Lords Sitting of 21 April 1986

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

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, before commencement of business, I take the opportunity to inform the House that, with the approval of Her Majesty the Queen, I have accepted an invitation to deliver an address at Bonn University and to participate in a series of official engagements in Bonn on 5th, 6th and 7th May. Accordingly, I trust that the House will agree to grant me leave of absence for Tuesday, 6th May, and Wednesday, 7th May.

London Underground: Breakdowns and Delays
Lord Boyd-Carpenter: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have been given any explanation by London Transport of the recent large number of breakdowns, failures and delays on the London Underground.
The Parliamentary Under-Secretary of State, Department of Transport (The Earl of Caithness): My Lords, I understand from London Regional Transport that the number of incidents on the London Underground causing delay in recent months is no greater than normal in spite of the very severe weather earlier this year.
Lord Boyd-Carpenter: My Lords, I thank my noble friend for that Answer. Is he aware that there is comparatively little encouragement in his statement that the delays are no more than normal? Can he tell us what London Regional Transport are doing to reduce them and the consequent real discomfort, hardship and delay to the travelling public?
The Earl of Caithness: My Lords, I agree that waiting at any station, bus, Underground or rail, is a pretty uncomfortable experience. I can tell the House and my noble friend that since 1984 the average waiting times for high-frequency services have shown no deterioration and that punctuality on timetabled services for the last quarter of 1985 showed an improvement on the previous years' figures.
Lord Underhill: My Lords, is the noble Earl the Minister aware whether this matter has been raised at all through the London Regional Passengers Committee, which would appear to me to be the appropriate body to consider it? As the last thing that
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we would wish to do from these Benches is to raise matters on which we are not completely certain, can his department make some inquiries on those points? If the situation is due to lack of adequate personnel or if it is due to inadequate contracting services, maybe he can refer the matter to London Regional Transport.
The Earl of Caithness: My Lords, with the improvement in the services, as the noble Lord will be aware, LRT, in their report for 1985–86, said that they had had their busiest year ever on the Underground, with passenger miles up to an all-time high. I hope that he is assured that the management is doing all it can to bring the service up to a better standard than it was.
Baroness Faithfull: My Lords, does my noble friend the Minister agree that the line from Paddington to Westminster was bad before the war, was understandably worse during the war, and is shocking now? Can something be done about this? It makes a great difference to those of us who travel from Paddington to Westminster.
The Earl of Caithness: My Lords, I regret that I cannot recall the situation either before or during the war; but if that is a specific point I hope that my noble friend will take it up directly with London Regional Transport.

Nuclear Test Ban: Verification
2.39 p.m.
Lord Molloy: 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 steps they are taking to establish, in conjunction with the USA, USSR and other nuclear powers, an acceptable system of verification to permit reduction and ultimate abandonment of nuclear weapons.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): None, my Lords, but I would remind the House that, as far as the question of a comprehensive test ban is concerned, the United Kingdom tabled a paper on seismic monitoring for a comprehensive test ban at the conference on disarmament in July 1985. This followed two earlier UK papers. We are disappointed that these have not yet received the attention they deserve.
Lord Molloy: My Lords, I am pleased that the noble Baroness says that nothing has been embarked upon, because I now believe that the Government have a wonderful opportunity to do what the Question requests. Does she agree that what has bedevilled all forms of disarmament, particularly in the field of nuclear weapons, has been a lack of worthwhile verification which can make a reality of the agreements? Does she further agree that perhaps in view of the previous failures it would be a great thing for the British Government, with their experience, to initiate something that could be not only for the benefit of this country but for all mankind?
Baroness Young: My Lords, as the noble Lord no doubt will be aware, the Government are not a party to the United States-Soviet Union nuclear and space talks at Geneva, but the United States rigorously consults its alliance partners about these talks. As far as a comprehensive test ban is concerned, he will be aware of the Government's views on adequate verification being essential.
Lord Cledwyn of Penrhos: My Lords, the noble Baroness referred to a paper tabled by the Government. I wonder whether she will say a word about that. If it has not received the attention that it deserves, is she aware that the House believes that that should be deplored? Can she say whether substantial advances have been made in the techniques of verification and particularly in the field of seismology? Is it in that direction that the Government's paper is intended to make an impression?
Baroness Young: My Lords, as the noble Lord will be well aware, this is a highly technical matter, but the United Kingdom presented to the conference on disarmament in July 1985 a paper setting out some views about verification. We hope that these were regarded as being constructive in a difficult area. What we have not been able to accept are the reports of a Norwegian seismic array experiment that appeared in a Financial Times article in November 1985. We hope that this experiment will help to provide a solution to some of the outstanding technical problems, but we do not have a great deal of data on them.
Lord Mayhew: My Lords, may I ask the noble Baroness whether verification is the only obstacle from the point of view of the Government or whether another reason for refusing to resume negotiations is their belief that this country needs to continue testing?
Baroness Young: My Lords, the noble Lord has asked me that question on a number of occasions in different forms, and I have made it plain to him that we demand verification as a major concern at this time.
Lord Chalfont: My Lords, in the light of the reference in the original Question to the ultimate abandonment of nuclear weapons, will the Government bear in mind the implications, and indeed dangers, of abandoning nuclear weapons in isolation from other measures of arms control and disarmament?
Baroness Young: Yes, my Lords; that is an important question. The early elimination of nuclear weapons would be possible only if they could be disinvented. For a considerable time nuclear deterrence will continue to play a major role in the defence of the West and what we aim at is not just the elimination of nuclear weapons but progress towards overall disarmament.
Lord Mellish: My Lords, is the noble Baroness saying in effect that the paper that the Government issued last July has been rejected by Russia and by other countries? Is that not a demonstration that the
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paper was a genuine effort by this country to show our sincere desire on verification to reduce, and indeed to abolish, nuclear weapons?
Baroness Young: Yes, my Lords. I thank the noble Lord for his question. It is indeed an attempt by the United Kingdom Government to advance the complex and technical question of verification, and it is a matter for regret that little progress has been made on it.
Lord Avebury: My Lords, is it possible for the noble Baroness to make copies of the report available in the Library? Will she say why, if the Norwegians published relevant information about seismological detection in November 1985, the Government have not yet sought clarification of any doubtful points from the Norwegian authorities?
Baroness Young: My Lords, so far as the Norwegian experiment is concerned, as I indicated in answer to an earlier question, we hope that it will provide a solution to some of the outstanding technical problems; but claims for efficiency of high frequency seismic stations, we believe, have been exaggerated. We do not have much data on them, nor on their reliable discriminate applicable to high frequency signals. As to the noble Lord's other point, I shall consider it.
Lord Molloy: My Lords, is the noble Baroness saying that it is the policy of Her Majesty's Government in no way to seek abandonment of thermonuclear weapons, no matter who has them? Further, does she not agree that simply because some of the major powers have great control over their nuclear weapons, we may have no say whatsoever over those of the smaller powers, and that is the real danger and threat from nuclear weapons?
Does she agree that what has been understandably difficult, in whether the Americans and the British can trust the Russians, and vice versa, has been finding some form of verification? If that is still the problem, would it not be a good thing for all the great nations, as indicated in my original Question, to get together to see whether they can find a form of verification that would make agreements binding on everyone before nuclear weapons spread to much smaller powers, over whom we should have no control whatsoever?
Baroness Young: My Lords, the noble Lord has asked a number of supplementary questions somewhat similar in nature. If I may disentangle the two points of this argument, the first answer is that which I gave him on the whole question of the disarmament talks at Geneva. They are between the United States and the Soviet Union, and the United Kingdom is not directly a party, although we are consulted regularly by the United States Government on the proposals that they are making. The second concerns the question of a comprehensive test ban. There I have indicated in my original Answer the proposals that we have made.
The Earl of Lauderdale: My Lords, does my noble friend agree that there is one fallacy on the other side of the argument; namely, that it is not a question of

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some form of verification: it has to be foolproof verification?
Baroness Young: My Lords, my noble friend is quite right. It is important that no one should be able to cheat.
Lord Leatherland: My Lords, may I ask the noble Baroness this? If it is understood that both sides possess these nuclear weapons, is that not likely to turn out to be a guarantee of peace?
Baroness Young: My Lords, there is no doubt at all that the possession of nuclear weapons has been one of the guarantors of the peace that we have had ever since the ending of the Second World War.

School Children: Dietary Survey
2.48 p.m.
Lord Stallard: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when they expect to publish the final report by the Department of Health and Social Security on the dietary intake of school children.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington): My Lords, some preliminary results of the dietary survey of British school children were published on 10th April, but a final report must await full analysis of the extensive data which have been collected. This latter stage, which has been recommended by the Chief Medical Officer's Committee on Medical Aspects of Food Policy (COMA), is expected to take at least 18 months.
Lord Stallard: My Lords, I thank the noble Baroness for that reply, but with some disappointment over the time it will take to produce a final report. Is she aware that the preliminary report already confirms at least two of the fears that were expressed by many people during the passage of the 1980 Education Bill: first, that nutritional standards of school meals have lapsed; and, secondly, that for many school children fast foods and what are known as junk foods are taking the place of properly balanced meals?
Is she further aware that nutritionists, dieticians and physicians are already expressing the view that we are laying up for ourselves and for future generations an increased risk of coronaries unless we tackle this problem now and unless we include in schools some nutritional education for older children, who appear to be mostly at risk? Will the noble Baroness assure the House that she will bring these few matters to the attention of her right honourable friend the Secretary of State for Education in another place, so that some urgent action can be taken?
Baroness Trumpington: My Lords, with regard to the interim report, there are some encouraging aspects and some that cause us concern. I assure your Lordships that the Government will consider carefully
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all comments and positive suggestions about improving the diet of our children. With regard to the nutritional changes following the Education Act 1980, with its effect on school meals, no national baseline information exists so no survey could have examined any such changes. The Government agreed that the effect of the new arrangements should be monitored.
Lord Ennals: My Lords, having spent most of the weekend at a food and health conference, may I ask the noble Baroness whether she is aware that I am very conscious of the poor dietary standards which still apply in this country, especially in relation to children? In its final form, will the report give figures for the number of children still receiving a school meal, which is so important for children from deprived families, and will those figures make a comparison between those now receiving school meals and those who were receiving them before the changes in the responsibilities laid upon local authorities?
Baroness Trumpington: My Lords, I cannot anticipate the findings of the final report but, as I said, the Government will consider carefully all comments and positive suggestions about improving the diet of our children because they recognise the importance of that issue.
Baroness Fisher of Rednal: My Lords, can the noble Baroness give us some reasons as to why we have to wait 18 months for the final report?
Baroness Trumpington: My Lords, the findings of the report will be handled by COMA, on whom the Government rely for information on this matter and that is the date that it has set.
Baroness Fisher of Rednal: My Lords, for the benefit of the House, can the noble Baroness tell us what COMA is?
Baroness Trumpington: My Lords, I thought I had done so already. It is the Committee on Medical Aspects of Food Policy.
Lord Stallard: My Lords, as an interim measure, will the noble Baroness try to ensure that school heads are aware of the fears that have been expressed in the preliminary report?
Baroness Trumpington: My Lords, with regard to the report, on the positive side the results show that our children are adequately nourished and are growing faster than ever before. On the other hand, they appear to be eating too much fat and that could have implications for the incidence of coronary heart disease in later life. We are aware that some experts have read a great deal more into the preliminary report, but I am bound to say that much of what has been said is alarmist and cannot be deduced from the information so far available. We are, however, well aware of the many concerns expressed, as will be the heads of schools.

UK Bases: Use by United States
2.54 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 in what circumstances and after what consultations the Prime Minister will give further permissions to the United States to fly operationally from bases in the United Kingdom.
The Minister of State for Defence Support (Lord Trefgarne): My Lords, under long-standing arrangements, the use by United States forces of bases in the United Kingdom in an emergency would be a matter for joint decision by Her Majesty's Government and the United States Government in the light of the circumstances prevailing at the time.
Lord Jenkins of Putney: My Lords, I thank the noble Lord for the Answer that he has given, but under the guise of giving information he has given none at all. We should really like to know in what circumstances such permission will be given in future. Is it not the case that recently, much to the astonishment of the people of this country, we discovered that aircraft flying operationally from this country had launched a completely unannounced and surprise attack on the people of Benghazi and Tripoli? We had no knowledge of or say in the matter whatsoever. Does the Minister not agree that that is an entirely unsatisfactory situation? Will he put the agreement under which that occurred before Parliament so that we can discuss and perhaps amend it, and, if we find it unsatisfactory, even ask the American forces to withdraw?
Lord Trefgarne: My Lords, I am not sure to which agreement the noble Lord is referring, but if he is referring to what I think was the earliest exchange between governments on this matter, that between ambassadors on 15th April 1950, I shall happily place a copy in the Library.
Lord Avebury: My Lords, with regard to the remarks made by the Foreign Secretary on television yesterday, was his meaning that if the EC Ministers agreed to take certain steps against Libya this Government would decline to permit further sorties of United States aircraft from British bases, and that unless they gave such agreement permission for further sorties would be forthcoming?
Lord Trefgarne: My Lords, I cannot anticipate what our reaction to some future request from the United States would be. It would depend upon the circumstances at the time.
Lord Mellish: My Lords, does the Minister agree that the one sure way to avoid a repetition of what is alleged to be American action in flying to Libya would be if, for the first time for a long time, our European allies showed a little more guts and agreed to take measures collectively to ensure that the man who is now in charge of Libya, Mr. Gaddafi, is dealt with as the thug that he is? It is about time that Europe showed a little bit of principle.
Lord Trefgarne: My Lords, I certainly admit to a degree of disappointment over European action hitherto. I understand that the Ministers are meeting again today. Let us hope that something better emerges.
Lord Mayhew: My Lords, is the noble Lord aware that the longstanding arrangements to which he referred in his original reply are not usually considered to be the exchanges between ambassadors, which he agreed to put in the Library, but correspondence between President Truman and Mr. Attlee? Will he agree to put that correspondence in the Library?
Lord Trefgarne: My Lords, I think that the arrangements to which the noble Lord is referring were succinctly repeated in the communiqué which was issued on 9th January 1952, with which the noble Lord is no doubt familiar.
Lord Molloy: My Lords, will the Minister say whether the decision rests solely on whoever happens to be the British Prime Minister and whoever happens to be the President of the United States of America, even if that could mean the beginning of a worldwide nuclear war?
Lord Trefgarne: My Lords, the matter to which the noble Lord referred is one for the Prime Minister and the President of the day, but those arrangements have stood the test of time very well.
Lord Wallace of Coslany: My Lords, following that reply from the noble Lord, would it not be better if a joint decision were made in Britain by the Government of the day—the Cabinet, in other words?
Lord Trefgarne: My Lords, I can assure the noble Lord that the Government's views are as represented by the Prime Minister.
Lord Cledwyn of Penrhos: My Lords, the Foreign Secretary said yesterday that the further use of British bases for attacks on Libya was not absolutely excluded. Will the noble Lord say whether, if a request similar to that made 10 days ago to the Prime Minister were made again, it would be acceded to?
Lord Trefgarne: My Lords, I really cannot anticipate what the Prime Minister's reaction to a hypothetical situation would be, but if the circumstances were appropriate she would agree.
Lord Jenkins of Putney: My Lords, does the noble Lord agree that the picture of the American President and the British Prime Minister is now overlaid by a picture in the public mind of a baby lying injured and crying in a Tripoli hospital, and that the circumstances are perhaps slightly different?
Lord Trefgarne: My Lords, I have an image of Woman Police Constable Fletcher lying dead in St. James's Square.

Business
2.58 p.m.
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lady Trumpington will, with the leave of the House, repeat a Statement to be made in another place on primary health care.

Gas Bill
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That it be an Instruction to the Committee of the Whole House to whom the Gas Bill has been committed that they consider the Bill in the following order:
Clause 1,
Schedule 1,
Clause 2,
Schedule 2,
Clauses 3 to 9,
Schedules 3 and 4,
Clauses 10 to 15,
Schedule 5,
Clauses 16 to 60,
Schedule 6,
Clauses 61 to 67,
Schedules 7 to 9,
Clause 68.
—(Lord Belstead.)
On Question, Motion agreed to.

Airports Bill
2.59 p.m.
The Earl of Caithness: My Lords, I beg to move that the Bill be now read a second time. This Bill fulfils the commitments to legislation that the Government made in the Airports Policy White Paper, which was published last June. Its purpose is to establish a framework for the UK airport industry to take it into the 1990s and beyond.
The structure and ownership of airports has never been static; rather, it has changed and evolved as necessary to meet the demands of the civil air transport industry—an industry that over the last 50 years has grown from infancy to become one of the most successful and dynamic sectors of the economy. The present structure of airports is that proposed in the 1961 White Paper Civil Aerodromes and Air Navigational Services. That led to the transfer of the principal airports serving London and Scotland (namely, Heathrow, Gatwick, Stansted and Prestwick) to the British Airports Authority. The 1960s also saw local ownership and management extended to a much larger number of airports that served primarily local needs in addition to Manchester, Liverpool and Birmingham which had been handed over to the respective city corporations in the 1950s. With some changes—for example, the addition of Glasgow, Edinburgh and Aberdeen airports to the four
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originally transferred to the British Airports Authority—the White Paper set the pattern of ownership that has existed to the present day.
In the intervening period the UK's airports have undergone substantial changes and development to accommodate the dramatic growth in demand for air travel. Airports have come of age and the airport industry is now a mature and in many cases expanding and highly profitable sector of the economy. The world, too, has changed. There is a new awareness of the disciplines of the market place, the importance of incentives and the desirability of leaving management to managers. The Government's objective with this Bill is to liberate airport management from political interference—from whatever direction—to enable airport operators to respond to the needs of their customers, rather than to the shifting priorities of politicians and officials.
I now turn, if I may, to the detail of our proposals. Part I of the Bill enables the privatisation of the British Airports Authority. Clause 1 provides powers to require the BAA to be restructured, while it is still a nationalised industry, and before its assets are transferred to a successor company. My right honourable friend the Secretary of State for Transport has put on record our intentions for the use of I these powers.
The BAA is to be privatised as a whole. Superficially the most attractive option might have been to split up the authority's airports in order to "promote competition". This initially struck others as well as me as the logical way to proceed, and indeed this option was most carefully considered. But we were forced to conclude that not only was effective competition not possible, but also that separate ownership would conflict with our aviation policies. Those policies are designed to build up a strong and competitive UK airline industry, with liberal arrangements for air services, and to ensure that better services are provided for all airline passengers.
If Heathrow and Gatwick were privatised separately from Stansted, the owners of Heathrow and Gatwick would seek to maximise the profitability of the limited capacity which they had available, squeezing out small aircraft and smaller operators, including domestic services, to the detriment of an expanding and competitive UK airline industry. In addition, separate privatisation would risk delaying the construction of additional capacity at Stansted, which is urgently needed. Nothing is more likely to inhibit the development of airline competition than a lack of airport capacity. Such a delay would conflict with our overall policies, and the UK airports' competitive position in relation to European competitors, such as Paris and Frankfurt, would be seriously damaged.
What benefits would we secure in recompense for these disadvantages in terms of UK aviation policy—disadvantages which include the inevitable delay to the privatisation programme with its attendant benefits? I have to say precious few—because effective competition between the BAA's airports is not possible. Heathrow is the dominant airport in the London system. The benefits to airlines from interlining opportunities at Heathrow, the world's largest international hub, far outweigh any differences in airport charges or services offered.

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Charges are on average only 3½ per cent. of an international scheduled airline's costs, and the scope for price increases is restricted by our international obligations. There is also little scope for competition in the provision of facilities, bearing in mind that Heathrow and Gatwick are severely constrained by lack of runway capacity.
The Government therefore have to be involved in distributing traffic between the airports—an involvement which could have a crucial effect on the profitability of separate airport companies. Separation of the BAA's airports, especially those in the South-East, would require the Government to give firm commitments to private shareholders about their route licensing intentions. Such commitments would introduce excessive rigidity into the Government's policies.
Taking these points together—the adverse consequences for our broader aviation policies if the BAA's airports were privatised separately, and the lack of effective competition between them—we are firmly of the view that the London airports must continue to operate as an integrated system. I hope that your Lordships, many of whom are very knowledgeable about aviation matters, will see the force of these arguments. It was certainly the view of two Select Committees in the other place who investigated this question.
However, in formulating our proposals we have been very aware of the concerns expressed about the possible abuse of monopoly if the BAA were privatised as a whole. In particular, there is the concern of the regions about the development of Stansted and the way in which it will compete with regional airports. In the light of these concerns we have formulated three protective measures. First, my right honourable friend the Secretary of State has promised that he will approve a BAA restructuring plan under Clause 1 only if it provides that each airport will be operated by a separate subsidiary company. Secondly, Clause 38 places a mandatory requirement on designated airports, including the London airports, to publish separate transparent accounts which will reveal any cross-subsidy from another person or authority, including from any other airport.
Thirdly, and most importantly, our scheme of economic regulation will prevent Stansted (or any other airport) from indulging in any pricing policy which is "predatory". We have considerably strengthened this provision in response to criticism expressed in another place. The Civil Aviation Authority, using its powers in Clause 39, will now be able to prevent an airport operator from charging prices which are too low to cover costs, or are artificially low and harm, or are intended to harm, another airport. We have ensured that the definition of "artificially low prices" includes those which are lower than they would otherwise be by virtue of any subsidy. Thus the Bill includes categorical protection for airport operators against their business being hampered by an unfair cross-subsidy to a competitor. Together, these three measures ensure that the BAA, although privatised as a single group, cannot abuse its position in relation to other airports. I shall in due course turn to the protection our scheme of economic regulation offers to the airport user.
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Part II of the Bill deals with local authority owned airports, many of which are now dynamic and successful enterprises. As with the BAA, we believe that these airports should exist in the commercial world, removed from political interference. The three key clauses in Part II, Clauses 12, 13 and 14, provide powers for my right honourable friend the Secretary of State to require the larger local authority owned airports with a turnover greater than £1 million per annum to be reconstituted as Companies Act companies, with the shares owned by the appropriate local authorities. There are no powers to require local authorities to sell these shares, although we hope that they will see the advantages in doing so.
Our first objective is simply to put local authority owned airports in the commercial world, where they belong. The Bill contains several provisions which will achieve that objective. Clause 16 provides for airport company boards to include full-time airport employees (except where outside management has already been brought in to run the airport) and not simply to consist of local councillors. Clause 22 limits the services that local authorities can provide to airport companies and ensures that any such services must be at commercial rates. This will give airport companies the freedom to buy in services from whoever offers the best deal. The directors of the airport company will have a duty under the Companies Acts to act in the best interests of the company, which may not necessarily coincide with the interest of their own local authority. These are major changes which will foster a more businesslike approach and promote greater efficiency.
In addition, local authority owned airports will operate within a more flexible expenditure control regime, in that internally financed investment will no longer come within the Government's capital control system. If a local authority exercises its right to sell a majority of the shares to the private sector, all investment will be free of Government controls.
In providing for the establishment of airport companies the Government have rightly responded to concerns voiced in another place by making provision to safeguard the pension position of airport employees. We expect most airport companies to negotiate to continue present pension arrangements, but in the unlikely event that they do not we have made provision for appropriate compensation.
Despite the advantages of putting airports into a more commercial environment, we have all along recognised that many of them enjoy a substantial degree of national or local monopoly. Therefore Part IV of the Bill provides a tough and comprehensive set of safeguards to ensure that an airport cannot abuse its monopoly position, be it a local authority airport or an ex-BAA airport. The basic mechanism we have instituted will be recognised by your Lordships who are familiar with the arrangements made for British Telecom, and proposed for British Gas. A prime regulator—in the case of airports, the Civil Aviation Authority, known as CAA—will be assisted by the Monopolies and Mergers Commission with its general expertise in fair trading and competition matters. Because of the number and diversity of airports to be regulated—from Heathrow with a turnover of £230 million a year to Blackpool with a turnover of just over

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£1 million a year—we have provided for a two-tier system of regulation.
The first tier of regulation will apply to airports with a turnover above £1 million a year and will take the form of powers, set out in Clause 39, enabling the CAA to impose certain conditions to remedy or prevent the adverse effects of discriminatory, exploitative or anti-competitive behaviour by the airport operator, if and when such abuses of monopoly occur. I have already described how the CAA's powers under these provisions to prevent predatory pricing by an airport operator that harms another airport business have been considerably strengthened since the introduction of the Bill in another place. The CAA will also have powers to require accounting transparency.
The second tier of economic regulation will apply to the largest airports—initially BAA's London airports and Manchester—which will be designated under Clause 38. Unlike first-tier conditions (which will nonetheless be applicable to these airports), imposition of Clause 38 conditions will be mandatory for designated airports. First, the CAA will have a duty to impose exhaustive conditions to ensure accounting transparency. Secondly, it will have a duty to impose a limit on the maximum level of airport charges at these airports—probably by means of a formula—which will be reviewed every five years. Before imposing a pricing condition the CAA will refer the question to the MMC, which will carry out an investigation of the entire airport-related business. The MMC will also make recommendations on any practices found to be against the public interest as well as recommending what limit should apply to airport charges, for the next quinquennium.
Your Lordships will readily recognise that this two-tier regulatory regime has been carefully designed to cater for the widely differing requirements and circumstances of airports. We believe that it strikes the right balance between flexibility and incentive for management, and the protection of passengers and airlines.
Part V of the Bill, together with certain clauses in Part VI and Schedules 1 and 2, provide for airports within economic regulation to exercise certain powers, privileges and duties in relation to planning law and other such matters. They give airports the power to make by-laws, for example, and lay the basis for deemed planning permission under the general development order. The powers are broadly similar to those presently pertaining to the BAA. Other clauses in Part VI deal with the CAA's power to require information from airport operators and provide the technical framework for matters such as interpretation of terms used in the Bill and commencement. Schedules 3 and 5 are technical, dealing with consequential amendments and repeals to other Acts, while Schedule 4 contains provisions to ensure a smooth transition when the BAA's airports are vested in the successor companies.
Finally, I come to Part III of the Bill, which, though not contingent upon the privatisation of the BAA or the formation of airport companies, is also a response to the increasing maturity of the airport industry. Part III makes provision for the regulation of use of airports. Clauses 29, 30 and 31 provide three powers,
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all of which are reserve powers, to be applied only if and when the need arises.
The powers are designed to operate at three levels: the strategic, the tactical and the administrative. The strategic element comprises traffic distribution rules, in Clause 29. The Secretary of State may, whore he judges it appropriate, make traffic distribution rules for airports which appear to him to serve the same area of the United Kingdom. The purpose of traffic distribution rules would be to allocate traffic within an airports system in such a way as to allow each of the constituent airports to realise its full potential.
The second, tactical, element of traffic regulation powers has very much more limited scope. This is the power in Clause 30 to set, by order, air transport movement limits at airports which have substantially underused and underutilised runway capacity and where the prospect of uncontrolled expansion would be likely to have adverse implications for the capacity of local infrastructure. The purpose of an ATM limit would be to control the growth in usage of an airport in such a way that the local infrastructure was not swamped. The Government have present plans for an ATM limit only at Stansted. This provision was the subject of considerable scrutiny in another place The Government have shown their willingness to respond by amending the clause so as to focus the provision specifically on those airports which show a genuine prospect for development, where runway capacity is substantially underused.
The third element, at the administrative level, concerns those airports where demand is very close to capacity limits, either physical capacity limits or a limit imposed under Clause 30. The Bill provides in Clause 31 for powers to direct the CAA to prepare, for the Secretary of State's approval, a scheme for allocating capacity, known as slots, at the airport concerned. Slot allocation is currently undertaken at congested airports by scheduling committees which draw their memberships from the airlines serving the airports concerned. The Government have a high regard for the efficient operation for the scheduling committees and are content for them to continue as long as the voluntary arrangements work satisfactorily. The power to establish new slot allocation schemes is simply an insurance against the voluntary arrangements ceasing to work properly as a result, for instance, of the pressure of demand.
Finally, Clause 28 provides reserve powers for the Secretary of State to give directions to airport operators, for example in the interests of national security.
In the year I was born, Heathrow was in the early stages of its development. Its terminal facilities consisted of a collection of tents and temporary buildings, with the fixed items being three telephone boxes and a post box. In their place is now the world's premier international airport with its new fourth terminal, the most modern and advanced in Europe. The airports industry has indeed come a long way, in a comparatively short time, and British airports lead the way. This Bill creates the framework for their continuing development and their ability to retain

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their pre-eminence into the next century. My Lords, I commend it to the House.
Moved, That the Bill be now read a second time.—(The Earl of Caithness.)
3.18 p.m.
Lord Underhill: My Lords, the House will be grateful to the noble Earl for the courteous way in which he has introduced this Bill, a Bill of controversy, and also for the way in which he has clarified the various points involved. As noble Lords will be aware, the question of hybridity has been raised elsewhere. This is not the time to do so in your Lordships' House, but as we consider various clauses this question may have to be taken up.
My first question must be: what is the real purpose of the Bill? I listened to the noble Earl, and he seemed to give every reason why the situation should be left as it is. Noble Lords will recall what I think was a devastating speech by my noble friend Lord Stoddart of Swindon in dealing with the Second Reading of the Gas Bill. At that time, the Minister responsible said that the gas industry will return to the private sector, where it belongs. There was no justification for saying "where it belongs". I ask the same question about our airport system. In fact, if one took the noble Earl up on all his points, one could say that the Bill is unnecessary and that, far from assisting the aviation industry, it will do the opposite.
As to the question of efficiency, the noble Earl has today praised the efficiency of the British Airports Authority. Time after time Ministers have praised the efficiency of its management and workforce. Grieveson Grant, which is a leading firm of stockbrokers, is, in its detailed investment research, trying to encourage people to put money into a privatised British Airports Authority. What did it say in a report that was published in September 1985? On page 16 it stated:
"The British Airports Authority is one of the most successful nationalised industries and has been profitable throughout its existence. In the nine years since its formation (1965) profits have risen on all but three occasions. In that time, the BAA has financed massive investment in airport facilities and terminals, almost entirely from its own resources".
I understand that the figure of investment from the authority's own resources since 1965 is no less than £876 million. Noble Lords will welcome the opening of the fourth terminal at Heathrow, at a cost of some £200 million—all from the internal resources of BAA. We then have the additional terminal at Gatwick, which I understand is costing a similar amount.
On page 20 of its report Grieveson Grant also says—and I am not quoting now from a socialist journal but from a leading firm of stockbrokers—that:
"European airports had significantly lower productivity in terms of value added per employee and the number of passengers handled per employee";
that is, comparing European airports with BAA airports. So productivity is not at issue. Again, we should give our thanks to both the management of BAA and its employees for the progress and development that has taken place.
On the Second Reading of this Bill in another place the Secretary of State commented:
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"We are the first country to privatise airports and therefore the first to set up a regulatory regime".—[Official Report, Commons, 27/1/86; col. 698.]
Why should we want to be the first, if everybody says that we have an efficient British Airports Authority operating at the present moment? No other country in the world is proceeding on the lines that this country will endeavour to follow by this Bill.
I return to Grieveson Grant: I like quoting people who do not necessarily accept my political opinions. Page 3 of its report states:
"Airports around the world are generally owned and operated by public authorities. This preponderance of public ownership reflects the heavy cost of building airports and the desire to regulate the airline industry, rather than any intrinsic operating requirement".
The report continues on page 19:
"It is uncommon for airports to be run as a business at all. Most rivals to BAA in Europe are operated by a branch of government and have some sort of tax advantage or subsidy, and yet do not make the profits which the British Airports Authority achieves".
We must ask what sum will be realised. The BAA balance sheet shows—and this is agreed by both Grieveson Grant and Kitcat and Aitken, which is another firm of stockbrokers—that the fixed assets are worth £1,179 million. Yet I find that it is suggested that a realistic figure that the Government might receive upon privatisation is between £450 million and £520 million. Are we now to give away our airports?
In the Third Reading debate in another place, the Secretary of State was so coy about answering how much he expected to realise from the sale that instead of answering that question he asked the Opposition spokesman, "What figure would you suggest that we get?" We still do not know what figure the Government believe they can get for the authority's fixed assets valued at £1,179 million.
There is nothing in the Bill to ensure that foreign interests or airlines will not be able to take shares in privatised British airports. The danger in either case is obvious without me dwelling too much upon the matter. In Committee in another place the Minister said that he would examine that matter but had no intention of writing anything into the Bill. It is surely something that ought to be written into the Bill. We cannot have a situation in which foreign countries, perhaps influenced by their governments, or foreign airlines, are dominating a privatised airport system that the Minister himself has said must be a monopoly; that is why there are so many regulations that must be linked to it.
We believe that the Bill does absolutely nothing for the aviation industry or for industrial development in general. It is following typical Conservative dogma in not looking at what is really required for the British aviation industry. If noble Lords will think carefully about what was said by the noble Earl, it will be appreciated that the Government cannot use the argument of competition. I will not repeat all the statements that I have here, but the noble Earl repeated the statement made by the Secretary of State, and he made statements himself, as to why competition is illusory and why there cannot be competition between airports. What there can be, of course, is competition between the BAA system of airports and local authorities. That is one of the dangers on which I believe a number of noble Lords will speak.

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We find it said in a statement that the BAA made in a memo to the House of Commons transport committee in March 1984 that:
"The concept of airports competing with each other on an equal basis for the same traffic is illusory".
That same view was arrived at by the Commons transport committee. We completely agree with the statement made by the Secretary of State, which was repeated by the noble Earl, that to privatise the BAA airports separately would be an absolute disaster. So competition is not the argument, yet we are always told that the reason for privatisation is competition.
In the Second Reading debate in another place the Secretary of State stated:
"the effect of privatising Heathrow and Gatwick separately would be that the managers … would seek to exclude all the less profitable traffic".—[Official Report, Commons, 27/1/86; col 692.]
We have been saying that about almost every privatisation measure the Government have introduced. We tried that argument on the Transport Bill. In that case, instead of disposing of the whole of the National Bus Company as one complete unit the Government are making the National Bus Company sell off not only its regional components but also down to as many as 65 separate units. The Government cannot use the argument of competition because, in their own words:
"The concept of airports competing … for the same traffic is illusory".
We agree completely that Stansted could not stand on its own feet. In fact, it could not be sold separately. It is very doubtful whether anybody would wish to buy Stansted separately. Certainly a privately-owned Stansted would, in my view, be a greater threat to Luton, Manchester and Birmingham than if it were to remain in the South-East London system that is proposed by the Government.
The purpose of a private company is, obviously, to make money. I am not saying that critically, because obviously such, is a company's purpose. Nobody invests money to lose it. Money is invested in order to make money, and anybody who invests money in the privatised British Airports Authority will seek to do so.
I have carefully studied the Committee reports in another place. In the decision to write off debts before privatisation it seemed to be argued that the Government and the state will not be losing anything. Incidentally, I will be losing something: I have a stake in the British Airports Authority which the Government are taking away from me, as they have done with almost every other privatisation measure that they have introduced. The Government have already approved the investment of £290 million by the British Airports Authority to develop Stansted so that it can handle up to 8 million passengers a year. Can the Minister say exactly who eventually will pay that £290 million? Further, £33 million is already involved in the current year 1986–87. Will the £33 million for this year also be written off before privatisation?
I now turn to Part II of the Bill which relates to local authority airports. I am certain that, having looked at the list of speakers for the debate, quite a number of noble Lords will refer to specific local authority airports and their problems. Again, the excellent development of local authority airports has been
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commented upon by Minister after Minister. Every time a Minister visits a local authority airport he lavishes praise upon these airports. The House of Commons Select Committee on Transport stated that it was impressed by the considerable progress of local authority control of their airports and that local authority involvement in the operation of transport has served industry well. The chairman of the Association of District Councils said that there is absolutely no evidence that any district council-controlled airport has behaved in a manner in any way to inhibit competition or damage passengers' interests.
What then is the basis for interfering with local authority airports? All local authorities have great pride in their airports and in the achievements that have been made; and that is irrespective of party. I have been impressed by talks that people have had with me in recent weeks. There is complete unanimity between the parties in areas where the local authority owns the airport. They want to resist the Government's proposals and they take pride in their airport development. In view of the comments made by the Government and the quotes that I have given, I cannot understand this talk about keeping airports at the arm's length of local authorities. It is one of those phrases, like a comedian's catch phrase, which, frankly, I should like to have understood.
Why is the £1 million turnover fixed at that level? How did the Government arrive at a turnover of £1 million or more as the figure at which a local authority is compelled to form its airport into a private limited company? There is no flexibility in this. There is no opportunity for local decision according to circumstances. There is no opportunity at all for the local authority to say that it is best for it to operate in this way or that way. As noble Lords will appreciate, a £1 million turnover is not a lot these days. In fact, it has been said that it would mean forcing a local authority with a passenger throughput of only 100.000 passengers a year to turn itself into a PLC.
The Secretary of State has the power under this part of the Bill to approve a scheme as he thinks fit. He can modify it if he so desires. Many local authorities have invested, often quite heavily, in the development of their airports. If the local authority retains a holding in the new PLC, presumably those debts will remain with the local authority. If so, the local authority will have to service that debt without having the advantage of any revenue income from its airport. This will present a problem for the local authority in facing block grants. Moreover, there will be capital controls on the airport PLC as long as it is under local authority control.
The noble Earl emphasised that point. If the local authority sells 51 per cent. it is removed from all these problems. If ever there was an example of saying to a local authority "You are under capital control, you are under our expenditure control, but if you sell that will be removed" that is one, and local authorities will bitterly resent it. It can only be said that it is a form of blackmail.
Even if the 51 per cent. is sold, what will happen to the debts at present on the airport? Will they remain with the local authority? That is a question to which we definitely require an answer before we reach the Commitee stage. Will a PLC set up to run the local

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authority airport be free to develop other activities such as hotels, and so on, to help the tourist industry and, indeed, local industry; or will that be barred to the PLC airports set up by a local authority?
Why is there a constraint on elected members who are unpaid directors of a local airport PLC taking part in discussions or voting on matters affecting the airport? That is something which the Government must justify. I hope we have an answer this afternoon because we wish to raise some of these matters in Committee.
The noble Earl referred to pension rights. I believe that he referred only to the local authority airports staffs; but we shall want to look very carefully at the provisions in the Bill for pension rights, pay and conditions of service and industrial relations machinery for the employees of the British Airports Authority and the local authority airports.
One point is missing which we shall press for in Committee. This Bill is an opportunity to provide control on the working hours of air traffic controllers, which is what the ILO has been pressing for. The Bill seems to be a good time to introduce that.
I briefly refer to Parts III and IV of the Bill. These are important, and the noble Earl referred to them. They contain regulations on the use and economic regulation of airports. Considerable powers will rest with the Secretary of State. Admittedly he will have advice in many cases from the Civil Aviation Authority but he will still have the opportunity of taking final decisions. Under certain circumstances he can make traffic distribution rules. He can impose limits on air transport movements. He can determine the allocation of slots where air transport movement control is in force, and he can also deal with the levying of charges. As I say, some of these require consultation with the CAA.
What we must look at carefully in Committee is that there must be consultation with the relevant local authorities in the areas concerned and with the airport consultative committees. In fact, I cannot see anything in the Bill which states that the airport consultative committees will continue. Perhaps the noble Earl will deal with that point when he replies.
In October the CAA issued a consultation document, CAP 510, on air traffic distribution in the London area. I can readily understand the concern of local authorities which say that what is needed is an air transport consultative document dealing with the distribution of traffic throughout the United Kingdom and not just in the London area. A recent news release of the CAA on 20th March makes interesting reading. If noble Lords have not seen it, they should make a point of doing so.
A number of other observations need to be made but let me say a final few words. I notice in the criteria which have to be considered by the Civil Aviation Authority in preparing advice on these matters for the Secretary of State that there is complete exclusion of any reference to environmental considerations. That is one aspect to which we shall certainly pay attention when we reach the Committee stage. There is not the slightest doubt from what we have heard from the noble Earl that the Government recognise the danger
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that their policy will create a private monopoly. That is why they are introducing yet another quango in order to endeavour to regulate the whole business. What is missing is a sign of any coherent national policy which takes in the development of airlines and airport policy. That is something for which we shall be pressing.

Primary Health Care Services
3.40 p.m.
Baroness Trumpington: My Lords, with the leave of the House, I should like to repeat a Statement being made by my right honourable friend the Secretary of State for Social Services in another place. The Statement is as follows:
"With permission, Mr. Speaker, I should like to make a statement about primary health care services.
"These are the services provided outside hospital by family doctors, dentists, pharmacists and opticians and by the community nursing and other related services. They have never been comprehensively reviewed in the 40 years since the 1946 National Health Service Act. Yet they account for nearly a third of total spending on the health service and over a million people use the services every day.
"The Government are now carrying out a comprehensive review of primary health care. With my right honourable friends the Secretaries of State for Wales, Northern Ireland and Scotland, I am today publishing a discussion document which will form the basis for extensive consultations throughout the country. The Government's main objectives are to raise standards of care and to make services more responsive to the needs of the public. The document we are publishing discusses a number of ways of achieving those objectives.
"So far as family doctors are concerned, the introduction of a good practice allowance would reward both those doctors providing the highest standards of care and provide an incentive to others. This is in line with proposals made by the Royal College of General Practitioners. An allowance on these lines might recognise such features as the range of services provided, including preventive activities; the doctor's personal availability to his patients; and the achievement of particular targets for the levels of services such as vaccination.
"The Government also believe that the public is entitled to more information about the different types of services that doctors provide to enable patients to make better choices when seeking a general practitioner. Together with arrangements that would make it easier for patients to change doctors, this would further help to raise standards and make the services more responsive to the needs of the public. This process would be assisted if (as is also discussed in the document) more emphasis was placed on capitation payments in the doctor's remuneration system, so as to increase the financial value to the doctor of the individual patient.
"Among other proposed changes is a new flexible retirement system which would mean that, as now,

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doctors could retire at 60 but with a compulsory retirement age of 70. It is also proposed to end the 24-hour retirement rule where doctors are able to retire and rejoin the heath service 24 hours later, collect a lump sum payment and in some cases draw both pension and pay in full.
"One effect of these changes would be in inner cities where there is a disproportionately high number of elderly doctors. Although there is some outstanding work already done there, it is particularly important to raise standards in inner cities. This will entail attracting some younger doctors, and to help achieve this the discussion document suggests the possibilities of providing financial incentives within the remuneration system; of adjusting the allowances paid to doctors for practice premises in order to compensate for the higher cost of accommodation in inner cities; and of experimenting with different forms of contract.
"As regards dental services, the discussion document outlines ways in which patients could be more sure of getting the full range of National Health Service treatment. To help patients choose their dentist it suggests that the restrictions on advertising might be further relaxed, and to improve value for money the Government will act upon the recommendations of the committee which it set up to consider the problem of unnecessary dental treatment. The discussion document also examines ways in which greater emphasis could be placed on preventive measures, and it outlines retirement arrangements similar to those discussed for doctors.
"The Government also believe that pharmacists could and should play a larger part in the provision of comprehensive primary care services. The Nuffield Foundation recently published the report of an inquiry which shows some of the ways this can be achieved. Much has changed since the pharmacist's main function was to make up medicines himself, and he should now be enabled to make better use of his skills in advising patients and doctors on the use of medicines.
"Among other matters dealt with in the document are ways of improving the procedures for dealing with complaints against family practitioners and the extension of informal conciliation arrangements for dealing with less serious complaints. The document also proposes an independent study of the quality of primary care services in England, initially in one or two areas.
"I am also publishing today the report of a review of community nursing services in England carried out by a team led by Mrs. Julia Cumberlege, chairman of the Brighton Health Authority. Among the matters on which the team has made recommendations are the establishment of neighbourhood nursing services; ways of making better use of nursing skills; and the training, of community nurses.
"The Government intend that there should now be wide consultation on the discussion document and the Cumberlege Report, taking account also of documents published by other bodies such as the Royal College of General Practitioners and the Nuffield Foundation. We want to hear the views of
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all those who are interested in raising the standards of primary care, whether as providers or users of the service. To carry forward the review, Ministers will be holding a series of consultation meetings not only in London but in several major cities outside like Birmingham, Manchester and Newcastle. We will be inviting to these meetings the professional bodies like the British Medical Association, the British Dental Association and the Pharmaceutical Society. But we also want to take evidence from voluntary organisations, the statutory health service agencies, and organisations concerned with the interests of consumers.
"These proposals have been put forward for discussion and the consultations will last until the end of the year. At this stage, therefore, final decisions have not been taken. Many of the primary health care services are already provided to a high standard but the Government believe that further improvements are possible. It is for this reason that we have embarked on the first overall review of these services for 40 years."
My Lords, that concludes the Statement.
Lord Ennals: My Lords, may I first thank the noble Baroness for repeating the Statement made by her right honourable friend in another place. I am sure she will understand that we welcome the fact that there is to be major consultation over a considerable period of time rather than a rushing in, as has sometimes been the case, and that your Lordships, will wish to have the opportunity of a debate on many of the important recommendations that are contained in the report.
Perhaps I may also say that I welcome the Cumberlege Report on neighbourhood nursing. Just to add another paper to it: apart from the Nuffield Report, which is a third one, it would be nice to see the Binder Hamlyn Report, which we have asked for over the past two years. I think that would provide some useful information.
Is the noble Baroness aware that we on these Benches will welcome any reasonable steps that may be taken to ensure, first, that general practitioners play a much fuller role than they do at present in preventive medicine and in health education; secondly, to ensure the creation of higher standards of GP service and a fixed retirement age? I was delighted to hear the Statement which was made about this and about the ending of the 24-hour retirement racket, which really was disgraceful.
We shall support any proposals which oblige doctors to provide more information to patients about the range of services provided by their practice and give patients the opportunity to choose their own general practitioners, and proposals to improve what is often a very inadequate service in the inner city areas, as the noble Baroness said. I hoped that perhaps she would say a word about rural practices, because there are problems in the rural areas as well as the inner cities. We shall also support steps to enable women to be treated by a female doctor if required. Perhaps the noble Baroness will say whether that matter is dealt with in the report, which obviously I have not had a chance of reading.
We welcome also any proposals to enhance the role of the trained nurse, especially in screening,

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vaccination and innoculation, and we shall study very carefully the Cumberlege Report to which reference has already been made. May I say how much I welcome the recommendations in the Cumberlege Report that the health advisory service in future should cover primary health care as well as other aspects of the health service.
Perhaps I may add a further question: is the Minister aware that cuts in the hospital service—and at the moment I am much concerned about planned cuts in clinical services at Guy's and the Maudesley psychiatric centre of excellence—add additional burdens on to the general practitioner? The Labour Benches will press for major cuts in prescription and other charges and we shall implement them when we have the opportunity to do so. The same applies to the establishment of practice consultative committees involving patients as well as members of the primary health care team. As regards dentistry, perhaps I may ask the noble Baroness whether the document says anything about progress in fluoridation either by water or by fluoride milk.
Finally, in regard to pharmacists, is the noble Baroness aware that under legislation now being considered in another place some smaller pharmacists—that is, those issuing fewer than 16,000 prescriptions a year—fear quite considerable financial loss and possibly closure rather than gaining the opportunity which they would like to have of providing a better service? We shall return to that point when the Bill comes before your Lordships' House. Meanwhile, perhaps I may say how much I welcome a document which we shall all want to study with very great care.
Lord Kilmarnock: My Lords, we on these Benches would also like to thank the noble Baroness for repeating this long-awaited Statement. I think I am right in saying that it has been two years in the pipeline; so certainly we were entitled to expect something which we could get our teeth into, and we seem to have received it. I understand that there is a joke going round in the medical profession that this Green Paper is referred to as a gangrenous paper owing to the length of its gestation. But finally we have it. I think that the noble Baroness expected to be quizzed on the Binder-Hamlyn Report, and I shall oblige her by asking whether there is any reason why she should not now publish it in conjunction with the Green Paper (which I see appears in a tasteful blue cover) and the Cumberlege Report, which we also welcome.
As the noble Lord, Lord Ennals, has already said, without having read these documents it is obviously impossible to make intelligent comments. We shall judge the consultation paper against our own firm criterion, which is that we are opposed to any steps that would artificially stimulate private practice and risk the creation of a two-tier primary health care service. We believe that the British public want a good-quality family doctor service within the NHS. It is interesting that since the foundation of the NHS only 1 per cent. of private consultations in the primary care sector have taken place in the private sector, which seems to indicate that the public want a good public service.
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Regarding the contents of the Statement—and I shall confine myself to what it says—we agree that most of the proposals of the Royal College of General Practitioners are sensible and to be supported. We certainly agree that wider and better publication of practice information is desirable and that there should be less difficulty, or rather no impediment, about changing one's doctor. We welcome the move toward a firm date of retirement in the medical profession. We also welcome the reference in the Statement to better use of pharmacists' skills. I should like to ask the noble Baroness whether she accepts the pharmacists' own proposals as embodied in what I think is called the pharmacists' charter.
None of these proposals means much unless the Government are prepared to put some money where their mouth is. Will the Government give serious consideration to a development fund for pilot schemes in the development of primary health care? The Government refer in the Statement to ancillary services. Do they accept that an extension of ancillary services in the surgeries is vital to good primary care, and will funds be available to stimulate this? Will the Government undertake to provide enough money—and this is a very important point—for more effective screening against cervical cancer, which is now reaching epidemic proportions and involves women younger than ever before? Is there a possibility that a target can be set for the screening of all women over 20 every three years, for example? Can the Government give us an indication of some target which they may have in mind for that?
The role of the consumer is important. Will the Government confirm that members of the Community Health Council are to be granted observer status on family practitioner committees?
Finally, I associate myself with what the noble Lord, Lord Ennals, has said about a debate. Will the Government offer us a debate on this important consultation document in their own time? I know I shall be referred to the usual channels, of which I form part and in which I shall play my part, but will the noble Baroness put some pressure also on her noble friend the Government Chief Whip?
Baroness Trumpington: My Lords, I should like to thank both the noble Lords, Lord Ennals and Lord Kilmarnock, for their welcome for this discussion document. Perhaps I may point out immediately to the noble Lord, Lord Kilmarnock, that it is a discussion document and not a Green Paper. Of course a debate is a matter for the usual channels, and I have no more influence over my usual channels than has anyone else, which is right and proper.
The findings of the Binder-Hamlyn Report, to which both noble Lords, Lord Ennals and Lord Kilmarnock, referred, have been taken into account in preparing today's document, but the debate has now moved on. With regard to female doctors, the discussion document mentions the demand from ethnic minority groups for women doctors especially in inner city areas and suggests that more might be done to ensure that women doctors are available to such groups.
The system of regular ministerial reviews of the plans drawn up by regional health authorities helps to

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ensure that hospital plans affecting community health services are fully discussed with the relevant district health authorities and the family practitioner committees.
The discussion document suggests that health authorities in areas where dental health is poor should consider the benefits of fluoridation with particular care. As regards the pharmaceutical services, the new chemists' contract is settled policy and will be implemented as soon as possible. As your Lordships know, the Bill which provides the necessary primary power had its Second Reading on 15th April. One of the objectives of the new contract is to provide a sound foundation for the development of the pharmacist's role. The discussion document is about that development. The new contract will provide an improved level of financial support for essential small pharmacies.
As to the question of more or less money for primary care, raised by the noble Lord, Lord Kilmarnock, spending on primary care has increased under this Government and will continue to do so. Some proposals will cost money, some will lead to savings, and many will improve value for money. The overall effect on expenditure will depend on the outcome of the consultation and the precise nature of the changes introduced. We are interested in hearing proposals of all kinds. That is the object of the discussion document. We shall listen to any suggestions for improving services. The proposals that I have seen so far are not very specific about how money will be spent, for instance, on a primary care fund. We need to avoid superficial remedies that consist of throwing money at problems without providing detailed solutions. It is my sincere hope that the discussion period will result in detailed solutions to any problems that are at present around.
Lord Auckland: My Lords, this is a very welcome Statement. However, as my noble friend has said, we have not yet had an opportunity of studying the consultative document. I should like to put to her two questions. With regard to people who move into new areas, particularly rural areas, will the document lead to any improvement in information services, explaining to people how they can obtain the services of a new doctor? This is sometimes quite a problem, especially in rural areas. Does the report contain any fresh information concerning this matter?
On the matter of trained nurses, can my noble friend the Minister say what kind of treatment they will be able to give? I believe that at the moment they can carry out ear-syringing and give injections and that kind of thing. Will they be able in future to do any diagnostic work?
Baroness Trumpington: My Lords, most authorities are, I believe, aware of the problems in rural areas, not only for doctors but also for other primary care services. Those matters will, of course, be taken into account in the consultation period. As to my noble friend's question concerning nurses, there are recommendations in the Cumberlege report about extending the role of the nurse and about limited prescribing by nurses. It is, however, important to read the supporting text so as to see these recommendations in the proper context. Then there can be an informed discussion of what it is sensible to aim for. I must tell
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my noble friend that the Government have not reached any decision yet.
Lord Somers: My Lords, like other noble Lords, I welcome the Statement. I wish to make just one point. The Statement mentions, among other things, the relaxation of the present controls on advertising. This would be a mistake. Advertising has today reached such a ludicrous standard of exaggeration of the facts that no one with any sense believes anything he reads in advertisements. A far better method of publicity is the doctor's or the practitioner's own work. If he does good work, this will soon become known in the neighbourhood where he works. That would be a far more desirable way of spreading knowledge of his talent than any form of advertisement which people might believe, or might not.
Baroness Trumpington: My Lords, I thank the noble Lord for the expression of his views which, I am sure, will be listened to, together with all the others, when my right honourable friend the Secretary of Slate is examining the conclusions drawn from this discussion period.
Lord Ennals: My Lords, perhaps I may thank the noble Baroness for the way in which she has dealt with the questions that have been put. I should like to mention two small points that arise from what has been said. Can the noble Baroness give an assurance that the local authorities will be included in the consultation process? She did not mention this; so that is why I ask the question. Secondly, can she give a slightly clearer idea of the timescale of the operation? I see that comments have to be received by 31st December, 1986 and that there will have been a series of meetings conducted by Ministers in different parts of the United Kingdom. Is it envisaged that we shall start seeing changes fairly early next year? Is it anticipated that there may have to be legislation, or can all this be done without legislation?
Baroness Trumpington: My Lords, with regard to the noble Lord's first question, the answer is, yes; the local authorities will be included. As regards the second part of the question, we propose to launch a structured consultation exercise and use the discussion document as an extended agenda at public hearings, some of which will be chaired by Ministers. We intend that these meetings will be part of a much wider public debate on the future of primary care. Given the wide range of issues, the consultation period will last until the end of the year, as I have already said. We shall then enter into negotiations with the professions concerned and, depending upon the outcome of the consultations and negotiations, we shall introduce any necessary legislation. All this amounts to a lot of talk; it is very difficult to pinpoint time.

Airports Bill
4.6 p.m.
Second Reading debate resumed.
Baroness Burton of Coventry: My Lords, I start from exactly the same place as the noble Lord, lord Underhill. First of all, however, I should like to thank the noble Earl, Lord Caithness, for his opening speech. It was a polished and succinct description of the Bill as

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it stands on paper. Nevertheless, my hope is that when he replies to the debate the noble Earl will depart altogether from his brief and that he will answer the points put to him.
We on these Benches also believe that the Government's plan to privatise the British Airports Authority has nothing whatever to do with any pressing need to revise the structure and methods of managing the authority or to correct any faults in the airports system. It is primarily a political objective. Indeed, as the noble Lord, Lord Underhill, said, it is exactly the same as the situation that has arisen in respect of the gas industry. When, recently, I asked the BAA whom it thought would benefit from the privatisation its answer straightaway, without pause for thought, was, "Oh, the Government and the shareholders". I had to remind it of the customers and the airlines.
On Second Reading in another place the Alliance tabled an amendment declining to give a Second Reading to the Bill. That was not successful. However, I should like to assure the noble Earl that we on these Benches feel just as strongly as our friends in another place. We, too, believe that selling outright the profitable BAA shows a lack of appreciation of partnership between the public and private sectors.
And we are not happy about the effect in the regions. As the House will know, it is not only the Alliance and the Labour Opposition who hold this view. The Minister will recall that on 9th April in another place the Government's majority was cut to 63 in one of the biggest revolts in the current Parliament. On that occasion 37 Conservatives voted with the Opposition in an attempt to force a change in the Bill. The revolt concerned Stansted and the fear that if Stansted was privatised, together with Heathrow and Gatwick, the regional airports would face unfair competition.
Here I come to another matter also decided purely for political reasons. I offer no excuse for returning yet again to the issue of a second runway at Gatwick. I hope that the House will bear with me because that question has considerable bearing on what we are discussing today.
To recapitulate briefly, I would just put three facts before the House. First, as Minister of Transport and Civil Aviation, responsible for the decision in June 1954 to develop Gatwick as a major international airport, the noble Lord. Lord Boyd-Carpenter, declared that Gatwick was designed as a two-runway airport, adding that experience throughout the world had shown that a minimum of two runways is a basic requirement for a major airport. That was in a letter to The Times on 5th June 1985.
Secondly, the county planning officer of West Sussex County Council, writing to The Times on 31st May 1985, stated,
"It is by no mischance that the British Airports Authority abandoned its proposals for a second runway and sited the second passenger terminal astride its former alignment".
Thirdly, in the House on 23rd May 1984 (col. 221 of the Official Report) I was told in answer to a Question that—
"the present Government were not consulted about the agreement and are not parties to it. That being the case, the Government cannot be bound by its terms".
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The agreement was that entered into by the British Airports Authority and the West Sussex County Council in 1978. From the Answer given me on 23rd May 1984, it follows that the Government themselves are preventing the laying down of a second runway.
It is so much wasted breath to talk about developing Gatwick as a hub-and-spoke airport for the future and to deny what is so obviously necessary. I think that it is also dishonest. The Government and the British Airports Authority stand accused of this refusal to look at the full future potential of Gatwick and hence the inability for full development.
Why have I risked wearying the House with this oft-repeated story? The answer is simple. I think—and believe that the Minister will agree with me—that I should not be exaggerating if I were to say that the one statement which keeps recurring in all the publicity and in all the statements by government spokesmen is that the primary restriction on passenger capacity relates to runways. Nobody with knowledge of this problem will deny that the limiting capacity factor currently in the BAA London airports system is runway capacity. That is why I keep on. I consider that the Government and the BAA should be held to account for what they have done to prevent the fullest possible development of civil aviation in the United Kingdom.
This whole affair has some nasty undertones. One has only to study comments and opinions in another place: the abortive attempt by the Government to stampede its ill-fated Civil Aviation Bill through the Commons, and its abandonment in May 1985, following almost total condemnation there of the proposal to develop Stansted as London's third airport. People living around Stansted were deeply concerned that the matter had come up repeatedly. The BAA had been determined to have Stansted, however many experts and public inquiries found against the proposal. The Government have been equally supportive.
Even Conservatives in another place have objected to the manner in which the Government have packed the Standing Committee to avoid further rebellion there. I have considerable sympathy with the Member in Standing Committee who said that if the top officials of the Department of Transport were moved into the BAA, and the top officials from the BAA were moved to the Department of Transport, we should see no change in policy.
Sir Norman Payne, chairman of the British Airports Authority, on 22nd October 1984, in an article entitled "Don't Stifle Success" appearing in Airport News, stated:
"Gatwick will remain a single runway airport so there will be a capacity problem ahead".
Deliberate action by the authority has cut out the possibility of having a second runway at that airport. Together with the Government, it stands accused of making that problem worse.
I am not against the development of Stansted. That would be putting my head in the sand. But I am against the amount of development now, and I repeat "now". The BAA has repeatedly said that it is in favour of full development at Gatwick. It is not, of

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course. It is in favour of full development at Gatwick with only one runway.
I believe that we should have had this second runway, allowed Stansted to develop its present capacity of 2 million passengers per annum and given support to regional airports where the conviction remains that they will suffer financially because of the Government's determination to build up Stansted whatever the cost. This determination led to the biggest revolt in the current Parliament, to which I referred at the beginning of my remarks today. That revolt has been surpassed by that on the Shops Bill, but not at the time I prepared my notes.
This brings me inevitably to the present position at Stansted, quite apart from a second runway at Gatwick. I have referred already to the nasty undertones in this affair. However, additionally there are puzzling ones. The British Railways (Stansted) Bill was debated in another place on Monday 24th February. If I say simply that it was not considered that the Government had made their case, that is an understatement to save your Lordships' time.
Suffice it to say that Members were not at all convinced and could not understand what confidential information must have been given to British Rail enabling it to press its scheme when the House was asking itself whether indeed the establishment of a rail link ensured that Stansted would be a runaway success. The question was posed in various ways and by many Members as to whether, as they put it, there had been nudges and winks to British Rail about the degree of traffic that would be diverted deliberately to Stansted under the powers that the Secretary of State was taking in the Bill.
In short, the other place did not like what was before it and talked out the Bill, whereupon the Government proposed that the debate should be resumed on 6th March. I can only ask your Lordships to read the Commons Hansard for Monday 24th February, when it will be seen that, far from exaggerating, I have understated the whole affair.
Anyway, the resumption of this adjourned debate has been transferred from 6th March to the 13th, to the 20th, to the 26th, to 10th April, to 17th April; and, when I was preparing my remarks for today, I did not know what had happened on 17th April. I might have guessed. The Bill was again transferred and is now due for discussion on Thursday 24th April. I must ask the Minister when he comes to reply why all this has happened. The Government have run into trouble. We should like to know what kind of trouble. One can only assume that they are faced with the difficulty of getting the Bill through the House.
In trying to steer a logical course through this tangled web, I come now to the allocation of slots and the suggested powers allowable to the Secretary of State; both are inextricably bound up with Stansted, with its rail link and with the direction of airlines. I suggest that we must accept that allocation of slots on a voluntary basis through a scheduling committee composed of airlines operating at airports may reach a point of collapse. Arising from this, it seems obvious that any allocation committee will have to face a problem totally new to it: what to do when there are no slots left at a particular airport. In the London airports system there is potential excess of demand over supply
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at both Heathrow and Gatwick, and the reverse at Stansted. Several of the charter airlines have their operating base at Gatwick, and there is clearly enormous catchment area demand for charter services out of Gatwick.
In our debate on 30th October 1984 I said that I believed that, under the Government proposals, the charter airlines would indeed be squeezed out of Gatwick. As the House is aware, this is a highly efficient sector of British air transport which fulfills a substantial demand for charter seats arising in that particular catchment area. The matter could not have been put more realistically than by the Civil Aviation Authority in its report, which was requested by the Government in 1984, when it stated at paragraph 38:
"If the price of developing the scheduled service network at Gatwick was progressively to squeeze charters out, this would be to render a major disservice to a substantial category of public demand."
Furthermore, at paragraph 32 the report went on to say that to rule that charters should increasingly be operated from some other airport is thus:
"to substitute the planner's judgment for the proper working of the market-place."
I was glad to note that in March this year the Civil Aviation Authority, in its recommended measures for the distribution of air traffic among the London area airports reiterated its objection to the calls for:
"the wholesale removal of charter services from Gatwick as this would fail to recognise the importance of Gatwick as a regional charter centre for the South East as it has developed in recent years."
I think that this matter should be emphasised. I think that the charter airlines are in grave danger in possible future developments.
The fundamental problem of trying to reallocate charter traffic to Stansted is that there would be substantial catchment area demand severely inconvenienced by being obliged to travel to Stansted. As the House will know, the majority of operators at Gatwick, including the charter airlines, have rejected this philosophy and pointed out that a passenger is entitled to equal treatment, no matter whether scheduled or charter, and that a vast proportion of Gatwick's catchment area consists of holiday passengers in London and the South East. Most strongly stated, and I suggest most dangerous to our civil aviation industry, is the belief that to force traffic to Stansted would be counter-productive. It is believed that many charter passengers would not travel at all or would find a more convenient way of doing so: not for them the inconvenient journey to Stansted or, for that matter to Heathrow. I think we would all agree that it is highly improbable that overseas airlines will be voluntary candidates for reallocation to Stansted.
On the problem of allocation of air slots, we on these Benches would agree with the Civil Aviation Authority that a price mechanism,
"whether through increased landing charges, a direct passenger charge or the compulsory trading of landing and take-off slots among airlines, would not be compatible with the Government's objectives and would almost certainly be inconsistent with this country's international obligations."
There is a strong body of opinion which believes that ultimately the Civil Aviation Authority should assume responsibility for slot allocation. We on these Benches I share that view.

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So far I have tried to deal with the problems of runway capacity, the rail link to Stansted, the allocation of slots and the fears of charter airlines. I come now to my last aspect, I am sure to the relief of the House. However, I thought that if I listed those it would refresh the memory of the noble Earl when he comes to reply.
What about the powers available to the Secretary of State under this Bill? This question caused considerable anxiety in another place on all sides of the House. Here I should like to pay tribute to the work of the scheduling committees, which have acted impartially and worked well. It seemed to me well-stated, in another place—and I think that the noble Lord, Lord Underhill, referred to this—that this Bill makes no provision for any scheduling committee. Therefore, what will happen once the airports are privatised? If an airline wants to fly into an airport when capacity is full, it must be told that it cannot and that someone will be displaced. My fear is that under this Bill the Secretary of State has powers to remove someone who is already there. That is quite different from giving the final power to a scheduling committee made up of the airlines. Is it not correct that the only people the Secretary of State can move around are British carriers? Would not international agreements make this inevitable?
In the debate on the British Railways (Stansted) Bill, which produced such a setback for the Government, this question of powers being given to the Secretary of State loomed very large. Would Mr. Ridley use his powers to direct more scheduled traffic to Stansted or would he use them to direct more charter traffic there? Was it correct that the Secretary of State intended forcibly transferring all charter aircraft operations from Gatwick to Stansted? Is it not correct that the Secretary of State seeks powers to regulate the distribution of air traffic within the London airport system, etc? I can assure the Minister that the airlines are worried and that Parliament is worried, and I think that the Government must explain to the House today what powers this Bill is intended to give to the Secretary of State.
It would be churlish to debate a Bill on airports policy, heavily involving the British Airports Authority, without paying tribute to the authority and to all those involved in its work. The organisation is efficient and profitable. Moreover, it has provided a service catering for the transport needs of the airlines and millions of customers who pass through the airports during the year. As the House knows, my main quarrel with the authority is over the refusal to allow Gatwick—and not only Gatwick but the civil aviation industry as well—the opportunity that exists today for the full expansion which we need if in coming years this country is to maintain the position it holds today.
My Lords, not even the Minister can deny that the British Airports Authority is a monopoly. There is a high risk that a privatised monopoly like the BAA would not find it in the best interests of the shareholders fully to meet airline demand by timely provision of new facilities. Either the BAA must have such a duty (as now) or it must forfeit its exclusive privilege to provide new capacity at its airports so that
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other companies can compete with the BAA—such as the provision of new terminal capacity.
I apologise to the House for taking up so much of its time, but I felt that I must try to make the case on Second Reading. I hope that on this occasion I shall get an answer to the five points I have noted down on my pad here; I am sure that the noble Earl will give me an answer when he comes to wind up. We on these Benches believe that such a monopoly should be in the public rather than the private sector, and we oppose the Bill.
4.30 p.m.
The Earl of Dudley: My Lords, my intervention in this debate results from an approach made to me at the end of last week by the metropolitan borough in the Midlands whose name I bear. I admit that my experience in these matters is minimal, as a user only. My problem in the next few minutes will be to try to keep my feet firmly on the ground. When I looked at the question and briefed myself over the weekend it seemed to me that the matters raised by my friends in Dudley were such as were appropriate to bring up in this Second Reading debate. They raised questions of principle, one or two questions of interest, and one matter of concern.
I should like to say at the outset that Dudley District Council fully supports the broad objectives of this Bill, especially in so far as they relate to the translation of the assets and liabilities, land and buildings at Birmingham Airport, to company status. I, too, support the objectives of the Bill. I should like to remind the noble Lord, Lord Underhill, who took pride in his rather elongated arm's length part-ownership of British Airports, that he has had no choice in the matter. This part ownership was imposed upon him. He had no opportunity to quantify either the benefits or the risks to him as a taxpayer. At least now he will have a choice as to whether to be a part-owner of British Airports and will be able to measure directly the risks involved.
In my view company status will bring about an environment for airports in which commercial constraints and considerations will generate growth, will foster development, and in some instances reveal decay. It will create a climate in which managements and work-force will be at their best, and it will provide the owners with a negotiable asset, although to what extent that asset will be negotiable will depend very much on decisions that the Minister still has to take on criteria of which we, as yet, are not fully aware.
This brings me to the main point which concerns my friends in Dudley. Over the years the airports have built up overall debts; airports covered by this Bill have incurred debts of nearly £250 million, and the seven district councils which own Birmingham Airport through that airport share some £30 million of debt. These debts have been brought about by borrowing money either on a sound basis to provide development growth or else with less justification to fund and cover repeated losses.
When the airports move to company status there will be only three categories of person who can either repay or service these debts. They will be the companies and their shareholders, ratepayers, or

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taxpayers. There will be no other sources of funds. Under Part I of the Bill the Secretary of State seeks powers whereby the debt of the airports owned by the British Airports Authority, amounting to nearly £42 million, will be transferred by a mechanism to the new company. The airports owned by the regional authorities receive rather different treatment.
The Secretary of State in another place expressed the preference that in the case of loss-making companies the debts should be transferred to the district councils. In the case of the companies that were profitable, or marginally profitable, he said that he looked for an equity-debt ratio in the companies of approximately 70 per cent. to 30 per cent. Whether or not this is an appropriate ratio is a matter for greater experts than I am to decide.
I remember years ago going to a seminar in which it was posited that it was perfectly responsible for a company to have equity and loan stock on a 50–50 basis, but in those days of course interest rates were about 4 to 4½ per cent. Interest rates are now falling again, and it may be that when the time comes for these matters to be decided by the Minister he may feel that a slightly better proportion is tolerable.
Be that as it may, this will still leave a considerable proportion of debt to be transferred to the councils. In the case of the seven Midland district councils to which I referred the effect of this transfer of debt would be to increase the rates by over 1.60p in the pound over the entire county. Personally I cannot think that that is in line with the policies that have been expressed at various times from this side of the House.
This figure is brought about not only by the direct charge of the debt but also by the anomaly that the councils will lose their grant on the part of the debt that they have to take over. The effect of that in the case of the seven district councils, will be that whereas if they did not lose the grant the direct cost of the debt would be just under 1p in the pound, this is increased to the figure of 1.64p to which I referred.
That brings me to my plea and my reason for intervening in this debate. It seems to me that there is some case for a part of the debt being transferred to the councils because, after all, under the present arrangements the councils have a contingent risk in the event of a failure of the airport, and there must be some value in being absolved of that risk. In my view it should be a matter of negotiation between the Minister and the councils as to how, and on what terms, they should be absolved from that risk.
If there is a balance still to pay, I make a plea to the Minister to consider before the Committee stage whether he could not seek powers under an amendment to the Bill—I believe I am right in saying that there are no such powers at the moment in the Bill, but I should be glad if the Minister would correct me if I am wrong—to enable part of the debt to be either extinguished or serviced through the Exchequer.
After all, these regional airports bring national as well as regional benefits. They ease communications to remote manufacturing and exporting areas, and in so far as they bring national benefits this should be recognised. Although the Government have already made grants for the airports, I do not believe that the grants have been on such a scale that they could not
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reasonably consider some further contribution in the way of easing the burden to the councils.
I hope that the Minister will give this point serious consideration and that when we reach Committee stage we might find some acknowledgement that the burden of these debts will be spread in a tripartite way; not simply on the companies or on the councils, but on companies, councils and Exchequer.
4.40 p.m.
Lord Taylor of Blackburn: My Lords, I rise to address your Lordships on this Second Reading with some trepidation because this is something that I know little about. I have never spoken before in any way at all on airports, navigation or aviation. Therefore I am completely at a loss when I hear the noble Baroness speaking about the great London airports and even Manchester Airport. I know very little about them except as a user. But I know something about the region in which I live and the region in which I work and have interests in. That is the Lancashire area.
In particular, I wish to speak on Blackpool Airport this afternoon. Blackpool, in comparison with Heathrow and Gatwick, is a very small airport; nevertheless, it is a vital one in the economy of Lancashire in general and particularly central Lancashire and east Lancashire. This airport is used by quite a number of local industries which have connections all over Europe and which use it widely and extensively. Also, the airport is used to service the gas in the Irish Sea.
It has been owned by the local authority roughly since 1909. I do not think that the local authority has been able to draw any money or receive any financial benefits from the airport since it started in 1909. I think that the nearest it got to solvency was last year, when its deficit was somewhere in the region of £30,000. It is hoping, with the increased trade that is going on there, possibly to come on stream in two or three years' time. But over the years the local authority—both the county borough, as it was, and the district council, as it now is—has ploughed a lot of money into this airport and made it very successful.
Members of the authority realise the spin-off to the Fylde coast from the number of tourists who now fly into Blackpool, and also they realise how people are interested in using the airport when coming to political and other conferences in Blackpool, and how useful it is. My friends in Blackpool are different from those friends about whom the noble Earl, Lord Dudley, has been speaking. My friends in Blackpool want to retain the airport as it is. They feel that they have done a good job. We feel, as citizens of the area, that they have done a good job.
We do not know what they have done wrong. They have conformed to government policy and they have done so when the Government have not been to their liking; because we must remember that, apart from two years, Blackpool has been consistently a Conservative-controlled authority and is a Conservative authority at the present time. They have conformed; they have modernised; they have brought up to date; they have done everything that they possibly could; and now the question that they are putting to the Government is: what are they charged with? Why should this airport be privatised when they

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are doing a reasonable job, one of which, as Lancastrians, we are proud?
This is not the time to go into detail. We shall go into detail at the Committee stage, regarding debt charges and so on. We ask the Government to be a little more considerate not just to Blackpool but to places such as Blackpool and Carlisle; and perhaps one may mention some of the other airports of similar size on the eastern side of England.
4.45 p.m.
Lord Boyd-Carpenter: My Lords, this is a very important and a very complex Bill. I think that a good many of the points about which your Lordships are concerned are basically Committee points which no doubt will arise and be debated during the Committee stage. It is certainly a quite complex Bill, full of such points. But is has one curious omission; that is, that nowhere in the Bill can I see any objectives stated or laid down for the new company or companies which are to operate the airport.
Some of your Lordships may have seen a recent letter in The Times by a former chairman of the British Airports Authority, Sir Peter Masefield, a man who has done an enormous amount for British aviation over the years, in which he recalls the original objectives which his board, when in command of the BAA, set forth and which he suggests might well be considered for inclusion perhaps in this Bill as being the objectives of the new body.
Perhaps I may remind your Lordships what they are. The first is to provide at the airports under its control adequate capacity to meet the requirements of civil air traffic; the second is to achieve and to monitor a balance between profitability and good service consonant with the obligation of the board to pay its way. Those two objectives seem to be admirably stated. I hope that the noble Earl, my noble friend on the Front Bench, will give some thought as to whether it might not be a useful addition to the Bill to include some objectives expressed either as Sir Peter expresses them or on similar lines.
The noble Lord, Lord Underhill, made, if he will allow me to say so, a stockbroker-orientated speech which was rather unusual for him. I suppose that it is an example of the old adage, "The Devil can cite scripture for his purpose". But to have the noble Lord, from that Bench, quoting two very distinguished firms of stockbrokers with apparently enthusiastic approval, is really rather remarkable. So, too, was his argument. He said that the British Airports Authority is efficient. No one disputes that. Indeed, I am a great admirer of them. But the noble Lord will surely appreciate that however efficient one may be, it is the greatest possible mistake to rule out the idea of one becoming more efficient. One of the most dangerous things of all in this life is complacency, saying, "This is a jolly good show; improvement is impossible"; because there is no human activity of which that is true. Therefore, it is really no answer to this Bill to say, as the noble Lord, Lord Underhill, appeared to be saying, that because the British Airports Authority is well run and has been well run for a number of years, there is no need to make this change.
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In this context, I should like to pay a tribute to the present chairman of the British Airports Authority, Sir Norman Payne, who has done a really remarkable job in the British Airports Authority and has advanced it, subject to all the limitations and difficulties that government and outside circumstances can cause, with very great success and ability.
However, I have yet to hear that Sir Norman is opposed to these proposals and I have yet to hear that anyone regards them as in any way at all a reflection on the way the BAA is run or has been run. The only blot on the way that the BAA has been run goes back to a previous administration and is of course the one referred to by the noble Baroness, Lady Burton of Coventry: the quite gratuitous, wholly unnecessary giving of an undertaking to West Sussex County Council that the second runway planned from the beginning for Gatwick Airport should not be built. That was a very serious failing and fault. It is fortunate that Her Majesty's Government and successive governments have said that they do not regard themselves as bound by it. It is an interesting question as to whether the successor company would regard itself as being under any such similar limitation. I hope profoundly that it would not, because I agree with every word the noble Baroness said. It is utterly absurd, and contrary to world experience, to believe you can operate an airport with up to 25 million passengers a year on a single runway. What is clear is that, if you attempt to do anything of the sort, not only will you have congestion but you will erode the margin of safety.
The building now of a terminal across the planned route of the second runway will make the building of it—and it will come, because it will be forced by events—more expensive and more difficult and will involve the acquisition of more land. That will have the incidental advantage of annoying the West Sussex County Council.
I agree wholly with the noble Baroness that, with that exception (the administration under a previous regime) the British Airports Authority has done an extremely good job. Those concerned in it who have contributed to it will. I am sure, continue to contribute in the new shape and form that it will take.
There are a number of points in this Bill which are perhaps mainly Committee points but which nonetheless strike one noticeably. I believe that the provision in respect of regulating airport charges—in which apparently, as I understand it, both the CAA (which knows about them) and the Monopolies and Mergers Commission (which does not know much about them) are to be involved—is a cumbrous affair. The Civil Aviation Authority is a highly expert and responsible body which understands the British civil aviation industry. I should have thought the right thing is to leave the regulation of airport charges in its hands, subject in case of dispute to reference to the Secretary of State. But I do not see why you want the Monopolies and Mergers Commission, with all the other things that it has to do and with all this consideration of takeover bids which must give it at any rate a measure of full employment at the moment. It seems so unnecessary to involve it.

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Similarly, I am puzzled by the proposal in the Bill that the Secretary of State should have the right to limit air traffic movements at airports where the runway is not fully employed. That seems to be a reversal of what one would expect. If you have an underemployed runway, in certain circumstances the Secretary of State is given power to make it even more underemployed. It seems an odd and almost perverse provision.
There are other aspects also which we shall want to explore in Committee. Although I am an enthusiastic supporter of the general policies of the Bill, I am not at all sure that in every way it has been completely well thought out. I am glad to see that in general the role of the Civil Aviation Authority is to be enlarged and that the importance of the help it can give to the Government and to the industry in connection with the airports is fully understood in the Bill.
Your Lordships will allow me one moment, I hope, of personal jubilation. That arises from Clause 63 which, as you will instantly recall, increases the number of members of the Civil Aviation Authority from 12 to 16. When I was chairman of that authority some 10 or 11 years ago I put forward the proposal that the then limit of 12 should be raised to 15 for reasons that I shall give in a moment. But the Government of the day would have none of it, though they had legislation going through. Similarly, my successor had no success in 1982 when, as your Lordships will see, the 1982 Act restricted the number to 12.
The reason why it is necessary to expand the membership of the authority, as this Government appear now to be convinced, is that the authority's responsibilities are widespread and therefore it is necessary to have on the board of the authority not only those in charge of particular activities such as national air traffic control services (and the Controller NATCS should certainly be on the board), safety, economic regulation and so on, but also people with experience of aviation, particularly for the purpose of hearing appeals, for example, from pilots whose licences are challenged. It is then highly desirable to have a number of part-time members with business experience.
As a matter of mathematics, it simply is not and was not possible to get all the talent and ability that you want within the compass of 12. I am glad to see that the present chairman of the Civil Aviation Authority has exercised greater persuasive powers than I was able to do, although perhaps the other explanation is that he had a more amenable and reasonable Minister on which to exercise them. At any rate, it is a matter for rejoicing.
Another matter of rejoicing, if I may be allowed to suggest it, is that I was delighted to see that these responsibilities under this Bill will be taken over by Mr. Christopher Tugendhat. He is taking over as chairman of the authority from, I think, June. Mr. Tugendhat has experience in another place and distinguished experience in Europe. It seems to me he is exactly the type of man to advise the authority and the Government in these difficult matters, and particularly in the problems which will arise in respect of the airports where the CAA will have to guide the hands of the Government and of the new company.
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One comes back to the question which the noble Lord, Lord Underhill, raised: why do this at all? The experience now—and we have accumulated a good deal of (I hate the word "privatisation" and prefer the good, honest expression "denationalisation") experience of many cases of denationalisation—is that you seem to get a better performance from the bodies concerned at all levels when they have passed into private ownership. I shall not weary your Lordships with examples quoted only the other day—Jaguar, for example—but this seems to be the case, and I believe there will be an increased spirit of enterprise in this very important body when it passes into the form of a private company.
However, I have one anxiety which I shall pick up in this case, I think, from the noble Lord, Lord Underhill. I believe it would be dangerous if a controlling interest in this company were acquired by foreign interests concerned with aviation. I am not now indulging in the current weakness of noble lords opposite of anti-Americanism. I am strongly pro-American and I am not at all sure that an American interest in the airports may not be a most excellent thing, since it may bring even more American airlines here.
But I should be very alarmed indeed if a French or, perhaps even more significantly, a Dutch interest were to acquire a substantial control, since it is well known that the competition that exists in this industry is the competition with Schiphol at Amsterdam, Charles de Gaulle in Paris or Frankfurt. There could be a risk if any of those foreign interests were to assume a controlling interest in the authority and the new company. I ask my noble friend to tell us when he winds up whether the Government have considered this risk and, if so, what steps they are taking.
Your Lordships have talked in this matter of monopoly and in a sense—in an internal sense of major airports—this is a monopoly. As I have already remarked, we fortunately have an existing body to supervise in the shape of the Civil Aviation Authority which can do perfectly well what Oftel does in telecommunications and whatever the appropriate body will be in the gas industry. We have an existing expert supervising body. Overseas we have no one.
There is strong competition today from Schiphol. The Dutch are doing their best to lure traffic there, even to the extent of offering free overnight hotel accommodation to passengers of airlines which come through that airport. Charles de Gaulle and Frankfurt also offer inducements. There is vigorous competition. That is where the competitive attitude of a public company will make a useful contribution to retaining and obtaining a greater share of traffic for British airports.
This matter is of major economic importance. We are concerned not only with the earnings of airports, which are substantial. Under the good administration that they have had their profits have been admirably large. We are concerned still more with the contribution that the attractiveness of British airports makes to the profitability of British airlines. Let us take the simple example of the American or Canadian who wishes to come to Europe. If he is attracted by the place at which he will arrive he will take an airline that goes to that place. He may well therefore be attracted

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away from Biritish Airways to KLM if he want to go to Schiphol or to Air France if he wishes to go to Charles de Gaulle airport. British airlines and their traffic have a major interest in this matter. Their contribution to the British economy is substantial.
Above all, there is our tourist industry, which your Lordships were discussing a day or two ago. The tourist industry is now one of the biggest contributors to our balance of payments. It is because it is easy for tourists to come on British airlines or indeed foreign airlines that service British airports, that the tourist industry has grown as it has over the years and is now a major factor in our economy.
This is therefore not a small matter. It is of major importance for our economy. I am glad that the Government have had the courage to come forward with this proposal. I hope that they will add to their courage a certain degree of flexibility and accept your Lordships' assistance to ensure that they have it right.
5.3 p.m.
Lord Mountevans: My Lords, I think I can safely say that the noble Lord, Lord Boyd-Carpenter, has not read my notes, but in the concluding minutes of his speech it seemed to me that he must have read my mind, because I could not say more than he had just said. I agree with him that anyone who takes an interest in British aviation and airports policy will welcome the Bill and that one cannot treat the one in isolation from the other. They are interrelated.
As one involved in tourism, to which the noble Lord referred, I want a policy which gives us airports able to deal with the demands of the 1990s and the early part of the 21st century. In that industry we are dealing with long lead times. The prospects for the next 25 years demand that decisions are taken now if we are not to lose the excellent competitive position which our airlines and airports enjoy, as the noble Lord said. The BAA is successful by any standards. Those of your Lordships who have seen Terminal 4 will appreciate the expertise involved in bringing that terminal into operation on time and on budget.
I mentioned long lead times just now, and your Lordships will recall that the earliest decision to pursue the route which has led us to Terminal 4 was embarked upon some eight or 10 years ago. It is such timescales which make it essential that BAA should be privatised and, as the noble Earl the Minister said, removed from political control and the restraints of being embraced by the tentacles of the public sector borrowing requirement. I do not say that public sector control has constrained the BAA's development, but I feel that as a private sector company it will be able to react very much quicker to the threats posed by our competitors in Paris, Amsterdam, Frankfurt and other airports which the noble Lord, Lord Boyd-Carpenter, mentioned.
The airports industry is perhaps another phrase that one can use. I appreciate the success achieved in recent years by my friends in Newcastle, Manchester, Birmingham and the other local authority managements, not to mention some of the private airports which we already have in this country. I am aware of their reservations about the Bill and, in particular, about the status of Stansted. They are
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concerned about subsidy. They believe that such subsidy will divert traffic to the London system and that that will be to the disadvantage of regional airports, if one can use that phrase—the out-of-London airports.
I have seen the success of Manchester and Newcastle in recent years. It is a success that has been achieved despite the low charges at Stansted or the rapid increase in charges at Manchester. It is a success based not on airport charges but on the public's wishes as to where they wish to fly to or from. Those wishes are interpreted by the scheduled and charter airlines. They are, as the noble Earl the Minister suggested, influenced little by airport charges as such.
Scheduled carriers introduce services for which they perceive a public need, and which they can turn into earnings and profits. The charter carriers fly services on contract to tour operators or other buyers. They see a public requirement which they seek to satisfy. If the demand is for a scheduled service from Manchester to Dusseldorf or for charter packages from Birmingham to Corfu, then operators will come in to give the customer what he or she wants.
I have worked with some 15 civil airlines over the past year and I cannot conceive that subsidy while Stansted is developed will switch any of them from the wish to provide the Manchester-Dusseldorf or the Birmingham-Corfu service. As I said in our debate on the White Paper, if the customer wants steak it is no use offering him the best salmon in the world.
There are one or two matters that cause me concern. Again, they were pre-empted by the noble Lord, Lord Boyd-Carpenter. I hope that some form of golden share arrangement will be arrived at to prevent foreign airlines or anyone else who would wish to destroy the pre-eminence that we have from obtaining control of a privatised British Airports Authority. I hope that the Minister will be able to give us some reassurance on that point.
I also hope that in touching on the CAP's first discussion document on traffic management the noble Earl will tell us what the Government's reactions are to the thought that the minor carriers which service Heathrow, and to a lesser extent Gatwick and Stansted, would be forced out of Heathrow. I firmly believe that the growth of the London airports is, as I have said, not necessarily disadvantageous to the growth of the provincial airports. I believe that they can grow in tandem, but it is essential for the provincial airports to have the ability to interline on the major hub, which is Heathrow. To force the minor carriers out of Heathrow would not only be ruinous to them—I very much wish them to succeed—it would be ruinous for the provincial airports such as Carlisle, Dundee, Plymouth and Newquay. I hope that the Minister will be able to give us an assurance that such a compulsory diversion will be not a line of last resort but something that will not come to pass.
Lastly, I should like to mention a matter relating to Heathrow, if not to the Bill. I have given the noble Earl a little notice of this point. The White Paper touched upon the increasing concern felt about access to Heathrow. It announced the setting up of an inquiry into the options available for improving access to that airport, which I think many of your Lordships will

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agree is beginning to become chaotic. Those of us who use Heathrow realise that the problem is complex. It is also urgent. I wonder whether the noble Earl can give any news about the inquiry mentioned in the White Paper.
5.10 p.m.
Baroness Fisher of Rednal: My Lords, this afternoon many noble Lords have spoken about Heathrow, Gatwick and Stansted, but I shall be concentrating my remarks on Birmingham Airport. That is my particular interest on which I shall be speaking in the few minutes at my disposal. I want to reiterate that, to a great extent, the impact of the West Midlands depends upon the airport. It is an important gateway into the conurbation, it is at the centre of the country and it therefore offers facilities for economic regeneration in the West Midlands, which is urgently needed in view of the high unemployment figures throughout the whole region.
The airport is absolutely ideal for this purpose because it is very close to all the major road and rail links—and the latter are Inter City—and it has adjacent to it the National Exhibition Centre, which is not only nationally known but is world renowned as an excellent exhibition centre. The freeport is being established right on airport land and Birmingham has bid for the 1992 Olympics. So the airport would then be used by thousands of people. The airport is important not only for regional purposes, but for the holiday trade as well.
Some noble Lords have complained this afternoon that people in the South-East would not want to go as far as Stansted to catch their charter aircraft. Perhaps I may say that there are thousands of people in the West Midlands who do not even want to go as far as Gatwick to start their charter holidays when they have an excellent airport on their own doorstep.
The development of the airport has taken place over the last 10 years. A new airport terminal building has been built, with the old airport building acting as the cargo base, and there is a capacity of 3 million passengers a year. That development was undertaken by the West Midlands County Council which instigated the whole prospect.
Since 1st April 1986 the airport has become the responsibility of a joint committee of the seven district councils in the West Midlands; namely, Birmingham, Coventry, Dudley, Sandwell, Solihull, Walsall and Wolverhampton. The controlling groups in each of those local authorities are not all of one political party. There are the two political parties that are in the majority in some of those district councils. But they have been working together, regardless of the political complexion of the councils, with the idea of forming a company, and before the Bill was introduced they set up a joint committee to look into the formation of a company and to make sure that the airport was retained in local government ownership. They feel that joint ownership and effective management by the local authorities will be quite possible, and the authorities will be able to take up a lesser shareholding or determine their own involvement at any time.
So they are not against the policy of setting up joint companies in the West Midlands. They use as an
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example local authority involvement in the National Exhibition Centre. I had an early involvement with that, when I was a member of the Birmingham local authority, and it did not receive from the Government who are in power today support to go forward with that marvellous enterprise, which is exceedingly profitable so far as ratepayers are concerned.
Since 1975 Birmingham Airport has not received any money from ratepayers in the district. The reserves were left by the county council and, as the noble Earl, Lord Dudley, said most eloquently, we have to look to the future trading position. The reserves were intended to cover any deficits arising from borrowing costs, but that position is now threatened under this Bill. The noble Earl, Lord Dudley, set out quite clearly the problem that will arise if the Government do not see fit to look at a transfer scheme that is applicable to the company and yet will leave extensive powers to the Secretary of State. Therefore, the structure of the company will be particularly important in regard to the debt problem.
Looking at the decisions that have been taken in the other place, it seems on the cards, as the noble Earl, Lord Dudley, said, that some of the outstanding debts will fall upon the local authorities. This seems iniquitous when the debts of the BAA at Heathrow, Gatwick and Stansted will not have to be carried under privatisation. Its debts will somehow disappear into thin air, but the debts that arise in the case of regional airports will have to be met by the ratepayers, unless the Government see fit to make some alterations to the proposals in the Bill which were outlined in the other place.
For that reason there is particular concern in the West Midlands about debt charges, while the idea of a company is accepted there. The noble Earl, Lord Dudley, pointed out what a burden this will be, especially when the local authorities will be automatically rate capped because they will be overstepping their allocations. This is very unfortunate and may make some local authorities in the area feel that they do not want to participate in a future company that might be set up. They would not want to feel that their ratepayers were being rate capped in order to provide facilities at the airport.
It should be realised that a debt of just over £3 million, which is divided between the local authorities, automatically becomes £6 million under rate capping. So not only are the regional airports—and I use Birmingham as an example—in a very difficult situation compared with Heathrow, Gatwick and Stansted, but they are being doubly penalised because they are in a rateable area.
There are other issues in relation to the Bill which are equally important to the district councils. Mention has been made of the restriction on councillors acting as directors of companies and of the regulations under which airports are used. But in conclusion I should like to add my voice to what has been said about Stansted. As the noble Baroness, Lady Burton, pointed out, the situation at Stansted has a direct impact on the regional airports. Whatever the Government say, the financing of Stansted has to be very seriously considered. I know that the noble Earl the Minister gave us all kinds of assurances this afternoon about the transparency of accounts and so on, but he did not say

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that there will not be any cross-subsidisation. When the noble Lord, Lord Underhill, took the Transport Bill through this House, the constant point of view from the Government Benches was, "We will not accept cross-subsidisation. Every one of the different routes must stand on its own feet and make its way". Therefore one hopes that in the Airports Bill the Government will also state quite clearly that there will be no cross-subsidisation to Stansted. If there is, it will have a direct economic effect upon all the regional authorities that run airports.
5.21 p.m.
Lord Monk Bretton: My Lords, we are dealing with a most important industry for the country. Its welfare is of great importance to us all. For that reason I should like to make it clear that I welcome the Bill and the effort to privatise.
There are those who think that the right thing to do is to leave the industry as it is. It depends, of course, on one's view as to what should be done for a business with a large degree of monopoly; whether it is better that it should be regulated but in the private sector or regulated at the same time subject to the trammels of public sector finance. I happen to believe—and I can only say how profoundly I agree with what my noble friend Lord Boyd-Carpenter said—that the Government have made the right choice. I do not agree with everything that my noble friend Lord Boyd-Carpenter said. I am going to talk about the need also to continue to take into account in airport development, particularly in the South-East, the environmental factor. This cannot be left out of the count and its cost forgotten.
From there I go on to say how glad I am that it is intended to keep the London airports together. I do not think it would work to separate them. Those points have already been made and I shall not labour them now. I am sure that this will enable a sensible balance of development at these airports to be achieved and that it is the best overall means to control the environmental factors. These must have proper consideration.
I want to put forward the views of a consortium of certain local authorities over the area of the South-East—Berkshire, Buckinghamshire, Hampshire, Kent, Surrey, East Sussex and West Sussex. The consortium is called a National Policy for Britain's Airports. London boroughs and district and borough councils in the area are also involved. There are 28 of them all told. I counsel the importance of considering the views of this consortium. I should like just to mention four main concerns, some of which I feel and it feels were not sufficiently discussed during the passage of the Bill in another place.
The first thing it wants is something that I am sure will give no anxiety to my noble friend the Minister. It believes that it is right to resist attempts to secure financial independence for any one of the major London airports; they should remain a group. I do not think that we want to allow people to start fighting their corners again in the South-East. We have now had a decision on a development programme to which we want to stick.
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The second matter about which it is concerned has already been mentioned. There is no express provision in the Bill for consultation with local authorities and with airport consultative committees of local authorities. I do not think that the provision in Section 35 of the 1982 Act (which I believe still remains) will be sufficiently wide. This is a matter which should be gone into at the Committee stage, as also should the responsibilities and constitution of consultative committees.
It is highly desirable also to mention that the view of the National Policy for British Airports is that limits on air traffic movements—ATMs—should be laid down for all major airports and that this matter should be debated. In the original Clause 30 of the Bill this was virtually laid down but now under Clause 30(2) of the Bill before us there is an amended version which I am not so sure is as happy as it should be. We should go into this most carefully.
I should like finally to refer to those factors to be taken into account by the CAA in carrying out its airport licensing function. It should be incumbent on the CAA to maintain a balance by giving reasonable weight to the needs of the environment when discharging its responsibilities. Under Section 5 of the 1982 Act these factors are taken into account by the CAA. I believe that the House should consider inserting similar conditions into this Bill.
I very much hope that these comments will not come too much amiss to my noble friend the Minister. As I am sure he will see, they are not intended to quarrel in any way with the main thrust of this important Bill, for which I should like to reiterate a firm and hearty welcome.
5.27 p.m.
Lord Dean of Beswick: My Lords, noble Lords speaking previously in this debate indicated that there was a non-political approach to this subject, but this is a politically motivated Bill. I recall that earlier in the debate a speaker referred to the fact that the municipal airports, of which there are a number of very successful ones, were spawned by municipal enterprise. That was not the prerogative of one party. I have no widespread knowledge of this industry on a national basis, but I want to relate my remarks to my native city of Manchester which, outside of London, has perhaps the largest and most rapidly developing airport. That airport was developed because just after the war people of both major political parties decided that a city such as Manchester needed an airport. That decision had the support of both parties.
My only contribution took place about 11 years ago at the time of local government reorganisation. The new metropolitan county of Greater Manchester put in a bid for the control of the airport to which, naturally, the City of Manchester was bitterly opposed. It was due to the all-party approach that a deal was agreed to joint ownership between the county and the City of Manchester. That arrangement has worked tremendously well because the airport itself has progressed over the past 10 or 12 years as fast and as definitely as anybody could wish. Now, however, this Bill will bring that to an end. I should therefore like to address my remarks to the situation as it is seen in Manchester.

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Earlier in the debate my noble friend on the Front Bench referred to the fact that the Bill had been challenged on its hybridity in another place. I am not qualified to determine what is hybridity, but some of the clauses in the Bill contradict some of the comments that the Minister made on Second Reading. If the Bill is not hybrid, I can find in it some crossbred issues that, if they are imposed upon the local authorities that presently control the airports, will have a contradictory effect to that suggested by the Minister.
This afternoon I wish to address two vital issues. The first relates to Part I of the Bill and the Government's proposals for restructuring BAA airports, particularly those in London. The second relates to Part II of the Bill and the impact that it will have on Manchester Airport, with which, as noble Lords know, I am fairly familiar.
So that noble Lords may appreciate the issues surrounding BAA airports, I ask the House to think back a little more than 12 months ago, when it had an opportunity to debate the Eyre Report. Many of your Lordships expressed grave reservations about a major expansion of Stansted Airport. Your Lordships will recall that the Eyre Report recommended an expansion of 15 million passengers, rising to 25 million. I and other noble Lords expressed opposition to that development for two reasons.
First, we were deeply concerned about the effect that such a major public investment would have on the North of England as a whole, which, since 1979, has lost a total of 730,000 jobs—equivalent to 64 per cent. of the nation's total job losses. We were concerned also to see our regional airports given a fair crack of the whip. In our opinion far too many regional passengers were being forced to use the London airports. What was required was a sensible policy designed to exploit the potential of the region.
That policy would include a clear and unequivocal commitment to fair and equal competition between airports: in other words, the elimination of subsidies to Stansted, so that if that airport were to grow, it would be the market that determined the pace of its development and not the motivations of the BAA. We thought that that nettle had been largely grasped by the Government in their 1985 White Paper. It was made clear that subsidy would be eliminated and that fair and equal competition would ensue. It is now a matter of considerable concern that the Government have, for all practical purposes, decided to undermine completely the basis of that policy.
The restructuring arrangements that the Government propose to pursue under Part I of the Bill make it inevitable that subsidy will continue to be employed at Stansted in huge quantities. It is not the case, as some have tried to argue in the other place, that subsidy will be eliminated by ensuring that any transfer of funds between the BAA holding company and its subsidiary airports will take place only at commercial rates of interest. Noble Lords will know that interest rates differ according to the risks involved.
When capital is raised on the market by the holding company, but specifically for Stansted, the risk will not be attributable to Stansted—but may well reflect the profitability of Heathrow. The rate of interest will, therefore, be lower than it would otherwise be, and
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that will represent a subsidy incapable of accurate definition. At the same time there will be nothing to prevent the Stansted subsidiary not repaying such a loan.
I appreciate that the noble Earl, Lord Caithness, may indicate that under Part IV of the Bill it will be possible for subsidy to be exposed and controlled. However, that argument fails to acknowledge that being able to see a subsidy does not make it go away. It was equally made clear in another place by the right honourable gentleman the Member for Manchester Wythenshaw that there are major constraints to full transparency being achieved. There is no mandatory requirement in the Bill for the production of separate accounts: there is too much emphasis in the Bill on the need to produce information in aggregate form only. At the same time there is too little emphasis on the need for charges to be cost-based.
There has been a failure on the part of the Government to respond to those issues and I hope it will be possible for them to take a more positive attitude during the passage of this Bill towards correcting those omissions. However, let me make it clear that even if the Government do accept such changes, they can only be regarded as minimum changes. As the North of England Regional Consortium has pointed out, the only effective way of ensuring elimination of subsidy is for Stansted to be operated on an independent and freestanding basis. It is my earnest hope that we will return to that vital issue in Committee.
I now turn to Part II of the Bill and its impact on Manchester. The Secretary of State mentioned in another place that Manchester had dominated the debate on Part II of the Bill. That was inevitable, because Manchester's peculiar position demonstrates just how misguided are the Government's proposals. Noble Lords may find it helpful in understanding the significance of the issue if I briefly provide some background information on Manchester's position.
In June 1984 the Secretary of State for Transport made a statement in another place on the structure of the regional airports. He advocated the creation of Company Act companies to ensure,
"transparency of subsidy, separation of politics from management, and proper accounting".—[Official Report, Commons, 22/6/84; col. 600.]
He added that local authorities could own shares,
"so that they would have a direct interest in them … [and] be able to influence the conduct of the airports".
It was made clear that local authorities could establish such companies voluntarily, but in any event legislation was promised. The Secretary of State was extremely anxious to see private capital employed in the operation and development of airports.
At the present time local authorities have wide powers to create corporate structures. That is made clear in a recent DoE consultation document on local authority capital expenditure control. The local authorities in Greater Manchester had to face up to making structural changes to the airport because of the Local Government Act 1985. At that time it was only sensible that the invitation extended by the Secretary of State to establish a company structure should be considered.

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That proposal had appeal for a number of reasons. First, Manchester Airport was by common consent probably one of the major growth points, if not the major growth point, in the North-West region. Its growth needed to be protected and encouraged in the interests of the region as a whole. Secondly, the development needs of the airport were likely to be considerable over the next few years. It was likely, or possible, that by the early 1990s a second terminal would be required, at a cost believed to be in the region of £200 million. Noble Lords will know that the ability of local authorities to fund such a cost was limited. There was a need to employ private capital in greater quantities to secure the future of Manchester Airport.
Thirdly, the BAA was likely to be restructured and it was important that Manchester should be able to compete on equal terms with Stansted. That applied just as much to access to the money market as it did to landing charges. Finally, there was potential for all of those objectives to be achieved without—on this, the Government's own admission—the local authorities having to sell their shares.
In the light of those factors the local authorities subsequently decided to establish an airport company. Manchester Airport plc was therefore created on 1st April this year, with all shares held by the local authorities. This private limited company is an independent company and operates today outside the local and central government framework. It is not, therefore, subject to detailed expenditure control. The company enjoys this status because it is at arm's length from the local authority; in other words, the control and operation of the airport's day-to-day affairs are no longer the responsibility of the local authority but are now the function of the company and, in a material respect, the senior management of that company. The role of the local authority is limited to determining the overall strategy of the company in no way differently from any other shareholder.
The test of whether or not the company is independent is one of law. The local authorities in Greater Manchester have received independent specialist advice, including advice from leading counsel. They have no doubt that Manchester Airport plc is independent in every sense.
It would be wrong to deny that the Government have reservations about some of the aspects of the package, and the Bill addresses itself to some of these. While the motivations behind the proposals are obviously questionable, they are at least consistent with the Government's approach to the Manchester company over the past few months. However, what is deeply worrying and completely undermines the Secretary of State's statement in June 1984 and the Government's whole approach to company formation is Clause 20, which will bring under control the expenditure of Manchester Airport plc. Unless the company is able to compete with complete freedom on the open market, company formation is not relevant at all to Manchester.
It is argued that unless a majority shareholding in regional airport companies is vested in the private sector their expenditure must be controlled. In my view that is nonsense because what regional airport
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could be developed on that basis? What it means is that the total funding for an airport, unless the authority sells 51 per cent. of its share, as I understand it, would have to come from the local authority's annual capital grant. That, with the figures I have mentioned is completely outside their aim. My point is that in his opening remarks the Minister was saying one thing but some of the clauses in the Bill are contradictory in their effect.
First, at present no such controls apply. This is confirmed by the Government and it is the Bill that will bring those into operation. Secondly, no similar controls will apply to the BAA holding company. There is a large difference between the controls contemplated by Clause 9 when the holding company is wholly owned by the Government and the imposition of detailed capital expenditure controls under Clause 20. The Government have made clear that, in practice, airport allocations will be subsumed by the transport allocation; in other words, airports will compete with highways authorities for funds and I doubt whether anybody could regard that as sensible or desirable, certainly from the point of view of developing these airports further. I should also point out that there will be no controls whatever on the BAA holding company when 50 per cent. of the shares are disposed of. That can be contrasted with the provision that controls will continue over regional airport companies while local authorities have a majority of the shares.
Finally, there is no direct relationship between the employment of private capital and the shareholdings of a company. Private interests are concerned about cash flow and a return on capital. That is why private capital is already a significant feature of airports and why Manchester Airport plc is now operating in the open market with complete freedom. I find it strange that a government anxious to see private capital employed in airport development should seek to constrain an independent airport company such as exists in Manchester from competing with total freedom on the open money market. I find it unbelievable that the Government should seek to control that company in the same stringent way they control the capital expenditure of local authorities. I hope noble Lords will understand if I return to that point in Committee.
I apologise to noble Lords for a rather lengthy declaration of the situation in Manchester, but it has been necessary because it is a one-off situation. It is outside the general scheme because of its size and the fact that it has its company in existence; and it has some problems arising from the imposition of the Bill. Finally, I close by saying that some noble Lords have referred to the lack of consultation procedure in the Bill concerning air traffic movement, and so on. We shall have to come back to that subject in Committee and I conclude on that basis.
5.46 p.m.
Baroness Vickers: My Lords, I should like to say a few words on this Bill but first say to my noble friend Lord Boyd-Carpenter that I fully agree with him about investment. We must be careful about that in the future. I hope that my noble friend will elaborate on that on another occasion.

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I refer to airport security. As far as I can understand it, there is nothing about security in the Bill. In view of recent happenings I feel that we should include some measures in this respect. When we dealt with the Royal Ordnance Factories this aspect was eventually included in the Bill. We have specially trained policemen to look after these factories. I therefore suggest to my noble friend the Minister that he considers that possibility.
I am particularly interested in Part II of the Bill, which enables the Secretary of State to require the local authority to form a public limited company and then transfer it to their airport undertaking. The local authority may retain all the shares but as long as they retain more than 50 per cent. of the shares they will be subject to central government controls over capital investment.
The local authorities feel that this requirement is inappropriate, at least in the case of the smaller provincial airports. The Government accept that size is relevant because the power to issue a direction only arises where the annual turnover is in excess of £1 million.
There is a special reason for objecting to the creation of a plc at a small airport. An example is Exeter airport. The county council retains British Airports International, an independent company, to run the airport on its behalf under a seven-year agreement in which there is profit sharing. To interpose a plc between the county council and British Airports International would appear to be an unnecessary complication. I hope that my noble friend the Minister will look into that situation.
I understand that a timetable has been outlined which entails doing this before 1st April 1987. Ministers have so far shown an unyielding determination to issue directions for every airport above the threshold; there is no suggestion that any discretion will be exercised in the light of arguments put to them about whether or not to issue them. The £1 million turnover threshold is arbitrary. It cannot be the case that an airport which is £10 above the threshold is ripe for transfer to a plc whereas one which is £10 below is not. The first argument, therefore, is that Ministers should exercise genuinely the discretion conferred upon them. I hope that they will be prepared to listen to arguments from the local authority before doing so.
I am afraid I must refer again to Exeter, and the special circumstances of that airport. Devon County Council has recently completed a series of capital improvements. The cost amounted to £3–3 million. The annual cost of servicing the loan debt is £350,000. Income from the airport comes nowhere near meeting these annual loan charges and there is, therefore, a net loss which varies between £450,000 and £500,000 annually. Devon County Council knew that it would have these losses when it embarked on the capital expenditure but was content to wait, probably until the next decade, for the airport to move into profit.
A Companies Act company is wholly inappropriate for a lossmaking undertaking. The solution given in the other House to this is that the local authority will be required to transfer the airport to the company free of the outstanding loan debt. The ratepayers will be
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left to shoulder the burden of that, which is deception. It will give the illusion of profitability and conceal a heavy subsidy.
Ministers hope that the new companies will achieve a degree of real independence from their local authorities, but in the case of Exeter Airport, for example, it is unrealistic to suppose that Devon County Council will ever dispose of shares in the airport until the time, some time in the next decade, when profits begin to be high enough to start paying off the long-accumulated debt from the capital expenditure programme.
As to the introduction of private sector methods of management, the airport already has these, and there may be other airports that have followed its example. Ever since the airport was bought from the Ministry of Defence in the early 1970s it has been managed by the private sector, first by Exeter Airport Limited and now by British Airports International. It is run by the company under licence, with profit-sharing on the operating profits. I believe that the Minister will say that the Government welcome this arrangement.
What do the Government want in the future? It is said that the airport should pay corporation tax, but this is irrelevant since it is not in profit, and British Airports International pays corporation tax on its share of the operating profits. It is also said that it should not benefit from local government exemption from VAT. That seems a poor argument for creating a company. The Government say they want an arm's length relationship. British Airports International is far more at arm's length that would be a company wholly owned by the local authority. They say that accounts are required that show the true subsidy from the local authority, but arrangements could easily be negotiated to secure this, subject to scrutiny by the Audit Commission.
The worst feature, however, is the proposal to interpose between the local authority and British Airports International a company which it would be expensive to create and which can have no role other than to hold the freehold of the airport. To my mind, this makes an unnecessary complication The Government should be prepared to look at each case on its merits and move away from a doctrinaire assumption that every airport above an arbitrary threshold of £1 million annual turnover must be forced into a straitjacket.
There are a great many good things in this Bill, but I thought in the short time available that I should just point out the things that are worrying certain local authorities.
5.54 p.m.
Lord Campbell of Croy: My Lords, at this stage of the debate I shall be brief. Britain should be the natural first stop for air traffic from the American continent, both North and South. We could also be a natural stop for traffic between Europe and other continents. International traffic of this kind generates business and earns foreign exchange in significant quantities. This is an important factor affecting the subject of the debate which I initiated in your Lordships' House only last Wednesday on the British tourist industry. I emphasise I it again today and support everything that the noble

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Lord, Lord Mountevans, said on this subject earlier in the debate.
We have keen competition from the airports of Amsterdam, Paris and Frankfurt in particular. British airports can beat that competition. It is no reflection on the BAA or other existing airport authorities that denationalisation is now to happen. The private sector's commercial enterprise and management are appropriate to a growing, very large British business which should and will, I believe, compete successfully with the European competition.
I should like to add to what my noble friend Lord Boyd-Carpenter said in reply to the points raised by the noble Lord, Lord Underhill. The fact that most of the airports in Europe are still publicly owned and run by public corporations is not a reason why we should not take an initiative in the form of the proposals in this Bill.
The speakers for the official Opposition are bound, I think, to speak in opposition to the principle of privatisation. I absolutely understand that as a matter of principle, and I think it is fruitless of me today to try to pursue counterarguments, as I am unlikely to persuade them in a matter of a few minutes. But this Bill will enable members of the public and employees of the new airport companies in particular, as shareholders, to identify with a commercial business in a way that is not possible with the present form of ownership.
I have been involved with development of airports in Scotland, but I am not a "little Scotlander". I see success in the London airports in attracting traffic which would otherwise land in continental Europe as stimulating additional activity for our regional airports. London is a hub for international air traffic and for our own domestic routes. We should steer as much traffic as possible direct to Scottish or to provincial airports if the passengers have destinations in those areas, but we should not try to force them to go there much out of their way.
I have three points that I should like to raise at this stage concerning the Bill. First, I ask whether the Government are satisfied that there are safeguards to limit the amount of foreign ownership so that there is no possibility of shares being bought by foreign interests, with the negative purpose of stifling progress in the United Kingdom.
Secondly, I raise the matter of compensation. The Bill provides for directions to be given by the Government. The Secretary of State is enabled to give directions, for example, on national security and also on providing VIP accommodation. These matters are not connected with the ordinary efficient operation of an airport, though they are important from a national point of view. There seems to be nothing to indicate that the airport companies would be compensated for expenditure which they had to carry out as a result of such directions. If there is no such provision, this would raise uncertainty in financial planning when extra burdens could be imposed by the Government, without much notice, for extraneous reasons.
My third point is that there appears to be nothing in the Bill requiring airport companies to provide the basic facilities and services needed by those airlines
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that are expected to use the airports. How much should there be at an airport? There should be a runway, a control tower and a terminal building, but what else? What is there in the Bill to determine the minimum provision of facilities; or are the Government confident that this is a matter that will be automatically resolved, because in order to get the business of the airlines an airport company will have to reach agreement upon sharing the contributions towards those facilities and services?
If nothing else is needed, I think guidelines are necessary on this subject. I trust that the Government will be able to provide satisfactory answers to these points either today or at a later stage.
6 p.m.
Lord Tordoff: My Lords, I think that noble Lords have been very careful today to avoid getting themselves into a debate on the White Paper, and in fact to a remarkable extent they have managed to concentrate their minds on the Bill. If I may say so without disrespect to your Lordships, that is unusual. I cannot pretend for a moment that this Bill will bring mobs out on to the streets in protest. Indeed, I am surprised to find so many noble Lords in the House at this time; but doubtless we shall dwindle back to our usual merry bunch of half a dozen or so as the Committee stage progresses.
Having said that, it seems to me that there really is very little logic to the Government's position on this Bill. The noble Earl, Lord Caithness, gave us the usual lecture on the virtues of the marketplace and how this stimulates competition and will make things more efficient. Then, of course, he immediately went on to say that the market must not be allowed to operate over large sections of the airports lest, for one thing, it squeezes out the less profitable operators. So let us not pretend that this is really a clear-cut philosophical division between different parts of the House as to whether there is a belief in a nationalised airport policy or a totally denationalised airport policy. The truth is that none of us in this House believes in either of those two extremes. It is of course much easier to express that view in your Lordships' House than it is in another place. Therefore I hope that as this Bill progresses we shall actually have one of our usual more helpful and useful debates, in which we try to improve the Bill as we go along.
I really do not wish to enter this argument about Gatwick save only to say that, were I the Government caught in the cross-fire between my noble friend Lady Burton of Coventry and the noble Lord, Lord Boyd-Carpenter, I should be digging myself a very deep shelter.
I was very interested in what my noble friend said about scheduling committees, and I agree entirely that they have much to commend them and that it would be far better to leave the question of slots to the scheduling committees rather than for it at any stage to slip into the hands of the Secretary of State, who has other things on his mind and may be more interested in parameters other than those which would be in the minds of the scheduling committees. So the question is how far the airports should be a purely commercial venture and how far they should be part of the economic infrastructure of the country and part of the

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nation's transport requirements, and those of the region and the local authority.
I was very interested to hear what the noble Lord, Lord Boyd-Carpenter, said on the question of objectives. I think he touched closely on the sort of thing that we on these Benches have in mind. It is not often that we find ourselves on the same side of an argument. I listened most carefully, and I shall be interested to read his remarks in Hansard because they came very close to the nub of the problem. There is not in the Bill a clear sense of the objectives. We all understand the underlying objectives in terms of the Treasury's requirements. It is the Chancellor's requirement to gather money into the kitty in order to have a reduction in income tax before the next election, but that has not really much to do with transport policy. The noble Lord says that he thinks it is "not completely well thought out", and again, if I were sitting in the seat of the noble Earl, I would wish to take cover, because it is not often that such a phrase, however much in code, comes from that Bench below the gangway.
What we on these Benches want to see, as my noble friend has said, is a proper partnership between the public and private sectors, because this is an area where there could be such a partnership. That is why my right honourable and honourable friends in another place, at Second Reading, tabled an amendment which said:
"That this House declines to give a Second Reading to a Bill which, by requiring the profitable British Airports Authority to be sold outright, fails to appreciate the virtues of partnership between the public and private sectors, including the introduction of private capital into publically owned companies, and which seeks to stifle municipal enterprise, which was responsible for the successful development of regional airports such as Manchester, Birmingham, Leeds/Bradford, Newcastle and Luton".
This brings me to the question of local authorities. I listened with particular interest to what the noble Lord, Lord Dean of Beswick, said—and I am sorry that he is not in his place because I think that we Mancunians should stand together occasionally, particularly on a day which is not only the Queen's birthday but also the birthday of the Duke of Lancaster, I would remind your Lordships. In the last few comments he made about Manchester airport the noble Lord seemed to me to be going along with the words contained in the amendment which I have just read out. Unfortunately, his honourable friends in another place referred to those words as "weasel words" and could only vote solidly against the Bill, hook, line and sinker. I expect more constructive support from the Labour Benches in this House than my friends received in another place.
Blackpool has been mentioned, and so has Birmingham—twice, in fact—and I was very interested to hear what the noble Earl, Lord Dudley, said on the question of the debt situation there. Certainly I think that we have all had a considerable amount of correspondence from local authority airports up and down the country, which are all worried about this question of the debt with which they will be saddled at a time when their asset is being stripped away from them. It seems to me to be totally unfair. It may be that in the course of the Bill we can do something in that direction, perhaps by raising the £1 million limit, because if that figure were brought up
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to a sensible level, a number of local authorities would escape this trap. One really needs to ask the Government again (though I know that they have been asked before): why has the limit been set so low? It seems to me that if it were set at £5 million or £10 million it would begin to make sense.
As has already been said, the people in local authorities who come from all political persuasions, have a very genuine civic pride in the airports which they have built over the years and there is concern that they should be treated in such a cavalier fashion by the Government. One is tempted to say that this is part of the Government's general attack on local government and the lack of faith that they have in local government today, which is certainly not the traditional position of the Conservative Party.
The noble Lord, Lord Monk Bretton, dealt with the question of consultation and environmental considerations, and I certainly support him there. But to come back to the comments of the noble Lord, Lord Dean of Beswick, I would remind your Lordships, in reinforcing what he said to this House, that the Greater Manchester area in fact comprises a conurbation, a hinterland, which contains quite the largest concentration of people in the United Kingdom, and it is an area which deserves the success which it has achieved.
As I think I have said before to your Lordships, I was in fact at the opening of Manchester airport in the 1930s, and therefore I have always had a soft spot for Ringway. I believe that the city fathers, and subsequently the Greater Manchester Council and the county's local authorities, have done a very good job at Manchester. They took the risk in the early days. There is no question but that the regional airport for the North West should have been at Liverpool, but the city fathers in Liverpool were foolish enough to believe that Cunarders would sail to America for ever, whereas the civic authorities in the Greater Manchester area took the enormous risk in the 1930s of building an international airport. Certainly, as the noble Earl has said, the airport was very small in those days. It was a little more than a tent, but the buildings there were really rather shoddy until after the war. Nevertheless, the risk was taken and it seems to me that these civic authorities have a right to greater consideration than they have received so far.
One place that has not been mentioned and of which I should like to remind your Lordships is Luton. They are certainly extremely worried about the position of the debt that they are carrying. Recently they have spent something like £12 million on a new terminal. Their total debt is running at about £17 million—again because they have taken a risk on the future. They have a belief in their ability to sell their services, particularly, of course, in their case, to the charter market. They are now likely to be saddled with this debt. If they have to carry the whole of it—we wait to hear what the Government have to say in response to the noble Earl, Lord Dudley, as to what proportion of debt will be carried—it means that they will lose all their block grant and that the rate increase in Luton in coming years could be as much as 60 per cent. This cannot be justice.
Basically, at this stage, I would argue that the Bill is unfair to local authorities and that the figure of £1

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million is too low. The local authorities deserve better because of the investments that they have made. There is much that the Government can do outside this Bill in relation to local airports. At last they are beginning to do so in arranging licences and doing deals with other countries to increase the traffic that goes through regional airports. I should like to draw your Lordships' attention to a reply given by the Minister to my noble friend Lady Burton on 17th April, at column 752 of the Official Report, when he said:
"I am pleased to be able to tell the House that we have recently secured Spanish approval for 14 new routes, mostly from regional airports in the United Kingdom".
I congratulate the Government on that, and hope that we can have more. This is the way that the load can be spread more evenly to markets across the country. But, as the noble Lord, Lord Mountevans has said, the demand has to exist. There is need for the Government to give encouragement to local and regional airports to enable them to pick up the demand. The Government should use their influence internationally to make sure that flights go to those places.
As to the British Airports Authority, I am sure that Sir Norman Payne, if he was still around these premises, would be pleased to hear that we, from these Benches, congratulate him on the good job that he has done. I can well understand that he would greatly prefer to have a totally free hand. What chairman of a nationalised industry would not? One has only to listen to the interventions of the noble Lord, Lord March, when he talks about the problems of being chairman of a nationalised industry. We well understand the feeling. To have a free hand in the market with the sort of assets that Sir Norman has behind him must give him great joy. But the Government have to recognise that there are other considerations. A wide-ranging transport policy, with a genuine belief in the need for a proper infrastructure and taking account of environmental considerations, is also most important.
One matter on which I would congratulate Sir Norman and the Government is that they seem to have sorted out the pension position. I wish that the Government had been as flexible when we were dealing last year with the buses Bill and that they had given way on some of the amendments for which we on these Benches and noble Lords in other parts of the House, fought hard and long. I am, however, pleased that it appears that, on this Bill at least, we shall not have to go through those long and turgid debates trying to make sure that the pension rights of existing employees are properly covered.
I understand also that Sir Norman would prefer to have a monopoly position in the South East. This has its positive aspects. The career structure of the management of the British Airports Authority is obviously easier to manage if it has three airports. On the other hand, many of the problems of a monopoly situation have been drawn to your Lordships' attention. I would mention another—the ancillary services at airports. It seems to me that we are talking not only about a monopoly in respect of landings and handling of aircraft and passengers but also a monopoly of franchise for all the peripheral activities such as catering that take place within a large airport.
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Where is the consumer protection going to exist? To what extent are consumer groups going to be allowed into airports to have their say? I suspect, on the basis of what the Government have said previously, that they tend to believe that consumer groups are not necessary when places have been privatised. I would press them to see that in a monopoly situation such as this there are some constraints.
As regards flotation, we may not yet be in the position where we have to lie back and enjoy it, but it is important that the level of flotation should not be too low. The flotations so far, for whatever reason, have been far too greatly over-subscribed. I recognise that the Government want some quick cash. But they must not sell the nation's assets short, as they did with British Telecom and in a number of other respects. Like many noble Lords, I am worried about the eventual shareholding. This is not a fear of it passing into the hands of foreigners. We are good Europeans, and we are not, I hope, anti-American. But is is important that the shareholding, as the noble Lord, Lord Campbell of Croy said, should not pass into the hands of competitors. It is the prospect of competitors being able to stop the airports authority carrying out its proper job and inhibiting the taking of decisions in the interests of the country that is the worry.
Once again, as has happened on so many Bills, too much is left to the Secretary of State. I have no doubt that in Committee we shall be seeking to amend that position. To sum up the attitude from these Benches, we believe that this is an opportunity that has been missed and that the rules and regulations for the 21st century not only for airports but also for airlines should have been thought out as part of a coherent transport policy. I fear, once again, that this is a case in which transport policy has yielded to the needs of the Treasury. It is that aspect of the Bill that I regret almost more than anything else.
6.16 p.m.
Lord Carmichael of Kelvingrove: My Lords, you will not be surprised to hear that I agree with the last remark of the noble Lord, Lord Tordoff. The content of the Bill has been subjected to the will of the Treasury. This shows that ideology is not always pursued simply by those on this side of the House. It would be surprising if we ever had a Bill on airports in respect of which the noble Baroness, Lady Burton, did not plough her furrow about the importance of Gatwick and the second runway. This time, the noble Baroness has at least one open convert. The noble Lord, Lord Boyd-Carpenter, spoke in favour of it. I have never understood why this agreement, of all agreements made by Governments was so sacrosanct, since all Governments in past years—
Lord Boyd-Carpenter: My Lords, I apologise for interrupting so early in the noble Lord's speech. The agreement in question was not made by the Government; it was made by the British Airports Authority.
Lord Carmichael of Kelvingrove: My Lords, I am sorry. I should have realised that. Even then, one would have thought that a Government willing to go to the enormous expense of Stansted would have looked more closely at the likelihood of expansion at

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Gatwick. I am inclined to agree with the noble Lord, Lord Boyd-Carpenter, that a second runway at Gatwick will ultimately come unless there is a big revolution within airlines and in the development of short take-off aircraft.
I should like to take up the point raised particularly by the noble Earl, Lord Dudley, who seemed to suggest that the real reasons for privatisation were efficiency and accountability, whereas control by a nationalised industry had to be exercised at arm's length. It is one of the great fallacies that there is somehow less control within a nationalised industry than is the case with private enterprise. I would invite your Lordships to study the background paper issued by the Library of the other place detailing British Aerospace shareholders. If one looks at the list of shareholders and how they have changed within a year—from 157,000 in January 1981, to only 27,000 in January 1982—and if one looks at the numbers of shareholders (and I shall not bore the House by going through them all) it means that one or two of the major shareholders could go along to a meeting and in order to overturn them, one would need to have a meeting place the size of Wembley Stadium. When one considers that almost all large shareholders are institutions, the individual shareholder becomes more remote from any control of the company than the noble Lord, Lord Underhill, would be if he went to his MP and tried to raise a matter with him.
The Earl of Dudley: My Lords, I take the point of the noble Lord. However, I still think that a shareholder, if he exercises his option, can have a greater degree of control over the activities of the company in which he has shares than a taxpayer over the affairs of a nationalised company.
Lord Carmichael of Kelvingrove: My Lords, that is very doubtful. Those of us who have been in the other place know that if an issue becomes important the postbag becomes bigger and bigger—as happened not so very long ago in the other place, when the postbag became very large. The Member of Parliament pays a great deal of attention to it and ensures that he makes respresentation to the Minister. It can be very direct, and can have a very telling effect on the action of the Minister. I think that it is obviously a matter for debate, but I would rather have the democracy of the ballot box than the democracy of the small shareholder trying to change the world.
I find this a curious Bill. Perhaps that is not very surprising because, as the noble Lord, Lord Tordoff, suggested, it is trying to reconcile the irreconcilable. The Secretary of State had to maintain his reputation as one of the original "privatisers" of the Government. I have known him a very long time, and I know that he has always had this point of view. He was one of the pillars of the 1979 and 1983 manifestos on the question of privatisation. He saw the great virtues in private ownership as against any public enterprise. He wanted the grand design and, of course, he was very well supported by the desire of the Treasury and the Government to raise the money.
But when looking at the difficulties of privatising the airports industry the Government realised that there were great, irreconcilable differences between an
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international industry which is essentially involved in the movement of traffic all over the world and another type of company, or monopoly. It had to be accepted that there would be a monopoly in the London region. The problem was how to control the monopoly. I think that the contradiction was nicely put by my honourable friend who shadows in the other place on transport matters. He suggested that perhaps Parts I and II of the Bill were written by the Secretary of State, who then went on holiday and his civil servants or junior ministers were left to deal with the consequences of his doctrinaire penmanship. I thought that that was rather a nice way to put it.
We therefore have Parts III and IV of the Bill which build so many controls into airports policy. Questions have been asked in all seriousness—I think they have been suggested here tonight—as to whether a reasonable price will be obtained in the open market for this great national asset, paid for over the last 40 years or more by the British taxpayer and the travelling public. My noble friend Lord Underhill has already referred to the Grieveson Grant analysis on the subject. They concluded by saying that the price that was obtainable for the privatisation of British Airports Authority would be dependent on the position of duty-free sales and the nature of the regulations which will be set out by the Secretary of State. These regulations are still a mystery to us. We do not know what they will be. We do not have even the slightest hint from the Minister or the Treasury as to what they expect to be able to get for the airports.
I do not believe that a prospectus can properly be drawn up for the sale unless we are aware of the type of regulations under which the airports will need to operate and whether we shall be accepting what has been put forward by the EC with regard to the abolition of duty-free sales in EC countries. We know that that affects only about 30 per cent., but it would still be a very large sum, and a very big factor. Anyone who was wishing to buy into the airports industry would want to know whether the EC regulations on duty-free sales were likely to be supported by Britain. As I understand it, the only airport in Britain which does not make its final profit from duty-free sales is that at Glasgow. I may be wrong but that is my information. It is perhaps for a whole set of special reasons. However, airports are very dependent on duty-free sales and therefore these figures have to be known.
I am sure that it did not escape the notice of noble Lords who are particularly interested in this subject that there was a growing sense of coolness towards the proposals in the Bill in another place while it was going through Committee and Report stage. We had this coolness here. It was interesting that today almost every speaker on the other side began by saying, "I am totally committed to privatisation of British Airports but, but, but…" and went on with the reasons why he or she was worried about it. This was very evident in the other place all through the Committee stage. The Minister must be aware of that.
One of the matters that has been raised a number of times in very telling and important speeches by a number of Members on all sides of the House is the question of the local authority airports. The difficulty in the other place was very largely caused by the

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worries about local authority airports. As has been pointed out already, the whole of an area has a vested interest in a local authority airport and its importance, not just the local authority which is directly involved. The whole question of an airport in these areas is vital to the growth of the area.
I believe that people on local authorities thought that it was well worth the effort—this was said by a number of people and again by the noble Lord, Lord Tordoff, when he spoke of Manchester in the 1930s—when, being very farsighted but taking a great risk, they decided that they would build their airport and would keep it going through difficulties and temporary slumps hoping that traffic would build up. They saw that it was vitally important for the attitude to the whole area that these airports continued operating.
In point of fact, most local authority airports—even the quite small ones—have a reasonably good or very good record. My noble friend Lord Taylor of Blackburn gave the illustration of Blackpool Airport. This was almost always a Tory-controlled authority which thought that it was vital to maintain its airport. Its concern was not whether the profit or loss of the airport was one way or the other: it felt that, for the whole area and for the future of a town like Blackpool, the airport had to be maintained. This is something to which we have to pay a great deal of attention and we must give great credit to the local authorities which have supported the airport through thick and thin.
I personally would much rather trust local authority airports to those who know them and who can balance their total value, not overlooking the local pride that many of these people may have in them and the social, commercial and other attributes which airports may bring to the area, than trust them merely to businessmen who may be resident in the Bahamas, the Cayman Islands or any other part of the world. We have many examples of businesses being bought in Britain by someone a long way away who then decides that they are of no value, that they are not making a good enough return, that they do not fit the balance sheet, and who therefore closes them. In many cases, despite all the problems, a local authority will decide that it is worth persevering a bit longer because there is more at stake than the figure at the bottom of the balance sheet. That is something to which we should pay attention.
I believe that the Bill's treatment of local authority airports capital investment is punitive and unfair, and will make it inevitable that local authorities will need to put up to 51 per cent. of their shareholding on the market. If that happens, we shall lose the local enthusiasm and involvement that now exists. I thought that the noble Earl the Minister actually blushed slightly (because he has a much softer approach to these matters than has the Secretary of State) when he suggested that there are no powers to force local authorities to borrow outside. If we say to a local authority—and this has been well detailed today—that if they do not sell off at least 51 per cent. of their shares, everything they spend will be taken into account in relation to their borrowing powers, obviously we would be forcing local authorities to go to the market and sell.
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In this House it is customary that we do not vote on Second Readings, but there are many amendments which I and many others would like to make to the Bill before it leaves this House.
In closing, perhaps I may specifically ask the Minister whether he will deal with what, in national terms, is the most contentious issue involved in the privatisation of our airports. It has been referred to by almost everyone who has spoken. It is the question of the control and the ownership of airports, which is sometimes referred to as the "golden share". I am not sure exactly how the golden share would operate in a case like this, but I am sure that others who know a great deal more about how a boardroom works will realise that someone who has a controlling interest does not necessarily have to be involved. If the debate were about the expansion of Heathrow, someone in a boardroom could quite easily very cleverly hold everything up until it was too late to go ahead with the expansion because the expansion of some other airport in Europe had been found to make the expansion of Heathrow not worthwhile.
I think that we need a specific control so that, if necessary, the Government can step in and say that we must break through this barrier and these difficulties and allow the new British Airports Authority plc to get on and do the job it wants to do. In another place the Secretary of State made some late reference to the golden share as though he had not thought it out very fully himself. I believe that we should have an answer from the Minister tonight, or at least before we reach the Committee stage of the Bill, because I am absolutely sure that there will be opposition from all sides of the House and he will be rather surprised at the reaction if he does not make sure that, when the British Airports Authority is privatised, it remains under the control of this country.
6.35 p.m.
The Earl of Caithness: My Lords, as I expected, this has been a very interesting and constructive debate, and at the start of my closing remarks I should like to give an assurance that I shall study with great care all that has been said this afternoon. I fear that I shall not be able to answer everybody's questions. The noble Baroness, Lady Burton of Coventry, asked me five questions. I think that there are 15 speakers on the list, and if I spent one minute on each I believe that I would wear the House's patience. No doubt at the Committee stage we shall return to the detailed points that have been raised.
However, let me try to address now at least some of the remarks made this afternoon. I start with the closing remark of the noble Lord, Lord Carmichael of Kelvingrove. It was a point raised by many of your Lordships: that of restrictions on share ownership. We are considering the case for any such restrictions through the articles of association rather than on the face of the Bill. We are also considering the case for a golden share, which would give the Secretary of State the right to veto any proposed change to such restrictions in the articles. I look forward to a more extensive debate on that at the Committee stage.
The noble Lords, Lord Underhill and Lord Tordoff and my noble friend Lady Vickers asked me about the £1 million threshold. We chose that because it catches

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the larger airports, such as Birmingham, Luton, Bristol and Southend, without imposing a burden on those of lesser economic account. Broadly, the airports above the £1 million per annum turnover account for about 100,000 passengers per annum and employ about 40 people; and that is a fairly substantial business.
Lord Tordoff: My Lords, if the noble Earl will give way, perhaps he would like to correct the figure of 40. I thought he said that these airports employ 40 people. He may have slipped a nought.
The Earl of Caithness: My Lords, 40 is the number for the airports. The number of concessionaires or licensees may be different. The noble Lord must not confuse this in his mind. If one looks at the list of airports and their turnover, one will find that the £1 million figure is a logical target and cut-off point. Wherever one draws a cut-off point in these discussions—and we have been through this before—there are always arguments on both sides. However, we believe that the £1 million figure is about right.
The noble Lord, Lord Underhill, asked me about write-off of debt. The key point is that it is a technical write-off of debt because it is not appropriate for a private sector company to have loans from the National Loans Fund. However, the amount of debt written off under Clause 3 would at least be replaced by an equal value of its private sector equivalent, which is debentures; and these will be issued to the Secretary of State under Clause 4 together with equity. These debentures and shares will then be offered for sale and the proceeds paid into the Consolidated Fund. There is therefore no loss to the public purse.
The noble Lord, Lord Underhill, and my noble friend Lord Monk Bretton asked me about consultative committees. All the ex-BAA airports will be designated under Section 35 of the Civil Aviation Act 1982. The airport operators—that is, the separate ex-BAA subsidiaries—will be obliged to provide facilities for consultation comparable to those currently provided under the Airports Authority Act 1975. More than 30 airports currently provide consultative facilities by virtue of Section 35 of the 1982 Act. The arrangements work successfully and the Government are confident that they will operate equally well with regard to the ex-BAA airports once they have been designated.
The noble Lords, Lord Underhill, Lord Dean of Beswick and Lord Carmichael of Kelvingrove, and my noble friend Lady Vickers asked about local authority control of capital expenditure. Under Clause 20 of the Bill, the control is extended to capital finance obtained by a public airport company from the private sector. The reason for this is very simple; it is because a lender to a company controlled by a local authority enjoys the same security as if the loan were to the authority itself.
The noble Baroness, Lady Burton, said that runways were the constraining factor at London's airports. The noble Baroness is right in some circumstances, but I am sure that she would be the first to support me in saying that there are other constraints, including airport capacity at the terminals
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and the concrete aprons and standings. It was not so long ago that Heathrow was constrained more by the terminals than by the runways. The noble Baroness, the noble Lord, Lord Carmichael of Kelvingrove, and my noble friend Lord Boyd-Carpenter mentioned the second runway at Gatwick. The noble Lord, Lord Tordoff, said that I should duck and take cover. No, my Lords, I do not want to do that, because the inspector at the Stansted-Airport inquiry considered this option and recommended that the Government should reaffirm their policy of no second runway at Gatwick.
Baroness Burton of Coventry: My Lords, may I interrupt the Minister? It is on a point of fact. I think he is wrong on that. Does he not remember that the inquiry conducted by Mr. Graham Eyre was not asked for an opinion on whether or not there should be an additional runway at Gatwick? It was definitely stated—and I have it here, if the noble Earl wants it—that Mr. Eyre was conducting that inquiry on the assumption that the Government had decided that there should be no second runway at Gatwick. It was not within the remit of Mr. Eyre.
The Earl of Caithness: My Lords, I cannot remember exactly; I do not have it with me. Perhaps I may deal with this with the noble Baroness. I know that she raised it when we came to the White Paper debate, but as I have quite a lot to get through, may I leave it there for the time being?
Baroness Burton of Coventry: My Lords, if the noble Earl refers to the debate that he has just mentioned, he will find that I gave him a column number and the date; so he need not do any more than just look up that speech.
The Earl of Caithness: My Lords, that is what I said I would do, and I shall. The second runway would cause serious environmental problems in the area and would entail extremely high costs of construction.
The noble Baroness and the noble Lord, Lord Tordoff, mentioned scheduling committees. I have listened in agreement to the tributes paid to the scheduling committees which administer the allocation of slots at especially busy airports. The Government have great regard for the efficient operation of these committees and I hope that the voluntary arrangements will continue to operate satisfactorily. The provisions of Clause 31 are designed simply to fill the breach in case the heavy pressure of demand, which will grow as the airline industry expands, proves too much of a burden for the scheduling committees and the voluntary system collapses or fails to operate properly.
The noble Baroness also raised the question of BR's Stansted Bill. I understand that the Bill stands adjourned in another place. As it is a private measure it is for BR and the Chairman of Ways and Means in another place to arrange for time for a further debate; it is not for Her Majesty's Government, as the noble Baroness will well know from a previous incarnation some years ago.
Baroness Burton of Coventry: My Lords, I am sorry that I have to rise again, but I am receiving quite a lot of education. I was under the impression that if something was put down by the Government for discusssion, it was up to the Government to have that discussion and not to defer it from week to week to week. Can the noble Earl say when there is likely to be this discussion, because Stansted cannot be proceeded with, I would imagine, without some thought of a rail link?
The Earl of Caithness: My Lords, the noble Baroness pre-empts me; I was going on to say that I further understand that it is routine for a Private Bill in such circumstances to appear on the Order Paper in the rather repetitive but amusing way that the noble Baroness described. But I go back to the point that, it being a Private Bill, it is up to the Chairman of Ways and Means in another place to arrange for a time for further debate.
The noble Baroness, Lady Fisher of Rednal, spoke about Birmingham Airport. There has been a complete redevelopment of the terminal there on a new site, with a new apron and taxi ways, between 1981 and 1984. The cost was about £60 million, and of this sum the Government paid £24 million free of interest charges. So there was quite a good deal of subsidy going into Birmingham Airport. The noble Baroness mentioned the question of subsidy to Stansted. We shall ensure that there can be no unfair cross-subsidy enabling Stansted to charge artificially low prices which harm, or are intended to harm, another airport.
The noble Baroness, the noble Lords, Lord Underhill and Lord Tordoff, and my noble friend Lord Dudley also mentioned regional airports and the capital structure thereof. It will be our objective to create a capital structure which will give the new companies an opportunity to become profitable in the long term. We shall be flexible in consideration of appropriate ratios. We shall certainly have regard to the medium-and long-term prospects of the company, and guidance will be given on this aspect in the summer. We shall tailor schemes to the circumstances of each airport.
It can be expected that in the case of an airport with profitable medium- to long-term factors it will be appropriate to leave some debt with the company. But the amount to be borne by the company and the amount to be borne by the local authorities concerned will be matters for decision. My noble friend will also wish to be aware that my honourable friend the aviation Minister is meeting a delegation of West Midlands district councils on Thursday, and I am sure that he will wish to consider the points made by your Lordships today.
The noble Lord, Lord Taylor of Blackburn, said that it was a shame that Blackpool has to be privatised. No, my Lords, that is not true. Blackpool has to form a company, and it is then up to the shareholders of the company as to whether they should privatise in whole or in part. My noble friend Lord Boyd-Carpenter commented on the enlargement of the board of the CAA. He recounted to the House the problems he had experienced in the past. I have little experience of those problems, but I am sure that he must be right in
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saying that it is because of the fact of my right honourable friend the Secretary of State now being in the chair that we have made this progress.
My noble friend, and my noble friend Lord Monk Bretton, asked about ATMs. The purpose of an ATM limit is to provide a control on the growth of use of a developing airport, so that the local infrastructure is not swamped by demand for the airport. That is why the ATM powers are restricted to airports with significantly under-used runway capacity. My noble friend commented on the role of the MMC in economic regulation, and asked why, if you have the CAA, do you have to have the MMC. The CAA has a specialised expertise. It knows about airports and airlines, but the MMC has a much wider expertise. It is knowledgeable and respected on all matters concerning the public interest generally. We believe that the two bodies will complement each other rather than duplicate and thus provide the best of both worlds.
My noble friend and the noble Lord, Lord Todoff, asked about objectives for the BAA. The reason that we did not include them on the face of the Bill is that we believe it is better for such matters to be enshrined in the memorandum and articles of association, which will be subject to Government approval. The noble Lord, Lord Mountevans, asked about the improved access to Heathrow and the study that was being undertaken into roads, rail, and Underground access. Consultants have been appointed and, I am pleased to report, have started work. They expect to complete the study towards the end of the year.
I can assure my noble friend Lord Monk Bretton that my officials are in discussion with his advisers, and I hope that he will be satisfied upon some of the points he raised without having to go into a different Lobby from me at Committee stage. The noble Lord, Lord Dean of Beswick, indicated that Stansted would be a threat to Manchester and that it would be better if it was privatised separately. I believe that to be wrong. I recently had a discussion with some of his noble friends, and they believe that Stansted on its own would be more of a threat than being part of a London hub. I think a similar argument can be posed at Manchester, which some of his noble friends were saying threatened the Scottish airports hub.
Lord Underhill: My Lords, I think my noble friend would agree that he never asked that Stansted should be privatised separately, but that it should operate independently within the privatised BAA.
The Earl of Caithness: My Lords, in that case it will operate as a separate company within the London hub of the three London BAA airports. On a general point of the noble Lord, Lord Dean, if passengers want to come to the South-East and there is no provision for them to come to the South-East, they will, as several noble Lords and in particular my noble friend Lord Campbell of Croy said, invariably go to European airports. That is from where the competition comes as much to the South-East as it does to Manchester. On Manchester it is worth bearing in mind that there has been a substantial growth under this Government in passengers at Manchester from 3·5 million in 1979 to 6 million in 1984. The number of points served from

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Manchester has risen from 19 in 1979 to 35 this year. Birmingham had four new services last year; Glasgow had three new services last year. No government other than this one have done so much for regional airports. I do not think that the noble Lord is justified in saying that we will now throw Manchester out with the bath water.
The noble Lord commented on the fact that Manchester had become a plc. We are fully aware that, on 1st April, that happened. We shall be studying the memorandum and articles of association but I must tell the House that if the memorandum and articles of association of the present company are at difference with those laid down by my right honourable friend the Secretary of State in this Bill it will be necessary to give a new direction under Clauses 12 and 14 creating a new public company.
My noble friend Lady Vickers asked about aviation security. I do not think that this is a subject to be written into the Bill. In these troubled times, it is a matter which is changing with rapidity. But I can assure her that we have set in hand a review of aviation security measures and that at the BAA and regional airports measures are being taken wherever they feel that the situation could be improved. My noble friend also asked why we are insisting on airports managed by independent management companies being made into public airport companies. Although management by independent companies is useful, we believe that it does not go far enough. It does not provide for Companies Acts accounts for the airport; it does not impose the disciplines of directorships upon councillors; it does not achieve arm's length relationships and it does not provide for the sale of shares in the airport.
My noble friend Lord Campbell of Croy asked about compensation for directions. Airports operate in an international market and I believe that you cannot divorce international aviation from issues of national security, international relations and international obligations which are the only grounds on which the Secretary of State can issue directions; and given the international dimension of running an airport I think that it is not unreasonable to expect an airport operator to bear the cost of complying with a direction, given the restricted grounds on which the Secretary of State can make such directions.
The noble Lord, Lord Tordoff, mentioned the work that we have done in another place on pensions. I should like to thank him for his words on that. I believe it is an improvement and I would hope that that situation is now clarified. The noble Lord, Lord Carmichael of Kelvingrove, asked me about the sale price. I cannot give him a sale price at the moment; it would be too early. I think that we shall have to wait and see, but I take account of what he said. I hope that I did not misunderstand him when he said that local airports would lose their local identity. I do not believe that they will. Even though we are asking some of them to become public airport companies, I still believe that the flexibility we have built into the Bill, that a local authority can sell part or the whole of its shares, is beneficial and enables the local authority to retain such local contact with the airport as is necessary.
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I described in my opening speech the existing development of the airport industry since the early days after the war. I explained how our major airports have matured into highly successful, fast-growing and dynamic enterprises. I outlined how this Government were responding to those developments in this Bill and were setting out to create the conditions in which British airport could continue to be the envy of the world. I come back to the first point that the noble Lord, Lord Underhill, asked me: why privatise the British Airports Authority?
I do not believe that I could put into any more concise words the answer that my noble friend Lord Boyd-Carpenter gave to the noble Lord, Lord Underhill. It is part of the Government's programme to reduce the role of the state and, if I may say so, I believe that it will be beneficial for the airports to get us politicians, both central and local, out of their hair. It will provide greater freedom for BAA's management especially to seek private sector finance and to pursue a wider range of activities. It will encourage management to be innovative and to improve efficiency and to be even more responsive to customers.
It has one final advantage on which the Labour Party finds it very difficult to express anything except agreement. It will encourage wider share ownership, including that of the employees. That is something that we on this side of the House want and I am sure that the whole House would support us in that aim. Our aim is to give to as many people as possible a direct stake in the success of British industry and to get them to identify more closely with the wealth-creating sectors of British society. Our aim is a profoundly ambitious one. We make no apology for that. We are seeking to change attitudes and perceptions. The privatisation of the British Airports Authority is a further step on the same path. I commend this Bill to the House.
The Earl of Dudley: My Lords, before my noble friend sits down, may I repeat the question that I asked during the course of my remarks, to which I think he has not replied. The question was whether the Secretary of State has powers or is seeking powers either to service or to extinguish part or all of the regional authority airports' debts through the National Loans Fund.
The Earl of Caithness: My Lords, I think I covered the general gist of that question. I am sorry if I did not answer my noble friend in detail. I think perhaps that is one point of detail to which we should come back on Committee. I look forward then to resuming the discussion with my noble friend.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Horticultural Produce Bill
Brought from the Commons; read a first time, and to be printed.
Road Traffic Regulation (Parking) Bill
Brought from the Commons; read a first time, and to be printed.

Cereals and Farm Price Policy: ECC Reports
6.58 p.m.
Lord Gallacher Lord Gallacher rose to move, That this House takes note of the reports of the European Communities Committee on Reform of EEC Cereals Policy (6th Report, 1985–86, H.L. 83) and 1986–87 Farm Price Policy (10th Report, 1985–86, H.L. 107).
The noble Lord said: My Lords, in introducing the reports from your Lordships' Select Committee on cereals policy and on farm price policy for 1986–87, may I say first of all that hopes were high following the agreement about increased own resources for the European Community reached at Fontainebleau, and, equally, for the gearing of agricultural spending to that increase in resources in the basis that agricultural spending was not to increase at a more rapid rate than the increase in own resources itself. It is in the light of those agreements that your Lordships' Select Committee is reporting to this House tonight, and I think that even a casual reading of both reports will convice your Lordships that there is a fair measure of disappointment within your Lordships' Select Committee at the manner in which the Fontainebleau agreement has been translated so far as agricultural spending is concerned.
In July 1985, the Commission issued a Green Paper following Fontainebleau entitled Perspectives for the Common Agricultural Policy. This paper addressed the issues of surplus production and its budgetary costs. It also discussed trade aspects of the Common Agricultural Policy and the need to integrate agriculture within a viable rural economy. The key elements of the paper were in favour of sustained action on prices to balance supply and demand, various measures to tackle problems such as cereals, the possibility of direct income support for producers most affected by restrictive prices, and alternative production and uses for agricultural products as well as various environmental measures.
In December 1985 the Commission's conclusions on the White Paper were published in the form of a Green Paper. This covered similar ground but suggested new budgetary resources were needed to finance measures before savings were made. That stipulation had an ominous ring about it, and I think it confirms the situation in which we find ourselves in the two documents I am introducing this evening.
Throughout this period the position of the United Kingdom has been absolutely clear. Our Government have stressed the importance of price policy in relation to surplus and the need to observe agreed financial limits. I think the Minister of Agriculture in particular deserves credit for this. Cereals proposals in particular were profoundly disappointing. The suggested co-responsibility levy, with possible restrictions on the availability of intervention, considerably alarmed your Lordships' Select Committee, and so it decided to examine cereals in detail, and the report, H.L. 83, embodies our conclusions, our report and the evidence we received.
The Select Committee is grateful, as always, to those who gave evidence to it. We also hope that the Select Committee's findings in some measure reflect the evidence that was given to it. We do not see it as our
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primary task, as a Select Committee, to find "solutions" which, in EC jargon, are "politically acceptable". Neither can we undertake studies which belong within the competence and the resources of the Commission itself. It is impossible also for the Select Committee to anticipate in its reports agri-monetary measures, especially the realignment of currencies within the European monetary system which have taken place subsequent to the preparation of our report.
Our conclusions on cereals are that a sustained policy of price reductions over a period of years with the aim of reducing the gap between support prices and world market levels is essential. The proposals for co-responsibility levy and intervention standards will, in our opinion, have no main effect on production unless levies are set so high and quality standards so severe that their combined effect equals a drastic price cut.
A deterrent rate of co-responsibility levy would unduly discriminate against the United Kingdom if exemptions are granted as proposed on the first 25 tonnes of cereals. The Select Committee in these circumstances favours an area-sown basis for the levy, and, in particular, we feel that this would ease the daunting administrative problems which attach to a co-responsibility levy on cereals in the first place.
We believe that tighter policy standards for intervention should not be more severe than market conditions require. Avoidance of positive action to deal with the chronic surplus of cereals may force some form of quantitative restraint. Co-responsibility levies may be a prelude to quotas for cereals. This was so in the case of milk.
The Select Committee sees quotas as the remedy of last resort. The administrative difficulties attaching to quotas for cereals are horrendous. Therefore we suggest an urgent Commission study of the feasibility of quotas for cereals, to take account of some of the proposals made to the Select Committee, a few of which are mentioned in our report. In particular I would draw your Lordships' attention to flexi-quotas and set-aside put to us by the National Farmers' Union, and the eligibility for sales into intervention being restricted to a given small tonnage per producer.
Turning now to 1986–87 Farm Price Policy (HL. 107–1), I think we can generally describe these proposals as a standstill on prices for the ensuing year, plus a three-year stock disposal programme. The Commission shows all the signs of considerable worry about the size, storage costs and deterioration of intervention stocks which, if one consults Table 3 of our report, have increased five times in value during the last four years. Butter and beef especially have limited storage life, and substantial quantities of Community stocks are over two years old. Evidence to the Select Committee suggest that consumers will pay dear for intervention buying. Retailers have told us that higher intervention standards lead to better qualities being sold into intervention where, if held too long, stocks deteriorate, leading to even lower prices when sold on world markets.
Desperation at the level of intervention stocks has led to attempts at quantifying stocks held on the basis of weeks of supply. I find this a false analogy, because

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selling into intervention is basically its removal from the market and not some kind of strategic reserve. It may in practice be a strategic reserve, but that is not what intervention is about.
The Council of Ministers, at their meeting on 24th and 25th March, have already amended Regulation No. 1883 of 1978 to allow the Commission to depreciate stocks in intervention other than at the end of the intervention financial year, which is 30th November. This also removes the limit on the reduction in value which may be made. This decision was foreshadowed in proposals for 1986–87 but has been taken ahead of agreement about prices themselves. The estimated cost of stock depreciation for beef and butter alone is 423 million ecus.
Turning to prices, one may say that if a prices standstill cannot be agreed when inflation in the Community is falling and when input costs are likely to be further reduced—for example, oil prices—then certainly the Fontainebleau agreement is in danger. Agricultural expenditure will rise more quickly than the budget, instead of declining. Thus the 1.4 per cent. value added tax limit on own resources will not suffice, and that has special implications for the United Kingdom budget rebate. Therefore, if proposals for cereals or similar proposals discriminate unduly against the United Kingdom, we could find ourselves as a nation paying twice; that is, for the proposals themselves and later if the budget rebate mechanism is withdrawn or has to be renegotiated to our disadvantage.
Our conclusions about price control proposals may be summarised as follows. The Select Committee is convinced that agricultural spending is not under control. The gravity of the situation is made worse by possible confrontation in world markets with the United States of America in disposing of surpluses held by both nations. We may be in political accord with the United States of America but this is certainly not so as regards economics, and it could lead to action by the United States and the Community against each other in the world markets. We believe that the Fontainebleau agreement is at risk, and equally we are of the opinion that even holding prices will not deal with commodities in chronic structural surplus; and so we advocate a five-year rolling programme in order to deal with high prices and so that producers may know in advance and can adjust their agricultural policies accordingly as to what the price regime is likely to be over a period of years of that duration.
Although help for small or disadvantaged farmers may be necessary on social and political grounds, we do not believe that this should be achieved by mechanisms which discriminate against efficient production achieved by larger farms. Great Britain's farmers and taxpayers have jointly raised standards, and we would not wish to see these standards reduced as a result of mechanisms devised by the Community specifically aimed to help small farmers.
Equally, the Select Committee considers that economic and social objectives of the Common Agricultural Policy must be tackled separately. We argue in our report that socio-structural proposals are needed to deal with the social implications of a restrictive price policy. In this connection we look forward to specific proposals promised by the
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Commission concerning social structures. We would not wish to prejudge these proposals but would not necessarily rule out action by member states rather than make this a Community charge.
I think everyone can see that the common agricultural policy is basic to the European Economic Community. This is in no way to depreciate the value of the Coal and Steel Community, the Investment Bank, the Regional and Social Funds and endeavours of that kind; but it is the common agricultural policy which is at the heart of the Treaty of Rome, and not least because it absorbs and will continue to absorb so much of the resources of the Community. The European Community has been faring badly in the world recession. All member states have high unemployment in industry, and the conclusion in part at least must be that the cost of the common agricultural policy, as a factor in overall costs, cannot be sustained.
One criticism that I feel should be made of the Ministry of Agriculture, Fisheries and Food in that regard is that it is sometimes inclined to gloss over the fact that higher prices are a product of the common agricultural policy. It deceives itself because it sees the reduction of prices as achieving only a small reduction in retail prices; but that ignores the fact that the full benefits of the supermarket revolution in this country, which has taken place over the past 15 years, have not been passed on in full to consumers; because of course even the lower gross profit on which large supermarkets operate is not fully reflected in prices because of the high buying-in prices of supermarkets due to the incidence of the common agricultural policy.
Unless reform leads to lower prices and the reduction of chronic surpluses, the cost of the agricultural budget could force the Community into such a wrangle over funding that it might lead to the collapse of the Community itself. Some take the pessimistic view that only a financial crisis of that magnitude and scale will bring about the fundamental changes in the common agricultural policy which are necessary. The danger of that view, in my opinion, is that it could destroy the Community itself. There is thus more to reform than the mere question of the overproduction of certain foodstuffs, important and urgent as that is.
The whole situation is not without hope. Last week, the European Parliament voted for a farm price freeze. That is the first time on record that the agriculture lobby in the Parliament has been defeated in the annual price debate. I do not look upon that as a victory but as perhaps the dawn of the sober cold morning of the common agricultural policy. I beg to move the Motion standing in my name on the Order Paper.
Moved, That this House takes note of the reports of the European Communities Committee on Reform of EEC Cereals Policy (6th Report, 1985–86, H.L. 83) and 1986–87 Farm Price Policy (10th Report, 1985–86, H.L. 107).—(Lord Gallacher.)
7.12 p.m.
Lord Templeman: My Lords, the European Community's production of cereals exceeds the amount that the Community consumes or sells at

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economic prices by some 20 million tonnes annually. Its production of milk exceeds the amount which the Commission consumes or sells at an economic price by 13 million to 20 million tonnes. The report introduced by the noble lord, Lord Gallacher, deals with cereals. The report which I now bring to the attention of the House deals with milk.
There are five principal methods of reducing the burden of milk production on the Community budget. All five methods have been tried and it would appear that all five methods will need to be pursued in the future. The first method is a reduction in the prices paid to farmers for milk products. The second is the imposition of quotas which make it prohibitively expensive for farmers to produce milk beyond a certain quantity. The third is the encouragement of consumption. The fourth is the encouragement of exports. The fifth method, and that with which we are now dealing, is the payment of compensation to farmers who voluntarily agree to cease production of milk.
The Commission now proposes, in effect, to buy out 3 per cent. or 3 million tonnes of the Community's milk quota. Reducing that to its barest essentials, it is calculated to be, give or take a little, an offer to a farmer of just under £200 per cow for seven years, or 3.8p per litre of milk, provided that the farmer undertakes to cease milk production altogether.
While the Community proposals ostensibly only restrict the right of a farmer to produce milk, the effect of the proposals is to take his farm out of milk production and to keep it out of milk production for the foreseeable future, until the day dawns when quotas are abolished and the Community goes to sleep producing exactly enough milk to meet consumption.
Under the present quota system, the United Kingdom has a quota of some 13 million tonnes. That quota and the penalties for producing more than that quota are divided among the regions administered by the Milk Marketing Board. In each region the quota is again sub-divided among farmers producing milk on farms in that region. For example, a farmer who keeps a herd of 40 cows on Whitechapel Farm may have a quota of 200,000 litres, which is about 5,000 litres a cow and is I believe the average production. If he increases his herd his quota will remain the same. If by getting his cows out at three o'clock in the morning he increases his yield, or by feeding them on expensive foodstuffs he increases the quality, his quota will remain the same.
If that farmer accepts the Commission's present proposals, he must undertake to give up milk production altogether and in return he will receive about £8,000 a year for seven years. If he owns the farm, and so long as he continues to live on the farm, either growing wheat or some other production which has not yet been bought out, or while gazing with delight at his empty fields as he rattles his £8,000 a year in his pocket, there is no harm to anyone else. When he leaves the farm, whether as owner or anyone else, no one can start the production of milk on that farm again, because there will be no quota. A farmer who has an existing quota and takes over Whitechapel Farm can only, in effect, transfer his quota to
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Whitechapel Farm by giving up some part of the quota on the farm for which he originally had the quota.
It is that unavoidable link between farm and farmer which produces problems for the United Kingdom, having regard to its methods of land tenure. I should perhaps say England and Wales, because I believe that they order matters better in Scotland. In England, some 40 per cent. of farms are tenanted. At the moment, the quota of Whitechapel Farm is 200,000 litres per annum and it is at present held by the tenant. So far as one can see, under the Commission's proposals the Commission envisages that when the tenant gives up milk production on the farm he would receive £8,000 a year for seven years. No doubt he would then stay for seven years thumbing his nose at the landlord and jingling his £8,000 a year in his pocket. At the end of seven years, if he went, the farm would lie vacant and the landlord would not be able to let it for milk production because he would have no quota.
That of course has produced a great controversy about quotas and compensating. It is a matter of dispute between landlords and tenants. It is against that background that I introduce the recommendations of the Select Committee with regard to the Commission's proposals. Your Lordships will find the committee's opinions set out in paragraphs 58 to 72 of the report. Paragraph 58 is a general welcome for the Commission's proposals on the grounds that something needs to be done and that is a good way of doing it.
Paragraph 59 introduces a more controversial note. The committee acknowledges that the voluntary scheme is better than a compulsory reduction in quotas. The Commission has dangled the bait to the farmer of Whitechapel Farm, for example, and said, "We shall give you £8,000 a year if you stop producing milk." It thinks that sufficient farmers will accept that bait to reduce the quota by 3 per cent. over the United Kingdom.
The Commission could have said, "We think that our quota for everybody was much too high. You are all producing too much and therefore we will compulsorily cut everybody's quota by 3 per cent., and you will have to put up with a reduced income." In paragraph 59, the committee says that the painless method of paying compensation for voluntarily giving up milk production is better than a 3 per cent. quota cut across the board for everybody without any compensation.
That is controversial, and I know that my noble friend Lord John-Mackie will urge your Lordships that the better course would be for everybody to suffer the 3 per cent. cut in silence rather than have some farmers tempted by £8,000 a year for their total production. All I would say to that is that, since the report was published, there has been a meeting of the Agricultural Council and not only would no member state look at another compulsory cut—because it has its farmers to consider, with the next election coming up in various countries at different times—but, even with this rather mild scheme of the Commission paying substantial sums of money for the reduction in quota, it was found that there were five member states that pleaded exemption.

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They are not prepared even to take the Commission's money to reduce their milk quota. They are going to insist on producing a milk lake which will mingle with the wine lake and eventually run down to the sea. The five are Italy, Greece, Luxembourg, Ireland, Spain and Portugal. This is still at a negotiating stage and positions are being taken up from which retreats can be made, but I opine that ultimately we shall have some scheme of the sort that the Commission is proposing. But it will be difficult, if not impossible, to make member states substitute a scheme in which they have a compulsory cut of 3 per cent. and no farmer gets any money at all. However, I shall leave the noble Lord to make his own case on compulsory reduction.
In paragraph 60, the committee points out that the present scheme does not solve, although it contributes a solution to, the problem of surplus milk. It will cut 3 million tonnes, and the total surplus, including uneconomic exports, is something like 21 million tonnes. There is a long way to go and we express the hope that if this scheme is successful there will be another and wider scheme later on.
In paragraph 61, we draw the attention of the House to the fact that the Commission's proposal may have a lopsided effect on different countries according to how it is taken up. In England, for example, the compensation of £200 a year per cow is rather generous, because the United Kingdom Government managed to persuade a good many farmers a year or two ago to surrender part of their quota to the Government on much less favourable terms than those.
On the other hand, in Germany there was a government scheme that was far more generous to farmers and it may be that more of those farmers in Germany will not wish to take up the Commission's scheme. We could have a 3 per cent. reduction in the United Kingdom and little or no reduction in Germany. We think that that is undesirable and that, generally speaking, each nation should stick to production of its quota of milk in the same proportions.
We suggest that where in any member state the option is not taken up, where there are not enough farmers coming along eager to take their £8,000 a year, the Commission should insist that there are compulsory reductions in those countries where they have not taken up their full reduction. Again, so far as I can understand it, since the report of the Select Committee was published, the Commission has looked at this and is inclined to agree that there should be the same reduction in each member state pro rata.
Paragraph 62 mentions the peculiar problems of Scotland and Northern Ireland, which are fully documented in the evidence that is annexed to the report. In general, the complaint of Northern Ireland is that, for reasons I shall not go into, it was not fairly dealt with in the distribution of the original quota. No doubt there are noble Lords who will bring the attention of the House to those points.
Paragraph 63 raises another difficulty and it is the problem of the selection of farmers if the scheme is oversubscribed. The scheme goes only as far as 3 per cent. over the whole country, and if we have farmers
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queueing up for their £8,000 a year—which, if they were all accepted, would mean, say, a 6 per cent. cut—the Commission's scheme applies to only half of those, and therefore half the farmers who applied in those circumstances would be disappointed. They would just have to go away and keep their cows. It would be only the selected farmers who would be allowed to get rid of their cows and look out on their empty acres.
That is a problem to which the committee referred but which, of necessity, it could not solve. Even the agricultural members of Sub-Committee D were unable to assist the legal members of Sub-Committee E to solve that problem. All we suggest is that when the Government come to lay down criteria for selecting the sheep from the goats, to mix the milk metaphor, or for selecting the farmers who will be allowed to take compensation from those who are not, they should have regard to the efficiency of the industry and of dependent industries.
For example, it would be unwise to allow all the farmers in a region to surrender their milk if the result would be to stultify a very efficient dairy which was in the same area. The method of selection and how it is to be done is a matter which the Government and the industry will have to consider carefully.
Paragraph 64 refers to the fact that the present proposals of the Commission allow the government of a member state to pay compensation instead of the Community paying compensation. Up to one half of the scheme a member state government can pay. The advantage of that is flexibility, because what the government buy the government can give out. The Government could, for example, accept the surrender by one farmer in Wiltshire of his milk quota and use that to give the same amount of milk quota to a new entrant to the industry who did not have a quota and wanted to start milk farming. It gives a great flexibility which the Commission's scheme lacks.
On the other hand, to the extent that a government of a member state purchase a quota, there is no fall in milk production. The government will merely buy it in order to assign it out again. It is only when the Commission purchases a milk quota that the milk production in the Community will be reduced.
Paragraphs 65 and 66 refer to the vexed question of quota transfer. On the one hand, farmers are eager for quotas to be transferable so that they may set up a market rather like the Stock Exchange, in which the price of transfers of milk quota could go up and down in accordance with the national temperament. On the other hand, there are obviously disadvantages to the nation in having complete transferability of quota, because without any supervision from government or from industry itself you may get some areas producing far too much milk and other areas being denuded. We believe that transferability requires further study.
Paragraphs 67 and 68 refer to the problem of landlord and tenant which I have already mentioned. There are 37,000 milk producers in England and Wales and 40 per cent. of them are tenanted. The Select Committee is firmly of the opinion that the decision as to whether a tenant is to be allowed to surrender his quota, and, if so, how the compensation is to be divided between landlord and tenant, must be left to the governments of each member state because

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each member state has a different system of land tenure. We have a complicated one under which there is already compensation for improvements. We have a great code of conduct as between landlord and tenant and we think it should be left to the Government, having consulted the industry, to see how in England and Wales the compensation money should be divided.
We recommend that the landlord should have a right to object to a tenant surrendering a quota if, in the words of the recommendation, the result
"would be unjust to him or would defeat the purpose for which he owned the land".
For example, if you had a farm and it was clear that nothing could be done with it except to use it for dairy farming, it would be quite wrong to allow the tenant to surrender the quota and thus to stultify the farm which would have no other method of useful production.
As to the apportionment of compensation, we have the two extremes: the tenant who says that he is responsible for the quota because he produced the cows, and the landlord who says that he is responsible for part of the quota because he produced the land. There is at the moment a Bill in the other place in which compensation is mooted for a tenant who leaves a farm on which there is a milk quota.
I understand that the Government's proposals envisage a kind of arbitration under which the tenant would not get less than 33 per cent. or more than 66 per cent. and the difference would be decided by a valuer and arbitrator. The proposals are so complicated that I may not have fully understood them, but this illustrates the problem and probably the solution. Some guidelines must be set down by the Government after consultation with the industry with the final pounds, shillings and pence being left to be decided by an arbitrator. It was neither the function nor within the competence of the committee on the evidence we had to make a decision. This will be a difficult decision and one which can be made by the Government only after more prolonged consultation with the industry.
Paragraph 71 refers to the Frankenstein on the horizon—to the possibility that this scheme in which the farmer is bought out of milk will be followed by that farmer going into cereals; followed by quota limitations for cereals; followed by the farmer being bought out with another £8,000 a year for ceasing to produce cereals; followed by the farmer going into sugar beet; followed by a quota for sugar beet, with another £8,000 a year for agreeing not to produce sugar beet, until eventually a farmer will be able to retire on the proceeds of agreeing not to do anything with his land.
There are other problems referred to in the report with which I have not time to deal. I just mention some developments since the report. As I said, there has been a meeting of the Agricultural Council in which five member states have sought exemption. The other development is that for the first time this year in the United Kingdom as a whole we exceeded the quota that was granted to us. We have exceeded the quota by 0.2 per cent. The result, I understand, is that the average farmer will have to pay a penalty of £125 for the quota having been exceeded. I am told in the
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mysterious way that these things happen that it is a very good thing that we have exceeded the quota for the first time because if we had undershot it somebody might have thought it politic to reduce the quota we had in the first place. Therefore it is desirable from time to time to show that, if you really try, you can exceed the quota, and as a nation we have succeeded in doing that this year.
7.33 p.m.
Viscount Brookeborough: My Lords, I should like to start by thanking what are called the proper channels for the privilege of allowing me to speak after the two noble Lords who have introduced this debate. It is the more strange that they have done so in that they know I shall not be painting the broad picture which the two noble Lords have painted so exquisitely. I shall be confining myself to the narrower problems of Northern Ireland.
I must also ask the House for its indulgence if I do not stay for the whole of the debate. Rashly I was of the opinion that there was to be little business in front of this debate and so I arranged an important meeting at eight o'clock. My guilt is made the greater because the meeting will include food and I shall feel that the food may poison me on the way down when I think of people being here. But I ask noble Lords to believe me when I say that it is important at this stage that I go to that meeting; and I apologise.
I congratulate both noble Lords on their introduction of the report. They were surely two of the best speeches that we have ever heard on the introduction of these detailed reports. I also congratulate the clerks and the specialist advisers on the way that they produce the reports. The specialist advisers and the clerk in Sub-Committee D always have a terrible time when it comes to the price proposals. They are under a time pressure to get the report out in order, we believe, to help our Minister of Agriculture in the negotiations. Perhaps I may also pay tribute—it is almost self-explanatory—to the noble Baroness, Lady Llewelyn-Davies of Hastoe, on her choice of chairmen. They have demonstrated how accurate has been her choice. I hope that the noble Lord, Lord Gallacher, has as much fun sitting on Sub-Committee D as I had sitting under him as chairman. Both noble Lords said that our reports are clear. In them we state, if we do not use these exact words, that the present price proposals will not stop overspending and the growth of surpluses. That is of great disappointment to us.
I know from looking down the list of distinguished speakers that other noble Lords will cover the broader canvas but I should like to deal with Northern Ireland. The Northern Ireland plight must be seen against a general decline of incomes in the United Kingdom of 43 per cent. In Northern Ireland the drop in net incomes is nearer 60 per cent. The report on the outgoers scheme emphasises the importance of dairying to Northern Ireland farmers. The scheme proposed by the Commission will have or could have a material benefit to the farmers of Northern Ireland. The noble and learned Lord, Lord Templeman, did not burden the House with the problems of the original quota allocation and I shall certainly not do that. They are well set out in paragraph 37.

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In Northern Ireland there is no alternative to dairying on practically all farms. This was demonstrated adequately in the original outgoers scheme where the amount of quota that was willingly given up on the voluntary scheme was well below what was necessary to deal with cases of hardship and expansion and with small producers. Whereas in the United Kingdom the cases that applied for extra quota were fully satisfied, in Northern Ireland only 49 per cent. was available for re-allocation.
The Government recognised the problem by setting up a committee under my right honourable friend Sir Geoffrey Howe. By various devices which are set out on page 55 he tried to produce an extra 50 million litres for re-allocation. The object was merely to equalise the misery between dairy farmers within the United Kingdom. At the end of the day we are still 28 million litres short of the target to produce equality.
I should like an assurance from my noble friend Lord Belstead that the proposed scheme, or whatever else emerges, will retain the right for member states to buy and to re-allocate. That being so, the Government should re-allocate at once the first 28 million litres that are bought in in Great Britain. They should not wait until the scheme has been totally fulfilled. This is not an unusual request. It is in line with the commitment of the Howe Committee.
Let me now deal with beef. Beef is the second most important commodity in Northern Ireland. It gives me great pleasure to see that the Government intend to fight hard for the variable premium. We are all convinced of its importance and economic value. But over and beyond that, we must make sure that, come what may, the Government always retain sufficient intervention and ensure that it is available in case the equilibrium which the Commission believes will be established between supply and demand in 1987 does not occur and there is the start of a catastrophic fall in the price of beef which we have seen before. The calculation for intervention must be on a regional and not on a Community basis. That is of vital importance for the United Kingdom and of even more importance for Northern Ireland.
In supporting the reports I do not want to minimise the very serious consequences that the proposals will have on British agriculture and the rural areas.
7.40 p.m.
Earl Ferrers: My Lords, the House will be grateful for the three reports that are the subject of this evening's debate. I congratulate the committees on their endeavouring to wrangle over the problem, as I congratulate the two noble Lords who introduced in such a clear and simple way a very complicated subject. The noble Lord, Lord Gallacher, reminded the House that the common agricultural policy is at the heart of the European Community and that, if the policy were to be broken, the Community might be broken too. I believe that the noble Lord was absolutely right to reaffirm that point and to remind the House of it.
I start on a depressing note, because I have no hesitation in saying that I believe that the future of agriculture is black indeed. I therefore welcome the opportunity of debating the subject. There are so
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many massive pressures being applied to agriculture from all kinds of different sources that it is difficult to find the encouraging signs. I should declare an interest as I am a farmer. I feel sorry for my right honourable friend the Minister of Agriculture and for my noble friend Lord Belstead because they have the hideous task of trying to resolve the unresolvable.
The simple facts are that the Community's surpluses are growing, despite efforts to stop them doing so. that the cost is unacceptable and unaffordable, and that the corporate political will of European Ministers is not unified or strong enough, partly because they cannot individually, and certainly not collectively, see the way out; frankly, nor can we.
We all know that if matters go on as they are, there will be annual surpluses produced and increased surpluses stored. By 1991 there could be an intervention of some 80 million tonnes of cereals. Obviously that situation cannot continue; we are all agreed on that. But no one is agreed on how to solve that problem, except the sub-committees whose reports we are discussing this evening.
If I may say so without causing offence, I believe—and I say this with a fear of being verbally sat upon by every noble Lord who is a member of either committee and by many more noble Lords as well—that the conclusion that the way to resolve the problem is to cut prices is astonishingly naïve. It is a naïve conclusion because in making such a recommendation the committees have failed, if I may respectfully say so, to determine the results of the policy that they advocate.
In cereals, despite price cuts over the past three years, production has increased. That was not the intention of the price cuts, but that has been their effect. Those increases were a natural reaction, to overcome the financial impact of lower prices. That happens for a time and then, like a piece of elastic, it snaps and the trouble starts. Over the past two years wheat prices have dropped by some £20 per tonne. On a three-tonne-per-acre crop that is a reduction of some £60 per acre. Last year's appalling harvest saw yields down by half a tonne per acre on average throughout the country, which is a drop of another £50. Therefore, the drop in returns for wheat over the past two years has been more than £100 per acre. That applies in general to wherever wheat is grown throughout the country.
A farmer who grows 100 acres of wheat has seen his returns drop by £10,000. A farmer who growns 1,000 acres of wheat has seen his returns drop by £100,000 over two years. No industry can stick that kind of reduction without the effects being very serious. But now Sub-Committee D says, "Let it be cut further". I do not believe that the industry can afford to do so without very severe consequences.
That kind of cut is fine if one is considering only the effects on surpluses and the costs of the common agricultural policy. But such a policy, if carried out on its own, would have a massively harmful effect on agriculture and on rural communities, as well as on the industries that supply the inputs to agriculture. We shall see farmers go bankrupt, we shall see land values reduced, we shall see the collateral of land being inadequate where it was previously adequate and therefore more farmers will go out of business.

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If the policy proposed is pursued, one of the dangers of reducing cereal prices will be that farmers will find that they will have an inadequate return from the market, and so they will look for another way of getting a return from that cheap food. They will turn to processing it through beef, through pigs, and through chickens. That will then flood the market with those commodities, which already have a sufficiently difficult time. The farmers will then make those growers lose money. The problem therefore compounds itself.
In the case of milk the sub-committee advocated, as the noble and learned Lord, Lord Templeman, explained a few minutes ago, paying dairy farmers to go out of dairying. That is fine for reducing surpluses, but what will the farmer do with the land so released? The noble and learned Lord referred to the conundrum at the end of his speech. What will happen to that land? Will it be used for growing wheat? Wheat is in surplus. Is it to be used for growing beef? Beef is in surplus. Or are the farmers merely to allow that land to become redundant? Nobody had answered the question of what happens to the land that is released as a result of dairy farmers giving up dairying.
The long-term effect of the committee's proposals taken on their own would in my mind be to bankrupt British agriculture and leave a derelict countryside. I am astonished that the committees have not addressed their minds to that thought. I may be that some would say. "Dereliction has taken place in the North of England, in the cities of Sheffield and Liverpool, and in places such as those, and now it is agriculture's turn". That is a perfectly reasonable comment to make, but we should take a less cavalier attitude to the matter of food production.
I am not saying that what the sub-committees advocate is necessarily wrong. I am saying that the effect of what they advocate would be devastating. I believe that that is beginning to be seen already. Farmers will go bankrupt, and there are signs that they are already doing so. One person told me the other day that in his view the 600,000 people engaged in agriculture would be reduced to 300,000 within two years. Agriculture is in for a rough time, and the knock-on effect for the supply industries will also be considerable.
When farmers batten down the hatches the first to be affected are the machinery suppliers and the manufacturers, who then have to look even more to exports to solve their companies' sales and cash flow problems. In the British Agricultural Export Council, of which I have the privilege of being chairman, companies are finding the going very harsh. From large tractor manufacturers to implement makers and to others who manufacture the inputs into agriculture they are struggling to keep afloat. Exporting, despite the opportunities, of which there are many, is expensive and it is long term. It has to be built on the back of a sound home market. If the home market goes, one imperils exports and the manufacturing industry and so creates further unemployment.
I remember that when I was privileged to be a Minister in the Government I took some businessmen to various countries to try to encourage new business. In one country we visited the Prime Minister said that
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what he wanted there were corn stores. One businessman said, "We make such corn stores". The Prime Minister said that he also wanted coffee grinding machines. The businessman said, "We also make coffee grinding machines". The Prime Minister said, "You must come and see me. When are you leaving?" The businessman said, "I am leaving tomorrow but I shall postpone my flight". He did so and saw the Prime Minister, and he told me afterwards, "If we get this business it will be worth £12 million". Think what that would mean to manufacturing and employment. In fact, the business was not forthcoming. The company did not get it. The sad part is that the company subsequently went "bust". Many of these companies depend on exports for their survival.
The problem of the common agricultural policy goes no further than this. We tend to look at the problem of the common agricultural policy from the point of view of surpluses, its funding and its effect on member states. I believe that we should look at the effect of the common agricultural policy on the world and especially the United States; and the effect of the United States on the common agricultural policy. In the United States, the farm Bill was passed last November. It may have severe effects upon the European Community. The Bill will not properly come into force until the autumn of this year. I do not profess to be an expert on this subject, but I put forward these views to your Lordships for what they are worth. I think they contain considerable cause for concern.
American farmers are already in great difficulties. They owe the banks 224,000 million dollars, and that is a substantial amount. In fact, it is more than the total owed to American banks by all the third world debtors put together. Some 25 per cent. of American farmers have gone out of business this year and banks are going bankrupt with astonishing rapidity—one a day. Therefore, American agriculture is having a pretty difficult time. Add to that the fact that America holds 40 per cent. of all the world's surplus stocks of grain and one sees why the United States intends to take some action.
America considers that the European Community, by its policy of subsidising exports on the world market, is taking markets which have been traditionally American and is upsetting stability in them, with the result that American agricultural exports have dropped from some 44 billion dollars in 1981 to 30 billion dollars in 1985, and are likely to drop to 27 billion dollars in 1986. Yet United States stocks of surpluses continue to increase.
As I understand it, America is determined to break the system by which the European Community disposes of its surpluses onto the world market to the disadvantage of the United States. It intends to ensure that world prices will be the prices which American farmers will receive and that America will subsidise her own exports, thereby in effect lowering the world price of wheat. If that comes about, it will have two effects. First, it will bankrupt more American farmers. Secondly, it will so lower world prices that the subsidies which the European Community will have to pay on the disposal of its surpluses will be massively increased. This will—and this is the intention—"bust" the CAP. America thinks it has the power to do this,

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and although America will be hurt in the short term it feels that it will gain in the long term.
In my view, the effect of that is quite frightening. Not only would the common agricultural policy be broken but, as the noble Lord, Lord Gallacher, reminded us, so too would the Community. Member states, intead of being in harmony with each other, may turn against each other in mutual recrimination. Such a scenario would have an immensely destabilising effect, not only in Europe but also on the relationship between Europe and America. It could even affect NATO itself. The international reverberations that resulted from the actions of last week have been bad enough. Solidity has quivered. But a conflict of this nature and on this scale between America and Europe could, in the long term, damage both the ties of friendship which are so vital and, in the end, Western defence.
There are plenty of people in America who are prepared to say, on whatever issue, "If Europe does not value America, let Europe go it alone". That would be a disastrous result, whatever caused it, and I hope that this problem of agricultural surpluses will not be a participant in such a problem. Your Lordships may say that this is alarmist. Perhaps it will never come about, and I hope that it will not. But that it could is certainly a possibility.
Your Lordships may ask what are my conclusions. I would be arrogant if I put forward any conclusion on a subject that has defeated almost everyone. I merely ask my noble friend whether he will be kind enough to think of three possibilities, all of which most certainly will have been previously considered. First, I think that the Community should consider more seriously paying farmers to take land out of cultivation, to set aside land—call it what you will. This seems a policy of despair but it is cheaper than paying to store and then to subsidise the sale of produce which is not wanted. Remove the land and you remove the produce. Of course, it would have to be fairly applied throught the Community. I do not disguise for one moment that there would be endless problems, not least the bureaucratic system to police it.
The second suggestion is to put a heavy tax on nitrogen throughout the Community, not just £3 or £4 a tonne but much higher—in the region of £30 to £40 per tonne. I do not know what figure would be correct and that is something that will have to be worked out. If that happened, gone would be the crops of wheat of three and four tonnes per acre. Gone would be the heavy yield in grass crops and more acres would be required to provide the same output. People may say that it will not work. However, we tax petrol and that works, and I do not see why it is not possible to tax nitrogen.
Thirdly, I urge my right honourable friend to talk to the Americans, if he has not done so already, to ascertain their views and try to get them to work with us and the Community to solve what is a problem of the Western world and seek to avoid America and Europe coming into international trading conflict, the long-term dangers of which could be catastrophic. I do not envy my noble friend Lord Belstead and his right honourable friend the Minister, who are blamed whatever they do, not least by the farming community. I fear a depressed and derelict agriculture
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not only from the point of view of the industry itself but the social and industrial effects it will have on others. In our endeavours to curtail expense and excess we must be wise enough to look at the broader and more far-reaching effects of any solution, and they may be infinitely greater than at present we contemplate.
For all the reasons I have given, I find the future of British agriculture immensely disturbing. I never thought that I should make such a speech. Your Lordships may disagree with what I have said, and that would not surprise me at all; but I felt so strongly about the matter that I felt obliged to cancel a long-standing engagement for dinner at the Mansion House this evening in order to take part in this debate. Your Lordships may say, "Your time would have been better spent and ours even better spent had you continued with your original engagement". But the future is bleak and there is only one consoling fact that I can see; that is, when you are quite certain that one course of events is bound to follow, that is the very course of events that never does follow.
8 p.m.
Lord Walston: My Lords, I share the gratitude of other noble Lords who have spoken, both for the work of the two sub-committees and also for the very clear way in which their reports have been presented by their respective chairmen. One would expect nothing less, and I must say to the noble Earl, Lord Ferrers, that I for one am delighted that he is not at the Mansion House. If I may say so, he has made the best speech I have ever heard from him, certainly far better than when he was on the Front Bench representing the Ministry of Agriculture. Alas, I cannot bring myself to disagree with his gloom and his pessimism! I believe that he has put the dangers extremely well.
I will start with two relatively minor points before going on to the wider issues which have been so ably raised by the noble Earl. As far as milk is concerned, and the compensation to those farmers who agree to give up, I am sure that the general proposals put forward by the noble Lord, Lord Templeman, which he says are being suggested by the Minister of Agriculture, are right in essence. We have a different situation in this country from that which obtains in most of the countries of our European partners. We still have the landlord/tenant system, and we have complex legislation to protect both landlord and tenant.
Undoubtedly, in giving up production in a tenanted farm the landlord stands to lose a very large part of his assets, and there must be some means by which he can be compensated. We are well versed in how these matters can be dealt with by arbitration and the correct proportions arrived at, but I would put forward a warning note here. It is true that on the last occasion when there was such a scheme there was a fairly satisfactory response to it. I do not think that there will be such a good response to it in this country in the next few years, for the reasons given by the noble Earl, Lord Ferrers. In those days—and I was one of those who took advantage of it—there were many other profitable opportunities a farmer with a reasonable amount of land could follow. Of course, if he was a specialist dairy farmer there was nothing else he could do, but if he was on a mixed farm he could very easily increase his profitable wheat acreage and not have the

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hassle of seven-days-a-week milking and all the rest of it. Today, there are very few farmers in milk production who would consider they could make a good living by moving on to something else, so I would not be too optimistic about the outcome of this scheme. It is certainly worth trying, but not at the expense of giving up all thought of other options or other possibilities.
I should also like to make a relatively minor point—one which I am very glad to see is mentioned in the Farm Price Policy report in paragraph 73—about the small farmer, the family farmer. On the Continent in particular there is a very strong emotional feeling that the family farm must be preserved no matter what happens to the larger commercial farms. I can declare a, I am sorry to say, now somewhat remote interest in what is normally called a large farm. Not only in my own farming area but also in East Anglia and many other areas too, the large farms are the main employers of labour. If they are hit hard they will not employ the labour and there will be increasing unemployment.
The noble Earl gave some figures and mentioned a reduction in the agricultural workforce from 600,000 to 300,000 in the next two or three years. I think that is an overestimate, but I am quite sure that as farming is squeezed the commercial labour-employing farms will dispose of labour. The result will not only be more unemployed, especially in areas where it is very hard to get alternative work, but also that opportunities to come into agriculture for young people who never could start on their own because they are short of capital and do not happen to have a father who has a farm of his own will be lacking. We must remember that a large farm employing labour has a very valuable social role to play in many areas of England, as it has also in many areas of Northern Europe, such as Northern Germany and France.
Let us now come to the problem which exercises all of us, the problem of surpluses. I know that accepted wisdom says we must deal with this by a price policy. There are several paragraphs in the report which I will not quote to your Lordships but which support that, although there are some which are slightly contradictory. We must remember that the Commission has been attempting to pursue, in so far as the Council of Ministers allows it, what it calls a prudent price policy for very many years. As we have been told, and as we know from all the statistics produced, production continues to rise. It may be that in theory a price policy could bring down production, but as political realists we know perfectly well that that sort of reduction in price cannot be achieved. Therefore, we cannot with any honesty rely on the price policy in order to solve our problems.
Then we come to quotas. Quotas have been roundly condemned by almost everybody, and almost roundly condemned in these reports. I am not a supporter of quotas as they are commonly understood. The milk quota was only brought in because the price policy had manifestly failed, and it was brought in with insufficient thought. In many ways it was very difficult to bring it in, though in some respects it was easier because of the Milk Marketing Board, farmers' cooperatives and dairy co-operatives, but it resulted in a
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continuing rise in the milk surplus. It is not rising as fast as in the past, but it is still rising, so the quota has not succeeded, and it has caused quite a lot of hardship and a great deal of discontent, and has led to a considerable amount of bureaucracy. So quotas as exemplified by milk quotas are, to my mind, something which we should not consider seriously for solving our problems.
My Lords, I suggest to you that what we must have is new thinking on this. We must really clear our minds of the past and decide what it is we want for the future in our agriculture policy. Unless we get new thinking and new action, we shall be faced with growing crises and a complete collapse of the financial backing for the common agricultural policy. All we shall be presented with is some hastily introduced, ill-thought-out, cobbled-together system which will not be able to work. What is it that we want for our agricultural policy? We still want, as we did originally, to ensure that the Community's food supply is still produced and we want to ensure a decent standard of living for those who produce that food.
Possibly later speakers will go into this matter in more detail, but I would remind your Lordships that the farming situation in this country, as well as in others, is declining after years of great prosperity. I make no bones about saying that. Yet I am told that the figures in the Government's White Paper show that United Kingdom farming income in 1985 was 43 per cent. lower than in 1984, and that in real terms it was 22 per cent. below the previous post-war low of 1980. So the decline is already in progress.
We want to see that those who produce the food that the Community wants are properly recompensed; we want to see prosperous rural communities; and at the moment, above all, we want to see that there is a limit to the cost of the common agricultural policy. This does not for a moment mean that farmers should have the right to produce as much as they want of whatever they want and receive high prices for it; nor does it mean that farmers should be prevented by bureaucratic means from producing as much as they want. The only proviso is that if they produce more than is wanted they produce it at their own risk.
We must do what we can—and I was very glad that the noble Earl, Lord Ferrers, mentioned this point—to make sure that international trade is not disrupted, with the consequent threat to GATT and the possibility of reprisals from our own partners and from the United States in particular. When I say "partners" I mean partners in the third world and also partners in the Commonwealth. I make no apology for repeating what the noble Earl has said, that we must realise the very real threat that exists to good relations with that economically and militarily powerful and friendly country the United States, and the threat to our good relations with Australia, the Commonwealth, the third world and so on.
The dumping of subsidised surpluses by the EC in ever-increasing quantities is a threat to the Atlantic Alliance and, unless this threat is removed now, it will sour relations between us long after the tensions which have been caused by the Libyan crisis have receded into the background.
We must also realise that there are many differences between the member states of the Community,

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particularly as regards social and economic standards. There are far more differences now than there were when the original Community was set up. For instance, maintenance of the standard of living of a Portuguese farmer at present would mean a standard of living which would be intolerable to his German counterpart. To raise the standard of living of a Greek farmer to that of a Danish farmer would be profoundly disturbing to the whole economic and social structure of Greece itself. We must understand that there are these differences, and not stick to the concept that everything that comes out of Brussels in the common agricultural policy must be absolutely uniform for all countries. These are the factors which must be foremost in our minds when we are discussing the revision of the common agricultural policy and how we should implement its provisions.
On many occasions, in one form or another, I have put forward to your Lordships what I believe to be a conceivable answer. I do so again, as briefly as I can. First of all, the Community must produce a long-term assessment of its food needs. For those particular needs—and let us take as one example cereals—the Community must offer farmers a good price and a fair price, whatever that may mean, for that amount. But I repeat that farmers must be left free to grow as much as they wish in excess of that amount and take their own risk in selling it at world prices. In this way the farmers will get a fair price and there will be no long haggles with the French and German Ministers of Agriculture, and so on. The farmers will get a fair price for produce that the Community wants, and there will be no dumping of subsidised surpluses on the world market.
So far, so good: but how is this to be implemented? Let me give your Lordships a brief recapitulation of what I have said on previous occasions. First of all, I suggest that all intervention buying should be abolished. As we are talking about cereals, let us say that all cereals will be sold on the open market at whatever prices prevail in that market. Secondly, I suggest that each member state is given a quantum (and I emphasise that word; not a quota, which has other connotations)—in other words, the quantity qualifying for the high guaranteed Community price—and that this quantum is based on past production over the previous five years so that there is no haggling between Ministers of Agriculture about what the national quanta should be. These will be worked out by the statisticians who sit in the back room, and the figures will be incontrovertible.
Thirdly, the difference between the estimated free-market price and the guaranteed price (known as the make-up payment)—I repeat, only for Community needs—should be provided from Community funds and divided between member states on the basis of the quantum to which each is entitled. Fourthly, each member government should be free to distribute this amount to growers in any way which that government wishes. It can be divided equally among all of them on an acreage basis; it can be divided on the basis of the tonnage that is sold; it can be weighted in favour of the small or the disadvantaged farms. It can be tailored to suit the social needs of each individual country; and it can be tailored to suit the ability of each country's own ministries and civil servants to administer it.
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Fifthly, each government should be free to supplement these payments, not for increased production but for social or environmental reasons, thus allowing for the different conditions that I have already mentioned between the different member states.
I do not for a moment say that this is the only or even the best way of solving the problem. All I say is that it is a way, and a practical one, that achieves the desired results. There may be very many other ways which the clever people in our Ministry of Agriculture and in the Commission could think up if they stained with new, constructive thinking, and I hope that they will do so. My main criticism—I hope this will not be taken as discourteous, and I mean it seriously—is that all the reports are extremely good on analysis and there are especially good criticisms of the Commission and, to a lesser extent, of our own Ministry of Agriculture, but there is no serious attempt made to solve these problems. The price mechanism is relied on and co-responsibility levies are discussed, but in spite of the overwhelming evidence of their inefficacy, no alternative is put foward.
I urge that our own ministry and, above all, the Commission, perhaps led by our ministry—it would be a happy change if we could take the lead in these matters—should start, at this eleventh hour, to think urgently on fresh lines. There should be discussions, not in isolation within the Community, but with the United States and with other countries, especially of the third world, to attempt to solve this problem in a manner that still protects farmers and rural communities, that curtails rising Community expenditure, that removes national tensions and the threat to international trade that now exists, and that at the same time benefits all consumers by reducing prices to them. This is, I hope, an approach that all who have influence will urge upon our Government and the Commission.
8.20 p.m.
Baroness Elliot of Harwood: My Lords, I should like at the outset to thank the noble Lord, Lord Gallacher, for his speech and also for the manner in which he conducts the committee of which I am a member. We have before us today extremely interesting reports. I found it fascinating simply to listen—I was content to listen because I am no expert—to the proceedings in the committee of the noble and learned Lord, Lord Templeman. The noble Lord, Lord Walston, made an absolutely brilliant speech putting forward so many new ideas that, in my view, we should read his remarks, consider them and discuss them further in our committees. I should prefer to adopt that course rather than to make any comment at this time.
This is a difficult stage for agriculture. All of us engaged in the industry must consider the situation carefully. Having served for a long time on the committee and having spent a long time in agriculture, I am always struck by one factor when people, particularly on committees, are discussing agriculture. They do not realise that any decision that farmers have to take is a decision that cannot be taken within a short period. The Commission is continually saying that it will put out suggestions or new ideas for regulations. In putting them out, it thinks that we shall be able to undertake them swiftly. But that is not possible.

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Agriculture is not an industry that can be opened and closed like a factory or an industrial activity. A change of policy in agriculture takes at least two or three years, not two or three months. One of our recommendations is a rolling five-year programme of cuts announced in advance so that farmers can plan ahead. This is a policy that we should try to persuade the Commission to adopt.
One matter which has not been mentioned and which has a great effect on policy is the incredible influence of something over which we have no control. I refer to the weather. We do not yet know whether the appalling weather of last summer and last winter—it is, in fact, still going on—will reduce production willy-nilly so that no further cuts are required. This remains to be seen. However, according to the evidence that the committee heard, the surplus in cereals, wine and dairy produce was considered the most difficult and the most damaging. On the other hand, I was told the other day, whether rightly or wrongly, that our dairy produce today is slightly below—although the noble and learned Lord, Lord Templeman, I believe, said that it was slightly above—the quota that we are allowed and that present milk surpluses are being dealt with.
Milk quotas are not easy. I have no experience of dairy produce, but I have friends within the dairy industry. From my discussions with them, the fairest way, I believe, of assessing quota values between landlord and tenant would be to have guidelines laid down but each farm considered separately. If, for instance, a landlord has spent thousands on buildings and equipment for a tenant, the landlord should have the compensation. If the situation is reversed, the tenant should have the compensation. One has to bear in mind that the land belongs to the landlord and that if he wants to re-let it but cannot re-let it as dairy land, this places him in an extremely difficult position. The problem could be solved by dealing with it on a more individual basis than simply by pursuing general lines.
The noble Lord, Lord Walston, spoke of large farmers and small farmers. I believe that the small farmer should be dealt with on social rather than economic grounds. It is extremely important that help should be given to small farmers in areas of great natural beauty such as the Highlands and islands of Scotland. We do not want those areas or other hill lands in Northumberland, the Borders or the West Highlands to go derelict and become deserted.
I remember some years ago our committee made an expedition to the less favoured areas in Europe. I recall clearly that we visited Bavaria where the farms were small, the scenery beautiful and the farmer made more money out of the tourist trade than farming. On the other hand, if there had been no farmers there and the hill land had not been used, that land would not have attracted tourists. I believe that the same could happen over a considerable part of our country, particularly in Scotland and in Cumbria and Northumberland. There was an extremely interesting debate only last week in your Lordships' House on tourism.
I believe that we should think more of the social needs of small farmers and the social value of those farms rather than comparing their economic value
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with that of large farms which are—I agree here with the noble Lord, Lord Walston—a different proposition. We can produce on large farms much cheaper food and produce more employment than is possible on small farms. On the other hand, we do not want to see the small farms and those living in small farm communities left without help. It is therefore necessary to view the matter from two angles. That is what we have done in our committees.
Many of your Lordships have spoken, rightly, of the need to reduce production. The question that arises—it was discussed within our committee—is how to change certain types of production. We discussed the set-aside programme based on assessment of current needs. We discussed a programme for forestry. But this does not, of course, pay farmers. There would have to be an annual subsidy if a lot of land was devoted to trees. Forestry brings in very little until it is clear felled. And then the Government would no doubt want a proportion of the sale value if they had been handing out subsidies to farmers for forestry planting. That would obviously not be very lucrative.
We recommended feasibility studies. This is an area where insufficient has been done. We never thought, 15 year ago, of growing lupins, oilseed rape, peas, beans or indeed having "pick-your-own" parts of farms. Today, those things are all being carried out very successfully. It is possible that if more inquiries were made we might grow crops which will be wanted in a world which, as the noble Lord, Lord Walston, has said, is changing all the time.
This leads me to my annual plea for salesmanship and knowing what the ordinary public wants to buy and eat. This is vital for the production of food if the food we produce is to be economic. We are better on this aspect of agriculture than many other countries, but I think that more has yet to be done. The Food for Britain campaign has been particularly successful. We could have given more support for it from the industry, but perhaps we shall do so in the future.
These reports which we are discussing today are highly technical, but they affect the whole community. If we allow land to become derelict and do not support the rural communities, we increase the problems of cities with regard to unemployment and we do not help the visitors and the tourist industry of this country, which is growing every year.
Do not let us underestimate the variable conditions which we all have to face. Although there are many surpluses there are some agricultural products which have a small margin of surplus—and this is on the right side. Agriculture is the most varied industry in the world. It is extremely difficult to legislate to please everybody. But we all recognise immediate problems of surpluses. To take a gradual plan, giving the farmers time to find different uses for the land, is the fairest way to deal with the problems, recognising that we cannot continue permanently as we are.
Finally, I should say that I think the proposals made by the noble Lord, Lord Walston, are ones which I have not heard put forward before, and we should consider them. Tonight we are doing something important. We are not only discussing what has been said in these reports but we are making suggestions which I am sure we ought all to consider. I hope that the department will consider them and pass them on to the Commission.
8.34 p.m.
Lord Northbourne: My Lords, I should like to join in thanking the noble Lord, Lord Gallacher, for the way in which he has chaired our committee and for the skill with which he has presented our report this evening. Unlike the noble Earl, Lord Ferrers, and the noble Lord. Lord Walston, I am in broad agreement with the conclusions of the report. If I may say so, the noble Lord, Lord Walston, was a little unkind to us in saying that we suggested only price cuts or price restraint. Perhaps the most important point which the report of the committee stresses is the need for consistency in the policy with which the Commission applies whatever sanctions or rules it decides.
In this context I must perhaps declare an interest as a cereal farmer. I can assure your Lordships that none of us who are cereal farmers will reduce our production by an acre until we are convinced that a system of quotas based on historic acreage production will not be introduced. The scheme of the noble Lord, Lord Walston, I believe surfers from some disadvantages associated with the necessity to restrict trading in cereals across national frontiers were it to be introduced.
This evening I should like to touch on two aspects of the Commission's proposals which have been mentioned in our report. The first is the co-responsibility levy. This surely must be the worst of all evils. In the first place it will be ineffective in reducing over-production. It is bad for the farmer because it reduces prices. In the form in which it is proposed it also severely penalises the British farmer. It is bad for the consumer because it keeps retail prices up. It will be expensive and difficult to administer. Finally, and perhaps most importantly of all, it will infuriate our trading partners and particularly the United States because it makes no serious attempt to reduce production but provides a subsidy for the dumping of European grain on world markets.
In contrast, I would argue—and here I am in agreement with the noble Earl—that the Americans are making a serious effort to reduce production. I would urge the Government to consider seriously and to press upon the Commission the NFU scheme for flexiquotas or temporary voluntary set-aside. The NFU emphasise that this is a temporary solution to tackle a very grave immediate problem. The essential feature of the scheme is that a farmer who wants to qualify for a quota must undertake to set aside 10 per cent. of the quota acreage as fallow or green manure crop during the same year. It is proposed that the scheme should apply to wheat in the first instance, but could be extended.
This proposal seems to me to have the advantage that it would be effective in reducing production on a short-term basis. Furthermore, it is fair. It would certainly not be more expensive to administer than the co-reponsibility levy, and probably much cheaper. It is also less subject to abuse. It has been objected that it is a waste of resources to set aside 10 per cent. of good land on farms which are suitable for cereals. I am not entirely convinced of this argument myself. It is not so long ago that we all thought a bare fallow was a pretty useful tool for getting rid of perennial weeds and building up the nitrogen in the soil. I am inclined to think that a farmer who fallows 10 per cent. of his
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land, although he will certainly lose the profit on that crop, may, through the saving of chemicals and increased yields in the following year, recover at least part of the cost of keeping that land clean, and perhaps part of its rental value.
One used not to see erosion in the English countryside. Now, as I drive around, I see it quite often. I wonder whether perhaps the green crop or a one-year ley ploughed in might be quite a good thing for some of our cereal farmers today. I believe that in the context of set-aside one could also consider intervention linked to set-aside—some sort of quality or quota for the right to put grain into intervention, bought by setting land aside. But, as I said at the beginning, quotas of whatever kind are probably only a short-term solution because they fossilise the patterns of production. If we are going to look at any other kind of limitation of production it is in one way or another going to reduce the profits of the farmer. It is going to take effect at the margins, and some farmers will suffer.
I want for a moment to look at one category of such farmers. Those are the small farmers who have already been mentioned by one or two speakers this evening. I wonder if much of the enthusiasm for small farms does not come from those who are not small farmers. I believe that the main reason why small farmers are so keen on their farms is probably in many cases because they represent the totality of their investment and the only way they know to make a living. It would be interesting to take a Gallup poll of small farmers and to ask them what their choice would be if they were offered the alternative of a pleasant house in a comfortable suburb and a stable job with a pension. I believe that 50 per cent. of the men and about 80 per cent. of the women would probably take the option.
I do not think, therefore, that we should be too afraid of structural change provided we are prepared to cushion that change. I believe that the CAP has consistently misled farmers over the past years. Even when its rhetoric has been calling for lower levels of production the signals which it has been sending out to farmers through the price reviews, year after year, have been set to "full steam ahead". Now that a change of direction has become essential I believe that the CAP has a responsibility to cushion those farmers who will be worst hit by the change.
I believe that it is time not only for the Commission but also for the Council of Ministers to take the problems of the CAP seriously. It is abundantly clear that the present crisis cannot be solved without a politically unpopular squeeze on farm profits. Production must be reduced, and restructuring will come. The longer it is delayed, the more painful it will be.
8.40 p.m.
Lord Mottistone: My Lords, I, too, should like to add my thanks to the noble Lord, Lord Gallacher, for his introduction. I nearly called the noble Lord my noble friend, because he is such a splendid chairman of our sub-committee. I should also like to thank the noble and learned Lord, Lord Templeman, for his introduction to his outgoers scheme, which to me is much less easy to understand. I am grateful to the noble and learned Lord for explaining it so clearly.

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Like other noble Lords, including the noble Lord, Lord Northbourne, on the whole I agree with all the proposals which Sub-Committee D has made in its report. I am talking particularly about the farm price review proposal. I thought that I might look a little beyond that and pose a few points to your Lordships which perhaps have not yet been covered.
Over many years the Select Committee has been proposing ordered solutions to the CAP problems and commenting on successive Commission attempts to grapple with the difficulties. I believe that the best basic idea which was first proposed by the Select Committee in 1979, when I believe the noble Lord, Lord Walston, was the chairman of Sub-Committee D, is the five-year rolling programme, which is briefly summarised in paragraph 77 of the report and to which my noble friend Lady Elliot also referred. I think that it is the best, both because it provides an ordered way of getting the CAP policy under control and because it can show the farmer the way forward in unambiguous terms.
The noble Lord, Lord Northbourne, said that he thought the CAP has misled the farmers, and I would agree with him. As it is presented, the CAP misleads the farmers because, on the one hand, they do not know what sort of an answer will come from the Council of Ministers and, on the other hand, there is no real forecast as to how this will look in two or three years' time. I believe that that is the most important single message which this House can go on thumping out.
Quite apart from the disastrous effect on surpluses and Community finances, which the continuing inadequate responses of the agriculture Ministers produce, it can also be unnecessarily disastrous for farmers. An unfortunate friend of mine was advised by my right honourable friend Peter Walker in the last Parliament, in the early 1980s, to expand his dairy farming. So he set matters in hand, had all sorts of construction done in his barns, and expanded his herd. It was all ready just in time for the introduction of quotas, for which my friend's extra capacity, with no track record, did not qualify. Therefore, to cut a long story short, after considering the matter my friend has had to leave dairying altogether. What is more, he did so before the milk outgoing scheme of the noble and learned Lord, Lord Templeman, came into effect, which might have given him some compensation. However, from the way I have heard the story, £8,000 a year for five years would not have compensated him anyhow.
Some people might say—I do not think that there are any such people in this House at the moment—that that is typical of the fate of someone in any industry which is over-heavily subsidised by central government. However, I would suggest that that is not the issue, because all countries, including the United States, have heavy state intervention in agriculture. In this country the principle of such intervention is not a political matter.
What is at fault is the unpredictability in guessing which of the Commission nostrums in a particular year will be acceptable collectively to the apparently cowardly agriculture Ministers. This appearance of
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cowardice is explained in part by a point recently put to me by a MEP. We now have in the EC 12 countries, all of which have roughtly four-year intervals for elections. Thus every year an average of three agriculture Ministers will be under electoral pressure. This factor, plus the special interests of individuals such as the German agriculture Minister last year and presumably the new French agriculture Minister this year, have at last convinced me that the solution to the CAP problems will never be found in exhorting the Council of Agricultural Ministers to be brave and resolute; collectively they just cannot be.
Another point, which it seems to me is less important than it is made out to be, is the:
"vast cost of the CAP to the Community".
At 1·4 per cent. of VAT for all Community expenditure, with the CAP at 75 per cent. of that, the CAP's actual cost to individual member states must be under 0·5 per cent. of Community governments' income from taxes. When one compares that in the UK with the costs of, say, the National Health Service, with its very strong pressure groups for more, and education, also under pressure for more—to take but two of the current socially popular expenditure areas—the CAP must rate low in comparative expenditure. I may be wrong in this, in which case perhaps my noble friend the Minister may be able to correct me when he comes to reply. I did not have time to check those details after preparing this speech over the weekend when I was mainly engaged in cutting stinging nettles.
Turning to another much quoted point, which certain noble Lords have already mentioned, I do not believe that the common agricultural policy is in its death throes or that it will collapse; nor, incidentally, do I believe that the Community will collapse at a later stage. Because of what I pointed out earlier—that all governments have heavy state intervention in their agricultural policy—I think that the CAP is here to stay. Therefore, I do not think that we need to bother about whether the Ministers can be made to be strong, whether the finances matter very much, and whether the common agricultural policy will die. Those are points which I think we can disregard.
I believe that we are left with two particularly bad aspects about the present administration of the CAP, both of which are highlighted in the reports that we are debating. The first is a fact to which I have already referred. Without the guidance of a five-year rolling programme it is very difficult, if not impossible, for farmers to plan ahead, to balance their books year by year, and to make their contribution to providing just what the customer needs plus a prudent—and I emphasise the word "prudent"—reserve.
The second main administrative fault has been in allowing the surpluses to develop to such a level that they endanger our international trading position in agricultural goods and, at a more remote stage, the proper balanced development of agriculture in third world countries.
This leads me to a suggestion, which in particular expands on paragraph 71 of the report on the price proposals, which suggests that the funding of social needs should be tackled separately from the management of market mechanisms. On this point I am saying that we are driven into corners in the same

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way as all the expenditure on the common agricultural policy within the UK is parcelled into a particular corner, and therefore people do not compare it with the costs of the National Health Service, because that is national while the other aspects are international. There is too much parcelling of social items as opposed to agricultural items within the Commission. It is a great hampering of development if these items have to be parcelled into those corners because it suits administrators to do it that way.
I believe that we need to go back to the basic considerations of the Treaty of Rome. Article 39 of that treaty says that there are five objectives for the common agricultural policy:

"(a) to increase agricultural productivity by promoting technical progress;

(b) thus to ensure a fair standard of living for the agricultural community;

(c) to stabilise markets;

(d)to assure the availability of supplies;

(e) to ensure that supplies reach consumers at reasonable prices".

For some time now we have been saying in committee that many of those points are mutually exclusive, contradictory, or whatever. But in point of fact it is a good basis from which each year, and always, the Commission could look at the problem before it. It does so from time to time, and I give it credit for so doing. But I believe that it needs to tackle the whole thing with two objects in mind: first, to produce a policy which over five years on a rolling programme achieves those objectives, balancing them out so that they are all balanced and some of them are not more strong than others; and, secondly, how it can present these to the agriculture Ministers so that they do not have to make impossible decisions that their electorates will not consider.
I do not believe that the Commission ever gives thought to that latter point, but it is the body that takes decisions. The object of the exercise must be, if you have a good plan, to try to get the decision-makers to agree to it. It is no good just producing a whole bundle of figures and hoping that they will get this right and that they will not be diverted by this, that or the other pressure group within their own countries. What I suggest the Commission should do is that, having got its basic five-year rolling programme, it then identifies the effect of its proposals in any one year on each of the five basic principles I read out. It should also identify what effects alterations to the basic plan would have on the five basic programmes.
Members of the Commission may say that if such and such an action is taken the farmers will suffer, or if another action is taken the consumers will suffer, and so on, and they may identify all these points for each and every one of their main proposals. They may not only do it for the present year but they may also show that, if there are alterations in regard to the present year, that is going to affect subsequent years within the five-year rolling programme. Then they may perhaps get the agriculture Ministers into a position where they can see more clearly the effects of their particular hobby-horses on the common agricultural policy as a whole, and they may be more ready to agree to what I would call a rational, collective decision instead of one entirely biased by the elections just around the corner.
I do not believe that we shall get effective management of the common agricultural policy unless
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we have that sort of solution. Whatever happens, we must have it managed better. That will be achieved by the Commission putting it up in the right way and by the decision-makers making the right decisions. I think we shall go on year after year putting up jolly good ideas. If our ideas in 1979 had been listened to, we should not have the problem we have today, particularly so far as the farmers are concerned. If Sub-Committee D were allowed to run the CAP we should probably do it very well, but somehow the system does not permit that. Therefore, the Commission has to do a much better job and be clearer in its main aims. I plead that that will come about.
8.55 p.m.
The Earl of Radnor: My Lords, I too should like to congratulate the noble Lord, Lord Gallacher, on the report, and also thank the noble and learned Lord, Lord Templeman, for allowing members of Sub-Committee D to attend his committee and listen to the deliberations on the milk outgoers scheme. At the same time, my noble friend Lord Monk Brett on has asked me to apologise to your Lordships because he too, like another noble Lord, had to leave, not anticipating that the business before the House before this debate would go on for quite so long.
I myself shall not go on for very long. The hour is late. My view of this question, apart from the fact that I almost implicitly and exactly agree with the findings of Sub-Committee D, is that the whole matter is far too complicated. I take the point made by the noble Lord, Lord Mottistone, that there is no effective will in Brussels, and I take many of the points that the noble Earl, Lord Ferrers, has put across that this is an unpleasant situation that farmers are in; and presumably farmers throughout Europe are in the same position. We ourselves of course are bound to see it here.
I am sure, as he seems to be, that hard times are coming. But it seems to me that the solutions produced are merely postponing the fateful hour. Through no fault of themselves, so far as I am concerned, farmers have produced food far in excess of consumption. They have been efficient, and their back-up in the form of scientists and geneticists has been very efficient indeed; and they have, if you like, been lured on to their doom by the common agricultural policy and by subsidised products, and indeed by capital grants. It is a very short time ago—and I ought perhaps to have declared my interest as a farmer—that I was taking really massive grants out of Europe to improve my efficiency as a grain farmer and a milker of some 500 cows.
It is not the farmers' fault. I do not believe that the set-asides and the kind of solutions that the noble Lord, Lord Walston, produced—which I too shall be interested to read as soon as I get Hansard—and all the other solutions that are produced, including those at present produced by the Commission and the Council of Ministers themselves, will deal with the situation. What has come out of this debate and comes out in both reports is that the Commission, or the Council of Ministers—I suppose it is the Commission—is endlessly optimistic. That comes out in all the evidence. Therefore its figures are suspect, before we

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find out that its figures are not going to deal with the situation anyway.
We start with a completely impossible situation. I do not think that the sort of answers that the noble Lord, Lord Mottistone, produced in going back to Article 39 will get the Commission out of what I consider to be very bad habits indeed. I listened carefully when my noble friend read out the points that the common agricultural policy was meant to achieve, and I felt that it had not achieved very many of them except that it had produced food, and obviously too much of it.
What are the answers? As I said at the start, I think the answer must come through the price mechanism on a five-year rolling basis, as suggested by Sub-Committee D. I think that the five-year rolling basis has a lot of advantages. For one thing, it will show when the matter needs to be redressed one way or another. I think that it is simple and will work or at least has as much chance of working as all the other complicated mechanisms that have been suggested. If it does not work, the suggestion that quotas should be looked into and studied now in case they have to be brought into operation is of importance. It might come to that.
Those are the ways to go about it. I always believe that simplicity can help the Commission quite a lot. The same applies to the milk outgoers scheme. I am not going to pre-empt anything that the noble Lord, Lord John-Mackie, may say. He knows that I would favour a cut in quotas across the board rather than this voluntary scheme, with countries being obliged to take up what slack there was if people did not outgo.
Farmers do not voluntarily go out of dairying when there is nothing much to jump into. The optimism expressed in the report on the outgoers scheme that everybody will jump at this opportunity may not materialise. The hardship will be very bad indeed. The noble Lord, Lord Northbourne, mentioned the small farmer. He will be hit first, almost inevitably. I think that this problem (and I cannot quantify it in any way) will come up for discussion in Brussels and perhaps in committee. The social side of life in the country somewhere down the line must be divided in our minds from the purely agricultural side and direct aids will have to come into the equation that is being talked about.
However, I have one suggestion which I would just throw out. I do not suppose that it is possible, but I remember some time ago that smallish farmers got together and formed machinery syndicates to buy machines that each one as an individual could not purchase. It started quite close to me. I live in Wiltshire, and it started in Hampshire, I think. This was a splendid exhibition of people co-operating for the common good. It is just possible, I suppose, that small farmers could get together in some way or other, without losing their identities, to make themselves more effective in a harsh commercial climate. It would have to come from them. I am not talking about government direction or direction, or even suggestions, from the Commissions; it is a suggestion that I make myself.
The other point that depresses me in this debate is the assumption that every time prices are dropped
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farmers will immediately endeavour to grow more. I think that the price drop may be a little too severe for them to want to do that. I just throw out the thought to your Lordships that for a long time now, ever since Professor Lalov thought up the tramlines, and people started putting on more and more nitrogen and spraying on more and more fungicides, the whole idea of maximum production has reigned in agriculture.
When I started—perhaps you had to have a rather poor mentality and a poor soil—I said, and think that I still do so, "I am a low-production person". I have a poor soil but I have a lot of it. But I do not see why there should not be developed a move—and it could come into education and advice, if you like—not to concentrate on these huge crops which have been some small part of the trouble, but to have all the education directed against the margins that the farmers are going to make and the profits they are going to make. I am a low-cost farmer, and have been one all my life—I do not say on the very best soils—but a low cost farmer can do very well indeed. That is the way they should think and that is the way, if there is to be government advice, it should be directed.
I think there is little more that I can say except to reiterate that it is a difficult prospect for farming. I wanted to put in one small plug which I know that in a previous debate the noble Lord, Lord Northbourne, put in. It offended me a little in one of the cereal reports when I came to read it, although I was absolutely a party to the report, that the third world, the starving third world, was obviously—as indeed it is not—an answer to cereal surpluses. I think that perhaps we might think of them a little more strongly that we have in the past in times of dire emergency. It passed through my mind that if I was a Sudanese or Ethiopian and dying of starvation, it would be of little point to tell me that I should not have the food because it might prejudice my learning how to grow it myself.
I think it is a very difficult problem. It has to simplified along the lines suggested by the Select Committee.
9.7 p.m.
Lord Middleton: My Lords, the noble Earl, Lord Radnor, has referred to the price mechanism and has made it his first choice as a tool for the reform of the CAP, and the Select Committee has consistently recommended that the build-up of farm surpluses would best be controlled through the price mechanism. We say this again in each of the three reports that we are debating tonight. In the 1986 report on cereals we reiterate the advantages of a restrictive price policy, and they were identified in last year's report on the reform of the CAP. They are set out in paragraph 76, and I will not repeat them.
The fear has frequently been expressed that a too-rigorous implementation of a price solution would lead to contraction in the industry, leading to bankruptcies, to unemployment in the ancillary trades and to undesirable social consequences in the rural areas. That fear has been voiced again by my noble friend Lord Ferrers tonight and, if I may say so, voiced very eloquently. He has given his estimate of the drop in cereal prices that has taken place over the last two years.

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The Home-Grown Cereals Authority, in its written evidence, thought that a reduction in prices of £10 a tonne would make EC cereals competitive in world trade but such an immediate reduction, it said, would have a severe effect on farm incomes. The Select Committee has therefore recommended that price reductions should be made gradually by means of a five-year programme, announced in advance and maintained on a consistent basis. The Home-Grown Cereals Authority also said in its evidence (and this I think was a key sentence) that to be successful a price solution must reduce the EC cereal surplus to one that can be marketed.
While I am in agreement with the Select Committee's consistent advocacy of a price policy which takes account of the realities of the marketplace, I am not convinced, at any rate in the case of cereals, that reduced production will follow. When we debated the CAP last October, I remember saying with other noble Lords that in a competitive world efficient producers will always step in where others cannot cope, and these producers will endeavour to grow more in order to compensate for lower prices. I believe that is true, but my noble friend Lord Radnor has his doubts.
Turning to the question of marketing—and again I refer to the trade in grain and to our debate of last October—I think I suggested then that a lowering of EC prices would create opportunities for increasing the EC's share of the world trade in cereals. My noble friend Lord Ferrers has reminded us that since then there has appeared the United States Farm Bill, and Part 3 of the Farm Prices Report assesses the likely impact of that measure. The object of the Bill is to underpin United States domestic prices in such a way as to enhance export competitiveness. My noble friend Lord Ferrers reminded us that the effect will also be to increase the funds available for export subsidies. The Farm Bill, and a dollar exchange rate more favourable to its implementation, will make it more difficult for the EC to increase its share of the world grain trade.
An interesting feature of the US Farm Bill is the set-aside scheme which it incorporates. In order to participate in the support programme, United States farmers will have to set aside a portion of their land that previously grew cereals. The Bill provides for a an acreage reduction of up to 30 per cent. for wheat and 20 per cent. for coarse grains for the next three years. That leads me, in view of the doubts I have expressed as to whether price restriction alone can succeed, to wonder whether we might perhaps be looking at something of this kind in order to solve the problem of European grain surpluses and the certainty of ever-rising productivity. I was very interested to hear that my noble friend Lord Ferrers had come to the same conclusion.
The National Farmers' Union told us in evidence that they had some such scheme in mind, and they refer to it in their recent briefing paper. The noble Lord, Lord Northbourne, has spoken in its favour. It seems to me that the disadvantages of the National Farmers' Union scheme, of which we were given only an outline, are that it is not to be accompanied by a price policy and that it is to apply right across the board to all wheat growers, irrespective of the productive capacity of the land to be cropped.
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I believe that a set-aside scheme, to be successful, must, first, supplement a restrictive price policy of the kind advocated in our reports and, secondly, must encompass some kind of payment to farmers on a scale calculated to provide an incentive to take out of production land that is least suited to cereal growing and which would at the same time encourage grain to continue to be grown on the most productive land where economically efficient production is achieved.
I shall now turn briefly to the milk producers' outgoers scheme, which was proposed last November by the Commission. I should like to concentrate on one aspect of that scheme because it seems that the Commission's proposals did not take fully into account the United Kingdom's system of land tenure. The committee of the noble and learned Lord, Lord Templeman, examined with great care the legal aspect of the quota system already in operation. The noble and learned Lord has explained the conclusions at which his sub-committee arrived and its recommendations as to how the EC outgoers scheme should be worked in the case of let land in England and Wales.
He has also explained that where under the proposed EC scheme a farm tenant decides to go out of milk by surrendering the quota and accepting the generous compensation which is suggested, the practical effect will be that for the duration of the quota scheme, which may well be for many years, no milk production may take place on that farm. Not only during that tenancy, but after its termination, that land is in effect sterilised as regards any dairying operations.
In its evidence the Country Landowners' Association pointed out that that could not fail to have an impact on the value of a holding tenanted by a farmer participating in the outgoers scheme. The Tenant Farmers' Association agreed with that view. In its evidence it showed how any fall in value, by reason of the relinquishing of the milk quota, would vary according to what alternative system of production the holding was capable of sustaining.
The NFU, however, in giving its evidence could not agree that the capital value of the holding would be affected by the scheme. The CLA told the committee that in its view, since the landlords' reversionary interest was at risk, the proposed scheme was defective because, first, no requirement is made for a participating tenant to obtain his landlord's consent, and secondly, the proposal that member states could, if they wished, arrange that part of the compensation on the surrender of a quota could be paid to the landlord was unsatisfactory in that it did not take into account any diminution of the capital value.
As the noble and learned Lord, Lord Templeman, has explained, his sub-committee agrees with that view. It says so in paragraph 67. It agrees that insufficient regard is paid in the proposed regulations to the interest of the landlord and insufficient discretion is left to member states. The sub-committee recommends that in the case of let land the landlord must be notified before a tenant applies for the outgoers scheme and that the grounds on which the landlord may object to the application should be at the discretion of member states. It recommends that member states should be required to make provision for the compensation to be apportioned between

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landlord and tenant in accordance with such criteria as the member states may consider appropriate.
As to what method should be employed by the member states to apportion compensation between landlord and tenant, the sub-committee has not come up with a recommendation. While I agree wholeheartedly with the committee's recommendations, I feel that on reflection it might have gone a little further in recommending a solution to the compensation problem in the case of a tenanted farm.
A solution was suggested. It was put forward by the Tenant Farmers' Association. If the Government are given a discretion in this matter, I would draw the attention of my noble friend the Minister of State to the evidence given by Mr. Henry Fell for the TFA on pages 26 and 27 of the report. In discussing the apportionment of compensation in the case of a tenanted farm he suggested that a fair method would be to capitalise any loss in rental value and that that capital sum should be taken out of the total compensation due to a tenant going out of milk. When questioned by the sub-committee as to whether he would be content to see Article 4(2) of the regulation altered so that the landlord received part of the compensation, except in cases where the land remained as valuable without a quota as it had been with one, Mr. Fell replied, "That is our policy".
Such a basis of apportionment has the great merit that it is proposed by the tenants. I understand that something along those lines will be acceptable to the landlords. What would simplify matters greatly would be for the United Kingdom Government to be able to operate a quota scheme so that there was a pool of unused quota sufficient to allocate a quota where a tenant farm is relet. Such a scheme would of course need to be worked so as to keep within the national quota.
With those suggestions I should like to support all the recomendations of the sub-committee of the noble and learned Lord, Lord Templeman. Perhaps I may also join my noble friend Lord Radnor in offering him my thanks for allowing me and other members of the Agriculture Sub-Committee to attend his inquiry and deliberations.
9.20 p.m.
Lord Stanley of Alderley: My Lords, perhaps I may be allowed to congratulate Select Committees D and E on their reports, and, in particular, to thank the Deputy Chairman of Committees for getting parliamentary time to draw the attention of the House to the crisis that faces the agricultural industry, and indeed rural well-being today—a crisis that the Council of Ministers, the Commission and even my right honourable friend the Minister of Agriculture seem unable to grasp or to do anything about, as was so ably explained by my noble friend Lord Mottistone.
This crisis—and I do not intend to moderate my description of the situation—is the result of success: the success of the revolution in agricultural production since the war, for we all know that we are now producing too much at prices that the customer cannot, or will not, pay. So as a farmer I should like to congratulate the Select Committee on grasping the nettle in sticking, or almost sticking, to the solution of
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the problem of price restraint; and, despite my noble friend Lord Ferrers' remarks, not price restraint for one year but price restraint over a period of years, as was so well described at paragraph 61 of the Select Committee's 10th Report, which was referred to by my noble friend Lord Radnor.
The Select Committee spells out why it favours price restraint, but I should like to add, and to reinforce, some of my reasons for supporting such a policy of price restraint. First, it will work. If you drop the price paid you must save money, and that, sadly, is the name of the game today. Secondly, price restraint is simple and easy to operate. Any system of quota, set-aside, flexiquota, will involve bureaucracy, and although such systems might work in the highly organised United Kingdom agriculture, they will not work on the Continent. Indeed, they are more likely to result in the Continental take-away. Such systems will be abused, and as proof I suggest that a study of the olive oil regime would be worth while, let alone the chaos reigning today with milk quotas, about which my noble friend Lord Middleton has just spoken, causing untold harm and disharmony between landlords and tenants. This was brought out by the noble and learned Lord, Lord Templeman, in his report.
Thirdly, any mention of such a system of quotas will allow weak-kneed politicians and others to concentrate on this method as a rathole, rather than concentrate on the main issue, which I, and the Select Committee, believe is price restraint. For that reason, I find fault with the committee's paragraph 108 of the 6th Report, which suggests quotas—and the noble Lord, Lord Gallacher, brought this out—as a policy of last resort; and, of course, I object to the National Farmers' Union's flexiquotas. I ask my noble friend Lord Belstead not to be diverted by such diversionary tactics.
Fourthly—and to me of most importance—I believe in price restraint as the only way to preserve British agriculture's place as one of the greatest, if not the greatest, of our most efficient industries. I am proud to be a farmer and to be a member of a resilient, hardworking, independent society. Quotas will destroy such a spirit and will divert the farmers' inventiveness and hard work into quota avoidance and manipulation. Your Lordships may laugh, but I have already spent some happy evenings with my family on how we could legitimately fiddle such regulations. We do not see why we should always lose to the French, and we will not; but it will not help the system.
Finally, the option of doing nothing is not open to us, for that will result, as it has in the past, in ad hoc cuts, and that is certainly the worst possible situation. Such a system of price restraint will cause hardship but so will any other system. There is an element of the devil take the hindmost in my system of price restraint, but what is wrong with such a philosophy? Your Lordships know better than anyone that we were put into this life to strive to do better. There will be farmers who will go to the wall under such a system—perhaps one in 10—but the same numbers will go to the wall under any system and the remainder will be damaged.

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Some areas will be under great pressure; but paragraph 71 of the 7th Report gives the answer or part of the answer to some of these problems. I must support such systems to alleviate the pain. Such areas may go for low cost systems, as suggested by my noble friend Lord Radnor; but of course his rents would have to fall drastically, and I hope he will appreciate that point.
A system of price restraint over the years will allow and encourage the fittest to survive and prosper and not to stagnate and ossify as any other system would. Provided the United States takes a similar line and does not continue to subsidise her farmers at twice the amount given to European farmers, which was a point referred to by my noble friend Lord Mottistone, we shall be able to compete in world markets, the over-supply problem will be solved and British agriculture and the rural economy will flourish. That is my answer to the worry of my noble friend Lord Middleton of farmers moving in to fill the gap. Yes, they will, but they will fill it by exports.
I hope that my noble friend Lord Belstead will not shrink from a policy of price restraint. I believe that many, if not most, farmers in the sticks support such a system even though their voices are not always heard.
9.28 p.m.
Lord John-Mackie: My Lords, we have had a long and very interesting debate. The first thing I want to do is to congratulate our two chairmen on the way they have put forward their reports. They put them forward very clearly and concisely. The noble and learned Lord, Lord Templeman, put his forward so well that he almost made my case for me, but that will come out later in what I have to say.
I have taken copious notes and I think that most of what I have taken down will come out in the paper which I wrote yesterday—not being allowed to shop on Sunday now—except for the speech of the noble Earl, Lord Ferrers, on which I think we should do well to congratulate him very deeply and to read it again because, like the noble Lord, Lord Walston, I think it must be one of the best speeches he has ever made—certainly from the Front Bench which he used to occupy very well.
I should like to give the noble Earl a little comfort. He said that the future was black indeed. I always remember my old father at the age of 85 discussing some problem in agriculture. He made the remark to a few of us much younger than himself that he had come through so many crises that he now refused to believe in them. Perhaps that may be of some comfort to the noble Earl, and perhaps the crisis he paints as being very black is not so black as he thinks.
One other point that was made with which I very much agree, and which I mention in my paper, was that made by the noble Lord, Lord Northbourne, concerning fallowing. We have forgotten our old husbandry methods nowadays, and I am sure that taking land out of use to fallow it might be a good solution to some of our problems.
There are three reports before the House. The reports on cereals and on milk cessation reflect the efforts of the EC to curb over-production. In my
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opinion, the report on farm price policy is a demonstration of how little the EC is prepared to do about it. One has only to read the summary of conclusions to appreciate that. I will quote from the price policy report, where all through the summary of conclusions beginning on page 26 there are remarks such as:
"Agricultural spending is not under control",
and,
"The gravity of the present situation is aggravated".
and,
"Agricultural Financial Discipline will be seriously breached this year,"
and,
"Farm Price proposals are inadequate".
and that there,
"cannot be a permanent solution to the problem".
etc. Those are the kind of remarks that show that we are not satisfied that enough is being done.
The surpluses have arisen, as has been emphasised by one noble Lord, because of the speed at which farmers have made use of new technologies in all their aspects; plant breeding in particular, fertiliser use, chemicals, improvements in mechanisation, efficient use of buildings—and all that in the past 20 or 30 years.
In 1953 I had the temerity to suggest that we could produce up to nearly 80 per cent. of out own temperate foods. I based my calculations on the increase we had made since farming began to be properly supported, in about 1935 or 1936, up until 1953. Very few people would believe me. In fact, I was almost laughed out of court for making such a ridiculous suggestion then. Little did I think that in less than 30 years from then we should be producing 100 per cent. of our temperate food, and now well over that and creating surpluses. Nor did anyone else, I may add. Yet there are plenty of critics all basing their prognostications on hindsight.
A friend of mine had his golden wedding on 4th April and I thought that a nice present would be to give him a copy of The Times for that date in 1936. I sent for it and, being in a thrifty mood, I thought that I might have a look at it myself before posting it to him. One of the pages contained a report of what Mr. Walter Runciman had said about the worry of not having enough wheat in the country. There was only 214,000 tons and he thought that we should have 1 million tons or so in reserve. He pointed out that it cost four old pennies a week to store one ton, which he did not think was unreasonable.
On the same page there was a report on the work of German scientists on turning wood into food They had put forward various figures that showed that one could produce food from an acre of wood equal to the same volume of food from an acre of arable land. That is quite extraordinary, as here we are today being asked to grow more trees for the sake of the wood and appealing to our scientists to turn food into fuel. I am certain that if the noble Lord, Lord Broxbourne, had still been here, he would have a Latin quotation ready to deal with a turnround like that.
More seriously, we are recommending a programme of reducing prices over a period of years with the

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ultimate aim of reducing the gap between support prices and world market levels. In the early stages—and this has been pointed out by other noble Lords—if a reduction is big enough it will force farmers on lower grades of land to stop growing cereal, and frankly in some cases it may put them out of business. But that is not where the surpluses come from. It does not allow for the resilience of the farmers in the main cereal growing areas—all the way from Wiltshire, right along the south coast, up the east coast and all the way to a few miles north of Inverness in the Black Isle. They will sell their Land-Rovers, cut back on renewing machinery every year, pay off labour, unfortunately, and carry out a host of savings resulting in the neglect of fixed equipment, hedges and ditches, and so on. This will include, as the late Peter Smith said at an Oxford farming conference a few years ago,
"Stop using a JCB for burying a dead cat".
There is quite a lot of that. I had reason to tick off my stockman a few years ago for using a 100 h.p. tractor to take one hundredweight of cake from the store round to the calf shed. I said, "Good gracious, Charlie, could you not have used a wheelbarrow?". He said, "Guvnor, we haven't got a barrow". We now have a barrow.
What will happen is that the new varieties of plants, fertilisers and sprays will not be cut. We know what that will do—it will expand production. Therefore, before there are meaningful reductions in production we shall have stocks in the region (I believe one noble Lord mentioned 80 million tonnes) of 90 million tonnes: the EC's figure, not mine. There are other calculations suggesting 100 million tonnes by 1991.
If we take a look at the proposals for the 1986–87 prices, what is there to indicate a willingness to carry out a price policy to reduce production, let alone get rid of stocks? In money terms the reduction is nil, although calculated in real terms there is a reduction of 3.4 per cent. It is all set out on pages 13 and 21 of the report. This is insignificant in relation to the problem. There is, of course, the co-responsibility levy of 3 per cent. which, as was pointed out, is likely to be most unfair to British farmers. There is intervention buying, which will be only from December to April, and there is to be, of course, the tightening up of standards.
The committee looked at all those proposals and is not too impressed with them; nor is it too happy that its own proposal will be accepted or applied in time to do any good at all. Therefore, it is appealing to the Commission to investigate the feasibility of alternative policy options. I think that shows that the committee is not too happy, in spite of the plea of the noble Lord, Lord Stanley, for price restraint, that it will work. It has asked the Commission to investigate the feasibility of alternative policy options, and although it is rejecting—I am almost quoting the words—the future of the CAP based on quotas, it includes these in the feasibility study. I have a feeling that sooner rather than later we shall have to take a close look at quotas, or the quantum scheme of the noble Lord, Lord Walston, which is basically the same principle, in spite of what I admit are many difficulties.
At this point I had a page of notes on what the noble Earl, Lord Radnor, said on the question of giving these surpluses to people who really need them. However, I
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think that at this time of night I shall leave that for another day. Therefore, let us consider the report on milk production and the outgoers scheme which starts on page 16. I thank the noble and learned Lord, Lord Templeman, for welcoming us on his committee. It was an education, if I may say so, to see how the legal mind works. On page 16, paragraph 59, the committee states:
"the … scheme will be more efficient, more flexible, and politically more acceptable".
It is not very flexible in its actual operation. A farmer elects to go out. He is paid 26 pence plus, per litre and he cannot produce milk on that land as long as there is a quota system in operation.
If flexibility means it is voluntary and can be taken by any farmer in any part of the country, this does away with its efficiency. It could be over-subscribed or under-subscribed, and there are various estimates one way or the other. If it is over-subscribed, is more money to be produced, will there be a ballot, or, as somebody said, will there be committees all over the country to decide which farmers should be allowed to take it? If it is under-subscribed, what do we do? The committee suggested a compulsory cut to quotas across the board, confirming my point that it would be better to do that to begin with. That is on page 17, paragraph 61. It does not say whether that will be without payment. If the scheme is heavily subscribed in particular areas, as one noble Lord said, this would have the effect of closing down creameries, perhaps leading to a local scarcity of milk.
It has been suggested that it is politically more acceptable. Is it? There is the problem of who decides in the case of tenanted farms, the landlord or the tenant, as the noble Lord, Lord Middleton, said. Owner-occupiers, especially of farms in predominantly dairy areas, will have to think deeply about reducing the value of their farms by taking the outgoers scheme. On first appearances, it seemed financially attractive. There have been various calculations. The noble and learned Lord, Lord Templeman, had £8,000 rattling about in people's pockets for a while, and my calculation was that for a 60–cow herd they would be getting roughly £70,000 spread over seven years. However much it may be, it did look attractive; but along came the "wicked landlord"—and I may say to the landlords here that I have "wicked landlord" in inverted commas—and persuaded the Government that anything up to 70 per cent. of that could be his. That takes the gilt off the gingerbread with a vengeance, so I cannot help thinking that it cannot be politically attractive.
In order to deal with the same subject of quotas and normal outgoings, another place was inflicted (if I may use that word) with an amendment by the Ministry of Agriculture to carry this out, in no less than eight columns of Hansard. I do not know how many noble Lords have read it. The noble and learned Lord, Lord Templemean, told me it was fascinating reading, so I went and got the appropriate Hansard. It may be fascinating reading to a lawyer, but it certainly beat me in the short time that I had to look at it. That is just one of the problems which will arise if this scheme comes into effect and a decision has to be taken as between landlords and tenants.

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This scheme bristles with difficulties. This is pointed out in almost every paragraph of the "Opinion of the Committee". The noble and learned Lord, Lord Templeman, when he was putting forward his report, seemed to be suggesting, if one listened to him carefully, that at every point there was a problem or a difficulty. Yet the Committee recommended it.
Sub-Committee E is the legal committee and is well stacked with legal luminaries apart from two, I think. I have great respect for the legal profession and the way in which they tackle complicated problems. Of course, if the problems were not complicated they would not earn a living, but I think this leads them subconsciously to presume that everything must be complicated and that anything simple must be avoided. I am sure that the noble Earl, Lord Radnor, will agree with me there.
I think that this has happened here. We have a quota scheme in operation. All the administration is there. The EC wanted to reduce milk production by 3 per
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cent. What could have been simpler than to do it by just cutting quotas by 3 per cent. and, I may add—and this is always missed out in the criticism of my scheme by the noble and learned Lord, Lord Templeman—pay for it? Give the 26-point (whatever it is) pence per litre for the 3 per cent. No, they would not accept that simple scheme but produced a scheme which is full of complications. This is the EC, and Sub-Committee E falls for it.
I must apologise for being so critical of this scheme but I think it will prove to be a headache if it ever comes to fruition. These three reports have been gone into very fully indeed by the members of the committee. They have been produced, and we hope that on the whole the Commission, Parliament or the Council of Ministers, whatever body it is, will look at them very carefully. We are much obliged to the chairman and all the members of the committee for the work which has been put in, and of course to all the people who gave evidence.
9.46 p.m.
Lord Belstead: My Lords, I should like to congratulate the noble Lord, Lord Gallacher, and the noble and learned Lord, Lord Templeman, on the production of the three valuable reports on problems in Community agriculture, which seem to grow even more complex. Of course we are now in a tough and complicated price-fixing negotiation. Indeed, the Community Ministers of Agriculture are meeting today in Luxembourg.
The noble Lord, Lord Gallacher, covered some of the background to this year's negotiations in his opening speech. As the noble Lord reminded us, last October we debated the sub-committee's report on the common agricultural policy which coincided with the Commission's Green Paper, Perspectives for the CAP. The Commission has now issued its price proposals for the coming year and is expected to tell the council this week of its ideas for what it terms socio-structural measures, which are intended to ameliorate some of the effects of its prices policy on certain rural structures.
However, the main features of the price proposals are a price freeze for the major commodities and substantial measures affecting intervention and other aspects of support. The overall effect of the proposals is tough, but against the background of massive surpluses and rising budgetary costs they are proposals which are very unlikely to solve the problems we face.
The noble Lord, Lord John-Mackie, when making his speech, read out one or two brief extracts from the farm prices report which show that that committee took a very serious view of the position as the committee found it and it sees the need for even more sustained action, which is a view with which the Government entirely agree. The fact of the matter is that impressive advances in agriculture in Europe and all round the world have brought us to the position where even China and India, with their teeming millions, are becoming exporters of cereals and the world market cannot buy an unlimited quantity of surplus produce.
The costs involved in disposing of Community surpluses continue to rise and tensions in world trade between exporters of agricultural produce are becoming increasingly evident. The costs of disposing of surpluses should really not be understated. As the Community has crossed the threshold of self-sufficiency in most European commodities, so CAP costs have almost doubled in the past eight years, and every 1 per cent. fall in the value of the United States dollar adds about £62 million to the overall costs.
My noble friend Lord Mottistone raised a question as to whether the expenditure of the CAP is really quite as high as perhaps we sometimes make it out to be. I would just say to my noble friend that of course the Community's budget consists not only of the 1.4 per cent. VAT contributions but also of revenue from import charges and various other charges, including co-responsibility levies. However you compute it, the brutal fact is that the cost of market support of the common agricultural policy today
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makes up some three-quarters of the total Community budget.
The report of your Lordships' Select Committee on cereals discusses not only the key issues of supply and demand in the cereals sector but also rightly draws attention to the implications of policy changes in the United States which will make it increasingly difficult for the Community to maintain its market share, let alone to expand it. We have to face this fact. As my noble friend Lord Ferrers urged, the Community has to talk to the United States about this and in particular to do so by negotiating through the GATT which, after all, is the machinery that we have for resolving disputes and liberalising trade. Meanwhile, unless effective new policies are adopted by the Community, even greater surpluses will follow in the future.
The main elements of the Commission's proposals, as your Lordships well know by now after our long debate, are a price freeze, tighter quality standards for sales into intervention, changes in the intervention arrangements themselves, including restricting access to intervention to five months of the year—this is all on cereals—and the introduction of a co-responsibility levy on first-hand sales, with the first 25 tonnes sold off a farm to be exempt.
In a speech which has rightly drawn favourable responses from many of your Lordships and which I very much enjoyed, my noble friend Lord Ferrers gave the view that the recommendations of the Select Committee are bound to lead to agricultural dereliction. I should like to put the committee's recommendations, and indeed the Government's views, in a wider context, for both go wider than simple recommendations for cutting prices, as indeed my noble friend's thoughts went wider as he developed his speech. The farm price policy report argues that growers cannot be immune from the basic forces of economics and that a sustained prices policy would lower production.
This is the first enormously important point that comes out of the sub-committee's report—the fact that price policy must be sustained if it is to be effective and if it is to be fair to the producers concerned, a point made by my noble friend Lady Elliot, in essence by my noble friend Lord Mottistone, and most robustly by my noble friend Lord Stanley of Alderley. The Government have consistently argued for this. We believe that the price policy must be the centrepiece—not just stand alone but be the centrepiece—of a package of measures.
Tighter quality standards, provided, as the committee says, that they genuinely reflect market requirements, and limitations on access to intervention, would help in this by stimulating sales on the free market and hence reducing stocks. In the United Kingdom alone, these stocks now total 6 million tonnes and have a value of more than £700 million.
I follow the noble Lord, Lord Northbourne, in saying that a co-responsibility levy, on the other hand, would have no similar beneficial effect. Indeed, the noble Lord, Lord John-Mackie, with all his experience, dismissed the idea of a co-responsibility levy in about half a sentence. It is an idea that would

1057
do nothing to stimulate consumption. It would create distortion in the livestock market as growers set up livestock units to consume their own produce. As the committee rightly noted, it would provide a way round the discipline of the budget guideline and it would be difficult and cumbersome to administer. More than that, it would discriminate fiercely against our country because of the structure of our cereals holdings.
Three-quarters of our production, under the present proposal for a co-responsibility levy, would be affected compared with about a half for the Community as a whole. We could not accept such a co-responsibility levy. The Government join with my noble friend Lord Stanley in being similarly opposed to the idea of quotas for cereals. We share the Commission's view that these would be inappropriate as an answer for the Community's present problems and would pose enormous problems of implementation. More importantly, they would be particularly against United Kingdom interests because they constrain the freedom of the most efficient producers.
The Government note that the committee has a view that a study into the operation of quotas should be launched as a contingency. As our national interest, we believe, clearly lies in avoiding quotas, we ought to be very cautious about advocating this at Community level. But I assure your Lordships this evening that we are very carefully examining all the policy options. That is one of the reasons why a debate of this kind is so enormously important.
One possibility of which many of your Lordships, with a great deal of experience, have spoken in favourable terms may be the adoption of a policy of set-aside. We have put this forward, as your Lordships know, and indeed we are pressing for this idea. Farmers could be offered incentives to take certain land out of production, we believe, on a voluntary basis. This would fit in with the thinking of the Commission and some of the other member states. Estimates of the effects that it would have on production suggest that this could be a better option than either a co-responsibility levy or quotas.
I was most interested that my noble friend Lady Elliot was the only one of your Lordships who spoke about giving careful and continuing thought to alternative crops and land uses. The Ministry sponsored a detailed report on this which was done by the centre for agricultural strategy. We had a conference last week based on this subject, which was enormously well attended. Like my noble friend, I believe that this is an area on which we need to keep a close but practical eye. Perhaps I may say to my noble friend, who spoke, with her experience of the hills, about the need to continue to look after the uplands: do not let us forget that headage rates for this year have gone up by 11 per cent. and that total expenditure on hill livestock compensatory allowances is running now at about £110 million being paid over a substantially expanded area compared with before.
The Community has already taken action on milk with the introduction of quotas. I make no secret of saying again to your Lordships that the Government did not favour the introduction of quotas. They have caused some very real problems for certain producers.
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Nonetheless, we have taken every opportunity to improve their operation. We have, for instance, recently introduced some measures of flexibility in the provisions for a limited reallocation of quota. In the most interesting report on the proposed Community milk outgoers scheme the sub-committee under the noble and learned Lord has described the seriousness of the situation facing the milk sector. Even with quotas, Community deliveries to dairies exceed demand by around 14 million tonnes, and while reducing this surplus must be a step in the right direction the proposed scheme will not be expected to eliminate it entirely.
I suggest that a step by step approach will continue to be needed to allow producers time to adjust But when the noble and learned Lord, Lord Templeman, reminded us of the five member states which were saying that they needed to stand aside from it, I should like to respond by saying that it is the government view that all member states must take their share of cuts in quota. The Government would agree that this could be achieved by the voluntary outgoers' scheme being followed by a compulsory cut in quota if any member state fails to reach its target. Indeed, my right honourable friend has been advocating this very solution in the agricultural council.
It was at this point in the debate that my noble friend Lord Brookeborough asked for an assurance about the buying up of quota in order to effect some re-distribution so far as Northern Ireland was concerned. I cannot give the specific assurance for which my noble friend asked, but I can say that we shall also be seeking to obtain sufficient flexibility in the Community outgoers' scheme to allow us to take account of the United Kingdom's regional needs.
I listened with great care to my noble friend Lord Middleton, and of course I shall draw the attention of my right honourable friend again (because we have already looked at it carefully) to the particular evidence of the Tenant Farmers' Association, at which my noble friend asked us to look very carefully.
Perhaps I may just follow my noble friend by saying this about the landlord-tenant situation. As the committee recognised, the current proposal in the scheme as it is put forward does not take sufficient account of the need for balance between tenants' and landlords' interests. The Government agree with the committee that the best solution here is to get more flexibility to enable each member state to reflect its own landlord-tenant system. We have already discussed with the representatives of landlords and tenants how we might proceed here if the regulations were to be agreed along these lines.
I am advised that there is a fair degree of consensus that we should require the landlord's consent to be obtained but with the condition that consent could not be unreasonably withheld.
We have also considered the apportionment of compensation payable under the scheme. All I can say this evening is that this could be based on the same principles of standard and excess quota which we have put forward in the exceedingly long amendment which has been made to the Agriculture Bill, which has now

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left another place and which comes to your Lordships' House. However, I do not think that I ought to say any more about that because this evening we are discussing a situation in which quota is purchased under an outgoers' scheme, which is rather different from the termination of a tenancy, which is the situation under the Agriculture Bill. The payment in the case which we are discussing this evening would be coming from outside rather than from within the industry, and milk production on the farm will cease causing a loss of revenue for both tenant and landlord. Therefore, these differences need to be taken into account, and I assure your Lordships that they are being taken into account, in our continuing consultation with the industry organisations on this point.
At this hour, dealing with the other main commodities, there is just one point that I should like to make on beef and sheep. I am looking at my noble friend Lady Elliot and I realise that sheep could be a subject in itself that we could debate for quite a long time this evening. However, the one thing I have to say to your Lordships' House and which you will expect and, I hope, wish me to say is that we are looking exceedingly critically in the negotiations at the proposals which have come forward on both beef and sheep in so far as we believe that they discriminate against the United Kingdom. Your Lordships will be familiar with what I am getting at.
There is the proposal for a specialist premium for beef, which is not satisfactory to us because it limits payment of the basic premium to 50 head in any eligible herd, which would not be consistent with the general CAP objective of ensuring the rational development of agricultural production as regards this country in particular.
When one looks at the sheepmeat sector, where our farmers have done so enormously well since 1980 in increasing our self-sufficiency as a country and our exports, once again we find the suggestion that payment of the annual ewe premium should be limited to a maximum of 500 ewes in a flock or 1,000 in the less favoured areas. This would discriminate unfairly against the comparatively larger flocks of British producers. It is important that I also say that we are opposed to the proposal that Northern Ireland and the Republic of Ireland should be merged into a single region for the purposes of the sheepmeat regime. This would work to the disadvantage of Northern Ireland producers, as the rate of annual premium calculated for the whole of Ireland would not give them the benefit that they should derive from their higher productivity.
In his speech the noble Lord, Lord Gallacher, made the point that the reports of his committee had been drafted before the changes in green rates for some countries had been agreed. On the whole agro-monetary scene, as your Lordships know, the Commission has not proposed at this stage an alteration to the green pound. Given the unsettled nature of the sterling exchange market, this is clearly a sensible approach. It would be premature to say now whether any change might be appropriate later when price fixing decisions are taken.
In relation to the budgetary costs of the Community I should like to stress on behalf of the Government the
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need for measures to be effective in containing costs. The Commission has already stated that a supplementary budget will be needed later this year to finance additional expenditure because of the fall in the value of the United States dollar and to provide for a special programme of disposal of stocks. Most of that expenditure would be above the financial guideline for agriculture agreed by the Community. The Commission's justification for additional expenditure is that the fall in the dollar constitutes exceptional circumstances. It is argued that the scope for saving money should be urgently examined before a supplementary budget can be considered.
Let me answer three questions that I have not been able to pick up in what I have been saying. The noble Lord, Lord Northbourne, made the point that access to intervention could be made conditional on participation in set-aside. It is an interesting idea. It is, as he said, similar to the way in which the Americans, for example, have supported their industry in the past. But there would be difficult administrative and political problems in allocating an intervention quota to every Community farmer and ensuring compliance. As the noble Lord is aware, we have to remember that many farmers never sell into intervention. The system would therefore require complex administration to decide which grain held by traders could qualify for intervention. I should like to look at the proposals, as I always do at all the things the noble Lord says on this subject.
On the same subject, there was the interesting speech by the noble Lord, Lord Walston, about a quantum system. The negotiation of national quantums would not be easy. There would be pressure to set figures at a high level and a great deal of argument over the base period. Experience with the milk quota negotiations was that these were substantial problems. The allocation of quantum to individual farmers would similarly be difficult. Most of the problems with milk quota allocations would once again arise.
Nonetheless, the noble Lord, I do not deny, makes a strong case. It is the second occasion on which I have heard him speak about this subject. The cost of making direct payments to individual producers could be high unless we were to accept a significant decline in returns, with the world price received by producers being made up by only limited payments. If that were to be the case, we should be moving towards a sharp reduction in the prices that farmers would be receiving, which caused so much apprehension so far as my noble friend Lord Ferrers was concerned.
The problems of the CAP cannot be solved, we all realise, at this year's price fixing alone, but for the United Kingdom's part we shall continue to press for measures that take us in the right direction and allow our consumers and taxpayers to benefit from the undoubted advances that agriculture has made under the CAP. We believe that our task is to make the CAP viable in the longer term and to promote a climate in which our producers can make the most of their enterprise, adaptability, and efficiency. I agree with my noble friend Lady Elliot that those qualities have to extend to our marketing techniques.
The measures that the Community take must be effective in tackling the problems of costly surpluses,

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and must also give flexibility to our producers to develop their own enterprises, in which my noble friend Lord Stanley believes so deeply; he thinks that it is the price mechanism to which we have to resort. At any rate, that is why we oppose quotas, and I believe that that is why my noble friend does so, too.
One last thing. We shall stand out against the elements in the negotiations which discriminate against the United Kingdom. We cannot accept measures which would penalise our industry simply because we have a more efficient agricultural structure. That approach is contrary to the whole philosophy of a common market. Rather, we shall be pressing for measures that are fair between partners and between member states. The CAP we are pressing for in the negotiations is one which the Community can afford and which provides realistic and fair support for our producers in the future.
10.11 p.m.
Lord Gallacher: My Lords, as I understand that the noble and learned Lord, Lord Templeman, is not to say anything more, perhaps I may on your behalf thank him for the very lucid exposition which he gave of his sub-committee's report on the milk outgoers' scheme and join my colleagues in thanking him for putting up with members of Sub-Committee D during the preparation of that important report. It has been a very useful debate—wide-ranging, as always, when farmers get together, and very realistic. I think some useful thoughts have emerged, even though perhaps the noble Earl, Lord Ferrers, in an outstanding speech, may have spread gloom and despondency a little too far, because in my own opinion there are solutions if member states are prepared to grasp them.
One of the difficulties as I see it is that, while Great Britain is realistic about the whole problem, one does not experience that same degree of realism in other member states, who seem to imagine that the situation can go on as now pretty well indefinitely. That leads me to repeat the point I made, perhaps inadequately, in my opening speech—that in any examination of socio-structural measures in view of the attitude of other member states it may be necessary to consider insisting on a fair measure of national initiative, particularly as regards cost.
I say that because I think that the problem can be contained by the United Kingdom, and in this regard I am very glad to hear from the Minister of the success of the conference which MAFF sponsored on investigating land use. Dereliction of land may be a possibility. Personally I do not see any dereliction in the value of agricultural buildings in the same light. When I see the price which oasthouses in Kent make on the market when they are converted my only regret in this life is that I do not happen to be the owner of one of them, because I could retire quite cheerfully on the proceeds of a single sale.
I say that as a measure of encouragement about the future of agriculture and, in particular, changes of land use. Planning regulations come into this and the Ministry of Agriculture may find that it has to fight for a more sensible attitude towards changes of use as far as agricultural buildings are concerned. The demand is there and I think it can go some way towards helping
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farmers, particularly those who are seriously disadvantaged. Although I recognise that there is a significant regional influence here, nevertheless the combination of regional influence and a measure of self help in such schemes could go some way towards solving the problem.
We must remember that we are dealing with the problem of too much success, even if this has been dearly bought. I believe that that is a more acceptable dilema than one in which we are struggling to emerge from failure; and I think that that is a consolation which we should take out of the CAP, its existence, and the part it has played, undoubtedly, in making the Treaty of Rome the success it has been. Once again I thank all participants in the debate this evening.
On Question, Motion agreed to.

Milk Production: ECC Report
Lord Templeman: My Lords, I beg to move the Motion standing in my name.
Moved, That this House takes note of the Report of the European Communities Committee on Milk Production (Outgoers Scheme) (7th Report, 1985–86, H.L. 84).—(Lord Templeman.)
On Question, Motion agreed to.

Gaming (Amendment) Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at a quarter past ten o'clock.