Lords Sitting of 2 May 1986

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Hereford.

Royal Assent
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:

Gaming (Amendment) Act,

Statute Law (Repeals) Act,

Highways (Amendment) Act,

Yorkshire Water Authority Act.

The Homeless: Accommodation Costs
Baroness Jeger: 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 is their present estimate of the cost to local authorities and to the DHSS of bed and breakfast accommodation for the unemployed and for hotel and hostel accommodation for homeless families; and how many flats and houses to rent could be built for this amount of money by local authorities and housing associations.
Lord Skelmersdale: My Lords, I must apologise for the length of this Answer. According to information provided to the Chartered Institute of Public Finance and Accountancy by 350 local authorities in England and Wales, their net expenditure on hostels and bed and breakfast accommodation for households accepted as homeless was some £18·4 million in 1984/85. Provisional annual expenditure for Great Britain on all supplementary benefit payments to people in board and lodging accommodation, including bed and breakfast accomodation, guesthouses and hostels, at December 1984 is some £503 million. It is estimated that some 70 per cent. of this relates to unemployed claimants.
Separate figures are not available on how many of these people were accepted as homeless by local authorities. The average cost of houses and flats built by local authorities and housing associations in 1985 was some £30,000.
Baroness Jeger: My Lords, has the Minister had time to look at a publication by five charities which deal with these problems? They have based their figures on official statistics which suggest that it costs £10,810 a year to keep a couple with two children in this temporary accommodation, whereas a council
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dwelling for the same family, at 10 per cent. interest over 60 years, would cost £4,740. We know that the Government are very bad at estimating the cost in human terms of this policy, but surely such a hard-nosed government, interested in finance, should look at least at the financial implications of this policy.
Why is the present Government's policy to reduce housing provision and to increase board and lodging accommodation, which means that money goes to landlords and there is no asset at the end of the day?
Lord Skelmersdale: My Lords, I have not seen the publication to which the noble Baroness refers. I should point out to her and to the House that it is not government policy to put people in board and lodging accommodation at all. The Government have consistently, through circulars, asked local authorities to use this form of accommodation only as a last resort.
With regard to the costs and the figures for housing in this case, I should point out that the Government have made an extra £200 million available this year. That will go some way to alleviate this problem if the local authorities decide to use it in the way that the House and I should like.
Lord Boyd-Carpenter: My Lords, while my noble friend is acting upon the somewhat unexpected request to him by the noble Baroness to consider the financial implications, will he also consider how much rented accommodation could be provided without cost to public funds if the present oppressive law of landlord and tenant were modified?
Lord Skelmersdale: My Lords, I have no doubt that this is a factor in the equation. But so also is the Audit Commission's recent conclusion that streamlining letting procedures could make over 20,000 extra dwellings available for letting.
Lord Mellish: My Lords, can the Minister explain why some local authorities (which I shall not name) have hundreds of empty flats and yet get involved in this extraordinary and terrifying expenditure? The noble Baroness has a right to ask the Question. But if local authorities have empty flats why do they not spend some money on repairing them and making them habitable, so as to avoid these terrifying costs?
Lord Skelmersdale: My Lords, I agree with the noble Lord. It is an absolute scandal that some local authorities have very high numbers of empty flats and council accommodation generally which could be made available quite speedily. They do not do that on the whole for political reasons. I would say that this is a management problem. If they took the course that the noble Lord advocates at the expense of new builds, they could do it within their financial limits quite happily.
Lord Graham of Edmonton: My Lords—
Lord Harmar-Nicholls: My Lords, may I ask my noble friend—
Lord Graham of Edmonton: Of course you can.
Lord Harmar-Nicholls: My Lords, I am grateful that the noble Lord, Lord Graham, has given me permission to ask a question of my noble friend.
Am I to understand from the way the questions are being put that the bed and breakfast and hotel and hostel accommodation for homeless families has only begun since 1979; or has it been in use by previous governments, who obviously found it the right way to deal with this rather tragic problem?
Lord Skelmersdale: My Lords, my understanding is that this has been a factor in the situation for a number of years, and certainly before 1979.
Lord Graham of Edmonton: My Lords, noting the interest in the empty council properties, will the Minister comment on the fact that the largest number of empty dwellings are owned by the Government; that the next largest number of empty dwellings are in the private rented sector; and that the smallest sector that has properties which are empty and not let is the council sector?
Lord Skelmersdale: My Lords, that may be true, but we are talking about local authority provision. The question addressed to me was about the empty flats and housing units in the local authority areas.
Lord Stallard: My Lords, if it is not the Government's policy to advocate bed and breakfast accommodation, and if they are so concerned about empty properties, why have they consistently refused to allow inner London boroughs, like Camden, to spend money on rehabilitating short life properties? For example, it would cost somewhere in the region of £32,000 to give a four-bedroomed house, which would accommodate a family of seven, a life of five years. It costs the council something in the region of £52,000 or £53,000 to keep that same family in bed and breakfast. Therefore, there is a difference of about £20,000. The Government refuse permission to allow such a house to be rehabilitated. That is part of the answer to the noble Lord, Lord Mellish. What is the Government's reply?
Lord Skelmersdale: My Lords, I do not think that it is part of the answer to the noble Lord, Lord Mellish. From the figures that I gave in my original Answer, the average cost of houses and flats built by local authorities and housing associations in 1985 was some £30,000. Such properties have a very much longer life than the five years to which the noble Lord referred in his supplementary question.

Italian Wine: Consumer Protection
11.13 a.m.
The Earl of Kinnoull: 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 safeguards were made to protect the consumer following the recent deaths caused by poisoned Italian wine.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington): My Lords, the public have been warned through a publicity campaign not to drink any Italian wine unless it has been tested. Restaurateurs and grocers have been similarly warned. The wine trade have been testing their stocks and imports are being sampled and tested by port health authorities. No contamination has been discovered in stocks of wine on sale or in distribution.
The Earl of Kinoull: My Lords, I thank my noble friend for that informative Answer. Is my noble friend able to say under what label this deadly wine was sold? Will she say whether or not any of the wine has been imported in bulk to Britain or has been discovered in other countries outside Italy? What tests are applied to imported wine to this country.
Baroness Trumpington: My Lords, a list compiled by the Italian authorities of bottlers whose products have been implicated in Italy was published by MAFF. We have not been supplied by the Italians with a list of individual brand names, no doubt because different bottlers frequently supply the same brand name. In order to identify the wines of those bottlers involved with contamination it is necessary therefore to identify the bottler's name rather than the brand name.
Following numerous tests by the wine trade and enforcement authorities, only one contaminated consignment of wine has been found in the United Kingdom. This was a bulk consignment of Italian vermouth which was tested on arrival and found to contain methanol at a fairly low level.
Lord Molloy: My Lords, on an issue of this magnitude surely the Government or the department responsible should not be concerned with brand names or labels stuck on bottles, but should just say that the whole lot is banned. Firm action should be taken as regards any consignments that arrived in this country before the outbreak came to light in Italy. Simply to look for brand names would seem to ordinary people to be an absurdity. The Government should say that no one here should sell or drink Italian wine until they say so. That is the only safe way to behave.
Baroness Trumpington: My Lords, I have always believed that a little of what you fancy does you good. An Italian decree came into force on 28th March 1986 banning the export of all wines unless accompanied by a certificate of freedom from contamination with methanol above the levels permitted under Italian wine law.
Lord Strabolgi: My Lords, what advice have the Government for British tourists going to Italy?
Baroness Trumpington: My Lords, visitors to Italy are in rather the same position as the Italian population generally. The Italian authorities have taken vigorous action to deal with the recent problem. Nevertheless, visitors would I think be well advised to buy wine from reputable sources only.
Lord Molloy: My Lords, is the noble Baroness aware that those engaged in the off-licence business have been worried and concerned? They know all about the jokes that a little of what you fancy does you good and that it will not do any harm to have a little drop of anti-freeze. But from what they have said and written to me, it is a different matter when those who make the jokes discover that somebody belonging to them has died.
Baroness Trumpington: My Lords, local authority environmental health officers have been kept informed of the situation by the DHSS and are monitoring any retail premises—for instance, small grocers and restaurants—where private importations ma), be on sale.
Lord Marshall of Leeds: My Lords, is my noble friend the Minister as gratified as I am to be able to say that the majority of the whole House have suffered no permanent damage or impairment?
Baroness Trumpington: My Lords, I am delighted.
Lord Ennals: My Lords, I thank the noble Baroness for the very satisfactory answers that she has given. Certainly, so far as I am concerned, I would not accept the advice given by my noble friend Lord Molloy. However, is the noble Baroness absolutely satisfied that the trade in Britain has been widely circulated with the names of the firms and bottlers which have been guilty of what is a very serious crime? Is she able to give an assurance that people who sell the wines all know the danger spots or the danger bottles?
Baroness Trumpington: My Lords, yes.
Lord Kennet: My Lords, will the Government say whether it is the case that a little of what you fancy when it is poisoned does you less harm than a lot? In other words, did those who died from drinking wine containing methanol die because they had drunk a great deal of it, or would it have damaged them anyhow?
Baroness Trumpington: My Lords, the House may be interested to hear that the latest reports are that in Italy at least 23 people have died and more than 50 are seriously ill as a result of drinking contaminated wine. There have been no reports of any illness in the United Kingdom. As regards the health risks, small quantities of methanol, about 0.2 per cent., are present in wines from the natural constituents of grapes. Methanol is highly toxic and it can be lethal if a little as 20 ml is consumed, although more usually the lethal intake is 100 to 250 ml. Sub-lethal doses can cause blindness.
Lord Bruce of Donington: My Lords, do not the circumstances point to the necessity for those who like to consume alcohol in moderate quantities to concentrate for the time being on that produced in the United Kingdom, particularly that which comes from North of the Border?
Baroness Trumpington: My Lords, the question of the noble Lord, Lord Bruce, is a little wide of the
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original Question on the Order Paper. However, I thoroughly approve of his salesmanship.
Lord Chalfont: My Lords, can the noble Baroness tell us exactly how the consumer is supposed to know whether a bottle has been tested or not, as in the case of some Italian wines it might be difficult to do so simply by tasting?
Baroness Trumpington: My Lords, the indications from Italy are that the contamination is likely to have started at the beginning of this year. The first illness in Italy was reported on 2nd March. With regard to the period over which any wines recently brought back from Italy should be regarded as suspect, the answer is any wines brought back since the beginning of this year.
Lord John-Mackie: My Lords, why has the noble Earl concentrated on Italy? Did not all this start in Austria?
Baroness Trumpington: No, my Lords. The Australian problem was different. That was antifreeze. That is less harmful to health, I am assured.
Lord Tordoff: My Lords, without wishing to over correct the noble Baroness, is she not aware that in fact diethelyne glycol is very rarely used in anti-freeze? Ethylene glycol is used in anti-freeze, and that is in fact much more toxic than diethelyne glycol, and probably equally toxic with methanol.
Baroness Trumpington: My Lords, the contaminant is certain Austrian wines—I have now found the place in my notes—was not methyl alcohol but diethelyne glycol, and the health risk associated with the Austrian problem was very much less. Some German and other foreign wines that had been blended with Austrian wines were also contaminated with diethelyne glycol.

Loughton Bus Garage: Closure
11.22 a.m.
Lord Underhill: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make representations to London Regional Transport about the effect on personnel of the closure of Loughton bus garage.
The Parliamentary Under-Secretary of State, Department of Transport (The Earl of Caithness): My Lords, the Government's view is that LRT and its subsidiaries should be left to manage their businesses without political interference.
Lord Underhill: My Lords, does the noble Earl appreciate that, while I expected that Answer, it is extremely disappointing? Does the noble Earl also appreciate that LRT is a nationalised industry set up by legislation initiated by the Government, and that the consequences of the Transport Act and tendering have led to the closure of the Loughton bus garage?

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Does he further appreciate that the men at that garage are extremely annoyed, to put it mildly, at the way they have been treated? It involves transfer from their homes if they wish to keep in the industry; and if they wish to go to one of the other concerns which have taken over the services, it will mean lower country rates. Does the noble Earl also understand that some very good men, who we would have wanted to remain in the bus industry, have left as a result of this? Will he bring pressure on LRT to realise that there are social and human consequences from what is taking place?
The Earl of Caithness: My Lords, we understand that the garage is closing because it lost six out of its seven routes following competitive tendering by LRT and the Essex County Council. What is going to happen to the staff is of course a matter for London Buses Limited. I understand that they have held discussions with staff representatives. We also understand that LBL are offering to move staff to suitable vacancies at other garages, and are offering voluntary severance on terms which are much more favourable than the legal minimum to those who prefer to leave.
Lord Bottomley: My Lords, is the noble Earl aware that those who travel on the buses in that area are already getting a bad service, and that it will be made worse by the closure of the Loughton garage? Is he further aware that, at times, buses which carry disabled children arrive forty minutes or an hour late, causing great disturbance to the children? Things like that really ought to be improved, and will he make representations?
The Earl of Caithness: My Lords, I am grateful for the noble Lord's last point. It is solely because the bus service is so bad that we introduced the Transport Act last year to improve matters.

Geneva Convention: 1977 Protocols
11.24 a.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they can confirm the statement made by Lord Trefgarne in a Written Answer (H.L. Debates, 10th April, col. 407) that they have no record of any reservations made to the 1977 Protocols to the Geneva Convention which relates to nuclear weapons.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, I can confirm that we have no record of any reservations relating to nuclear weapons made to the 1977 protocols additional to the Geneva Conventions of 1949.
Lord Jenkins of Putney: My Lords, in that case (and perhaps for the sake of accuracy noble Lords will permit me, as I think is permitted, to read) how is it that the United Kingdom, at signature of this protocol in 1977, declared that it has signed Protocol I on the basis of ten understandings, the ninth of which was:
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"that the new rules introduced by the Protocol are not intended to have any effect on and do not regulate or prohibit the use of nuclear weapons"?
Is the noble Baroness denying that that exists?—because, if so, I can give her chapter and verse on it and produce the protocol. It is in the Library. Are the Government mistaken, or are they deliberately intending to conceal the facts?
Baroness Young: My Lords, I do not know the particular document to which the noble Lord refers and from which he has quoted. I can only confirm that on signing the protocols in 1977 the United Kingdom made a statement of understanding to the effect that:
"the new rules … are not intended to have any effect on and do not regulate or prohibit the use of nuclear weapons."
Lord Jenkins of Putney: My Lords, that is precisely what I said happened and precisely what the noble Lord, Lord Trefgarne, denied, which the noble Baroness has repeated. Our signature was subject to a reservation that the protocol did not do what it was primarily supposed to do. The fact that this was done by a government previous to the present one does not excuse the present Government attempting the gross act of concealment which has been perpetrated on the British public for all these years.
Baroness Young: My Lords, I am sorry that the noble Lord should make these extraordinary allegations in this way. The United Kingdom statement is in full accord with the intentions of the International Committee of the Red Cross, which stated in their introduction to the draft protocol:
"Atomic, bacteriological, and chemical warfare are subject to international agreements negotiated by Governments, and in submitting these draft additional Protocols the ICRC does not intend to broach these problems."
There is nothing incompatible between the first statement and, I think, the other.
Lord Chalfont: My Lords, are the Government aware that when the noble Lord says that to prohibit the use of nuclear weapons was precisely what the protocol was intended to do he is inaccurate, because there is nowhere in Protocol I or Protocol II of the additional protocols to the Geneva Convention which mentions nuclear weapons at all? Indeed, during the negotiation of these protocols it was repeatedly made clear that nuclear and micro-biological weapons were not meant to be included.
Baroness Young: Yes, my Lords, I thank the noble Lord for that statement that he has made.
Lord Graham of Edmonton: My Lords, would the noble Baroness describe how the signing of these protocols has in any way influenced armament policy among the various signatories? Can she reconcile the use of nuclear weapons with what is said on page 47 of Protocol I, Article 50:
"The civilian population, as such, as well as individual civilians shall not be the object of attack"?
Baroness Young: My Lords, the additional protocols are designed to update the existing laws of armed conflict and to provide improved protection for

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civilians in time of war. Additional Protocol I deals with international conflicts. Additional Protocol II deals with non-international conflicts. Our position is that we are continuing to consult with our NATO partners, and I am not in a position at the present time to state when we would be able to proceed with the additional protocols.
Lord Jenkins of Putney: My Lords, may I have an assurance from the noble Baroness, in view of what she herself has since said, that there will be no further statements from the Government such as that made by the noble Lord, Lord Trefgarne, in his Written Answer in which he said:
"We have no record of any reservation which relates to nuclear weapons"?
The reservation we have discussed refers precisely and particularly to nuclear weapons.
Baroness Young: My Lords, I am not going to confirm that statement. I have just made it myself in answer to the Question that the noble Lord has put down today. I will note of course what he has had to say.
Lord Mellish: My Lords, is the noble Baroness aware that most of us do not understand what Lord Jenkins is talking about? Would she be good enough to put in the Library a copy of the protocol so that some of us who are fairly bright can read it and find out what the heck it is all about?
Baroness Young: I think, my Lords, that the noble Lord will find that it is in the Library; but, if it is not, I shall certainly see that a copy is put there.
Lord Chalfont: My Lords, I apologise for intervening twice in the course of one Question, but would it not be useful as a point of information in the context of this Question and Answer to point out that of the five nuclear powers, two have not signed the protocol; and those three that have signed have not ratified? Furthermore, is it not true that Articles 1 and 3 of the protocol only come into effect when there is a state of war, which is precisely what the nuclear deterrent is supposed to prevent?
Baroness Young: My Lords, that was very well put, if I may say so, by the noble Lord, Lord Chalfont.
Lord Hatch of Lusby: My Lords, it is a perfectly simple question to understand. As I understand it, the noble Lord, Lord Jenkins, is asking why the Government, in the person of the noble Lord, Lord Trefgarne, gave him a Written Answer which the noble Baroness this morning has contradicted by confirming that there was a reservation? Surely this is the issue before the House and it could not be simpler than that.
Baroness Young: My Lords, what I said was that we made a statement of understanding. As I understand it, that is not the same as a reservation.
Lord Jenkins of Putney: My Lords—
Noble Lords: No! Order!
Lord Jenkins of Putney: If your Lordships will forgive me, I must answer this last point.
Baroness Jeger: No, my Lords, you cannot answer it.
Lord Jenkins of Putney: Is the noble Baroness aware that the signature of the United Kingdom was conditional upon what she calls this understanding? The effect of that is precisely the same as a reservation. Therefore if the Government are relying on the difference between the word "understanding" and the word "reservation", they are relying on something which they ought not to rely on because the consequence of that is the kind of confusion from which the noble Lord who sits on my left appears to be suffering.
Baroness Young: My Lords, I have made the Government's position on this matter quite plain. There is no misleading of your Lordships' House or of the public at large. The situation is as I have described it and I hope now that the noble Lord will be satisfied.
Lord Jenkins of Putney: My Lords, I am not at all satisfied.

European Maritime Transport Policy: ECC Report
11.32 a.m.
Lord Kearton Lord Kearton rose to move, That this House takes note of the Report of the European Communities Committee on European Maritime Transport Policy (9th Report, 1985–86, H.L. 106).
The noble Lord said: My Lords, I am standing in for the noble Viscount, Lord Rochdale, who was chairman of the committee which made this particular inquiry. He has had to go into hospital but the latest news is that he will be out this weekend and is doing very well.
It was a privilege to sit on the committee under the noble Viscount's chairmanship. His knowledge of the shipping industry is profound, and he has been the author of distinguished reports on the shipping industry over the years. He guided the committee and led the committee through the evidence and brought out the best from our witnesses who included Government Ministers.
The inquiry was into the Commission's document Progress towards a common transport policy—Maritime transport. It was the third such document from the Commission. The first, a year or two ago, dealt with inland transport. The second dealt with air travel and the Commission's proposal on air travel was the subject of a previous report by Sub-Committee B of the European Communities Select Committee. In parenthesis one might say that the members of that committee were very pleased to read the judgment from the European Court of Justice. That will serve to bring home some of the points the committee made at the time and will make air transport more liberal and cheaper.
In the proposals on maritime transport, the Commission considers many aspects and puts forward proposals for Community legislation on some of them. The sub-committee's prime task was to look into the proposed legislation; but it cast its net rather wider. The Commission was concerned with the situation in the Community as a whole. In the report the graph on page 10 indicates the decline in absolute terms of the European shipping fleet over the past 10 years, and the relative decline follows the absolute decline. The committee examined this and took evidence from Commissioner Clinton Davis and representatives of European shipowners, shippers and seafarers' unions.
However, the committee made a particular study of the UK position because the relative decline in British shipping was much sharper than for any other European nation. So it saw the British counterparts of the mainland interest, and it also saw representatives of UK shipbuilders, UK ports, the British Maritime League and of government departments. I am sure the noble Viscount, Lord Rochdale, would wish me to say how helpful in particular we found the evidence from the noble Earl, Lord Caithness, who represented the Department of Transport. He showed a complete mastery of his subject and was extremely constructive and frank with all the questions the Committee put to him. In fact, he was carrying out negotiations in Brussels at the same time as the committee's inquiry. I think there was a useful interplay between the Minister and the committee.
Sub-committee B, besides the witnesses that I have already mentioned, took written submissions from a variety of other interested organisations and individuals. The committee is grateful to all who helped in these ways, particularly to its clerk, Mr. Christopherson and its specialist adviser Mr. Shovelton. All those who serve on Select Committees of this House know the great contribution that the clerks and the specialist advisers make to the committee's deliberations. In this case the committee was particularly well served by both the clerk and the specialist adviser. With regard to the United Kingdom, the evidence printed in the full report could be a useful reference book of up to date information on the current state of the United Kingdom shipping, shipbuilding and port industries.
I propose to draw attention only to the main points in our report. Other members of the committee will develop these and other points in the course of the debate. Britain rose to greatness as a maritime nation. It is clear we are no longer a great maritime nation. I remember that last summer I went to the prize day of Broadwood School, near Woking; a school set up many many years ago for the education of the sons of Merchant Navy officers. The school has had many benefactions over the years from shipping companies great and small. It has a magnificent chapel, the result of such donations. Round the walls of that chapel are the plaques and coats of arms of shipping companies of this country that were. One looks at the plaques and the names and realises that the companies have gone. A tiny handful remain.
Since that visit last summer, further reductions have been made in the numbers of great names of British shipping. In fact, some of the recent moves have
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indicated that shipping only survives as a kind of appendage to property companies. But shipping is still of major interest to the United Kingdom. We are an island and we are still a great trading nation reliant on import and export trades with a large proportion of the goods being carried by sea. The United Kingdom is still concerned with the cross-trade carried by our ships between other nations of the world.
British shipping has had its ups and downs. It was relatively healthy in the mid-1970s, but it has declined dramatically over the past 10 years in numbers of ships and in tonnage. Nearly all sectors have been affected; tankers, bulk carriers, traditional cargo liners, passenger ships, tramps, and so on. This is set out in paragraph 34 on page 8. It is not all gloom, however. Although the number of container ships has gone down in the past 10 years, the tonnage has increased; and this is a modern and very important sector. The recent results of Overseas Containers Limited in operations last year were very good. They forecast poorer results this year and we heard in the committee of the great and detailed competition that they have from such major shipping lines as those supported by Taiwan.
The general decline in shipping has been paralleled by a steep fall in the employment of seafarers, or seamen, as I used to call them. This is set out in paragraph 43 on page 19 and the figures are really rather striking. In 1976 there were 39,100 officers and 34,800 ratings on the Merchant Navy register. By the end of 1985 the figures for officers had dropped to 14,300, barely more than one-third of the figure 10 years earlier; and the figures for ratings had dropped to 18,400, just over half the figure of 10 years earlier. In fact, the number of people engaged in our total merchant shipping interests today is smaller than that of a medium-sized industrial or commercial company. There has also been a reduction in the contribution of British shipping—that is to say, ships owned by UK residents—to the balance of payments.
Historically, shipping made a major contribution to the balance of payments. It still makes a contribution, but this contribution is more than offset by the cost of using foreign-flag ships to carry our imports and exports to and from British ports. Some 70 per cent. of our imports and 70 per cent. of our exports are now carried by non-British ships and the proportion is increasing. Figures from the Central Statistics Office showed that the annual debit balance for sea transport services as a whole is now over £1 billion per annum—a very sharp increase indeed in the last few years. While United Kingdom shipping has declined, there has been great growth in the fleets of developing countries and ships flying under flags of convenience and in COMECON fleets.
The result is that while 30 years ago British shipping represented 20 per cent. of the world fleet, today it has dropped to under 4 per cent. That slightly understates the carrying capacity because our residual ships are more sophisticated than the great bulk of ships and we probably carry up to 6 per cent. or 7 per cent. of world trade. But there is still a most dramatic decline, and Britain is now eighth in the world—after Liberia, Panama, Japan, Greece, the United States, Norway and Russia. The two largest fleets by far are those under Liberian and Panamanian flags.
The committee felt considerable concern about the decline in the UK shipping industry and examined the Commission's proposals carefully to see how far they would improve matters. The Commission originally put forward six proposals for legislation. In the course of discussions in Brussels two were shelved. In the jargon of the document, these were II-3 and II-4 which are mentioned in paragraphs 99 and 93 of our report, page 28. One dealt with consultation procedures and the other dealt with the definition of a national shipping line. One of the others, II-5, was designed to validate current operations of shipping conferences by exempting them from the competition rules of the Treaty of Rome. There was in fact a proposal from the Commission, back in 1983, which Sub-Committee B considered, about the application of competition policy to liner shipping.
Your sub-committee then recommended that no action should be taken at the time until it was seen how the new United Nations liner code operated. It has been in operation now for some years and paragraphs 94 to 101 of our report indicate the various items under discussion. One thing that comes out of any inquiry into shipping is the antagonism, it seems, which often exists between shippers and the shipping interests. I am very pleased that during the course of this debate the noble Lord, Lord Layton, will be speaking on behalf of the shippers about developments. The shippers seem to be afraid all the time that they are going to be ripped off by the shipowners controlling the liner trade. They agree that under current conditions it is a shippers' market; they really can make the terms and conditions. But they are afraid that if the situation altered and the shipowners controlled pricing absolutely then they would be disadvantaged.
We were pleased to see—and I am sure that the noble Lord, Lord Layton, will expand on this—that a more reasonable dialogue between the shippers and the shipping interests is now taking place. There are proposals that a shippers' council should be established to match the shipping liner conferences; and this is something to which the Committee gave general support. But we were worried—at least, if I speak for myself, I would say that I was worried—when one of the shippers giving evidence, asked whether he would mind if all our import and export trade was carried by foreign bottoms—Chinese or Russian vessels—indicated in his reply that so long as the price was the lowest available he did not really mind. I would draw to the attention of the House that this extremely balance-sheet orientated bottom-line fixation with regard to national interests is rather peculiar to this country. One does not experience it in other countries to anything like the same degree.
This leaves three draft regulations which the committee considered in detail. Two were aimed at harmful practices of non-EC countries. One of these, Annex II-1 (in paragraph 89), deals with co-ordinated action by the Common Market to counter protectionism by other countries: first, by diplomatic measures and, then, if necessary, through permits, quotas, or charges. We discussed this in paragraph 89, page 28, and again in paragraph 123, page 33. The Common Market feels quite strongly that if it is going to attack protectionism in other countries it should not
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indulge in protectionism itself. The whole thrust of the various regulations suggested are to open up free competition inside the European market but with facilities to deal with unfair competition in countries outside the Common Market.
Annex II-6 is effectively an anti-dumping regulation for liner shipping and provides for a Community levy on third-party shipowners who use unfair pricing practices which damage EC shipowners. From the evidence it became clear that defining unfair pricing practices was going to be very difficult. In many cases competitive lines have quite different salary structures, quite different service structures, and therefore quite different operating costs for their shipping from those of fully-owned British shipping flying under the British flag. To define unfair pricing is a risky operation. The committee had evidence from an agency in London speaking on behalf of the Soviet shipping lines which made out a strong case that the Russians were really very competitive and not price cutters in the sense of having Government subsidies to permit price cutting.
The third regulation—in the jargon, Annex II-2—provides freedom to provide services right across, inside the Common Market. It aims to bring about full freedom for nationals of all member states to engage in shipping operations, as shippers and shipowners, anywhere in the Common Market, both in external trade and in shipping within the Community. This House has considered Community matters for a great many years and we all know that we still have a very imperfect Common Market. This is true of coastal shipping.
Annex II-2 proved the most contentious of the proposals, as some member states restrict access to their shipping coastal trade. The Commission proposed transition periods of up to 10 years for the removal of these restrictions. The United Kingdom, which always leads the way in free-trade practices, has no such restrictions and the committee considers it to be very much in our interests to get the restrictions removed as soon as possible from those Common Market countries which practise them, with only temporary exemptions for regions of the EC with particularly serious problems. Some of those were outlined in the report, such as infrequent services to the Greek islands, and so on.
Adoption of this particular regulation would open new markets to United Kingdom shipping and would strengthen the Community's hand in pressing for a reduction of protectionism in other countries. There is quite severe protectionism in world-wide shipping, and in obtaining answers to questions we arrived at a not conclusive answer but an opinion answer that probably only 50 per cent. of world shipping can be regarded as reasonably free trade.
With the significant change of a much shorter exemption period within the Common Market, various suggestions were made which are touched on in the report. The committee would see the Commissions's proposals as deserving United Kingdom support; that is in Annexes II-1, II-2, II-5 and II-6. But while these moves would do something to help British shipping it would be only pretty minimal. It would be only a first step in seeking a more prosperous United Kingdom shipping industry; and

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the Minister, the noble Earl, Lord Caithness, said as much in his evidence.
The committee therefore suggested a number of other possible measures which the United Kingdom Government should consider affecting shipping, shipbuilding, ports and so on. Details are in our report in paragraphs 1.25, 1.26 and 1.27. For instance, there should be a scheme for scrapping surplus shipping without rebuilding. There should be serious consideration given to tax incentives for shipowners who invest in modern, efficient tonnage. Consideration should also be given to a favourable direct tax regime for seafarers. It is quite clear that British companies have to pay very much more in the way of social overheads for British seafarers than other comparable countries with whom they are in competition. Also, the Government should give urgent consideration to longer periods for the repayment of shipping loans.
Many of my colleagues will be commenting on some of these proposals in the debate, but I should say that we, as a committee, would like to emphasise that the problems of the shipping industry cannot be treated in isolation. Shipping and shipbuilding are closely related industries and United Kingdom merchant shipbuilding has suffered a serious decline in recent years—much more serious, I would suggest, than most people appreciate. The evidence from British Shipbuilders and Harland and Wolff has made this clear. In Mr. Day and Mr. Parker we had two very good witnesses. The annual capacity for British shipbuilding is now down to a value of about half a billion pounds per annum. If our shipping fleet stays at its present level, we have roughly only a quarter of the capacity necessary for orderly replacement of that shipping. Your Lordships will see this set out in questions and answers Nos. 484 to 497 on page 192 of the report.
Shipping must also rely on the services provided by United Kingdom ports, which have their own problems. That information is set out in the report. Also, most European countries regard providing port facilities as being part of the social infrastructure of a particular region and they are not so insistent that the port authorities make a market return on port expenditure.
Another topic is that merchant shipping is vital in times of emergency. This will be touched on again during the debate by others of my colleagues. We have reached a situation of what could be terminal decline of our shipbuilding and shipping interests. In the other place earlier this week there was a debate in which the moneys available to the shipbuilding industry under the shipbuilding loans Bill were increased by about £100 million or so. In that debate it was brought out that new orders for merchant shipping in this country in the past financial year were only 23,000 tonnes as against a target of 200,000 tonnes, and that in a good year we now have less than 1 per cent. of the world's shipbuilding capacity. It is an odd country where one sees a basic major industry for an island nation declining so much and where one sees also that one of the boom industries is prison building. We are building more prisons than anyone else in the world. It seems to me that the priorities need some adjustment.
The committee sees a very strong case for an examination in depth of all the wider issues which our report touched on in a rather preliminary way. Requests have been made in your Lordships' House before for such an inquiry and the committee would strongly endorse that a detailed inquiry is needed. During Mr. Day's evidence, in questions 503–5, he was asked what he considered to be the strategic targets for British shipping. The answer was that he did not know. Apart from reducing losses and existing from day to day, there seem to be no strategic concepts and no strategic idea of where the nation is going in shipping. The wider-ranging study which we advocate was outside the committee's terms of reference, but we feel that it deserves serious consideration by the Government and we hope that the Minister, in replying this morning, will give an encouraging response. I beg to move.
Moved, That this House takes note of the Report of the European Communities Committee on European Maritime Transport Policy (9th Report, 1985–86. H.L. 106).—(Lord Kearton).
11.56 a.m.
The Earl of Caithness: My Lords, let me rise straightaway to pay a sincere tribute in which I am sure the whole House will wish to join, to the valuable work of my noble friend Lord Rochdale and his colleagues. I am sure I can speak for the House as a whole in saying how indebted to them we all are for the careful and thorough study they have made and the valuable report they have produced. I am particularly grateful because this has certainly been a tremendous help to me in my job.
I am also delighted to confirm what the noble Lord, Lord Kearton, said—that my noble friend Lord Rochdale is getting better. I am grateful to the noble Lord for the excellent way in which he has introduced a difficult report with such clarity. I am looking forward very much to the speech of my noble friend Lord Strathclyde: it is something that we on these Benches have been awaiting since my noble friend came into the House and we look forward to it with interest.
I am grateful to the House for the opportunity to state Her Majesty's Government's position at the beginning of what I know will be a most stimulating debate. The Government fully share the report's concern—a concern which will doubtless be echoed by many noble Lords today—about the decline of some sectors of the merchant fleet. But, as the report states, we are major cross-traders and the Government (like the Select Committee) are convinced that the best interests of the UK merchant fleet lie in our policies designed to secure the widest and fairest markets in which British shipping can compete.
As your Lordships are aware, the European Commission believes that a non-protectionist policy is in the best interests of the Community's merchant fleets and this is the basis of its communication on a common shipping policy. This is also the view of Her Majesty's Government and we are particularly glad to see that it is also the view of the Select Committee and of the General Council of British Shipping. We are gratified too that the report endorses the general line

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Her Majesty's Government have been taking in the negotiations in Brussels on the four detailed draft regulations which form the basis of the Community's proposed maritime transport policy. This policy is, we believe, but the first stage in a more comprehensive policy and we shall seek to maintain the momentum whenever the opportunity permits.
I hope it will be useful if at this stage I say something about the report's comments on each of these four draft regulations. Considerable progress has been made in negotiations in Brussels and I should like, if I may, to bring your Lordships up to date. Perhaps I may start with the regulation to provide freedom to provide services (Annx II-2). This has proved the most contentious of the Commission's proposals, as the noble Lord, Lord Kearton, said.
The Select Committee supports Her Majesty's Government's view that existing restrictions should be abolished both in the cabotage trades and in trades with third countries, with only temporary exemptions when particular problems justify them. This undoubtedly would have led to much discussion at the proposed Council of Ministers meeting next week and which, sadly, has been cancelled. My right honourable friend the Secretary of State and I looked forward to the opportunity to press this further with our rather more protectionist partners. We have sought to alleviate the very real specific problems faced by countries such as Greece, but regrettably to date we have not succeeded. I hope our European partners have noted the recent judgment of the European Court in relation to air services—a point mentioned by the noble Lord, Lord Kearton— one effect of which is to reaffirm the obligation of the Council under the Treaty of Rome to give effect to the freedom to provide services in the field of transport, including sea transport.
The committee strongly urges that all four of the Commission's draft regulations should be implemented together. We are encouraged by that for it has been the Government's view from the outset and it remains our firm opinion. However, I must advise the House that the time may soon arrive when the other three draft regulations are ready for adoption while the prospects for reaching agreement on this regulation are remote. In that event we shall have to consider the options open to us on the freedom to provide services. We may, for example, have to close our own coastline to our partners if they do not all agree to open theirs to us. It is absurd that we are the only country with a coastline open to all.
Another possibility is we may pursue the option to seek a ruling from the European Court of Justice on the incompatibility of closed cabotage and cargo reservation with the Treaty of Rome. We are encouraged by the recent decision of the court, to which I have already referred, but we hope it will be possible to settle this regulation along with others by negotiations rather than through the court.
I move on to the draft regulation which will enable co-ordinated Community action to be taken to deal with moves by third countries to restrict competitive access to ocean trades—(Annex II-1). The Select Committee supports these proposals and recommends
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their extension to all sectors of shipping, including offshore supply vessels and passenger ships. I am happy to tell your Lordships that in the course of the negotiations the wording of this draft regulation has been extended in just that way.
Your Lordships will be aware that it was agreed to defer detailed consideration on the next two Commission proposals—(Annex II-3 and Annex II-4)—until a later date. So I move on to the next of the Commission's draft regulations, the competition regulation. The report makes some detailed recommendations about loyalty contracts, service contracts and exemptions for shippers' associations. The regulation's provisions on loyalty contracts has now been much simplified, as the committee recommends, and there is nothing in the regulation which will prevent the development of service contracts. However, although we have some sympathy with the committee's point on shippers' associations, it would be inappropriate to deal with them in this regulation which is concerned with the providers of transport. Transport users are dealt with under another regulation, known as Regulation 17, and the Commission has given a general undertaking to grant individual exemptions to shippers' associations under that regulation. I believe that represents a satisfactory outcome.
The Select Committee also supports the last of the draft regulations which provides for the imposition of a Community levy in cases where third country carriers are engaged in unfair pricing practices and thereby doing material damage to Community carriers. It urges that there be a clear and practical definition of what constitutes unfair pricing and that seafarers and their unions, as well as shipowners, should be able to make complaints to the Commission under the regulation. I find it difficult to envisage circumstances in which seafarers would wish to bring such a complaint when the shipowners, whose business was being prejudiced by the unfair practice concerned, did not wish to do so. But we entirely agreed on the importance of an unambiguous and workable definition of unfair pricing practices. We have worked to this end and we believe that the definition which has been negotiated in Brussels is both practical and clear.
The practices are now proposed to be defined as the continuous charging of freight rates lower than the normal rates charged during a period of at least six months, when these lower rates are made possible by non-commercial advantages granted by a state which is not a member of the Community. This regulation has been drafted with the benefit of a great deal of experience within the Community in the field of antidumping of goods. We consider that it will become a useful addition to the Community's armoury of powers for the defence of its merchant shipping interests.
There is one further recommendation from the report to which I should like to refer at this stage. The committee recommended a further wide-ranging examination of the problems of the industry. I hope I have made it clear that the Government share the concern of the committee over the decline of the fleet, but considerable changes are currently taking place

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within the fleet, the public perception of the fleet and the opinions of those involved. A great many interested parties have only recently spent considerable time and effort preparing evidence for my noble friend's committee. I do not believe that it would be right to ask them now to resubmit their work on a slightly different basis in view of the rapidly changing circumstances.
In addition, the Select Committee on Defence in another place gave notice in its report on the use of merchant shipping for defence purposes of its continuing interest in this subject and invited the Government to submit further written evidence. I believe therefore that it would lead to a great deal of duplication of effort if a new committee were to be set up now.
The work undertaken by the committee naturally ranged quite wide and it would be remiss of me not to give a more detailed view on the decline of the fleet.
Shipping, like any other business, is having to adjust to changed world circumstances and is now so international that it is heavily influenced by the world economic situation. There is nothing unique about shipping. It is a method of transport of goods from one port to another. The number of ships that can trade commercially is therefore dependent on the world shipborne trade. Therefore a ship is worth solely what it can earn. That is the rub. For too long investors in shipping, backed on occasions by governments, have taken an overoptimistic view of the growth in trade and earnings from shipping. They have looked on ships as capital assets that will automatically rise in value and thus will be good investments. Nonetheless, if we look back to the period from post-war times to the mid-1960s we see, despite fairly level gross tonnage figures, a slow steady decline in the numbers of the UK registered fleet. The UK being a traditionally maritime trading country with a large fleet, it was inevitable that this fleet would be one of the first to suffer from other countries' natural ambitions to have a merchant fleet.
Then came overoptimistic estimates of world trade, massive lending by the banks backed by substantial subsidies worldwide, including investment grants in this country, to build ships. The late 1960s and early 1970s were a period of unsustainable growth in tonnage with the UK registered fleet reaching its peak in 1975, and yet the decline in numbers continued. Then followed the rapid decline in tonnage, and if one looked at the major Western European fleets one will see a similar pattern. The world fleet rapidly became overtonnaged but still emerging, particularly in the East, were new fleets supported by countries with massive shipbuilding programmes, in some cases state-aided to compound the problem.
The overall world fleet is still vastly in excess of economic requirements and there are ships still laid up in the Gulf of Corinth, the Norwegian fiords and even in this country which have made but one or two and in some cases no commercial trips. Some companies found Western European costs too high in this highly cut-throat market and some of our major companies in the most vulnerable sectors, in particular tankers and dry bulk, were forced either to reduce their costs or sell their ships, thus preventing major disasters and collapses such as we have seen in countries overseas
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and surely must continue to witness. It is clear that inappropriate government aid to shipbuilding—and this country's previous governments are regrettably as much to blame as any—exacerbated the situation.
It is an unhappy story and reminds me of the old saying "Oh what a tangled web arises, when a government subsidises." But when looking at the decline of the UK registered fleet, figures for the total fleet can be misleading and I must stress the necessity of looking at the seven sectors of that fleet individually to see the true position. Two-thirds of the UK registered fleet's expansion in tonnage from 1970–75 was in tankers. It is not surprising therefore that more than half of the fleet's contraction since 1975 has been in the same sector.
The bulk trade has suffered badly partly through an excessive worldwide building programme and partly through the world recession in trade. Containerisation has had a powerful effect on the conventional liner business and it is not surprising when one considers that one container ship takes the place of 10 traditional ships. Let me take as an example one successful British company. It has 21 container ships in operation which last year moved over 6.5 million tonnes of goods. That company estimated it would need 220 conventional ships to do the same job. If it had owned those 220 ships, then the company would no longer be in existence and the UK would not hold an important sector of world trade. The container trade faces a difficult time ahead as do the passenger liners, short sea and offshore sectors of our fleet. Nevertheless due to good management we have companies in these sectors that are efficient, profitable and competitive.
I have been discussing the UK registered fleet for that is what the graph on page 10 of the committee's report displays. That graph was mentioned by the noble Lord, Lord Kearton. But can I take this opportunity to correct a current misapprehension, particularly noticeable in some recent statements outside this House, that this is an accurate measure of the British fleet. The UK registry is an open registry which means a UK company or a company in a dependent territory can join it and sail its ship under the UK flag. A substantial part of the present tonnage on the UK registry is ultimately beneficially owned abroad—in other words, flagged in. Many of the ships flagged on to the UK registry during the boom period, and which have subsequently left it, were also beneficially-owned ships abroad. Similarly, a significant tonnage of British beneficially-owned ships are flagged out on other open registries, including dependent territory registries. This is the eighth sector of the fleet, available in times of tension and war and must be included in any overall look at the British fleet.
These are difficult times for all those in shipping. Just look at the headlines in todays Lloyd's list: "Exodus from West German merchant fleet forecast", "Scrapping of dry bulkers is set for another record year" and, more disturbing perhaps, "Evergreen pricing power alarms container markets". Her Majesty's Government's are very aware of their responsibilities to the merchant fleet. We believe the right way forward is that proposed by the committee and the Commission and the four regulations are but a first step forward. But our efforts and support are

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wider and rightly so. Agreement was reached but on Wednesday between the United States and the Consultative Shipping Group—for which we provide the chairman—which consists of the European maritime nations plus Japan. This agreement is aimed at combating protectionism and at promoting competition, particularly in liner shipping; and it is directly relevant to the proposed co-ordinated action and competition regulations. This is but another step forward and we will continue to press forward on this and other fronts as well.
My Lords, our aim is to have a viable merchant fleet trading in an open and competitive environment and I trust that the House will support the Motion to take note of the report of my noble friend's committee.
12.13 p.m.
Lord Underhill: My Lords, may I make four introductory comments. First, I share in the good wishes that have been extended to the noble Viscount, Lord Rochdale, who we are very sorry to know is ill. He has done such an excellent job in dealing with shipping matters in your Lordships' House and undoubtedly must be responsible to a very great extent for this very excellent and clear and concise report.
In addition, I am grateful to the noble Lord, Lord Kearton, for the clear way in which he has set out the main points of the report. With the noble Earl, we are looking forward to the maiden speech of the noble Lord, Lord Strathclyde.
May I make a fourth point. I seemed to sense a slight change of attitude towards shipping problems and solutions in the speech of the noble Earl. It seemed as if the Government were moving a little way towards recognising that protectionism by itself is not the way out.
Once again, I have found it very useful to have a chance to look at two other documents in addition to the report. One is the General Council of British Shipping Review of 1985; the other is the report by the International Transport Workers' Federation entitled Towards a Common Maritime Policy. For brevity, if I have to refer to the two organisations I will call them the general council and the ITF.
The ITF document dealt at some length and in one special chapter with the problems of the different sectors of the shipping trade to which the noble Earl, Lord Caithness, referred. Some of the comments he made are worthy of consideration, but others do not alter the seriousness of the problem facing the British shipping industry emphasised so strongly in the report and by Lord Kearton in his speech. The report stresses the decline in Community shipping as a whole as well as the serious decline in British shipping. Paragraph 11 sets out five major causes which the Commission identified as reasons for the fall in Community shipping. In paragraph 12 the Commission's summing-up contains these words:
"the prolonged recession in world trade, a loss of comparative advantage and the growth of protectionist practices adopted by other countries".
That summing-up by the committee overlooks what the Commission itself is reported to have said, in paragraph 11:
"that technological innovations … greater specialization … and higher quality services…[have] stimulated registering ships under a non-Community flag"—
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I repeat, I quote the Commission's view and what it said in paragraph 11—
"which allows Community firms to retain economic control of the ships while avoiding what they see as the competitive disadvantages of operating under Community flags".
I will return to this question of flags of convenience later.
I note one very important point that was made in the oral evidence by Mr. Stanley Clinton Davis, a member of the Commission who came before the committee. In paragraph 356 the Commissioner stated that the basic structure of the Commission's essential document and the data on which it was based were largely gathered in 1983, even perhaps in 1982, up to 1984; and that they were dealing with a rapidly changing perspective. It may be that the Commission's regulations themselves, in view of those comments by the Commissioner, are based on somewhat out-dated material.
I am informed—and may be the noble Earl in his reply can deal with this—that there is a new factor which has come into being within the last couple of years. That is round-the-world shipping. I understand that this is carried out by two substantial shipping concerns in Taiwan and United States with enormous container ships that go round the world picking up and unloading anywhere and using feeder services to them. This is bringing pressure, I am informed, on freight rates. There is no reference to this in the Commission document. This may add emphasis to the point of Mr. Stanley Clinton Davis, that some of the data are a little out of date. I understand that it is difficult to gel any transparency as to the finance of these operations or to ascertain who actually owns these very huge container ships.
The noble Lord, Lord Kearton, has emphasised the figures for the decline of the UK shipping fleet and the fleets of the Community. I want only to emphasise one point he made, and this is in paragraph 38. Thirty years ago the United Kingdom had 20 per cent. of the world fleet. Ten years ago the figure had fallen to 10 per cent. At the end of 1984 the UK registered fleet was only 3·7 per cent. of the total world tonnage. The ITF report sets out the significant changes that have taken place in the various fleets of the world. They stated that between 1975 and 1984 the total world merchant fleet grew by 21 per cent, that OECD fleets overall were down by 7 per cent. and that European Community fleets were down by 10 per cent. But there were substantial growths in the following fleets: flags of convenience, up 26 per cent., COMECON fleets, up 42 per cent., Far East fleets, up 312 per cent; and fleets in the rest of the world, up 132 per cent. I know that percentages can mean many things, but if one analyses the situation it shows that there are substantial growths in other fleets and a decline in our fleet as well as in the European fleets.
Part 5 of the report sets out the committee's own view of the decline in the Community fleet as a whole, and, in particular, of the UK merchant fleet. The noble Lord, Lord Kearton, stressed—and this is very important—the point made by the committee in paragraph 42 about the annual debit balance of the sea transport services as a whole being now £1,000 million. That is a figure which is seldom mentioned. The General Council's documents emphasises that

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only 25 per cent. of UK imports and 17 per cent. of exports are carried in UK ships.
I noted that the noble Lord, Lord Kearton, referred to the position of the shippers. I was surprised to see in paragraph 44 that witnesses from the users of ships, the British Shippers' Council and the European Shippers' Council.
"were not unduly worried about these trends."
Is this what market forces and profit really mean? If any noble Lord who is to speak in the debate has any connection with shipping users, I hope that he will explain what is meant by those words.
Paragraph 53 observes:
"Union witnesses argued that free trade in shipping had failed the developing nations and had been rejected by socialist countries. They noted that the United Kingdom, the strongest advocate of a non-protectionist policy had experienced the greatest decline in its fleet of all Member States"
of the Community. The unions argued:
"that practically every nation except the United Kingdom practices some form of discrimination or assistance to its fleets."
Your Lordships' committee agreed with the Commission that, so far as possible, the Community should pursue a non-protectionist policy, and so did the General Council. But I note the following in paragraph 51:
"However the industry sees the need for pragmatism, because Community shipowners would suffer greatly if they were the last free-traders in a protectionist world'."
That is something which the unions, in particular, have been trying to impress upon the Government and the shipping industry for some considerable time. In fact, in paragraph 54 your Lordships' committee said that they,
"have no doubt that a pragmatic approach is necessary."
So we find that the unions, the industry, the Government and the committee seem to agree to a fair extent with draft regulations 1 and 6 that:
"Where other countries discriminate against Community ships, the Community should be ready to take retaliatory measures."
The committee emphasise in paragraph 89:
"Member States should stand together in combating acts of discrimination".
I am certain that most noble Lords will agree with that statement.
In our last debate, which took place in, I think, November 1983, I stressed the unions' view that something should be done about the cabotage trade, and I am pleased it has been emphasised in the speeches of both the noble Lord, Lord Kearton, and the noble Earl, Lord Caithness, that some of our competitors, and also our friends in the Community, practise reserving domestic shipping to their own nationals. This subject is raised in draft regulation 2 on freedom to provide services. The report emphasises the differences that there are in the policies followed by Community countries and the fact that no less than six member states of the Community reserve coastal trade for their own shipping, whereas the United Kingdom opens up its coastal trade to all comers.
I absolutely agree with the view of the committee which is stated in paragraph 114, and which was stressed by the noble Lord, Lord Kearton, that this is quite inequitable. The committee complain bitterly that the Commission's proposal of abolition after a
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transitional period of 10 years is "far too long". The noble Earl said what might be done if there were no general acceptance of the position. The unions have suggested a way out, which is that national flag vessels should operate in domestic trade and Community flag vessels should carry intra-Community trade. I hope that we shall get to a position where cabotage shipping will be open to all Community states, rather than have to accept the proposal of the unions, which is a last step, if we cannot secure agreement from all the states in the Community.
So I return to the question of flags of convenience, and paragraph 41 states:
"The losses experienced by European shipowners, including United Kingdom companies, have led to an increase in the registration of ships under 'flags of convenience' where they can be operated at much less cost."
I ask your Lordships to note that. Paragraph 64 refers to shipowner witnesses saying that flagging out is to reduce manning costs. Paragraph 66 states that union witnesses who went before the committee,
"expressed strong criticisms of the system of flags of convenience".
I hope I am wrong, but subsequent paragraphs in the Select Committee's report seem to accept the practice, and that it is desirable for certain shipping to go to flags of convenience in order to reduce costs.
Paragraph 70 states that,
"the shipowner often has to flag out or sell out";
and the last sentence in paragraph 70 can, in my view, have only one meaning. It reads:
"However the long-term remedy for flagging out must largely lie in the hands of those who have created the conditions which render it costly to operate under the national flag."
That is an argument for undercutting standards and for undercutting wages, and it is one which is completely unacceptable.
The ITF report to which I have referred states:
"The Commission should recognise that while COMECON shipping may well become a real threat, flag of convenience shipping has gone beyond being a threat and has been responsible for many of the problems currently facing Community fleets".
The General Council seems to accept the use of flags of convenience for the reason I have stated and that the industry must be free to use ships in this way. But we must never forget that flagging out usually means less stringent conditions for seafarers. Some flagging out is not just to reduce wages, but is also to enable shipowners to avoid social security costs such as pensions and national insurance. I should like to ask whether the Government support those arguments, or whether they really believe that something should be done in the light of the Commission's proposed regulations to tackle that problem.
Consideration of unfair practices should surely include the position of shipowners who do not observe and adhere to ILO or IMO standards. Surely that is unfair pricing as well as unfair price rates and could make for substandard ships. I am a little disappointed that in its excellent report the committee makes little reference to practical steps that have been put forward by the unions and to the co-operation that the unions have already given to help manning costs and to improve productivity and also on training. The figures that were given for the number of seafarers show how far the unions have gone in assisting with the reduction of manning costs and with productivity.

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In its 1983–84 report your Lordships' committee said that it saw no reason why Commission regulations should not include social factors, such as hours, general conditions and manning. I wish that that had been repeated in this report because it would deal with part of the question of flags of convenience. I am very pleased to note the recommendation in paragraph 124. I believe the noble Earl agreed with this statement that the ability of shipowners to complain to the Commission about unfair pricing practice should also be extended to seafarers or their unions. The question of dumping and inferior wage rates should be taken into consideration with this recommendation.
In conclusion, I should like to deal with the vital question of surplus capacity, not only in the United Kingdom but throughout the world. It would be fatal to adopt a policy of selling off our surplus capacity because undoubtedly those vessels would go to flag of convenience states and make the position of our own trade and Community trade even worse. That is why I hope consideration will be given, as was emphasised by the noble Lord, Lord Kearton, in his opening remarks, to a scrapping policy, to getting rid of substandard ships and to the linking of the whole question with shipbuilding. That seems to be a sensible policy.
I was interested to note the emphasis of the noble Lord, Lord Kearton, on the recommendation of the committee that the shipping industry should not be treated in isolation and that apart from defence considerations, which are important, it should be considered along with shipbuilding and the services provided by the ports. I strongly support the committee's recommendation in paragraph 128 that there is a strong case for examining together all the major problems of the shipping industry and of its suppliers and users. I was going to make some reference to ports but time does not allow it.
By and large, it seems that the committee's views on the four regulations which it regards as priorities have moved a fair way towards the views of the unions, views which I and others on these Benches have stressed in previous debates. The ITF stresses that protectionism should not be enforced wholesale, but that practical intervention should be undertaken as appropriate. The Government have not previously accepted that view. Although the Government dislike intervention, I hope they will take the view that it is vital in the shipping industry. Unless they do so, our shipping industry and that of the Community will decline further and further.
I welcome the committee's comment that we should have action on a Community basis. We ought to try diplomatic pressures and we ought to go in for bilateral and international agreements in order to cope with a problem affecting one of our most important industries.
12.34 p.m.
Lord Kennet: My Lords, we join in thanking the noble Viscount, Lord Rochdale, and his committee for an excellent report and we send our best wishes to him for a quick recovery. We thank the noble Lord, Lord Kearton, for presenting the report so ably today.
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Fifteen years ago when it became apparent that the shipping and general maritime decline of this country was on a real disaster curve, those of us who were concerned felt rather like a great American, Dean Acheson: we felt that we were sitting on the end of the jetty trying to move the country with a paddle. I think things are looking up now. It seems to me that the knowledge that a disaster is imminent—has indeed half happened—is now widespread and that the Government are girding their loins and both Houses of Parliament are debating the matter constructively and frequently. Two recent landmarks in this new position have been the two very welcome reports. We have had one today and one only a few weeks ago about marine science and technology. But there is still much to do, and most of it has to be done by the Government. That is what governments are for. This is what I shall concentrate on today.
In the debate in the House of Commons on 11th March on this Community proposal which we are considering today the Secretary of State for Transport, Mr. Ridley, had some useful and realistic things to say, especially about cabotage and about the NATO take-up for defence. But he had one startlingly unuseful and unrealistic thing to say which I shall quote. I believe I am in order to do so. He said:
"many honourable Members … referred at length to shipbuilding".
This was in a debate on shipping.
"I do not think we should discuss that matter now. If we are to help the United Kingdom shipping industry we must consider its problems in isolation and not tie, it to, say, the supply of ships".
Mr. Milian interrupted.
"Why should we look at the shipping industry in isolation? Every honourable Member who has spoken today has said that it should be looked at in the context of a general maritime policy, the trouble is that we have been looking at it in isolation".
Mr. Ridley answered:
"I do not agree. It is right that the sources of purchase of transport equipment, whether for aeroplanes, ships, buses, trains or cars, should be considered separately from the environment in which those transport industries operate".—[Official Report, Commons, 11/3/86; col. 852.]
What has been the effect of this narrow and ossified view over the years? Elsewhere, in another part of the wood (by which I mean Whitehall) another Minister is providing finance at this moment for British Shipbuilders to build ferries, despite the fact that the Channel tunnel is coming along, and to build offshore supply vessels, despite the present unemployment in the British offshore supply fleet. Is there a plan for the number of non-British supply vessels in our part of the North Sea to be brought into line with the number of British supply vessels in non-British oil fields? If we can get some sort of trade-off or balance there, new orders for these vessels may be justified.
Let us listen now to the voice of the other part of the wood, as I put it. Mr. Peter Morrison, speaking for the Department of Trade and Industry in the House of Commons this week, reminded us (as did the noble Lord, Lord Kearton, in a very different tone of voice just now), of the existence of a target in 1985–86 of 200,000 gross tonnes of new orders for British Shipbuilders, and of the fact that they secured only 23,000 tonnes. We are used to shipbuilding targets, but what was the scrapping target? There cannot now reasonably be a building target without alongside it a

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much larger scrapping target. Mr. Morrison did not mention that aspect. We need a scrapping target and indirect incentives to scrap, because it is only by pushing crate-owners, as we might call them, over the border into loss that we can make safe, modern shipowning and shipping profitable.
Meanwhile, the noble Earl the Minister who is to reply today is dealing with the subject of shipping, and good luck to him in doing that. The Secretary of State declared recently, in the shipping debate in the House of Commons from which I have just quoted, that irrelevancies such as shipbuilding should not be introduced because shipbuilding is dealt with by another department that is interested in the building of ships and not in the requirement for ships.
There are in almost every category of vessel between one-and-a-half and twice as many ships as are needed. Operating ships, except for the worst ships, is done at a loss, so that it is safe to say now that the capital value of proper ships is their value as scrap. The Department of Transport knows that, but I question whether the Department of Trade and Industry knows it yet.
It seems that even the Prime Minister may not yet know it. She is promising yet more credit to British shipyards. If the Member of Parliament who accompanied her on a recent visit to the North-East is to be relied upon, she is guaranteeing that British shipyards will not be undercut by any country in the world, except possibly Japan, when it comes to credit. Thoughtless subsidies to the shipbuilding industry are part of the problem; they are no part of a solution.
Where should we look? I agree with all noble Lords who have spoken so far—and this is also heavily implicit in the report—that we should look at taxes and duties on those who subsidise against us. There is a lot to be said for the discipline of the market. Let us work on making the international market disciplined and fair. If shippers use subsidised ships to carry their goods into or out of Europe, then let them reimburse the European taxpayer the subsidy in question.
If the shipper uses a substandard ship, then let that ship be required to carry appropriately higher insurance, if it is to enter European ports. That is a rather easy measure to decree. If a ship is to change hands, then let its classification society crawl over it with properly high standards and every modern aid. The point is that the number of ships worldwide and in virtually every category must be reduced.
Mr. Morrison pointed out in the House of Commons, in what tone of voice I do not know, that today's order book for ships is one-fifth of what it was in 1974. There are two sides to that observation. It is because of the order book that existed in 1974, for 133 million tonnes, that our shipping industry has the problems that we know today. It is a question of elasticity: build too much and you are stuck with too much, and then you don't get enough ships to build.
Europe is the world's major shipping area; 27 per cent. of the world's sea trade leaves from or comes to our ports. That is where our right to try to deal with the world crisis in shipping and in shipbuilding, and in freight forwarding, comes from. If we Europeans get our act together then we can get those essential (in the
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strict sense of the word) industries out of the appalling state of affairs in which they are and into some kind of leaner profitability.
To do that, two things are needed. First, the Government really ought to enable themselves to examine the complex issues comprehensively and not sliver by sliver, as they do now. That is a matter for the Prime Minister. Secondly, the Government should recognise that international problems cannot be solved by one country alone, that we are a member of the European Community for very good reasons indeed, and that this is one of the areas where common European action is essential. It is already clear that the whole thrust of this debate is in that direction, and the whole thrust of the report now before us is in that direction, too.
To sum up, it seems to me that the following propositions are probably true, or are as reasonably true as one can hope to get in a short debate. There is a worldwide surplus of shipping. It is due to the sloppy money, the sloppy lending, of the late 1960s and early 1970s still being around. In that, it is akin to the world debt crisis. Because of it, all shipowning and shipbuilding countries suffer. This country suffers worst because of the dogmatic insistence of our Government in recent years on leaving everything to a market. But there is no market. At best, there is only a market that is manipulated to different degrees, in different parts of it, by sovereign states. The long and the short of it is that others dump shipping on us.
So what should we do? It would be a mistake to counter-dump by endless credit and subsidy. It would be cheaper and more legal, to take counter-measures against those who dump against us.
In conclusion, I draw to the attention of the Government, although I am sure that they are aware of this already, a conference that was held in London recently under the snappy title of Worldfleets. A document was produced at the end of that conference that was very short—perhaps it was too snappy and too short—but it had the advantage that it was firing in all directions. It was firing at everybody who needed to be fired at—there is no tunnel vision in that document—and for that reason I commend it.
Lastly, I quote a comment of the British Maritime League on the Community proposal that is before us, and our own report on that proposal:
"The Common Maritime Transport Policy fails to take into account or to co-ordinate all the other maritime interests beyond shipping, such as shipbuilding, manufacturing industry, research and development, trade and commerce, education and training, people".
It continues:
"There is quite clearly a need for a Lords Select Committee to look at the much wider issues of the whole maritime field, as proposed last July by various noble Lords. Now that the Rochdale Committee has finished its work, the wider Committee needs to be formed and tackle the whole field".
I should like last of all to make a quite personal appeal or invitation to the noble Earl to say today that he will lend his support, as an influential Member of this House, to the voices raised last July, when the matter was first discussed, about appointing that wider committee on general maritime policy. We have now two excellent reports on two particular fields falling within the general sphere of maritime policy. That is

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no reason not to undertake a wider study; it is simply something that will make it easier. The wider study would not have to duplicate that work, because that is in the bag. But there is even more left to be done.
12.48 p.m.
Lord Strathclyde: My Lords, as this is the first occasion upon which I have had the privilege of addressing your Lordships' House, I crave your indulgence and would like to thank noble Lords who have wished me success earlier in this debate.
I feel that it would be appropriate to begin by paying tribute to my father, Tam Galbraith, whom some of your Lordships knew in another place, who tragically died some years ago—as he looked forward, possibly, to one day having an active life in your Lordships' House; and who, but for the hand of fate, would have been standing here in my place today. I should like to mention also my grandfather, whom I succeed. He continually inspired me and infected me with the excitement, successes and indeed the defeats that all go to make up the very nature of your Lordships' House.
It is with them in mind as an example of political integrity and public service that I make this, my maiden speech. It is particularly fitting that it should be on a subject that was very close to them both. My grandfather especially, who served in the Navy in two world wars, was always reflecting on the decline of British shipping; emphasising that first and foremost the United Kingdom is a very small island which needs a large, efficient and stable shipping industry to survive.
Some years ago this decline would have been seen as a purely British problem, but this is no longer the case and it should not be seen, as the report points out, purely in this light because geographically, economically and politically we are linked to Europe and it is to the EC that we must turn for a coherent common European shipping policy. The major challenge to the worldwide shipping industry is the very fact that while there is over-capacity of tonnage there are also insufficient cargoes to be carried around. One solution continually put forward is that of protectionism, from nations acting either individually or as a part of the Community. But protectionist policies have never been an answer since they create retaliation, lack of co-operation and, above all, eventually lead to economic stagnation. Protectionism is the great seducer of older, traditional industries and, I believe, should be spurned.
There is, however, a problem in all this since the alternative to protectionism is free trade; but the essence of free trade is also fair trade and they must go hand in hand. In the international world of shipping it is not good enough for those of us who truly believe in fair trade to expect those European countries, including Britain, who do not subsidise their shipping industries to compete effectively with shipping lines from other countries whose governments either overtly or covertly subsidise their shipping in one form or another. Indeed, most EC member states themselves are not entirely innocent in these matters and the greatest pressure should be brought to bear to create a truly free inter-Community shipping policy.
Therefore, given that protectionism can never really be beneficial in the long-term to British, Community
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or worldwide shipping industries, and hoping that the Community can eventually create a free internal market, it is important, as the noble Lord, Lord Underhill, made plain, that those countries which continue to discriminate unfairly against all Community fleets should be restrained in various ways from doing so. However, this can only be done when the Community itself is seen to be clean of both internal protectionist policies and false national subsidies.
Community-wide subsidies are another thing altogether and could perhaps play a valuable part in readjusting some of the discrepancies that already exist between individual member states of the EC and between the Community as a whole and the rest of the world. These points are neatly laid out in paragraph 114 of the Committee's report and the European Commission proposal, Annex II-2. It is those measures that I most heartily support.
Although I cannot say that I have either a great specialised or detailed knowledge of the shipping industries, as many noble Lords speaking today have, I have seen for myself the results that can be achieved with sensible investment through Community policies in respect of port facilities. As a candidate in the European elections in 1984, I had the pleasure of being invited to visit the Associated British Ports dock at Garston, in Liverpool, on the Mersey. There I saw real European co-operation in an area of low investment and high unemployment. European regional aid was being used constructively to invest in new coal-carrying conveyor belts. They created a clean and efficient method of transportation from dock to ship. It is a small example, I know, but I believe it to be indicative of a way forward to ease ourselves out of purely nationalistic solutions to what is a worldwide problem.
Finally, since I do not want to overshoot my welcome on this first day in your Lordships' House, I should like to conclude by thanking the committee for producing a report which has given me an opportunity of saying a few words; and as one of the younger Members of your Lordships' House I should like particularly to congratulate the members of the committee for making their report so clear, concise and comprehensive. I very much welcome that.
I trust, therefore, that the Government, who are pro-European and pro-free trade, will continue to use their political will to push for these proposals in Brussels; and by way of doing so will make Europe more relevant to the people of this country in an area such as transport where it is so important that we are successful.
12.57 p.m.
Lord Moran: My Lords, I am delighted that it falls to me to be the first to congratulate the noble Lord, Lord Strathclyde, on an admirable maiden speech and to welcome him as a Member of your Lordships' House. Some of your Lordships will, I am sure, remember his distinguished father and his grandfather. He himself has, I believe, the advantage of having received a university education on both sides of the Channel. He is clearly a mid-Channel man. I hope we shall hear him frequently in your Lordships' House.

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I should like to pay a particular tribute to the chairman of our sub-committee, the noble Viscount, Lord Rochdale; and I am sorry that he is not here today. All of us wish him a rapid recovery. I thank our excellent clerk, Mr. Christophersen, and our specialist advisers, who were enormously helpful.
I am glad to have taken part in a very interesting study, but a sombre and worrying one. Ninety-five per cent. of Community trade with third countries is carried by sea, yet we learnt that there has been a rapid and steep decline in European shipping—by 20 per cent. in the past six years—and in this country a headlong decline in shipping, shipbuilding and the number of trained seamen. The details given in paragraph 34 of our report are disturbing.
We seem as a country curiously unfussed about the decline of some of our major industries. I remember when I was serving in an embassy abroad and came hack to be sent on an industrial tour. I was sent to visit the BSA motor-cycle factory in Birmingham. Not too long after that, I found that we ceased to have a motorcycle industry at all. To take another example, I seem to be one of the few people who continues to drive a British car. Many people seem to see nothing illogical in buying a Toyota or a Mercedes and at the same time lamenting the decline of the British steel industry.
The stark facts given in our report point to a similar fate overtaking British shipping—and quite soon—unless something fairly drastic is done. For example, we were told that as a nation we were losing some 5,000 qualified seafarers a year. I think we ought not to put up with the continuance of such a state of affairs, first, for reasons of defence. The nature of emergencies is always difficult to foresee. We ought to have available a reasonable number of ships of different types and of trained seamen. As I understand it, the Government say that there is no need to worry. But as one who served in the navy during the war and escorted convoys coming in through the Western approaches, I think—and I am not alone—that they are too complacent and that in particular they underestimate the difficulties of bringing hack and crewing flagged out but British-owned ships in an emergency.
Secondly, it does not seem to me to be acceptable that, dependent on the sea as we continue to be, we should have to rely on others—indeed, on our competitors—to bring us the great bulk of our imports and to take away our exports. It does not seem to me to be conceivable—and here, like the noble Lord, Lord Underhill, I part company with some of the shippers—that we should surrender our economic independence in this way. I should like to add that, in my view, as an island and an oceanic power we ought to take the sea more seriously than we appear to do at present. This was a point made by a number of noble Lords in the debate last month on marine science and technology. I think that there is a clear need for a ministry of the sea or some other body that can pull all the threads together and give civil maritime matters the priority that they ought to have.
So what ought to be done? On a European level our sub-committee thought that the Commission's proposals were broadly right but that they ought to be pursued in some areas with a greater sense of urgency.
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All our witnesses agreed—and this was a point that was very eloquently made by the noble Lord, Lord Strathclyde—that in this field protection does not work, as has been shown by the experience of the United States; that we ought to work for greater freedom of trade in shipping, if necessary taking a tough line with others who try to exclude us; and that within Europe we should aim for the removal of all discrimination within a short period, which should be shorter than the Commission suggest.
The problem seems particularly vital for the United Kingdom. The Government seem to us to have taken a sensible line on the Commission's proposals, and, as my noble friend Lord Kearton has said, we heard some very helpful evidence from the noble Earl, Lord Caithness. I hope that the Government will continue to take a firm line and not give way to the protectionists in Europe. But I think that the Government ought to give urgent thought to measures aimed at arresting and reversing the decline in British shipping and shipbuilding, for example, by some steps such as perhaps reintroducing the 100 per cent. free depreciation allowances, the abolition of which seems to have been an error. There ought to be tax incentives for shipowners, a considered policy of promoting the modernisation of the British merchant fleet, and easier terms for shipbuilding loans. We ought also to consider what may happen to the cross-Channel ferries and their crews if the Channel tunnel is built.
The Committee spent a lot of time on the problem of flagging out. Clearly it is not possible to blame European and British shipowners for flagging out ships when, as we record in our report, by doing so they can, on an average cargo ship of 10,000 to 15,000 tonnes, save some £350,000 a year or about £1,000 a day, and still employ a first-class crew and use ships of a high standard.
What seems to have happened is that British management and unions have, as in the newspaper industry, come to arrangements—for example, on national manning scales, leave, pensions, sickness, study pay and training—which though no doubt excellent in themselves take little account of the competition or of economic realities. We give our seamen long holidays and fly crews to and from places such as Australia. When I was a sailor—admittedly in wartime—I was given only a few days leave when my ship came briefly into port for something like a boiler clean. We seem now to have reached the point where some seamen work for only four months of the year. Moreover, our ships in Europe are, we were told, overmanned compared with world standards and the wages we pay have to include a heavy burden of tax and social payments.
Flags of convenience may suggest substandard and unsafe ships, but that is not necessarily the case, and such unsafe ships can and should be picked up and stopped by port state control, which should be increased and strengthened. However, if we are to have flagging back in, which we should all like to see, we must have a very substantial reduction in crew costs. We must ensure that it is no longer so much cheaper to sail under a foreign flag. If we just sit hack and do nothing there will be no British flagships in which to sail.

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I suggest therefore that the Government should call together the shipowners and the unions and see whether some new arrangements can be worked out, with all three parties making a contribution, so as to make crew costs in the United Kingdom much more competitive and enable ships to be flagged back in. I shall be glad to know what the Minister thinks of that idea.
Shipbuilding was not the committee's primary concern but we felt that we could not ignore it. We all know about the appalling world surplus of ships. We need to consider arrangements to encourage scrapping ships and funding the construction of advanced ships. Having sailed as an ordinary seaman in HMS "Belfast", which was built by Harland and Wolff and is now in the Pool of London, I have a particular interest in this matter.
I have one incidental thought. During our deliberations we learned that 15 years ago South Korea decided to enter the shipbuilding market for the first time. They built three of the world's largest shipyards, hired experts and began quoting 10 per cent. below anyone else. Now South Korea is the world leader in shipbuilding. All that was achieved in 15 years. In this country we seem nowadays to do little but wring our hands over decline and contraction in one industry after another. Can we not—and should we not—take one or two fields and ourselves aim to beat the world in 15 years as the Koreans have done? I believe that we could do it if we put our minds to it. Does not your Lordships' House contain a number of men with unique experience of running great industries? They could point the way to what we might do. Can we not set up a group to go into this matter? I leave the thought with the Government and with your Lordships.
1.7 p.m.
The Earl of Ineheape: My Lords, I should like to add my congratulations to my noble friend Lord Strathclyde on his excellent maiden speech. I knew his father and his grandfather very well, both in Scotland and in Westminster, and the noble Lord seems set to follow their fine careers.
The report of the Select Committee has come at a very opportune time for many of us who have had a long connection with the shipping industry and who are becoming increasingly anxious that no action seems to have been taken over the problems of the European shipping industry, including the British shipping industry. I am very sorry that owing to illness my noble friend Lord Rochdale is not able to be present today but I should like to support the Motion that the noble Lord, Lord Kearton, has at short notice moved so ably in his stead. I must also declare an interest, as president of the P & O company.
The shipping industry welcomes the general thrust of this report. It is a thoughtful analysis of the Commission's proposals for a Community shipping policy. But it goes further than that. It is also a useful study of the problems that beset European shipping, including the British shipping industry. The committee agrees with the Commission of the European Communities that the EC should follow a
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non-protectionist policy, both internally and externally. It states that, where other countries discriminate against Community ships, the Community should be prepared to retaliate. At the same time it rejects internal protectionism, both national cabotage and a French proposal to reserve intra-Community trade. I strongly support that view, and I was pleased to hear the noble Earl, Lord Caithness, confirm that this is still the Government's policy.
The alternative is described as "the management of trade in an orderly way". This is management of international trade by governments. Without doubt it would increase costs for our customers, and without doubt it would eliminate entrepreneurial opportunities for British shipowners. The competitive path is a hard one to follow, but the alternative is a museum-piece shipping industry which is old-fashioned, expensive and of little practical use to the community that it should be serving.
However, though I reject government control, government help is vital. The ring must be kept clear so that the competition is fair and free. So I welcome the committee's support for the proposed regulations in Annex II-1 and Annex II-6 of the Commission's paper. The first will provide for joint action by the Twelve against other countries' protectionist measures. It is vitally important that the world's largest trading bloc should punch its weight in trade battles. This regulation should channel that weight behind shipping.
Regulation II-6 will give a weapon against subsidised and state-controlled competition. No market economy shipping line can compete against a state. This anti-dumping type of measure will give Community shipping lines the same help that is available to Community manufacturing companies.
I have already commended the committee's rejection of internal Community protectionism. It is absurd that, 13 years after the UK entered the Community, a British ship cannot take a cargo from Genoa to Trieste, or Dunkirk to Marseilles, or provide a cruise out of and back to Piraeus. The damage is not just the cargoes or passengers lost. It is the habit of French shippers always thinking French, or of Italians only using Italian ships even for non-cabotage cargoes. It is the inefficiency of having to operate Mediterranean cruise ships from two different base ports. It is high time that these anomolies were removed. Like the Committee, I strongly support the British Government's attempts to obtain the elimination of national cabotage, without the transitional periods proposed by the Commission in Annex II-2 to their paper.
A subject that the committee has dealt with at considerable length is the use of "flags of convenience"—about which several noble Lords have spoken already. Let me say right away that I accept that a British flag, a British crewed ship, must be the best solution for Britain provided that it can operate economically. A British built ship would be even better, subject to the same proviso. It was sad that British shipbuilders were not even able to quote when P & O ordered the new cruise ship. "Royal Princess", two years ago.

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But if a British crew, or even the British flag, are not competitive, the owner has to take some action or the ship has to be sold. For a century P & O has found that many ships in many trades are only competitive with foreign ratings. It is far better for earnings to be remitted to the UK, for some people to be employed in shore offices, on board as senior officers, or for London's financial, insurance and broking services to be used, than for there to be no British involvement at all in that ship.
I am glad that the committee recognised this, albeit perhaps rather reluctantly. They also accept that the Community's policy should benefit all EC shipping, regardless of flag. Above all, I welcome their recognition that flags of convenience and substandard ships are not synonymous. Of particular interest is the committee's proposals for making the red ensign less of a flag of inconvenience.
This is not the time for a spending spree or for speculative building. But new ships will always be needed. If the Merchant Navy is to survive and prosper, its ships must be first class. They have to be renewed from time to time to take advantage of technological changes and to seize commercial opportunities.
Last year, six new ferries were ordered for UK registration by three different ferry operators. Some were small, and one was very large—so far, so good. But the rest of our order book was frighteningly low—precisely six general cargo vessels with a total tonnage of 15,000 dwt. I suggest that this almost complete lack of orders for cargo ships demonstrates a realistic reaction to to-day's poor return from any investment in UK shipping. If the Government think 15,000 dwt a satisfactory investment in British shipping, so be it. The industry does not. It will go on as long and as often as is necessary pointing out the disastrous consequences not only for a wide range of maritime industries but also for the economy itself.
As the committee has recognised there will be fewer ships available in an emergency, and fewer seafarers. There will be a smaller contribution to the balance of payments—and already North Sea oil revenues are nose-diving. More and more we, as an island trading nation, will be entrusting the keys to our trade and our prosperity into the hands of our competitors.
I too welcome the reference to a favourable direct tax regime for seafarers. Seafarers' tax and national insurance are two of the social costs which make it less attractive to operate a ship under the UK flag. If the Government mean business about supporting the UK shipping industry—and I hope that they do—here is another area where they can act now to make the red ensign perhaps a little more convenient than it is today.
But a more detailed examination of the problems of the shipping industry, its suppliers and users, and the national interest is certainly needed. The shipping industry fully supports the committee's proposal that such a study should be carried out.
I commend to your Lordship's the report of this committee.
1.17 p.m.
Lord Shackleton: My Lords, I too should like to congratulate the noble Lord, Lord Strathclyde. His father, and indeed his grandfather, were well known to many of us, particularly in another place. There is a strong nautical and naval tradition in his family and it came out in a very elegant speech which was strictly according to the rules but had that touch of additional knowledge which your Lordships' House so appreciates.
I want to deal with one aspect of the report to which not much attention is given. I congratulate the committee, and particularly the noble Lord, Lord Kearton, on his presentation on what was a complex subject.
I suppose that I should declare an interest as an Elder Brother of Trinity House—although I may say that I do not get any payment but I do get some lunches now and again. My noble friend Lord Wilson is also an Elder Brother. He once said to me that salt water ran in his veins. However, I should not wish your Lordships to think that this ancient and highly efficient institution depended on either the noble Lord, Lord Wilson, or myself. Among the fulltime Elder Brothers, they probably had a more proficient and expert body of maritime people than could be found anywhere else in Britain. They are ex-captains of Merchant Navy ships. They are picked men. There are one or two Royal Navy ships. They have been providing safe lights around this kingdom for many years. Indeed, this title goes back to the time of Henry VIII.
My concern is with an area in which the Government could act. I do not expect the noble Lord to accept the recommendations either in the report of the Select Committee or to draw the conclusions of his own department's report on the subject of the inequality of the position of ports. I know that this Government are exceedingly reluctant to spend money on anything, but I do not believe that a Labour Government would necessarily do anything either because they have not done so in the past.
It is perhaps a pity that Trinity House was not enabled to give evidence to the committee. In paragraph 117 in relation to the representation of the British Port Association—it is not only the ports which are aflected, but the shipping lines also—the report states:
"The Committee consider that the Government should examine these complaints"
as to the disadvantages they claimed to be suffering relative to ports in other Member States—
"and if satisfied that there are in fact serious disadvantages should consider what action should be taken to improve the situation".
Turning to the Department of Transport's report on the comparison of costs between British ports and Continental ports, when we look also at the report of the Select Committee we find some quite striking differences in costs, whether it is the cost of pilotage or lights—with which Trinity House are particularly concerned—or other factors.
In the opinion of the department, the factors which accounted for the difference in costs—the superiority in costs, or the lower costs of European ports—were state funding and operating efficiency. An example is given on page 37 of that report where it says:

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"If Antwerp charges had reflected the full costs of its operations, including the cost of services provided in that year by the state and financial charges appropriate to the amount of state support on capital account received over all years, they would have needed to be 67 per cent. higher than they actually were to break even. The results speak for themselves".
The determination of the British to stick to free markets and no protection is one of our noblest and most splendid articles of faith. We continue to stick to it regardless. It is no good the Minister in his admirable speech quoting a nice little jingle about subsidising, when we see the disadvantages under which we operate.
Again, according to the department's report, the actual cost of the lights represents about one-seventh of the extra costs involved which fall on the British ports. However, the Light Dues Fund is not only for Trinity House but also for the Northern Lighthouse Board in Scotland, and the Commissioners of Irish Lights. Perhaps I may indulge in a bit of propaganda on behalf of Trinity House; and again the figures are available. The expenditure is not proportionate to the amount of revenue which they receive from these charges. The last thing that I would wish to do is to disturb the relationship between the Northern Lighthouse Board and Irish Lights by suggesting that there should be a single authority. That would be totally unacceptable to some noble Lords on all sides of the House. Nonetheless, if we are seeking efficiency, we should consider the matter.
The number of lighthouses and the number of lightships has been severely cut and that has added extra costs. It is always very sad to lose the splendid service of the lighthouse-keepers, some of whom are also rather good ornithologists in their isolated lighthouses which are situated on cliffs, and so on. However, there is a limit. There is not much scope for further economies. The new hoard which was set up on the Government's initiative is working very efficiently and I think that Trinity House recognise that. They were a little sceptical at the beginning, following the McLelland Report. I take the opportunity to say that, having handled many such reports both in industry and government, that report was one of the worst reports that I have ever read. Nonetheless, some good came out of it—for example, the arrangements for the Lighthouse Board. It has yielded good results. We must be careful in the pursuit of economy and in the pursuit of a competitive situation in Europe, not to lower standards any more.
There is only one other matter that I should like to raise. In other countries the lights are paid for in the greater part by the state. In some cases a small element falls on the local port. We do not do that in this country. We expect to collect the money. It is an additional cost which has some detrimental effect on shipping. Certainly some of our shipping companies become almost too excited about what they have to pay. The noble Earl, Lord Inchcape, who seems to have now left the Chamber, did not refer to that matter.
I should like to say a quick word about pilotage. There have been complications, but now that the Letch Report has been abandoned, there is undoubtedly scope for a more efficient organisation of the pilotage authority. Indeed, some efficiencies have
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been achieved. The pilotage authorities are divided between Trinity House and sometimes local authorities. Certainly in my old constituency of Preston it came under the council. However, they are basically under the port authorities. There is a case for rationalisation and better use.
I urge that before the Government embark on legislation, as envisaged in their Green Paper, they should see whether the existing authorities—now that they are freed from the constraints of the Letch Report—could achieve what they wish more efficiently. Needless to say, I am prejudiced and I am sure that my noble friend Lord Wilson would agree that it would be far better if Trinity House did the lot; but I am not uging that now! This is an area where there is the prospect of economies, and generally the Government need to recognise—and they have said this in their report—that British ports are labouring under a disadvantage. Some have great advantages but much depends on their geography and other factors. Some of the British ports are very low, but there are special circumstances. It is a particular if a minor part of the very considerable problems which noble Lords have demonstrated in their speeches. It may not be the most major problem, but I certainly hope that the Government will take the report seriously, as the noble Earl, Lord Caithness, indicated that they would.
Generally, the Government have had quite a good record in listening to the reports of House of Lords' Select Committees. It is a measure of the quality of these committees, particularly the European Committee, that they bring lustre to this country in Europe.
1.27 p.m.
Lord Hayter: My Lords, I speak as the first 100 per cent. layman on the committee whose report we are debating today. I hope in 10 minutes to guide you through its 351 pages from the layman's point of view. First, as far as European committees in general are concerned, it was a mystery to me until just recently to discover what happens when we prepare such reports in this House. The terms of reference of the Lords Select Committee on the European committees are:
"to consider Community proposals, whether in draft or otherwise".
The Commons terms of reference are treated as the criterion even in this House. It is a matter for each House to decide whether it wishes to examine any particular proposal and to debate it. The task of advising the House on the importance of a proposal has been delegated to a Select Committee.
The Government have given an undertaking—and this was the point which surprised me—which in the House of Commons has been embodied in a resolution, that Ministers will not give agreement in the Council of Ministers to any proposal recommended for further consideration by the House before the House has given it that consideration, except in special circumstances.
The resolution in the House of Commons embodying this undertaking says:
"That, in the opinion of this House, no Minister of the Crown should give agreement in the Council of Ministers to any proposal for European Legislation which has been recommended by the

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Select Committee on European Legislation, etc., for consideration by the House before the House has given it that consideration, unless

a. that Committee has indicated that agreement need not be withheld, or

b. the Minister concerned decides that for special reasons agreement should not be withheld".

So we come to this debate today. Of all the witnesses who gave evidence to the committee, to my mind the most expert of all was the noble Minister himself—the noble Earl, Lord Caithness. It seemed to me a little odd that we should be trying to advise him on something about which he certainly knew much more than I did. I recommend to those people who want to wade through this report that they should read in particular pages 36 and 248, where the noble Earl, Lord Caithness, gave evidence.
There are three points about this report. First, again as a layman, I was impressed by the conflicting views of shipowners, shipbuilders, export shippers, import shippers, trade unions—I think there are three, if not four—port authorities, and you will see in the index in this report the vast number of people who gave evidence. I am not so naive as to try to make out that this is unique. There are conflicts in almost every industry. But in this particular one it seemed so obvious that it was vital to get cohesion here.
What a contrast to the united states of the Soviet Republics. There is no nonsense there. If you turn to page 300 you will see their report. May I quote two short sentences:
"It should be noted that all Soviet ships sail under their own flag: not one is 'flagged out' ".
Secondly:
"A Soviet seaman is well paid, unlike his British counterpart".
There is one point: that there seem to be a lot of conflicting views among the experts who came to see us.
My second point is that it was a surprise to me, and perhaps to others here, that the shipping industry has its own language. I remember in the committee I asked that a glossary should be provided, and it was. Then to my delight I see that it has been printed here in the report. You come across such curious words—"cabotage", which sounds like something French Canadian. Perhaps it was originally. Then there are the initials of all the organisations that came before us. Take a word like "conference", or another word, "consortia"; it does not mean what you think it means; it really means a closed shop. Another phrase, "loyalty agreement", does not mean what you think it means; it is monopoly control. One has to look at the glossary rather carefully.
My third point, which has been touched on by noble Lords who have already spoken, is that for everybody else on the committee, experts and laymen alike, the most interesting part of their brief was,
"to make reports on other questions to which the Committee consider that the special attention of the House should be drawn".
Coming back to defence, the noble Earl the Minister said:
"At the moment we can man sufficient ships to meet the defence needs as agreed with the Ministry of Defence".
You will find this on page 256. In saying that it was agreed that the Minister was confirming what the Prime Minister had said a few days before.
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Who am I to contradict the Prime Minister, let alone the noble Lord the Minister? But I do not believe it. In any case, will a Prime Minister be able to say the same thing in five, 10, or 15 years from now? I think the unanimous view of each of the members of the committee is that it would not be possible to do so. The trouble with politicians is that they think only five years ahead, for reasons on which I need not elaborate. Once they look beyond that, they are in danger of becoming statesmen, and that is the last thing they want to be.
Therefore, what do I expect the Government to do? I hope they will look ahead. I hope they will see that ships are built in the future with one eye on defence. I hope they will review the flags of convenience which, from our state's point of view, are obviously flags of inconvenience; particularly because of the crews involved in those ships, who may be of a variety of nationalities, which it might be difficult to get hold of in time of war.
I hope the Government will see where the faults lie, and correct them; will consider why there are these flags of convenience; will see that our seafarers are properly paid and, as has been already said, intelligently taxed. We need to co-ordinate our maritime transport with our inland transport, a point which has been referred to, but it is much more important than I have the time or ability to elaborate on. We need to set up a Merchant Navy reserve—perhaps the most important point of all.
It has been said by critics of the Government that they know the cost of everything and the value of nothing. If you feel that there is anything in this point about the defence of this country you will realise that it concerns the lifeblood of this country. Just as in the domestic way in your own homes if somebody is ill and has to face up to an operation, you do not look at the family budget; you get on with it—that is true of defence so far as this country is concerned.
If we have a Chancellor of the Exchequer who admittedly is much more interested in service industries than in manufacturing industries, again the point can easily be made how dependent we are on a Merchant Navy to bring the things that we know better than he does we have to have in this country in order to live in a reasonable state of affluence.
The message of this report can be summed up quite simply: history shows us that we are part of a united states of Europe, and geography emphasises that we are an island, and we therefore depend on ships and the men that go down to the sea in them. We ignore these two simple facts at our peril.
1.36 p.m.
Lord Layton: My Lords, may I say that I, too, welcome this report, and particularly would agree with what we have already heard about the support that the Government are giving to the concepts and to the pressure being applied to the Commission to get its regulations through in their various forms. While I would support a great deal of what has been said about the shipping industry and the shipbuilding industry, I ought at this stage to mention that I am somewhat heavily interested in a separate part of the business

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that has come up very importantly in this; namely, the shippers' side of the business.
Perhaps I should confess that I am President of the Court of the British Shippers' Council, which is very much concerned with a great deal of the detail and the wording of these regulations. But before I go on to the detail there, mention was made by my good friend Lord Hayter of the service sector and the importance of shipping in that sector. I would add that from the shippers' point of view the major sector is quite clearly industry, and the goods available for export and the need for imports.
Perhaps to put this into perspective, while the service sector in this country is far larger than the manufacturing sector, when it comes to our overseas trade the export of goods in 1985 was £78 billion, and the export of services was £25 billion. We also recognise that a large part of those export services was in fact servicing the carriage of the goods, and if the goods are not there to carry then that service sector will die down even more.
I come back to an important factor, which is the state of our economy, as very well shown in the report from the Select Committee on Overseas Trade last year. We are going to need to expand our export business. We are going to need to expand our export services, and it is regrettable that the shipping balance has already gone against us. It is hoped that if we take the actions which are put forward in this report and which are proposed in Brussels, we may make some steps towards reversing that trend. But in fact, in regard to the shippers themselves, I should like to tackle some of the points which are of major interest to them.
The matters of real practical concern to shippers among the wide span of topics covered by the committee are inevitably those which contribute to the continuing development of healthy, competitive and open shipping markets, both within the Community and in trade with third countries. Furthermore, the rules and regulations proposed look as though they will contribute towards the elimination of some of the barriers and some of the discriminations which are practised.
In an overall sense the Commission's package of proposals represents a non-protectionist policy—and this has been emphasised by several speakers—and is said to be in the best interests of both the Community shipping industry and the EC shippers, the end users. I welcome the sub-committee's endorsement of this basic principle, and I believe that the bulk of shippers will, too. In fact, it formed one of the cornerstones of the policy statement of the European Shippers' Council in October 1985 on Community maritime policy, and there can be no doubt that the maintenance of a multilateral and market orientated Community shipping policy rather than the inward-looking policy of protectionism is the right way forward for shipowners, shippers and seafarers.
Three of the four regulations that have been mentioned by my noble friend Lord Caithness are of particular concern to British shippers. The regulation dealing with freedom to provide services which will provide a more competitive maritime market by abolishing existing restrictions on the provision of
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shipping services within the Community is well supported by the committee and, as we now understand, by the Government. This support and the committee's rejection of long transitional periods is absolutely right in helping exporters and shippers, and needs to be brought in as soon as possible. Unfortunately, this regulation has proved to be the most contentious of the Commission's proposals, and I believe there is no agreement yet in Brussels.
However, dealing with the application of EC competition rules to shippers calls for much greater concern. This concern can be divided into a number of specific areas. Loyalty agreements have been mentioned. This question of loyalty agreements between shippers and shipping conferences has been a highly controversial and vicious long-running battle for many years. Fortunately, today we have reached more or less a state of understanding, and shippers and shipowners have largely resolved their differences, which is a great change, but they wish to see a more general and simplified form of words incorporated in the regulation. It is, therefore, pleasing to note that the committee recommends the maximum possible simplification of these provisions and also that the committee suggests the inclusion of references to service contracts in the regulations. This move over to service contracts was largely due to the steps taken to get agreement in terms of treatment of loyalty.
Shippers have long been concerned that one of the fundamental effects of this regulation is to strengthen the position of liner conferences while providing little to protect the position of the small shipper and no means by which such shippers can improve their position. Signs that the Commission and member states are looking positively and favourably at the development of shippers' associations as a negotiating counter to the liner conferences were therefore welcome. However, in order to function legally and effectively such associations require the same type of block exemption from the competition rules of the treaty as is proposed for the liner conferences. The regulations contain no such provision, and it is understood that there is a legal barrier to its inclusion. If this is indeed the case, steps should be taken to deal with the matter, perhaps by the drafting of an additional regulation. The alternative, which is currently believed to be the way, is for individual exemption, but this is under a cumbersome procedure and is impractical and inappropriate for the small shipper.
British shippers welcome the committee's endorsement of the British Shippers' Council's argument for comparable treatment for shippers' associations and hope that the United Kingdom Government will consider it appropriate to take a positive lead in Europe in this important area, by pressing for the provision of a concurrent regulation or, as an absolute minimum, the provision of clear and positive guidelines setting out the basis on which exemption would be granted under the individual application procedure.
The regulation dealing with unfair pricing has always been of concern to shippers, who see such a regulation as a means of introducing protectionism into the Community's maritime policy, in contrast to the stated aim of rejecting such a policy. Shippers are

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concerned that implementation of this regulation may give rise to increases in rates quoted by independent lines and a reduction in competition, with little practical evidence to justify such steps. We are therefore disappointed that the committee generally approved the principle inherent in the regulation.
That deals, as far as shippers are concerned, with some of the detail, but in terms of general policy we feel that enormous steps forward have been made in the last few months. We therefore support very much the efforts put forward in the committee and already instanced by my noble friend Lord Caithness as the policy of the Government in pursuing this package effectively. We are also well aware that there are still very substantial differences in relation to port charges, which my noble friend Lord Shackleton mentioned, and the costs, and the way costs of ports are carried, in effect produce a disastrously heavier charge on goods shipped out of British ports.
As your Lordships may probably recall, I was very much concerned with developing an effective Channel link. The link I should liked to have had was an open road across the Channel, but that would unfortunately, unless something substantial was done about these charges and the way they differentiate against the British carrier, in fact have improved the volume of traffic that could have gone across in containers for shipment out of places such as Antwerp and Rotterdam. I believe that the Government, with our help and with the help of the various associations, can find a way to nullify this differential which exists. In the light of the policy proposed in the committee's report and the attitude of the Government to these proposals, I hope we shall find a way to solve these remaining problems.
Lord Shackleton: My Lords, before the noble Lord sits down, may I say that it still will be possible to ship in competition and not go through the ports, through the more efficient Channel Tunnel, of which I have been a supporter for many years.
1.48 p.m.
Lord Greenway: My Lords, I welcome this extremely well thought-out report presented so nobly on behalf of Lord Rochdale by Lord Kearton. All credit to the committee, which has done a thorough job.
I also welcome the Minister's comments on it. As my noble friend, Lord Hayter, has said, the Minister knows possibly as much as any of us about this matter these days. He is only too well aware of the problems. I hope that in him we have a Minister who will really see that something is done to help our maritime industries.
I think we all can accept the decline. It has been sharper in this country, admittedly, than in some of the other Continental countries. It has been brought about, as we have heard this afternoon, by a number of factors; the replacement of the traditional cargo liner by the modern large container ship. It was brought about partly by the oil boom before the oil price increases, when people fell over themselves to buy large tankers and the world ended up with too
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many ships. This is still the problem today. We are faced with too many ships in the world.
It is a mistake to offer additional finance for building new ships. We need tighter control on ship finance, especially for what I call these single ship companies. Shipping these days has become a morass of small companies which are very difficult to keep tabs on. This is one way in which we could tighten up on the situation. Incentives could be given to the efficient large companies which have proved their worth—and there are still, I am happy to say, one or two of those around.
The Minister mentioned earlier that as a result of these incentives people rushed into ships and bought them as appreciating assets. I think that I detected a chuckle from one or two noble Lords as he mentioned that. Certainly, some of those shipowners perhaps have a very nice ship lying at a buoy somewhere in the world; but it is available for purchase now at only its scrap value. For that reason, anyone wishing to go into shipping can pick up a very efficient secondhand ship at rock-bottom prices. He can go into any market he likes with lower rates than the existing shippers. He stays in the trade for a year or maybe 18 months and then goes bust.
This has a very bad effect on the trade in general. However, there are some signs of encouragement over this problem. A recent report from the UNCTAD Secretariat on ship financing for developing countries urges caution and the need for proper commercial aspects before committing oneself to buying a new ship. I think this is very encouraging, because a lot of flak has been thrown at UNCTAD in the past and it shows that they are looking at the problems in a reflective way.
I do not think that I need to say too much about flagging out because that has already been well covered. I think that it was the noble Earl, Lord Inchcape, who said that there is a misconception that all flagged-out shipping is of a substandard nature. Many of these ships are in fact as modern, if not more modern, than the ships in our own merchant fleet. The operator of sub-standard ships has a harder time of it these days. It is not so easy. We have the very effective IMO controls in force at various ports and I am happy to say that the underwriters are now beginning to crack down much more heavily on this type of tonnage. I believe that ships over a certain age automatically take a 50 per cent. increase in premium.
Scrapping is proceeding, I would say, at a fairly healthy rate at the moment. I happen to see quite frequently lists of ships which are passing through the scrap yards. It is accelerating, I would say, and certainly a lot of that older tonnage which is no longer commercially viable—the old cargo liner, the large tankers, which have passed away rather like the dinosaurs—is going to the scrap yards in ever increasing numbers. We have also seen some fairly spectacular crashes in the last year or couple of years. I can mention the Sanko company in Japan, which owned 200 ships and the Swedish Salem company, which had, I think, 90 ships. These crashes are also, in a way, helping the situation. As it always has in the past, I think that shipping, which is a very cyclical industry, will level itself out. I think it will find its own

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level and that we shall see both our own and the world's fleets becoming much leaner and much more efficient and the old dead wood will have been cut away.
I agree wholeheartedly with the report that Europe must get its own house in order. I think that the cabotage problem must be sorted out as soon as possible, although I have a slight reservation, in that the Commission's report on inland transport, which came out two years before the shipping report, is still not producing any tremendous advantages and we still see lorries sitting at borders in the EC, sometimes for days, waiting to get across. I think that it is not going to be easy to sort out the cabotage problem but I am sure that the noble Earl, the Minister, will be giving it his full attention.
On competition, the noble Lord, Lord Kearton, mentioned Russian competition. This is something that crops up regularly in the press from time to time. Personally, I think that it is exaggerated. I think that the Soviets on the whole act fairly correctly when it comes to shipping, although they have admittedly, built up a fairly large fleet in a comparatively short length of time. But, as with many other countries, a lot of their ships are now not competitive commercially. They fall into the old cargo-liner bracket and, as of only last year, they are going to the scrapyards fairly frequently in the Soviet Union. They are also hampered in a way by their rather rigid five-year plan for shipbuilding, but I would say that the new ships coming from the Soviet Union are, in the main, specialist ships which are very much tied up with opening their own sea routes in the very far north: specialist ice-breaking ships and offshore supply vessels, and so on.
Also, the Soviet merchant fleet suffers from quite a number of failings which do not generally get publicised. I have here in my hand a report on the Soviet merchant fleet which was made to the Soviet Ministry of Merchant Marine. It mentions one or two areas of failings. In particular, the specialist ships which I have just mentioned were often used to carry cargoes which did not require their particular technical facilities. I believe that the Soviets have plenty of problems of their own and I am not certain that this system of checking up on Soviet ships is going to produce any great result. I think it is probably too early for the Minister to give any indication of whether anything has been learned yet, but I am sure that in time he will be able to provide those figures.
Passing to the off-shore supply business—and here I see that the noble Lord, Lord Geddes is to follow me, so I will mention this only in passing because it is his particular field—there is no doubt that we have a problem with Norway over this particular type of shipping. The Norwegian Government help their own fleet with training costs in all sorts of ways. They pay, I think, 50 per cent. of the cost of overseas travel and they cover the cost of laying up the ships when they have to be laid up. That is a substantial amount of money. It can be from £50,000 to £70,000.
Shipbuilding has been brought in although it was not really part and parcel of what the committee had to report upon. I will say no more about shipbuilding than this. I was speaking to a ship-owner the other day
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who wanted a new vessel. He had received the lowest quote from a shipyard in Korea. For reasons partly patriotic, I think, and partly financial, he declined that offer because its was going to cost him of the order of £100,000 to have the ship delivered to this country and he was also going to have to spend quite a lot on air fares for his technical staff to go out and inspect the ship while it was being built. He accordingly declined the offer. Three days later a reply came back from Korea saying that he could have free delivery—and they included 12 free air tickets.
I suggest that our shipyards cannot compete with this sort of competition. Where we go from there I should not like to say. I think it important that we keep a shipbuilding capacity for emergency needs in a time of crisis but it is a very difficult problem to sort out at the moment. I might add in passing that the quote from Korea on this particular ship was half a million pounds less than the quote from the English shipyards.
Manning has been mentioned. I think the proposal for tax allowances to cover the social security and pension of seamen is a new idea. It is one that we have not heard too much of before. I personally welcome it. We had a plea, possibly from my noble friend, about a merchant navy reserve. This is an interesting proposal and one that I think the Government could look into. If we are to do anything in that field, I feel that it would be better possibly to concentrate on the engineering side, because, thinking back to the last war and the naval reserve, great use was made of yachtsmen. Today, we have many more yachtsmen around who are frequently at sea. I think that in times of emergency they could probably be trained up fairly quickly to run a ship from the deck point of view; but of course the engineering side is probably the most pressing problem if we were to think of doing anything along those lines.
It is now obvious to all that there is a growing awareness of the problems facing us with the decline of our maritime industry. Pressure groups have sprung up: they have been mentioned. There is the Maritime League and, more recently, the British Maritime Charitable Foundation. The noble Viscount, Lord Leathers, who is chairman of the Founders' Council of the latter body, said recently:
"In the past the sea has shaped our island traditions. The future will depend on how well we shape up to the challenge of the sea".
I think that challenge has got to apply right across the board and not just to shipping. It has to apply to our maritime technology industry, as the noble Lord, Lord Kennet, indicated, and I think it is something that at some stage we have to take a much closer look at.
The noble Earl the Minister said he felt that, as we have had two reports fairly recently—and indeed it is quite something for your Lordships' House to have major debates on maritime affairs on almost alternate Fridays—that was encouraging in itself. The Rochdale report went only as far as it could and it said there was a lot more ground to be covered. I believe it is important that this ground should be covered. I think that, as has been indicated, it is up to the Government to see that it is covered. "Co-ordination" is the word that is needed. That came out in our debate on maritime technology the other day. A lot of people are involved in this industry and they need guidance from above. I think the Government must provide it.

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All is not bleak, as indeed we have heard from one or two noble Lords, although our merchant marine has sadly declined. This is one of the peculiarities of the present situation. In the past when things have been difficult in the shipping industry, ships have been laid up and once conditions have got better those ships have been brought back again into service. Today, those ships have left the British register and therefore we can no longer rely on them being brought back when we need them. Shining examples have been mentioned, such as Overseas Containers and perhaps I may mention the Atlantic Container Line on the North Atlantic and the Maersk Line in Denmark. They show that people can still do well in the shipping business and it is companies such as these which will be seen to be spearheading what I should like to see as the new, modern, efficient, thrusting, British merchant marine.
2.3 p.m.
Lord Geddes: My Lords, I most warmly endorse the well-deserved congratulations already given to my noble friend Lord Strathclyde on his quite excellent maiden speech. How appropriate it was that, bearing the august surname that he does, he should have made his opening comments on maritime affairs.
In the tradition of your Lordships' House, I declare an interest: not only that I was and continue to be a member of the sub-committee whose report we are debating but also that I have close connections with the United Kingdom shipowning industry. We sadly miss my noble friend Lord Rochdale, and I strongly endorse all the comments that have been made by other noble Lords in wishing him the speediest of recoveries. He was and still is a quite outstanding chairman of sub-committee B. If I may make a personal remark, it has been a rare privilege to sit, so to speak, at his feet. The noble Lord, Lord Kearton, is most warmly to be congratulated on stepping into my noble friend's shoes so ably and at such short notice. I should also like most warmly to welcome back, if that is the right word, the noble Baroness, Lady Llewelyn-Davies, who has given us such valuable guidance in sub-committee B.
I want to start at the end, by referring to paragraphs 105 and 111 of the report. The shipping industry in the European Community, and particularly in the United Kingdom, is certainly on its knees. Indeed, I would go so far as to say that it is close to being flat on its back. I generally endorse, not only because I was a member of the sub-committee, the pursuit of a non-protectionist shipping policy. But, my Lords, the commission document to which the report refers, No. 5635/85, scratches barely skin deep. As is stated in paragraph 105, implementation of the four regulations (1, 2, 5 and 6) must only be a first step, and more is needed. Even more do I support paragraph 111 on the need for a far wider and deeper study into the shipping industry than was possible by our sub-committee in examining the Commission's communication. In this respect, and only in this respect, I think, do I diverge from the remarks already made by my noble friend the Minister.
There are so many contiguous problem areas that it is really impossible to cover them all. Indeed, as the
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noble Lord, Lord Kearton, said in his opening remarks, many of them have been and, following my own remarks, will be addressed by other noble Lords. Some of them refer purely to the United Kingdom and others are European in general. A few may begin to be solved by the Commission communication.
The biggest problem by far, if one has to single out one problem only, is that of unprofitability. I contend that from that comes the marked decline in European, and particularly United Kingdom, tonnages, which in turn impinges on defence issues, both the non-availability of ships themselves and, even more particularly, the crews for those ships. Also from that unprofitability stems in part the decline of the shipbuilding industry. My noble friend Lord Bauer, who had the grave misfortune to try to instil into me the rudiments of economics some 25 years ago, did at least succeed in getting me to grasp the essentials of the law of supply and demand. The supply of ships has exceeded, and still greatly exceeds, the demand. Freight rates, which in this context are the equivalent of gross earnings, have dropped dramatically and drastically.
As reported in paragraph 40 of our report, gross earnings have in general remained absolutely static over the past 10 years whereas the United Kingdom retail price index—not perhaps the best measure to choose, but we could not find another more appropriate—has increased by 154 per cent. From a national view—I make no apologies for repeating comments made by other noble Lords—the overall United Kingdom balance of payments figures for sea transport services has been in deficit since 1981. The annual debit balance, as we have heard, is now in excess of £1 billion per annum.
The employment of United Kingdom seafarers and our shipbuilding capacity have halved over the decade 1976–85. To illustrate the overall point I am trying to make—I am most grateful to the noble Lord, Lord Greenway, for having led me into his—I should like to look at offshore support vessels. As I shall refer to that phrase on a number of occasions I hope that your Lordships will bear with me if I call it merely OSV. I shall take as an example four relatively small unsophisticated OSVs built recently on Humberside at a total cost of about £12 million. They are all very well built, and they are all now in service. They are British owned, managed and crewed and they fly the Red Ensign. Each—I repeat, each—vessel is currently losing more than £1,000 a day. They are employed in the North Sea. They are extremely lucky to cover even their direct operating costs let alone finance charges and depreciation. The owner of such a four-ship fleet is therefore losing about £1.5 million a year having invested £12 million in the United Kingdom.
Believe me, there are many instances of losses far greater by United Kingdom owners in this area. No organisation can continue to bleed at that rate and survive. Since the report that we are discussing was completed, matters have rapidly become even worse. The plummeting oil price and the understandable drastic cut in expenditure by the oil majors, particularly in offshore exploration, have literally decimated the OSV industry. For example, Shell has cancelled all further work on the Gannet and Kittiwake fields, estimated at £2 billion. Burmah has withdrawn

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completely from all offshore exploration. BP has already announced reductions in its budgeted expenditure of £200 million, and yesterday at its annual general meeting Sir Peter Walters stated directly that North Sea oilfield development would dry up unless taxes on company production profits were cut.
I apologise for the fact that I shall now give a few statistics, but I hope that they make the point. There is presently a total of 302 OSVs in the North Sea. The United Kingdom and Norwegian sectors absorb 240 of them—almost exactly 80 per cent. In more detail, the United Kingdom sector has 164, of which 109 are British flagged, 21 other European countries, 32 Norwegian and two American. On the other hand, the Norwegian sector has a total of 76 vessels, of which 75 are Norwegian and one, working only on the spot market, is British. That is where Annexes II-1 and II-2 of the Commission communication need to come into effect now to restrict the United Kingdom sector of the North Sea, if not to British vessels alone then to genuine European Community flagged vessels. The one Norwegian witness who appeared before our sub-committee (qustions 420–24) was singularly unconvincing in that context.
The United Kingdom OSV industry also suffers severely from the consequences of others benefiting from shipbuilding finance softer than standard OECD terms. The OSV sector desperately needs government support for restructuring existing loans on United Kingdom built and owned and British flagged vessels, including a moratorium on capital repayments. In that context I strongly support paragraph 110 of the report. I also support, and just as strongly, paragraph 106—European Community scrapping but not a scrap and build scheme—and paragraphs 107 and 108—the restoration of pre-1984 allowances and a favourable direct tax concession to seafarers. Believe me, my Lords, it is not a question of jam tomorrow. When tomorrow comes there will be precious little bread on which to spread that jam.
I have said nothing so far on two other vital subjects—flags of convenience and defence. Both topics have been mentioned many times already today, and I am sure they will be mentioned again. The problem with flags of convenience has not so far significantly impinged on the OSV sector for obvious local geographical reasons. Nor has it impinged that much on the sophisticated end of the deep sea sector where crew costs are smaller relatively than with the less sophisticated tankers or bulk carriers.
A number of your Lordships will have read Mr. Jim Levi's article in last Sunday's Observer which the editor sub-headed
"On Thursday"
—which was 24th April—
"P & O's Sir Jeffrey Sterling rose to the challenge thrown down by a Lords' Committee report on the demise of British merchant shipping."
I suggest that Mr. Levi, like many others, missed a key point in the Sub-Committee's report, being the last sentence of pargraph 36 which reads:
"The only exception to the general decline has been in container ships."
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Indeed, the remainder of that quotation has already been given by the noble Lord, Lord Underhill.
It appears that the point about P & O's bid to control 100 per cent. of OCL is that they are aiming to expand in the one sector of the shipping industry which is in itself expanding and where remaining under British flag is not financially too disadvantageous.
Perhaps here I could comment on a remark that I think I heard the noble Lord, Lord Underhill, make: that the report stated that flags of convenience were not desirable. I hope I do not misquote him. The point at issue is that in our consideration we found them necessary rather than desirable in that shipowners had little alternative but to stay with flags of convenience until the situation could be rectified.
I am sure that all EC shipowners would greatly prefer their ships to fly their national flag rather than that of a convenience country. Indeed, this was proved some years ago when Greece radically changed her maritime fiscal policy with the result that Greek owners brought their ships (which were previously under flags of convenience) back under the Greek flag. The effect is amply illustrated in the graph on page 10 of the report. In five years, Greece's tonnage virtually doubled. I strongly support the report's paragraph 73, but particularly draw your Lordships' attention to paragraph 70 which reads, in part:
"In the present state of world shipping markets the shipowner often has to flag out".
Again, I shall not take up the time of your Lordships in quoting the whole paragraph; it has already been quoted.
On defence I have certain first-hand knowledge of ships taken up from trade or, in the words of the First Sea Lord, those that got STUFF. I do hope that the Hansard shorthand writers will spell that correctly! I must be blunt and say that I think my right honourable friend the Prime Minister was very poorly, if not misleadingly, briefed when she stated—as reported in paragraph 77 of the report:
"the merchant fleet remains capable of meeting all the needs of the armed forces".
From my own knowledge and experience, I would need to see hard evidence supporting such a statement before I even began to be convinced.
It would appear that such a statement takes no account of the non-military need for shipping, not least in feeding this country; nor indeed does it take any account of the attrition that would happen in the time of an emergency or in time of war. It is no good the Treasury saying that market forces alone must prevail when in the maritime world at least this country stands virtually alone by that rule. It is, I suggest, no good the Treasury saying, "We can't afford to assist the British shipowner". This country cannot afford not so to assist, unless it really wants this sceptred isle effectively to say farewell to its shipping fleet, its previous positive maritime balance of payments, its own defence support capability and its reserve of qualified British seafarers who maintain all the previous three.
We face a very, very stark choice. I suggest that we face it now. This country is still—just—a significant

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maritime nation. We do still just have the manpower and the skills, afloat and ashore, to remain so. This EC policy communication is a start, but only a very modest start, in pulling Europe's maritime interests together. But we need to go a lot farther, a lot faster, particularly in this country. In my noble friend Lord Caithness we have, I suggest, quite the most conscientious, hard-working and able Minister of Shipping—if I may use that term—that certainly I can ever remember. I have not a shadow of doubt that he will fight our corner, fight it hard, but he needs all the support that he can get.
I urge your Lordships today not only to take an approving note of this report, but also to send a very strong message to government that, in the national interest, the UK shipping industry, and particularly the offshore supply vessel sector, needs help, needs it badly, and needs it now.
2.21 p.m.
Lord Greenhill of Harrow: My Lords I should like to thank the noble Lord, Lord Kearton, for introducing this report so effectively at such short notice. I should also like to join with others in paying tribute to the noble Viscount, Lord Rochdale, who chaired our sub-committee, adding his great experience and authority to our discussions. I should also like to join with those who have praised the noble Lord, Lord Strathclyde, on his maiden speech. He rightly referred to his father with admiration. I share that. It was a very sad trick of fate that deprived our House of his talent and the contribution he could make. But it is quite clear that in the noble Lord, Lord Strathclyde, we have acquired an asset who will be of lasting value to our future deliberations.
At this stage of the debate it is very difficult to make new points, but I should like to be allowed, if I may, to express some personal opinions. The Commission's communication which the sub-committee examined is a useful document which aims inter alia to reduce the conflict in the shipping industry between Community countries and, more importantly, proposes how the collective strength of the Community's shipping industry can be employed if necessary against our rivals in an increasingly competitive world. One of the reasons that we joined the Community was to increase our commercial bargaining power, and the shipping industry in Europe is one where we have a certain amount of clout. The Commission's communication is a first step, but it must be doubted whether it can halt the decline of the Community's industry and it is highly unlikely, in my opinion, that the Commission can take further steps as fast as the situation demands.
In my view, the main importance of the sub-committee's work is the fact that it brings home to all of us just how serious is the situation in which the British industry finds itself. Though it is hard for a layman to interpret all the statistics, there can be no doubt that the British industry has sharply declined, is still declining, and is declining faster than its fellow members of the Community. Of course not all British shipping is in bad shape. Certain sectors are doing well and may do better after some of the current changes of ownership.
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To refer to another industry, the fact that Jaguar is prosperous does not mean that the whole of the British motor industry is going strong. So it is with shipping and certain sectors are all right. But, taking an overall view, the situation must give great concern. The decline must be checked and reversed not only for commercial reasons but also for the security of these islands, and I am glad that the noble Lord, Lord Geddes, referred rather critically to Mr. Jim Levi's article in the Observer last Sunday.
Some industries can be dispensed with. They are nowadays called sunset industries. They may be overtaken by new inventions, new processes and so on. Indeed, that is what happened to passenger shipping. But I cannot envisage a time when this country can dispense with its own merchant fleet under its own control. It is to me unthinkable that we should accept the present decline and passively regard a situation in which we cannot maintain a traditionally important place.
Witnesses from the Ministry of Transport showed that their department is perfectly well aware of the problems but they did not give me the impression—possibly wrongly—that they are able to take essential measures in certain areas. For example, the practice of flagging out must be reversed. I listened very carefully to what the noble Lord, Lord Underhill, said, and I agree with much of it. We constantly heard witnesses saying, "The choice is between flagging out or selling out". I wonder whether that is really so.
Yesterday I heard the chairman of BP at his annual general meeting very lucidly explain the company's problems and the heavy losses that it incurred. His future arrangements involve putting the company's ships on the Bermuda registry where they will fly the British flag and remain within British control. But he also made another point, a point referred to by the noble Lords, Lord Hayter and Lord Greenway. He said that, mindful of the interests of the seafarers, BP is investigating the possiblility of creating what would in effect be a British seaman's territorial reserve. As he mentioned the idea it sounded to me very imaginative, and I am sure that we shall hear more of it. I hope that this can be copied by other owners.
Has this question of flagging out really been considered by the Government and others concerned against the exceptional and indeed unique importance of this industry? There are signs that the seamen's unions and the owners are more ready than they once were to look constructively at these problems. Cannot the Treasury and the Inland Revenue be more innovative even though it may necessitate giving privileged treatment to seafarers of all grades? The number of people involved is not unmanageably large. Though I realise that awkward precedents would be created, the situation is in my view exceptional.
The central problem is the overall size of the merchant fleet, taking account of both our commercial and our defence requirements. The Government have repeatedly said that our fleet is large enough to meet our defence needs. It would be interesting but probably not possible to discuss publicly the various assumptions on which those studies are made. One can only hope that an appropriate (by which I mean a large) margin of safety is ensured. I was much involved

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in those matters during the last war and I know just how complex and technical they are.
Has proper allowance been made for the new circumstances of today? I refer to the difficulties of chartering in the international world; the employment of foreign crews; the transport of military equipment that is of a size and weight unknown in the last war; the future sources of oil in an emergency; and the return in the near future or the fairly near future of the Middle East as the main supplier of Western oil. Those are very important matters and I should like to feel that the examination of them has been made on a truly realistic basis, taking into account the new developments that have taken place.
During the work of the committee, the question was raised as to whether the existing Whitehall machinery for the discussion of shipping and of shipbuilding is adequate, involving as it does several departments. It is very hard for an outsider to judge. I may be prejudiced but I believe that Whitehall behaves better and more efficiently than many people think. I should like to associate myself with those who have praised the impression that the Ministry of Transport and its Minister, the noble Earl, gave when they presented evidence before our committee. That does not mean that new machinery is not desirable and wanted. I do not myself believe that a new Select Committee of this House is the way to solve those problems. What is wanted is an effort by the Government to appreciate the importance of those problems and to go to work on them.
All that, in my view, adds up to the need to allay public anxiety by the knowledge that the Government will give a new and higher priority to those matters in the future. If the work of the committee contributed to such a decision, it will have been time well spent.
2.32 p.m.
Viscount Bledisloe: My Lords, I start by joining all other members of the committee who have spoken in expressing both our gratitude to the noble Viscount, Lord Rochdale, for chairing the committee so ably, and best wishes for his speedy recovery.
I have two specific points and one general point to make. Before doing so, I shall make one observation on the speech of the noble Lord, Lord Layton. Many of your Lordships have stressed the way in which the evidence given by the shippers and the shipowners differed. That is not entirely surprising because they are the two opposite sides of this particular commercial equation. However, the noble Lord, Lord Layton, said that he was against the regulation concerning unfair pricing. Unfair pricing is no more than a form of dumping in the shipping field.
I do not know what goods it is that the noble Lord ships, but I am certain that if in the manufacture of those goods the noble Lord was met by unfair competition from other countries in dumping, he would be screaming loudly. It ill-behoves someone who would scream if dumped against themselves to deny shipowners the right to protect themselves against dumping in their field.
The first specific point with which I wished to deal was flags of convenience, but they have been very fully discussed so far. I merely stress that one is not here
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dealing with substandard ships. One is dealing with eminently well-run and well-manned ships that have moved away from this flag to avoid the fiscal and labour disadvantages that they inevitably suffer if they retain it.
How much does it matter if people do flag out? It bruises our pride and our patriotism, and I suspect that it affects our revenue. But whether or not it really matters depends, in my view, on its effect upon our defence. I share the view expressed by many speakers, and initially iterated in our committee by the trade unions, that there would be very grave difficulty in bringing back into this country for use in times of emergency—and it does not necessarily have to be a full-scale war—ships that have been flagged out. I venture to suspect that where the Government have said that there are sufficient ships, taking into account those that are flagged-out, they are looking merely at the legality which entitles them to requisition ships which have been flagged-out and not the practicality of whether they could get the crews on the ships to bring them back to this country and then to operate them in times of war.
Assuming that flagging-out does matter, I stress what the committee says; namely, that the remedy lies in the hands of those who created the conditions which cause flagging-out. Those conditions are primarily the restrictive manning requirements and also the fiscal disadvantages. Therefore, if flagging-out is to be remedied, the people to remedy it are the unions and the Government. With great respect to the noble Lord, Lord Underhill, so far as our evidence goes, it is not a case of undercutting. As we heard it, when ships are flagged-out they frequently continue to be manned by the same people, earning the same amount of money. What are saved are the unnecessarily high numbers which restrictive union agreements require and the financial disadvantages of having to pay excessive on-costs, and so on. If those people do disapprove of flags of convenience the remedy lies in their hands; that is, to remove the convenience of the other flags by creating equal convenience for those ships operating under our own flag.
The second specific matter which I deal with is that of port charges and local costs such as light dues. This has been dealt with somewhat less in the debate, although the noble Lord, Lord Shackleton, spoke at some length about it. This is a matter that is more between ourselves and other European countries than the countries in the rest of the world. The basic problem stems from a difference in philosophy. In this country ports, lights, and so on, appear to be treated as business undertakings which must pay for themselves. In other countries in the European Community, or in many of them, the provision of ports and lights seems to be treated as part of the environmental function generally. There can be no right or wrong between those two different philosophies—they are different ways of approaching the matter.
What is doubtful, and unresolved in the evidence before us, is what is the effect of this disadvantage of extra port charges, light dues, and so on that are payable in this country. Certainly it appears that whether or not there is to be a general inquiry, that matter merits some investigation; although I sincerely hope that no investigation of that kind will imperil the

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excellent lunches that the noble Lord, Lord Shackleton, apparently enjoys at the moment! My personal view is that these matters must be a factor—not the factor—in the disadvantage to British shipping. If you can get an equal service in two places, but in one place you do not have to pay for your ports or pay only a quarter for them, it must be a factor which influences your decision. Therefore, I urge the Government to look into this; but I stress that if they find that these matters really are a factor in disadvantaging British shipping and, perhaps, also British shippers, it will be no good then saying, "Well, everyone else must change into step with us." Here is one of those cases where the Government must be prepared to abandon their philosophy and move to the way in which the matter appears to be dealt with in almost every other European country.
Finally, I come to a general point which concerns the basic position of shipping and indeed shipbuilding and repairing in this country. There is no doubt that this industry is in decline, though, as the noble Earl the Minister revealed, there may be debate as to the degree and extent of the decline. Further, I think it is plain that though the Commission's proposals may help in arresting the decline, they will not cure it.
How much does it matter? That is the basic question that the Government have to decide. Is the survival of the British shipping industry such a special case that it justifies special treatment, or is it something which can be left to be resolved by ordinary commercial forces? Do we say, "Well, if shipping in this country can be provided better and more cheaply by foreigners, then let them do so"? In one sense there is no logical argument against that stance. One cannot expect a commercial man to buy more expensive services or less efficient services just because they happen to be provided by his own countrymen. I do not share the view expressed by the noble Lord, Lord Moran, that it is illogical to buy a foreign car and yet deplore the decline in the British car industry. One buys that which will do the job best for oneself. One deplores the fact—and I am not criticising the car industry—that this country can no longer provide that item competitively as compared with another country. In a very real sense there is no reason why the Government should not say, "Well, all right, if British shippers cannot provide a service which is commercially and competitively acceptable to those who wish to buy it, and if others can provide it, then let them do so".
The Government have to decide whether they take what one might call that normal attitude or whether they feel that shipping is so important that special measures must be taken to avoid such a decline—and the report indicates what those special measures could be. I genuinely do not claim either to know the answer or even to argue what that answer should be. However, I suspect that the argument lies in the defence factor because if it were not for the defence factor, then for my part I see no particular reason why British shipping should be singled out for more favourable treatment than other British industries. If the defence factor is a vital point, as I suspect it is, then as the noble Lord, Lord Geddes, has said, the Government will have to take swift and definite action to arrest this decline. Otherwise they will probably find that the material
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that is needed in times of emergency will not be available.
2.43 p.m.
The Earl of Caithness: My Lords, with the leave of the House perhaps I may be permitted to respond to some of the points put to the Government during the course of the debate. We have certainly had a useful debate and a thorough one, ranging rather more widely than simply covering the Select Committee's report. I am sure that my noble friend Lord Rochdale and his colleagues feel very pleased that they have stimulated so much interest in the House; and indeed to stimulate a speech of such excellent quality from my noble friend Lord Strathclyde is something on its own. I too should like to offer him congratulations.
I should like to cover further points raised in the report of the Select Committee and also try to answer the many points that have been raised today. First, I shall turn to the matter which has caused concern to many of your Lordships; that is, the increasing tendency of Community shipowners and in particular British shipowners to register their ships under the flags of countries outside the Community. I must make clear from the outset that we do not welcome such a development, but on the other hand shipowners have to be left to make their own commercial decisions.
In any case, we have no powers nor would we wish to have powers to stop any company moving the place of registration of its ships. What we consider is important is that where possible such ships would continue to remain in UK beneficial ownership. By flagging out the shipowner is in a position to avoid some of the high overheads associated with remaining on Community flags and thus enable him to continue to compete in the world market. If a British owner feels that it is in his commercial interest to flag out I have to say that our preference would be for him to flag out to one of our dependent territories because in this way the ships will remain more readily available to us for defence purposes. To prevent him flagging out is to put our head in the sand and I remain of the opinion that to be able to flag out, although not desirable, is better than to sell out.
That brings me back to the general philosophy in dealing with the Community shipping policy which I set out in my first statement, which is that we should do everything possible to maximise the opportunities for British owners, either under the UK flag or under other flags if this is necessary, by opening up the internal shipping market of the Community and by doing everything possible to keep open our shipping markets world-wide. The four European Community draft regulations would go a long way towards achieving those aims. I was very pleased to note how many of your Lordships commented that when an owner flags out to a flag of convenience it does not necessarily mean any lowering of standards of the ships involved. Indeed, it may mean an increase in standards due to port state control. Britain is proud to be in the lead in this matter and the UK is, or can be, also classed as a flag of convenience.
There has been debate about the advantages and disadvantages of protectionism. I should like to repeat

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that the Government firmly support the European Commission in their advocacy of non-protectionist policies. It seems to us that this is the only way that we can achieve the aims I have mentioned. We can therefore fully agree with the basic principles which underlie the European Commission's communication. Those are endorsed wholeheartedly in the report and are set out very clearly in paragraph 14.
The committee also states that the Community must be prepared to defend itself against those countries which discriminate against Community ships. We have had power to take such action when discrimination is against this nation. We have had that power since 1974 and the French have had it since 1983. We have used it once; and we have used it in conjunction with the French in the very recent past, and with some other European countries, on the policy to which the noble Lord, Lord Greenway, referred; that is, monitoring Soviet shipping.
The answer must lie with the Community. We consider that the four regulations will go a long way towards tackling these problems. They deal with co-ordinated action against discriminating countries as well as with the problem of unfair pricing practices and they spell out very clearly the tools that will be available to the Community and its member states in dealing with these questions. However, these proposals are only the first steps in the development of a Community shipping policy and we expect the Commission to come forward with further proposals in the future.
References have also been made to the committee's recommendation that a scheme for scrapping surplus shipping should be investigated on a Community basis rather than on a solely UK basis which must surely be impractical I believe it was the noble Lords, Lord Kearton and Lord Underhill, in particular who mentioned this, though I know that it was raised by other noble Lords. The scope for such a scheme has been raised quite a lot. When it was last considered by the European Community in 1979 most member states had considerable reservations as to whether such a scheme would be practicable and agreement could not be reached. There is no sign that views have changed.
Moreover, I remind your Lordships that there was a "scrap 2 tons/build 1 ton" scheme in the United Kingdom from 1935 to 1937 with low-interest loans available, but there were major doubts about its effectiveness. The only noticeable effect of the scheme was to depress UK scrap prices while it was in operation. Nor was it felt that the UK shipbuilding industry got the kind of boost from new building orders that might have been expected. Scrapping incentives must be considered, but they may not be the best answer to overtonnaging. With the large number of ships laid up, a scrapping incentive would first affect ships least likely to enter the market, and probably already earmarked for scrap. This would have little—if any—impact on freight rates.
The noble Lord, Lord Underhill, mentioned the growth in world tonnage. One must not forget that at present 9 per cent. of the world fleet is laid up. A large proportion of that would have to be scrapped first to have any effect on freight rates. In considering this
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question we must also bear in mind that scrapping incentives might be so attractive as to create an artificial market for new building which would outweigh the advantages of the removal of older tonnage.
Let me now turn to the questions of tax incentives for shipowners to invest in modern, efficient tonnage, and a favourable direct tax regime for seafarers in recognition of the importance of the shipping industry. Again, this matter was raised by the noble Lord, Lord Underhill, the noble Lord, Lord Moran, and others. The business tax reform package, which Her Majesty's Government set in train in 1984, has already been structured in ways which will work specifically in favour of the shipping industry, most importantly perhaps through the continued availablility of free depreciation in terms of writing down allowances for both new and secondhand ships. Therefore, it is totally wrong to say that we are doing nothing, as the noble Lord, Lord Underhill, implied at one stage. Mainstream corporation tax rates are now lower and ships can still be written off over a shorter period in the United Kingdom than under the regimes of many of our competitors. This year we have also extended the business expansion scheme to companies engaged in ship chartering. This should provide new opportunities for sound investment, particularly in the coastal, short-sea and offshore trades. It will not be "sloppy money" to which the noble Lord, Lord Kennet, referred and which the Government of which the noble Lord was a member was guilty of distributing.
As regards a special tax regime for seafarers, which was mentioned by my noble friend Lord Inchcape and the noble Lords, Lord Hayter, Lord Greenway and Lord Greenhill of Harrow, Her Majesty's Government's policy is to move towards a simpler and fairer personal taxation system for all, without the complications of special reliefs for special groups of workers. Special reliefs serve only to hinder progress towards that objective. We believe that the promotion of a competitive shipping industry must surely provide the best means of securing employment for seafarers in the long run.
I should like to turn now to the problems of the UK offshore support vessel industry about which the Government are particularly conscious. I was grateful for the remarks of my noble friend Lord Geddes. In an effort to help this vitally and strategically important industry, the Department of Energy's Offshore Supplies Office has jointly commissioned with the British Offshore Support Vessels' Association a study of the state of the industry. In particular, it is considering whether the development of new technology would improve the industry's prospects and profitability. The conclusions of the study should soon be known, and the Offshore Supplies Office hopes that they will form the basis for the future success of the offshore support vessel industry in the North Sea.
In the meantime, the Offshore Supplies Office has pressed the United Kingdom's Offshore Operators' Association to tell its members that the Offshore Supplies Office wishes to designate the UK offshore support vessel industry as an area of special interest. The OSO has discussed the serious problems of the industry with the UK Offshore Operators'

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Association, and the association has agreed to look urgently at the proposals put forward by OSO for ways to assist the industry within the existing full and fair opportunity policy framework. Furthermore, I am pleased to advise the House—and in particular my noble friend Lord Geddes—that I shall be meeting a delegation of Norwegian parliamentarians on Tuesday next week to discuss this among other shipping matters. I am fortified in my resolve to talk to them by my noble friend's comments.
I now turn to the question of the adequacy of the Merchant Fleet to fulfil its wartime role. That is a matter of concern to us all. Concern was expressed in the Select Committee's report that the declining fleet is no longer adequate for this, and the same concern was mentioned by all of your Lordships today. It was suggested that the Merchant Navy is short of the types and numbers of vessels required and that there is a need to quantify minimum demand and supply requirements for support of Her Majesty's forces and for civil use in war.
The Ministry of Defence and my department monitor the need for support of Her Majesty's forces against ships on the UK register. We believe that we can today meet those requirements, and forecasts prepared for the department by consultants show that for defence needs generally adequate numbers of suitable ships should be available until 1992. Where there are difficulties—and we believe that there might possibly be some difficulties in selective areas in the future—the Ministry of Defence and my officials are working on schemes whereby other sectors of the fleet which are in surplus to our forecast defence requirements can be adapted to fill those specially selected roles.
Our studies also show that in the early stages of war there would be sufficient British shipping to meet civil supply requirements related to restricted war-time commodity demands. My right honourable friend the Prime Minister was absolutely right, therefore, in the comments she made in another place. But it would be totally impractical to expect the United Kingdom flag to meet the full demands of civil supply. We could not meet that requirement in the Second World War, and the convoys, so nobly escorted by the noble Lord, Lord Moran, contained non-UK registered ships as well. The answer therefore is the NATO plan to pool its oceangoing shipping, and plans are in hand for that. The adequacy of shipping for this purpose should therefore be considered in alliance rather than in national terms. The potential resources of NATO, on which we have a right to draw, would be substantial—perhaps some 50 per cent. of the deadweight tonnage of the free world.
Finally, the committee raised the question of the availability of manpower reserves to crew requisitioned ships in times of emergency. My department, together with the Ministry of Defence and the General Council of British Shipping, are currently examining the supply, availability and training of seafarers. The basic assumption is that crewing of a ship used for defence or civil supply could generally follow the arrangements before its requisition or charter.
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Apart from the crews currently employed on British vessels, other manpower reserves exist for the UK which could be used to man extra ships acquired in times of emergency. Seafarers on leave, those who had fairly recently left the sea, and those on foreign ships could effectively double the cadre of officers, while for ratings shorter training periods and increased training facilities would help to combat shortages.
The noble Lord, Lord Shackleton, brought to our attention the recent report my department produced on liner freight rates and the competition between ports, and the subsidies that some other ports receive. There is growing concern that state aids to ports are distorting competition between carriers as well as ports. However, there is a lack of hard evidence on this point, and we welcome the Commission's decision to review the state aids offered in the different Community countries.
We are also urging the case for greater transparency in ports' published accounts. In the interim we have sought and obtained the Commission's assurance that the treaty state aids provision will be enforced.
Lord Shackleton: My Lords, the noble Earl said there was no evidence. Could he not read his own report? It is all there.
The Earl of Caithness: My Lords, I did not say there was no evidence. I said that there was a lack of hard evidence.
Lord Shackleton: My Lords, if the noble Earl reads the report he will find the hard evidence in it.
The Earl of Caithness: My Lords, I have read the report more than once, but I shall be happy to look at it again and discuss it with the noble Lord at any time. The noble Lord, Lord Shackleton, and the noble Viscount, Lord Bledisloe, mentioned lights, and particularly the role of Trinity House, the Northern Lights Board and the Commission for Irish Lights. We are at the moment progressing with two new studies: one on the future use of lights, particularly bearing in mind the new satellite communications systems that will be available in the next three or four years, and the other on whether the existing distribution of light dues is a fair one. We are making progress on both those fronts.
The noble Lord asked whether the national government, the taxpayer, should be responsible for these light dues. The total light dues bill, if I remember rightly, is about £60 million per annum. That is all raised from shipping coming to this island. But it must be remembered that in this case it is paid by all shipping, not only United Kingdom registered flag shipping. It must follow that as the United Kingdom's registered flag proportion of the world's fleet declines, so their proportion to the contribution to light dues also declines.
The noble Lord, Lord Shackleton, also mentioned pilotage and the Letch Agreement. He will know full well that the Letch Agreement is but part of the costs of pilotage, and the purpose of the Green Paper and, we hope, legislation before too long, will be to sort out many of the restrictive practices of pilotage that have

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occurred since 1913, which saw the last really significant Act in this matter.
The noble Lords, Lord Moran, Lord Kennet and Lord Greenhill of Harrow, raised the question of the adequacy of the machinery of government in the formulation of maritime policies. There are and always will be subjects within separate departments that could be transferred from one to another. One can shuffle the bureaucratic pack at any time, but I believe that the present arrangements are satisfactory. However, I get worried when your Lordships very kindly say that my department seems to be on top of things. At this stage I think we ought to have a very serious look just to make sure that we are on top and we do not get complacent in any way. I should like to pay tribute to my department in particular for the work that they have done in Brussels and the speed with which we have been able to negotiate three out of the four regulations.
My right honourable friend the Secretary of State has the lead role in co-ordinating United Kingdom maritime policy, while Ministers in other departments have the primary role in some specific maritime fields. In the wood described by the noble Lord, Lord Kennet, there might have been brambles, briars and other obstacles blocking his way through the paths of Whitehall but, on maritime policy issues which cross departmental boundaries, my right honourable friend and myself take good care to ensure that other departments are consulted and that all other interests are taken into account.
The valuable study by my noble friend Lord Rochdale and his colleagues has provided the opportunity for this useful debate today. The report and the debate have necessarily ranged wider than the European Commission's communication of March 1985 and the maritime transport proposals attached to it. Perhaps I may sum up in general terms, as a summing up has to be in general terms, the problems facing our fleet today. We want our own fleet but so do other countries. There is a demand for a strong shipbuilding industry in the United Kingdom. Freight rates are horribly low and need to rise to make the shipping sector economic. Those problems might be solved relatively easily on their own, but overlying that is the framework of a massive surplus of world tonnage in all types of shipping and that makes the problem vastly more difficult to solve. I have noted and I am pleased by your Lordships' constructive attitudes today. These and the constructive attitudes of all are most welcome. My door is always open to those who wish to come to discuss constructively the problems facing us.
Let me conclude by quoting from a press article:
"The year will long be remembered as a year of almost universal depression reaching every avenue of trade".
Then it goes on:
"Shipbuilding has suffered terribly and the firms that can show a satisfactory balance sheet for the year are few indeed; freights have been ruinously low and owners have felt the hard times even more severely than the builders. In every direction the weak have gone to the wall. But all this was what was anticipated—what was foreseen by men of commercial foresight and acumen".
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My Lords, does that article have a familiar ring to it? The year in question is 1885 and the extract was taken from The Shipping World of January 1886.
More recently, some men of commercial foresight and acumen in this country saw the difficulties that shipping was to face a century later, as soon as governments started to subsidise and offer large investment grants. Over the last 10 years, there has been an increasing number saying that the right way forward is a European policy, a non-protectionist policy with full and fair competition. It is Her Majesty's Government's firm belief that the four draft regulations annexed to the Commission's communication form the basis for a sound common shipping policy both within the Community and in relation to third countries. Further, they provide the best chance of the sort of competitive environment in which the British shipping industry and that of our friends and competitors can at last begin to prosper.
On Question, Motion agreed to.
3.6 p.m.
Lord Kearton: My Lords, the afternoon wears on and I shall be brief. I first add my own congratulations to those of my noble colleagues to the noble Lord, Lord Strathclyde, for his very interesting, eloquent and constructive maiden speech. If I may say so, it was very beautifully delivered. I had the privilege of knowing his grandfather. In fact it was his grandfather who told me that a "strath" was Scots for "valley". I did not know that before. I may say to the noble Lord, Lord Campbell of Croy, that I am ignorant in these matters; but that was the case. I am sure that the first Lord Strathclyde would have been very proud of his grandson had he heard his contribution here today. We all very much hope to hear more from him in the days to come.
I should like to thank all noble Lords who have taken part in the debate. There has been a remarkable unanimity of opinion, it seems to me. We very much missed the noble Viscount, Lord Rochdale. I hope that when he reads Hansard he will feel that his labours in chairing Sub-Committee B have borne some fruit in the reception that has been given to the report today.
I started my own opening remarks by paying a tribute to the noble Earl, Lord Caithness, and many people have echoed that tribute. I should like to congratulate him on his summing up and on his reply to the debate—not that I thought his answers were entirely satisfactory. In fact, in some respects I thought that he was playing a very straight bat to some difficult bowling and that he did not stand a very good chance of making a long innings in that particular style. I think that again I would say, as I am sure would all members of the committee, that Lord Caithness's heart is very much in the right place. We all felt that he had a real grasp of the situation, a real grasp of the needs; and we wish all power to his elbow in conveying what I think is a very strong and generally-shared opinion of the House of Lords on the recommendation of the committee.
I take note that the sub-committee numbered 13 members, who arrived at a unanimous view; I take note that the sub-committee itself reported to the Select Committee, which I think has nearly 30

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members who approved the report—and again there were no dissenting voices. So I hope that the noble Earl, Lord Caithness, will convey to the Government the strength of the Select Committee's feeling and the sub-committee's feeling over the matters under discussion today.
The noble Earl's comments on defence struck me as very much, "Make do and mend; and we hope it will be all right on the night". That does not seem to me to be a very strong basis for a satisfactory defence attitude. In my orginal opening remarks I said that I hoped that the House would be taking note of our report and I am sure the noble Viscount, Lord Rochdale, will be very pleased that it has done so so effectively this morning and this afternoon.

Gallium Arsenide
3.9 p.m.
Lord Birdwood Lord Birdwood rose to ask Her Majesty's Government what plans they have formulated for the development of gallium arsenide as a United Kingdom resource.
The noble Lord said: My Lords, I want to sell you a product. It is incredibly difficult to make. It is very expensive. For it to work properly we have had to learn how to manipulate materials to extraordinary degrees of purity and to tolerances which mean that a few misplaced molecules can render them ineffective. This product is a man-made substance called gallium arsenide. Grossly oversimplifying, in electronic designs gallium arsenide goes on where silicon leaves off.
"So what?", we may ask. If we get a satisfactory answer to my Question this afternoon (and I am sceptical that we shall) we can peer into the industrial future of this country with just a little more confidence. If we do not get a satisfactory answer, then we can wave goodbye to a huge sector of technical competence. We may as well abandon any kind of global aspirations in key areas of tomorrow's electronics. We will always be dependent on others in areas that affect our national security, our ability to make or measure or even communicate.
Fifteen years ago in this House I accused our political masters of letting this country's machine tool capability dwindle to trifling levels. The House was reassured then that, on the contrary, things had never been healthier in this important industrial sector. So much for those reassurances from the Government of the day. And it is going to happen again. I accuse successive governments and, frankly, any government of an approach to technical industry compounded of apathy, laziness, ignorance and complacency. Need I remind your Lordships that our main exports to Japan are scrap iron and industrial bricks?
I put my Question this afternoon on gallium arsenide for two reasons. The first is because I really want to know the answer. I want to know what the thinking has been about this product at this time and what is the strategy for its future in this country. Secondly, gallium arsenide is a perfect symbol of the things we do wrong. It is absolutely typical of our national delusion that research by itself makes money.
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It is absolutely typical of the fragility and mutual distrust in any so-called collaboration between Whitehall and industrial interests.
First, perhaps I might give a very short summary of the stuff itself. Compared to silicon, as an electronic device raw material it has extraordinary advantages. Elections travel inside it five or six times faster than in silicon. This multiplies up to computing speeds perhaps 10 times as fast; and in electronics speed really is hard currency. It emits light—something that silicon cannot do. It absorbs sunlight more efficiently, making possible better solar cells. It has a much higher tolerance to radiation, making it the only choice for future space devices. It is tolerant of high temperatures, reducing cooling systems' weight. It uses less power than silicon. It can combine the processing of both light and electronic data on a single chip.
Lastly, every phase of its manufacture is created. This means that we can design into gallium arsenide devices characteristics and qualities to a degree impossible in any materials that have gone before. These aspects are not new. There is even an old joke about gallium arsenide. It is referred to as the electronic chip whose time has come. It always was and always will be the electronic chip whose time has come. But the truth is that the future of gallium arsenide has arrived now. It will never replace silicon. It is too difficult to make, and hence too expensive—over 20 times more expensive. But a whole new technology of complementary silicon-gallium design philosophy makes obsolete everything but the most pedestrian applications of chip technology.
This is not the first time this subject has been aired in Parliament. In March of last year in another place the honourable Member for Yeovil initiated a debate on gallium arsenide which was answered by the Minister, who outlined certain responses and initiatives which were being contemplated. In the last 12 months one crucial report has been completed, usually referred to as the Coupland Working Group report, prepared by the Advanced Devices and Materials Committee, and entitled A UK Strategy for Gallium Arsenide. That commendably clear document makes a number of technical comparisons between gallium arsenide and silicon and focuses on the central issue which must hang over any development strategy; the key problem in the application of the technology lies in predicting which, if any, of the fundamental factors in its favour is sufficiently significant to generate a business return commensurate with the investment required. I am sure that your Lordships will have spotted that that quotation was virtually verbatim.
The Coupland Report refers to a study commissioned by the Department of Trade and Industry from McIntosh International. I have a summary of the latest thinking from that source prepared for a workshop on the material held in Paris a week ago.
One of the problems associated with contemplating any technology which is at the threshold of explosive growth is some kind of prediction of the size of the explosion. However, even the most prudent evaluations of the market value of gallium arsenide

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integrated chips breaks through a world demand well over 1 billion dollars in 1990. At the top end of the research evaluations for predicted markets, we have figures of something approaching 7 billion dollars in 1992 and an optimistic 30 per cent. penetration of gallium arsenide into a total chip market of 70 billion dollars in 1995.
I could go on virtually interminably cataloguing those and other huge financial numbers. It would serve no purpose other than to underline the fact that we are talking about global levels of investment and return. Are those initiatives, some by companies, some by governments and some by venture investments, all being taken for the fun of it? Are the final objectives high risk, low yield, profitless adventures to exploit a laboratory phenomenon? No, of course they are not.
The massive expenditure on the development of gallium arsenide into a realistic production material has been authorised by people in other countries who know exactly what they are doing; people who recognise that, given courage, dedication and the appropriate political will, capability in gallium arsenide is not only an essential strategic move but presents opportunities to develop and hold markets that span the world.
This is the point at which I must refer to the Alvey programme, which so many Members of your Lordships' House have welcomed and rightly regard as possibly the most important collaborative plan in advanced technology to emerge in this country for a decade.
As is the nature of powerful government programmes, the predilections of the designers of those programmes deeply influence the actions and thinking of the participants. The Alvey programme is dedicated to developing silicon chip-based technology. If we were to hold our own in silicon technology, there was some hefty catching up to do and Alvey gives us the tools to do it, but was the logic of Alvey as impregnable as it seemed? I, for one, would not be party to any destruction of Alvey and the general warmth with which industry regards that initiative is undiminished, but there is no doubt that the existence of the programme has slowed down and, in come cases, halted movement forward in gallium arsenide technology.
I feel sure that this afternoon my noble friend will be able to spell out how important modifications to the Alvey program me will breathe fresh thinking into industrial and government attitudes towards the development of a production version of gallium arsenide in the United Kingdom.
To get a device into production, a number of technologies have to be available, compatible and managed. One can imagine it as a chain or path with a sequence of identifiable links or stopping places. One would think that any one of those links could be isolated, delegated to elsewhere and put back into the production chain on its merits. That is true of, say, a car, where the engine can be sourced from elsewhere when the car designers have specified its size and performance.
I must get over this afternoon the point that matters in micro-electronics are profoundly different. The party which controls the design and making of the
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gallium arsenide content of the device hauls in the value-added steps which lie on both sides of the production sequence. It is as if the man who made the engine for the car had to make all the transmission components and had to control the oil companies that made the petrol.
This is really a key point to comprehend. It means that letting a small amount go elsewhere seems, on the face of it, a small sacrifice compared to the full commercial benefits from the development to production sequence. This just blinds ourself to the truth. A senior strategist in one of the country's largest electronics companies said to me a matter of days ago that some equipment makers are concerned about their continued existence unless this is openly recognised.
If this Question achieves nothing else, I want it to hammer home the different magnitudes of expenditure in nourishing a technology from seedling stage. Again, your Lordships are aware of typical industrial ratios. In electronics, we must think in terms of £100 spent to arrive at a product in the market place for every £1 spent in proving a usable hypothesis. Again, these ratios are irreducible because there can be no other end point for any effort but to address a world market.
I was ungraceful a moment ago in the words I used about governments. I take them back. We need the goodwill of government now and in the years to come. To be fair, there probably never has been a time when more creative thinking has gone into collaborative missions and ideas than does so today. The department's role in these initiatives is laudable. In this country especially we have a situation of breathless pause while certain large companies eye each other and Whitehall to see who will jump first. It is understandable. Nobody wants to plunge heavily bearing a lone risk in this untried area. The companies in what one could call the "user club", who will be customers of gallium arsenide, are invariably going to be companies who can be producers. The dilemma for the company is whether to let somebody else take the risk, spend the money, and then find oneself as the user at the mercy of a supplier who is also your competitor.
In the Coupland Report the options for action were clear. Option one was to form a completely new commercial company to address the future of gallium arsenide as a national resource. The Coupland Report compilers have actually gone for a co-operative gradualism with substantial European involvement. Speaking for myself, I believe that this option of a new company was, and is, the best way forward. It demonstrates what one could call a championship, in its proper sense, for gallium arsenide which could be shared by Whitehall and industry alike. I believe it would be welcomed by the Ministry of Defence, whose needs for this material will soon be pressing. It would give some hope of participation in SDI on the device side where we now have none. I believe it will be financially viable from a remarkably early stage.
My noble friend will certainly have seen the message from the electronic components EDC secretariat, pointing out some of the efforts by industry. These are remarkable. Throughout the 'eighties—and I am talking about all aspects of electronics investments—

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firms have invested at the rate of £50 million a year, year on year. They ask for a stable and supportive framework. No more moratoriums, please. I will be more than interested in my noble friend's comments also on MISP in the context of this Question, or indeed the electronics industry as a whole. From recent statements at ministerial level, we know that the idea of hybrid creations is almost acceptable where Whitehall goodwill and funding are recognised as a creative commercial force.
This is the Friday before a bank holiday, but I make no apology for raising a subject which seems wilfully obscure. Obscure it may be; important it certainly is. Without a coherent view of this oddly named man-made crystal, we put even further at risk what standing we have in the frontier technologies of the developed world. I beg leave to ask the Question standing in my name.
3.25 p.m.
Lord Lloyd of Kilgerran: My Lords, I am sure that noble Lords will wish me to thank the noble Lord, Lord Birdwood, for raising this subject and for his interesting speech indicating the characteristics of gallium arsenide and its potential importance to the development of UK industry and of course to UK defence. Gallium arsenide has been known for a number of years and I have come across it in the last few years in my capacity as honorary secretary of the Parliamentary Information Technology Committee, which is affectionately known as Pitcom. I am aware of the reports to which he has referred and also of the suggestions he has made, but on a sunny Friday afternoon before the bank holiday I will resist the temptation of amplifying what the noble Lord has said—
Noble Lords: Hear, hear!
Lord Lloyd of Kilgerran: I am glad to have the support of the Labour Front Bench on that ground at least.
At least I can say this. Gallium arsenide is a vital element in fast computer development. I am sure that many noble Lords will be aware of the initiative taken by a number of firms in using gallium arsenide in the course of their research. Your Lordships will of course know of the vast investment made by the Plessey Company in projects, many of them secret, associated with defence sales as well as in industry using the characteristics of gallium arsenide. Therefore, when we know that firms like Plessey have made such an investment in gallium arsenide, what the noble Lord is asking the Government to do is to tell your Lordships what plans they have formulated for its developments as a United Kingdom resource. The phrase "United Kingdom resource" is full of potential for future success or failure, and I would emphasise the phrase at this stage.
I do that for one main reason. The noble Lord, Lord Birdwood, made no mention of what is happening in a USA context or of what is happening in a EC context. In the course of professional activities, I am fully aware that American interests somehow try to dominate what happens in the United Kingdom and
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in the EC. They use those powers of extra-territorial rights, about which they are so pleased, and anti-trust arrangements, although anti-trust arrangements have become very much diluted in the last three years under the Reagan Government.
There has been no mention so far—and I should like to hear what the Government have to say—as to whether they have plans in a EC context. I wonder whether the research work on gallium arsenide could, for instance, come within the well-known Esprit project which your Lordships discussed a few weeks ago. One characteristic of the Esprit project which appeals to me is that about a dozen companies in Europe have got together to help in certain research projects without any problems arising from patent rights, intellectual property rights, competition rights and so on. I apologise for the fact that it is only a few minutes ago that I indicated to the noble Lord that I would be asking questions about developments in a EC context and I do not expect that he will be giving an answer during the course of this debate.
It may be that the Government have ideas of developing research on gallium arsenide in the context of the Eureka EC project and, if he is going to suggest that, perhaps the Minister would endeavour to indicate how far it is possible for British firms to protect their rights in future developments in that area.
I do not propose to take up any more of your Lordships' time. I am not as sceptical as the noble Lord, Lord Birdwood, about the reply of the Government on this important matter. I shall not pursue the interesting channels that the noble Lord tempted me to enter. The Government are fully aware of the great importance of the development of gallium arsenide. To use the happy phrase of the noble Lord, Lord Birdwood, we are now discussing a substance which is "at the threshold of explosive growth" and it has to be nourished for the benefit of British resources.
3.31 p.m.
Lord Williams of Elvel: My Lords, I too shall not detain your Lordships very long. I must express the gratitude of the Opposition to the noble Lord, Lord Birdwood, for raising this Question because it is a question of the technology of the future and also a question of what government could or should be doing to support the development of technology. At the outset, I must say that we on this side of the House take fully the point made by the noble Lord, Lord Birdwood, that you cannot be the man in the middle of this technology. You have to have the full range; otherwise you will be dominated by the man who stands in the middle and you will be in an inferior position compared with your competitors.
I must also at the outset put in a commercial plug for the University of Wales Institute of Science and Technology to which I am very grateful for the information it has given me on gallium arsenide. I would never pretend to be an expert on the subject. The University of Wales Institute of Science and Technology ran a course in April, as I am sure the noble Lord, Lord Birdwood, will know, on gallium arsenide for devices in integrated circuits, and it is I think in the forefront of trying to encourage research into this important material and its applications.

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As the noble Lord, Lord Birdwood, pointed out, the department has an internal working report, the Coupland Report, from which he quoted. The report came out with a certain number of options. One important point made by the Coupland Report which I hope the Government have taken fully on board—this was confirmed by the intervention of the noble Lord, Lord Lloyd of Kilgerran—is that the technology of gallium arsenide will be at the heart of all future electronic systems. I quote directly from the report:
"That this will happen is not in doubt. What is in doubt is the timing and rate of change".
It is this uncertainty that lies behind the wide range of market forecasts.
The noble Lord, Lord Lloyd of Kilgerran, asked about the EC context and questioned whether we were in danger of falling behind major competitors in the field. The noble Lord, Lord Birdwood, drew our attention to the fact that we are in a state of pause at the moment—nobody quite being certain who was to do what. I note that the noble Lord, Lord Birdwood, came back to the option of a joint venture company that was mentioned and, as the noble Lord said, rejected by the Coupland Report. It is on that point that I should like to spend one or two minutes.
We hear a lot in this House about the enterprise culture. Here we have a number of very distinguished enterprises which participated in the Coupland Report—I do not want to read out the names of the distinguished people from distinguished companies who sat on that body—and it appears that the net result is that they come back to the Government, as the noble Lord, Lord Birdwood, comes back to the Government, and say, "The investment in this new technology is so risky but the returns are potentially so great that no corporate finance director in his senses would invest the full amount in order to make these substantial returns, so we have come back to the Government to do it for us". The enterprise culture is, as I understood it, designed to ensure that that type of investment will be secured by the private sector and that there will be no need for the Government to intervene in those enterprises; it is for the private sector to determine what is the best allocation for funds on a short-run and on a long-run basis.
I believe that the noble Lord, Lord Birdwood, has absolutely exploded that particular hypothesis. I hope that the noble Lord, Lord Brabazon of Tara, will not come back to the theory that it should be for the enterprise culture to determine whether or not this country has a position in gallium arsenide in the future. But if the Government are to be called upon to intervene—and I believe that they should intervene and that they should take a leading role—then I ask myself and I ask your Lordships: what will be the return to the Government on the investment that they are to make?
I hear a lot, and I read a lot in the Coupland Report, about how the Government must collaborate with private industry in ensuring that all these desirable things happen; that we have a production version of gallium arsenide; that other countries are overtaking us; that the Japanese are doing this; and that, as the
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noble Lord, Lord Lloyd of Kilgerran, said, the Americans are doing that.
If the Government are to be asked to intervene, then it seems to me that it should be possible to say on behalf of the Government, "All right—let us form a joint venture company, but let it be a joint venture company in which, if the Government are going to put up risk money from the taxpayers, then the Government will have equity participation." That does not seem to me to be wholly illogical. I noticed the noble Lord, Lord Birdwood, nodding, and I rather gathered that perhaps that is something he would consider appropriate in the context of his plans.
It seems to me intolerable that while private companies are quite happy to spend money on short term projects where they can see the return, where there is a vast market opening up in front of us as a country, and where the Government are rightly involved, that government investment should be considered simply as a method of propping up private research until such time as the returns are visible on the horizon for a corporate finance director, and then private companies will make the investment.
Lord Lloyd of Kilgerran: My Lords, I am grateful to the noble Lord, Lord Williams, for giving way. Is he not rather exaggerating the position? There are certain firms such as Plessey who, without government help, are making a great deal of investment in this very field.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for his intervention. Indeed, there are companies that are making an investment; but the message of the Coupland Report and of the noble Lord, Lord Birdwood, is crystal clear. I doubt whether your Lordships can get away from it. That investment is a drop in the ocean compared with what is really required to realise this market, which may be of the order of 1 billion dollars a year or may be of the order of 7 billion dollars a year. That is a matter to be determined in the future. The investment actually being made is really no more than a small drop compared to what is required.
I ask the noble Lord, Lord Brabazon, to tell the House what plans the Government have, in the context of developing gallium arsenide as a national resource, to make sure that if the Government are to put any taxpayers' funds into supporting that project—which we in the Opposition would wholly support—the taxpayer will get a proper return on the funds that he puts up. We recognise that that is risk capital. We recognise that the taxpayer may have to write off his capital if it does not work. Nevertheless, if it does work then we ought to see exactly how much money the taxpayer will get in return.
I will not detain your Lordships on, as the noble Lord, Lord Lloyd said, a sunny afternoon—
Lord Lloyd of Kilgerran: I said before a bank holiday, my Lords.
Lord Williams of Elvel: My Lords, I have one more point on which I should like the noble Lord, Lord Brabazon, to comment, and that is the expenditure recommended in the Coupland Report. On page 20 of

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the report, there are summarised the funds required in order to get a project of a collaborative nature, if I may put it that way, off the ground. One is talking about a total of £25 million of Government money. Does the Minister feel that that is sufficient, and does he feel that it is in the right proportion? Before the Minister sits down, I hope that if the noble Lord, Lord Birdwood, is not satisfied with his answer, then he might wish to come back on that question.
It seems to me that that is a very thin programme for what we are talking about. I should like to see the Government come out very firmly and say, "Yes, this is a technology which we recognise is risky. This is a technology where the market is as yet undetermined. This is a technology in which we are to a certain extent tending to fall behind our competitors; and this is a technology in which it is vitally important to have the production version rather than simply to encourage research". I should like the Government to firmly and fairly say that.
In addition, I should like the Government to say, "Not only do we believe that, but we believe that private industry is not in a position to provide these things and that we, the Government, will step in and help private industry; but on the basis that there will be a proper return to whatever investment the taxpayer makes".
3.41 p.m.
Lord Brabazon of Tara: My Lords, I should like to thank my noble friend Lord Birdwood for asking the Question that has allowed us to hold this short debate on the Government's plans for the development of gallium arsenide. He addressed mainly three points: the importance of the technology, the lack of a widespread appreciation of its importance, and the high cost of bringing the technology to the stage of profitable manufacture. The points are well taken.
The Government welcome this debate, as they welcomed one held in another place on 11th March last year, because it allows us to shed light on what to many is a very esoteric subject. But new technologies often appear that way, more so in a field such as electronics than for areas such as, for instance, surface coatings which might produce palpable results like the non-stick saucepan. It is inevitable that new technologies take time to get into the textbooks and to be absorbed by a new generation of students.
I shall not repeat the characteristics of gallium arsenide, which my noble friend described so well, merely confine myself to repeating that the importance of gallium arsenide in advanced applications is widely accepted. But the uncertainties surrounding the course of development of the technology and, consequently, the precise market sectors in which it will feature have led to the situation where companies find it difficult to justify the risk of funding the level of R & D necessary to stand a chance of being successful on world markets. This has forced governments throughout the world to play a prominent role in stimulating the technology.
The main centre of present activity is the US where there is heavy military domination. Currently there are 50 to 60 companies in the field, many with defence interests and some in the more speculative digital
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integrated circuits field apparently positioning themselves for non-defence markets. Support by the US Department of Defense for gallium arsenide has now overtaken that for silicon and we understand that a 360 million dollar programme is being launched. The Japanese are also very active, concentrating more on optoelectronics and digital devices for computing and communications in the civil markets.
Within Europe, France, Germany and the UK are evenly matched, each with 100 to 150 scientists engaged in gallium arsenide research, with programmes comparable in size but differing in composition. Europe is certainly not out of touch with its competitors in the US and Japan but, while each of the European countries has performed well in part, progress has not been uniformally good. Resources could be used more effectively.
The UK has a high reputation for microwave and optoelectronic devices. Our major companies are Plessey (microwave, optoelectronic and analogue), STC (optoelectronic and digital) and more recently a growing GEC activity. We also have ICI Wafer Technology and MCP Electronics as materials makers. The main stimulus from the UK Government over the years has been from the Ministry of Defence and the Science and Engineering Research Council. The Department of Trade and Industry has supported projects in the gallium arsenide field through its microelectronics and optoelectronics programmes for a number of years. However, as the technology has developed it decided to ask for advice from the companies and academics on its electronic devices and materials committee on what its future policy should be. The result was the Coupland Report, to which my noble friend referred. It was named after the technical director of STC Components who chaired the working group. The report is available in the Library.
The report's major findings were that collaborative research on manufacturing processes and devices should be undertaken but, in view of the uncertainties in the market and in the technology, commitments should be limited to a three-year span. Demonstrator projects to provide market-pull were desirable and, since full production facilities would not be needed for about 10 years, pilot manufacturing lines should be set up. A flexible approach to targets would be essential.
The industry's reaction to the report has been very favourable. Representatives of device makers, materials suppliers and likely major users of gallium arsenide devices have reached broad agreement on a strategy and a series of projects to achieve it. They agreed the following objectives: first, to provide manufacturing facilities in gallium arsenide integrated circuits to meet the needs of UK users; second, to set up demonstrator projects to encourage early exploitation; third, to undertake directed research on manufacturing processes and devices; fourth, to secure maximum collaboration between organisations in the UK in order to avoid unnecessary duplication; fifth, to make full use of university work and the Ministry of Defence's programme; and, lastly, to pursue actively European collaboration.
The programme has been costed at approximately £60 million over three years. Such investment would be over and above existing planned investment by the industry. The industry stipulated a financial

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contribution of 50 per cent. from government to compensate for the high risks associated with the additional expenditure and to compensate for loss of independence and exclusive rights of exploitation.
I am pleased to tell the noble Lord, Lord Lloyd of Kilgerran, that discussions have also taken place between the British, French and German industries with officials present. The three countries are separately considering new initiatives in gallium arsenide and the time is opportune to consider European collaboration, perhaps under the Eureka programme. The scope for a joint programme where the national interests overlap wil be discussed during the summer and we hope that there will be a positive agreement at a second meeting of industrialists in September. I note the remarks of the noble Lord, Lord Lloyd of Kilgerran, about British firms' patent rights and I shall certainly draw them to the attention of those who are to take part in these meetings.
The Government strongly endorse the strategy proposed by the UK industry, including its readiness to join in discussions on a European programme. The Government are willing to provide financial support to individual projects from UK companies that fall within the strategy, including those on a European basis. The details of government support are under discussion with companies at the moment. I cannot go any further in reply to the noble Lord, Lord Williams of Elvel, as to the exact amount of money involved at this stage.
My noble friend Lord Birdwood referred to the importance of exploitation. The strategy I have described covers this but recognised that in its early stage of development the emphasis must be placed on R & D and pilot production. However, I can assure my noble friend that the importance of exploitation will not be forgotten.
My noble friend referred to the Alvey programme, and I think that the noble Lord, Lord Lloyd of Kilgerran, also mentioned it. With the limited resources available and the overwhelming size of the silicon market, we believe that the Alvey programme was justified in concentrating on the development of silicon technology. The United Kingdom momentum in gallium arsenide has not been lost and will be boosted by the industry's strategy.
The Government's record of support for microelectronics is a good one. With Alvey, the microelectronics industry support programme and other measures, such additional work in industry has been stimulated. The Government have said that they are prepared to support gallium arsenide projects also, as I have repeated this afternoon. To conclude, this debate has provided a welcome opportunity to bring to the attention of noble Lords the importance of gallium arsenide and to allow the Government to make a statement about their willingness to support industry's efforts in this area.
The noble Lord, Lord Williams of Elvel, asked me how the taxpayer will be rewarded for the investment that we shall probably put into this programme. I think that in general terms it is a matter of pump-priming. If this is successful, then the companies involved will end up paying back a great deal more in tax, I hope, than we put into the resource in the first place. However, I think that the noble Lord's question
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is an interesting one, if not somewhat wider than that on the Order Paper this afternoon. However, I take note of his views.
I should like once more to thank my noble friend for asking his Question. I hope that I have been able to give him some encouragement, or at least rather more encouragement than the noble Lord thought he was going to receive at the beginning of this afternoon.
House adjourned at nine minutes before four o'clock.