to benefit from the new service are as yet unknown. But there are those (and I confess I have a personal interest in this) who, by the abandonment of a through service in favour of a number of changes of train, lose by it. Yet British Rail put forward the one, so far as I can see, in order to conceal the blow which they are inflicting on other customers.

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One may say that this is to be expected, and I think it is. This is how monopolies behave. I have no doubt that were any representatives of British Rail to read our debate they would say, "Of course we have to take off this through service because it is insufficiently patronised. There are not sufficient passengers to justify it". But again one may ask: why are there not? There seem to be a great number of people, let us say from the Manchester area, who take their holidays on the South Coast.
The reason it is not patronised as fully as it might be is two-fold. One is that the timetable is, on the whole, an inconvenient one. The second, I think more important, is that for years no publicity has been given to the existence of this through service. I constantly come across people at both ends who do not even know that it exists. One can only believe that British Rail have failed to give publicity to this service in order to give themselves an excuse for abolishing it, and that they have put on—we do not know for how long—the new through service from the North in order, as I say, to create a smokescreen.
I would hope, and indeed expect, that some bus company, some private operator, will put on a new service at least from Oxford to Brighton. If he does, I am sure (because one has seen this with other private bus services) that there will be ample publicity and no one at either end will be left in any doubt that this service is available to them. The reason is not the difference between private and public. The reason is that monopolies are in their nature impossible to control except to a limited degree, and that ownership matters very little indeed. In fact, the noble Lord, Lord Taylor of Gryfe, in dealing with British Telecom made the case. The only part of the system where charges are to be reduced is that part of the system where there exists competition; namely, the long inter-city routes.
Therefore we have to ask: what can we do about monopolies? There are, I think, two ways in which a monopoly can be controlled. One of them is by proper Government regulation: not by an independent regulatory body—I would have thought that we have had a fairly poor experience of many of these—but by a Minister responsible to Parliament for the operation of that service as Ministers are responsible for the armed services, for the Civil Service and for the police. The problems of the British postal service coincided, in my view, largely with the abandonment of the historic office of Postmaster General in favour of a Morrisonian public corporation.
The other way, of course, is to break the monopoly up; to introduce competition. My hope would be that in any future denationalisation, or privatisation, it will not be a question of transferring the ownership of an existing public monopoly to a body of shareholders but a real investigation of how far it can be broken up into component parts. Some may not compete with each other; many probably would not. Some may have competition from alternative sources of supply, as in the energy industry; but some may profit by the mere fact that reasonably small operations are likely to evoke a greater concern for their customers than large operations.
In the railway case my memory goes back to the early 1920s, when we had a whole range of railways.
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We had the Central Line; the London, Brighton and South Coast Line; the London, Dover and Chatham Line; the Great Eastern, and so on, each with its own livery and its own particular methods of operation, and I think all prouder of themselves than the later amalgamations which were the precursors of nationalisation.
I know that the noble Baroness, Lady Burton, and the noble Lord, Lord Winstanley, believe that there is yet another method of control; namely, consumer representation. I am totally unconvinced. However consumer councils are chosen, composed or elected, and whatever the formal nature of their relationship with the body that operates the industry, they are doomed to be powerless because they have, and can have indeed, no sanctions.
I would suggest the somewhat discomfiting thought, which noble Lords may like to consider, that if at a stroke of the pen we abolished every single form of consumer representation that exists in any of our industries, the result would be imperceptible to the naked eye. Things would go on just as before. I take Lord Winstanley's points, such as trading standards. That is a matter of Government enforcement of a law which, if challenged, can be taken to the courts. I am afraid that the case of people of limited means faced with grossly excessive charges is not something that I can see taken to the courts; and stirring up trouble about this, unless you have a responsible Minister, also seems to me to meet with a dead end.
So far as I know there does not exist a consumer council for Messrs. Marks and Spencer, or a Sainsbury customers' advisory board. The reason is that if you do not like what these firms offer, you can cross the road and buy the commodity from their competitors. That is the only way that I know of, other than straight political legal control, for protecting consumers. It would be wrong if we were to allow ourselves to cultivate the illusion that there is some way round these awkward facts.
4 p.m.
Lord Grimond: My Lords, I find myself very much in agreement with the main theme of the noble Lord, Lord Beloff. Like him, I believe that all monopolies become conspiracies against the public and, like him, I think that they are not always very effective and that the best protection against them is a Minister who can be harried in Parliament. Like him, I do not have wholehearted belief in consumer councils. But I think he failed to notice one point made by the noble Baroness, and that was her suggestion that not only should these councils be representative of the consumers but they should include people elected and chosen by the consumers. Up to now that has not been the case. They have very often been tame dogs, though I think that they are becoming less tame and they may be better than nothing. However, competition is the main support of the consumer.
I speak as somebody who was, and perhaps is, a strong supporter of privatisation, but, I must confess, not by the methods which the Government have chosen. The real damage the Government are doing is that they are seriously damaging the whole case for a different way of running some of our nationalised industries.

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I have always believed that there are certain public services which are not subject to the profit motive and should not be judged by commercial standards. I do not believe that the universities should be looked on merely as places from which to turn out technicians for industry and I do not like the Government's attitude to the arts. One of their main faults seems to be to have totally confused the various functions of government. I sometimes feel that they would be a little happy to privatise their grandmother and to treat the proceeds as income if only they could reduce the PSBR by so doing. I think they have done great damage to the case for privatisation.
What is the case for privatisation? The case is principally, as has been said, that it should benefit the consumer. But having changed public monopolies into private monopolies we have seen only too clearly in the case of British Telecom that the last people they consider are the ordinary consumers. No case so far has been advanced for changing public monopolies into private monopolies at vast expense unless it is thought to be a good thing to provide huge profits for the City of London. I should like to know what the City of London has made so far out of privatisation. Perhaps the noble Lord, Lord Bruce of Donington, knows. Would it be £50 million or £100 million? Would it be £200 million?—all for the purpose of changing public monopolies into private monopolies.
It is a scandal that advertisements should be put into papers indicating that British Telecom has reduced its charges and that the shareholders of British Telecom should have to pay for those advertisements at a time when, as has been said in that magnificent speech by my noble friend Lord Taylor of Gryfe, it is greatly increasing its charges to the ordinary subscriber. Apparently the only people who are gaining are tycoons and large companies. Incidentally, why it is necessary to put advertisements in the paper drawing attention to this I do not know.
The fact is that the charges of nationalised industries—this is true not only of the privatised industries but those which remain nationalised—are being used, either by the Government or with the connivance of the Government, as a poll tax. They are being used as a form of taxation levied upon the people least able to pay, many of whom cannot possibly avoid it. Old people and people living alone must have a telephone. They are simply at the mercy of this private monopoly. However it is done it is true that some protection must be given and some amendment must be made to the Act to ensure that their interests are served.
It is not good enough to say that British Telecom has not exceeded the legal maximum. As has been said, for a corporation which makes enormous profits—that was said by the noble Lord, Lord Bruce of Donington—the excuse that they have only gone up to the maximum is monstrous and an insult to the British public. We have seen in the case of Hull that there are different ways of running a telephone service. I should like to know whether the Government have examined Hull and similar examples to produce at least some degree of competition.
The other point in Lord Taylor's excellent Motion on which I want to say a word is the matter of worker participation. Privatisation offered a magnificent
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opportunity to spread ownership in this country and not only ownership but active participation in the running of industry. This has largely been missed. It is true that efforts were made to spread the shares of British Telecom, but on the whole the privatisation measures have not resulted in any greater worker participation in the actual running of industry. Management buy-outs and worker buy-outs have taken place, but not, it must be said, with any powerful and definite encouragement from the Government other than in words. It is not enough simply to give a sweetener to those who are working in industry in the form of a few cheap shares or the opportunity to subscribe for shares ahead of the general public. Many of the shares are then resold and they do not change the fundamental structure of industry. Unless the fundamental structure of our industry is changed we shall go through exactly the same hoops as we have been going through for the last 10 or 15 years; we shall have the antagonism of labour and capital; we shall have pressures leading to inflation and we shall have inefficiency.
The Government have had a glorious opportunity to privatise industry which they have largely missed because they have not brought in, for example, measures to allow people to borrow to invest in sitares and they have not brought in positive measures to ensure that the industries were handed over, to some extent, to their workers. Those are the two parts of this Motion to which I particularly want to draw attention. I hope that when the Government reply they will give an answer to the questions of responsibility.
In a way the most devastating speech was that of the noble Lord, Lord Beloff, because he is a Government supporter. What was his case? His case was that all monopolies are villains, private or public. Therefore why waste time changing from one villain to another? He does not like consumer representation. He wishes to return to the Postmaster-General. Do the Government want to go back to the Postmaster-General? No, my Lords. We very much hope that when the Gas Bill comes forward we can rely upon the admirable vote of the noble Lord, Lord Beloff, to oppose it. Unless the whole attitude of the Government which has been evinced over the Telecom Bill is changed, it will deserve the sternest opposition. I speak as one who has some shares in British Telecom, I am glad to say, but I consider it to be rather a scandal that those who have a little money in the bank and therefore could subscribe received some shares and a reduction in their bills whereas a poverty-stricken person who must have a telephone had no such advantages.
This is a Government nominally trying to spread wealth ownership and to make a case for privatisation. I must confess that, unless the Gas Bill is very different from the British Telecom Bill, they will have ruined the case for privatisation; a case of which many people such as myself were, up to a short time ago, powerful supporters.
4.7 p.m.
The Viscount of Falkland: My Lords, there are many noble Lords on this side of the House particularly who may feel that it is a great pity that we are having this debate at all. It is a great pity that an

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efficient and healthy public sector could not have worked alongside an innovative and productive private sector to create a high standard of living for our people and an example to the rest of the world, particularly the developing world. Privately most of us would think that all is not well in our nation, but some of us publicly have to play that down. That is understandable, but sooner or later we have to come face to face with the realities. New attitudes and energies must emerge so that we can heal some of the rifts in our society and create the unity which will enable us to create the wealth upon which the standard of living of our people depends.
However, I shall not look back. As was said yesterday in the debate on Northern Ireland, we must look forward. I take a slightly more charitable view (though I share his sentiments) than my noble friend Lord Grimond about the serious attempts by the Government in one area; that is, wider share ownership. The Government's attitude towards wider share ownership is enshrined in the Employment Act 1982. That Act states specifically that in annual reports action that has been taken in encouraging the involvement of employees in a company's performance through an employee share scheme or by other such means should be stated. What has been done in achieving a common awareness on the part of all employees of financial and economic factors affecting the performance of that company should also be stated.
How far have the Government gone with that laudable aim? I think they have gone some way. I agree with noble Lords who have been critical of the British Telecom flotation, but I have done some telephoning this morning and I am less critical than I was when I started my telephoning. It is difficult, as my noble friend Lord Taylor of Gryfe says, to get accurate figures. There is no doubt that this flotation initially helped to bring the whole area of share ownership closer to the inexperienced or novice investor. Accepted statistics show that before the flotation there were 2·5 million private shareholders in this country and shortly afterwards the figure increased by a further 1 million as a direct result of the British Telecom flotation. Some quite surprising (to me, anyway) figures are that, according to one source, 26 per cent. of the adult population, which is 11 million people, made serious inquiries about the flotation, and of the 2·3 million actual applications, 1 million were for the minimum investment of £100.
It is difficult to interpret the statistics. According to the registrars, today there has not been a significant reduction in the number of private shareholders in British Telecom. From an unofficial source (which is often more enlightening) namely, a firm of stockbrokers that has dealt extensively with this particular share, the information is that many of the people who have sold their shares and taken their profits were the larger holders of those shares, and a substantially high proportion of the people who had the smaller holdings have stayed there. Of course there was the incentive of the vouchers for the telephone bills, and so on.
Therefore I do not think that one can say the whole exercise has been totally wasted. There has been a
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move. I think one may say that, to many people, to use street jargon, the whole matter has been something in the nature of a successful punt. The British are great punters. I have been a punter in the past. I hesitate to say that I am now: because I spend too much time in your Lordships' House, I cannot afford it. There are all kinds of ways in which the British can enjoy the fantasies of punting. However, owning shares is a serious matter. Wider share ownership needs to be taken seriously. In the educational process, to persuade people to own shares, a serious attitude must be taken to enable them to understand the responsibilities involved. That is particularly so in the area of employee share ownership, where further attitudes are involved, such as the attitude of a realisation of the importance of profit and loss to the companies with which employees are involved.
Where employee share ownership schemes have taken root in this country—and they have taken root quite widely—there has been enormous success. This has happened in companies with household names. One does not have to give a very long list. There is Jaguar. The managing director of Jaguar attributes the success of that company almost exclusively to the very high level of employee share ownership in his company. He says that has resulted in direct improvement in communications in his company, improvement in the quality of product, and in the success of that venture about which we all know. There are Sainsbury, Bulmers, the cider people, and Marks and Spencer. Those are household names. There have been great successes.
I think that much more innovative thought must go into how this process is to be extended further and faster, if we are to have a serious collective attitude towards the wealth creating process and the identity of individual citizens with this process. At this stage I would ask the noble Lord the Minister kindly to answer two specific questions. The first is whether he would agree that it would be of great benefit to the whole area of wider share ownership and also to the reputation of the City of London if some way could be found to abolish stamp duty. Stamp duty inhibits wider share ownership for obvious reasons. At this moment, there are many people buying shares. There is a great part of our market which is being taken by New York stockbrokers, because there is no secret about the fact that one can go onto the New York Stock Exchange and trade there without stamp duty. Thus, it would seem to me to have a two-pronged effect.
The other question I should like to ask the noble Lord the Minister is on taxation. It is about capital gains tax. I do not think any of us on this side of the House would support the total abolition of capital gains tax. There would be again, obvious social consequences of that. However, surely there is a way of simplifying capital gains tax, which would make the whole area of share ownership easier to comprehend and to approach. Perhaps I may make a suggestion to the noble Lord the Minister, and perhaps he can comment on it. Would it not be simpler to have a capital gains tax, for example, up to three years, during which one could be taxed on one's gains at 30 per cent. plus, but after a period of, let us say, five or even six years it could be abolished altogether?

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I come back to the problems of wider share ownership. The problem now is to persuade people to hold on to their shares, to involve themselves. I do not think one becomes a shareholder until one has received a couple of reports through one's letter box, until one has actually received a few dividends, and so on. One has to persuade people to stick in there, and to persuade them to do that requires some innovative and practical suggestions by the Government. I am making practical suggestions, and I hope they agree. Capital gains tax could be simplified. After all, it must involve a good deal of bureaucracy. There is much jargon about simplifying. I know there is a system called tapering, which I think is what I am now describing. The noble Lord the Minister will probably know more about that than I do. Surely there is a way of simplifying this, which would be a constructive attempt to lift barriers for the inexperienced so that they could come into this area.
I conclude on that note. We have a situation where public companies are now moving into the private sector. It is sad for many of us, but perhaps this will produce the kind of involvement and national will which puts us up the league table again—because we have dropped a long way back; and we shall be hearing about that next week when the House of Lords Select Committee report is debated. We have moved a long way down the league table of gross domestic product. Time is short, and anything constructive and innovative in the area of wider share ownership, or anything which gets everybody out of the confrontation attitudes and along the road towards improving the standard of living of our people, will be very welcome.
4.19 p.m.
Lord Ezra: My Lords, my noble friend Lord Taylor of Gryfe, in a clear, succinct and powerful speech, drew our attention to a matter of great public interest. That question is: how should we deal with monopolies when they are moved from the public to the private sector? In making his speech, my noble friend said that he was not raising the question of whether or not this should be done, but if it were done how we should handle the situation. In the course of this very interesting debate, however, the question of whether it should be done was inevitably raised. In a very compelling speech, the noble Lord, Lord Beloff, drew our attention to the logic of the situation, and so did my noble friend Lord Grimond.
The fact is that we are entering totally new territory in terms of the industrial history of Britain. This has never been done before. We have never before constructed massive public monopolies and then moved them into the private sector. So I think that we are justified on all sides of the House, and throughout the country, in being somewhat apprehensive about the process. We may be, in principle, in favour of privatisation, as my noble friend Lord Grimond said he was; but I think most people would have thought of privatisation as converting what some might have thought were inefficient, monopolistic, nationalised enterprises, into thrusting, competitive, private enterprises. But this is not what, apparently, will be done in one of the very big monopolies existing in Britain today.
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The gas industry, which by everbody's account and belief has been a most successful enterprise carrying out one of the most exceptional technical feats, converting itself from what was generally regarded a few decades ago as an effete 19th century industry into one that has anticipated the 21st century, is to be transferred from the public to the private sector. So it cannot be that that is to be done because it is inefficient. It is apparently, according to reports leaked in the press, not to be changed in its methods of operation and so we must be concerned about how this whole situation is to be faced up to.
In the very limited experience that we have had so far in the case of British Telecom, the impression that has been gained is that the very strong safeguards that existed vis-a-vis Telecom in its public existence have been diminished in its private existence. That is the impression that has been gained because, if noble Lords will recall, when the privatisation Bill was being debated there were many on this side of the House who asked for the scope and effectiveness of Oftel to be strengthened, and that was resisted. We asked for the consumer organisation to be maintained, and that was resisted.
So I can only come to the conclusion that it is somehow felt by the Government—and no doubt the noble Lord, Lord Belstead, will answer this point—that if you have a monopoly in the public sector you need a lot of safeguards; but convert that monopoly into the private sector and by some miraculous means, without changing the organisation in any way, the safeguards automatically should be diminished. I believe that that is the nub of the Question raised by my noble friend Lord Taylor.
I must say that I felt a great deal of sympathy for the logical argument of the noble Lord, Lord Beloff, that if we want to do anything with public monopolies, if we want to change them in any way, instead of moving them into the private sector it would be far better to move them back into Government control. That, it seems to me, is a very logical proposition.
However, we are faced with a different situation and therefore we have to come to terms with it, so it is very proper that the questions raised by my noble friend Lord Taylor should be considered today. He was absolutely right, my noble friend Lady Burton of Coventry was absolutely right and the noble Baroness, Lady Elliot, was absolutely right, in drawing attention to the problems which have already arisen in relation to the Telecom privatisation, so far as consumers are concerned. This is a worrying situation and it is difficult to seem how it can be dealt with because the Government, quite rightly, from now on will be saying, "This is a commercial matter for the organisation". But that organisation happens, if not wholly at least in a large part of its business, to be an effective monopoly.
I have personally had experience in nationalised industry and in the private sector. In the private sector, the compelling interest is to show a good profit for your shareholder, and if you are operating in a particular market in which you can get good margins you get them in order to compete more effectively in those markets where you face more competition. So I must say, from the point of view of normal industrial

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performance and reaction to a market situation, that I cannot blame British Telecom for doing what it is doing.
It can get a better price, it appears, from the domestic consumer, and so it is getting it. It is facing more competition with the industrial user, the long distance user, and so it is reducing charges. That is a perfectly proper thing to do in normal business. The question that we have to ask ourselves is whether that normal business reaction is proper in the case of a private monopoly created by Act of Parliament. That is the question and I very much hope that the noble Lord, Lord Belstead, will give us some illumination in that issue.
The other point that worries me about this situation of transferring public enterprise to private enterprise is that it is automatically felt that everything that was done when the enterprise was in public ownership was somehow wrong and has to be changed. But we have had publicly-owned enterprises in this country now for over a quarter of a century and a great deal has been learned about how to run large-scale enterprises in various aspects. There may be things which are to be deplored and which we would want to see avoided in the future, but to suggest that everything should be thrown out with the bath water strikes me as being quite wrong.
Some very positive lessons have been learned, particularly from the point of view of consumer representation, particularly from the point of view of employee involvement and particularly from the point of view of purchasing, and it is on purchasing, which was referred to by my noble friend Lord Taylor, that I should like to say a few words because I think that this is becoming a very serious issue for this country. It goes beyond the particular subject that we are discussing today.
We are facing a situation in which our manufacturing position is diminishing in relation to our needs, and even though the last current account figures showed that we were in surplus, a little examination of those figures reveals that this was largely due to the increased sale of oil and that on the manufacturing side we are continuing to lose ground. So we have to address ourselves to all the ways in which this can be stimulated. We are to have a debate next week on the Select Committee's report, under the chairmanship of the noble Lord, Lord Aldington, which will address itself to many aspects of this problem.
But the specific aspect which is relevant to the Motion before us today is the role of public purchasing. This is something in which I was personally much involved when I was in the coal industry. Not only did we within the coal industry seek to maximise our purchases on a competitive and rational basis from British based suppliers, but I took the initiative, supported I must say by my fellow chairmen in the other nationalised industries, to set up a group in which we looked at the purchases of all of us, in order to try to carry out this work throughout the whole publicly owned enterprise sector.
We did—as my noble friend remarked—achieve the remarkable feat that only 3 per cent. of our purchases
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were obtained from non-British based firms on a competitive basis, not breaking any international rules whatsoever. Unfortunately, we have seen so far in the case of British Telecom—and a number of questions have been raised on this—that we are already departing from those principles.
Rightly or wrongly—it may be absolutely right from its industrial point of view—the fact is that it is moving away from those principles and therefore weakening the thrust which was developed when it was in the public sector. I learned today—and I was very pleased to learn it—that the East Sussex County Council has decided that it is to use its £40 million of annual purchases to stimulate enterprise as far as possible within the region for which it is responsible. I applaud that decision. But this sort of thing should be spread throughout all major purchasing enterprises in the country; and what I am saying is that in the nationalised industry group this was taken to very considerable lengths. Do not let us see that impetus lost when these enterprises are converted into the private sector.
Indeed, my Lords, that goes for a number of things that were developed in the nationalised sector. There were some positive things that were developed and there was a great deal of experience. Let us build on the successful and replace what was not successful. Let us not assume, because it is the decision of the Government of the day that on the whole they prefer enterprises to be in the private rather than the public sector, that everything which was done in the public sector was necessarily wrong. I hope that this whole question of transferring enterprises from one sector to the other will be looked at with increasing objectivity and that particular care will be addressed to the problem when that transfer affects a monopoly.
4.31 p.m.
Lord Bruce of Donington: My Lords, this has been a very interesting debate and we on this side of the House would like to congratulate the noble Lord, Lord Taylor of Gryfe, on having given us the opportunity of discussing this subject today. The noble Lord, by way of a routine introduction to his very admirable speech, referred (as we would expect him to) to the dogma of both sides—thereby implying of course that those on his Benches were in a position of complete neutrality in the matter and regarded the whole thing from the lofty point of view of the public interest, uncontaminated by any party arguments.
Being somewhat a controversial participator in politics myself, I am bound to say that the noble Lord, Lord Taylor, has proved my case admirably. Never has there been a speech which, in its address to the implications of the Motion on the Order Paper, has been such an attack on the complete ineffectiveness, from the point of view of the public interest, of the introduction of the measures privatising monopolies.
I cannot let the occasion pass without referring to the most remarkable speech of the noble Lord, Lord Beloff, which I sincerely trust will be studied by the Government Benches tomorrow. I am deeply sorry if in praising him I in any way affect his prospects of promotion; but I am bound to say that, apart from one or two frills, it was a speech which I could have delivered with the greatest possible passion from this

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Dispatch Box, because of course he disposed of the old fallacy of privatisation when it comes to its application to public monopolies. He showed quite clearly that, if there is to be a public monopoly, it is far better for it to be under the ultimate control of either a Minister or a body capable of responding to public pressure, to public complaints and to public requirements.
I feel bound to defend the noble Lord, Lord Belstead, against an accusation implicit in the terms of the Motion itself—namely, that privatisation in itself was intended to protect the public interest. To do the noble Lord justice, neither he nor his predecessors have made any pretence at all about that matter. They were quite frank about it in the introduction of the British Telecom Bill. The purpose of the privatisation was to yield a proper return to the shareholders—that is what it was all about—and to fructify, as I shall show later, among the broad mass of the British population in pursuance of what is sometimes euphemistically referred to as "a property-owning democracy".
The party opposite never pretended that the privatisation of a monopoly was going to be in the public interest. Indeed, in more recent weeks that has been quite clear. I have no need to quote, because everybody knows it: the principal purpose of the privatisation of public assets has been to provide money for the Chancellor of the Exchequer to enable him to distribute it at large by way of electoral bribes. It is perfectly clear: everybody knows it. It has given rise to a new term—a new term unknown in economic circles, unknown in accounting circles, unknown in legal circles and unknown even in universities—and, instead of raising revenue, we now talk about "incurring negative expenditure". That is the most ridiculous, idiotic and Civil Service-ese device created in order to conceal the true purposes of the Government.
Implicit in the speeches of the noble Lord, Lord Taylor of Gryfe, of the noble Baroness, Lady Burton, and indeed of my noble friend Lady Nicol was the wish that somehow steps should be taken notwithstanding privatisation to protect the public interest, environmentally and consumer-wise. The case for the Government is that by efficiency, by competition, automatically in the ultimate this would become merely another expression of market forces and that thereby the general interests of the consumer public would ultimately be covered by the free operation of market forces. Noble Lords speaking from the Liberal and Social Democratic Benches this afternoon have given some illustrations as to exactly how that has worked out. There seems to be a misunderstanding on the part of the Government themselves as to what the public interest really is and how far it is the responsibility of any Minister of the Crown to pursue the public interest.
Under the various privatisation Acts, the shares in the newly-formed companies vest in the Minister. They do not vest in him as a politician—and I shall return presently to that point in relation to the words of one of his own Ministers. They vest in him as a custodian of the national interest. Therefore, before disposing of a national and income-producing asset, the Minister, if he takes his responsibilities seriously in these days of, if I may say so, permissive politics, has to be satisfied first of all that it is not going to be
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disposed of at a price which involves the whole body of the taxpayers—because this is what we are talking about—in a very considerable loss on the basis of its being sold on a going concern basis. He also has to be satisfied that the loss of income to the taxpayers at large—and that, as I shall show, includes not only income tax payers but value added tax payers and indirect tax payers—can be made up from some other source.
In the case of the various acts of privatisation that have taken place, had they involved real property, the Minister, in order to ensure that he would act properly within his ministerial responsibility, could have taken the advice of a district valuer. That would have protected him. But what did the Government do in the disposal of these shares in pursuit of what they declared to be the spread of a property owning democracy? They took the advice of the City, or certain sections of the City. The disadvantage is of course that the City itself was not a disinterested party like the district valuer. It was in the interests of those underwriting to make quite sure that the price was sufficiently low in order that their underwriting obligations could be minimised—it was obviously in their interests to do so—and also to ensure that it was sufficiently low to yield institutional investors, let alone individual investors, an adequate profit. In the case of British Telecom, as everybody knows. that happened.
The issue cost—the noble Lord, Lord Grimond, was kind enough to refer to me for an estimate of its total cost—was £318 million. That is the nearest estimate I can make. The total issue cost the taxpayer in terms of underwriting fees, in terms of professional fees, in terms of printing, stationery, postage, pre-launch advertising and all the rest, some £318 million. The theory was that it should spread the ownership of shares. My Lords, it did nothing of the kind. The percentage of shareholders in this country owning individual shares—there are some 42 million adults—was somewhere in the region of 5 per cent. two years ago, the latest date for which figures are available. On the assumption that the proportion has now increased to 7 per cent., and bearing in mind individual shareholders existing before unlikely also to have taken up shares in British Telecom and the rest, the proportion of the population now holding individual shareholdings is probably 7 per cent., or nearly 3 million individuals out of a population of 42 million. These are the most optimistic statements that can be made.
Lord Diamond: My Lords, purely for information, is the noble Lord indicating the number of shareholders, however small the shareholding?
Lord Bruce of Donington: Yes, my Lords, I am talking in terms of people who have shares in their own right. The number was in the region of 5 per cent. to 6 per cent. The noble Lord will be familiar with the figure because he was chairman of a very distinguished committee that dealt with matters of this kind. I would guess that the total number of individual shareholders now is about 3 million.
From where have those 3 million shareholders come? Are they in that part of the population, the 21

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million adults among the population, who own between them 4 per cent. of the total disposable national wealth (which is £408 billion, according to the estimates produced by the Inland Revenue) or £777 each of disposable wealth? Included in that figure are the 7 million who are at or below the poverty Une. There are no shareholdings there. Or have the shareholdings been taken up by the top 10 per cent. who own some 56 per cent. of the total disposable wealth in this country, some £228 billion altogether, which works out at some £56,380 per head? Alternatively, do these individual shareholders—we are talking about a property-owning democracy now—come from the top 25 per cent. of the adult population?
It is quite clear that the individual shareholders of this country cannot be classified as the people as a whole. Yet this has been given as the justification for privatisation. Noble Lords may remember that, in addressing the Tory Reform Group recently, the right honourable Peter Walker said:
"There is a great myth that the Government, in conveying from the state to the people an asset, is selling the family silver. It is not in fact selling silver, it is transferring the silver from the politicians and the civil servants to the family".
We really know who the family are. The family are bound to be in the main confined to that top 10 per cent. of the adult population of this country who own between them 56 per cent. of the national disposable wealth in the United Kingdom. This makes a complete farce of the claim.
Responsible Ministers would know this. Responsible Ministers would not pretend that it was anything other than that. They well know that the population as a whole, including the bottom 50 per cent. pay a large amount in indirect taxation. From that point of view, and from the point of view of the shareholding, the motive of the Government is quite clear. It is for nothing of the kind. For distribution to their own family maybe; for the acquisition of their own family, the richer and better-off people, maybe; but without any relevance to the needs of the nation as a whole.
It is unnecessary for me to duplicate the very excellent speeches that have been made this afternoon on other aspects of the Motion. I have concentrated on one only and the conclusion must be that the Government in pursuing their process of privatisation cannot possibly pretend that they are doing it in the public interest but are doing it only for the protection and advancement of the richer section of our community.
4.48 p.m.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, I should like to begin by thanking the noble Lord, Lord Taylor of Gryfe, for tabling this Motion. It provides a welcome opportunity to draw attention to the Government's success in transferring businesses to the private sector. The terms of the Motion, characteristically from the noble Lord, are encouraging too, for they are concerned not with whether monopoly
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businesses should be privatised but with the objectives that they should have, as new, publicly owned companies.
The noble Lord, Lord Bruce of Donington, was not quite so encouraging in his speech from the Opposition Front Bench. The noble Lord spoke earlier in his speech about, as he saw it, the ineffectiveness of privatisation and the complete fallacy of privatising public monopolies. The noble Lord summed up a little later in his speech by saying that he felt the whole thing was not in the public interest. The aim of the privatisation programme is clear. It is to transfer businesses to the private sector in order to free them from unnecessary political and bureaucratic control, to subject them to private sector pressures and incentives and to promote real public ownership—that is, direct ownership—by members of the public and by employees. The interesting thing is that other countries in the world are following suit, Japan, Sweden, France, Italy and Germany among them. The noble Lord went on to suggest that privatisation is intended merely to allow a higher level of public spending through the practice of negative expenditure.
As your Lordships know, I am not an economist, but I know enough about this particular matter to be able to say that the noble Lord's accusation is certainly not the case. Indeed, the practice of negative expenditure is one to which the Labour Government themselves resorted when they sold the shares of BP in 1977; the practice was exactly the same from a previous government to the present one. The fact is that public spending at the moment is planned to fall as a proportion of gross domestic product over the next three years even if privatisation proceeds are excluded from the assessment.
Before dealing specifically with the terms of the Motion, perhaps I may return for a moment to the generalisation of privatisation. I remind the House that 12 major companies have been privatised; 20 per cent. of the state sector that we inherited and 400,000 jobs have been transferred. I beg to differ with the noble Lord, Lord Grimond, who condemned also the policy of privatisation as the Government are putting it into effect. I believe on behalf of the Government that the economy is gaining, as the greater efficiency of privatised industries means higher profits and investments on the one hand and better services to industrial customers on the other.
The companies we have privatised so far are all, to one degree or another, acting within a competitive market place either domestically or internationally. However, much of the state sector is comprised of the so-called natural monopolies. I recognise that those are the monopolies where economies of scale and the barriers to entry are such that it would be wasteful or impractical to break them up. However, the Government believe that the arguments for privatising those bodies are very much the same as for any other industries in the state sector.
Despite what has been said by the noble Lord, Lord Ezra, and by others who have unrivalled experience of the state sector, I make that assertion because privatisation means freedom from Government

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interference. It is important to note that Sir Eric Sharp, chairman of Cable and Wireless, commented that:
"the freedom to negotiate new deals and joint ventures as principles…with other governments and major companies was invigorating for management and wholly beneficial for the development and growth of the company".
That was said, as I understand it, in the context of privatisation opening up access to the capital markets, exposing an industry to the pressure of shareholders' expectations, and offering the opportunity to enter into new, more competitive relationships with suppliers. Of particular importance in the case of natural monopolies is the fact that privatisation means real public ownership.
Against that, the conventional wisdom has been that those monopolies are so important, and have so much potential power to harm customers, that the only safe place for them was in the public sector. I put it to your Lordships that the experience of the past 40 years has taught us that that is not so. As my noble friend Lord Beloff illustrated very clearly in his speech, from the customers' point of view ownership by the state is no guarantee of good service or value for money. Our conclusion is that customers' interests are better protected not by state ownership of monopolies but through a combination of genuine public ownership and effective regulation.
The Motion of the noble Lord, Lord Taylor, asks us to ensure that the interests of the consumer are protected. The principle by which that protection is provided by the privatisation programme is tough, transparent regulatory arrangements. On this subject, several noble Lords have referred to a recent paper from the Public Policy Centre. The noble Lord, Lord Taylor, was the first to refer to it. The authors of that report were critical, I believe rightly, of the general performance of state industries. However, I believe they under-estimated the effectiveness of a well-designed and properly-enforced regulatory system in providing incentives for efficiency, in promoting competition, and in protecting the interests of consumers.
As all your Lordships have taken the example of British Telecom, let me do so. BT's powers and responsibilities are set out in the licence it holds to run a telecommunications system. Under the terms of that licence BT is required to provide telecommunications services throughout the United Kingdom. The licence also contains a number of provisions to ensure that the company's dominant position does not operate against the interests of customers or competitors.
Perhaps most importantly in this context, the licence restricts BT price rises on line rentals and dialled internal calls to both business and domestic subscribers to, on average, three percentage points below the Retail Price Index. Many noble Lords have spoken about this subject today: the noble Lord, Lord Taylor, first of all, and the noble Baroness, Lady Burton, especially. I should like to make three points in reply.
First, in reply to the noble Baroness, the director general of telecommunications has confirmed that the increases do comply with BT's licence obligations. Secondly, the average price increase calculated under the formula was 3·7 per cent., and this represents a substantial fall in real prices for telecommunications
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customers as a whole. That trend will, under the RPI minus 3 per cent. rule, be continued for the rest of the decade. The noble Baroness asked me particularly about the timing. It is the new privatisation regulatory regime which will bring that about. Finally, with the elderly particularly in mind, BT operates a low-user rental rebate which automatically reduces rental charges by up to 20 per cent. for those making only a limited number of calls. That rebate was improved as part of the package of changes made earlier this year.
Baroness Burton of Coventry: My Lords, before the noble Lord leaves that point, and as we have a little time in hand, I have to say that that is a quite monstrous reply from the noble Lord. I said that they had made those charges arithmetically correct; that they had added them together and then halved them to make them arithmetically correct. However, it is nonsense to say that which the noble Lord has said. In case the noble Lord moves on, may I also ask him this: could those abuses by British Telecom continue for five years until there is a new assessment?
Lord Belstead: My Lords, the answer to the noble Baroness is a very simple one. The move downwards because of the RPI minus 3 per cent. rule is one which, due to privatisation, will continue until the end of the decade. I consider that to be a benefit. If the noble Baroness and noble Lords believe, as has been set out in our debate this afternoon, that in distributing price increases within the average BT has not done as noble Lords would wish, then I can say that I know BT will of course read this debate carefully, as many others probably will do. I repeat that my answer to the noble Baroness is that for the rest of the decade the working of that part of the British Telecommunications Act will be of benefit and not otherwise.
Lord Bruce of Donington: My Lords, before the noble Lord leaves that point, can he say therefore that the residential subscriber—not the whole spread—will have his charges progressively determined under the RPI minus 3 per cent. formula?
Lord Belstead: My Lords, as I have already pointed out, both domestic and business subscribers come under the RPI minus 3 per cent. rule.
Lord Bruce of Donington: As individuals, my Lords?
Lord Belstead: I am sorry, my Lords, but I cannot add to that. I think it is perfectly clear. That arrangement will continue for the rest of the decade. I do not believe that it would be for the convenience of the House if I went yet again over the ground which we have already been over this afternoon.
It has also been said in the debate, not least by the noble Baroness, that the rules of the Act cannot be enforced by the director general of Oftel. The director general of Oftel, of course, as all your Lordships who took part in the Bill will know, has wide-ranging powers and responsibilities for the telecommunications industry. He has already demonstrated that he can use these powers effectively. The recent Oftel decision on interconnect affecting Mercury gave the lie to those critics who argue that Oftel has no teeth.

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The regulatory arrangements also ensure that BT fulfils a social role, to which the final part of the Motion by the noble Lord, Lord Taylor, refers. Under the terms of its licence BT must provide a universal service: public call boxes, 999 services, directory inquiry and other operator services. These duties are carried out under the constant scrutiny of the Office of Telecommunications, backed up by the authority of my right honourable friend the Secretary of State and, ultimately, the courts. So there is a clear set of rules and a powerful means of enforcing them. But this is not to say that BT and the consumer have no common interests. This is certainly not the case. BT does, after all, have 1·6 million members of the public and its own employees who are shareholders.
There are other, less obvious ways in which BT, fulfilling and exceeding the requirements of its licence, has taken on a broader and more active social role through which it can affirm its commitment to the community. For example, it has its own unit called BT Aid to oversee the telecommunications needs of disabled people. It has introduced numerous devices to help the hard of hearing, and is now offering new community alarm systems for elderly or infirm people at risk living alone. The new telephone kiosks are designed not only for ease of maintenance and relative immunity to vandals but also to allow easy operation by wheelchair users.
I remind noble Lords—none of whom said this—that the general standard of service has improved, too. I think it is an advantage that waiting lists have now become a thing of the past and that over 90 per cent. of orders for larger industrial customers are now being completed on time.
The Motion also raises the question of United Kingdom suppliers. A simple "Buy British" policy at whatever the cost is surely not in the best interests of British industry. State industries are now encouraged to look for the best opportunities available, taking into account all factors such as lifetime maintenance cost and ease of replacement, as any efficient operator should. In the private sector, the incentives to get the best from suppliers is greater still. We believe that no other policy is of any help to British industry in the longer term if we are to compete in international markets.
Noble Lords, and the noble Lord, Lord Ezra, in particular, criticised BT for going to non-United Kingdom suppliers. I defend its right to do so and, most of all, I defend its right to make such decisions rather than have decisions imposed on it. But to put the matter (which has been debated at considerable length this afternoon) into perspective from the Government's point of view, over 90 per cent. of BT's total procurement, from sophisticated electronics to motor vehicles, is of United Kingdom origin. The System Y purchase by a company which is 51 per cent. British owned represents only 10 per cent. of BT's switching capacity requirement over the next two years. The whole of the rest is System X.
Lord Ezra: My Lords, before the noble Lord finishes with purchasing may I clarify the position we have taken on this side of the House? I do not think that anyone here supports a "Buy British" policy
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irrespective of cost or lack of competitiveness. We are proposing that large purchases, whether in the public or private sector, should be used to stimulate competitive responses from British suppliers. That was the point we were making, and that is the policy pursued by the nationalised industries. We should like to see it pursued when they cease to be nationalised.
Lord Belstead: My Lords, I now pass on to the third element in the Motion. This speaks of maintaining good labour relations, which are central to the success of any business. As privatisation reinforces the pursuit of business objectives, so it reinforces the incentive for good relations between management and employees. I am saying to your Lordships that, in effect, privatisation builds up a team spirit. But it does more than that, and this is to be found in the fourth part of the noble Lord's Motion.
Since privatisation gives employees a chance to buy shares in their companies, it provides a real sense of ownership. Employees are entering enthusiastically into this. At British Telecom 96 per cent. of its employees took up their share entitlement, despite union opposition. Eighty per cent. bought further shares; and there has been a retention rate of 75 per cent. by BT investors.
The noble Lord, Lord Bruce, suggested, as I understood it, that flotations have only gone to those who have rather than those who have not. It is worth remembering that among the 2 million applications for the BT flotation a year ago 1 million were from people who were buying shares for the first time. On the subject of wider share ownership, I was interested that the noble Lord, Lord Grimond, spoke of missed opportunities on the share ownership front, while the noble Viscount, Lord Falkland, spoke in glowing terms of the effect of employee share ownership on labour relations in the Jaguar car company.
I simply say to both the noble Viscount and the noble Lord that the sharesave schemes and the share option schemes have been very largely the result of Conservative Government legislation beginning in 1980 and continuing through later Finance Acts. It is worth remembering that there were only 30 profit-sharing schemes which existed at all in May 1979, and today there are about a thousand. I take three examples of the shares which are held. In BT, out of 1·75 million shareholders 1 million were, as I said, new investors and had never held shares before; and there are 250,000 shareholders in British Aerospace, and 500,000 in Britoil.
My noble friend Baroness Elliot and the noble Baroness, Lady Burton, asked about British Gas. The noble Baroness, Lady Burton, wanted to know what sort of regulatory body will be set up under the legislation which my right honourable friend the Secretary of State intends to introduce into Parliament. This is a very important point, but it is quite impossible to answer before the legislation is introduced. I know that the noble Baroness will acquit me of any discourtesy in having to say that, but that is as far as I can go.
My noble friend Baroness Elliot asked three questions, two of which can be answered ahead of the legislation. My noble friend said that it was extremely important that consumers should benefit from

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privatisation, and not the other way round. My right honourable friend the Secretary of State for Energy has made clear that consumers will benefit from the privatisation of British Gas through the emphasis on efficiency that will be built into the regulatory pricing arrangements. On the second point, my right honourable friend has also made clear that there will be proper provision for consumer representation, and arrangements will ensure that high standards are maintained. My noble friend asked also about who will be responsible for the inspection of safety and emergency services, but, if my noble friend will forgive me, I cannot answer that in advance of the legislation.
The noble Baroness, Lady Nicol, in the same context of the forthcoming British Gas legislation, made the point that privatised companies would not fall within the scope of the Countryside Act 1968 as regards being careful about environmental damage when engaged in capital works. Again, as regards British Gas I am afraid I can say nothing until the legislation comes forward. However, in the case of British Telecom, where we have the legislation on the statute book, that is a licensed telecommunications operator and, as such, enjoys the privileges of the telecommunications code set out in the 1984 Act. It is true that this enables it to undertake basic work on the public highway and, for instance, erect telegraph poles and fly-wires without planning permission, but major projects, such as the satellite earth stations that we have being seeing on television recently, of course require planning permission.
The noble Lord, Lord Winstanley, asked me two specific questions. The first question concerned the progress made with the advisory committees under the British Telecommunications Act. Under the 1984 Act my right honourable friend is required to establish advisory bodies for telecommunications customers in England, Scotland, Wales and Northern Ireland; and these have all been established. Under the same Act, the Director General of Telecommunications is requested to establish advisory bodies for matters affecting small businesses, the elderly and the disabled; and these, too, have been established.
The noble Lord also asked me about the general arrangements for consumer protection and trading standards in the metropolitan counties. Under the 1985 Local Government Act, the boroughs and districts in each metropolitan county are to set up a joint committee to ensure that adequate and uniform trading standards are prepared to take effect from the 1st April 1986. To help them in this task, the Department of Trade and Industry has issued guidance notes and has offered the services of their trading standards advisers. All joint committees have now been set up, and they are getting on with the task.
There is just one other matter which I should like to mention. The noble Viscount, Lord Falkland, asked me two specific questions. One was: will stamp duty be done away with? The other was: will capital gains tax be improved in a way that the noble Viscount outlined would be desirable? They are both interesting questions, but they are both questions for my right honourable friend the Chancellor of the Exchequer. Yet in giving that somewhat negative reply perhaps I may just remind the noble Viscount that in 1984 the Government halved stamp duty rate from 2 per cent.
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to 1 per cent., which has already proved to have had a significant impact on Stock Exchange turnover; and we have also raised the thresholds of capital gains tax in this year's Finance Act.
Finally, perhaps I may end with a word about the subject of wider share ownership. I should like to express my thanks to the noble Lord, Lord Taylor of Gryfe, for supporting the move towards wider share ownership as a major objective of the privatisation programme, though the noble Lord questioned whether this objective was being achieved.
I should like to say that I have pleasure at the end of this debate in agreeing with the noble Lord, Lord Bruce, on one point. As I understand it, there are indeed nearly three million share owners in the country today, which is double the number that there were when the Government which is supported by the noble Lord quitted office in 1979. I must say that I do not really think that the increasing share-owning public would understand some of the gloomy references which came from the noble Lord on the Front Bench opposite. The fact is that people are welcoming the opportunities for wider share ownership and wider property ownership, which we are encouraging. The privatisation programme will continue to play its part in providing opportunities for new investors to take a direct stake in the economy. Surely, my Lords, that must be good for our country.
5.15 p.m.
Lord Taylor of Gryfe: My Lords, I know it is customary at the close of these debates simply to say a few kind words in withdrawal but I observe that we have a little time in hand and perhaps I may be excused from following the normal procedure in order to corrrect one or two points.
First, as regards the point about charges, I think that, if the noble Lord will read what I have said, he will confirm that it is right. In fact I quoted from the Sunday Times, which simply stated that big discounts were offered to big business at the expense of the domestic user. The figures quoted by me in my speech were checked with British Telecom, so there is no doubt about that fact.
The second important fact concerning, I am sorry to say, the decline of individual share ownership came at the end. There had been a substantial decline in British share ownership annually from 1980 until the flotation of British Telecom, when there was a slight increase because of its overall impact. But the trend is quite clearly there: there is a decline. I hope that the Minister will share my concern and look at various incentives to encourage wider share ownership in the future.
Then there was the point raised by the noble Lord, Lord Ezra. We are talking about developments in the electronic communications field; we are not talking about buying motor cars, which were included in his 90 per cent. We are talking about collaborative agreements on long-term planning, research, development and investment, and it is that degree of necessary collaboration which is being diminished by the policy of British Telecom. At the moment, with all our brains and our resources, we are importing into Britain £6 billion-worth of goods in the engineering and electronics field, and there is a deficit of £1 billion

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in what should be a traditional British industry. It is in order to correct that situation that we encourage British Telecom—or any private monopoly—to acknowledge the responsibilities which were so ably discharged in the days of the Post Office.
Finally, I should like to thank all the speakers who participated in the debate. Perhaps I may say to Lord Bruce of Donington that it was not designed as a debate for or against privatisation. When the Gas Bill is produced, I am sure he will find that we shall descend from that lofty neutrality to which he referred and measure it against the criteria which are mentioned in my Motion. I should like to thank all the noble speakers for participating and for accepting the limitations of a short debate. I thoroughly agree with the noble Lord, Lord Beloff—who was the only speaker on the Government Benches apart from the Minister—that there are only two ways of controlling the abuse of monopoly. One is by a regulatory authority with teeth and the other is by injection of competition. Those are the only two ways to do it, and when a private monopoly is created the latter means is eliminated, which is why a strong regulatory authority becomes necessary.
This was a timely debate, and I hope a satisfying one. I sincerely trust that the Minister will take on board some of the contributions that were made in a spirit of encouragement and helpfulness. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Money Supply and the Private Banking System
5.18 p.m.
Lord Beswick Lord Beswick rose to call attention to the statement made by the Chancellor of the Duchy of Lancaster on 23rd July 1985 that the 96·9 per cent. increase in money supply over a five-year period has been created by the private banking system and without Government authority; and to move for Papers.
The noble Lord said: My Lords, on 10th June this year I asked Her Majesty's Government by what amount the money supply had increased in the five-year period to mid-April 1985. Interestingly, they gave me the answer in percentages and not in pounds. Having given him prior notice, perhaps the Minister would be good enough later to give me the answer in money terms.
The Government reply on 10th June was that the increase had been by 101·9 per cent., and that of that very large amount only 5 per cent. was accounted for by the state minting of more coins and the printing of more notes. That 96·9 per cent. increase represented not only an enormous sum of money but also a crucially important factor in our economy. I wanted to know by whom it had been created, and on 23rd July I again asked Her Majesty's Government to what extent this increase had Government approval. I was told by the Chancellor of the Duchy, speaking for the Government:
"The 96·9 per cent. represented new bank deposits created in the normal course of banking business and no Government authority is necessary for this."
Had he said that some counterfeiter of coins or forger of notes had been at work there would of course have been an immediate and indignant outcry; yet here we have a government statement that private institutions have created this enormous amount of extra purchasing power and we are expected to accept that it is normal practice and that the government authority does not come into it.
When I asked whether we ought not to consider more deeply who was benefiting from this money-creating power, the Minister said that the implications, though interesting, were maybe too far reaching for Question Time; and so I raise the matter again in debate and hope to get more enlightenment. The issues are important; they are certainly under-discussed; perhaps not adequately understood; and I hope that I am not being unduly unfair if I sav that those who understand the mechanisms often do very well out of them. I make no party point; it is all much bigger and wider than that.
From what point should we start? There is the elementary fact that in a sensible, civilised society, with a steadily expanding economy, there must be a proper and agreed relationship between money available to buy goods and services and the volume of goods and services that may be bought. At any one time it can be a matter for argument that the money volume should be increased or decreased, but that does not diminish the importance of the relationship; and of course it leaves open the question as to who should have the responsibility for managing the volume.
Over the years very interesting people have recognised that there was a problem and that new ideas and new machinery were needed. The late James A. Edison, whose inquiring mind cannot be belittled, once said:
"It is absurd to say that our country can issue 30 million dollars in bonds and not 30 million dollars in currency. Both are promises to pay. But one promise fattens the usurer and the other helps the people".
President Abraham Lincoln apparently thought the same. According to a United State's Congressional sub-committee report that I was reading recently, he insisted upon the government issuing 346 million dollars in money—the so-called greenbacks—instead of issuing interest-bearing bonds and paying interest upon them.
Before the 1939–1945 war, in a time of unemployment, poverty, unused resources and deflated prices, I recall that there was widespread demand for increasing the volume of money. People like Major Douglas, Oscar Sachse and the late Sir Stafford Cripps, I recall, once advocated the ingenious mechanism of Silvio Gesell to increase purchasing power by quickening the speed of circulation. In more recent years, but again in times of unused resources but this time with rising prices, there has been another movement, with Professor Friedman to the fore, for example, which appears to be saying that all could be well if we reduced the volume of money supply.
I do not claim that any of those people has the whole truth, but it seems to me that each of them knew the direction in which the truth lies. For myself I say strongly that, given the importance of the money supply, that supply should be under the effective and

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professionally responsible management of the state. Moreover, I hope to get agreement from the Minister that we do not now have such effective and responsible management. I do not think that I need to spend much time in proving that the indirect and almost apologetic devices used by the Treasury in recent times do not bear the stamp of effective professional management.
The almost comic story of the discarded monetary indices justifies that statement. My noble friend the other day asked what was happening to M1, M2, M3, PSL1, PSL2 and PSL3. The Minister's reply was that there had been some eccentric movements of M3 but that the newly created category of Mo had behaved impeccably. No doubt when Mo goes the way of all such indices we shall be told that MX or something else is an absolutely reliable measurement. The fact is that there is this increasing volume of money, no matter what measurement is used; and as for the volume being under an effective and responsible national control, the Chancellor of the Duchy gave the game away when he said that no government authority was needed for this present system of credit creating.
Of course it can be said, and it has been said to me with varying degrees of kindness and patience by some of the most exalted persons in the financial hierarchy, that without such money supply increases the industrial structure would be stifled. Of course there is truth in that, but that does not invalidate my case that any increase should be under effective control and in line with the carefully considered policy of some national authority.
I cannot claim to be an authority on the techniques involved, but from what some recognised authorities have said it seems that my case has merit. In the days when I used to speak from the Government Front Bench for the Treasury, I recall having some dispute with the noble Lord, Lord Cromer, but I learnt to respect his knowledge. It was he who at a CBI dinner in May 1966 said:
"Unfortunately we have a system under which Treasury financing does lead to the creation of money quasi-automatically to the extent that the requirements of the Exchequer are not met by the genuine savings or by taxation".
I am also indebted to the Economic Research Council for this extract from Bank of England evidence to the Radcliffe Committee. It said:
"If the Exchequer borrows by issuing Treasury Bills which are taken up by the banks and spends the proceeds (so that the cash borrowed finds its way back to the banks) the liquid assets and deposits of the banks will be increased and they will be put in a position to increase the supply of bank credit. Indeed, as only a portion of the bank deposits requires to be covered by cash and other liquid assets, a given loss or gain of liquid assets by the banks has an effect several times as great on the potential volume of bank credit".
That would seem to be a most respectable description of the multiplier effect of Treasury bill borrowing. That is what happens now.
In an earlier debate I called attention to what happened in the time of war. We then had all the classic ingredients of runaway inflation, and yet we had extraordinary success in curbing interest rates and prices. The Congressional sub-committee report to which I earlier referred and which was published on 21st September 1961, told of a similar significant experience in the United States:
"the period from late 1939 to 1951 was as violent and catastrophic as any in the entire history of the United States. At the beginning of this period millions were still unemployed from the
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great depression. A short time later we were shooting away 250 million dollars every day on the battlefield … Then came the Korean conflict. Yet during this entire period of economic stress and turmoil the interest rate on long term Government bonds never exceeded 2½ per cent. And those bonds never sold below par".
The report adds:
"The Fed can restrain higher interest rates when it wants to".
That is a point which I hope to make. If the will is there, we could do something about the step forward that is needed in the management of our money supply. In wartime Britain a significant factor in keeping down the cost of money and other essentials would seem to be the substitution of Treasury Deposit Receipts for Treasury Bills when the Treasury borrowed from the private banking system. I hope that this evening the Minister will explain, carefully and helpfully, the basis for this use of the bill against the TDR. What exactly are the benefits?
It follows from the present practice that not only does Treasury Bill borrowing facilitate this quasiautomatic extra lending by the banks; but, in the course of things, the Treasury will be borrowing, and paying current excessive interest upon, the money that it has enabled the banks to create. It is worth reminding ourselves of some of the figures involved. Estimates for this year and next year are distorted by the receipts from the sale of national assets. But looking at 1983 as an example, there was an excess of receipts over expenditure in this country before debt interest of £4,234 million. The interest on debt was £14,658 million, leaving a deficit of more than £10,000 million. To a significant extent, the £14,000 million paid out by the Government on that debt was interest on money created by the private banking institutions—in effect, as I am claiming, in breach of the state's prerogative in the issue of money. If we could change this situation, we could change the whole character of the public sector borrowing requirement.
The line of action needed to reform this unacceptable state of affairs was indicated, I believe, by the late Sir Arthur Bryant, Companion of Honour upon whose clarity of language I cannot improve. In the London Illustrated News, he wrote:
"What seems required is a public body removed and divorced from political pressure, staffed by Treasury officials, invested by Parliament with the duty of creating, free of interest, as much money for necessary government purposes as the country at any given time should, in their considered judgment, need to ensure the maximum possible employment of its productive resources".
Sir Arthur also said:
"The exercise of the right inherent in every sovereign state of creating and issuing a sufficiency of money to make financially possible what is physically possible and morally desirable, would enable as much real wealth to be brought into existence as, with its immense inventive and scientific potential, it is capable of making".
I know that there are highly qualified experts, whose vision maybe is as narrow as their eminence is high, who would dismiss this concept of Sir Arthur Bryant. Nevertheless, I should like to quote from a research report of the Economic Research Council published in December 1981 which gave some figures that might be borne in mind when we are considering the practicalities. The report said:
"If the Government had followed a policy of extensive fiduciary control and had itself issued credit rather than allowing the banks to do so, it could, for example have made a net reduction over the period 1970–1980 in the need for Government borrowing from the £48,578 million securities issued to about £22,000 million, a saving of £27,000 million on the national debt over the period."
The council went on to say:
"The effect of implementing the proposed move now would be that a net amount of £20,000 million of national debt would be cancelled. The consequent reduction of interest payments on the national debt, and therefore of taxation or further borrowing, would help to bring about reflation without inflation".
That is, of course, what we all want.
I have said previously that it is not only a question of what we want but also of having the will to bring about the radical policies that are necessary. I accept immediately that we need a wider and deeper examination of the issues involved. Can the Government spokesman this evening give some hope that we might get the inquiry that is needed—a Royal Commission, maybe. The Macmillan Commission in the 1930s made quite an impact upon thinking. I am not sure that the same can be said of the Radcliffe Commission. But is it not now time to give fresh consideration to a serious independent attempt to sift out the facts? What about a Select Committee of this House? It is not unknown for such an inquiry by a Select Committee of this House to stir up some national thinking. I look forward to the noble Lord's account of the Treasury attitude to these issues. In particular, I await answers to the questions that I have posed.
I have summarised them here, and maybe I can repeat them—helpfully, I hope. What was the amount of money represented by the reported 101·9 per cent. increase in the money stock? Is it still agreed, after the period of reflection from 23 rd July, that this quasi-automatic creation of such large sums of extra credit should be outside government decision? Would the Government spokesman not agree that if economic growth requires an increase in the money stock this should be created interest-free to the credit of the state?
Is it not quite illogical, indeed indefensible, that the state should be so concerned to maintain its sovereignty in the issue of coins or notes that it allows this new form of money, used overwhelmingly today, to be created outside its control? Can the Government not at least agree that the facts known and the implications involved merit early and authoritative inquiry? Would not a committee or commission, authorised to consider and report, be of great national value. My Lords, I beg to move for Papers.
5.38 p.m.
Lord Tranmire: My Lords, the House is greatly indebted to the noble Lord, Lord Beswick, for initiating the debate—and not only for that but for the great clarity with which he expressed his mind in dealing with what is a very complicated problem. I have no doubt myself about how complicated it is.
I have considerable sympathy with the noble Lord's proposition that the supply of money should be under effective and nationally responsible control. To illustrate my anxiety, I can perhaps pick up a figure that the noble Lord gave. The noble Lord said that the 1983 cost of servicing central government debt was £14,658 million. Going back and looking at the figures, we find that the cost of servicing central government debt in 1955—that is, 30 years ago—was £705 million. In 1980 that figure was £8,661 million.
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I would ask my noble friend who will reply to this debate whether these figures are comparable, because it is a staggering increase in debt. It is a burden that we in this generation will transfer to the shoulders of the next generation. It has gone up by 20 times in 30 years. This makes me think that the time is overripe for a review of monetary policy.
The anxiety is nothing new. It has a very long history. There was a proposal to set up a currency commission to regulate the growth of money in relation to the growth in productive capacity as long ago as 1824, when an eminent economist, David Ricardo, called for the establishment of a national bank and for the right to issue money to be returned to the state and exercised on their behalf by a body of commissioners who should be completely independent of government. That is a long time ago.
Professor Irving Fisher of Yale University 111 years later proposed that a currency commission should be appointed to issue the money of the American nation. The noble Lord, Lord Beswick, has mentioned the very wise words of Sir Arthur Bryant. I remember that in April 1976 Mr. Peter Jay, when he was economics editor of The Times, advocated the creation by law of a currency commission to regulate the growth of the money supply. Not unnaturally his paper, The Times, in a leading article on 27th April gave it support. I quote that leading article.
"Were such a policy to be introduced and followed serious inflation would literally be impossible".
I notice that my noble friend Lord Bruce-Gardyne, whose column in the Sunday Telegraph we enjoy so much every week, will follow me and give his views. I do not know what views the Sunday Telegraph has compared with The Times. It will be interesting to know whether he agrees with Mr. Peter Jay or not, but I do not want to anticipate my enjoyment of listening to him.
I have one small worry. I do not believe that this inquiry should be conducted by a committee of this House. I think that might be a very dangerous and perhaps rather useless experiment. It matters so much what members are on the committee. I always think that, if one looks at the Radcliffe Committee and compares it with the Macmillan Committee, the Macmillan Committee wins every day. It was composed of people who knew what they were inquiring into, whereas I do not think that we got the results from the Radcliffe Committee. But I am sure we should do well in this House to listen to the very wise words we have heard from the noble Lord and to thank him for the way in which he has put them before the House.
5.44 p.m.
Lord Bruce-Gardyne: My Lords, I should like to thank the noble Lord, Lord Beswick, for introducing this topic this evening. I shall be very interested to hear the reply from my noble friend at the end of the debate. I confess that I personally have slightly more qualms than my noble friend Lord Tranmire about the notion of a super quango to produce such credit and money as the nation might require according to its own august and independent judgment. It sounds rather like the kind of body that used to be presided over by the noble Lord, Lord Williams of Elvel, and I

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shall be very interested to hear his views on the matter. I have an instinctive distrust, I must honestly admit, of these august men of wisdom who are to tell the rest of us what we are to think and how we are to behave.
Apart from some far too kind comments about my scribbling, my noble friend Lord Tranmire invited me to respond. I would not dream of giving a Sunday Telegraph view about the works of The Times in days gone by under its distinguished economics editor, Mr. Peter Jay. All I would say is this. In a sense what Peter Jay was saying, as I recall it, at the time was that it would be so much better if we had a much more autonomous monetary authority than we have in the Bank of England, because of the nature of the relationship between the Bank of England and the Treasury. I must say that I have much sympathy with that. I have often wished that we could have in this country a monetary authority more akin to the Bundesbank or the United States Federal Reserve. I must honestly confess that I sometimes worry a little that far from moving towards a greater degree of autonomy for the central bank in this country, we are moving towards a greater degree of subordination to the Treasury; and I am not sure that is altogether wise. As I say, I shall be very interested to hear my noble friend's response to the most interesting suggestions advanced by the noble Lord in his opening speech.
I hope that it will not be considered inappropriate if I turn for a moment to the rough, rude world of our current monetary condition, with particular reference to the very interesting speech which my right honourable friend the Chancellor of the Exchequer gave to the Merchants and Adventurers in the City of London in the Mansion House a month ago. I believe this has been referred to in certain quarters as the death of monetarism, to the glee of some and the gloom of others. I must say that to my mind this seems rather like the reports of Mark Twain's death, because I think that the Chancellor very fairly pointed out what he had himself said to the gnomes of Zurich in 1981. He quoted a passage from his speech in 1981 to demonstrate the continuity of monetary policy. It is a passage in which he said:
"It has always been a grotesque caricature of the present Government's economic policy to pretend that it consisted of leaving everything to an automatic pilot known as sterling M3 … In a world in which the monetary system is in a constant state of evolution, the exercise of judgement and discretion is inescapable. The important question is: who is exercising that judgement and that discretion?"
As I understand it, the position is this. If it were the noble Lord, Lord Barnett and his friends, as we know, such is their joy of the fleshpots that if we see them entering the brothel we are entitled to assume the worst; but if it is my right honourable friend the Chancellor—whom we all know to wear a hair shirt beneath his coat—we can be satisfied that if he is going into the brothel it is only to save some of the little girlies from sin. So it is the operator rather than the message that matters. I think perhaps there is some logic in it. I would also accept—I think many of us who have watched these things have accepted—that there is a great deal of verity to the famous Goodhart's law and whenever one picks an aggregate and makes that one's target, by the fact of making it a target one distorts it. I am sure we would all agree that sterling M3 has been
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highly distorted and that no doubt to some extent it contains within the aggregate what is a store of value rather than a source of immediate expenditure.
I make only two comments of caution on that. The first is that what is today's store of value can indeed become tomorrow's spending money. Secondly, I have always been a little worried about the ancient classical concept of shooting the messengers whose message you dislike. Therefore, while I am sure that we should, as my right honourable friend the Chancellor suggested, pay attention to all the aggregates—as we should always have done—I do not think that we should wholly ignore the messages which are coming through on the sterling M3 side.
However, it seems to me—and my noble friend will correct me when he replies to the debate if I have misunderstood the position—that perhaps the most significant aspect of what the Chancellor was saying at the Mansion House was that since we could ignore the performance and behaviour of sterling M3, we were no longer going to go in for what is called "over-funding". When I was in the Treasury I was the victim of trying to explain in another place—and I found it a highly embarrassing experience—why it made sense, on the one side, to over-fund to get the sterling M3 right and, on the other side, for the Bank of England to give assistance to the money markets, which had the effect of precisely countervailing the over-funding. I am bound to confess that it was not an altogether convenient experience, but we got through it one way or another.
It seems to me—and again my noble friend will correct me if I have got it wrong—that there is another very interesting aspect of the abandonment of the concept of over-funding or more precisely the abandonment of direct homing in on sterling M3, and that is (as noble Lords will be aware) that if you fund to any extent overseas, from the overseas investor, it does not help you with sterling M3; it does not come out in the sterling M3 statistics. However, if you are not worrying about the sterling M3 statistics you can fund overseas to your heart's content. I am bound to say that I have a sneaking suspicion that that is precisely what my right honourable friend the Chancellor is minded to do. He is saying: "The dollar is through its peak. Everybody wants to get out of dollars and so I am setting up my stall on the highway and let the world come hither and lend me their cash." That may well be a strategy which has much to commend it. Admittedly, it implies that interest rates stay high to attract the external finance. It also implies a willingness to see sterling stay strong or perhaps become stronger.
There are two potential difficulties. One difficulty is what happens if—as might well happen—next spring or early next summer, OPEC fails to get its act together and there is a major collapse in the oil price? In those circumstances will the foreigners still come to feed at my right honourable friend's stall on the highway? If they do not do so, would he not have to put interest rates up very substantially to persuade them back again? That, it seems to me, is one slight problem.
The other slight problem is that I suspect that there is a small hole in the bucket. It is related to the question of the famous European exchange rate

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mechanism. I must admit that I am not one of those who believes that entry into the exchange rate mechanism will cure anything from juvenile delinquency to king's evil, not least because I notice that precisely the people who are telling us that it would do all those wonderful things tend to be those who told us 15 years ago that those remarkable achievements could be performed simply and solely by moving to a floating exchange rate. One should be cautious about these assumptions.
Nevertheless, it seems that one thing that could be said about the exchange rate mechanism in these circumstances is that if we were inside the exchange rate mechanism, as I see it, then my right honourable friend the Chancellor could turn round to the CBI when it bleated about the level of the exchange rate or the level of interest rates and say, "Sorry chums; it's the club. Those are the rules. I have no choice. Bad luck. Furthermore, that was what you, the CBI wanted". Whereas, as it is, if he is successful—as I hope he will be—in bringing in this money from overseas and in holding up interest rates and the exchange rate, and the CBI yells blue murder (as I have a nasty suspicion it may do) he will not have a precisely logical position from which to defend himself. He cannot say that the club rules deny it. He cannot say, as he could have done in the past, "We must observe the performance of particular monetary aggregates". I detect a small hole in that connection, and the logic of filling that hole, at the present moment at any rate, may come from membership of the exchange rate mechanism for that purpose and for that purpose alone.
Having said that, it seems to me that this strategy—counter to what some people have said—of a relative stringency, perhaps a greater stringency than we have had hitherto in monetary policy, and some relaxation of fiscal policies and some degree of higher borrowing, may well be effective in abating inflation expectations, maintaining the pressure on the CBI to hold down costs and enhancing, perhaps quite rapidly, the living standards of those who are in employment. As successful as that very well may be in achieving those objectives, it could be rather like the teacher called Virginia whom the pupils called Virgin for short—but not for very long.
How long, in practice, would that be sustainable? It is rather akin to the strategy which President Reagan pursued, at any rate throughout most of his first term of office and perhaps until very recently. It certainly worked for President Reagan in 1982, but it is beginning to come apart at the seams now in the United States and I rather wonder whether it would last quite as long as that for us in this country.
I come to my concluding thought and I apologise that it is a very long way from the subject which the noble Lord has raised this evening although, as I see it, it is connected with our estimation of the present condition of monetary policy. The conclusion which I would draw is that perhaps my right honourable friend the Chancellor could do worse than have a word with the Prime Minister and say that there may be something to be said for February, 1987, at the latest.
5.58 p.m.
Lord Killearn: My Lords, as so often happens, my initial difficulty is that most of what I want to say has already been said, and rather better. However, it needs to be said again and again, and I am very glad indeed to support and echo the words of the noble Lord, Lord Beswick, to whom we should all be very grateful for raising this matter—first, in a Question on 10th June, which I recall received a fairly brief Answer, then in another Question on 23 rd July, to which he received a slightly fuller Answer, and now today in this short debate, for which we are all especially grateful.
The noble Lord has referred to the valiant work done over the years by various people, including the Economic Research Council, in researching and ventilating this particular question. I was delighted to see that they have recently appointed as president the noble Lord, Lord Ezra, who took part in the previous debate. The noble Lord is not present at the moment because he has another very important speech to make elsewhere this evening, but we are pleased that he has been so appointed.
Throughout history all governments have been tempted to inflate the currency in order to survive from one year to another—sometimes it is from one month to another or from one day to another. Our record now is better than most, but it is still far from perfect. Uncontrolled inflation such as we have seen elsewhere, in South America, Israel, and so on, does not justify our feeling smug any more than did the hourly depreciation in the value of the German mark which took place in the early 1920s. We have had our inflators in the past—leaving aside the middle ages when it was usually short term—when even well-funded monarchs required extra cash for a ransom, or a dowry, or a crusade. We find Henry VIII and Charles II, who were both on the whole good kings, overspending agreed crown revenues not only for personal aggrandisement but in order to furnish fleets capable of defending our shores from predatory neighbours. Inflation is nothing new.
We are looking today at three aspects of parliamentary control on Government spending and overspending. Two are of fairly general application, and the third is concerned particularly with the subject of the debate and the Motion as moved. First, the Government should balance their own books. Essentially, revenue through taxes, tariffs, etc., should balance current account expenditure, assisted by long-term borrowing for necessary long-term involvement and investment in necessary long-term national services, with the floating debt acting as a sort of bridging loan between short-term budgets. And certainly the privatisation of state enterprises that has been going on recently is in no degree comparable with selling the family silver. I would say that it is rather more comparable with the restitution of goods held in pawn to their rightful owners. I think that is a better description. In the case of domestic sales, there is no change in the total capital stock, while with properly monitored sales to outsiders (the Americans, the Japanese, or what have you) there can be a net gain. There should be a net gain.
Secondly, the Government have a duty to control the national economy, which means in essence keeping prices, interest and exchange rates steady

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while encouraging production and profits (in real terms) to grow, and to grow at a reasonably steady rate. Any growth in money in circulation, however defined—M3, M1, Mo; I got lost after that-multiplied of course by its velocity, which is also important, should be balanced by an equivalent increase in production at sales cost as valued by the international market.
Thirdly—and this is the case in point and the subject of this debate—if and when the Government fall short on either of the foregoing—or indeed if they do not, but decide to borrow within their budget—the key question is: why borrow? And why call a deficit a borrowing requirement? It is just muddling up words, is it not? Deficit financing has always been a bad habit for individuals and for governments. But, internally at any rate, governments have no need to live on debt. They are better off than we are. In the past the Government themselves turned the handle—the handle at the Mint, or at the printing press—that much faster, and issued the extra coins or notes through the Treasury, the Exchequer or the Bank of England. One thinks immediately of the Bradbury one pound notes and 10-shilling notes issued by the Treasury during the First World War.
Naturally such issues will lead eventually to a tenfold increase, through the banking system's multiplier, in cash and credit available to the public, and the penalty of any such inflation—if there is inflation—is a fall in the value of money and a general increase in prices. It stands to reason. However, and this is the whole point, under the scenario I have mooted the Government would not have incurred the additional and continuing incubus, the interest charge on their borrowing. That is a very heavy extra.
I have deliberately refrained from using figures in the argument so far. I am glad, because obviously other speakers know their figures better than I do. I should soon have been way out of my depth and should have run the risk of confusing if not others at least myself, and confusing what is basically a simple argument. But I cannot at this point refrain from quoting one final set of figures. They are not quite up to date; they are up to 1980. Between 1945 and 1980 the Government incurred £31 billion—I am using the American billion; that is, £31,000 million—of indebtedness to the banks, of which £14 billion were new funds and £17 billion were interest. Need I say more? I should have thought that that was perhaps the final word. All I need say to wind up is that I strongly support the demand of the noble Lord, Lord Beswick, for some authoritative and high-powered inquiry, be it by commission, committee or whatever, into this whole rather hidden and esoteric field of Government finance.
6.5 p.m.
Lord O'Brien of Lothbury: My Lords, although my name does not appear on the list of speakers in this debate I hope I may have your usual indulgence for the few remarks that I would like to make. I did not expect to be able to be here today, which was why I did not put my name down; and it is possible that I may have to leave before the debate ends. I hope your Lordships will excuse me for that too.
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I had been a central banker for some three years when the Macmillan Report came out; I read it avidly, as did many people in those far-off, rather unhappy days soon after the Wall Street Crash in 1929. It was a report prepared by distinguished people, including Maynard Keynes and Ernest Bevin. It was a wide-ranging report covering not only the monetary system but industry as well, and that increased its interest to the general public. Twenty-seven years later I was the principal witness for the Bank of England to the Radcliffe Committee in the sense that I gave most of the evidence. I do not say it was necessarily the most important, but I believe that the portion which the noble Lord, Lord Beswick, quoted was almost certainly something that I said, and I stand by it. It is as true today as I believed it to be then.
A number of speakers, including the noble Lord, Lord Tranmire, have yearned for some independent commission which would regulate these things far above the market place, free from the usurers and all the things usually said about them. Reference has been made to the Federal Reserve Board in Washington and to the Bundesbank in Germany, and the independence that they have. The independence of the former, as everybody knows, arises from the American obsession with the necessity to separate powers so that no one becomes too powerful, which is the reason the Federal Reserve has the independence that it has. The independence of the Bundesbank is entirely due to the preponderant influence of the American occupying forces at the end of the war, which ensured that the Bundesbank should be built on the model of the Federal Reserve Board.
The Bundesbank's responsibility for the health of the currency is one which every central bank would desire to have. Ours does not have it. I gave a lecture to the Belgian Economic Society about 10 years ago about the independence of the central banks. It was a lecture delivered long after I ceased to be a central banker. I concluded that however much a central banker might desire that independence and authority, in fact he would find it difficult to exercise it, and if he exercised it with complete independence he would soon find that this Parliament would take that independence away. Therefore, he had better be content with the influence he had, and get on with it.
The noble Lord, Lord Beswick, spoke about the desire to have a government who could issue the money themselves. Talking about notes and coin is irrelevant. You cannot have a monetary system where people cannot go to their banks and say, "I want to withdraw part of my deposit. I will have it in notes, and I will have it in coin." If the notes and coin were not there, the system would collapse, so they have to be provided. In any case, they are entirely marginal.
What we are really talking about is bank credit. As your Lordships have heard, bank credit is pyramided on a minimum liquidity ratio, which years ago used to be 30 per cent. but I believe is now less. The banks' liquidity is provided in substantial part by the short-term borrowing of government. It is untrue to say that governments do not have any influence on the credit created by banks. They have a potent influence.
I was closely concerned, in various capacities, with the exercise of monetary control between November 1951, when monetary policy was revived after the war

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with that very tentative increase in bank rate from 2 per cent. to 2½ per cent., until 1973. Throughout that whole period one was trying to do one's best to control bank credit in a way which was suitable to the economic health of the country at the time. It was not a perfect and exact process. It was not like the system for which the noble Lord, Lord Beswick, yearns, whereby the tap is turned on precisely every day and the market receives exactly what the Government say it shall have.
I do not think one can take this business of credit creation and the use of credit away from the banking system. Who will decide who are the proper borrowers of money? Not the Government. Governments have tried to decide that, and the result has been disastrous. There must be the individual decisions of the people who work in money to tell borrowers whether they may or may not have the money. But that does not alter the fact that the government of the day can influence how much credit is available. We have seen that clearly, for example, at the time of the expansion of credit ordained by the Government in 1972. There was vastly increased expansion of credit and, one could say, bad use of credit.
This brings us back to the question of monetarism: a term that has made me very tired over these years. Monetary policy is an essential part of every government's policy, and a combination of monetary and fiscal policies are the weapons with which government seek to ensure the health of the economy. One cannot get away from it. Having terms of abuse like "monetarism" does not alter anything—
Lord Beswick: My Lords, I hope the noble Lord is not suggesting that I have used the term "monetarism" in any abusive sense.
Lord O'Brien of Lothbury: I am not suggesting that, dear Lord Beswick, but it has certainly been used in this House and elsewhere ad nauseum over the past four or five years because too much faith had been placed in a particular instrument.
I was going on to the question of whether there should be a Royal Commission on the monetary system. There was Macmillan in 1930, Radcliffe in 1957, 27 years later, and here we are 28 years after that. There would be a case for another Royal Commission. In my opinion a Select Committee of this House would be totally unsuitable. One must have in such a committee a broad selection of people of first rank with knowledge of these matters and able to make contributions. I suggest that with the so-called "Big Bang" awaited in the City next year and all the changes in the financial system which may well result from that—and certainly will result from it—it would hardly be timely to set up another such committee or Royal Commission now; but at some time in the reasonably near future it would be a useful thing.
6.14 p.m.
Lord Williams of Elvel: My Lords, my noble friend Lord Beswick has done us a great service in tabling this Motion for short debate. He is quite right in his assertion that the commercial banking system has been creating money in a somewhat uncontrolled
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manner. This has been happening to a greater extent, as the noble Lord, Lord O'Brien, will remember, since the paper, Competition and Credit Control, was issued in the 1970s. In practice this seems to have meant competition without a great deal of credit control.
My noble friend Lord Beswick has gone rather further than that. I think what he is asking us to consider is something like a requiem for the financial policy that has governed government thinking since 1979 and 1980. I shall follow the noble Lord, Lord Bruce-Gardyne, in straying into those paths. They have been increasingly wobbly paths. We started out with firm assertions about what was possible, and those assertions have gradually been whittled away. It was the poet, A. E. Housman, as I remember, who wrote of a celebrated classical scholar on some obscure point of textual criticism that he used manuscripts as drunkards used lamp-posts, not to light them on their way but to disguise their nefarious activities. I think the noble Lord, Lord Beswick, might substitute the Government for the classical scholar, monetary variables tor manuscripts, and apply that description to financial policy as it has come through over the past few years.
I shall return in a moment to the specific questions that my noble friend asked at the end of his speech, but before doing so I should like to devote a minute to investigating the last vestiges of monetarism (if I may use the word without offending the noble Lord, Lord O'Brien). In passing, I note that those commentators who are trying to dissociate themselves from that expression now use the phrase "crude monetarism". This suggests that there is something which is uncrude and something which is crude. Let us call it the requiem for crude monetarism. Your Lordships will remember consistently reiterated statements—
Lord O'Brien of Lothbury: My Lords, perhaps I should make it clear. I suppose the correct definition of "monetarism" is a belief that the monetary weapon can do the whole job. People such as myself who have spent our lives in this field do not believe that. It makes a contribution but it does not do the whole job.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, Lord O'Brien, for his intervention. That is exactly the term in which I used the expression, the policy being that the monetary weapon can do the whole job without accompanying fiscal policy or even physical controls.
To refresh your Lordships' memories, I shall quote reiterated statements from the Government from the economic Progress Report No. 166 of March-April 1984:
"the medium term financial strategy sets out the approach for bringing inflation down through steady reduction in the money supply".
I lay emphasis on those last words. Since the summer, as the noble Lord, Lord Bruce-Gardyne, pointed out, it has been clear that the target of a steady reduction in sterling M3 has been abandoned. M1 has been abandoned as being, in the Government's own words, "increasingly difficult to interpret" (that is to say, they do not know what it means); M2 and PSL2 have hardly rated a mention outside the Bank of England, and we have been invited to concentrate our attention on what must be the last of the seven veils, Mo.

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I shall not weary your Lordships with the elaborate technical definitions of the various M3s, PSL1s and PSL2s, and so on, or the other six veils which are now cast aside and piled in an untidy heap on the floor. But we have to realise what Mo is in its new elevated status. It is notes and coin in circulation plus money held in bank tills plus bankers' balances at the Bank of England. Of those categories, by far the most important is notes and coin, which accounts for more than 90 per cent. of Mo. Given that Mo has become central to the Government's medium-term strategy and is therefore to be targeted, the Government have to show two things, both of which were formerly claimed for sterling M3: first, that there is a stable and predictable relationship between Mo and prices; and, secondly, that rises in Mo cause prices to rise rather than rises in prices causing Mo to rise.
Common sense would argue against both these propositions. Common sense would say that in our increasingly cashless society, with the use of credit cards showing explosive growth, holdings of notes and coins must be on a relative downward trend. However, let us not rely on common sense; that is far too easy. Let us look briefly at the state of the art in this very technical field of econometric research.
I am afraid the news here is not very good for the Government. The most favourable is the Treasury, which claims that there is a reasonable, stable relationship between Mo and nominal spending (that is, real output multiplied by prices). However nowhere is it claimed, even in the Treasury, that nominal spending on inflation depends on the present and past growth of Mo. The Bank of England is even less convinced about Mo. Mr. Charles Goodhart, who, until very recently, was a chief adviser on monetary policy at the Bank of England, says, in his recent book:
"With high powered money"—
which is his word for Mo—
"largely consisting of currency in the hands of the public and the latter being demand-determined … the direction of causation runs clearly from nominal income to notes and coin in circulation and high powered money".
Private institutes are even less convinced. I shall now quote from the Henley Centre for Forecasting, which did a major study of Mo. I apologise for the English in which the Henley Centre put its conclusions but I shall read it out as it stands:
"Given the lack of supportive evidence in favour of a stable and predictable association between Mo growth and price inflation and with the causation seemingly running from the policy goal to the intermediate target,"—
and this is the important sentence—
"it would appear that the role of Mo as a monetary target is redundant".
In short, as far as I can make out, though I stand ready to be corrected by the noble Lord, Lord Brabazon, when he replies for the Government, there is nobody who has shown that Mo causes or how it causes changes in price inflation. In other words, the last veil is not just transparent to the point of indecency: it does not exist. And if it does not exist, then there is no basis at all for paying further attention to the medium-term financial strategy or the central proposition on which it was based.
All this goes to show that the reduction in inflation that we have seen is not at all due to the steady
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reduction in money supply. It is due, as I have argued before, and as I think the noble Lord, Lord Bruce-Gardyne, was starting to argue, not only to a severe depression in demand in the United Kingdom but to high interest rates causing a highly valued pound, and, particularly of late, depressed commodity prices. I believe this policy is continuing and is the central thesis that the Chancellor was setting out at the Mansion House.
If this analysis is correct—and I look forward to the noble Lord's reply on that—it gives added point to the questions asked by my noble friend Lord Beswick. He is saying that a large element in the money stock—and I think he was referring here to sterling M3—is outside the Government's control. Indeed it is, and this is why a policy based on that money stock inevitably runs into the buffers, since supply cannot be controlled but only the demand.
The situation is even worse than my friend says. Not only is bank lending outside the Government's control but the whole measurement of these very important monetary variables is highly suspect. At this year's Financial Statistics Conference organised by the Bank of England, this became apparent. Mr. Alec Grayson, head of the Committee of London and Scottish Bankers Statistical Unit, set the tone of the conference by assessing the quality of financial statistics as used by the gilts market and he rated them from A down to D in terms of their reliability. Less than 13 per cent. of the entries in the country's financial accounts attract Grade A. Roughly 33 per cent. are graded "reliable"; 35 per cent. are graded "less reliable", while just under a fifth fall into the D category. Mr. Grayson went on to say that obtaining good financial data from the personal sector is virtually impossible.
Lord Bruce-Gardyne: My Lords, will the noble Lord give way? I apologise for interrupting him. However, I was a little concerned by what he said about the inability of the Government to influence the level of bank lending. I should have thought that experience surely has suggested that this was not entirely the case; but the ability of the Government to influence bank lending and, in effect, to steer by the sterling M3 monetary aggregate also, incidentally, depends on the willingness of governments to allow short-term interest rates to fluctuate very substantially, and the problem is of course that governments tend to be reluctant on that point.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, Lord Bruce-Gardyne, for his intervention. I hope I did not say that the Government had no means of control over the sterling M3 or whatever other monetary variable it might be. The point I was making was that the method of control was by acting on the demand side rather than the supply side. That is to say you choke off with the demand for money by high interest rates rather than controlling the supply. If you want to control the supply, then you get into problems with monetary base control which is another problem altogether, with which I did not deal. Following on this question of the reliability of monetary statistics, Mr. Peter Bull, of the Bank's Financial Statistics Division, found flaws in nearly all the monetary dials which, until quite recently, formed the basis of policy planning.

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In truth, we have no reliable figures at all for money supply, by whatever definition. I think this is where I join my noble friend Lord Beswick and the noble Lord, Lord Tranmire, in trying to see whether there is a mechanism by which we can actually grasp what the problem is with which we are dealing.
Let me come now to my noble friend's next question, which is as to whether or not it is quite illogical that the state allows new forms of money to be created outside its control. It is a fair question. Who says whether or not Marks and Spencer, Shell, or for that matter anyone else, shall or shall not issue credit cards, thus creating money; just like banks, as and when they will? Do we really have to rely on the specific responsibilities in this area of the Director-General of Fair Trading, who is the only competent authority? Where is the Bank of England in all this? Where is the Treasury? It really seems to come back again to what the noble Lord, Lord Tranmire, said. There seem to be areas where there are gaps in our knowledge.
I referred at the outset to this debate being something of a requiem on government financial policy since 1979. Unlike the noble Lord, Lord Bruce-Gardyne, I believe that the patient has now succumbed. There are many, including myself, who do not lament his passing. Yet the legacy remains. We, as a community, have paid an enormous price for this experiment at a time when North Sea oil should have allowed us to forge ahead of our competitors by providing an enormous source of wealth which started to be realised precisely in 1979. We find that, instead, we have record unemployment, a growth record over the period 1979 to 1985 that is pitiful compared with others, decaying inner cities, and so on; indeed, all the symptoms of an impoverished nation.
I can now completely align myself with my noble friend Lord Beswick at this point. The patient is dead but there must be an inquest. The Select Committee of your Lordships' House has performed an admirable task in its analysis of the trade balance. Some other body, maybe another Select Committee or a Royal Commission (I do not make any preference on the issue) could perform the same task for monetary policy. I think that there is a case for an independent inquiry to analyse what have been the effects of this financial policy, what indeed the monetary aggregates really mean, and to what extent my noble friend Lord Beswick is right in his complaint that the Government have no control over a large section of the monetary aggregates. I also believe that it would be right to assess the effects of what I regard as the perverse and doctrinaire financial policy that is now shown to have no basis in theory and to be impossible to apply in practice.
6.30 p.m.
Lord Brabazon of Tara: My Lords, I am most grateful to the noble Lord, Lord Beswick, for initiating this debate this afternoon. Although his Motion refers to a reply given by my noble friend Lord Gowrie to the noble Lord on 23rd July 1985, as he has said it in fact goes back to a Question which the noble Lord asked me on 10th June 1985 and which I attempted to answer. I am aware that the answers I gave on that day
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were not to the satisfaction of the noble Lord. I apologise to him and can only say that I hope to do better this evening. If I do so, it will mainly be due to the noble Lord's kindness in having given me advance warning of one or two points he was going to raise, and for that I am most grateful. May I answer one of those points straight away?—that is, to quantify in cash terms the percentage rise referred to over the period mentioned in the Motion. During that period, sterling M3 rose from about £56½ billion to about £114 billion; in other words, a rise of some £57 billion.
We have had an interesting debate. We are very lucky to have had a former Governor of the Bank of England and a former Treasury Minister and I understand, if I read the papers correctly, that the noble Lord, Lord Williams of Elvel, is widely tipped to become head of the national investment bank, should any Labour Government get in in the future. Of course, I only believe what I see in the press.
One line of argument has concentrated on the size of the increase in broad money in recent years, and has raised questions about the Government's policy towards the control of monetary conditions. My right honourable friend the Chancellor of the Exchequer addressed these arguments in his recent speech at the Mansion House in the City of London, to which my noble friend Lord Bruce-Gardyne referred. He reiterated the Government's firm commitment to policies which will exert continuing downward pressure on inflation by ensuring appropriate monetary conditions. In that speech, my right honourable friend explained some of the factors that determine the growth of broad money, in particular sterling M3, which was one of the two monetary aggregates for which targets were set in the 1985 Medium Term Financial Strategy—the "MTFS". Indeed, targets for sterling M3 have been set each year that the MTFS has been rolled forward.
However, over quite a long period it has become increasingly evident that people wish to hold an increased proportion of their savings in liquid form, to a degree not anticipated when the target was set. In view of this, my right honourable friend decided, and announced in his Mansion House speech, that it would be unduly restrictive to attempt to reduce the growth of sterling M3 to within its target range for the current financial year and accordingly that he would not attempt to do so. The Government, however, continue—and I give this assurance to my noble friend Lord Bruce-Gardyne and to the noble Lord, Lord Williams—as they have always done, to monitor all the indicators of monetary conditions and to set short-term interest rates at a level which will sustain the downward pressure on inflation, which my right honourable friend, in his Autumn Statement in another place, has forecast will fall to below 4 per cent. in the course of 1986.
The noble Lord, Lord Beswick, contrasted what he called the current practice of finance through Treasury Bills with that of Treasury deposit receipts as operated during the war. I shall have a little more to say about the Government's financial policies later on, but I should say at this point that Treasury Bills play only a small part in Government finances. The Treasury Bill issue varies little from year to year, being set at the minimum level required to preserve the market in

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them. The Government's borrowing is financed rather by sales of gilt-edged stock and national savings to non-banks. The position has changed radically since the Radcliffe Report in 1959, which the noble Lord quoted. Treasury deposit receipts were, of course, as the Radcliffe Report observed, always regarded as a wartime expedient.
I think the better analogy is with special deposits, which the Bank of England can call on the commercial banks to make with it. The noble Lord is, in effect, arguing that the Government can mop up excess monetary growth by insisting that the banks lend to the Government at unattractive rates of interest, or—in the case of the so-called corset—the system of supplementary special deposits first introduced in 1973, which bear no interest at all.
This was indeed the policy of successive Governments, but it was not so effective as it sounds. Such controls are not proof against devices to avoid their effects. For example, banks could lend in the form of acceptance credits without incurring the requirement to make supplementary special deposits; or marginal lending could be shifted offshore, through the eurosterling market. The Government recognised these distortions and did not renew the controls when they expired in 1980. They do little, at least in a system without exchange controls, to affect monetary conditions, while distorting the operation of the financial system.
So it would be quite wrong to infer from the size of the increase in the stock of sterling M3 that has occurred over the period to which the noble Lord, Lord Beswick, has referred that the Government are following lax monetary policies, still less that they are powerless to influence monetary conditions. On the contrary: these policies have been, and remain, firm and they have been very effective in the objective of bringing down inflation, while the economy is entering its fifth year of steady growth.
The other main line of argument drawn from the Motion concerns responsibility for the creation of money. In earlier exchanges following Questions, the noble Lord, Lord Beswick, has asked how private financial institutions create extra money, and whether it is not absurd for the Government to leave the creation of money to private institutions and then for the Government to pay interest on the money they borrow. This conjures up a vision of banks printing their own notes and making them multiply by lending them back to the Government at interest.
I hope I can deal with these points quite briefly. Sterling M3 consists essentially of notes and coin in circulation and of the sterling bank deposits of United Kingdom residents. There are a number of ways in which it can be increased. Under this administration, government borrowing is not one of them. It would be possible for a government to finance itself by printing money to pay for the excess of its expenditure over its income, and I think this is what my noble friend Lord Killearn was getting at. Then they would pay no interest. But the result would be a rapid increase in the monetary base, and a sharp rise in inflation. Or the Government could borrow directly from the banking system to pay their bills. But the result would be to add further to the growth of broad money.
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My right honourable friend the Chancellor of the Exchequer outlined the Government's financial policy in his Mansion House speech. My noble friend Lord Bruce-Gardyne has already referred to the change in funding policy which my right honourable friend announced in that speech; namely, the abandonment of over-funding. The Chancellor explained that the broad aim was to fund the public sector borrowing requirement by raising finance outside the banking system, from the United Kingdom private sector and from external flows. In that way, the public sector's finances would have an entirely neutral effect on broad money.
I am sure that my right honourable friend will take note of my noble friend's elegantly phrased warning about the dangers of the new approach and his recommendations on United Kingdom membership of the EMS. This is kept under continued review and I am sure that my right honourable friend will give due weight to my noble friend's views. The funding policy that I have explained is concerned with the public sector's contribution to broad money.
But, of course, the private sector can still generate additions to sterling M3—for example, when banks increase their net lending to their customers. No Government authority is needed for commercial transactions of this kind, although of course the Government do monitor changes in monetary conditions, including changes in broad money, and take these into account as appropriate when forming policy on interest rates, and deposit-taking is supervised by the Bank of England under the Banking Act 1979.
This is some way from the nightmare vision conjured up by the noble Lord, Lord Beswick. The banks charge interest on their advances and pay interest on most of their deposits, earning a margin for their services which is controlled by the forces of competition, as the noble Lord, Lord O'Brien, pointed out. When the Government borrow, it is entirely right that they should pay interest and indeed it is inevitable if the Government are to find takers for their paper.
The noble Lord, Lord Beswick, has argued that the Government should strip the banks of their ability to create money and should reserve this to themselves. He has argued that this would save vast sums of public expenditure on debt interest. My noble friend Lord Tranmire, who argued in favour of a currency commission, also argued that the Government should borrow interest free by monopolising money creation. That is a seductive proposition but its implications, if we reflect on them, are quite unpalatable. It would mean preventing the banks from lending, leaving governments to take responsibility for all loans.
I believe that such monolithic control over lending would be very inefficient and inflexible. Moreover, it is hard to see how the banks could maintain their deposit-taking services if deprived of the ability to on-lend the funds which flow in. It would be hard to exaggerate the damage which policies of that kind would do if any government were so ill advised as to take them up. At the very least it would mean a major reduction in banking services, greatly reducing the freedom of choice available to savers and striking directly at the economy by its effect on the scale of the banks' operations. Your Lordships will already have

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given great weight to the remarks of the noble Lord, Lord O'Brien, on this proposition.
The noble Lord, Lord Beswick, has argued that there is a contradiction between the Government's concern to retain sovereignty over the issue of notes and coin and their approach towards the creation of money in the form of bank deposits. I hope I can clear this up. The Government supply the banks with the quantity of notes and coin that the public requires. The banks pay for the notes and coin issued. The point of the Government's protection of their sovereignty over the production of notes and coin is to prevent fraud. There are other different protections against fraud in the case of settlements not in cash. That is the point of the distinction to which the noble Lord has drawn attention. The difference he alleges in the control over the quantities of the two types of money does not exist.
Several noble Lords have asked for an inquiry into the process of credit creation. I have of course also taken note of the support given by the noble Lord, Lord O'Brien, for a Royal Commission, but—and this is in part thanks to the improvement in monetary statistics set in hand by the Radcliffe Committee—this must be one of the most exhaustively studied areas of economics and economy policy. The literature is vast.
I do not believe that a formal, government-sponsored inquiry into the questions raised by noble Lords in their remarks today would be justified. The substance of monetary policy and the rate of monetary growth are continually subject to informed discussion in your Lordships' House, in another place, in the universities, in the press and in brokers' circulars, to name but a few. I think the ground is adequately covered already.
I hope I have answered all the points that were raised by noble Lords. My noble friend Lord Tranmire asked me a question about the growth of interest payments since 1955. I am afraid I have not got that information with me but, if I may, I will write.
Lord Williams of Elvel: My Lords, would the noble Lord give way? Would he be kind enough to say something about my remarks on Mo and the reliability of Government financial statistics?
Lord Brabazon of Tara: My Lords, I hoped I had already covered that when I said that we would continue to monitor all the Mos and M3s but that at the end of the day what we were really trying to do was to ensure that inflation would continue to fall. We will continue to monitor all the various matters. As to the reliability of the statistics, I take note of what he says and I shall certainly draw his remarks to the attention of my right honourable friend.
We have had an instructive and interesting debate on the Motion of the noble Lord, Lord Beswick. He has expressed some doubts about the conventional approach to monetary policy and the role of the banking system. I hope that my remarks will have gone some way towards reassuring him that our commitment to pursue counter-inflationary policies in the context of free competition and thriving markets is indeed the correct approach to take.
5.45 p.m.
Lord Beswick: My Lords, it is not for me to make a second speech, but I should like to thank all those who have taken part in the debate. The fact that the noble Lords, Lord Tranmire, Lord Bruce-Gardyne, Lord Killearn, Lord Williams of Elvel and Lord O'Brien, voluntarily took part increases the appreciation I should like to express towards them. I am sure we were particularly appreciative that a former Governor of the Bank of England, the noble Lord, Lord O'Brien, was stimulated to take part. The fact that the words I extracted from the Bank of England's evidence to the Radcliffe Committee were apparently words he had used representing the Bank of England I think goes to show that when speaking in this House one ought to check one's references and be extra careful. I was glad to find that he did not attempt to suggest that I had made a mistake on this occasion.
I was moved by the kind words that were uttered by the noble Lord, Lord Tranmire, from the opposite Benches. I listened especially carefully to what he had to say. I recognise the doubts which he expressed about the suitability of a Select Committee as against a Royal Commission, and of course those doubts were supported by the noble Lord, Lord O'Brien. It is a commission of inquiry I am after, but maybe both noble Lords are right and a Royal Commission would be more appropriate.
If I may say so, I thought the noble Lord the Minister did endeavour to be helpful, and I shall certainly not try to answer him this evening. I shall look very carefully into what he said. I was rather disappointed when the noble Lord, Lord Bruce-Gardyne, argued so well that we needed some more strict independent control over the issue of money and then went on to say that the kind of control which had been indicated by the noble Lords, Lord Tranmire and Lord Killearn, and by myself was setting up another quango. I am not sure that we do not use that phrase a little too easily when we have not got other arguments in mind. The noble Lord, Lord Killearn, said, very properly, that all Governments tend to inflate, but the damage caused when they inflate through the procedure we have been talking about is of course an inflation upon that inflation several times over.
As I understand it, the Minister was saying that the Treasury bill mountain was in fact a very small mountain and that therefore its influence was that much less than I had indicated. That may be so, but there is still the multiplier effect, and he did not attempt to deny that there was this multiplier effect.
There is also another development which perhaps I should have mentioned a little earlier. I believe it to be true that, the banks having used this technique with the Treasury bill, there is now growing in the banking system the practice of using some trade bills in much the same way. Of course, we have some very great commercial organisations now developing, and their financial soundness cannot be challenged; but if this is a procedure which is being developed then it means that Government control is going one step even further away.
My noble friend Lord Williams of Elvel earlier in the week called our attention to what had gone wrong

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in the metal market, especially in regard to tin. What he was saying, as I understand it, is that there is now developing, or there did develop in that market, a practice not of dealing with the metal for the purpose of facilitating the supply of tin for the production of goods and for the production of real wealth, but of trading in paper. I suspect that this is what is now happening in the money market. It is not a question of trading in money for the purpose of facilitating investment in industry: it is a question of trading in money itself, not for creating real wealth but for making some money for some people.
I heard the other day that the volume of money crossing the international exchanges has multiplied twice over the past two years and that there is now three or four times as much money going backwards and forwards across those exchanges than in the total trade being done between the different countries in the world. This practice cannot persist for much longer without causing trouble. I would hate to think that we shall reach the situation in the money market that is now being faced in the tin market. I hope that the Government will look further at the support that has been given by my noble friend Lord Williams of Elvel and by other noble Lords for an authoritative committee to look into the matter.
The Standing Orders insist that I move a Motion asking for Papers. I have already said that there is too much paper about, and I therefore beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

Housing Benefit: Assessment of Income
6.51 p.m.
Lord Banks Lord Banks rose to ask Her Majesty's Government whether they will review their policy with regard to the treatment of the capital element in a purchased life annuity when assessing income for housing benefit purposes.
The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. The Question asks Her Majesty's Government whether,
"they will review their policy with regard to the treatment of the capital element in a purchased life annuity when assessing income for housing benefit purposes".
That is the Question, and I should like to thank the noble Baroness, Lady Turner of Camden, for taking an interest in it. I look forward to the reply which will be made in due course by the noble Baroness, Lady Trumpington.
I must begin by declaring an interest as I am an insurance broker specialising in life assurance and pensions and therefore dealing with annuities. When an individual decides to use some of his capital to purchase an annuity, the annuity may be either an annuity paid for a fixed period of years or it may be an annuity which is paid for the life of the annuitant until the death of the annuitant. If the annuity is paid for a fixed period, the life office providing the annuity calculate the amount that is to be paid every year by taking the capital sum and working out the interest which they anticipate they will get over the term of
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years. They add the interest to the capital sum, take off an amount for their own expenses and divide the remainder by the fixed term of years. The result is the amount which is paid out each year. It will thus be seen that it is part capital and part interest.
But where the annuity is a life annuity—that is to say, is paid throughout the life of the annuitant—the life office have to look to their mortality tables, discover the expectation of life of the individual and work out the interest which they would receive on the capital sum if the individual lives to the normal expectation of life for a person of his age. They then add the two together, take off an amount, again, for expenses, and divide the remainder by the number of years to the expectation of life. It will thus be seen that there is a notional capital and interest element in each annual payment.
Since the division between the capital element and interest element in a life annuity is notional, it is argued that according to law a life annuity is to be treated as income rather than as a return of capital by instalments plus interest, which is the case with a fixed term annuity. However, the committee on the taxation treatment of provisions for retirement, which reported in 1953, the Millard Tucker Committee, considered the argument that a division of a life annuity into the two elements is unreal. They came to the conclusion which they expressed in these words:
"We cannot accept this argument as valid".
I commend their supporting arguments to all interested in this question. For the sake of brevity, I shall not read them all out now but I should like to read out just one sentence. It is this:
"The mere fact that capital invested in a life annuity is in effect averaged out over the future years of life and so made available for spending if required does not therefore in our opinion provide a valid ground for treating it as income as and when it becomes so available, especially as the original capital invested in the annuity was itself always available for such a purpose".
Suffice it to say that the Millard Tucker Committee came to the conclusion in paragraph 503 of their report that:
"The part of each periodical annual payment representing the estimated capital content should be exempted from tax".
This report resulted in the passing of Section 27 of the Finance Act 1956, now Section 230 of the Taxes Act 1970. As a consequence of that the estimated capital element is exempted from tax and the life office issuing the life annuity certifies the income element contained in payments to the annuitant. Perhaps I should say that an annuity which is derived from an approved pension scheme is treated differently. The whole of that is treated as income for tax purposes and that is because the capital when it has been accumulated has enjoyed various tax reliefs already.
I turn to housing benefit. A new housing benefits guiding manual has been issued by the Department of Health and Social Security this year. Section 722 of the manual provides:
"In assessing income for housing benefit, while the capital element in a fixed term annuity is disregarded, the whole of a life annuity counts in full as income".
Here we have an anomalous situation. There is different treatment for taxation purposes and for housing benefit purposes. If the Millard Tucker argument is to be accepted as correct, then it must

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apply equally to housing benefit as to taxation. The present situation would appear to be grossly unfair and that is why I am asking the Government if they will reconsider their present practice with regard to housing benefit.
The current practice in regard to housing benefit affects, in particular, home income plans. In these plans elderly people with a low income but owning their own house—that house being unencumbered by any mortgage—raise a mortgage on the house and use the proceeds of that mortgage to purchase an annuity. From the annuity they pay the interest on the mortgage and the balance left over provides them with additional income. The whole object of the exercise is to provide that additional income for the annuitant. In this case, part of the annuity goes to pay interest on a mortgage and is never actually in the hands of the annuitant because the insurance company deducted it before they paid the balance to the annuitant. Yet the whole of the annuity counts as income for housing benefit purposes.
When the Department of the Environment was responsible for rate rebates it recommended to local authorities that the income from home income plans should be the amount of the annuity less the amount paid in mortgage interest, which was never actually in the hands of the annuited. However, the Department of Health and Social Security's housing benefits manual states in Section 7.23:
"In the case of home income plans the whole of the payment, including the proportion which is deducted as a mortgage repayment, will count as income".
I direct the attention of the House to the phrase,
"including the proportion which is deducted as a mortgage repayment".
That is a misunderstanding of the way in which a home income plan works. In fact, there is no mortgage repayment under such plans until the death of the annuited. It is interest on the mortgage that is deducted from the annuity and which the annuited never actually handles.
Nevertheless, the meaning of the intentions of Section 7.23 is clear; the intention is that the whole of the annuity should count as income. So the concession that was given by the Department of the Environment when it had responsibility has been removed. Also, the capital element in the annuity is taken into account as income. That has meant a significant reduction in the extra income obtained for many home income plan annuitants, and there are about 10,000 of them altogether. There seems to be an overwhelming case for treating annuities for housing benefit in precisely the same way as they are treated for tax. I hope that the Minister, in answering this Question, will be able to reveal that that is what the Government intend to do.
7.2 p.m.
Baroness Turner of Camden: My Lords, I am grateful to the noble Lord, Lord Banks, for raising this issue. I must say that when I saw his Unstarred Question on the Order Paper it led me to view this matter from a rather different angle and to consider the whole question of surrender values, capital assessments, and so on, in respect of means-tested benefits. In particular, I am concerned about the whole
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area of supplementary benefits because it seems to me that it is difficult to consider housing benefits separate from the supplementary benefits argument.
At present, as I understand it, supplementary benefits are subject to a capital cut-off of £3,000 and the surrender value of life assurance policies is one form of capital counted towards that. In the social security review, the Government have proposed that a capital cut-off should be applied to housing benefit; that the cut-off should be common with that for supplementary benefit; and that the cut-off should be raised.
The proposal was made that the cut-off should be £6,000 but that an income of 40p per £100 should be assumed for capital between £3,000 and £6,000. Those proposals followed the recommendation of the housing benefit review except that they recommended a higher level cut-off and not a sliding scale. So as I understand it, and indeed as is stated in the DHSS handbook on supplementary benefits, the present regulation on life assurance policies is that:
"The first £1,500 of the total surrender value of life assurance policies held by the assessment unit"—
that is, the family unit that is applying for benefit—
"is disregarded. Any amount over £1,500 is treated as capital".
Up until November 1983, there was no £1,500 disregard and the entire surrender value was taken into account; but there was a change in 1983. I understand that the Life Offices Association asked for surrender values to be ignored altogether but welcomed the change made in 1983 as it was recognised that the complete absence of a limit might be exploited.
On the other hand, we are not talking here about people with large capital resources. We are talking very much about people who, perhaps for the first time in their lives, are having to face the problem of applying for means-tested benefits. Increasing numbers of people are becoming long-term unemployed in middle life. Those with some thought for the future have purchased for themselves policies, often with an endowment element. If they are halfway through the policy's term, the surrender value may well be more than £1,500—which is not a large sum nowadays. The unfortunate applicant for means-tested benefit may have to choose between surrendering his policy for ready cash and then allowing himself to become sufficiently impoverished to be eligible for means-tested benefit or giving up altogether his claim for such benefit.
From inquiries I have made, I understand that the number of cases of surrendered policies is not very great. That is probably because there is a substantial loss to the policy holder in opting for the policy's surrender value. On the other hand, it means that many people may be in the position of not having benefits to which their situation may entitle them because they have invested in an endowment or similar policy but from which they will not get any benefit until it reaches maturity.
I have probably misunderstood what the noble Lord, Lord Banks, was about, because his was a rather different Question. On the other hand, his Question does refer to surrender values and the capital element in policies. It struck me that here was an opportunity to make to the House certain points which it seems to me are worthy of consideration.
7.6 p.m.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington): My Lords, when I first saw the Unstarred Question of the noble Lord, Lord Banks, I felt that he deserved a prize for combining in one sentence two of the most complicated issues I have ever come across—housing benefits and life annuities. Having listened to his speech I feel that, instead, his prize must be for the very clear and coherent way in which he has presented his arguments to your Lordships. I was also most interested, as always, to listen to the noble Baroness, Lady Turner of Camden, I believe that this is her first appearance at the Dispatch Box. I congratulate her and wish her very well in the future.
I welcome this chance to explain the background to the department's current guidelines on the treatment of life annuities in housing benefits assessment. I hope that I may deal with both speeches together. I begin by reminding your Lordships of some of the special features of the housing benefits scheme which make it rather different from the other benefits for which my right honourable friend the Secretary of State for Social Services is responsible.
The most important distinction is that responsibility for the scheme's administration lies with independently-elected bodies—the local authorities. The relationship between the department and the people running the scheme is therefore very different and very much more indirect than the relationship between our headquarters' office and our network of local offices.
The second distinction between housing benefit and, say, supplementary benefit is that the housing benefit regulations go into considerably less detail about matters such as how people's income should be assessed. Your Lordships may find that paradoxical because housing benefit is a notoriously complicated benefit. As one who has only recently had to come to terms with its confusing jargon of needs allowances, tapers and supplements, I can certainly vouch for that. Even so, there is only one fairly short regulation covering the crucial question of the treatment of income in the housing assessment.
In fact, that does not necessarily make this aspect of the scheme any easier to administer. The people running the scheme have to decide how various types of income should be treated in the absence of any specific reference to them in the regulations. The answer is, in many cases, to look outside the housing benefit scheme; for example, to case law which has arisen in other contexts. In the first instance, that is a job for local authorities because of their responsibility for running the scheme and for determining entitlement to benefit in individual cases. But the department has always been willing to assist them in that task in the interests of goodwill and of greater consistency up and down the country.
In the three years since housing benefit was first introduced the department has issued many circulars and has responded to many individual queries. Earlier this year all this was drawn together into a comprehensive guidance manual which was issued to all authorities. This manual represents the department's
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view, based on legal advice, of how the law should be interpreted when calculating people's entitlement to housing benefit. It has been widely welcomed by local authorities. The manual contains a whole chapter on the treatment of income, including two paragraphs relating to the subject of the Question of the noble Lord, Lord Banks; in other words, life annuities.
The guidance manual is not a statement of the law. Its purpose is to amplify the Acts and other instruments relating to housing benefit which Parliament has approved over the years. Its contents are, as I said, based on legal advice. It follows that we could not simply change the manual if we wanted to change our policy. We would, in fact, have to amend the housing benefit regulations and then amend the manual. Our lawyers believe that in the absence of any specific reference to life annuities in the regulations case law indicates that the money an individual receives from a life annuity should be treated as consisting wholly of income and not partly income and partly capital. The legal arguments in this highly technical area are very complex, and your Lordships will be most relieved to know that I do not intend to go into them in any detail.
The simple point I am trying to make is that the guidance in our manual on the treatment of life annuities is not a statement of policy in the normal sense of the word. No one has taken a conscious decision to treat income from life annuities wholly as income in the housing benefit assessment. It is simply that no one has ever taken a conscious decision to include any special provision relating to life annuities in the housing benefit regulations. In the absence of this, it is case law outside the scheme which determines how they should be treated.
If it is not impertinent for me to put words into the mouth of the noble Lord, Lord Banks, what his Question amounts to, as I see it, is a request that we amend the housing benefit regulations. He pointed out very eloquently that the tax treatment of life annuities is different and suggested that housing benefit should be brought into line. The reason the tax position is different is because there is a specific provision within income tax legislation to the effect that income from life annuities is treated for the purposes of income tax as having separate income and capital elements. As the noble Lord pointed out, this provision dates back to the mid-fifties and resulted from the recommendations of the distinguished Millard Tucker Committee which was set up in 1950 to review the tax treatment of life annuities, among other things.
I have listened very carefully to the arguments advanced by the noble Lord, Lord Banks, and the noble Baroness, Lady Turner. I have to say that I am not persuaded that simply because a provision exists in income tax legislation it should be carried through into housing benefit. Housing benefit and income tax are very different things, and there are many variations between them. To take just one example, child benefit is excluded from tax but included in the housing benefit assessment, and no one to my knowledge argues that housing benefit should follow income tax in this respect. I fully appreciate that the Millard Tucker Committee's recommendations regarding life annuities were widely welcomed at the time as a sensible recognition of the true nature of life annuities.

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But the committee's terms of reference related solely to income tax and they were set up some 30 years before the housing benefit scheme had even been devised. I feel certain that the members of that committee would have been astonished to find some 30 years later that the taxpayers of the 1980s are being asked to fund a scheme for giving help with rent and rates to the tune of £4 billion a year.
This brings me to the second reason why we feel unable to accommodate the desired changes of the noble Lord, Lord Banks. An amendment to the regulations would cost money—it is impossible to say exactly how much, but it would certainly be several million pounds. Your Lordships are aware that the Government's stated intention is to reduce the cost and scope of the housing benefit scheme, which we believe now places too great a burden on the taxpayer. It would therefore be odd, to say the least, to introduce changes which would cost additional money. I would certainly be very reluctant to have to look for offsetting savings elsewhere within the social security system.
There is a third reason why we do not think it would be right to accept the arguments of the noble Lord, Lord Banks. At present there is no capital cut-off within the housing benefit scheme, so that the effect of treating income from a life annuity as having a capital element would be to ignore that element when calculating someone's housing benefit. But, as any of your Lordships who have studied the details of our Green Paper proposals for reforming social security will be aware, we do intend to introduce a capital cut-off into the reformed housing benefit scheme. This is part of the process of aligning the rules of all the income-related benefits in order to achieve a simpler and more equitable system.
Of course, many detailed questions, including the definition of capital under a reformed scheme, have still to be decided. But the fact that we are contemplating major changes to the scheme, including a new capital rule, would certainly make it particularly inappropriate to introduce now a change along the lines suggested by the noble Lord.
I am well aware that behind this rather technical discussion there are real people. In many cases they may be elderly people, possibly elderly owner-occupiers who have taken out a special home income plan in order to guarantee themselves a modestly comfortable life for the remainder of their days. I very much admire people who take special steps to give themselves a dignified old age, and who take pride in maintaining themselves above supplementary benefit levels. I have to tell your Lordships, though, that very many old people fall into this category: it is not confined to those who have taken out a home income plan or some other kind of life annuity. In other words, there are many pensioners who could make a special case for treating their income differently—people with small occupational pensions, for example. Once again, I am not convinced that old people with life annuities deserve special treatment over and above other groups.
There is one other aspect of this subject which was raised by the noble Lord, Lord Banks, on which I should like to comment, although I do not consider it
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is essential to the argument. That is the fact that in 1982, when it was still responsible for rate rebates, the Department of the Environment issued letters suggesting that local authorities might treat home income plans more generously in the housing benefit assessment. We have only recently become aware of those letters, which I understand were not issued as formal circulars. We are obviously looking into the background of those letters, and I shall write to the noble Lord when our investigations are complete and when we have decided whether there is any action we need to take. However, I do not believe that old letters are relevant to the rather wider Question which the noble Lord, Lord Banks, originally asked, or to the reasons I have given on why we do not feel able to accommodate his wish to see an amendment to the regulations.
He also commented on the word "repayment" in Section 7.23 of our manual. It is the intention to amend the manual so that it simply says "payment" in future.
The noble Baroness, Lady Turner, raised a number of points about our proposals for a new capital cut-off in the new income support and housing benefit scheme. We have not yet taken any detailed decisions about the precise definition of capital under the new schemes, but when we do I shall see that the points raised by the noble Baroness about the surrender value of life policies are taken into account.
In conclusion, this debate has raised some important issues, I am sorry that I cannot promise the noble Lord, Lord Banks, that we will shortly be seeking to change the regulations to introduce special treatment of life annuities within housing benefit. I hope that, even if I have not convinced him of our case, I have at least demonstrated that our case is based on sound arguments.
House adjourned at twenty minutes past seven o'clock.