Lords Sitting of 24 February 1987

Preamble
The House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Carlisle.
Lord Manners—Sat first in Parliament after the death of his father.
Lord Borthwick—Sat first in Parliament.

Eldon Hill Quarry
Baroness David: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when the result of the inquiry into the Eldon Hill quarry on the Peak National Park will be announced.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Skelmersdale): My Lords, my right honourable friend the Secretary of State for the Environment has today written to the parties in the case announcing his decision to dismiss the appeal.
Baroness David: My Lords, I warmly thank the Minister for that reply, which is very good news. It is odd how answers to letters seem to go out on the day that Questions are put down. Why are there usually such long delays in issuing the results of public inquiries, particularly about limestone quarries, where a great deal of damage can be done while the results are being awaited? It is a year since the inquiry on this quarry was finished.
Lord Skelmersdale: My Lords, in answer to the noble Baroness, the reason the announcement of this decision was deferred—it could have been made last week—was in deference to her and her putting down the Question on the Order Paper.
Noble Lords: Oh!
Lord Skelmersdale: My Lords, there is general laughter, but that statement happens to be true. In answer to the supplementary question asked by the noble Baroness, this was a complex case in which the inquiry ran on and off for four months. The inspector then put a great deal of effort into assessing much complex evidence and presenting it objectively.
Lord Hunt: My Lords, is the noble Lord aware that I too am absolutely delighted that his right honourable friend has reached this conclusion? Is he aware that Eldon Hill Quarry is arguably the most blatant contradiction in all our national parks of the purposes for which the national parks were established and that any extension of that quarry could only have made the problem of restoring it eventually that much more difficult?
Lord Skelmersdale: Yes, my Lords. I am grateful to the noble Lord, Lord Hunt. The position is exactly as he has stated. However, I would point out that the planning permission for the original quarry does not expire until September 1997, and so we shall not see overnight the environmental improvements that he wants.
Lord Molson: My Lords, in view of this very welcome decision by the Government may we take it that the present Government stand by the criteria laid down by the late Lord Silkin—Mr. Silkin as he then was—in 1949 that permission for the exploitation of minerals in national parks will not be given unless it is absolutely necessary in the public interest and there is no possible alternative source of supply?
Lord Skelmersdale: My Lords, I can tell my noble friend that there has been no deviation from that policy.
Baroness Nicol: My Lords, can the Minister say whether any effort is being made to persuade contractors not to use high-grade limestone as roadstone?
Lord Skelmersdale: My Lords, the Government have made quite clear that they see roadstone being quarried in those places outside the national parks where such a thing is possible.
Baroness Nicol: My Lords, that was not quite the question. The question is whether contractors should be dissuaded from using high-grade limestone as roadstone, because that would have beneficial effects on those quarries which produce high-grade limestone.
Lord Skelmersdale: My Lords, the technical specifications of what is used as roadstone, and indeed ballast on railway tracks, is beyond me. If I may, I shall write to the noble Baroness on that point.
Lord Molson: My Lords, this arises out of my noble friend's earlier reply. To use high-quality limestone for roadstone would not satisfy the criterion that no possible alternative source of supply is available.
Lord Skelmersdale: My Lords, high-quality limestone can on occasions be found outside the national parks and so the situation is rather different.

Road Repairs and Improvements
2.47 p.m.
Baroness Lane-Fox: 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 measures they have taken to improve efficiency in road construction and repair.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, we have taken a wide range of measures to

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provide better roads at lower costs including increased competition, improved designs and lane rental contracts.
Baroness Lane-Fox: My Lords, I thank my noble friend the Minister for that reply. Is he aware that since putting down this Question I have been helped by very impressive reconstruction of the road outside my home? Having studied that, I am prompted now to ask my noble friend what good achievements there have been as a result of lane rentals?
Lord Brabazon of Tara: My Lords, I am delighted that my noble friend has had a satisfactory repair done to the road outside her home. Lane rental has proved very successful, with contracts being completed on average 38 per cent. more quickly than normally expected. As a result, 500 days of delay were avoided in 1985–86, worth over £8 million to the nation.
Lord Underhill: My Lords, is the Minister aware that in contrast to his noble friend Lady Lane-Fox I travel each day through a rate-capped borough where the roads have very bad potholes and shocking surfaces due to the recent cold spell? Has he any indication that local authorities with these problems have the necessary finance to cope with them? Simply filling in a pothole is not good enough; the pothole will reappear within a few days.
Does the noble Lord recall that in July a Question was put down on the Horne Report on roads and utilities? The Government did not accept one of the recommendations. Has the advisory committee, which has no teeth, been set up, and, if so, what results have occurred?
Lord Brabazon of Tara: My Lords, we have increased the public expenditure provision for local road maintenance by 13 per cent. for 1987–88, continuing a run of increases well above the rate of inflation. Decisions on spending priorities are of course a matter for local authorities. But we hope very much that they will respond by increasing the money devoted to road maintenance. As regards the Horne Report, I am afraid that I do not have the information with me and I shall have to write to the noble Lord.
Lord Tordoff: My Lords, one of the best ways of achieving the improved efficiency to which the Question refers is to support the Transport and Road Research Laboratory. Without wishing to anticipate the report which is due from your Lordships' Select Committee tomorrow, have the Government any plans in the near future to restore the cuts that were made in the funding of the laboratory?
Lord Brabazon of Tara: My Lords, that question is a little outside the one on the Order Paper. Also, as the noble Lord says, your Lordships' committee will be reporting shortly. I shall reserve my judgment until I see the report.
Baroness Lane-Fox: My Lords, is my noble friend the Minister able to say whether improved, modern techniques and efficiency have gone some way towards
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ruling out the damage that was done by the 35 per cent. cuts made on major roadworks during the time of the last Labour Government?
Lord Brabazon of Tara: My Lords, certainly since 1980 we have doubled the provision for repair—on motorways particularly—from 40 miles per year in 1979 to 80 miles per year now. So our record is, I think, pretty good.

Estate Action
2.46 p.m.
Lord Sandys: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what progress has been made by the Department of the Environment's Urban Housing Renewal Unit, now known as Estate Action, in tackling the problems of run-down council estates.
Lord Skelmersdale: My Lords, since the unit was set up in June 1985, 124 schemes in 63 local authorities have been approved, involving additional targeted resources of £50 million in 1986–87. Under Estate Action's homelessness initiative some £4 million within this total has been approved specifically to enable local authorities to bring nearly 1,000 empty council properties back into use to benefit the homeless. In the next financial year Estate Action will have resources of £75 million to support considerably more new and continuing schemes.
Lord Sandys: My Lords, I thank my noble friend for that very encouraging reply. Can he tell the House whether housing action areas, with which your Lordships will be familiar, will be the same sort of areas as those involved in the present new scheme of Estate Action?
Lord Skelmersdale: Not exactly, my Lords. Estate Action is concerned with finding solutions to problems on difficult-to-manage council housing estates, whereas in housing action areas the prime concern is with modernising run-down private sector housing, typically the pre-1919 stock.
Lord Dean of Beswick: My Lords, I am grateful to the Minister for the list he read out and for his indication of the growth in this programme. But are the criteria wide enough to encompass council estates built in the last 25 years by industrial systems which are in need of urgent repair and which are deteriorating quickly? They represent one of our worst housing problems, and so far little or no additional funding has been received by local authorities to deal with the problem. If they are not being considered by Estate Action, will the Minister take back to the Secretary of State a request that they should be as a matter of urgency?
Lord Skelmersdale: My Lords, the objective of the scheme is to improve the quality of life on council estates. As I said, Estate Action is supporting a wide

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range of initiatives by making the estates pleasanter, safer and more attractive places in which to live. Thus a substantial proportion of its resources have been used in support of, for example, measures to combat crime and vandalism; to improve security; to create defensible space; for heating and insulation packages to produce housing which tenants can afford to keep warm; for environmental improvements; and for the remodelling of unattractive open-plan estate lay-outs, sometimes through community refurbishment schemes carried out by local unemployed people funded by the Manpower Services Commission's Community Programme and the Department of the Environment's Urban Programme.
Lord Sandys: My Lords, can my noble friend tell the House whether Estate Action applies to England and Wales only or to all parts of the United Kingdom?
Lord Skelmersdale: England and Wales only, my Lords.
Baroness Fisher of Rednal: My Lords, can the noble Lord give the House details of any extra finance that has been given to local authorities which have properties in Estate Action areas? Is it over and above what would be given by rate support grant? In other words, is this a special grant that is given to a local authority?
Lord Skelmersdale: It is extra money, my Lords.

Deaths: Winter Increase
2.50 p.m.
Lord Ezra: 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, in view of the reported increase in the number of deaths by 2,000 in the week following the recent exceptional cold spell, they have in mind long-term measures to deal with possible recurrences in future years.
Lord Hesketh: My Lords, the underlying causes of the annual winter increase in the number of deaths are very complex. The underlying trend in excess winter mortality has been downward over the last 35 years, but it remains a matter of great concern. We need to gain more knowledge of the factors involved. My right honourable friend the Secretary of State for Social Services is considering how that can be best achieved. Meanwhile, the Government are spending some £400 million per year in supplementary benefit heating additions to help supplementary pensioners and others on low incomes to meet their fuel bills.
Lord Ezra: My Lords, I thank the noble Lord for that reply. But may I ask him whether he agrees that long-term measures are preferable to short-term palliatives and that organisations such as Neighbourhood Energy Action which draughtproof and insulate the homes of elderly people on low incomes are much to be encouraged? In that connection, will he indicate what replacement is
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envisaged by the Government towards the single payment hitherto made by the DHSS for draughtproofing which is due to come to an end in April next year? If that is not soon decided, is he aware that the work of the NEA could very quickly grind to a halt?
Lord Hesketh: My Lords, the Government recognise the valuable co-ordinating role performed by Neighbourhood Energy Action, of which the noble Lord is chairman. We also fully recognise the value of draughtproofing measures and of the important work undertaken by local insulation projects. Future arrangements to help with the cost of draughtproofing materials are being considered by the government departments concerned in the context of the Government's help to people on low incomes with energy conservation measures as a whole. I appreciate the concern that has been expressed about the need for an early announcement, but it is still too early to say what the outcome of this consideration will be.
Baroness Jeger: My Lords, can the noble Lord say whether the Government agree with the figure of 2,000 as the increase in the number of deaths from hypothermia and whether it includes hypothermia-related illnesses as the cause of death? Can he also tell the House whether the Government are satisfied with the arrangements for a £5 a week severe weather payment, how many applications were received, how many were granted and whether any payments have yet been made?
Lord Hesketh: My Lords, that is a rather confusing number of questions. As regards the 2,000 deaths, they were certainly not all related to hypothermia. Cold weather has of course always caused a rise in the death rate and the problem of the additional number of deaths from all causes—which is what the figure of 2,000 refers to—particularly heart disease, strokes and chest infections, that occur in winter compared with the summer. However, excess winter mortality has declined significantly from in excess of 68 per cent. from 1951 to 1955 to 29 per cent. from 1981 to 1985.
Baroness Jeger: My Lords, what about the £5 grant? There is no answer.
Lord Paget of Northampton: My Lords, does the noble Lord agree with the general scientific view that the fundamental cause of the problems of our species is a tendency to live far too long? Is he satisfied that the Government's efforts here are in the right direction?
Lord Hesketh: My Lords, the Government make a special provision of an extra £200 per annum to all those who achieve the age of 85 and above.
The Earl of Halsbury: My Lords, can the noble Lord urge his department to come into the computer age and realise that the giant computers of the Meteorological Office could within minutes evaluate a points scheme for every postal district in the country which combined temperature, wind velocity and elevation above sea level, transmit it to every post office where pensions and supplementary allowances are payable again within a matter of an hour or so, and allow these things to accumulate once a week?
Lord Hesketh: My Lords, with regard to the gathering of information from the weather stations, it was generally agreed last year that there had been a vast improvement on previous years and I am sure that that will continue.
Lord Harmar-Nicholls: My Lords, in addition to the direct help that a government can and should give in circumstances such as those set out in the Question, will the Government consider giving guidance to families to make an effort themselves to look after their elderly people and not leave it entirely to organised bureaucracy? We know that winter will come. Perhaps the family contribution has a bigger part to play than in many instances it is playing today.
Lord Hesketh: My Lords, I am sure that many Members of the House would agree with that view. In the direct matter of advising the elderly on protection and on keeping warm in the winter, the Health Education Council has issued two training packs, one of which is entitled Your Right to be Warm and the other Warmth in Winter.
Lord Kinnaird: My Lords, is my noble friend aware that if it gets cold enough I would rather be dead anyway?
Lord Hesketh: My Lords, I am grateful for my noble friend's observation.
Baroness Ewart-Biggs: My Lords, to return once more to the replacement of single payments for draughtproofing, is the noble Lord aware that on several occasions his right honourable friend in another place also accepted the principle that it should be replaced and said that an answer would come in due course or shortly? Will the Minister say, first, when this equivocal period of time will finally come to an end; and, secondly, whether the obstacle to coming to a decision is perhaps that the departments involved cannot agree who will bear the cost of replacement of the single payment?
Lord Hesketh: My Lords, I feel that I have already answered this question of the noble Baroness, who I know is the vice-chairman of Neighbourhood Energy Action, when I answered the questions of the noble Lord, Lord Ezra.
Lord Cledwyn of Penrhos: My Lords, can the noble Lord say whether the Government have machinery to study the overall effects of the exceptional spells of cold weather which happen every three years or so and which at times appear to leave us at a standstill without any idea what to do? Can he say whether the Government are studying the point on this occasion so that they will have a policy to deal with the range of problems which arises? Also, will he reply to the question about the £5 allowance put by my noble friend?
Lord Hesketh: My Lords, I think it is generally considered that with each passing year the data that are collected and their quality are improving. We hope this will assist the Government in providing answers to the problem.
Lord Glenamara: My Lords, has the noble Lord seen the recent reports on the carcinogenic substance in the material with which most houses in this country are insulated? Have the Government formed any view on this?
Lord Hesketh: My Lords, I understand that my right honourable friend the Secretary of State for the Environment is expected to make an announcement shortly. There is no reason for householders to remove man-made mineral fibres from their lofts, but they should take simple precautions such as wearing masks, gloves etc. when working in lofts where the insulation is exposed.
Baroness Jeger: My Lords, is the noble Lord unable to answer my simple question on what happened about the £5 weekly allocation?
Lord Hesketh: My Lords, if the noble Baroness could remind me of the point about the £5, I should be most happy to answer.
Baroness Jeger: My Lords, I asked how many applications had been received, how many had been approved and whether anybody yet had any money.
Lord Hesketh: My Lords, the latest figures we have are for last year, when there were 500,000 applications, compared with 170,000 in 1982.
Baroness Jeger: My Lords, I am talking about this year.

Business
Lord Denham: My Lords, it may be for the convenience of the House if I announce that should the Committee stage of the Local Government Finance Bill not have been completed by then it will be adjourned at approximately 7.30 p.m. for approximately one hour, and that during this adjournment the Committee stage of the Coal Industry Bill will be taken.

Trade Unions: Members' Rights
2.58 p.m.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, with the leave of the House, I shall now make a Statement on the rights of trade union members.
Since 1979, we have proceeded step by step to introduce a succession of measures which together have helped achieve the least number of working days lost to industrial action for a generation. We have sought to restore a proper balance of bargaining power between trade unions and employers. We have sought to establish democratic rights for individual members within their unions. Above all, we have sought to promote an environment in which both sides of industry can work together to generate the wealth the country needs.
We have observed closely the impact of our legislation. In general, progress has been marked and encouraging. However, some unions have declined the

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opportunity to put their house in order, and union members have not always felt able to take a stand and ensure that abuses are corrected. It is therefore clear that we need now to take another step both to strengthen the rights of individuals within a union and to reinforce their ability to exercise those rights. That is why we are today publishing a Green Paper, Trade Unions and Their Members, which sets out a number of possible changes, on which comments are invited, as a basis for further legislation.
The Government have always believed that individuals should be able to choose for themselves whether or not to belong to a trade union. We also object strongly to attempts to coerce an employer into putting someone out of work on the ground that the person does not belong to any union or to a particular union. Our earlier measures have certainly reduced the scope for the worst excesses of the closed shop. However, I am afraid that in some industries the power of the closed shop still remains.
We therefore propose measures which will end the legal protection of a post-entry closed shop in any circumstances. The present law allows a closed shop to be enforced if a weighted majority of employees vote for it in a ballot. Few major employers have yet been affected by this provision. But, in the cases where ballots have produced a lawful closed shop, the rights of many individuals to choose whether to join a union or not have been extinguished.
Experience has shown that unions' legitimate interests are not seriously weakened where the closed shop is not protected by law. The repeal of balloting provisions for the closed shop would give any individual dismissed for not belonging to a union the right to compensation for unfair dismissal. We also propose to end all legal immunity for industrial action designed to force an employer to create or maintain any closed shop. In short, we are proposing to end completely the use of the law in any circumstances to sustain the closed shop.
The most important feature of democracy within a trade union must be the right of the members to a secret vote in the direct election and re-election of their union leaders. The 1984 Act established such a right for the election of the voting members of union executives and created a presumption that postal ballots would be used. A large number of trade unions have retained workplace ballots and the conduct of such ballots continues to give rise to controversy. Now is the time to act against these abuses. When we legislated in 1984, many trade unions did not have lists of membership of sufficient quality to serve as electoral rolls. Since 1984 they have been required to have such lists, and they have now had the time and opportunity to draw them up. There is, therefore, no longer any reason why we should not move to the most secure method of balloting available—the secret postal vote under independent supervision.
The process of election is intended to ensure that the leadership of a union is, and remains, responsible to its members. In practice not all trade union leaders have been required to be elected. We now propose to make presidents, general secretaries and any others with seats on the executive subject to direct democratic election.
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The right to choose to go to work during industrial action is an essential freedom. We believe that union members are entitled to a vote on whether their union should call them out on strike. We also believe that they are entitled to continue to go to work and honour their contract of employment if they disagree with their union's call. At the moment, legislation does not give union members any right to take action to restrain their unions from calling a strike without a ballot. Nor do they have any statutory protection against disciplinary action by their union if they cross a picket line or carry on working during a dispute. We propose to give them both.
Recent events have thrown light on the unusual ways in which some unions run their financial affairs. Union members ought to be seriously concerned about some of the manoeuvres which have been used to evade or circumvent the jurisdiction of the courts when unions find themselves in conflict with the law. The Green Paper considers possible safeguards which might be enacted in legislation, of which the most fundamental is a right of access for every member, accompanied by a professional adviser, to current union accounting records.
It is not enough to provide rights and protections for individual citizens if they in practice find it too daunting to claim them. As things stand, trade union members need to be exceptionally determined and courageous if they are to embark on the process of enforcing the full rights which the law now gives them. Parliament has provided agencies to help employees to complain against employers about discrimination on grounds of race or sex. It is clear that there is now a need for a new commissioner for trade union affairs to advise and support union members who need to make a formal complaint and perhaps take legal action against unions and their officials who appear to be failing to comply with statutory duties. The new commissioner would help to make sure that trade unionists can defend both their existing rights and the new rights we propose giving them in this Green Paper.
These next steps which I am announcing today, and which my right honurable and learned friend the Paymaster General will shortly be announcing in another place, are wholly consistent with our whole approach to trade union reform through the period of office of this Government. We believe that trade unions behave more responsibly when they are in close touch with the views of their members and take steps to ensure that their actions command members' support. We have watched closely developments since 1984 and the Green Paper is based on our experience of events since the last legislation. Its proposals frame sensible solutions to specific problems which can be expected to work in practice. Consultation has of course always been an important part of our process of law reform in this area and the Government will welcome informed comment on these latest proposals
That concludes the Statement.
Lord McCarthy: My Lords, I must begin by thanking the Secretary of State for the explanation which he has given of the forthcoming Green Paper. It is difficult for us to react to this very substantial set of proposals having had very short notice of them. I

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suppose therefore that I must thank not only the Secretary of State but also the Guardian. I know that the Secretary of State does not like reading the Guardian and does not believe what it says. However, over the last two weeks, the Guardian has given us a good idea of what would be said this afternoon, and got it right this time.
We need time to consider these proposals. However, the noble Lord will not be surprised when I say that we do not like them. We regard them as "Operation Scapegoat". We think that the lady wants to say with Lady Macbeth, that she has not killed the snake but only scotched it.
I want to go very quickly through the provisions which the noble Lord has advanced. I believe there are five, possibly six. The first matter is the total illegality of the closed shop. Once again, as we said when the previous legislation on closed shop cases came to the House, no evidence has been given of abuse. Very few cases as regards the closed shop have been taken under unreasonable exclusion provisions since the 1980 legislation, and in half of them the trade unions sustained their case.
We have heard nothing about proposed analogues in the professional associations. I ask the Secretary of State if that is why he wants to abolish the post-entry closed shop and not the pre-entry closed shop, since that is what professional associations use. What is the evidence he can put before us, and may we have that evidence in detail, when he says that most unions can sustain their positions without the closed shop? That is not the evidence I have; and it is not what the unions say. I hope that the noble Lord will be giving us more evidence when we come to debate the Green Paper.
The second proposal concerns the rights of members to a ballot before a strike. We are not against that. We are not against membership rights to a ballot before a strike, especially if they are in accordance with the rule books. However, will the Secretary of State tell the House whether, if he is going to take that sort of step for members, it is fair to retain what the Government provided in the 1984 legislation—the right of employers to take action in parallel to force ballots and deny unions protection and immunities unless those ballots take place? If one gives such rights to members, why should one give them to employers as well?
. The third proposal concerns no right of discipline on crossing a picket line. Once again, what is the evidence of abuse?
Noble Lords: Oh!
Lord McCarthy: I hope that the people who are carrying on in this way will get up later and give their evidence to the House. There is plenty of evidence of violence on picket lines; there is also plenty of evidence that we have laws to deal with that violence. But there is no evidence that we have the kind of abuses with which this type of legislation will deal. If there is, I hope that noble Lords opposite will get up and give me chapter and verse.
Then we come to the non-voting member of the executive; to what might be called the Scargill clause. What is the evidence of systematic abuse of members of executives who do not have votes inducing other
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people to vote? What is the precedent? Do we have this legislation in companies, in professional associations, in political parties, in any other country in the civilised world? I believe that the answer is no. What is the evidence of the degree of abuse that justifies introducing yet another regulation of trade unions in this way?
Finally, we come to the question of the independent commissioner. What will be the functions of this independent commissioner? Who will be the independent commissioner? How will he be chosen? Will he be in any sense acceptable to trade unions or will he be by definition unacceptable to trade unions? Is he to be an enemy, or a friend or an independent observer?
In making these points were are not opposing the principle of the regulation of trade unions. We are not saying that trade unions are perfect democracies; merely that they are more democratic than companies, universities or most political parties. We are not seeking to justify their breaking their own rules. We are not seeking to justify their being intolerant or illegal. We say that there is no evidence—and the Secretary of State has put none before us today—for the kind of proposals that he justifies and advances; and we shall oppose them.
3.15 p.m.
Lord Rochester: My Lords, from these Benches I should like to join in thanking the Secretary of State for making this Statement. It is long, detailed and in some respects potentially controversial. We therefore wish to give it the closest examination before arriving at a considered conclusion.
I am glad that a Green Paper is to be published today. That leads me to ask the Secretary of State whether he will agree, or at any rate suggest to his noble friend the Chief Whip, that there should not only be wide consultation with bodies such as the CBI, the TUC and other interested parties before legislation is introduced, but also an opportunity for debate on the whole subject in both Houses of Parliament.
Perhaps I may make a preliminary response on the specific measures referred to in the Statement. Your Lordships will remember that at the time the Employment Act 1980 was being considered we on these Benches opposed the immediate ending of the closed shop on the grounds that such action might drive the closed shop underground. Since then, seven years have elapsed. For my part, I agree that the case now for ending post-entry closed shops and the legal immunity for industrial action designed to force employers to maintain them deserves re-examination and that we shall certainly give it.
As regards postal ballots, perhaps I may remind the Secretary of State that in discussions on the Trade Union Act 1984 we on these Benches were prepared to go further than the Government were at that time. I shall not elaborate on that point now but it enables me to say that we are therefore favourably disposed towards moving further in this direction, as proposed in the Statement. At first sight there seems a strong case also for obliging chief officers of unions to subject themselves to election and re-election at periodic intervals rather than that they should be exempted from that process simply because they may not

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exercise a vote at union meetings. The proposal about strike ballots is perhaps more controversial and wide-ranging but here too we shall examine the Government's new proposal realistically in the light of experience over the past few years.
There are still more proposals in the Statement, such as giving union members access to union accounts and the appointment of a new commissioner for trade union affairs. At this stage we do not necessarily oppose those steps. Perhaps I may express a certain general concern lest legislation concerning trade unions should go too far. I say this in all humility as one who has had some experience of conducting industrial relations on the ground. With that in mind, perhaps I may ask the Secretary of State whether he agrees that in the last resort good industrial relations depend on co-operation between management and employees and that there is therefore a limit on the extent to which legislation in this field is desirable and can be effective.
Lord Young of Graffham: My Lords, I am grateful to the noble Lord, Lord McCarthy. At the outset I wish to assure the noble Lord that I would not deny anything I have said in the past. I should like to confirm that I read the Guardian every day; it is just that I do not always accept everything I read in the Guardian every day, particularly when it comes to its opinions.
In turning to the basis of the argument, I notice that the noble Lord asks why we do not do anything about the pre-entry closed shop. The answer is that there is no legal support for the pre-entry closed shop. What we are saying is that we want to take away legal support for the post-entry closed shop. I was glad to hear from the noble Lord, Lord McCarthy, that those on the Benches opposite are not against balloting before strikes. My Lords, you could have fooled me. I read very closely the policy of the Labour Party. It is for balloting, not before strikes but at some distant time when the strikes have had some effect. It seems to me that what we are about and what this Green Paper is about is restoring and reinforcing democracy within trade unions.
The noble Lord said that there is no evidence of abuse. I seemed to detect a certain element of disbelief within your Lordships' House, and we shall have time to look at that. I certainly fail to see what is so difficult about the concept that we have elections for all on executives of unions whether or not they have votes. Let me assure all noble Lords that whether or not the independent commissioner would be acceptable to trade unions, he would be acceptable to trade unionists because it is for the support of trade unionists that we are looking.
I am also grateful to the noble Lord, Lord Rochester, for his desire to give close examination to our proposals. I have no doubt that through the usual channels arrangements can be made to debate this matter in your Lordships' House. I am aware that there are those on the noble Lord's Benches who wished us to go further at some time. We have adopted a step-by-step approach and I believe that when we look at the Green Paper proposals we shall find that there may indeed be a desire to go further on the postal ballot.
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The noble Lord, Lord Rochester, referred to our desire to look into the financial affairs of unions. Of course we cannot legislate for good behaviour. That is probably the great divide between us and those on the Benches opposite. There are probably few in your Lordships' House who did not have the impression that during some notable industrial disputes in the past few years there were what appeared to be financial irregularities. It may be that some of those irregularities could bear further examination.
I hope that we can look closely at this Green Paper. I hope that it will lead towards a world in which we no longer speak about two sides of industry but about the one side of industry with the other side being the customer.
Lord McCarthy: My Lords, before the noble Lord sits down may I ask him to make one point clear? He said that he wants the new commissioner to be acceptable to trade unionists. Is he going to ballot the trade unionists on that?
Lord Young of Graffham: No, my Lords, but I hope that should we have such a person—after all, this is but a Green Paper and a proposal—we would have someone who is approachable and supportive of individual trade union members in this country and not necessarily the power brokers in trade unions.
Lord Boyd-Carpenter: My Lords, may I ask my noble friend to clear up one point in the Statement in connection with postal ballots? Do the proposals contain any provision to prevent the postal ballot papers, when returned to the union office, being either lost, fiddled with or dealt with improperly? My noble friend will know that there have been cases where that is alleged to have happened. May I also ask my noble friend whether I understood him correctly when he confirmed to the noble Lord, Lord Rochester, that your Lordships' House would shortly be debating this Green Paper?
Lord Young of Graffham: My Lords, I am grateful to my noble friend. The date of the debate or the possibility of a debate must be arranged through the usual channels. The suggestion concerns independent postal balloting, which means that presumably the postal ballot papers would be returned to a third party.
Lord Mellish: My Lords, can it be emphasised at this stage to the Secretary of State and, via him, to the Leader of the House that many of us have very strong views on these matters—and this is a fundamental Statement—and feel that the Green Paper should and must be debated in some detail so that we all know what we are talking about?
Lord Young of Graffham: My Lords, I have no doubt that those concerned will pay full attention to what is being said this afternoon.
Lord Dean of Beswick: My Lords, is the Minister aware that as a life-long trade unionist I have had the right to ballot since pre-war and have always exercised it, albeit at a much lower level than is envisaged in this Green Paper? Will the Secretary of State kindly tell the House, bearing in mind that the Government will now

101
fund imposed trade union ballots—and they are to be imposed on trade unions—whether any quantification has taken place on the cost of this exercise if it comes to pass? May I also say this to the Minister? From past experience it is clear that you may pass all the legislation you want about closed shops but the question of who people work with on the shop floor depends on the people who actually work on the shop floor. The noble Lord may find himself embarking on a long and tortuous exercise on legislation which when it reaches the shop floor will be absolutely useless.
Lord Young of Graffham: My Lords, I am grateful to the noble Lord. I am well aware that many of the laws which we pass in practice turn out to be rather different. I hope that we will have an opportunity to discuss this paper at length. With the permission of the noble Lord, at that time I hope to bring to the House details of what the cost may be. I think it will be more suitable to do so on that occasion.
Lord Harmar-Nicholls: My Lords, does my noble friend anticipate that when this investigation gets to the point of legislation it will deal with the appointment of officers for life instead of for a fixed term? Is that likely to come within the ambit of legislation?
Lord Young of Graffham: My Lords, this is another matter which I hope any debate in your Lordships' House will cover and which we can then take into account. The Green Paper is just that—it is Green. These are by no means fixed proposals but are matters on which we want to consult as widely as possible.
Lord Harris of Greenwich: My Lords, is the Minister aware that we welcome the conversion of the Government to the cause of secret postal ballots with the ballot papers being sent to the homes of union members? Is he further aware that these Benches twice divided the Chamber on precisely that question during the Committee and Report stages of the 1984 Bill? Is he also aware that we are not at all surprised that many unions have. as he said, retained very unsatisfactory workplace ballots? Does not the noble Lord agree that it might have been slightly better if the Government had accepted those amendments and thereby prevented the abuses which have taken place since then at many workplaces?
Lord Young of Graffham: Alas, my Lords, I was not a Member of your Lordships' House when that legislation was debated. All I can say is that I am grateful for the support given today to our measures. I heard clearly what the noble Lord said.
Lord Wedderburn of Charlton: My Lords, before your Lordships debate the matter further—which will be very welcome—will the Minister place somewhere on the record or in his publications a precise indication of the few employers he mentioned who today suffer from closed shop problems? Will he give the particular trade unions and occasions in relation to the abuses which he stated have occurred and the particular experience of the legislation in detail to which he referred? The noble Lord has come up to the gate in naming names. It is very easy to laugh and say that of course it exists, but unless he gives names he
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will not substantiate the allegations made in today's Statement. Will he undertake to do so before we debate the matter?
Lord Young of Graffham: No, my Lords. I cannot hope to give such an undertaking for the simple reason that if I were to make any disclosure it would not be full and complete because much of this discrimination remains unrecorded and comes within the general tenor of working practices. Your Lordships will have, I hope, an opportunity to debate this matter in full and that is the time when we can ventilate all these issues.

Local Government Finance Bill
3.26 p.m.
Lord Skelmersdale: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Skelmersdale).
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Clause 7 [Restrictions on rating and precepting]:
Baroness David Baroness David moved Amendment No.23:
Page 6, line 29, leave out from ("with") to end of line 30 and insert ("the following provisions of this section")
The noble Baroness said: In speaking to Amendment No.23 I speak also to Amendments Nos. 24, 25, 26, 27, 28, 29 and 39. The purpose of this key group of amendments is to allow flexibility in the final setting of the rate and precept limits and to introduce on a very tight time-scale an element of discretion for the Secretary of State before the rate-cap formulae in Schedule 2 are finally fixed. This will enable account to be taken of changes in the local authorities' financing position since December 1986, when the Bill was published. It will also allow the House to be assured that, in the absence of the normal order-making process for rate limitation, the position of local authorities is being fully taken into account.
As regards the Rates Act procedure, there are serious objections to the lack of discretion for the Secretary of State. These arise from considerations of, first, practicality and, secondly, natural justice. Under Clause 7 as it stands the precept and rate limits for authorities will be fixed by the formulae contained in Schedule 2. The schedule applies common formulae to groups of authorities with the inevitable result that the effect varies among these authorities. A number face serious disadvantage as a consequence of the standard formulae.
The setting of limits by a formula is quite at variance with the usual procedure under the Rates Act. Under that process the setting of expenditure limits in the summer is followed in autumn/winter by a process of redetermination. Authorities make representations as to the level of rate or precept limit proposed. After the completion of that process interim maximum limits are announced. There is a final stage of discussions in mid to late February as to the levels of final maximum limits. That is intended to deal with changes to

103
authorities' financing positions which only take place towards the end of the financial year.
The best example of this is the level of an authority's reserves, which can vary substantially towards the end of the year in relation to any over- or under-spending against its budget. The anticipated level of reserves is taken into account at the earlier stages in arriving at the interim limit, and the final total of reserves would clearly be significant in relation to the actual impact of that limit in the following year. This last stage of discussion, referred to in a court case in 1985 as "statutory negotiations", is intended to iron out difficulties of that kind.
In debates on what became the Rates Act 1984, government spokesmen made it clear that the extensive process of discussion was intended as a safeguard against arbitrary decision-making. The introduction of the present Bill on 18th December effectively halted the process half way through redetermination. Eighteen of the 40 authorities affected by Schedule 2 had applied for redetermination and the Secretary of State's response was awaited at the time of the Bill's introduction. The Secretary of State must have been aware at the time the representations were being made that he would be bringing in this Bill, but there was no mention of it then to the local authorities. No response has been given to these representations.
The Government state that representations have been taken into account in the formulae. Quite apart from the fact that the limits are still inadequate for many authorities, it is difficult to see how a series of formulae can constitute a response to individual applications. The whole purpose of the Rates Act process from redetermination onwards is to take account in the individual limits of the precise circumstances of each authority.
A number of authorities which did not seek redetermination were intentionally awaiting the further stage of discussions before making representations. Since the Bill has stopped the whole process, it is clear that the representations of the majority of authorities will not be given serious consideration. In addition to that, I mentioned last night a letter dated 20th March 1986 to Margaret Hodge from the Secretary of State in which he gave an assurance that in later years, that is, from 1987–88 onwards, he would consider the implications of changes in grant entitlement resulting from the removal of the temporary safety net when calculating rate limits for those years. It is worth noting that in this Bill the Secretary of State has prevented himself honouring that assurance by the terms of Clauses 6 and 7 which mean that the position of individual authorities cannot be considered prior to settling a rate limit.
The practical implications of the Bill for authorities will be serious. The formulae in the Bill were fixed at the date of publication, which was 18th December, and no opportunity exists to vary them after Royal Assent. Therefore, no account will be taken of changes in budgetary position, including the level of reserves. In the same way, there will be no opportunity for the Secretary of State to remedy any error of calculation or adjust to any new developments without further primary legislation.
In their representations, local authorities have drawn attention to the serious implications for services in many areas as a result of the limits proposed. The amendment suggests that the Secretary of State should have a proper opportunity to assess those representations at the time of the year when he would normally make his final decisions and when the financial proposition of authorities arising from the current year is becoming clear.
As regards its operation, the amendment recognises the extremely tight timescale that now faces both Ministers and local government. Upper tier local authorities are obliged to set their precepts by 10th March and lower tier authorities by 31st March. Royal Assent to the Bill is likely to fall at some time before 31st March although if this amendment were accepted there would be little objection from authorities to proceeding to Royal Assent at the earliest possible date. It is already clear that upper tier authorities will have to fix their precepts before Royal Assent and it is possible that lower tier authorities will face the same problem.
The difficulty is not confined to rate-capped authorities but affects all authorities which are in receipt of block grant, since the 1987–88 RSG settlement cannot proceed until after Royal Assent. I should like to ask the Minister when he replies to give us an assurance that the 1987–88 settlement will proceed in good time for authorities to know its contents before they make their rates by 31st March. The difficulties caused to local authorities by this Bill on the eve of rate-making are enormous. In these circumstances the amendment seeks to put forward a practical timetable that recognises the time constraint but also avoids the dangers to both government and local authorities when legislating in haste for fixed formulae without a proper opportunity for review as to their practical effect.
The procedure in the amendment would be as follows. Immediately after Royal Assent and the laying of the RSG report, the Secretary of State would serve a statement on each authority covered in Schedule 2. The statement would set out their preliminary limit and invite representations within a timescale specified by himself. This timescale could quite reasonably be a matter of only a few days, given that most authorities either have already made representations or are on the point of doing so. After the period for representations, the Secretary of State would take them into account and set out maximum limits for each authority, which would not be less than the interim limit, in an order. He is thus enabled to take account of the individual circumstances of authorities. Authorities would be notified of the limits. As with the present rate-capping orders, the order would require approval of the House of Commons.
Clause 8 of the Bill already makes provision for substituted rates or precepts. In circumstances where a rate or precept has already been made and the Secretary of State then proposes a different limit after hearing representations, the amendment cross-refers to that clause and makes provision for the issuing of substitutes. In the event of any decision of the Secretary of State as to a final limit being challenged successfully in the courts, the amendment makes similar provision for substituted precepts or rates.
It will he seen that the whole process could take a matter of only two to three weeks and that both the timescale and the contents of the order remain at the discretion of the Secretary of State. The amendment preserves certainty around the rate-making process. It also causes no noticeable inconvenience to ratepayers whose bills for 1987–88 will not fall due until after those processes are completed.
The amendment is a practical compromise between the lateness of the timescale and the need to allow some discretion to the Secretary of State in order to avoid the worst effects of arbitrary decision by formulae. In explaining this series of amendments I have kept to the general principle and purposely not entered into details of how the formulae will affect different authorities. That can be discussed in reference to later amendments. We ask that the promises that were made when the Rates Act 1984 was passing through Parliament should be kept and that natural justice should be seen to be done. Services of many varying kinds to thousands of men, women and children will be affected by the decision on this series of amendments. I hope that the Minister will be sympathetic to them. I beg to move.
Lord Kilmarnock: The main objection to the formula funding, triggered off by this clause and described in more detail in Schedule 2, is that it over-rides the redetermination procedure in the Rates Act 1984, so that all flexibility to take into account special circumstances in different areas and different types of authority is removed. Pledges given under the 1984 Act are, frankly, being torn up, and under the Bill as drafted, authorities will not be able to enter into discussions on a proposed maximum rate. For previously rate-capped authorities, expenditure levels are frozen: for newly capped authorities it means a 2 per cent. increase; and there is a flat 4 per cent. increase for all police authorities regardless of their particular needs. Therefore, we argue that these formulae are excessively rigid. The Bill as drafted means that it will be impossible for the Secretary of State or the authorities to make adjustments once the Bill has been passed without new primary legislation being introduced. That seems unsatisfactory for the Secretary of State, for the authorities and, if I may say so, for Parliament itself.
The principal amendment in this group, as the noble Baroness, Lady David, has so lucidly explained, seeks to reintroduce some element of flexibility by proposing a preliminary limit and inviting representations within a time limit over which the Secretary of State retains control. It could be very tight but at least it gives some opportunity for authorities to make representations over a change in their circumstances, or in consideration of extra or special expenditure which has occurred or is likely to occur. All that could be done within a matter of two or three weeks.
One of the worst features of the clause is that the redetermination procedure has been overridden. The noble Baroness mentioned that, had authorities known in advance that a legislative formula to determine expenditure levels was being contemplated and that there would be no challenge available to them, many more would have submitted information earlier. There is some evidence to show that those that
106
applied for redetermination of expenditure levels have had their representations largely ignored.
I have already referred to the discrimination under these formulae among different types of authority. There appears to be some discrimination against ILEA, to which I shall come in the next batch of amendments. It is the only rate-capped education authority not to be given an additional factor to deal with the financial consequences of the final teachers' pay settlement.
This all takes us back to the fact that the Secretary of State had no need to introduce a Bill of this type. It is another instance of a nightmarish morass of complications brought about by excessive central government control of local authority spending. The Secretary of State could easily have introduced a very simple Bill in November or December to rectify the illegality on the block grant, a measure that I think all parties in the Committee would have supported. He has chosen instead to get himself and us into this morass which we are trying to do something to rectify. On those grounds, we support the amendment.
Lord Underhill: I support my noble friend in her group of amendments. In her concluding remarks she said that the amendments propose a practical compromise. It may be recalled that on Second Reading I drew attention in particular to the effect that the procedure in the Bill would have on the new joint passenger transport authorities. I agree with the noble Lord, Lord Kilmarnock, that we shall go in detail into the various formulae on the next batch of amendments.
I want to deal with the criticism levelled at the Government for abolishing the redetermination process, in many cases after authorities had gone to considerable effort to submit their cases for redetermination. In response to that criticism the Government have argued that the cases submitted in support of redetermination applications were considered in detail in setting the percentage increase for each type of authority. That was a very important statement.
The Association of Metropolitan Authorities has challenged this claim generally but, in particular, because of the shortfall of some £26 million that has been clearly identified in relation to the six passenger transport authorities. There is now specific evidence clearly demonstrating that the redetermination applications have not been taken into account in setting the 12 per cent. all round increase in the expenditure for the PTAs. This relates—I have to refer to the body—to the South Yorkshire Passenger Transport Authority. It will have to bear £5·5 million in 1987–88 as a result of the transfer scheme that set up the authority' s public transport company under the Transport Act 1985, of which all Members of the Committee will be aware.
The Department of Transport knows fully the elements making up these costs. About half the £5·5 million is attributable to changes made in the transfer scheme imposed by the department. In common with other PTAs, South Yorkshire's expenditure level has been increased under the Bill by 2 per cent., yet the costs associated with the transfer scheme made for it by the department amount to 12 per cent. of the

107
original expenditure level. The extent of these costs was not known at the time that the original expenditure level was set, yet the standard formula ignores that fact.
Perhaps I may give the Committee the timetable. On 19th June 1986, South Yorkshire was given a provisional expenditure level for 1987–88 of £45·2 million. On 22nd July the PTA was informed that its expenditure level was £45·7 million. On 31st July, nine days afterwards, the PTA was told by the department of the modification that it intended to make to its company transfer scheme. The department assured the PTA that the effects of the transfer scheme and the department's modifications would be taken into account by the Secretary of State when he set the expenditure level and precept limits for 1987–88. Then 16th October was the deadline for submission of determination.
South Yorkshire PTA applied for redetermination of £55 million. The key component in its case was the transfer scheme costs imposed by the modifications made by the department. So far so good. On 13th January this year the PTA was informed that the Bill would give a revised expenditure level of £46·6 million, a 2 per cent. increase, but a shortfall of £8·4 million.
I am using this case to prove beyond question that the Government have not reflected the redetermined applications in setting the 2 per cent. increase to PTAs' expenditure levels, and the same can be said of all the other formulae in Schedule 2.
The Minister must explain to the Committee in the light of this evidence—similar evidence can be provided for the other passenger transport authorities—the claim that all applications for redetermination by PTAs were taken into account in the decision to increase their expenditure levels by the standard 2 per cent. This would justify the compromise scheme proposed in my noble friend's amendments.
3.45 p.m.
Lord Skelmersdale: I noted with interest that the noble Baroness introduced the block of amendments without condemning rate-capping. I understand that it is her party's policy to abolish rate-capping, should it get into power. I can only hope that her measured tones in introducing the amendments indicate a change of heart for her party in this respect.
I thought that we agreed in Committee yesterday that the one objective that we all have in the Bill is to secure certainty in local authorities and that the Bill had been drafted with this objective in mind. I regret, therefore, to have to tell the Committee again that the effect of the proposal in the amendments is to create delay and continuing uncertainty about what rate and precept limits in the areas of designated authorities will be.
We shall no doubt be considering the substance of rate and precept limits on the debate on the next set of amendments. That is one point on which I can agree with the noble Baroness, Lady David. I suggest that the points that the noble Lord, Lord Underhill, has raised would be more pertinent in that debate than in this
108
one, if he agrees. I will concentrate, therefore, on the procedures that we have adopted for 1987–88 alone.
As my noble friend Lady Hooper explained on Second Reading, it would simply not have been possible to carry through the normal rates legislation procedures, given the need for the Bill. Our aim throughout has been to give authorities the maximum of certainty in fixing their rates and precepts, given the need for the Bill. We have therefore provided that authorities will be notified as soon as is reasonably practical, after the rate support grant report for 1987–88 is laid before another place of the rate and precept limits that will apply to them.
I assure the noble Lord, Lord Kilmarnock, that my right honourable friend the Secretary of State for Education and Science took full account of the costs of the teachers' pay settlement in deciding the formula for ILEA in the Bill. It was unnecessary to include a separate "T" factor for ILEA because it is in a class of its own and so clearly has it own formula.
If I may stay with the noble Lord, Lord Kilmarnock, because of the total expenditure problem, we have had to roll up the normal rate limitation procedures and adopt the formula approach. We shall be discussing that in detail with the next block of amendments.
In deciding on the formula, we have taken account of the representations made, including those on redetermination applications. What we are doing is for one year only. It is not ideal, but the Government believe that it is the least undesirable course open to us. The Secretaries of State concerned with precept limitation have already written to those authorities explaining to them the effect of the formulae. If those authorities have to set their rates or precepts before the Bill is enacted and the report laid, they will know clearly what will be expected of them under the formulae and can act accordingly.
As the noble Baroness well knows, we announced our firm intentions for the 1987–88 settlement on 13th January. We intend to make the 1987–88 rate support grant report immediately upon Royal Assent to the Bill. We hope to make the report before 1st April 1987.
No sensible authority would, with all that knowledge at its command, issue a rate or precept at a level which would require a substitute one to be issued following Royal Assent. The Bill therefore gives absolute certainty to local authorities and their ratepayers. Under the Local Government Act 1986, local authorities have by law to make a rate by 1st April, as the noble Baroness said. As she also said, the last date for precepting authorities is 10th March under the general rate legislation.
As I have said, nothing but gross uncertainty would come from this set of amendments. Authorities would not know until possibly long after the Bill is enacted what their rate or precept limit was to be. There would also be uncertainty for ratepayers, who would not know how large their bills were to be. I do not accept that continuing uncertainty is necessary or a desirable price to pay for the flexibility in the rate limits which noble Lords opposite seek through this amendment. Accordingly, I can do no other than recommend the Committee to reject the amendments on the grounds

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that they will produce chaos and confusion where certainty is the objective agreed on on all sides of the Committee.
Baroness David: I am disappointed that the Minister has not seen the point of these amendments. He upbraided me for not having mentioned rate-capping. I was saving the Committee's time by sticking to the matter in hand.
Lord Skelmersdale: I sought to say that I was delighted that the noble Baroness did not raise the matter of rate-capping.
Baroness David: The Minister said that the amendments will make everything happen very much later. I gave a practical timetable which would not take long. It could all be done in a matter of two or three weeks. Authorities would much rather have uncertainty for that length of time if they knew that at the end they would receive fairer treatment. Do I understand that the rate supplementary report may not be in time for local authorities to study it before they have to make their rate on 31st March?
Lord Skelmersdale: It depends entirely on the speed of progress of this Bill through Parliament.
Baroness David: We know the timetable fairly well. My noble friend Lord Underhill gave an example of the unfairness that would be caused to local authorities by the timetable to which they will have to work, and the lack of notice about the representations that they made. In some cases, as the noble Lord, Lord Kilmarnock, said, they made no representations because they hoped to have the opportunity later. It is unfair to a large number of authorities and to the people for whom they provide services.
I seem to have made no impression on the Minister about the seriousness of the objections. This is a matter of principle. What was promised in the Rates Act 1984 has not been kept to; it may only be for one year, but one year is a long time to have grant reduced and not to have the chance to make clear the position about reserves and so on. I believe that I have no alternative but to press the amendment.
3.55 p.m.
On Question, Whether the said amendment (No.23) shall be agreed to?
Their Lordships divided: Contents, 100; Not-Contents, 141.

DIVISION NO.1

CONTENTS

Airedale L.

Bottomley, L.

Alport, L.

Briginshaw, L.

Amherst, E.

Brockway, L.

Annan, L.

Campbell of Eskan, L.

Ardwick, L.

Chitnis, L.

Banks, L.

Cledwyn of Penrhos, L

Beswick, L.

Collison, L.

Birk, B.

David, B.

Blyton, L.

Dean of Beswick, L.

Bonham-Carter, L.

Dennington, B.

Boston of Faversham, L.

Diamond, L.

110

Donaldson of Kingsbridge, L.

Lloyd of Kilgerran, L.

Dowding, L.

Lockwood, B.

Elwyn-Jones, L.

McCarthy, L.

Ennals, L.

McNair, L.

Ewart-Biggs, B.

Milford, L.

Ezra, L.

Morton of Shuna, L.

Falkender, B.

Mulley, L.

Falkland, V.

Murray of Epping Forest,

Fisher of Rednal, B.

Nicol, B.

Fletcher, L.

Northfield, L.

Foot, L.

Ogmore, L.

Gallacher, L.

Oram, L.

Galpern, L.

Phillips, B.

Gladwyn, L.

Pitt of Hampstead, L.

Graham of Edmonton, L.

Ponsonby of Shulbrede, L. [Teller.]

Grey, E.

Hampton, L.

Prys-Davies, L.

Hanworth, V.

Raglan, L.

Harris of Greenwich, L.

Rathcreedan, L.

Hayter, L.

Ritchie of Dundee, L.

Henniker, L.

Robson of Kiddington, B.

Heycock, L.

Rochester, L.

Hirshfield, L.

Ross of Marnock, L.

Hooson, L.

Serota, B.

Hunt, L.

Shepherd, L.

Hunter of Newington, L.

Silkin of Dulwich, L.

Ilchester, E.

Stedman, B.

Irving of Dartford, L.

Stewart of Fulham, L.

Jacques, L.

Strabolgi, L.

Jeger, B.

Taylor of Gryfe, L.

Jenkins of Putney, L.

Taylor of Mansfield, L.

Kagan, L.

Tordoff, L. [Teller.]

Kennet, L.

Underhill, L.

Kilbracken, L.

Wedderburn of Charlton, L

Kilmarnock, L.

Wells-Pestell, L.

Kirkhill, L.

Wigoder, L.

Kissin, L.

Williams of Elvel, L.

Lawrence, L.

Winstanley, L.

Leatherland, L.

Winterbottom, L.

Llewelyn-Davies of Hastoe, B.

NOT CONTENTS

Aldenham, L.

Denham, L. [Teller.]

Allerton, L.

Denning, L.

Ampthill, L.

Derwent, L.

Auckland, L.

Drumalbyn, L.

Bauer, L.

Dundee, E.

Beaverbrook, L.

Eccles, V.

Belhaven and Stenton, L.

Eden of Winton, L.

Beloff, L.

Effingham, E.

Belstead, L.

Ellenborough, L.

Biddulph, L.

Elliot of Harwood, B.

Borthwick, L.

Elliott of Morpeth, L.

Boyd-Carpenter, L.

Enniskillen, E.

Brabazon of Tara, L.

Faithfull, B.

Brightman, L.

Fanshawe of Richmond, L

Broadbridge, L.

Ferrers, E.

Brougham and Vaux, L.

Ferrier, L.

Broxbourne, L.

Fortescue, E.

Bruce-Gardyne, L.

Fraser of Kilmorack, L.

Butterworth, L.

Gainford, L.

Byron, L.

Gardner of Parkes, B.

Caccia, L.

Granville of Eye, L.

Caithness, E.

Gray of Contin, L.

Cameron of Lochbroom, L.

Greenway, L.

Campbell of Alloway, L.

Gridley, L.

Campbell of Croy, L.

Halsbury, E.

Carnegy of Lour, B.

Harmar-Nicholls, L.

Carnock, L.

Hesketh, L.

Cathcart, E.

Hives, L.

Chelwood, L.

Holderness, L.

Cornwallis, L.

Home of the Hirsel, L.

Cottesloe, L.

Hood, V.

Cowley, E.

Hooper, B.

Cox, B.

Hylton-Foster, B.

Craigavon, V.

Kaberry of Adel, L.

Craigton, L.

Killearn, L.

Cromartie. E.

Kimball, L.

Cullen of Ashbourne, L.

Kimberley, E.

Dacre of Glanton, L.

Kinnaird, L.

Davidson, V. [Teller.]

Knollys, V.

De La Warr, E.

Lane-Fox, B.

111

Lauderdale, E.

Portland, D.

Layton. L.

Rankeillour, L.

Lloyd of Hampstead, L.

Renwick, L.

Long, V.

Rodney, L.

Lothian, M.

Romney, E.

Lucas of Chilworth, L.

St. Davids, V.

Lurgan, L.

Saint Oswald, L.

McFadzean, L.

Sandford, L.

Margadale, L.

Sandys, L.

Marley, L.

Sempill. Ly.

Marshall of Leeds, L.

Shannon, E.

Maude of Stratford-upon-Avon, L.

Sharpies, B.

Shaughnessy, L.

Merrivale, L.

Skelmersdale, L.

Mersey, V.

Strange, B.

Milverton, L.

Sudeley, L.

Molson, L.

Swinton, E.

Monk Bretton, L.

Teviot, L.

Morris, L.

Thorneycroft, L.

Mottistone, L.

Torrington, V.

Mzunster, E.

Tranmire, L.

Murton of Lindisfarne, L.

Trumpington, B.

Norrie, L.

Vickers, B.

Nugent of Guildford, L.

Vivian, L.

O'Brien of Lothbury, L.

Westbury, L.

Onslow, E.

Whitelaw, V.

Orkney, E.

Wise, L.

Orr-Ewing, L.

Wolfson, L.

Pender, L.

Wynford, L.

Peyton of Yeovil, L.

Young, B.

Porritt. L.

Young of Graflham, L

Resolved in the negative,and amendment disagreed to accordingly.
4 p.m.
[Amendments Nos. 24 to 28 not moved.]
Clause 7 agreed to.
Schedule 2 [Rates: maximum limit]:
[Amendment No.29 not moved.]
Lord Underhill Lord Underhill moved Amendment No.30:
Page 10, line 39, leave out ("(EL T—(BG + E))") and insert ("(EL x 1.348)-(BG + E)").
The noble Lord said: It will be useful if under Schedule 2 I deal with Amendments Nos. 30 to 35, which concern the formulae.
I am sorry that the Minister did not deal with the points I raised on the example of South Yorkshire PTA, because I was not dealing with the PTA as such but with the whole question of the lack of consideration of redetermination and the fact that that PTA had not had the opportunity to have its points considered. I am surprised that the Minister did not deal with this matter in reply to the amendments from my noble friend, because it vitally affects the position of those amendments and the Government's intention. On my noble friend's amendment, the Minister also said that we must remove any uncertainty; or if he did not say "remove any uncertainty" he said that there must be certainty.
Before going into the details of Amendments Nos. 30 to 35 I must refer to a letter which was sent out only yesterday—the first day of the Committee stage—to a large number of authorities by the Department of the Environment, that is, to almost all those affected by Schedule 2. Some authorities received it only today. Others, including the AMA, have not yet received it, or at least they had not received it by the time I was given this note.
Two further errors are now admitted by the Department of the Environment in connection with this matter. I do not think the Committee would wish me to read the whole of the letter, but that letter to all those authorities, dated 23rd February, says:
"For 1987/88 there was an error in the calculation of the grant-related expenditure assessment for the rate fund revenue account contribution to the housing revenue account for certain authorities. This has consequential effects on some other GRE assessments, the grant related poundage at GRE and on multipliers".
They say that they enclose the corrected versions of the tables. In paragraph 3 the letter reads:
"The departmental paper on the 1985/86 Report also contained an incorrect expenditure figure for one authority which affects grant related poundage for spending at GRE".
Those are two very serious matters. It means that at the very time we are considering the formulae, at the very time we are considering these amendments, we find that the DoE has to send out another communication with two very serious corrections. I hope the Committee will forgive me if I am a little hesitant, but I have had to work on notes which have been hastily drawn up as a result of this letter, which has not yet been received by my association but which was received by some authorities and conveyed to the association. These notes were given to me just shortly before we went into the last Division.
The effect of the two errors relates directly to Schedule 2 of the Bill with which we are now dealing with my six amendments. They change the figures for block grant specified in the Bill as BG and thus the figures for maximum rates and precepts. So at this very late stage the Committee is being told that the Government are changing the purport of the determination in Schedule 2. How can the Committee agree to that when the Government are changing their mind even at this very late stage of the second day of the Committee?
Secondly, it appears that Tyne and Wear Fire and Civil Defence Authority only yesterday set its precept at the maximum produced by the formulae in the Bill, which is covered by the amendments, but using the 13th January figure for BG and not that of the 23rd February correction. Can the Minister say what he now expects Tyne and Wear Fire and Civil Defence Authority to do? Presumably they would be expected to remake their precept. At what cost?
Thirdly, the Government could not have been aware of the full implications for authorities of their determination in Schedule 2 when they changed the figures at this late stage of the proceedings. This admirably illustrates the folly of the Government trying to set rate limits for authorities in this Bill rather than relying on Rates Act procedure, which would enable late information such as this, or that coming from the authorities such as balances, rateable values and so on, to be properly taken into account when setting local authority maximum rates. If ever there were justification for not turning down the amendment which my noble friend moved, surely that is it.
Now we are in the position of having to look at the formulae laid down in Schedule 2. We find that the previous rate-capped authorities have no uplift at all. That is in paragraph 2(1) of Schedule 2. The newly-designated rate-capped authorities have an all-round

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uplift of 2 per cent; the metropolitan police authorities an all-round uplift of 4 per cent; metropolitan and London fire and civil defences authorities an all-round uplift of 2.5 per cent; and the metropolitan PTAs, to which I have already referred, an all-round uplift of 2 per cent. ILEA is the only one where the affairs of the authority could have been taken into consideration because there is only one ILEA. However, there the uplift is only 0.06 per cent. My noble friend Lady Ewart-Biggs will be dealing specifically with the position of ILEA.
Instead of setting a maximum rate or precept for the individual authorities we are now presented with these flat-rate formulae for each category of authority. The amendment seeks to increase the respective formula for each group by an amount equal to the highest bid made by an authority, on individual redetermination, which is now taken away by the Bill. The common expenditure uplift currently in the formulae as set out in the schedule takes no account whatever of the representations made by individual authorities to Ministers for increases in their expenditure levels to take account of their local circumstances. By substituting the highest percentage increase sought by different types of authority these amendments ensure that no authority loses out by the common percentage uplift approach.
Ministers will say that they have taken account of the representations that have been made to them and that the uplift factors reflect this. I have given evidence on the previous amendment that that could not possibly be so. We now have the latest situation with the two corrections which the department sent out only yesterday. There are substantial differences in the expenditure level offered to rate-capped authorities, and in their bids for increases. There is no consideration given for any local needs or circumstances, such as the effects on some of the joint fire and civil defence authorities which have all been given an all-round 2·5 per cent. increase.
Spending at that level is very serious. Time does not permit full details to be given but all these fire authorities will have shortfalls. For example, the shortfall for Merseyside will be £1·4 million, for South Yorkshire £1·5 million, and for West Yorkshire £2·9 million. We are talking about shortfalls for joint fire and civil defence authorities—very important bodies. These shortfalls involve a large number of cutbacks. They include such factors as not filling staff vacancies to the levels recommended by the Home Office and possibly no replacement of essential operational appliances and equipment.
South Yorkshire has prepared a very detailed document, which no doubt the Minister has seen, arguing the whole of its case and what this block formula process means to it. The problem of manning appliances, the lack of equipment and the lack of trained men could be extremely serious. I say that not only because of the evidence we have before us, but as one who has served for a number of years in the National Fire Service. What will be the attitude of Her Majesty's Chief Inspector of Fire Services on these cutbacks if some of these essential matters cannot be put forward by the civil defence authorities?
On 26th January the Secretary of State stated that the Minister of State at the Home Office was to meet
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the South Yorkshire authority to discuss matters of concern. I have not heard from South Yorkshire whether that meeting has taken place. But what does it mean? Does it mean that the EL set out in Schedule 2 can be varied by the Minister after meeting the authority? If so, how can it be done? It could have been done if the Government had agreed to my noble friend's amendment, which unfortunately noble Lords have rejected. We then find under the common formula for the joint police authorities that they have all been uplifted by an all-round 4 per cent. We have the position of West Midlands Police Authority with a shortfall of no less than £3·7 million. Service developments cannot be accommodated. It seems inevitable that the increase in police officer establish-ment of 88 posts, which has been supported by the Home Office, must be delayed.
I have mentioned the general position of the PTAs with an all-round increase of 2 per cent. At Second Reading I referred to the concern of two other PTAs in addition to South Yorkshire. I remind noble Lords that Greater Manchester, under the block formula scheme which we are seeking to amend, will receive £11·4 million less than it needs to spend during 1987–88. This size of shortfall can be met only by reductions in spending on subsidised bus networks and/or concessionary fare schemes. The Minister of State for Transport has agreed that improvements are vitally necessary in the introduction of additional tendered bus services in Greater Manchester. He agrees that the PTA is faced with a shortfall. However, the department is reluctant to ensure that the authority has the resources it needs to do that.
Tyne and Wear bitterly complains that the standard formula means that little or no consideration has been given to its individual needs. There is a general complaint about the adoption in the formulae of the use of rateable values instead of the penny rate product, but we shall be dealing with that in later amendments.
The Committee has rejected the revised procedure for the current year. Based on the criticisms here—on the lack of consideration of individual needs, and the two corrections that the department had to make only yesterday—I would suggest that even at this late stage there is time for the Government to realise that something urgent has to be done. If they do not like Amendments Nos. 30 to 35, and the figures that I put forward, they can put their own amendments and figures at Report stage.
4.15 p.m.
Lord Kilmarnock: While agreeing with a great deal that the noble Lord, Lord Underhill, said, I want to talk mainly about Amendment No.35, which deals with ILEA. I understand that the noble Baroness, Lady Ewart-Biggs, will also give her party's position on that.
I want to make it clear from these Benches we believe that ILEA has brought some—I repeat, some—of its woes upon itself by creative accounting and by putting off the evil day when it would have to face up to the redeployment and retraining of teachers above authorised numbers. Instead it has kept some of

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them idle while there have been shortages in other schools. It is partly because ILEA has been dilatory in putting its house in order that it is now faced with a very severe financial shortfall indeed. I say that so that the Committee can be clear that I am not speaking from an ILEA brief and that I have some criticisms of ILEA.
However, punishing ILEA as drastically as the Government plan to do has the drawback that it also punishes the children of London. At least some of the treatment being meted out to ILEA is unfair and causes great concern. The noble Baroness, Lady Ewart-Biggs, in her Second Reading speech gave some very good instances of how certain schools would be specifically affected. The position therefore of ILEA—however it is brought about—gives ground for considerable concern, and in our view the Government's approach to that authority is far too draconian.
There are two main points about which I wish to ask the noble Lord, Lord Skelmersdale. The first point is on the question of the teachers' pay settlement. In our earlier debate the noble Lord said that that matter had been taken care of in the ILEA formula, and I shall come to that in a moment. However, the fact is that those costs are being made available to otha authorities through the RSG block grant. That distribution mechanism ensures that ILEA, which faces the largest share of those costs, would receive no financial benefit at all. I understand that the Secretary of State has not responded to the authority's request for specific funding of any agreed settlement.
I also understand that since that meeting a paper has been tabled by the grants working group under which the ILEA share of the grant for teachers would be distributed elsewhere and ILEA would receive none of the grant. That situation would result in non-inner London authorities receiving an additional block grant while inner London ratepayers would be expected to pay the full cost of settlement. That surely cannot be right.
In relation to other education authorities, there is the T formula which is intended to take into account the effect of the teachers' pay award on rates and which is based on proposals by the Secretary of State. As regards rate-capped local education authorities the T factor is worth between £1.1 millon and £4.9 million in rate income. However, as I have already said, the Inner London Education Authority does not receive a T factor because DES officials say that the cost to the ratepayer of the teachers' pay award is allowed for in the precise multiplier of 1.006 in the formula in Schedule 2.
Turning to Schedule 2, one sees that the factor of 1.006 is the lowest for any type of authority listed in that schedule. There is listed 1.02 for metropolitan passenger transport authorities; 1.025 for civil defence authorities and 1.04 for police authorities. Therefore the authority faced with the biggest cost for pay rises will be credited with the smallest factor under the schedule. That surely must be wrong. Will the noble Lord, Lord Skelmersdale, say how he imagines that ILEA will be able to meet the pay settlement other than through increasing its precepts on the ratepayers?
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I shall be very interested to hear the noble Lord's answer to that question.
The second factor relating to ILEA which obviously causes concern is County Hall. My understanding is that the authority has received notice to quit County Hall by 31st March 1988 and that the London Residuary Body is currently offering the buildings for sale. Apparently there is at present no agreement for the authority to share in any receipts from such sales and there is no additional prescribed spending allocation for the purchase of future accommodation. Will the noble Lord, Lord Skelmersdale, explain how it is conceivable that ILEA can live within that formula when it will be faced with the costs of relocation—presumably somewhere in central London—and when apparently it will not share at all in the proceeds of the sale of County Hall, if and when that takes place? I must say that that matter baffles me, and I believe that it baffles many other people.
That situation seems to be inherently unfair when one considers that the inner London ratepayers funded the initial costs of County Hall prior to 1965 and that they continued to pay their full share of capital maintenance costs to date. It is possible that the Government intend to accommodate ILEA elsewhere without additional cost to the authority. Perhaps the Government will make available a special fund so that inner London ratepayers will not be required to meet a new burden in respect of accommodation, which has until now been provided. I should very much like some enlightenment from the noble Lord, Lord Skelmersdale, concerning that point. As regards those two points in particular, it seems to me that there is no way that the Inner London Education Authority, which I have criticised for a certain dilatoriness, will be able to live within the formula set out for it in the Bill. I very much hope that we shall have some answers in respect of that matter.
I repeat that even if the authority has dragged its feet to some extent in doing certain things which it ought to have done—and that is my belief—I am convinced that the authority must not be crippled to the extent of penalising the education of children in London to an even greater degree than exists already. There must be a compromise on the matter: ILEA must move towards the Government and the Government must move towards ILEA. There will otherwise be a further decline in standards in London schools which we on these Benches cannot contemplate with any equanimity. I should be most grateful if the noble Lord would comment on those points.
Baroness Ewart-Biggs: I should like to add a few words to what has already been said by the noble Lord, Lord Kilmarnock, and I should like to speak specifically to Amendment No.35. I shall speak from my base as a governor of ILEA and I shall deal with one or two matters which the noble Lord has not mentioned.
I should like to reiterate that the purpose of the amendment is to amend the precept formula to produce a precept income of £1,068 million as opposed to £942 million at present. That figure falls within the range of the authority's redetermination for 1987 and 1988. The proposed limit would leave a budget gap of £125 million, which is 12 per cent. As

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the noble Lord, Lord Kilmarnock, has said, that is a very large sum of money which must be cut. The gap will require service cuts of approximately £71 million.
The gap has been caused in two ways. First, the DES underestimated for a number of areas of unavoidable costs such as provision for inflation, pay increases, reserves and so on. Secondly, the spending costs of at least £71 million will be necessary in ILEA's direct spending on education. The authority has costed what budget cuts of £50 million would bring about and the following would result. First, two staff vacancies out of every three would be frozen, including teachers; secondly, there would be a reduction of 6 per cent. across all budget heads, other than those fixed in the short term; thirdly, for students charges would increase by at least 10 per cent.
During the Second Reading debate I gave an example of how the cuts would affect particularly a primary school, where there would be the loss of at least one teaching post by the end of the year. In larger schools with above 300 pupils two teaching posts would be lost. As the noble Lord, Lord Kilmarnock, has said, that would have a very great effect on the services provided by those schools for the children. From the point of view of maintenance one must remember that a great number of schools in the inner London area are quite old and therefore maintenance is very important. The moment that a school building starts to crumble the situation will be very serious. With budget cuts of only £50 million maintenance in all schools would be cut by as much as 60 per cent. The effect would therefore be disastrous.
During the Second Reading debate the Minister unfortunately talked constantly of ILEA being a very high-spending authority. The noble Lord did not mention that what comes out of that high spending is very much to the benefit of students and children attending those schools. I should like to remind the Minister of one or two records of achievement which have been generally accepted as coming from ILEA schools. For example there is very close co-operation with business. There is a greater degree of teaching involving computers and there are extensive language courses. There is also a strong parent-teacher involvement which has been used as an example in other education authorities. There has been great access to further education with 260,000 adults attending courses.
As the noble Lord, Lord Kilmarnock, said, these achievements should not be endangered by an arbitrary spending limit which is the objective of the Bill. I hope the Minister recognises that although the authority has spent a large amount of money, it has had some very remarkable results. I hope that he will listen to the arguments put forward in Committee.
4.30 p.m.
Lord Silkin of Dulwich: I should like to point out a printing error in Amendment No.30. No doubt the Minister has already had his attention drawn to it. The formula set out in Amendment No.30 is not in line with the formula as set out in the relevant part of the schedule. There is a "T" which ought not to be there. Does the Minister wish to tell me that he has already observed that error?
Lord Skelmersdale: I am very grateful to the noble and learned Lord. The error has been pointed out to me. However, while he is speaking about the primary formula, as we might call it, in this block of amendments, will the noble and learned Lord say whether or not the amendments intend line 40 to remain as printed in the Bill; namely, divided by rateable value?
Lord Silkin of Dulwich: I certainly cannot answer at the moment, but I am sure that my noble friends will be looking at that point in order to give an answer. As regards Amendment No.30, the Minister is aware of the error and I assume that nobody has been put in any difficulty as a result. Perhaps the amendment can be read as not having a "T". Without weakening the force of the speeches of my noble friends and the noble Lord, Lord Kilmarnock, which all go very much to the merits of these amendments, I should like to talk about the extraordinary circumstance resulting from the two letters of 23rd February sent by the department to the chief executives, to which my noble friend Lord Underhill has already referred.
In the debate on the last series of amendments my noble friends urged that there should be some further opportunity for the local authorities to make representations however short the time available. As I understood it, the Minister's reply was, "No, because there is a need for certainty". The certainty that apparently exists is one which has the result that between 13th January—the date a letter was sent from the department to the chief executives, the letter which is referred to in this latest correspondence, enclosing the paper setting out details of the Secretary of State's intentions for the 1987–88 rate support grant settlement—and yesterday, errors have been discovered which alter the picture.
As the Committee has heard, the Tyne and Wear authority has already acted upon the original letter. It is a pity that when the Minister replied to my noble friend's introduction of those amendments and relied upon certainty, he did not mention the letters which were sent yesterday and which disclosed the degree of uncertainty that apparently existed. For all we know, there may be a great deal more uncertainty in the future. If two errors are discovered within a matter of a month or so while the Bill is actually proceeding through Parliament, who knows what other errors there may be?
This is a matter of very great importance to which the Minister must immediately give his attention. The whole future of discussions on the Bill will be tied up to some extent with the question of how certain we are to assume the contents of the Bill to be. Are they to be changed? Are the two errors, specifically referred to in the letter, validated, or will they be validated by the provisions of Clauses 4 and 6? Alternatively, will they escape from the validation which we debated at such length yesterday?
Much of the argument put forward by the Government rested upon the basis that there must be certainty—what certainty when we are faced with amendment of the Bill on the hoof, as it were, as it goes through Parliament? Even the figures which have been given to the chief executives by the department on the authority of the Secretary of State are changed as we

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proceed. What we had regarded, subject to the amendments that we have moved, as being certainty, at least as regards the figures in the Bill, we now find cannot be trusted.
I hope that before the Minister even gives his attention to the specific contents of this amendment, he will, as a matter of principle, tell the Committee what the Government propose to do about the serious errors which destroy the whole fabric of the legislation which we are discussing.
Baroness Gardner of Parkes: I am sorry that I was called from the Chamber and that I was not here when the amendment was introduced. I have, however, heard a great deal of discussion including a rather emotional speech concerning ILEA and what might be the effect of rate-capping on ILEA. I believe that ILEA has to be continually rate-capped if inner London is to survive at all in terms of its resident population, certainly until such time as the rating system may be changed.
The population in inner London consists largely of elderly people. Although a great many of these elderly people are on rate rebates and therefore not directly affected, a great many do not receive a rate rebate. They are people who have scrimped and saved, who have been careful over the years and who find sudden and violent increases in rates a terribly heavy burden for them. They are the people who suffered so badly before the Rates Act 1984. I believe that it was because of the tremendous jump in the rate year after year in respect of the Inner London Education Authority, even more so than the Greater London Council, that the Rates Act was introduced.
As the Committee is aware, I was a member of the Greater London Council. In its final year a budget was passed after greatly prolonged argument. It was a budget which the Conservative members of the Greater London Council had insisted upon. That budget was well below the rate-capped level. Yet, within that final year we were unable to spend even the amount that was passed, much less the extra 2p in the pound that would have been allowed by rate-capping. It was more generous than the budget we actually passed, yet we ended the year with a great surplus. Because of rate-capping, a great deal of thought had to be given to good housekeeping principles.
In all my time at County Hall I represented an outer London borough. Each outer London borough runs its own education authority. I believe the education provided in the outer London boroughs was very adequate indeed. ILEA has a good reputation, particularly for handicapped children and special cases, but it does not have a good reputation for ordinary education. Sadly one of my children suffered under the ILEA system because I thought it was wrong not to use the state education system. Instead I found that, although money was being splashed around, care and thought were not.
Having listened to the points made—which I think were valid and sincere points from the noble Baroness, Lady Ewart-Biggs—I believe that there is a strong case for rate-capping for ILEA to continue to enable inner London to remain viable and to allow boroughs such as Westminster, which are considered to be rich and
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wealthy yet have control over only a very small proportion of their rate every year as local expenditure is so restricted and limited, to keep the rate within people's means. I believe it was 14p from £1·35 in the past. It has perhaps changed a little now with the abolition of the Greater London Council. But the ILEA rate directly affects everyone living in the inner city because the amount is so great.
I think that rate-capping each time will be carefully considered. It will not be a purely arbitrary decision. It will mean that the authority concerned, in this case ILEA, has to look carefully at its expenditure and plan good housekeeping. That will be to the benefit of all those paying rates and receiving the services.
Lord Kilmarnock: I always listen to the noble Baroness with care because she usually talks a great deal of sense. But I should like to ask her on this occasion whether she agrees that, if the Government do not make special allowances to ILEA to cover the Secretary of State's new round of teachers' pay awards—which is the situation we were debating while she was out of the Chamber—precisely the problem she fears will come about. The precept added to the rate, which is paid by the elderly people she is so concerned about, will rise. Therefore this is an argument in favour of at least helping ILEA to cope with the Secretary of State's new pay awards.
Baroness Gardner of Parkes: When I was in the Chamber earlier this afternoon I thought I heard the Minister say that it was not correct that there would be no help for ILEA to meet the teachers' pay awards. Perhaps we could ask him to repeat that. I was here and I thought he made the statement that ILEA would not go unaided.
Lord Kilmarnock: I should of course not speak for the Minister, but what I thought he said was that that is already covered in the formula to be applied to ILEA in Schedule 2. In my speech, and I think also in the speech of the noble Baroness, Lady Ewart-Biggs, we cast doubt on that proposition. Indeed we are eager to hear from the noble Lord, Lord Skelmersdale, on that.
Lord Graham of Edmonton: The noble Baroness, Lady Gardner of Parkes, has far more experience both of ILEA and the GLC than myself, but in commenting upon the ability of ILEA to control its affairs, she should look carefully at the recent report by the Audit Commission. It criticised expenditure by local authorities, but it said nothing about ILEA. My noble friend Lady David took the opportunity in a recent debate not to laud ILEA because we know there are problems. But we should be careful. Those who have studied the matter in detail recently with a critical eye have not been able to criticise ILEA about the management of its money.
Baroness Gardner of Parkes: I find the point made by the noble Lord interesting. I think he is referring to the recent audit report which we debated. I agree with what he said about that, but we had another report some months earlier which stated that ILEA was the most expensive and least effective education authority in the country: in other words, the worst value for money.
Lord Graham of Edmonton: It has the worst problems too.
4.45 p.m.
Lord Barnett: I hope the Committee will not mind ill make a brief intervention. I did not intend to do so. I listened with great interest to the noble Baroness and, like her, I do not wish to get involved in the emotive nature of the debate. But I should like to say a word about the practical problems involved in this part of the Bill as it now applies.
I had a little experience in another life, as it were, in squeezing local authority expenditure. In no way do I wish to apologise for that because I thought that what I was doing at the time was right and necessary. I entirely take the point that the noble Baroness was making, but I am concerned that, even assuming that the Government are right to rate-cap the local authorities that are affected in the way described, can it be practical to do so at such short notice? I hope that at the time when I was cash limiting local authorities and others of my friends I took account of the practical nature of being able to do the job. Here, as I understand it, if the level of rate-capping set out in the Bill applies. we are now very near to the start of the year 1987–88 and, for example, one way or another, ILEA will have to find in the region of £125 million. That is something like 12 per cent. of its total budget.
Even assuming that the noble Baroness and the Government are right and the levels of expenditure of ILEA both for 1986–87 and in the past were far too high—for reasons which she has argued in the past and argued again today and which I do not necessarily accept or ask anyone else to accept—it is asking a lot to expect a local authority now, for a period a few weeks ahead, to make plans for cutting 12 per cent. off its budget. Inevitably, even if it tries to do it, the net result will be either chaos or expenditure at the beginning of the year (which inevitably it will not be able to cut because it could not do it in the time), and therefore the cuts coming later in the year would have to be so excessive as to make nonsense of what the Government are hoping to achieve even if they want to achieve it later. All I ask the Committee to understand is the practical nature of imposing cash limits, which is what this is in effect, in so short a space of time.
When I had—I nearly said the good fortune—the misfortune to be Chief Secretary to the Treasury and I sought to impose cuts on my colleagues, at no time did I seek to do so a few weeks from now. I sought to do so usually at least a year later so that one could plan for it. It seems to me that what the Bill is trying to impose—I am not getting into the emotive nature of the argument—is totally impractical. I ask the Minister to reply to the practical point, as well as all the emotive and other questions that have rightly and properly been put to him by my noble friends. I hope he will deal constructively with the practical problems that will face ILEA and other local authorities in the next few weeks to bring their budgets within the levels that have been spoken of.
Lord Boyd-Carpenter: The noble Lord, Lord Barnett, was a very distinguished Chief Secretary to the Treasury and many of us admired the work he did
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there—perhaps more of us on this side of the House than on the other. I speak with some experience of the matter.
Lord Graham of Edmonton: That is true.
Lord Boyd-Carpenter: I am infinitely obliged to the noble Lord, Lord Graham. I am glad I carry him with me for once: that is most reassuring to me.
I think the noble Lord, Lord Barnett, slightly overstated his case. It is not fair to suggest that the figures to be provided for the local authorities concerned are suddenly now bursting upon their astonished gaze only a few weeks—the noble Lord used the phrase "a few weeks"—before the beginning of the financial year. This Bill has been through another place. This Bill was in another place a considerable time ago. The figures have been available for some time. The noble Lord is on a bad point when he suggests that figures which were known towards the end of last year are inapplicable to the coming financial year.
He must remember from his days at the Treasury that most of the figures for the estimates were discussed, debated and settled in the months of November/December for the forthcoming financial year in April. I do not have with me the exact dates when this Bill was in another place but it was some weeks ago, and not wholly out of line with that. Therefore for once in his distinguished career I think the noble Lord is overstating a case. I believe that the time the local authorities have had, dating back from the time when these figures were first known, is not unreasonable.
Lord Barnett: With great respect to the noble Lord, who is an equally distinguished predecessor, if I may put it like that, of both my position as Chief Secretary and my position as chairman of the Public Accounts Committee, I am surprised. What he is saying is that those involved in local authorities should have taken account of a piece of legislation not yet on the statute book. What I was saying is not what the 1986–87 Budget should have been, in accordance with what the Government would have liked, but what it actually is. Taking that as the starting point—as it is—then there has to be a massive cut starting from 1st April. That is the main point, and indeed the only point, that I was seeking to make—the practical nature of the problem.
Lord Boyd-Carpenter: I was also dealing with the practical nature of the problem. But surely the noble Lord is being impractical when he says that local authorities should not pay attention to a public Bill, published and introduced by a government with a substantial majority, all the facts and details of which have been known for some considerable time. Is he suggesting that they should simply hide their eyes from it and say that they will pay no attention to the Royal Assent? You cannot carry on government that way, and it is utterly unrealistic and irresponsible to try to.
Baroness David: I wonder whether I may remind the noble Lord of when this Bill was introduced.
Lord Boyd-Carpenter: Please.
Baroness David: It was published on 18th December, which was the day when both Houses, I think, were going into recess. There was then the Christmas holiday, and the Second Reading of the Bill was not until 12th January. It was rushed through another place; there was no Report stage and it was guillotined at the Committee stage. It has not been published for all that long.
Lord Boyd-Carpenter: I am much obliged to the noble Baroness for giving me the exact date. I knew it was before Christmas some time. However, the figures she has given completely destroy the statement of the noble Lord, Lord Barnett, that it was a matter of only a few weeks. It is a ridiculous exaggeration to describe the period from 18th December to 1st April as only a few weeks. It is a substantial period. What is more important, as I was trying to say, is that it is a period very much in line with the period in which most spending departments learn from the Treasury of the likely provision to be made for them for the forthcoming financial year. It is not at all out of line with that; nor, I repeat, is it properly described as a few weeks.
Lord Bellwin: If anyone can join in just on this one narrow topic, let me say that I very much agree with what my noble friend Lord Boyd-Carpenter has just said. The Committee may say, "Well, he would, wouldn't he!". I almost invariably have that great pleasure, and it gives me no trouble at all. But I think that he has a valid point. If we are talking about the amount of time that authorities have by way of advance notice, I have to say, as I have said before in your Lordships' Chamber on more than one occasion, that I think back over the years to the amount of notice we used to be given by way of information when I was in local government. Believe me, the time that is given now is far, far longer than we used to receive.
I thought that my noble firend's point was a valid one when he talked about the Bill coming before Christmas. In practical terms the authorities know more or less whereabouts these numbers are going to be. It is only because of the need to regularise what has been going on that there has been a delay. However, it is not a delay in their having the information but a delay in validating what they have to do.
Lord Graham of Edmonton: I very much hope the Minister will appreciate that this amendment is an opportunity to accept a compromise and still leave the opportunity for the Secretary of State to determine that which I fear he is determined to determine. We are talking about determination. It is all very well to say that the time from 18th December until now—just over two months—is adequate: from December to January to February. If you take out the Christmas break—the Minister should contain himself because we shall give him an opportunity to speak—you have a situation in which on 18th December, under the guise of correcting errors, a completely new concept is introduced. It was not a question of dealing with money but of changing the whole basis of the system—that is, the right to apply for redetermination.
A great many authorities were in the process of considering their reactions They were chopped off
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without the opportunity. What the Minister has with this series of amendments in a very short time-scale—a matter of two or three weeks—is a method by which he could ameliorate what we suspect on this side to be very, very sharp practice.
The noble Lord, Lord Boyd-Carpenter, hits the nail on the head, as he always does. A government with a substantial majority, when they issue an edict or a diktat are entitled to be taken seriously. And of course on 18th December the Government said what they were going to do, not that they were going to invite those affected to consider what was proposed. They said, "This is what we are going to do". What we are trying to do, as the noble Lord, Lord Barnett, properly said, is to point out the grave consequences for some authorities caught in a tight time-scale.
The series of amendments we are debating will, in my view, provide the Minister with the opportunity still to take the action he intends to take—which we still think is wrong—and will alleviate the feeling in many authorities that they have not been treated fairly. I hope the Minister will be sensible in responding and will not merely say, as others have said, "They knew what they were doing: they knew the consequences". This is basic democracy and we believe that the Government have been basically undemocratic.
Lord Kilmarnock: Before the noble Lord winds up, with respect to the noble Lords, Lord Boyd-Carpenter and Lord Bellwin, it is not only a question of time but also a question of money. If you have a matter of weeks to decide how you are going to implement a change or a cut of 2 or 3 per cent. maybe you can do it; but if you are required to implement a whopping 12 per cent. cut, it will certainly take you two or three months to work out how you are going to do it and even then you may not be able to do so. I think the time and money factors must be taken together.
5 p.m.
Lord Skelmersdale: After that vigorous debate I can hardly believe that now I can actually speak for myself rather than having Members of the Committee putting words into my mouth. I was particularly interested in the speech of the noble Lord, Lord Graham, who suddenly reminded us after this long and, as I say, vigorous debate that we were talking about a series of amendments. What we are discussing of course are alternative formulae to what is proposed in the Bill. My noble friend and I on numerous occasions now have explained why we had to use formulae. We have admitted that it is not the most perfect position, in the Voltaire sense, but nonetheless we have now agreed in Committee on a Division that formulae are required.
Let us look at the individual formulae. The first point that was mentioned was the letter which issued yesterday from the Department of the Environment about two errors in rate support grant for 1987–88 and 1985–86. I acknowledge that the department yesterday wrote to all local authorities about two small errors in the calculation of grant announced by my right honourable friend the Secretary of State on 13th January this year. But at this point I ought to break off to comment on the vigorous exchange between my noble friend Lord Boyd-Carpenter and the noble Lord,

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Lord Barnett, which resulted in what I can only describe as a bit of a mix-up.
The noble Lord, Lord Barnett, suggested that rate-capping was done at short notice. Nothing, but nothing, could be further from the truth. All authorities were told not in January, not in December, not in October but in July last year that they were going to be rate-capped. That is hardly a short period. My noble friend Lord Boyd-Carpenter made this point very strongly indeed and I am extremely grateful to him for so doing.
So far as the fire and civil defence authorities are concerned, the expenditure limit for 1978–79 was considered. The figures were announced in July—again in July—by the Government. The matter was then discussed with each authority to take into account the previous year's experience. The decision is usually at the end of the year and that is exactly what happened this year. There was no time wasted by anybody. I shall return to that in a minute.
But for 1987–88 there was an error in the calculation of grant related expenditure assessment for the rate fund revenue account contribution to the housing revenue account for certain authorities. The Opposition majored on what I think was described as the Department of the Environment's error. I suggest that it comes rather oddly from noble Lords opposite to talk about uncertainty when they propose a whole series of amendments which would throw local government and ratepayers into what I can only describe as a ferment of uncertainty. As I said, the department very much regrets the errors and has acted swiftly to draw the consequences of these to authorities' attention so that they can take them into account.
But how does that affect the Bill? That is the crucial question. The answer is, not at all. The change simply affects the amount of block grant to be used in each authority in its formula and hence the amount that it has to raise from the rates to finance its spending. The individual formulae are not affected. They stand and they will remain.
As to the amount of the errors, I do not know whether the Committee is interested, but they affect eight of the 20 rate limited authorities and nine of the 20 precept limited authorities. In the case of the precept limited authorities, the amounts are 0.01 or 0.02 of a penny in the pound. For the rate limited authorities, the maximum change is less than one penny in the pound. The point is that the errors require no amendment whatsoever to the Bill—not even a tiny one. They relate to decisions which the Secretary of State has not yet taken and therefore, to use the jargon, are not judge-proof by any part of this Bill.
Looking at the amendments one sees immediately that they are very inflationary indeed—a 34.8 per cent. uplift in Amendment No.30, a 34.8 per cent. uplift in Amendment No.31 and an 11.05 per cent. uplift in Amendment No.33. Now I know that the Opposition really are the party of spend, spend, spend. Not content with the £3 billion extra which the Government have made available to local authorities next year, these amendments propose vast inflationary
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increases on the rate and precept limits of all designated authorities. I must tell the Committee straight away that there is absolutely no way at all that the Government can accept them.
My noble friend Lady Hooper and I explained at Second Reading why we have to adopt for 1987–88 only the approach to rate and precept limitation contained in the Bill. It simply would not have been possible to carry through the normal Rates Act procedures, given the need for legislation on the definition of total expenditure. The Government had to get cracking and have got cracking, and the method chosen was by the formulae as printed in the Bill.
In reaching their decisions on the formulae, the Secretaries of State took account, as in any normal year, of all the information available to them about the designated authorities. They took particular note of applications for the redetermination of expenditure levels. The representations made at meetings about those applications were carefully considered. Of course, given the need for the formula approach, limits cannot be precisely tailored to individual circumstances as in a normal year. But so far as is possible they reflect decisions that would have been taken under Rates Act procedures.
The Government are in no doubt that they must protect ratepayers by holding down rates and expenditure. Some noble Lords may have seen last Friday's Evening Standard, now called the Standard. The headline read, "Rates frightening, admits Labour". This was not opposition party policy, I hasten to say, because the following article started,
"Ealing Council's Labour leader admitted today that the possibility of an 80 per cent. rate rise this year was frightening".
Ealing is not even rate-capped.
We must retain rate limitation to encourage authorities to cut out waste and inefficiency or other unnecessary burdens on their ratepayers. Many of the authorities which have been selected for rate limitation in 1987–88 have been selected for a second or third year and have shown little inclination to respond to the pressures of this necessary discipline, for that is what it is. We must therefore maintain those pressures. Authorities which are newly selected are high-spenders rightly subjected to restraint.
I have already explained to the Committee that the selection was done in July last year for the newly rate-capped authorities. But I ask the Committee to look at Brent. It was first rate-capped in 1985–86, as was a whole range of other authorities. I do not see that the local authorities in question have had the slightest bit of delay in knowing, either those which had previously been rate-capped or those which were being rate-capped for the first time. Precept limitation for three years of the new authorities set up by the Local Government Act 1985—that is to say, the passenger transport authorities, fire and civil defence authorities, the police authorities and ILEA, about which we have heard so much this afternoon—was designed to constrain spending and prevent the burgeoning of new bureaucracies.
I must tell the noble Lord, Lord Underhill, that I am advised that the Tyne and Wear authority has not yet issued its precept, which is rather contrary to the information he gave to the Committee. Quite

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honestly, I do not know what the answer is. If we had as a Member of this House someone who was on that authority, we could get a definitive answer. But the noble Lord's advice is quite clearly contrary to mine—
Lord Underhill: I am certain I said that yesterday it decided on its precept. I ask the Minister what he suggests Tyne and Wear should now do, because it may have acted quickly. I do not know whether it sent out the figure last night, but it does not matter whether it did. It met yesterday and decided on its precept based on the previous information supplied by the Government.
Lord Skelmersdale: As the Committee well knows, I am not expert on local authority procedure, but I understand that such a thing can be corrected by a subsequent meeting. If I am wrong, I shall tell the Committee as soon as practicable.
Lord Underhill: Again I am sorry to interrupt the Minister. Of course that can be done, but in the meantime somebody has to work on new figures based on the corrections that have been sent out. There is a cost involved for the Tyne and Wear authority and its representatives in so doing.
Lord Skelmersdale: So there would be if we changed the formula. I shall return to that matter in a moment. For the South Yorkshire Passenger Transport Authority, the fixed costs were, I am advised, fully taken into account in the decision on a 2 per cent. uplift which is given in the formula under the Bill. Again so far as South Yorkshire is concerned, the Government believe that if concessionary fares do not change and if rail fares rise nearer to the level of bus fares, the uplifted expenditure limit—that is, the expenditure limit plus 2 per cent.—will require only small reductions in subsidised bus services. If the will is there, the means are there.
I believe that I heard the noble Lord, Lord Kilmarnock, correctly when he said that some of the treatment meted out to ILEA is unfair. I agree with my noble friend Lady Gardner and I say in addition that some of the treatment meted out by ILEA is quite unfair. I thought that the noble Baroness, Lady Ewart-Biggs, put a very rosy view of ILEA in using the particular to describe the general, which was a point taken up by my noble friend Lady Gardner.
Lord Kilmarnock: I did not in fact put a rosy view of ILEA's performance.
Lord Skelmersdale: I am sorry. Was I gabbling again? I always like to be told when I am gabbling! I intended to say that the noble Lord, Lord Kilmarnock, referred intitially to ILEA but that it was the noble Baroness, Lady-Ewart-Biggs, who in my opinion was generalising from a particular case. I have no doubt that the case which she quoted is absolutely correct.
I think I am right in saying that both the noble Lord and the noble Baroness referred to County Hall. The ILEA precept formula took account of the rent which the London Residuary Body has said it will charge ILEA next year. The formula is based on an overall
128
judgment of what it is reasonable for the authority to achieve, having regard to its high levels of spending.
So far as concerns ILEA and teachers' pay the Government have proposed that the extra grant for teachers' pay should be paid as block grant, as that is the normal means of channelling government support to local authorities. My right honourable friend the Secretary of State for Education and Science assumed when deciding the formula in the Bill that ILEA would have to cover the whole of the cost of the teachers' pay settlement from the precept. However, he also took account of the buoyancy in the penny rate product for the inner London area.
I say again that ILEA's formula takes account of the teachers' pay settlement. The formula allows ILEA to raise a total of £942 million against an expenditure level set in July of £915 million. The formula was set in the light of all the financial circumstances of the authority.
I therefore must say that the amendments before us would drive a coach and horses through any notion of spending constraint. The Government are clear that they cannot accept the increases in spending levels implied by them. As they stand. they would mean an increase in the expenditure of the 20 authorities selected for rate limitation in 1987–88 of £762 million and increases of those precepting bodies designated by law of police authorities, £18 million; transport authorities, £45 million; fire and civil defence authorities, £29 million; and ILEA, a whopping £122 million. That is quite unacceptable both to the Government and, more importantly, to ratepayers.
I thought on the last amendment, and indeed in some speeches on the present amendment. that no notice was going to be taken of what I can only describe as the poor ratepayers. We see here a total of £976 million or nearly billion to come from the pockets of ratepayers in only a small area of the country. Many of the authorities are in London and we debated their waste and inefficiency the other day. I cannot and will not advise your Lordships to accept amendments which pour money into wasteful and inefficient authorities at the expense of their local ratepayers.
The noble Lord. Lord Underhill, expressed concern about fire and civil defence authorities. But I assure the Committee that my right honourable friend the Home Secretary is satisfied on the information available to him that the precept limits for those authorities derived from the formulae in the Bill should be sufficient to enable them to maintain adequate minimum standards of fire cover.
So far as the West Yorkshire Fire and Civil Defence Authority is concerned, I think that it is germane to point out that on the basis of the latest report from Her Majesty's Fire Inspectorate, my right honourable friend the Home Secretary is satisfied that the authority will be able to maintain an adequate level of fire cover. The Government remain committed to the minimum standards of fire cover. The problem in West Yorkshire has not come about as a result of local government reorganisation.
The formulae in the Bill are correctly and properly arrived at and there is no reason for any authority, whether designated by law or by straightforward

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means, to be frightened of them. They are doing exactly what was intended in putting pressure on those authorities to be as efficient as they possibly can be. If it is necessary, as it has been with some authorities, to rate-cap them for three years—for example, Greenwich, Hackney, Haringey, Lambeth, Islington, Lewisham, Southwark and Thamesdown, to say nothing of Basildon—then the ball must surely be in the court of those local authorities.
I cannot suggest that the Committee accedes to these amendments.
5.15 p.m.
Lord Underhill: I should first like to thank the Minister for giving a far better reply than that given in the other place. I turned up there before the debate started on similar criticisms of the formulae, and frankly the reply was disgraceful in that it hardly referred to any of the points raised. There had been a wide debate dealing with particular authorities and also with joint authorities.
Having thanked the Minister for dealing with some of the points, I saw no sign of any apology to the Committee or to the local authorities for errors which were communicated yesterday. Also, when we were at Committee stage yesterday, could a statement not have been made that the errors were there so that we would know where we are today instead of having to hastily cobble speeches together? Even my own association had not received the letter this morning. It would seem to be treating this House with scant courtesy or no courtesy at all in that no such statement was made during Committee stage yesterday.
I am informed that the errors made change the figures for block grants. Block grant is featured as BG in every one of the formulae. Therefore, there must be some effect and authorities will now have to look carefully at what they will do.
The noble Lord referred to South Yorkshire. However, he has not replied to the criticism I made on the previous amendment concerning the fact that certain information on expenses of transfer to the private transport company, with modifications laid down by the department, could not have been known when the formula was fixed. If I have his words down correctly, the noble Lord said, "We took into account all the redeterminations and meetings". It is therefore strange that authority after authority is complaining either that it has not had the opportunity of redetermination or that little account has been taken of its particular needs. That is what we attempted to do in the previous amendments and the Government were given that opportunity with those amendments of a compromise which would enable them to satisfy the local authorities for this year.
The Minister again repeated the word "certainty". By heavens, we have got this Bill as a result of lack of certainty. We need not have had all this complication; we could have had a simple Bill and everyone in the Committee would have voted for a Bill to put the law back as it is. Instead, we have all this complication.
Frankly, in the light of these errors about which authorities had to be circulated yesterday, and in the light of comments that have been made, I should have
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liked the Minister to say that he would take another look at the formulae to see whether some changes could be made. I gave him that chance in my first speech, but he rejected it.
Therefore, in protest at the way this matter has been treated and at the way local government has been treated, I believe that we should ask the Committee to divide on the issue. I am only sorry that many noble Lords have not been in the Chamber to hear the debate and to appreciate that this is one more shambles created by an error on the part of the Government.
5.20 p.m.
On Question, Whether the said amendment (No.30) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 144.

DIVISION No.2

CONTENTS

Alport, L.

Llewelyn-Davies of Hastoe, B

Ardwick, L.

Lockwood, B.

Barnett, L.

Longford, E.

Blyton, L.

Lovell-Davis, L.

Boston of Faversham, L.

McCarthy, L.

Bottomley, L.

Mclntosh of Haringey, L.

Briginshaw, L.

Mishcon, L.

Brockway, L.

Molloy, L.

Bruce of Donington, L.

Morton of Shuna, L.

Campbell of Eskan, L.

Mulley, L.

Carmichael of Kelvingrove, L.

Murray of Epping Forest, L.

Cledwyn of Penrhos, L.

Nicol, B.

David, B.

Northfield, L.

Dean of Beswick, L. [Teller.]

Phillips, B.

Dowding, L.

Pitt of Hampstead, L.

Elwyn-Jones, L.

Ponsonby of Shulbrede, L.

Ennals, L.

Prys-Davies, L.

Ewart-Biggs, B.

Rea, L.

Falkender, B.

Rhodes, L.

Fisher of Rednal, B.

Ross of Marnock, L.

Gallacher, L.

Sefton of Garston, L.

Galpern, L.

Serota, B.

Gifford, L.

Shepherd, L.

Graham of Edmonton, L.[Teller.]

Silkin of Dulwich, L.

Stewart of Fulham, L.

Gregson, L.

Stoddart of Swindon, L.

Hayter, L.

Taylor of Blackburn, L.

Heycock, L.

Taylor of Gryfe, L.

Howie of Troon, L.

Taylor of Mansfield, L.

Jacques, L.

Underhill, L.

Jeger, B.

Wedderburn of Charlton, L.

Jenkins of Putney, L.

Wells-Pestell, L.

Kagan, L.

Williams of Elvel, L.

Kilbracken, L.

Wilson of Rievaulx, L.

Kirkhill, L.

Winterbottom, L.

Lawrence, L.

Ypres, E.

NOT CONTENTS

Ailesbury, M.

Brougham and Vaux, L

Aldenham, L.

Broxbourne, L.

Aldington, L.

Bruce-Gardyne, L.

Alexander of Tunis, E.

Butterworth, L.

Allerton, L.

Caccia, L.

Auckland, L.

Caithness, E.

Bauer, L.

Cameron of Lochbroom, L.

Beaverbrook, L.

Camoys, L.

Bellwin, L.

Campbell of Alloway, L.

Beloff, L.

Campbell of Croy, L.

Belstead, L.

Carnegy of Lour, B.

Biddulph, L.

Carnock, L.

Borthwick, L.

Cathcart, E.

Boyd-Carpenter, L.

Chelwood, L.

Brabazon of Tara, L.

Cork and Orrery, E.

131

Cottesloe, L.

Lucas of Chilworth, L.

Cowley, E.

McFadzean, L.

Craigavon, V.

Margadale, L.

Cranbrook, E.

Marley, L.

Cromartie, E.

Marshall of Leeds, L.

Cullen of Ashbourne, L.

Maude of Stratford-upon-Avon, L.

Dacre of Glanton, L.

Davidson, V. [Teller.]

Merrivale, L.

De La Warr, E.

Mersey, V.

Denham, L. [Teller.]

Milverton, L.

Derwent, L.

Molson, L.

Dilhorne, V.

Monk Bretton, L.

Drumalbyn, L.

Morris, L.

Dundee, E.

Mottistone, L.

Eccles, V.

Mountgarret, V.

Effingham, E.

Munster, E.

Ellenborough, L.

Murton of Lindisfarne, L.

Elliot of Harwood, B.

Newall, L.

Elliott of Morpeth, L.

Nugent of Guildford, L.

Elton, L.

Onslow, E.

Enniskillen, E.

Orkney, E.

Erne, E.

Orr-Ewing, L.

Erroll of Hale, L.

Pender, L.

Faithfull, B.

Peyton of Yeovil, L.

Fanshawe of Richmond, L.

Porritt, L.

Ferrers, E.

Portland, D.

Ferrier, L.

Rankeillour, L.

Fortescue, E.

Redesdale, L.

Fraser of Kilmorack, L.

Renton, L.

Gainford, L.

Renwick, L.

Gardner of Parkes, B.

Rodney, L.

Glenarthur, L.

Romney, E.

Gormanston, V.

St. Aldwyn, E.

Gray of Contin, L.

St. Davids, V.

Greenway, L.

Saltoun of Abernethy, Ly.

Gridley, L.

Sandford, L.

Haig, E.

Sempill, Ly.

Halsbury, E.

Shannon, E.

Hanson, L.

Sharples, B.

Harmar-Nicholls, L.

Skelmersdale, L.

Harvington, L.

Stodart of Leaston, L.

Hesketh, L.

Strange, B.

Hives, L.

Sudeley, L.

Holderness, L.

Swansea, L.

Home of the Hirsel, L.

Swinton, E.

Hood, V.

Thomas of Swynnerton, L.

Hooper, B.

Thorneycroft, L.

Hunter of Newington, L.

Tranmire, L.

Hylton-Foster, B.

Trumpington, B.

Kaberry of Adel, L.

Vickers, B.

Kimball, L.

Vivian, L.

Kinnaird, L.

Whitelaw, V.

Kinnoull, E.

Windlesham, L.

Lane-Fox, B.

Wise, L.

Lauderdale, E.

Wolfson, L.

Layton, L.

Wynford, L.

Lindsey and Abingdon, E.

Young, B.

Long, V.

Resolved in the negative and amendment disagreed to accordingly.
[Amendments Nos. 31 to 35 not moved.]
5.29 p.m.
Lord Elwyn-Jones Lord Elwyn-Jones moved Amendment No.36:
Page 11, line 19, leave out sub-paragraph (2) and insert—
("(2) EL is—

(a) in the case of an authority whose maximum limit is determined by reference to paragraph 2(2) above, the higher of—

(i) the level for the authority's total expenditure in the relevant year which before the passing of this Act was determined and notified to the Authority under section 3(1) and (3) of the 1984 Act,

or

(ii) its GRE for the financial year 1987/88 plus 7.5% where GRE is the amount shown as the grant related expenditure in relation to the authority in the Rate Support Grant Report for England for the financial year beginning in 1987; and

132

(b) in the case of all other designated authorities the level for the authority's total expenditure in the relevant financial year which before the passing of this Act was determined and notified to the authority under section 3(1) and (3) of the 1984 Act.")

The noble and learned Lord said: I rise to move Amendment No.36 and I shall be concentrating very considerably on the constituency of Newham, which I had the honour to represent for 29 years. I should add that if the amendment is agreed, as I have every confidence it will be, there will need to be an appropriate consequential amendment to the block grant in the formula so that it relates to the new expenditure levels arising from the amendment.
The amendment is designed to give all newly selected rate-capped authorities an expenditure level within the formula in Schedule 2 to the Bill, which is the higher of presently determined levels or the Government's grant-related expenditure assessment for the local authority, plus 7.5 per cent.
I raise the matter in particular in the interests of Newham but it also will have an effect on Brighton, where, by happy coincidence, I reside and accordingly should declare an interest as a ratepayer. It would also be of benefit to Gateshead. It is a curious trinity and very worthy folk live in all three places; but particularly worthy are the folk I had the honour to represent.
The amendment is of major importance to Newham because it is faced with an almost unique injustice arising from the provisions of the Bill. The council is required by the Bill to cut its expenditure to a level closer to the Government's grant-related expenditure assessment for the authority than any of the 20 rate-capped local authorities, despite this being the first year of rate-capping. The council is required to reduce its rates by 26 per cent. That is twice the reduction required of all but one of the other rate-capped councils and over three times the reduction required of 15 of the rate-capped councils.
While 16 of the rate-capped councils are allowed by the Government's formula to spend over 10 per cent. above the Government's GREs for their areas, and seven of these can spend over 20 per cent. more, Newham is required to reduce its expenditure to only 3.7 per cent. above its GRE. I submit that that is a gross unfairness that results from the application of a standard formula to local government expenditure—something which we have complained about more than once during the course of the debate on the Bill. The outcome would face the Newham council with a desperate situation and only an amendment to the Bill on the lines proposed will ensure that the borough is at least treated on the same basis as the other rate-capped authorities.
The London Borough of Newham, comprising the former county boroughs of West Ham and East Ham, covers about half the East End of London, including the Royal Docks. The council is the education, housing and social services authority for one of the most deprived parts of this country. According to the Department of the Environment's own analysis of the 1981 census, Newham has the second highest intensity of urban deprivation of all the 365 local authority districts in England. It faces in the matter of housing what can only be described as a housing crisis. Over 45,000 of its dwellings are unfit, or lack basic amenities, or are in need of substantial repair.
The council is experiencing the fastest increase in homelessness in London. The number of household nights, as it has been described—a curious term of art—in bed and breakfast accommodation has risen from 588 in 1981 to 25,000 in 1985; and to over 100,000 households in 1986. That is the reality. Of course the drain on the council's revenue resources arising from that is substantial. The level of human misery that it causes is incalculable.
Newham is almost unique, in that it ranks higher than most of the inner-London boroughs on indicators of inner-city urban deprivation, but it is an outer London borough with the additional expenditure problems and responsibilities of being an education authority. Simple comparisons of expenditure with other local authorities, particularly in London, are therefore not realistic. Newham has tried to spend wisely in order to meet the problems of the borough and to defend its services. It has paid a high price for that because block grant has been reduced substantially.
In order to maintain services in this deprived area rates have had to be considerably increased. The average domestic rate bill is the seventh highest in London and because of the low rateable values in the area the actual rate in the pound is now the highest in London. It is an unavoidable necessity and not something that the council desires. It is a consequence of the very high level of need which I have endeavoured to describe—without, I hope, too much emotion, although I feel it—and the reduction of government support.
The Government may say that their support to Newham through block grant will increase if the council spends less, but that is not an answer to the borough's expenditure needs. I doubt whether it will be said by anyone in the Committee that Newham is a profligate spender or a so-called extreme council. I do not suppose that that will be said about Newham and its problems, but, if it is, it will be a piece of defamation.
The proposals in the Bill exacerbate all the problems that I have mentioned by putting Newham in a Catch-22 situation which, I submit, only the amendment can resolve. The Government proposals make an additional cut of nearly £9 million to this deprived borough. That is £9 million which is desperately needed for local services that need not be cut if Newham is treated on the same basis as the other rate-capped authorities. I submit that the technical case for the amendment is fair and I will endeavour to explain it, although algebra has never been among my highest intellectual attainments.
Newham council is being rate-capped in 1987-88 because its expenditure in 1986-87 was more than 12.5 per cent. above the Government's GRE figure—it was 18.4 per cent. above—and because expenditure between 1985-86 and 1986-87 had increased by more than 4 per cent. However, the Government figures—I hope the Minister will agree with this—significantly under-estimate the council's true expenditure in 1985–86 because they are not adjusted for the council's legitimate use that year of special accounting measures. When adjustment is properly made on that account it shows that the increase in expenditure
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between 1985–86 and 1986–87 was 4 per cent. and not the 15 per cent. that is shown in government figures.
The amendment that I am moving will accommodate the justifiable readjustment of Newham's anomalous position without Newham gaining relatively or absolutely at the expense of the other authorities. The amendment will be without cost to the Government and will still involve a reduction in council expenditure and a 6.2 per cent. reduction in rates for Newham ratepayers for the year 1987–88. I must stress that there is no special advantage for Newham over and above the other authorities by reason of this amendment because the authority will still be required to cut its expenditure more closely to GRE and reduce its rates by a greater amount than 18 other rate-capped authorities will be obliged to do. However, this reduction will be to a more realistic and fairer level for the authority itself.
I submit that it is unjust that Newham should have to suffer disproportionately by reason of what is supposed to be a piece of tidying up legislation. That is how it was so innocently described, and what a tidying up it is! The social effects of cutting so deeply into local services in Newham, as the provisions of the Bill will do, will be extremely serious and must be treated as something that is far more important than a mere local problem. I make no apology for raising this matter as a Newham problem. It is clear that East London, or almost half of it, is one of the most deprived areas in the country, with consequent effects doing more serious damage to public order and the public wellbeing than occurs in many other inner city areas; and heaven knows there have been adequate warnings about that situation.
I urge the noble Lord, Lord Skelmersdale, to look at this matter not only sympathetically but fairly, because what is proposed in the Bill not only is contrary to natural justice but offers grave damage to a long-suffering part of our population. I beg to move.
5.45 p.m.
Lord Renton: I wonder whether the noble and learned Lord will be so good as to help us even more. I tried to follow his explanation, which was given in such a pleasing and lucid manner, and it is no doubt owing to my ignorance that I have not entirely succeeded in taking it all in. However, as I understand it, the change that he intends to make to the Bill is not to be found in the first four lines of the amendment at the top of page 3 of the Marshalled List but in the lines which follow:
"or
(ii) its GRE for the financial year 1987/88 plus 7·5%".
That is the essential point. Then the following three lines seem to make a difference, which from his point of view is an improvement, to what is proposed already in the Bill. Am I right in thinking that that constitutes the essence of his amendment and is where the real change is to be found?
Lord Elwyn-Jones: I think that is so, with the effect of an additional burden on the local authority that I mentioned in the course of my speech.
Lord Skelmersdale: As I understand it, Amendment No.36, which the noble and learned Lord, Lord Elwyn-Jones, has just moved, takes a rather different track from the amendments that we discussed in the last block. I think that the noble and learned Lord has made clear that this amendment is primarily designed to assist the London borough of Newham, though of course it also assists a few—a very few—other local authorities, as the noble and learned Lord said.
Lord Elwyn-Jones: More than a few local authorities.
Lord Skelmersdale: I was about to question the noble and learned Lord on that very point because in his very interesting introduction to this amendment, to which I listened with great care, I understood that so far as he could work it out himself—and after all it is the noble and learned Lord who is moving the amendment—this applied to all authorities that were rate-capped for the first time in 1987 and 1988. Have I understood the noble and learned Lord correctly?
Lord Elwyn-Jones: But the particular impact is upon those three authorities.
Lord Skelmersdale: So it affects some authorities more than others but it affects all those authorities first designated in 1987–88.
Lord Elwyn-Jones: That is so.
Lord Skelmersdale: In which case of course to that extent it would cover Hounslow and Tower Hamlets as well. I do not think that it will benefit the Committee if I again explain the process through which the formulae were derived. However, I must stress that representations made by honourable Members in another place and by local representatives when they met my honourable friend the Minister for Local Government were certainly not ignored; nor indeed do the Government intend to ignore the very interesting speech that the noble and learned Lord has just made, which will require careful study later. He pointed out quite correctly that Newham spent 18.4 per cent. over the grant-related expenditure assessment in 1985–86, which is one of the reasons Newham was rate-capped in the first place.
Although no one has suggested that Newham is a super-inefficient local authority—a point that was made by the noble and learned Lord—I think that we ought to ask ourselves a few questions about the precise position of the London borough of Newham. The noble and learned Lord said, "Ah, well, it is an education authority". He is absolutely right. That is why the Bill makes special arrangements for local education authorities, and I refer him to paragraph 3(6) of Schedule 2, which states:
"T is the amount (if any) determined by applying the formula—
AB × M × 12"
That is all explained elsewhere in the Bill. The T factor applies to Newham as to other selected authorities. It makes an allowance for the additional cost estimated as falling on Newham as a result of the prospective pay settlement for teachers. That is a point
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about which the noble Lord, Lord Kilmarnock, was asking in reference to ILEA during our earlier discussion. For the purposes of the T factor the costs have been estimated on the basis of the announcement by my right honourable friend the Secretary of State for Education and Science on 30th October.
So of course I accept that it is an education authority, but the noble and learned Lord suggested that with a rate limit at the level in the formula the borough would face real financial problems. I am afraid I must say that he has not convinced me that that is in fact so. The Government recognise that Newham is an area of high need and our grant-related expenditure assessment for that borough is the highest for any of the outer London boroughs.
Against that background I wonder why Newham has not contracted out any services; why it is sitting on nearly 70 acres of unused land; why it reduced rents between 1983 and 1986; why in April 1986 it had 2,420 empty dwellings, and why in 1984–85 rent arrears in Newham were 11.73 per cent. of rates collectable against a class average of 4.2 per cent. On behalf of the Government, I accept that we should take every opportunity to find out the true position. My honourable friend the Minister of State for Local Government is going down to Newham to do just that on Friday. Until then, I am not persuaded on behalf of the Government that this is an amendment that we should accept.
Lord Pitt of Hampstead: Will the Minister not recognise that the real trouble is the formula for grant-related expenditure assessment? If the formula produces a large number of boroughs that are heavily deprived, the formula must be wrong, but we—certainly I—cannot get the Government to look again at that formula.
The formula is obviously wrong. It produces a situation in which the most deprived boroughs in the country are always regarded as those boroughs that spend more than they should. If one considers the boroughs that are very deprived, they are all in that list, so it must be because the GRE is wrong. Why can the Government not look again at the GRE formula?
Lord Graham of Edmonton: I do not know what my noble and learned friend Lord Elwyn-Jones will say in response to the final few words of the Minister. I certainly see some hope. I detect that the Government, instead of just looking at figures and assessments and producing blanket solutions, are prepared to reconsider the application of the formula, in certain instances. I am only surprised that there is not a system in the ministry whereby the consequences on each of the affected authorities can be seen—the horrendous consequences that my noble and learned friend has drawn to the attention of the Committee.
Neither I nor the Minister would claim anything like the detailed knowledge of conditions in a place such as Newham that my noble and learned friend has. I doubt whether in a visit of one day, even with all the good intentions of the Minister of State, that can be put right. One has only to look at the nature of deprivation, particularly in inner London areas, to understand. I have a table here. By all the indices and yardsticks that measure deprivation, the London

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borough of Newham, to its enormous cost in social unrest and misery, is the second most deprived. The position of Hackney is of course acknowledged. If one takes the basic index, housing index, social index and economic index, the London borough of Newham is near the bottom of the list.
The great puzzle to me is that there is no compassion in the heart of the Minister and his advisers for the local councillors and local officials in their efforts to combat these dreadful problems. The Minister-1 do not know whether fairly or unfairly, but I give him the benefit of the doubt—drew to our attention some of the matters that he believes militate against the London borough of Newham being considered with compassion: land that had not been sold, services that had not been privatised—all the measuring rods of a good and efficient council.
In Newham, people are facing enormous problems. Many would run away and say that the problems are too large, but the councillors, the officials and the civic leaders are having to get on with it. My noble and learned friend pointed out that, horrendously, a reduction of 26 per cent. is called for—a penalty of £9 million, almost £10 million. Someone in the ministry, seeing that that is the consequence, ought surely to have done more than wait until now to send a person with the political clout of the Minister there to look at things.
The reality is that Newham has the lowest domestic rateable value in London. The Minister may say that all this is taken into account with GREA, but as my noble friend Lord Pitt points out if this is taken into account in GREA and still produces this kind of result, then GREA itself must be reconsidered.
Although it is late in the day we are making a special pleading. I am not proud or arrogant. If Newham comes to me, as it has to many others, and asks whether I will plead its case and support my noble and learned friend, I will, because we know what this means on the ground in housing, jobs and social services, and we accept that it is a good case. It has been pointed out that Newham is not a profligate spender. It never figures in the umbrella criticism of wildly extravagant councils doing all sorts of things with their money that are regarded as intolerable by some others. It is a good council, a sincere and a long-established council that knows the needs of its people. It wants a little more help. I hope that the Minister will see that it gets it.
Lord Renton: Having listened to my noble friend and the noble and learned Lord, Lord Elwyn-Jones, I find myself a little surprised at the amount of controversy that has arisen. The noble and learned Lord seems to accept the GRE formula as laid down by Parliament at the Government's request, and as applied. He also accepts—this comes out in the seventh, eighth and ninth lines of the amendment—the system whereby the rate support grant for England is applied to these circumstances. He does not challenge the principles of the report.
However, what he is saying in relation to his former constituency—for which he was I remember a distinguished and zealous Member for many years—is that the formula does not do it justice. To overcome
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what seems to be his problem—which he is regarding as exceptional, though I must say that I think one could find some other cases where an argument might be made out for saying that the GRE formula does not do the trick—to overcome the defect in the formula as he sees it, he is simply asking for the GRE to be increased by 7·5 per cent. I do now know how that 7·5 per cent. is arrived at. I do not think that the noble and learned Lord has specifically told us. It seems that, in trying to do justice, he thought of a number and included it in the amendment in the hope that it might appeal to the Government and to the Committee. If the Government are to be persuaded, I think that they are entitled to know a little more about how that 7·5 per cent. is worked out, and why.
The only other point I would add is that granted in Newham and various other places the local authorities have problems relating to and resulting from deprivation, surely those problems should and can, so far as possible, be taken care of by the GRE formula, which the noble and learned Lord accepts, because, one of the main factors of the formula is the number of people for whom a service is provided; for example, the number of primary school children. I should have thought that the number of people for whom welfare services have to be provided might be another factor. Bearing in mind the fact that the number of premises from which refuse must be collected is a factor, I should have expected that the formula would cover (we shall be told if it does not) the number of houses which cannot be made the subject of demolition orders and which must continue to be inhabited but which nevertheless are a burden upon local authorities which must continue, even temporarily, their habitable existence.
Bearing in mind that the formula is intended to cover the services and the problem to which the services give rise, to ask the Committee to accept that a mere 7·5 per cent. extra would make up for the deficiencies of the formula may be capable of explanation, but it something which I do not so far understand.
6 p.m.
Lord Elwyn-Jones: First, I wish to deal with the concluding words of the noble Lord, Lord Skelmersdale. I detected sympathy in what he said and a willingness on his part and, therefore, on the part of the Government, to look at this matter again. I am not blackmailing the noble Lord on this matter, but if he is prepared to say that he and his colleagues will now have serious discussions with Newham with a view to reviewing and, if necessary, altering the position which has affected the Newham council so grievously, I am prepared, rather than to go into a prolonged algebraical and political speech on these matters, to sit down. If the Minister will be good enough to give me an answer to that point at this stage, it will be most helpful to our proceedings.
Lord Skelmersdale: I was at pains to point out, albeit comparatively briefly for me, that my honourable friend will be going to Newham on Friday to investigate matters. I am afraid that I can give no commitment as to the result. If the noble and learned Lord would like to take the words that I have uttered in the spirit in which I have uttered them, he will know what to do with his amendment.
Lord Elwyn-Jones: I do not think that at this stage I can ask more of the Minister than that. I await with hope, and a reasonable measure of confidence, the outcome of the visit of his honourable, or is it right honourable friend?
Lord Skelmersdale: My honourable friend.
Lord Elwyn-Jones: If there is a successful outcome to the visit to Newham, he will be right honourable at any time of the day. In the light of that, I shall deny my noble friend opposite the pleasure of an algebraical exposition (if I may say so, to my relief) although there are clear points to be made. In the circumstances and in the light of the Minister's statement, I ask leave to withdraw the amendment.
Baroness David: May I ask the Minister a question? As we have the Report stage of this Bill coming next week rather quickly after its Committee stage, will he be good enough to let my noble and learned friend and me know as soon as possible the outcome of the Minister's visit to Newham on Friday? That will be helpful to us when we consider what amendments to put down on Report.
Lord Harmar-Nicholls: When we reach the Report stage we sometimes read what has been said in Committee, and as there has been general criticism of the formula, it should be on the record that the formula, as it now stands, is 1.5 per cent. above the rate of inflation from the period when it was entered into.
Amendment, by leave, withdrawn.
Lord Underhill Lord Underhill moved Amendment No.37:
Page 11, line 32, after ("is") insert ("the lesser or).
The noble Lord said: I shall speak also to Amendments Nos. 38 and 40. When I was dealing with the amendments relating to the formulae contained in the schedule, the Minister asked whether Amendment No.40 was still standing. I hope that he was giving me some encouragement that he may be prepared to accept the amendment.
Lord Skelmersdale: May I interrupt the noble Lord? I was trying to prove that I read the Marshalled List.
Lord Underhill: I thought that my hopes might be a bit too high, but I still hope that at the end of the debate the Minister will see the common sense of the amendments. They are designed to provide designated authorities with an alternative factor (RV—rateable value) in each formula in Schedule 2.
The majority of designated authorities have made the point that the expenditure limit under the Rate Acts is translated into a rate limit by the use of an estimated penny-rate product for the area of a rating authority. Precepting authorities also use that estimate in making and issuing precepts. Rateable value calculated by reference to the penny-rate product is in most cases a smaller sum than the rateable value figure derived from the rate support grant report. That is because the former allows for the costs of collection and write-offs and reflects a truer position of an authority's rateable resources.
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The Secretary of State should allow authorities to use the normal method if it produces a higher rate limit. That will be made possible by the amendments. In practical terms, the use in the formulae of rateable value rather than the penny-rate products, will mean that some authorities will be unable to finance a level of expenditure assumed in the formulae—that is, originally determined expenditure level (EL x a percentage uplift)—with the maximum rate limits that have been set by the Secretary of State.
The formulae assume that the maximum rate based on RV will bring a higher rate income than that based on a penny-rate product. That is not so. In the case of Sheffield, the shortfall will be no less than £5.27 million. Far from allowing a level of expenditure assumed in the formula (EL x 2 per cent.), Sheffield will be forced to spend at a level even lower than its originally determined EL. In the case of Newcastle, the rate income shortfall will be £4.7 million.
In previous years, maximum rates have been determined by reference to penny-rate products—either the authorities' estimates or those of the Secretary of State. DoE officials say that rateable value has been used because they have incomplete information on penny-rate products. I hope that the Committee will agree with me that that excuse is completely unacceptable and that the Minister will see the fairness, the commonsense and the continuity of practice proposed in the amendments and will therefore be prepared to accept them.
Lord Skelmersdale: This is a remarkably technical amendment, although presented so clearly and fairly by the noble Lord, Lord Underhill. Amendments Nos. 37, 38 and 40 provide that in setting up the formulae we should use in effect whichever is the more favourable to an authority of the penny rate product or the rateable value figure presently included.
I accept that the penny rate products are the amounts normally used by authorities when calculating their rates. Those amounts take account of the likely yield from the rates and hence allow for losses, which are not taken into account if a figure of rateable value is used. But penny rate products for the coming year, by their very nature, involve estimation. If a designated authority did not return its estimate of its penny rate product to the department, we should have to make our own estimate if the formulae contained a term for penny rate products.
I suggest that that would be unsatisfactory to local authorities' own interests because it would introduce uncertainty. Hence we have chosen to use rateable value instead of the penny rate product in the formulae. The rateable value figure is known with certainty as it is used for the purposes of rate support grant reports. That gives a slightly different result from that obtained if we had used penny rate products, but we took that difference into account when considering the appropriateness of the formulae. We chose the rateable value option because that was a figure used for the purposes of rate support grant reports and more importantly in the context of the 1987-88 rate support grant report. It requires no estimation on the part of the Secretary of State, and its derivation is quite clear.
In deciding to do that we were obviously aware that use of rateable value would produce a different result

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in terms of the spending power which the formula produced from using the penny rate product. We took that into account. I am advised that the shortfall in Sheffield and the other shortfalls which the noble Lord, Lord Underhill, mentioned were taken into account in deciding on the formula. In those circumstances, I suggest to the Committee that the amendments add an unnecessary complication as well as uncertainty to the formula. I recommend that the Committee reject them.
Lord Underhill: It is rather strange that we hear this word "uncertainty" again because, as I said in my opening remarks, in previous years maximum rates have been determined with reference to a penny rate, either the authorities' own estimates or those of the Secretary of State. Yet the Minister has declined to accept this amendment because it would require an estimate. I am informed that it is the estimate either of the Secretary of State or of the authority which has been used before in fixing maximum rates.
We want to give the designated authorities the alternative either to have the penny rate product or to have the rateable value. Many of them have complained about that lack of opportunity. I am somewhat surprised to learn that the Secretary of State has taken into account the position in Sheffield and that he is quite prepared for them to have a shortfall of £5.27 million. It is amazing to hear that he has taken that into account and regards it as quite satisfactory for an authority of Sheffield's standing.
This is not an issue on which I am prepared to divide the Committee now. I should like to read carefully what the Minister has said. I hope he will accept that authorities which are designated are complaining that they are being compelled to take the rateable value formula whereas they would prefer to have the choice either of the rateable value formula or the penny rate product. However, based on what the Minister has said at this stage, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 38, 39 and 40 not moved.]
On Question, Whether Schedule 2 shall be agreed to?
6.15 p.m.
Baroness David: I said nothing when we came to the end of Clause 7 and the Question whether Clause 7 stand part because I thought that was so closely linked with Schedule 2 that it was better to make my comments now. I am very dissatisfied with what we have heard, both on Clause 7 and on Schedule 2. Possibly because the Minister has never been a local councillor, his understanding and response to some of today's amendments and to the discussion has not been satisfactory; he has not been as understanding as he normally is.
Schedule 2 is linked to Clause 7 and dependent upon it. The Government's argument has been that the exposure of the illegal calculation of total and relevant expenditure, relating to an amount of £68 billion in block grant between 1981-82 and 1986–87, has made it impossible for the normal Rates Act procedures to apply this year. The Secretary of State
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argues that because of the exposed illegality the normal processes have had to be suspended in respect of 1987–88.
I have spoken previously about what the normal processes are. They involve various stages which have been passed by. In 1987–88 the formal order to be laid before the House of Commons specifying the designated authorities, their expenditure levels and final rate precept level will now not be laid because the process is being conducted by primary legislation; that is, the powers granted to the Secretary of State in Clause 7 and the mathematical formulae for the calculation of expenditure limits set out in Schedule 2. Therefore in the absence of any formal order-making process after the Bill is enacted there is no parliamentary procedure through which the Secretary of State's final decisions on rate precept limits can be challenged.
Our objections to the Bill's proposals are clear. On the grounds of natural justice and financial probity it is unwise for Ministers to destroy all procedures which allow for final and late revision of rate precept levels. The formulae set out in Schedule 2 are calculated on a grossly unfair basis. First, no specific account has been taken of the individual circumstances of particular authorities. Secondly, the applications for redetermination of expenditure levels submitted by a number of authorities have been ignored. Thirdly, authorities were not told to submit information to Ministers on their expenditure level-rate precept position in advance of the Bill being published.
Since the Bill was published on 18th December, Ministers have been arguing that the formulae are immutable. That is what we have heard frequently today. Had authorities known in advance that a legislative form of determining expenditure levels was being contemplated and that there would be no challenge available to interim rate precept levels, many more authorities would have submitted information early. Such authorities have therefore been seriously disadvantaged.
Fourthly, discrimination has occurred within classes of authorities and between classes of authorities. We heard about that just now in relation to Newham. Thus newly rate-capped authorities as a complete group are given a higher expenditure level than existing rate-capped authorities. There has never been any explanation for that. Also, there is discrimination between some of the statutorily rate-capped joint authorities. Police authorities get a higher expenditure level than fire and civil defence authorities, which in turn get a higher expenditure level than transport authorities, which in turn get a higher expenditure level than ILEA.
This clearly reflects the Government's estimation of political priorities rather than any estimate of the true financial position of individual authorities. There is also discrimination against ILEA, which is the only rate-capped education authority not to be given the additional T factor to deal with the financial consequences of any final teachers' pay assessment. I know that the Minister has tried to explain that.
There are no grounds for saying that the Minister needs the mathematical formulae, crudely applied in primary legislation, for the reason that there is no time to go through the normal Rates Act procedures. Mr.

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Ridley could have introduced a very simple Bill in November or December merely to rectify the revealed illegality on block grant which would have received the support of the Opposition, as I said at Second Reading and again today. Mr. Ridley could therefore have had his Bill. He could have kept the Rates Act procedures on redetermination in place. Indeed, he could have even pleased himself by allowing the parliamentary draftsmen to work on the privatisation Bill which he has now been forced to abandon. I should have thought that for him this was a serious political mistake. But, of course, we do not mind the last one. We therefore feel that Schedule 2 should not stand part of the Bill.
Lord Renton: I hope that the noble Baroness will forgive me if I do not follow her arguments or try to reply to them in substance. I want to make a brief comment about the drafting. It must have saved pages of verbiage to have used the formulae that appear in the schedule. I sometimes wish that we could use the formulae more often. In certain circumstances, they are a very valuable and helpful way of legislating. I therefore welcome the use of the formulae.
I must point out however that we have here an example of the passion of the parliamentary draftsman for putting the cart before the horse. I can perhaps put it this way. It is not until one reaches paragraph 3 of the schedule that one has a clue as to what paragraph 2 might mean. It is a most lamentable habit of the parliamentary draftsman to defer the definitions. These should always come where they facilitate understanding. If the definition is vital to the understanding of a piece of legislation, the definition should come first. This is a prize example.
I hope very much that when we come to Report stage we shall find government amendments which transpose paragraphs 2 and 3 and that all users of the statute will be much happier.
Lord Kilmarnock: We should also like to restate our dissatisfaction with the schedule. It is obviously right to speak on the schedule, rather than on the motion that Clause 7 stand part of the Bill. In combination with Clause 7, the schedule leaves absolutely no machinery for taking account of special or changed circumstances. It must be a disadvantage for the Secretary of State to have to come back to Parliament for any change that he wants to make, or is forced to make, during the coming financial year. There is no presumption on past performance that the Government are right and that they may not have to come back to Parliament yet again. On those grounds, therefore, Clause 7 and the schedule seem to be unsatisfactory.
I should like to return to the ILEA point. In the debate on the block of amendments which covered ILEA, I assured the noble Lord that I was not painting a rosy picture of ILEA. ILEA has definitely been dilatory and there are ways it could have saved money which it has not used. But that does not detract from the point I made to the Minister. I do not see how ILEA will meet the teachers' pay settlement this year on the basis of the formula in this schedule. I am bound to say that the noble Lord has not satisfied me
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on that point. Nor has he satisfied me as to how ILEA will meet the cost of moving from County Hall.
Those seem to me to be two special, one-off factors which cannot possibly be catered for by the formula in the schedule. I remain deeply unconvinced and dissatisfied with what the noble Lord has said.
On these Benches, we feel that this is precisely the kind of Bill which is bound to come from excessive central government intervention in local affairs. It is extremely complicated and very rigid and unsatisfactory. We do not like it. In a happier world, Bills of this kind would not exist. We very much hope that that happier world will come about quite shortly.
Baroness David: Perhaps I may say one word in response to the noble Lord, Lord Renton. It is not so much the formulae to which we object. In fact our amendments kept the formulae. It is the fact that there was no consultation with the local authorities before they were presented, and there has been no opportunity to discuss them since.
On the other point about EL and so on not being explained until paragraph 3, I am entirely in agreement. I read it through and could not think what it was all about. I hope that the Minister will pay attention to what his noble friend says.
Lord Skelmersdale: That was rather a barbed comment. I have learned from bitter experience over the last six years that when my noble friend Lord Renton speaks about drafting, any sane, sensible Minister ducks—and ducks very rapidly indeed. Yes, of course I shall take up his point. However, he did not develop it.
On looking at the schedule, there are even worse crimes, in my noble friend's book, perpetrated by the draftsman. Paragraph 3(6) explains how the amount of T in paragraph 2(1) is to be calculated. Therefore, I have indeed understood the point of my noble friend. I shall look into the matter and tell my noble friend whether I shall be able to take action.
I cannot but admire the confidence of noble Lords opposite. It is absolutely astounding how they announce over and over again that it would be possible to draft a simple Bill on this issue. If it were a simple Bill, they say, there would be no problems. It would sail through both Houses of Parliament overnight, and all the rest of it. I take that with a pinch of salt. Our debates have surely made clear that this is far from a simple matter. As I have explained on several occasions, it simply was not possible to carry through normal procedures for rate limits and, albeit on a decision of the House which was voted upon, that is why we had to set formulae.
After the expenditure limits were determined in July, as I said earlier, we proceeded to operate the normal timetable for redetermination applications, those applications being returned by the early autumn. Authorities had no reason to believe that redetermination could be submitted in December. The Bill has not cut across the normal process of submitting applications for redeterminations. What it has done is to roll up the subsequent procedures.
In passing, I ought to say something about Sheffield where the expenditure implied by the rate limit is

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£261·3 million but the expenditure level is—guess what?—£258·9 million excluding teachers' pay. I therefore do not think that the dire effects mentioned by noble Lords opposite will happen in this very special year. 1987–88, for rate-capped authorities. That is why I suggest to the Committee that Schedule 2 should remain part of the Bill.
Schedule 2 agreed to.
Clause 8 [Sanctions]:
On Question, Whether Clause 8 shall stand part of the Bill?
Baroness David: I should like to make a few comments. My purpose is not to challenge the need for some provision for supplementary precepts but to draw attention, first, to the potential penalty on local authorities implicit in the clause, and, secondly, to the difficulties caused to local authorities by the lateness of the Government's timetable which has occasioned the need for the clause.
The clause makes provision for supplementary rates and precepts to be issued by authorities which have already made an initial rate or precept before the passing of the Act. These supplementary issues must be made within four weeks in the case of precepts and within six weeks in the case of rates from the date of a notice served after Royal Assent by the Secretary of State. The clause makes no provision for the cost of the supplementary issues to be met from the Exchequer; they will therefore fall on to the local authorities concerned. We spoke yesterday about the extra costs in which local authorities may be involved.
The Government will no doubt argue that the original purpose of the clause was to penalise any rate-capped authorities which took advantage of an opportunity to make their rates or precepts before the passage of the Act when affairs were, as it were, in limbo. This is no longer relevant because the Bill has proved to be so complex that its progress through Parliament has necessarily taken a little time. All authorities are now potentially placed in difficulty.
The practical position is that all authorities—and in particular precepting authorities—are facing a difficult situation which has been caused by the Government. Precepts must be made by 10th March and rates by 31st March. The 1987–88 block grant settlement and the 1986–87 supplementary report cannot proceed until the Bill is enacted. It is even possible that the supplementary report may be further delayed if judgment is made for Greenwich in its case on Thursday, adding to the uncertainty facing authorities as to their true financial position. I believe that the Minister agrees with that position.
The Bill will not receive Royal Assent until after 10th March, thereby forcing precepting authorities to set precepts without final certainty as to the contraints upon them. Rate-making authorities will have little time before the end of the month to confirm their position and all authorities in receipt of block grant would wish to know that the settlement will proceed before setting rates. This will not be possible for the precepting authorities.
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The only way for authorities to avoid this situation is for them to observe rate-cap limits which will not have been approved by the statutory deadline or else bear the penalty of the cost of a supplementary precept. This is a questionable use of the legislative process, amounting as it does both to pressuring authorities and to presuming on the remainder of the parliamentary process. The Government's whole approach since the legal misunderstanding was discovered has been to assume that Parliament would agree the legislation without amendment and to that extent to take Parliament for granted. As we have said previously a simple Bill, designed only to cope with the legal problem, could have been on the statute book by Christmas after an unopposed passage and all this uncertainty avoided.
6.30 p.m.
Lord Skelmersdale: I do not believe that it helps the Committee at all if I continue to repeat myself. However, we are now in what I can only describe as peculiar and particular circumstances.
I re-emphasise that what we have here are provisions which apply only to the next financial year; namely, 1987–88. I declared some time ago—I do not remember whether it was yesterday or on Second Reading—a non-interest in that I have never been a member of a local authority. I do not see that that makes me any better or any worse an individual. However, I am at least able to declare an interest as a ratepayer. The speeches throughout this afternoon by the noble Baroness and her noble friends in connection with this Bill seem to have ignored that aspect totally. We are talking as much about ratepayers as about local authorities and the difficulties of local authorities, which I accept are very real indeed, in some cases.
Baroness David: We are concerned about the people for whom local authorities are providing services.
Lord Skelmersdale: That brings me to the whole subject of changing the local government finance structure, which I long to do and which the noble Baroness has said is desirable. Indeed, the Government intend to do that as soon as they properly can on the basis of the Green Paper Paying for Local Government. However, I do not think that I should go down that track at this time of night.
Authorities will need to make the substituted rates and precepts referred to by the noble Baroness only if they chose to ignore the limits which will fall to be determined under the formulae and about which we have told the authorities. We do not expect authorities to be in that position. We believe that they will chose to act sensibly—which is a point that I made some time ago—but we must make provision in Clause 8 in case they do not act in such a responsible way.
The only other point made by the noble Baroness in what I suppose was a forerunner of a Third Reading or Bill do now pass speech was the lateness of the timetable. The cost of supplementary rates should fall on the authorities concerned if, knowing what their proposed rate limits are—which they do—they nevertheless fix a rate above their limit. The same point applies to precepting authorities. Therefore

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everything contained in Clause 8 of the Bill is a necessary part of the Bill and I hope that the Committee will agree to it remaining part of the Bill.
Clause 8 agreed to.
Clause 9 [Poiver of specifying: general]:
Baroness David Baroness David moved Amendment No.41:
Page 7, line 45, leave out ("1(6)").
The noble Baroness said: The purpose of the amendment is to remove the power to make specifications from the provisions of Clause 9: the powers in Clause 9(3). Clause 1(6) empowers the Secretary of State to add to the list of accounts in Schedule 1 which are to be treated separately from the rate fund revenue account. Under Clause 9(3) the Secretary of State is empowered to revoke or amend any specifications covered by the clause. Given that specification of an amount is likely to be helpful to the authority, it seems invidious that such a specification can then be amended or revoked. The result would be disruptive to that authority's accounting practices and without any guarantee, even with consultation with the authority, under Clause 9(4).
More generally, since Clause 1(6) is excluded from the need to observe common principles in making specifications wider Clause 9(6), presumably on the basis that it is designed to deal with particular local matters, it would seem better to exempt it from the provisions of the whole clause. I beg to move.
Lord Skelmersdale: I find it refreshing when the noble Baroness asks a straight question which I can understand. We spoke about Clause 9 in discussions on an earlier amendment yesterday (I believe that it was on Amendment No.9, although I should not like to swear to that). Therefore I can say that the consultation power referred to by the noble Baroness relates to specifications in all reports and supplementary reports, except those three to be made immediately on Royal Assent to this Bill. The specifications may be made outside reports, and consultation applies. However, the Secretary of State will consider representations made on reports and supplementary reports to be made immediately after Royal Assent. The purpose of the amendment, as I understand it, is to revoke or amend. It is the usual power relating to specifications and it is to cover mistakes which happen, and have happened, under all governments from time to time. The power must be exercised reasonably, but I do not wish to enter into the discussion of what is reasonable which the noble and learned Lord, Lord Silkin, had with my noble friend Baroness Hooper. Nonetheless, that, as I understand it, is the position and I hope that it answers the question of the noble Baroness.
Baroness David: I shall read what the Minister has said and consider whether I shall take up the matter again. At the moment I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Underhill Lord Underhill moved Amendment No.42:
Page 8, leave out line 7, and insert ("the local authority associations, any local authority directly concerned").
The noble Lord said: I declare my interest as president of one of the associations. The amendment follows on from the previous amendment dealing with the powers of the Secretary of State to make the specifications or to revoke or amend them. It may be helpful to the Committee if I read Clause 9(4), which states:
"Before exercising the power the Secretary of State shall consult such associations of local authorities as appear to him to be concerned and any local authority with whom consultation appears to him to be desirable".
The amendment would read:
"Before exercising the power the Secretary of State shall consult the local authority associations, any local authority directly concerned and any local authority with whom consultation appears to him to be desirable".
Therefore the important changes are that all the local authority associations should be consulted. That seems to be elementary because they will all be affected by any specification that the Secretary of State makes. Surely it is elementary justice, natural justice, that it should be written into the Bill that the local authority directly concerned with a particular specification shall be consulted. There remains in the Bill the provision that:
"any other local authority with whom consultation appears to him to be desirable".
Therefore we are asking that the Secretary of State shall consult all the local authority associations and the local authority directly concerned. This seems to be such elementary natural justice that I am certain it is one issue which the Minister will be prepared to accept. I beg to move.
Lord Renton: I wonder whether my noble friend can explain the meaning of line 7 as drafted? As I understand it, it is the local authorities that will be concerned, rather than associations. If we refer to,
"such associations of local authorities as appear to him to be concerned",
would it be possible, for example, for the local authorities in a particular part of the country to form an association because they felt that they were particularly concerned? From the wording of the Bill as it stands that is a possible interpretation. The Government no doubt have clearly in mind what they intend, but it would be nice to have an explanation.
Lord Skelmersdale: My noble friend Lord Renton gives me a magnificent cue to what I was about to say to the Committee. The amendment seeks to alter a traditional form of wording on consultation. The drafting to be found in Clause 9(4) has been used in legislation for many years. Indeed, it was the party opposite which passed the Local Government Act 1974. Section 1(3) of that Act states:
"the Secretary of State shall consult with such associations of local authorities as appear to him to be concerned and with any local authority with whom consultation appears to him to be desirable".
This Government used the same formulation in Part VI of the 1980 Act. Sections 60(5) and 59(11A) both say that before doing certain things the Secretary of State,
"shall consult such associations of local authorities as appear to [him] to be concerned and any local authority with whom consultation appears to [him] to be desirable.".

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Both those Acts remain on the statute book. Now suddenly in 1987 we have, if this amendment were agreed to, an Act which says:
"the Secretary of State shall consult the local authority associations, any local authority directly concerned and any local authority with whom consultation appears to him to be desirable".
Before I say how and why I am amazed at this formulation, perhaps I may turn back to my noble friend Lord Renton and answer his question. Clause 9(4) states:
"Before exercising the power"
that is the power to make a specification—
"the Secretary of State shall consult such associations of local authorities as appear to him to be concerned".
That means any associations representing any body of local authorities. It goes on to say that the Secretary of State can also consult individual local authorities which it appear to him it is desirable to consult. I suggest that the point is covered in any kind of formulation.
I am quite amazed at the implication behind the amendment, especially as it was moved by the noble Lord, Lord Underhill. The Bill already contains Clause 9(4), which covers consultation with individual authorities with whom consultation appears desirable. The amendment is a tacit admission that the local authority associations do not or cannot represent their members. I should like to ask in what position that puts the noble Lord, Lord Underhill, who has told us from time to time that he has the honour to be president of the Association of Metropolitan Authorities. Moving closer to home, where does the noble Baroness, Lady David, stand on this particular matter, briefed as she is on local government matters by the local authority associations? I am sorry but I just cannot see the relevance of this amendment and why it should be incorporated into the Bill when the history is very much on the draftsman's side.
6.45 p.m.
Lord Underhill: We have heard some amazing answers from Government Ministers, but to me this is the most incredible. I have in front of me the Hansard of another place for 21st January. Thank God I found it among my documents; I thought I did not have it. At col. 974 Dr. Boyson, the Government Minister dealing with a point raised by the honourable Member for Norwood, said:
"I give the commitment that the local associations will be seen".
That concerns another matter, but he says that they will be seen. I want them to be more than seen.
At col. 976 a Member of Parliament refers to the fact that a Minister gave an assurance that there would be general consultation with authorities. Later the Minister, Dr. Boyson, said:
"As I said to the honourable gentleman earlier, the Secretary of State will consult local associations and the specification is answerable to the courts.".
Therefore on certain matters the Government are prepared to consult the associations. I want to write into the Bill that, whether it be the Association of County Councils, the AMA, or the Association of District Councils, they should all be consulted on the specifications because they are very important issues
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affecting all local government. I cannot understand why the Minister should resent that any local authority directly concerned should be included.
If there is one authority directly concerned, surely natural justice says that at least that authority should be heard and consulted. Why should it be left to the Secretary of State to decide. Subsection (4) says:
"any local authority with whom consultation appears to him to be desirable".
Whatever may have happened in years gone by, we are now dealing in 1987 with a new pattern of local government finance which has never existed before. However, I shall read very carefully what the Minister has said. We may come back at the next stage after consultation with the bodies concerned. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 agreed to.
Clause 10 agreed to.
Schedule 3 [Rate support grant: special provisions]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No.43:
Page 12, line 31, at end insert ("; and the requirement in section 54(4) of that Act to consult may be satisfied (as regards a determination to be specified in such a Report) by consultation before the passing of this Act.").
The noble Lord said: In moving this amendment I trust that it will be convenient to the Committee if I speak also to Amendments Nos. 44 to 55 inclusive.
All these amendments relate to Schedule 3 of the Bill which is designed to enable my right honourable friends to make the 1987–88 rate support grant reports and certain supplementary reports immediately after the passing of the Bill in line with their announced intentions for these reports.
The amendments are necessary if the schedule is to enable us to make the reports in the way we intend. The amendments will make clear that the extensive consultation we have already carried out for these. reports satisfies the statutory requirements even though it was carried out before the passing of the Bill and will also enable us to use for certain of those reports, and certain estimates of grant entitlements made thereafter, the information about authorities' total expenditure and rateable values which we intend to use and which authorities expect us to use. I commend the amendments to the Committee.
Baroness David: I think I said yesterday that I was grateful to the Minister for writing about the amendments which the Government were about to put down. Again I cannot help commenting that there are a great many of them. It is not really very competent legislation to have to produce such a vast number of lengthy amendments at this stage when the Bill is going through the Upper House. It has already had time in the other House.
On Question, amendment agreed to.
The Deputy Chairman of Committees (Lord Nugent of Guildford): Unless any noble Lord objects, I propose that Amendments Nos. 44 to 55 inclusive should be put to the Committee en bloc.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 44 to 55:
Page 12, line 46. at end insert ("; and the requirement in section 54(4) of that Act to consult may be satisfied (as regards a fresh determination to be specified in such a report) by consultation before the passing of this Act.")
Page 13, leave out line 17.
Page 13, line 44, at end insert—
("Total expenditure 1985–86"
2A.—(1)In doing any of the acts mentioned in sub-paragraph (2) below the Secretary of State shall treat the relevant amount as the amount of an English local authority's total expenditure in relation to the relevant year.
(2) The acts are —

(a) making any determination or doing any other thing after the passing of this Act for the purposes of any relevant report, and

(b) making under section 66(1) of the 1980 Act the first estimate and notification to be made after the passing of this Act as regards the authority concerned for the relevant year.

(3) Where an amount estimated as an authority's total expenditure in relation to the relevant year was submitted to the Secretary of State by the authority—

(a) before llth December 1986, and

(b) in response to a requirement made under section 65 of the 1980 Act in April 1986.

for the purposes of this paragraph the relevant amount is (as regards the authority) the amount submitted.
(4) Where in the case of an authority no amount was submitted as mentioned in sub-paragraph (3) above but an amount estimated as the authority's total expenditure in relation to the relevant year was submitted to the Secretary of State by the authority—

(a) before llth December 1986, and

(b) in response to a requirement made under section 65 of the 1980 Act in February 1985.

for the purposes of this paragraph the relevant amount is (as regards the authority) the amount mentioned in sub-paragraph (5) or (6) below (as the case may be).
(5) Where sub-paragraph (4) above applies in the case of an authority which is not a local education authority, the amount is the amount submitted.
(6) Where sub-paragraph (4) above applies in the case of an authority which is a local education authority, the amount is the amount submitted as adjusted by a method determined by the Secretary of State: and the method shall be determined in accordance with principles to be applied to all authorities affected by the adjustment.
(7) Where in the case of an authority more than one amount was submitted as mentioned in sub-paragraph (3) above, for the purposes of that sub-paragraph the amount submitted shall be taken to be the latest to be so submitted.
(8) In this paragraph "the relevant year" means the year beginning in 1985.
(9) For the purposes of this paragraph relevant reports are—

(a)the report mentioned in paragraph 1(4)(a) above, and

(b)any report proposed to be made in substitution (directly or indirectly)) for the report mentioned in paragraph 1(8)(a) above.

(10) In its application in relation to the Greater London Council, the Inner London Education Authority or a metropolitan county council, this paragraph shall have effect as if the second reference to the authority in sub-paragraph (3) included a reference to the London Residuary Body or (as the case may be) the body established for the metropolitan county by section 57(1)(b) of the Local Government Act 1985.")
Page 13, line 48, leave out ("any") and insert ("the"). Page 14, line 3, after ("the") insert ("relevant")
Page 14, line 9, leave out ("year for which the amount was submitted") and insert ("relevant year")
Page 14, leave out line 11
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Page 14, leave out lines 19 to 30 and insert—
("(6) In this paragraph "the relevant year" means the year beginning in 1986.
(7) For the purposes of this paragraph relevant reports are—

(a)the report mentioned in paragraph 1(4)(b) above and that mentioned in paragraph 1(4)(c) above, and

(b)any report proposed to be made in substitution (directly or indirectly) for the report mentioned in paragraph 1(8)(b) above or that mentioned in paragraph 1(8)(c) above.

(8) In this paragraph "the relevant date" means 20th December 1986 in the case of an English authority, or 4th December 1986 in the case of a Welsh authority.
Total expenditure 1986-87 (further provisions)
3A.—(1) Sub-paragraph (2) below applies where before the relevant date a local authority submitted to the Secretary of State an amount which it estimates as its total expenditure in relation to the year beginning in 1986.
(2) Where, in making any determination or doing any other thing after the passing of this Act for the purposes of any Report as regards which paragraph 1(2) and (3) above apply the Secretary of State wishes to take into account the authority's total expenditure in relation to the year beginning in 1986, he shall treat the amount submitted as the amount of its total expenditure in relation to that year.
(3) For the purposes of sub-paragraph (2) above—

(a) if the authority and the Secretary of State agreed before the relevant date an amount to replace any amount submitted, the amount submitted shall be taken to be the amount agreed, and

(b) subject to paragraph (a) above, if more than one amount was submitted before the relevant date, the amount submitted shall be taken to be the latest to be so submitted.

(4) In this paragraph "the relevant date" means 20th December 1986 in the case of an English authority, or 4th December 1986 in the case of a Welsh authority.").
Page 14, line 39, leave out ("on 19th") and insert ("in")
Page 15, line 8, leave out ("on 19th") and insert ("in")
Page 15, leave out lines 9 and 10
Page 15, line 17, at end insert—
("Rateable values
5.—(1) In doing any of the acts mentioned in sub-paragraph (2) below the Secretary of State shall—

(a) take into account information relating to hereditaments in the area of an English local authority and their rateable values if the information falls within sub-paragraph (4) below, and

(b) leave out of account information relating to such hereditaments and their rateable values if the information does not fall within sub-paragraph (4) below.

(2) The acts are—

(a) making any determination or doing any other thing after the passing of this Act for the purposes of any relevant report, and

(b) making under section 66(1) of the 1980 Act the first estimate and notification to be made after the passing of this Act as regards the authority concerned for the year beginning in 1985 or that beginning in 1986.

(3) For the purposes of this paragraph relevant reports are—

(a) the report mentioned in paragraph 1(4)(a) above and that mentioned in pragraph 1(4)(b) above, and

(b) any report proposed to be made in substitution (directly or indirectly) for the report mentioned in paragraph 1(8)(a) above or that mentioned in paragraph I (8)(b) above.

(4) The information referred to in sub-paragraph (1) above is that which was taken into account in making the Rate Support Grant Report for England for the year for which the relevant report is made or the estimate and notification are made (as the case may be).
General
6. References in this Schedule to making determinations or doing other things for the purposes of a report include references to making or doing them with a view to the inclusion of anything in a report whether or not the inclusion is required by any enactment.
7.—( ) Paragraph 4 above shall have effect subject to paragraphs 3 and 3A above.

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(2) Part VI of the 1980 Act shall have effect subject to paragraphs 2 to 5 above.")
On Question, amendments agreed to.
Schedule 3, as amended, agreed to.
Clause 11 agreed to.
Schedule 4 [Amendments]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No.56:
Page 15, line 41, leave out ("In section 56(6) and (7) of the 1980 Act") and insert—
("(1)Section 56 of the 1980 Act shall be amended as mentioned in sub-paragraphs (2) and (3) below.
(2) In subsections (6) and (7)").
The noble Lord said: With the leave of the Committee I shall speak also to Amendments Nos. 57,58 and 59.
All these amendments amend Schedule 4 to the Bill so that, where in the other statutory provisions covering rate support grant it is intended to refer to "total expenditure", the provisions do so. In some cases the provisions refer to "expenditure" in cases where the practice has been to construe those references as "total expenditure". Total expenditure is now by statute an artificial accounting concept and is likely to be different from what is expenditure in the true sense. These amendments will mean that Schedule 4 will carry through the necessary amendments to other statutes consequent upon the provisions of the Bill. I commend the amendments to the Committee.
On Question, amendment agreed to.
The Deputy Chairman of Committees: With the leave of the Committee Amendments Nos. 57, 58 and 59 will be moved en bloc:
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 57 to 59:
Page 15, line 43, at end insert—
("(3) In subsection (8), in the definition of grant-related expenditure, after "notional" there shall be inserted "total".")
Page 15, line 43, at end insert—
("2A. In section 58(5) of the 1980 Act after "in their" there shall be inserted "total".")
Page 17, line 5, at end insert—
("5A. In section 8 of the Local Government Finance Act 1982 (adjustments of distribution of block grant) the following shall be inserted after subsection (4)—
"(4A) If guidance issued for the purposes of section 59(6)(cc) of the said Act of 1980 is guidance by reference to total expenditure, and if representations in the following behalf are made to the Secretary of State by any association of local authorities or by any local authority, he may—

(a) in the Rate Support Grant Report made for any year under section 60 of that Act, or

(b) in a supplementary report made for any year under section 61 of that Act,

provide that items of any description or amount shall be disregarded in calculating total expenditure for the purposes of the said section 59(6)(cc) and of determining under subsection (3)(c) above whether or the extent to which local authorities have or have not complied (or have or have not taken steps to comply) with the guidance.".").
On Question, amendments agreed to.
Schedule 4, as amended, agreed to.
Schedule 5 agreed to.
Clause 12 [Interpretation]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No.60:
Page 8, line 29, leave out subsection (3) and insert—
("(3) For the purposes of this Part of this Act as it applies in relation to an intermediate year beginning in 1983, 1984 or 1985—

(a) "local authority" also includes the Greater London Council and the Inner London Education Authority within the meaning of section 30 of the London Government Act 1963,

(b) references to the Inner London Education Authority in section 1(1)(c) above, paragraph (c)below and paragraph 2A(10) of Schedule 3 to this Act shall be construed as references to the Inner London Education Authority within the meaning of section 30 of that Act,

(c) the Greater London Council and the Inner London Education Authority shall be taken to be separate local authorities, and

(d) "local authority" does not include a joint authority or the Inner London Education Authority established by section 18 of the Local Government Act 1985.").

The noble Lord said: This is a technical amendment. What it does is to make it clear that the references to ILEA in relation to the years beginning in 1983, 1984 or 1985 are to the special committee of the Greater London Council, rather than to the new corporate body established by the Local Government Act 1985. It also ensures that although the old ILEA and the GLC were the same legal entity, they are treated separately for the purposes of Part VI of the 1980 Act, as they always have been in the past.
As this is the last occasion that I shall speak in Committee on this Bill perhaps I may thank noble Lords in all parts of the Committee for their cooperation in reaching this point in the Bill in such an exemplary fashion and for the good temper exhibited by all who have spoken. I include in that particularly my noble friend Lady Hooper who has been scurrying hither and thither at my request for what seems a very long time. I beg to move.
Baroness David: If I may, I shall respond to what the Minister has so kindly said about the good humour with which this Committee stage has been conducted and the speed with which we have got through it, which is rather greater than I expected. Our thanks from this side to the Minister and to the noble Baroness and I hope we shall have a satisfactory Report stage.
On Question, amendment agreed to.
Clause 12, as amended, agreed to,
Remaining clauses agreed to.
House resumed: Bill reported with amendments.

Coal Industry Bill
6.58 p.m.
Viscount Davidson: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Viscount Davidson.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD NUGENT OF GUILDFORD in the Chair.]
Clauses 1 to 4 agreed to.
Lord McCarthy Lord McCarthy moved the amendment:
Before Clause 5, insert the following new clause:
("Collective bargaining conciliation machinery.
.—(1) It shall be the duty of the Board to enter consultation with the workers' organisations concerned in order to establish and maintain joint machinery appropriate to national conditions, and utilisation of the collective bargaining machinery for voluntary negotiations, with a view to the regulation of terms and conditions of employment by means of collective agreements, with provision for reference to arbitration in default of such settlement in such cases as may be determined by or under the agreements.
(2) The conciliation machinery so established shall ensure respect for the right of workers to organise and will not cause the dismissal of or otherwise prejudice a worker by reasons of union membership or because of participation in union activities outside working hours or, with the consent of the employer, within working hours.
(3) The workers' organisations shall participate in such conciliation machinery at all levels of administration with the British coalfield.").
The noble Lord said: This new clause derives from a debate at Committee stage of the Bill in another place when the Member for Salford, East, moved an identical new clause except for the fact that in the second line of the clause he said the word "organisation" and we say "organisations". Thus we are adding a single "s" to that word in our new clause. Otherwise the clause is the same as that moved in another place.
The reason we are adding that "s", so far as we understand it, is because that was the single point of substance which was made by the Government against the clause. They suggested that if we included the word "organisation" rather than "organisations" we might be doing some undercover activity for the National Union of Mineworkers and, to make it quite clear, we put in the plural.
The argument that was advanced by the honourable Member for Salford, East, in another place is essentially the argument which I wish to advance tonight. It is that Clauses 5 to 8 of the present Bill, as I said at Second Reading, represent the consequences of recognising the Union of Democratic Miners. As was said in another place and in this place on Second Reading, we are not contesting that. What we are saying is that certain consequences follow from the recognition of the Union of Democratic Miners at national level and at area level. At both levels the National Coal Board, or British Coal as it now is to be called, has decided to recognise the UDM. Consequently there are consequences for the recognition of the UDM in the ancillary bodies of the conciliation machinery; and that is what Clauses 5 to 8 are intended to cover.
We have no desire to divide the Committee or to quarrel with those consequences. However—and this is the second point which was made in another place—we would argue that the NCB, or BC, is not carrying through the consequences, because what in essence it is doing is ending what might be termed the exclusive bargaining rights of the National Union of Mineworkers for the grades it represents. Under the terms of Section 46(1) of the 1946 nationalisation Act, the National Coal Board was informed by statute that it had to provide negotiating machinery with those unions that represented substantial proportions of the workers that it employed. Until the recognition of the
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UDM that meant in effect the recognition of the NUM, which was the only union representing substantial proportions of the grades it sought to organise.
As a result of recent events the UDM arose and developed to a position where it has something like 28,000 or 30,000 members, and British Coal decided that it had to recognise the UDM. Therefore there are consequences, and we do not think that those consequences have been followed through. The consequences are the ending of the exclusive bargaining rights in the coal industry of the National Union of Mineworkers. Therefore at national level and at area level a system of what one might call parallel unionism has been established—a system where two unions have their own individual and independent rights for negotiation and where they exist, so far as I can see, from the point of view of the NCB in positions of equal authority so far as national negotiations are concerned and in the case of area negotiations so far as the Nottingham area is concerned.
The problem is that British Coal has not carried through these consequences to the level of the individual unit. What it is trying to do at that level—and this was the argument advanced in another place—is to operate a kind of two-class system, a preferential system, in which there is a majority union and a minority union, and in which, in particular in those areas where the Union of Democratic Miners is the majority union (for example, in Nottingham), the NUM has very restricted bargaining rights. That is the essential problem with which this new clause seeks to deal.
We are saying that on the evidence we have—and I do not think this was denied by the noble Lord when we discussed this on Second Reading—at the level of the individual unit British Coal is operating a two-class system in which there is a majority union, the UDM, which still in effect is the sole bargaining agent at that level, and certain peripheral facilities are offered to the minority union—in that case, the National Union of Mineworkers. It is allowed to represent individuals as the friend of individuals; it is allowed representation on certain local issues. It is not allowed collective bargaining rights—for example, in respect of bonus schemes and so on—and it is not given what would normally be regarded as equality of representation with the majority union.
What was argued by the spokesman for the Opposition in another place, the honourable Member for Salford, East, and what I referred to very quickly at Second Reading is the fact that this anomalous position inevitably leads to charges of victimisation. As the members of the National Union of Mineworkers in Nottingham and Derbyshire seek to exercise what they regard as their normal representative functions, they move beyond the limited functions granted to them by British Coal; and so we have had allegations of victimisation. I am not suggesting to your Lordships that they are proven. In any case some of the allegations are subject to industrial tribunals and therefore may be said to be sub judice. But the allegations have been made, for example, that Mr. Whetton of Bevercotes Colliery was dismissed for putting up a National Union of Mineworkers poster. As I say, I am not suggesting that British Coal would

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accept that that is what happened. There was an allegation that Mr. McGinty of the 0llerton Colliery was also dismissed for union activity. Similar charges in other pits have been made and some of them are before industrial tribunals.
It is inevitable that such charges should be made and that such disputes should arise if members of the National Union of Mineworkers and representatives and secretaries of local branches seek to act normally and to exercise the normal representative functions of collective bargaining at unit level which they have enjoyed since 1946 and even before that, before nationalisation. Therefore we propose in our new clause a way of solving this problem. What we are saying essentially is that British Coal has decided to operate a system of parallel unionism of equal rights at the level of the areas and in the national negotiating machinery. Therefore it must carry this through at the level of the unit. There must be parallel unionism with equal bargaining rights for the minority where there is a significant membership for both unions.
It was said, and most unjustly said I suggest, in another place in Committee that this was in some way an undercover attempt on the part of the Labour Party to produce benefits for the NUM rather than for the UDM. We do not deny this. There will be benefits in the sense of a return to the established position for the National Union of Mineworkers in Nottingham and also in Derby, where it is clearly a minority union. But the UDM still has only something like one-third or less of the overall membership of the National Union of Mineworkers, and there are many other areas, and units within those areas, where the UDM is in the minority and the NUM is in the majority.
Therefore we would argue very strongly that this is a fair and equitable distribution of advantage and disadvantage. We want to see this because we wish to encourage either of two things. We want especially, directly and exclusively to benefit the National Union of Mineworkers, and we want to do two rather different things. I mentioned them very briefly on Second Reading and I have to say a bit more about them now.
First of all, in terms of good industrial relations principles this is the logical consequence of the breakup of an exclusive bargaining agency. The minority union should be accepted in a position of parity at national level and at area level, but in those areas where the minority union is in the majority, the union which is in the majority overall should be accepted there to be in a position of parity. That is the logical, common sense consequence of breaking up an exclusive jurisdiction arrangement, and it exists wherever there is multi-unionism. So that is the externally determined logical argument in what we are suggesting, but we do not suggest that this is entirely done for logical analysis of collective bargaining principles.
As I sought to suggest at Second Reading, we believe that it is an unmitigated tragedy that there has been the division in representation and trade unionism in the coal industry. Nevertheless, it is a fact and one has to come to terms with that fact. There are a number of ways in which that event can develop, and it is because we believe that parity, rather than an attempt to give advantages to one union or another when it is in a
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majority position at unit level, is the best way to deal with this unfortunate division between unions that we argue for this clause tonight.
We believe that there are a number of ways in which such a division can go. It can go in the end to a perpetual argument and row between unions or, hopefully, it can go to reconciliation between two different unions. If it is to go towards some kind of accommodation—perhaps some sort of medium, middle-road position—then there must be equality there must be parity and there must not be the feeling that the employer is favouring one union rather than another. In order to facilitate that kind of approach we are moving the clause.
I want to turn very briefly to the three subsections within the clause, in order to argue how it works and how it facilitates and carries forward the objectives that we want to achieve, because one or another of these phrases in the clause has been the subject of certain objections in another place. Subsection (1) of the new clause merely restates in an attenuated and abbreviated form the substance of Section 46(1) of the 1946 nationalisation Act. We want it there to build on. We want it there as a way of emphasising the further consequential effects that we wish to achieve in subsections (2) and (3).
One has to say, however, that it does not do what some of the opponents of the clause in another place suggested that it did. It does not impose a rigid bargaining pattern on the industry. For example, it does not involve automatic arbitration. It merely reiterates and states in a summary form the essential provisions of Section 46(1) of the 1946 nationalisation Act, which, in effect, put a legal authority and responsibility upon the Coal Board to negotiate with unions representing workers in its employ.
Subsection (2) is based upon the provisions of Article 6 of ILO Convention 98, which emphasises the right to organise and bargain. What it does in the context of the new clause is to bring the question of the right to organise without discrimination, and the right not to suffer dismissal or other prejudice, within the negotiating machinery. What we are saying in the first sentence of subsection (2) is:
"The conciliation machinery so established shall ensure respect for the right of workers to organise and will not cause the dismissal of or otherwise prejudice a worker by reasons of union membership".
In other words, this shall be done and ensured by the conciliation machinery.
If one understands this, I think it answers some of the objections which were raised in another place on the basis of arguing that we do not need subsection (2) because, under the terms of the Employment Protection Act, we already have provision for unfair dismissal. But the provision for unfair dismissal is external. You go to the Industrial Tribunal and the remedy which you obtain there is compensation. You do not effectively obtain a remedy of reinstatement. Moreover, there are the Government's restrictions on access to the tribunal. Anybody with under two years' service has no right of unfair dismissal.
So what we are proposing here is not something which merely reiterates what is existing in statute. It is something which is going back to the situation as it

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existed before the Coal Board terminated the conciliation machinery; a situation which has existed since the beginning of that machinery; a situation in which questions of unfair dismissal were dealt with within the conciliation machinery with the acceptance on both sides that the proper remedy in cases where dismissal was found to be unfair was reinstatement or re-engagement. We are saying that that should be the case in circumstances in which dismissal is based on discrimination on grounds of union membership. So subsection (2) is not an unnecessary aberration. It takes us back to the situation as it existed before the board revoked the conciliation machinery.
But we agree that it is subsection (3) which is the central part of our amendment. It is subsection (3) which makes it clear that all recognised unions, including the minority union at unit level, should be allowed to participate in such conciliation machinery not on some kind of second- class basis but from a position of parity. The Government have said in another place, and to some extent when we discussed this at Second Reading, that there are various things wrong with the different subsections. Our position is that we are perfectly willing—indeed, we are eager—to accept any changes which the Government may want to make in terms of the drafting of this amendment.
If the Government say that the terms of subsection (1) are there in any case in the nationalisation Act and that they therefore do not see the need for any addition to Section 46(1) of the 1946 Act but accept the principle behind subsection (2) and, above all, subsection (3), then we shall not ask the Committee at this stage to divide, or argue that the provisions of subsection (1) are crucial.
The central point that we are trying to make is that the Coal Board, for reasons of its own which we do not wish to debate or divide upon tonight, has decided to move away from a position of exclusive jurisdiction. It has done it at area level and at national level, but it has not carried it through to unit level. It is critical for the future of the industry that it should be made quite clear that this in no way means any discrimination against one union or another, and in that spirit—if the Government accept-that principle—they should be prepared to accept our new clause. I beg to move.
7.15 p.m.
Viscount Davidson: When this Bill was debated at its Second Reading, the noble Lord, Lord McCarthy, gave notice that he would be tabling an amendment of this kind. I gave reasons on that occasion why I believed that the introduction of such a clause was unnecessary and undesirable. The noble Lord has said nothing this evening to make me change my mind. The clauses in this Bill which give certain rights to unions other than the NUM—that is, Clauses 5, 6 and 7—were necessary to secure for thousands of men basic rights in the management of affairs outside the scope of their normal terms and conditions of employment. However, the proposed new clause deals with matters which do relate directly to the contractual relationship between employer and employee and which govern precisely those normal terms and conditions. Legislation exists which places certain very clear duties on British Coal in that regard. The detail
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of agreements entered into must be a matter for the parties to the agreements and not for politicians, whether in this House or in another place.
Legislation can lay down basic rights for employees. This has been done, particularly in the Employment Protection (Consolidation) Act of 1978. Some of the provisions in that Act are similar to subsection (2) of the new clause. We see no reason to go further in saying what should or should not be in one particular industry's conciliation machinery. I understand that British Coal, in line with its duty under the Coal Industry Nationalisation Act 1946, has entered into discussions with both the NUM and the UDM on proposals for new conciliation machinery. The task is made more difficult because of the failure of the NUM to come to terms with the existence of the new union. The extent of its recognition is a refusal to sit with the UDM. Joint negotiations on any matter are therefore out of the question.
This is why British Coal is in the process of discussing two separate conciliation agreements. Each of those agreements is designed to reflect the 50 per cent. plus one principle for negotiating purposes, whereby it is the majority union in each place of work with which British Coal will negotiate on matters relating to the terms and conditions of employment. That approach seems to me to be entirely sound from a management viewpoint and fully in line with employment legislation. Any other basis for collective bargaining could have a serious destabilising effect on industrial legislation in the coalfields.
I should also emphasise that the proposals give conciliation rights to minority unions, wherever they are. British Coal proposes that, where a union has a majority among mineworkers at a particular colliery, disputes should be resolved by negotiations between British Coal and that union. But where a dispute relates specifically to a minority union, its members would be entitled to discussions with management and to assist any individual member of their union in dispute with colliery management.
To require British Coal to recognise minority unions for all purposes would go far beyond the 1946 Act and it would also be contrary to the position in other industries. There is no general legal requirement of this kind. In the coal industry it would lead to all sorts of difficulties, in particular when men working at the same face might receive quite different rates of pay. Would any union, no matter how small, qualify for recognition? That is what could be implied by the proposed new clause.
Of course there are industries in which more than one union is recognised in a single negotiating unit. But that is something for decision by the employer and not for imposition by statute. There is nothing in either this Bill or the 1946 Act which prevents British Coal from recognising minority unions for any purpose when it thinks that that would make good industrial relations sense.
When an identical amendment was introduced in another place, my right honourable friend the Under-Secretary of State said that he was puzzled by the new clause. The noble Lord, Lord McCarthy, has attempted to explain why he considers a new clause necessary. But I have to confess that I am equally

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puzzled. It has been said that by using a phrase such as, "appropriate national conditions", the clause could be used to deny rights to the UDM because, while the union is in a majority in some areas, it is in a minority nationally. I prefer not to ascribe such ulterior motives but rather to view the proposed new clause as misguided and unnecessary, albeit perhaps well meant. I hope that I am right.
Whatever the reasons for the amendment, I am sure that if the Government had included such a clause in the Bill as a means of ensuring representation for the UDM the history of the passage of the Bill would have been very different. We would have been accused of driving wedges into the union movement and of unwarranted interference in the affairs of the industry. However, the Government did not introduce such a clause; they saw no need to do so and they still see no need.
I repeat that legislation already puts a duty on British Coal to enter into consultations on conciliation machinery. Individual rights of employees are protected by a body of employment legislation, and it is not appropriate to legislate on the terms of conciliation agreements, which are matters for negotiation between British Coal and its employees. In view of what I have said, I hope that the noble Lord feels able to withdraw the amendment.
Lord Wedderburn of Charlton: I rise briefly to support my noble friend in the amendment which he has moved. The noble Viscount referred to the important clauses of the Bill which he spoke of as, "intended to give basic rights to workers on matters that were not within the normal scope of their terms and conditions of employment". I hope that I have quoted him correctly. He is therefore concerned with Clauses 5, 6 and 7. Accepting that, one might think that it was equally if not more important to ensure that similar rights are accorded to workers on matters within the normal scope of their terms and conditions of employment.
When the noble Viscount says that negotiations in this country are traditionally not a matter for legislation, he is right. However, there is perhaps a footnote exception; namely, that all the nationalised industries, and especially the National Coal Board in 1946, had placed upon them a statutory duty to negotiate with unions which represented and which still represent a substantial proportion of workers in the industry. The Government do not change that obligation.
Indeed, I expected the noble Viscount to say that the problem with subsection (1) was not so much that it introduced a new facet into industrial relations in the coal industry but rather that it repeated Section 46 of the Coal Industry Nationalisation Act 1946. To some extent, that is true. As my noble friend has said, subsection (1) is the basis for the other two clauses, to which I largely wish to address myself this evening.
In subsection (3) what is at stake is the participation of the trade union chosen by groups of workers at all levels of the industry in what is called in this particular industry the conciliation machinery or, more generally, the negotiation machinery which sets up various types of procedures, including disputes procedures. I fail to see on the argument of the noble
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Viscount what is wrong with that. There is a problem in the industry. There has been the break-up of a single bargaining agency. There are questions raised, both by the Union of Democratic Mineworkers and the National Union of Mineworkers, as to whether they are being allowed properly to represent their members.
On the day upon which a new Green Paper thrusts before us new proposals based on the notion of democracy in trade unions, it is quite startling to find that the Government are not prepared to advance arguments better than those advanced in another place and in this House in the face of a proposal that in an industry where negotiation has a legal framework and has had such a framework since 1946, a union should be ensured in its ability to represent its members at all levels of the industry's machinery. Contrary to what was said in another place on behalf of the Government, that certainly is not already enshrined in existing legislation.
Subsection (3) appears, in my submission, to advance a case helpful to the industry in clearing up the question of whether each union, in the new situation which is always plagued by the echoes of the strike, can represent its members at various levels, which is not covered in existing legislation.
Subsection (2), it is said by the Government (and I understood the noble Viscount to be repeating the claim tonight), tries to deal with the very important human right of being a member of a trade union and engaging in the activities of an independent trade union without dismissal or penalty by employers. The basic rights of the International Labour Organisation have not been renounced by this Government. It is said that those rights are covered by existing legislation. With great respect, I do not think that is the case. There are two reasons why that is not so.
First, as a matter of law, what the new clause tries to do is to maintain the practice in the industry of ensuring that dismissal or penalty on the ground of trade union membership of whichever union, or on the ground of trade union activity, does not in any way give rise to a threat to the job. The 1978 Act, upon which the noble Viscount relies, in Sections 23 and 58 provides some protection. However, the protection is by way of compensation, and for a person whose livelihood depends upon his employment, that is a distinction of a very material character, whether or not he obtains a special award as compensation in the industrial tribunal. Indeed there is an industrial relations reason under the same heading. These matters are better dealt with in the conciliation machinery and should be dealt with there. It is a great regret, whatever the truth of the matter, that members of the National Union of Mineworkers have been forced into the procedures of the industrial tribunals with, it appears, very arguable cases of discrimination.
Secondly, and perhaps more importantly, it is now manifest on the records of the judgments of the courts that the National Coal Board has until very recently engaged in policies which were discriminatory against members of the National Union of Mineworkers. In Ridgeway v.National Coal Board, decided by the Court of Appeal on 29th December last year, one met the case of the National Coal Board refusing to pay the same rates of pay to workers who were members of the

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National Union of Mineworkers that it had agreed to pay to workers alongside them who were members of the Union of Democratic Mineworkers, the very case instanced by the noble Viscount to support his argument that we did not need this clause.
That case did two things. First, it showed the uncertainty of the present law. It was one of those delightful cases for the lawyers where the industrial tribunal found for the two members of the National Union of Mineworkers and where the Employment Appeal Tribunal reversed that decision. It therefore required further fees for an appeal to the Court of Appeal, which reversed the Employment Appeal Tribunal decision but only by two Lords Justices to one. It came from the Court of Appeal by two to one that the National Coal Board had acted illegally.
This was the policy of the National Coal Board, however, and it might be thought that other lawyers, perhaps members of your Lordships' Judicial Committee, could possibly have taken the view of the Employment Appeal Tribunal. In other words, there is doubt. There is doubt that if the Court of Appeal judgment stands, the National Coal Board was acting illegally in this highly discriminatory policy. Do not the Government want to clear away such uncertainties? Do not the Government want to make sure of the very case that the noble Viscount put to us this evening; that members of different unions will not be paid different rates when working side-by-side underground in the pits? An amendment along the lines of the proposed subsection (2) would do that. It may be that, having received further advice, the noble Viscount will tell us that it is inadequately drafted. If so, one hopes that the Government will take it away, clear up the problem and say quite clearly that, in an industry which has suffered such agonies and which, for the past 40 years, has been based on some kind of statutory structure, there shall not be discrimination against members of one union or indeed of the other at all levels.
7.30 p.m.
Lord Rochester: From these Benches, I feel it incumbent on me to make a few comments on the amendment. I have listened carefully to what the noble Lords, Lord McCarthy and Lord Wedderburn, have said, and also to the Minister's initial response. With all respect, I do not think that an adequate case has been made out for the inclusion of the new clause in the Bill.
The legislation is not concerned with negotiating rights or with conciliation machinery. Therefore, it does not seem to me to be an appropriate vehicle for what the noble Lord, Lord McCarthy, has in mind. Even if it were, I can see no adequate reason for this amendment to be made. As I understand it, the effect of the judgment in the High Court last June was to make it clear that the conciliation machinery which has operated in the past in the coal industry should be altered to accord recognition to the Union of Democratic Mineworkers. I regret the necessity for that change but feel that in the circumstances it was unavoidable.
My information, like that of the noble Viscount, is that British Coal is now discussing proposals for new
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conciliation machinery with the relevant trade unions as required by the Coal Industry Nationalisation Act 1946. There does not therefore appear to be any need to provide for such machinery to be set up under this Bill.
For that reason, I do not find it possible to support the amendment. In the light of the words used by the noble Lord, Lord McCarthy, when he first moved the amendment, and with that factor among others in mind, I hope that he will not press it any further tonight.
Viscount Davidson: I apologise to the Committee if I jumped up to speak rather too quickly. I thought that I had paused for rather a long time. I think it would have been better if perhaps the two noble Lords who have spoken had done so before I replied, Nevertheless, I shall try in a very short time to reply to some of the points they have made.
I do not propose to go into the details of the proposed new clause. As I said earlier, the main point of the Bill is to enable British Coal to establish parity between the two unions which now exist. What is proposed by British Coal is an agreement which offers the same rights to the unions depending on whether they are majority or minority. I am most grateful to the noble Lord, Lord Rochester, for his support.
So far as concerns industrial tribunals, this is now the general law and there is no good reason why the coal industry should perpetuate separate and more stringent regimes for its own employees. There was no general law when in 1948 the National Coal Board and the NUM agreed the previous arrangements for wrongful dismissal and it is difficult to accept that British Coal should now perpetuate arrangements which would oblige it to go further for its employees than other employers have to do.
I should like to repeat that I have been advised by British Coal that proposals for new conciliation machinery are being discussed with the unions. That point was made by the noble Lord, Lord Rochester. It is not therefore necessary to take powers in relation to conciliation in the Bill. I would again ask the noble Lord, Lord McCarthy, not to press his amendment.
Lord McCarthy: We are naturally disappointed by the replies of the noble Viscount. I accept that he has done his best to answer many of the points that have been raised, though I am sorry that he did not refer particularly to the points made by my noble friend Lord Wedderburn in respect of the Ridgeway case, the discrimination against the National Union of Mineworkers and the opportunity that the Government might have had at this stage to clear up the issue.
However, as I understand the noble Viscount, three arguments have been advanced and it does not seem to me that they hold up. First, he seemed to be saying in much of his original contribution and in his subsequent contribution that we cannot do what we want to do because it would represent an interference in the contractual autonomy of the parties to the collective bargaining process in the coal industry.
As my noble friend Lord Wedderburn has said, the nationalised industries have had from their inception a statutory structure which has regulated and affected

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their system of collective bargaining. In so far as we wish to regulate, change or support that structure, we essentially want to go back to the principles of Section 46(1) of the Coal Industry Nationalisation Act 1946. Therefore the argument that we should not interfere with the contractual relationships of the bargaining parties in the coal industry does not stand up. That comes extremely ill from a Government who have not only regulated collective bargaining in all kinds of ways—in the legislation of 1980, 1982 and 1984—but on this very day have proposed a whole series of new ways in which the internal affairs of trade unions shall be regulated. Therefore I do not believe that "hands off" is a consistent and comprehensive policy which this Government can advance against our clause at this time of night.
The second set of arguments which the Minister advanced seemed to be that the problem we are trying to deal with—and I give him credit for saying that we are trying to do this in the right spirit, misguided though we may be—is in a sense the fault of the National Union of Mineworkers. I do not want to misrepresent the Minister but he seemed to say that the problem is that the National Union of Mineworkers will not come to terms with the existence of the Union of Democratic Mineworkers.
I accept that there are problems in coming to terms with a breakaway union such as the UDM, but there is also a responsibility on the part of governments, if they take a serious interest in industrial relations, to assist such a coming to terms. What we have been arguing throughout this debate is that the proposals we suggest are one of the ways in which the Government might help the two unions to come to terms with each other and to do so because that is the logical and equitable consequence of the recognition of the UDM at area and national level.
Until and unless that is done, and unless some indication is given by the Government to the National Coal Board that it ought to be done, it is legitimate for the NUM to say that it is being discriminated against at unit level and that the alternative system of parity operates at national level and area level where it benefits the UDM; but if it does not benefit the UDM and if it discriminates against the NUM, then some quite different system is to be introduced at unit level. Therefore if the noble Lord says that he wants to help the unions and the industry to come to terms with each other, I suggest that he should support our amendment.
Finally, and I suppose this is in a way the one new fact which we have elicited from the Government this evening, the noble Lord has actually brought out into the open and defended at unit level the principle of 50 plus one. I say with sincerity and with whatever authority I can muster that I know not this principle of 50 plus one. It is a strange, bizarre and unusual principle to me. I do not know where the National Coal Board got it from. I do not know how it reconciles and justifies what it has done at area and national level where they do not operate 50 plus one; they operate parity.
If it were a legitimate principle, then surely it should operate at all levels. If it operated at all levels the UDM would not be recognised at national or area level. Therefore this strange and bizarre principle of 50 plus
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one which we know not, which we have never seen before and which I hope we shall never see again, is introduced at unit level. The inevitable consequence one must draw—and I draw it with regret and reluctance—is that it is introduced by the management of the National Coal Board because it benefits one union. That seems to me to be the last thing to do if you want to reconcile unions and get them to come to terms with each other.
Those are the arguments put before us by the noble Lord. We said on Second Reading that we regarded the division of the mining unions in this industry as a tragedy. We said we accepted that, given recognition, Clauses 5 to 8 were inevitable. We said that what was not inevitable was an endless and continuous battle between the two unions in which it could be said that both the employer and the Government take one side against the other. That is the inevitable consequence of what we have heard tonight. We shall not divide the Committee. On the other hand, we do not intend to withdraw our proposed new clause.
The Deputy Chairman of Committees (Lord Hayter): Is it your Lordships' pleasure that this amendment be withdrawn? The amendment is, by leave, withdrawn.
Remaining clauses agreed to.
Schedules agreed to.
House resumed: Bill reported without amendment: Report received.

SIB Polarisation Rules
7.46 p.m.
Viscount Colville of Culross Viscount Colville of Culross rose to ask Her Majesty's Government whether the likely effect of the proposed rules of the Securities and Investments Board Limited with regard to polarisation will be to restrict, distort or prevent competition and whether they will provide the consumer with adequate choice.
The noble Viscount said: My Lords, I beg leave to ask the Question standing in my name. As I understand that there is some controversy about the last part of the Question, I want to make it abundantly clear to my noble friend, Lord Lucas. When I ask in the Question,
"whether they will provide the consumer with adequate choice",
I mean whether Her Majesty's Government will provide the consumer with adequate choice. I am going to ask my noble friend how that can be done under the legislation which we passed in the last Session.
I have no interest to declare in this, save that when it comes to asking about changes in the rules of the Securities and Investments Board—I shall refer to it as SIB from now on—I must declare that I am a member of one of the embyronic new self-regulatory organisations which are trying to set up rules in order to become recognised under the Act.
The subject is polarisation, which is a jargon word. I shall attempt briefly to explain what it is in a moment. I want to draw attention to the particular rules that were published by SIB in their final form about 10 days ago. I want to ask my noble friend about the Government's ability to secure changes in the SIB

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rules in general, not only on this point but also in other respects, because I believe it is important to find out whether the Government can do so.
The subject of polarisation was referred to on 20th October last in a short amendment at Report stage of what was then the Bill, and I took up a point then which I propose to pursue again today. The SIB rules in respect of polarisation concern life assurance and unit trusts. SIB thinks that these are inseparable. I do not know whether other noble Lords will agree, but a powerful document arguing that they are has been produced by SIB.
In order to try to describe briefly what polarisation means, I should explain that the rules require that anyone advising a member of the public on, or selling to a member of the public, life assurance or unit trusts must be either a company representative working for one company or group and selling the group's products or an independent intermediary; that is, an agent for the customer acting only for him and surveying the whole market to find the product which best suits that customer's needs.
The restriction will apply to many financial organisations, groups and companies. It will apply to insurance companies, to banks, to which I have certainly talked about this matter and which are not exclusively involved at all, to estate agents who advise those who are taking out mortgages to cover their mortgage by an insurance policy, to solicitors, to accountants and, I suspect, to others. It will apply to all those people if they have any tie with a life assurance or unit trust firm whose products they are proposing to sell to the customer.
The Securities and Investments Board is anxious about small investors. I am bound to say that that is entirely in the spirit of the legislation and I am sure that it is right to be anxious in that way. The board is particularly concerned for customers and members of the public who do not know about any special commission that will be received from the people in charge of the insurance company or unit trust scheme by the agent who is trying to sell such customers an insurance policy or is suggesting that they should buy into a unit trust scheme. It is concerned too that customers may not know whether the insurance policy or unit trust scheme is in-house for the person who is purveying it to them.
I shall summarise the arrangement that is suggested in order to look after the small investor, and other noble Lords may wish to flesh out my remarks. In the branch of the insurance company, bank, or whatever, the manager can advise the customer on the firm's own schemes but on no other, or he can refrain from giving any advice at all. However, it is possible for a large financial group to set up a separate independent subsidiary which can advise on the full range of financial services, including life insurance and unit trusts. Such a subsidiary can cover the entire range of services and give the customer the benefit of impartial advice. There is one snag about that, and I shall come back to it in a moment. It happens that I had prepared this speech in sufficient time to enable me to watch television for a short while last night and during that period, in prime time, one insurance company and one bank were featured, both advertising that sort of comprehensive service.
The difficulty about an independent intermediary, which is the subsidiary, is that if it is part of a group which itself has in-house products, whether it be life assurance or unit trusts, in theory it is perfectly entitled to advise on those products as well as on all others that are available. However, there is a rule—Rule No.5.03(2)(a)—which will make that impossible. It is too complicated to read out in full but I shall try to summarise it. The rule forbids an independent agency of that sort which has a connection with a group that is offering insurance or unit trusts to advise the customer to take out one of those policies or to embark upon one of those unit trust schemes unless, after making reasonable inquiries, that firm neither is nor ought to be aware of any other life office or unit trust scheme which is not part of the group that would be willing to enter into a transaction with the customer that is likely to secure his investment objectives as advantageously as the in-house scheme. It is the words "as advantageously" that are the catch.
I ask your Lordships to contemplate the situation for one moment. It is very clear that life assurance and unit trust schemes are matters which have to be judged over the long term, and crystal balls are of no use when the customer enters into the agreement. It will be actionable as a breach of statutory duty, sounding in damages, if that agency advises the customer to take out an in-house policy or to go into an in-house unit trust scheme which turns out to be not as advantageous. In those circumstances what agency in its senses will ever advise on the in-house group?
So there are two places to which the customer can go: the branch, where only the in-house group can be presented to him, and the independent agency, where only the in-house group schemes cannot be presented to him. Nowhere will he be able to obtain a full range of what is available.
I wonder how it will work? I note that two years ago Sir Mark Weinberg who is now the deputy chairman of SIB, though he did not hold that office at the time, said:
"Most people do not enjoy shopping around for financial services. I believe that if an organisation they trust, acting through an individual with whom they have established a personal relationship, offers them a wide range of services and saves them from having to shop around, they will be extremely relieved".
I agree with him. Except in major cities I do not believe that people will get the spread of advice which I am sure that everybody intends them to have. At the present moment the ordinary people who are at all interested in financial services go to the building societies, the banks and the insurance companies in their town or the district where they live. Those are the financial institutions and the people with whom they are familiar and whom they trust. Those are precisely the people who, if they have any in-house schemes at all to offer, will be able to offer nothing else. I can only think that in those places there will be a little office and the manager will say, "You can go in there. We have a tied VDU on which you can tap up our independent agency and you will be able to read on the display unit all the other services that are available. Mind you, don't come back to me afterwards and ask me whether they are better than mine because I can't tell you!".
I do not think that there is any other way in which a person who lives in the kind of ordinary little place in which most of us live—not in the City of London and possibly not in one of the other major financial

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centres—will be able to obtain a full range of services. The employee in the branch office will not be able to help him to work the computer or do anything at all.
It is no use being wholly negative about this situation. I have looked very carefully at a powerful document that was produced by the SIB very recently (I think specifically for the debate on this Question), in which it is strongly argued that for this reason it has rejected the principle of disclosure which applies all the way through the rest of the regulatory system in the Financial Services Act. I hope that this rejection will be looked at again very carefully.
I appreciate that my noble friend Lord Lucas will tell me tonight that he can say absolutely nothing and will not say anything because this matter has been referred to the Director General of Fair Trading, who in due course will report to him. I have asked this Question tonight for exactly the same reason that my noble friend will give for not answering it tonight. If he could answer it tonight then the matter would probably have gone beyond repair. However, if the matter is still in front of the Director General of Fair Trading and no decision has yet been made, it may be that your Lordships can still bring some influence to hear on the decisions that will ultimately be reached by my noble friend in his department. If, as is the case under the Act, the Secretary of State can refuse a delegation order, which puts him into business, and there is a recommendation from the Director General of the Office of Fair Trading that the rules produced are anti-competitive, then he must be able—although the Act does not say so—to suggest to the SIB that there should be changes in the rules before he is prepared to recognise them. I wish that it had said so in the Act. It does not.
It seems to me to be an inevitable consequence of the legislation that if there is a major role, as is the case, for the Office of Fair Trading to play, it must be possible for its advice to be implemented somehow. I hope that my noble friend will be able at least to touch on this as I gave him notice of the point.
I come on to the slightly wider matter as to whether any of the rules can be changed. In general, before the Secretary of State can make a delegation order handing over a multitude of functions under the Act to the SIB, he has to be satisfied with the rules that the SIB has produced—Section 114(9). I think that the rules will not themselves be part of the delegation order and therefore there is some room for flexibility thereafter. Certainly my right honourable friend can reclaim the SIB's powers if, after it has taken over, he ceases to be satisfied with its rules—Section 115(5).
What we need to know, I suggest to your Lordships, is whether opportunities will exist before the delegation order is laid when I believe my right honourable friend will have opportunities to suggest to the SIB that there are still alterations that should be undertaken. Can we know that this is indeed the situation? I say this because some of the SIB's latest rules, which as I say were published about 10 days ago, contain material that is not in any earlier versions. Some of the embryonic self-regulatory organisations are looking hard to see whether they can apply them, as they will have to, if they are to be recognised in their turn. I therefore hope that there will be an opportunity to make further comments and suggestions that will be
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put into effect before the order is made. I hope that others will fill this out. I believe that it is timely to discuss this matter this evening.
8.3 p.m.
Lord Graham of Edmonton: My Lords, I think we could all agree with the last few words of the noble Viscount that it is a timely opportunity to express a point of view and perhaps bring some influence to bear on the final outcome.
Interests have been declared. I am a vice-president of the Building Societies Association. I have received its brief, though I shall not be following it in what I have to say. I also have strong connections, as the House knows, with the co-operative movement. There must be some aspects of the matter that touch upon the co-operative insurance society interests or the co-operative bank in one way or another. I have received no brief from them in this matter, but I declare that simply to be open and honest with the House. I am willing to listen to what the Minister has to tell us about what he can do at the end of the debate, apart from having listened to it.
The noble Viscount, Lord Colville of Culross, did not exactly give the game away but pointed out the dilemma. Let us go back to the debate that we had on 20th October last year, and what the noble Viscount asked for when the matter was introduced by the noble Lord, Lord Ezra, as a legitimate ploy—the same as tonight—to try to get some better understanding in the House of what was likely to go on outside the House when these matters were discussed. The noble Viscount, Lord Colville, said at col. 101 of Hansard:
"The only other chance that will occur for this House to express itself upon them is when the rules as a whole come forward as a statutory instrument for approval as they stand or not at all".
He had been asked whether that was the position.
He continued:
"They will not be able to be amended and therefore what we need is some kind of flexibility between this evening and the time when the rules are finalised so that a good deal of further thought may go into this".
I am certain that not only the noble Viscount but his friends and other interests outside the House have given a great deal of further thought to it. He said at col. 102:
"What we really want now is reopening of negotiations between the various people concerned and the SIB—the latter presumably being very interested in the protection of the investor".
I cannot believe that his aspiration on those last few words has not been carried out; that is, a continuation of negotiations between powerful and legitimate national interests and the bodies that the House has seen fit to authorise setting up. Before I express a view, I wish to plead in aid the words of the noble and learned Lord, Lord Cameron of Lochbroom, the Minister then dealing with the matter. He referred to the discussion document and said at col. 103:
"The Bill provides that the Director General of Fair Trading should keep under review the rules, regulations and so on of SROs and a designated agency and that he must report to the Secretary of State if he thinks they are anti-competitive".
The noble Viscount, Lord Colville, seeks to make the case that in essence that which is likely to flow from the existing 9th February paper is anti-competitive in the sense that it is unfair and unjurious to some

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parties. The noble and learned Lord, Lord Cameron, continued:
"The amendment prejudges the issue in one area and makes the director general's role nugatory as a result. The Bill provides that the Secretary of State shall not recognise the SRO or designate an agency unless he is satisfied that the anti-competitive effect is not greater than is necessary for the protection of investors".
We need to have confidence that all the advice—this is what we seek tonight—is taken on board by the Minister and given proper weight along with the advice he receives from other sources. One of those sources is undoubtedly the SIB. Another source that helps the SIB to make up its mind is the SROs. I have received a brief from the Association of British Insurers. It is one of the large financial interests besides the banks and building societies which are crucially affected—perhaps underground—by the manner in which the matter will proceed.
The ABI says:
"we feel that now that polarisation has been SIB's declared policy for the best part of a year, and was accepted by the life offices last March, it would be impossible to make exceptions to the general rule at this stage without undermining the entire concept".
Some noble Lord who follows me may tell me that the association does not know what it is talking about, and that it would not do what the association says it would—undermine the entire concept—if one made exceptions. But that is what the association tells me.
The association also tells me this:
"The concept of polarisation was accepted by ABI last March, having considered the views expressed in the House of Commons Standing Committee's debates. Since that date, life companies have been making the necessary, and in many cases extensive, adjustments to their marketing arrangements in order to comply with the polarisation requirements".
The Minister and others may tell me that life officers can do things under the polarisation rules that other agencies such as banks and building societies cannot do. I shall be interested to hear whether that is the case. The ABI's final point is:
"To make an exception for banks and building societies would effectively undermine the whole concept of polarisation, given the large volume of life assurance business which these institutions transact through their branches, through their insurance broking subsidiaries, and in some cases through their direct sales forces on behalf of their life companies".
No one will deny that the ABI speaks for the large insurance companies.
There are undoubtedly those who are advantaged and those who are disadvantaged, but not to a large extent, by the way that this provision operates. I had not given it a great deal of thought, but I like the idea of polarisation. There are many in this House, and I respect their experience, who know their way around the investment world and who do not need to take advice as earnestly as others. Those who need advice are often less able to take it, value it and understand it when it is given to them. Those who are deeply, professionally involved in the investment world know the value of advice. They know where to get it; they respect it and they act upon it. Sometimes they are right and sometimes they are wrong.
I am much taken by the sense of the Bill. It seeks to protect the investor. A great deal was said during our debates about it protecting the new breed of investor—the people who may not have been involved before in making simple decisions about what they
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want to do with small sums of money. The last thing I shall say is that there are hoards of people in banks, insurance companies or financial conglomerates who are there to mislead or give wrongful advice. I can see, however, that interests can often be better served by dealing with a matter one way rather than another.
The Consumers' Association is in no doubt that the polarisation route is the one which provides the best opportunity to satisfy one of the Bill's basic tenets. It tells me:
"At present, without polarisation, a potential investor may, justifiably, be unclear (or worse, misled) as to the status of the advice he is getting. For example, when a cold-call salesman comes to the `prospect's' home and offers the product of perhaps two or three companies, the would-be investor may well assume he is getting independent advice. Equally, when he goes to his bank and the bank's independent broking service recommends him to buy the in-group products, he would surely expect that they had been selected because of their superior qualities. This may not be so. For an individual to check himself whether the advice offered is indeed independent, or whether the products recommended are, indeed, superior is well-nigh impossible—particularly given the long-term nature of the investments under consideration. Polarisation would put an end to this potential source of confusion and misplaced trust in the quality and independence of the advice being given.".
I understand that there may be anti-competitive aspects of polarisation. I should think that they would be taken care of by the Director General of Fair Trading. I accept that polarisation will restrict the way in which conglomerates, particularly banks and building societies, offer some services. Surely they have a choice. They may not like to make the choice, but they have it. The noble Viscount was clear and scrupulously fair when he said that the SIB said that the organisation had to be one thing or another. The choice is there.
A bank or financial service agency faced with having to act under the present rules (they are not the final version) must make the choice. It must either act in-house and declare it or work through an independent intermediary and keep its nose clean. There may well be some tie up and so forth.
The advice which is categorised as better than best advice is what I want to see provided. I am prepared to hear the Minister tell the House, not that these are early days but that this is not the end of the road. The SROs have been busy. They are earnestly anxious to serve the public and obtain Parliament's good will. They do not want to be seen to be in the pocket of or working at the behest of anyone. I hope that they will be seen to be powerful organisations.
In insurance, they accept and work under the rules. Banks and building societies may take a different view. With respect to building societies, however, only last year an enormous door was opened to enable them to expand. There must be a great deal of honest endeavour, and practical work must be done, by building societies before they start shouting about being hit by a provision which is basically designed to protect the investor.
8.17 p.m.
Lord Banks: My Lords, I am grateful to the noble Viscount, Lord Colville of Culross, for asking this Question tonight, even though I cannot agree with all that he said. I must begin by declaring an interest in that I am a registered insurance broker specialising in life assurance and pensions. I should like to make it clear that I speak only for myself. I do not seek to commit my noble friends in any way.

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I support the regulation and registration of all intermediaries in this field which follows the passing of the Financial Services Act 1986. As we know, the SIB has been established. Its rules will be applied by the SROs within its jurisdiction. Underlying those rules, as has been clearly explained by the noble Viscount, is the principle of polarisation.
By the end of this year, every intermediary will have to be fully independent, offering the best advice across the board or he will have to be a company representative—the representative of one life office. Thus, those intermediaries with at present two or three agencies only will have to move one way or the other. All intermediaries must consider their position. The principle is that the client must know whether he is receiving impartial advice across the board or whether he is dealing with someone tied to a particular office.
I support that principle, but I am concerned about the effect of its application on small intermediaries. There is a danger of putting such a burden of expense and administration upon them that they will be forced out of business. General concern is felt about that at the moment. We have only to read the pages of Money Marketing week by week to see that that is so.
Chris Leach, who is president of the Life Assurance Association, is quoted as saying in that journal on 30th January that many intermediaries find FIMBRA—FIMBRA being the self-regulatory organisation which is expected to be the one for insurance intermediaries—too bureaucratic and do not understand the rules. An editorial in the same issue said:
"Practically every document that emanates from SIB these days brings some new horror for the independent intermediary … SIB's changing structure is unreasonably weighted against the intermediary sector. SIB appears to assume that intermediaries can easily afford to pay a substantial increase in their overheads; either that or SIB is deliberately aiming to drive some of the smaller firms Out of business".
I understand that FIMBRA has to pay £1.25 million to SIB this year. There have been complaints about the cost of both SIB and FIMBRA.
A report in Money Marketing on 13th February said that FIMBRA is considering doubling or trebling its annual company membership charge. It is not surprising, therefore, that Derek Thomas, writing on 9th January, said small independent life and pension brokers could be an endangered species by the end of this year. Significantly, Teresa Hunt said on 6th February:
"As many as 20,000 jobs will be created in large firms of financial intermediaries by 1990 as an increasing number of small advisers are forced out of business".
It may be inevitable that some of those advisers should go out of business or join larger organisations, but there is cause for concern. I wonder whether the Government are fully aware of the situation and whether they agree that it cannot be good for competition.
In those circumstances it is not surprising that small intermediaries view with a jaundiced eye the efforts of the large banking conglomerates and the building societies to escape the full effects of polarisation. It looks to them as though banks and building societies want to have their cake and eat it. If the concern of a bank is that its branches should give best advice across the board, it can opt for them to do so. It seemed to me
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that the noble Viscount did not make that point as clear as he might have done in his otherwise very fair picture of what polarisation meant. The bank manager could then offer the widest possible advice to customers backed by his group's independent intermediary. If the bank decided to restrict his role to that of representative of its own group life office, that would be its doing.
Even in those circumstances, as has been explained, the bank manager may still refer the customer to the group independent intermediary or to another independent intermediary. He can be the channel of communication too for passing the independent intermediary's recommendation to the customer. Once he has done that he must not offer further advice as to the placing of the policy, but he can discuss with the customer the impact on his general financial position of the recommendation. It is also important to remember that the need for a policy will have been discovered and discussed between the client and the bank manager before reference takes place.
I believe that conglomerates should be subject to the same rules as everybody else and that at all times the status of the intermediary should be clear. As the noble Lord, Lord Graham of Edmonton, pointed out, that is certainly the view of the British Insurance Brokers' Association, the Corporation of Insurance and Financial Advisers and the Consumers' Association. The latter feels that any marginal restriction of competition which is brought about by these rules is more than compensated for by the clarity of status which they would ensure.
In conclusion, I return to my first point and ask the noble Lord who is to reply who is going to control the controllers, and how effectively.
8.22 p.m.
Lord Tryon: My Lords, I think I shall be briefer than most of the previous speakers, and I do not wish to steal any thunder from the very senior bankers and others who will speak after me tonight, but I took some interest in this topic when we last discussed it on 20th October.
At that stage I described our discussion as being rather like Hamlet without the prince, because we were all waiting for the SIB rules. We now have the SIB rules, but they have gone almost nowhere towards dealing with the reservations which were expressed in particular by the banking community. It is becoming a little clearer, especially from what the noble Lord, Lord Banks, has just said, that we are in a battle here between the insurance industry and the banking industry. Let that debate continue. I have no interest to declare. As far as most of the Bill was concerned, I had endless interest to declare, but I have no very obvious interests in this respect. I am not a director of an insurance company or a bank, or not a UK bank.
However, it seems to me that there is a powerful argument for reconsidering the position of the high street bank manager. In the rules as they have been set out we appear to be moving into almost an Alice-inWonderland situation. That was vividly illustrated by a very good article in The Times on 20th January by Edward Adeane, which concerned an imaginary conversation between a bank manager and one of his clients. I commend it to the noble Lord, Lord Lucas, if he has not yet read it.

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Despite what has been said on behalf of the insurance industry, bank managers are those to whom people around the country, particularly outside the big cities, turn for financial advice. Bank managers' hands seem likely to be tied by these rules. I am sure we shall hear more of that from the noble Lord, Lord Boardman, and others shortly.
The SIB rules are voluminous in size. Some of us have had a few days in which to look at them, and as a general comment I would say that they are very legalistic. Some of us had hoped that they would be confined more to simple principles, coupled with a lot of heavy surveillance.
I shall not produce many examples tonight as I appreciate that the rules are in draft form, and that there is a lot still to be done, but parts of them are extremely hard to follow. I would mention to the Minister page 224, section 5, categories of firm. I have tried that section on a number of highly intelligent people and they are completely unable to understand it. I do not expect an answer on that point tonight.
The more important point is the one which the noble Viscount, Lord Colville, raised in his remarks at the end of his full and eloquent opening to the Question. I should like to ask the Minister to what extent the SIB rules form part of the delegation order. When the delegation order is put before us the rules will be in their final form. That I appreciate. Shall we at that point have any opportunity to alter any part of the rules? Shall we have any opportunity to do so before that happens, or shall we have to take them in full or reject them in full?
This debate has given a good opportunity to ask those questions because there are a number of people who are still worried about this whole process.
8.30 p.m.
Lord Bruce-Gardyne: My Lords, I should also like to join in the thanks to my noble friend Lord Colville for raising this matter tonight. It is extremely pertinent, as various noble Lords have said. I should also like to thank the noble Viscount for the great clarity with which he spoke.
Before I proceed to the argument, I should once again repeat my own interest as a director of the TSB, which is certainly as concerned about this matter as any other banking group—and arguably more concerned. I have listened carefully to the arguments we have heard tonight. Like the noble Lord, Lord Tryon, I looked up the debate we had on 20th October. I notice that my noble and learned friend Lord Cameron of Lochbroom then said that there was far to go in the way of discussions between interested parties and the SIB—as indeed there was. However, I must say that the attitude of the SIB reminds one somewhat of the stance of an American ambassador who arrived in London many years ago and who was said to have taken up office at Winthrop House, or whatever it is called, with a policy of an open door and a closed mind.
The SIB has shown a willingness certainly to listen but very little flexibility in the interpretation that it has chosen to put on the rules. I find its explanations somewhat peculiar. Like other noble Lords, I have received a copy of the latest document from the SIB
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setting out its position. It refers to the fact that banks, and for that matter building societies with branch networks, feel that their local branch managers,
"can be relied upon not to succumb to the conflict of interest inherent in having both an agency and a company representative role in the field of life assurance and unit trusts".
Its response to that is simply: be that as it may. It does not dispute that that tradition of trust and confidence exists. It simply says, "Be that as it may. We cannot see in effect any way of introducing a measure of flexibility in our rules on the subject of polarisation without unpinning our arrangements reached with the life assurance companies". Yet the fact is that the bulk of this document that we have received from the SIB is expressing caveats—not about the hazards with which customers may be confronted by uncertainties about the nature of the advice they may receive from bank managers or building society managers but about the hazard with which they could be confronted in dealing with life assurance salesmen.
The document says:
"Life assurance is an area in which the investor is particularly in need of protection … The costs are often concealed from the customer".
What has the SIB done about this? What the SIB has done is to say that there is no obligation at all on the independent salesman of life assurance to declare the scale of the commission which he will receive from one product vis-ù-vis another. Yet surely that is a matter of crucial interest and concern to the customer and might legitimately be expected to influence the advice which the customer was given by such an intermediary.
The noble Lord, Lord Banks, said that the banks and building societies seem to want to have their cake and eat it. I suggest that it is more a question of the banks and building societies wanting the customers to have their cake and eat it, if that is possible. I am not at all clear from listening to the noble Lord, Lord Graham of Edmonton, for instance, whether even at this late stage there is really an awareness of precisely what the SIB is proposing. It is saying that there must be a clear obligation on the purveyor of unit trusts and life assurance policies to satisfy himself that what he is offering to the customer is the best for that individual customer's circumstances. I am sure that we would all say "Amen" to that. We would all agree with that; it must be right.
The SIB then goes on to say that under its rules, in the case of the building society branch manager or the bank manager who takes the option—as in practice he is bound to do—to sell in-house products, he is debarred from doing precisely that. If he were to come to the conclusion that an out-house product were better than any of the in-house products he could not sell it. He would be debarred from selling what in his judgment was the best. This seems to me to be an extraordinary way of going about it.
The noble Lord, Lord Graham, referred to the advice we have had from the Consumers' Association. The Consumers' Association makes it quite clear that what it objects to most are cold calls—the so-called foot-in-the-door salesmen. Again, many noble Lords may have sympathy with this view. But the SIB has sanctioned and agreed that the so-called foot-in-the-door salesmen shall continue to operate. For reasons which frankly I do not begin to understand, the Consumers' Association concludes that that is all right

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so long as the position of the bank manager or the building society manager is effectively polarised.
The conclusion seems to be—and frankly I find this bizarre—that you may not make a choice to go to see your local bank manager or local building society manager and have presented to you all the options with the best judgment that he can offer you of what is the most suitable product for your individual circumstances on an occasion of your own choosing. However, you may be interrupted in your admiration of "Coronation Street", or whatever it may be, by a cold-call salesman as an independent intermediary who can offer you any of a complete range of products; and if you were to ask him what were the relative commissions that he receives from those different products, under the rules he is entitled to tell you that that is none of your business. I find this the most extraordinary way to achieve satisfaction of the consumer's interests. That is surely what we are concerned with.
There is much in these documents that we have been given about the problems of definition and the need to avoid confusion in the eyes of the consumer. However, I beg my noble friend to take this point on hoard, as I am sure he has done. It seems to me to be crucially important for us to understand that there are literally millions of people—the kind of people to whom the noble Lord, Lord Graham, was referring—who do not have the necessary sophistication or access to sophisticated financial advice and who are accustomed to looking to their bank manager or their building society branch manager for that type of advice.
Lord Graham of Edmonton: My Lords, I am most grateful to the noble Lord for allowing me to intervene. The noble Lord certainly made the strong point that the Consumers' Association is vehemently opposed to the whole nexus of cold calling. There is no dispute about that. I rise now because on a previous occasion when I spoke in a debate I was less than fulsome in acknowledging that that was the standpoint of the Consumers' Association. Nevertheless, the noble Lord went on to relate its attitude to polarisation as somehow being contradictory to its attitude to cold calling. I shall need to read what the noble Lord has said.
I am asking the noble Lord whether the words which he has put into the mouth of the Consumers' Association—that is, ipso facto from what I have said on its behalf and what he has read in its brief—mean what he has told the House. I have a strong suspicion that he will tell us that that is not necessarily so.
Lord Bruce-Gardyne: My Lords, I shall read that intervention with a little care tomorrow morning, if the noble Lord will forgive me. I find the advice given by the Consumers' Association profoundly contradictory. That is the point that I am making. I do not understand how it can conceivably be construed as being a good defence of the basic interests of the consumer.
In conclusion I simply appeal to my noble friend to bear in mind the fact that there are millions of consumers who rely on the advice of their bank and building society managers concerning the comprehensive range of choices in this field. They will be hopelessly confused if they are told that their bank
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manager cannot advise them and they are sent off to intermediaries.
The noble Lord, Lord Tryon, referred to the fact that we shall eventually have the SIB rulebook before us. Yes, we shall, but it will be a take-it or leave-it job. My noble friend shakes his head, but when the order comes in we cannot amend it; we can accept it or reject it. Therefore in practice time is running short. It is crucial and I beg my noble friend to consider that an element of common sense should be brought into the argument even at this late stage.
8.42 p.m.
Lord Boardman: My Lords, I too declare an interest in this matter as the chairman of a clearing bank upon which these rules will have an impact. Like my noble friend Lord Bruce-Gardyne my interest is not just for the fortunes of the banks or building societies but it is essentially for the fortunes of the consumer who, I believe, will suffer severe penalties through the lack of competition and the like that will result from the rules as at present drafted. Many of the points were raised in the debate on 20th October. It is something of a disappointment that they did not provoke a response from the SIB until yesterday.
The noble Lord, Lord Graham of Edmonton, said that the point raised on 20th October opened up the field for further debate. I am sure that it is as disappointing for him as it is for me that we did not receive a response from the SIB until yesterday, and then only a disappointing one. My noble friend Lord Colville has done much by sparing the SIB the need to put its views on paper. However, the responses we have received do not give a real answer to the charge which has been made against the rules. They make no attempt to say why the present rules and the provisions of the Financial Services Act do not give the protection which I believe is essential, which is granted by the provisions and which would make polarisation unnecessary.
The requirements of the Financial Services Act and of the various rules are, first, that persons selling or introducing life assurance or unit trusts must give the best advice; secondly, that they must secure the best execution; thirdly, that they must disclose any interest that they have in the transaction; and, fourthly, that they must subordinate their interests to those of their customers. I suggest that that is a pretty effective control against the abuse which it has been suggested might otherwise arise. Perhaps I may add that in the case of banks—and I believe that it will shortly be the case in respect of building societies, if it is not so already—there is an ombudsman to whom they can appeal if it is thought that they have acted unfairly or improperly in any matter.
I contrast that position with that of the life insurance company representatives. My noble friend Lord Bruce-Gardyne pointed out that they are permitted to cold call; they are permitted to put their foot in the door. They do not have to disclose a commission that they are earning but can merely say that it is on some approved scale. As I see it, there is no obligation on them to give the best advice, to secure the best execution, to disclose the extent of their interests or to subordinate their own interests. If that is the yardstick which should be used—and I do not suggest that it is—I believe that it is quite wrong that one should then

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subject managers of banks, building societies and the like to a severe regime which inhibits them and makes it impossible for them to give proper wide financial advice to their customers.
Part of the problem is that the SIB inherited a whole set of proposals that came forward from MIBOC. I cannot now recall what MIBOC means but there is a translation which it would be inappropriate to use in your Lordships' House. An argument was put forward which your Lordships accepted, that cold calling could continue for those people. I find that somewhat remarkable in the light of the debate which we had and to which my noble friend Lord Lucas responded on the Financial Services Bill. However, that is the position.
I distinguish the position of a customer of a bank and his bank manager. It is not a one-off transaction. There is no related commission arising from that transaction which goes to the manager. There is a continuing long-term advisory relationship between the customer and the manager. It is the duty of the manager to establish a long-term, satisfactory link with the customer.
In my capacity outside the House complainants and dissatisfied customers tend to write to me, but I am not aware of complaints made against branch managers or bank managers for abusing their position between those products which they are selling as principal and those for which they are acting as agent. I have heard no such complaints. I believe that the position is very much different from that of door-to-door salesmen, against whom many complaints are made. I am sure that the noble Lord, Lord Graham of Edmonton, was referring to those people in the comments that he made. However, they are permitted to continue. As my noble friend Lord Bruce-Gardyne said, that is quite illogical.
My noble friend Lord Colville referred to the geographical aspect and the fact that in the City of London and in any large metropolis there are areas where, if one's bank manager cannot advise because he is forbidden to do so, one can go next door and get advice from an independent intermediary. However, there are vast tracts of the country where that choice is not available. There are areas where there is only one branch of a bank or building society and where the locals look to the manager of that establishment to give them wise and wide financial advice. Are those people to be told that they cannot be given advice and that they must take a plane or train to Edinburgh, or somewhere like that, where they may be given advice. The matter has not been thought through.
Perhaps I may turn to the link between life assurance and unit trusts. There is no direct link; they are different animals and different products, and they are usually used for different purposes. Life assurance is very often taken out in connection with support for a mortgage or for some other borrowing of that kind. Unit trusts are associated with investment. They are different products. Unit trusts are more akin to stocks and shares. In that connection your Lordships will recall that there is no division in dealing in those between a principal—a market maker—and a broker. They are required and were required by this Government to bring those two capacities into one. However, the distinction is being made here between
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unit trusts and life assurance but not with stocks and shares or PEPs. They will have many features similar to unit trusts.
I do not believe that this matter has been clearly thought through. Even if today my noble friend cannot go very far—I understand the limitations—I hope that he will at least say that he will consider very carefully the possibility of dual polarisation. By that I mean that unit trusts are in one pocket and life assurance in the other. Someone can be an independent intermediary for one and a company representative for the other. I do not believe that that goes nearly far enough, but I should have thought that it was certainly an elementary first stage in accepting what is wrong in the present system. It would represent some understanding of the practical work of these matters.
The noble Lord, Lord Tryon, drew attention to an article in The Times by Mr. Adeane which I hope my noble friend has read and will re-read. I also suggest that he reads the article by Christopher Fildes in the Daily Telegraph and the article in the Spectator. Those articles show what an absolute nonsense this is. I believe that when he has done that and when he has listened to the powerful arguments put forward by my noble friends, he will believe that it is essential to review the whole issue and the rules before they are cast in whatever stone they are to be cast in if the SIB is adopted as—the correct term escapes me.
Viscount Colville of Culross: The designated agency.
Lord Boardman: Yes, the designated agency. I ask my friend to take careful note of these points and indeed of what has been said both in this House and outside.
Lord Winstanley: My Lords, before the noble Lord sits down, I wonder if he will answer one question from his great experience in these matters. The noble Lord has referred to the wise advice of the bank manager to his client, and I accept that I rely on that wise advice very often. Many bank managers sell life insurance. My experience of those cases in which a bank manager has sold the wrong policy—I have come across many examples—is that he has done so not because of any advantageous question of commission rates, but merely because he does not know anything about life insurance. I wonder whether the noble Lord can tell me from his experience to what extent High Street bank managers are properly trained in the very complicated professional business of life insurance?
Lord Boardman: My Lords, obviously they cannot be masters of every part of the whole wide range of financial services. All bank managers have access to the best advice. If they are unfamiliar with a particular opportunity they should make sure that they have the best advice in order that they can give to their customer the quality of advice that he has come to expect.
8.53 p.m.
Lord O'Brien of Lothbury: My Lords, I, too, am grateful to the noble Viscount, Lord Colville, for raising the Question today, partly because I was not able to attend the debate on 20th October and therefore have so far made no observations on this subject at all. Like other noble Lords, I must declare my interest. Sunday next will be the 60th anniversary

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of the first day I spent in a bank in the City of London. I have been employed by that industry continuously to this day. Whether I shall be so employed tomorrow or the day after, in view of what I have to say tonight, remains to be seen.
For the greater part of the time I was a central banker. Therefore, some people would say that I was not a true banker but simply a supervisor and attempted controller of the real bankers. For the last 14 years, I have been trying to be a commercial banker. During the first half of that time, I was president of the British Bankers Association and therefore represented them all as best I could. Some may feel that that disqualifies me from talking on this subject. However, I propose to do so.
Over that long period, I have come to have a very high regard for the British banking system. It is a regard which I hope I have expressed and attempted to improve, believing that the banking system is best when it is providing the best possible service to its customers. Frankly, I was horrified, no less so than the noble Lords, Lord Bruce-Gardyne and Lord Boardman, by the polarisation proposals emanating from the SIB. This seems to be a case of a very energetic bureaucracy deciding that bureaucratic tidiness and logic arc the all-important matters and that there is no need to make bureaucratic rules tie in with the real facts of life.
All too often bureaucrats are unafraid of complication and complexity, which is a very serious sin in a bureaucrat. All the time he should be on the look-out for things he is trying to do which are far too complicated for the general public to absorb. This is one such case. The matter is wide and covers insurance companies and building societies as well as the banks. However, I should like to talk particularly about banks.
As we all know, in the years since the war, wealth has become much more widely distributed. Interest rates have increased a great deal and the need to manage financial assets has become more urgent for everyone. More people have opened bank accounts, particularly in the last 20 years. Where does the man who is unable to afford highly expensive financial advice go for advice? Many people have bank accounts, but they do not have solicitors, accountants or stockbrokers. Who advises them? The village parson? Certainly not. The bank manager advises them. Fortunately, bank managers are to be found throughout the country in the thousands of branches of our banks. They are banks of high repute.
As has been said, not all bank managers are equally good at giving this kind of advice. Indeed, that applies everywhere. One can go to the most expensive financial advisers in the City of London, but they do not always get it right. It is very difficult to give accurate and valid financial advice, day in, day out, over the years. However, the bank manager is the man available. He is the man who already has a relationship with his customer—very frequently a friendly relationship. I do not see why his ability to advise that customer should be cut down by these proposals which I find highly repugnant. I believe that sufficient could be done to protect the customer by instituting rules whereby the bank manager had to declare his interest in whatever products he was
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pressing on his customer. It would be a very sad day if the present proposals were to go through.
8.58 p.m.
Earl Ferrers: My Lords, it is always a privilege to hear the noble Lord, Lord O'Brien. Unlike the noble Lord, I have not had the privilege of being employed by the banking system for 60 years. I am quite certain, in view of what he has said this evening, that he need have no worries as to the future. I should declare an interest in that I am a director of an insurance company. However, it is not in relation to insurance companies that I wish to address my remarks this evening.
Judged by the list of speakers, my noble friend Lord Colville has clearly touched upon a raw nerve, and the House is indebted to him for having introduced the subject. He explained it with the clarity and, if I may say so, the simpleness which we are accustomed to hear from him.
Everyone can understand and applaud the Government's desire to increase the regulations in respect of financial affairs, especially when the pace of financial life has hotted-up so much in this computer age. The size, method and speed of transactions have been altered out of all proportion. Quite clearly, probity and the public must be protected. However, like many of your Lordships, I question whether the rules of the SIB have not gone over the top. They may be intended to ensure clarity in competition. In my view they will cause an unnecessary and monumental upheaval in the banks and building societies. which will be against the public interest. Far from protecting the public, the rules as they are at present will, in my view, totally confuse it.
I give an example that is on everyone's mind, that of a person who has, say, £5,000 and goes to his local hank manager to seek advice on how to invest it. The lucky owner of this sum of money knows his bank manager as a figure in the locality: he may know him socially and he trusts him. At present the bank manager may say, "You can put it in a unit trust. Our bank has its own. You can put it into life assurance. We have an insurance company". Or he can say, "But I am bound to tell you that there is an even better life assurance offered by another company and I would suggest that you put your money in that. I will arrange it". The bank manager gives his client the best possible advice, but under the new rules the bank manager is bound to declare the bank's interest. He will say, "We have a unit trust and a life assurance company and I would suggest that you go to those offices or I will ask a representative to see you. He will be working on behalf of our bank as a company representative". Or the manager can say, "I advise you to go to our broking company. Our man will show you what the market has to offer, but he is not a company representative. He is an authorised independent intermediary".
By this time the client is totally confused. He then goes to these different companies, all of which are at present owned by the bank, and is inundated and bamboozled by the technicalities of what they have to offer in a financial sphere with which he is not familiar. If he goes into the next room, as my noble friend Lord Colville suggested, and looks at a VDU, he will come out even more completely confused.

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So what does this poor client do? He goes back to his bank manager and says, "I have been to these various companies of which you have told me. I do not know which is best. Give me your advice". Then the bank manager says "I can't. I'm not allowed to. The Government have prevented me from doing so. I used to be able to do so. Indeed I know how I would advise you, but if I do I shall be breaking the law". If the manager advises his customer to get a life assurance from a company which is not an in-house company he will be breaking the law as he is not an authorised independent intermediary. If he advises his customer to choose his bank's own product when he knows it to be inferior, he is breaking the law because he is not giving the best possible advice. As a result the bank manager gets it in the neck either way and so does the client.
I hope that the Government will seek to amend what is an absurdity. I hope that my noble friend Lord Lucas, will, if he cannot amend it this evening (of course he cannot) at least say what he can do, because he must do something.
The Financial Services Act is so complicated that, frankly, one has to be a financial whizz-kid to understand it. I listened with wonder and incredulity to the intricacies of the Bill as it went through your Lordships' House. I am bound to say that most of it went over the top of my head like the crack of rifle fire. Most of it was unintelligible to the average person, but this particular part is totally intelligible to even the simplest of people; including myself. I suggest that it is quite clear that these provisions are wrong, that they will work against the customer's interest, that they will work against the financial institutions' interests and that the best possible advice will not in the end be given.
I agreed with my noble friend Lord Bruce-Gardyne when he said that millions of people rely upon the advice of their bank managers. It is all very well to tell people to shop around. That is all right if one is buying soap powder. Financial guidance and investment require trust and confidence. These millions of people to whom my noble friend Lord Bruce-Gardyne referred do not want that trust and confidence dislodged.
9.5 p.m.
Lord Campbell of Croy: My Lords, I should like to congratulate my noble friend Lord Colville upon raising this subject this evening. He has described clearly the dilemma facing the Government because they are due shortly to take decisions. That is why this debate is so well timed.
The Securities and Investments Board, the SIB, has made recommendations in the interests of protecting investors and putting into effect the Financial Services Act. Those in the business of financial services, authorised persons under the Act, must be in one of two separate categories for life assurance and unit trusts. They must be either independent intermediaries or sellers of their own products. If they are offering their own schemes they will be debarred from discussing the purchase of the products of others who might be regarded as rivals. This raises difficulties and anomalies for financial conglomerates and
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especially for the high street banks and building societies. Again I declare an interest as a director of one of the largest building socieites.
Bank managers have for many of our citizens been a source of general financial advice, besides being in a position to offer the bank's own schemes in insurance and unit trusts. The noble Lord, Lord O'Brien, a few minutes ago outlined lucidly what banks had been able to do. Now that the Building Societies Act enables building societies to offer a range of financial services too, they will shortly find themselves in a similar position. If the present proposals are not changed they will have to set up separate bodies—one category to deal in their own products only and the other to give general advice on the products of others. This I suggest will cause harm to the interests of investors and customers which will greatly outweigh any benefit of supposed protection. No longer will the customer be able to receive general advice about his affairs from one manager over the whole field of opportunities—that manager of course being able to call on expert advice as required—always bearing in mind the manager's interest in the in-house products and recognising that of course the customer should be properly informed where the bank or building society has an interest of any kind in a scheme or product.
I shall not illustrate examples of the anomalous situations which could occur because they have already been graphically described in the article in The Times of 20th January by Mr. Edward Adeane which has been referred to by the noble Lord, Lord Tryon. There was an imaginary interview between a customer and a bank manager whose general advice he had been used to seeking for 20 years. The effect of polarisation would be to restrict the advice which could be given and in certain circumstances to prevent the best advice on what would be the most suitable for the customer from all the schemes and products available.
Where building societies are concerned, polarisation would run counter to one of the principles underlying the recently passed Building Societies Act to assist the public. The principle is that members of societies when visiting their branches can, at the counter or in the office, have the facility and convenience of financial services not previously available.
Where house buying is concerned, this is known as the one-stop objective. The customer no longer needs to be dealing separately with two, three or even four different offices. Polarisation would be a reversal of that principle.
Where life assurance is concerned, polarisation would mean either that building societies would have to become independent intermediaries or that they would have to be tied to one company only. For many societies this would mean that they would become tied agents of one company and the consumer would be offered less choice rather than more.
Another bizarre effect of the SIB's recommendations on building societies relates to the new power under the recent Act to offer personal pensions. If societies arrange insurance policies, which is part of their normal business, they would be prohibited from selling their own pension products through their branches. What can be the objection to a building society acting as an intermediary in life assurance while selling its own products in other areas?

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When the noble Lord, Lord Ezra, raised this subject at the Report stage of the Financial Services Bill on 20th October, my noble and learned friend Lord Cameron of Lochbroom gave a reply which to me still left open the matter so far as the Government are concerned. He said the Government's view was that there should be safeguards so that the investor can be sure of getting genuinely independent advice. I am sure we all agree on that, but the proposals now put forward to achieve that end seem divorced from reality.
Cold calling is, I understand, what the Consumers' Association was particularly against. My noble friend Lord Bruce-Gardyne has already spoken on this. It is to continue under the proposed arrangements, but if it is to continue, it seems that the safeguard proposed in its place is polarisation. Polarisation has been put forward instead of a ban on cold calling.
What are the difficulties about rules for full disclosure? Would not this be a better alternative to polarisation? A bank, building society or other financial organisation should be required to tell the customer about any connection or association of its organisation with a product or scheme. That interest must be fully declared. The customer then has the widest possible choice, knowing in which products his adviser has an interest, near or distant. I hope the Government will consider that very carefully as the best of the possible choices.
9.13 p.m.
Lord Mottistone: My Lords, I too have to declare an interest but it is not quite such a detailed interest as those of several other speakers who are deeply involved in the businesses they were seeking to defend. I have a son who is an insurance broker but I hasten to tell your Lordships that I have never done business with him because I have been brought up never to do business with members of one's family. I think that is probably wise.
I have great admiration for the bank managers with whom I have dealt, who have all been of the outfit in which my noble friend Lord Boardman is such an important figure. I have always found that they have been jolly good at their job, as I understand their job, and certainly I have never sought to consult them on life assurance, or any other insurance for that matter, because I have never seen a bank manager as that sort of person.
There has been a great deal said for the banks and one wonders whether they are protesting a little hard. My noble friend Lord Ferrers told us a most moving story about what might happen to an unfortunate member of the public who went to his bank manager and was not able to get the results that he wanted. I did not quite recognise that as something that I saw happening every day.
When I was thinking what I might say to your Lordships, I thought I might see whether I could answer the questions that my noble friend Lord Colville had put to the Government. I confess that I interpreted his wording to be whether the rules gave the consumer adequate choice, but I do not think the answer, which in the main is that supplied by the SIB, makes much difference.
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What it has suggested is that, on the one hand, polarisation does not reduce consumers' choice. The SIB estimates that there are well in excess of 5,000 independent intermediary firms, employing upwards of 50,000 people, that will be required to offer the best advice across the whole market without any restrictions or qualifications. I question what my noble friend Lord Colville said about vast tracts of the country without advice available. I do not believe that is so. Certainly wherever I have lived, worked or been, I have found that there have been insurance brokers to whom one could refer and there has been no difficulty in obtaining such advice. One has not had to go to one's friendly bank manager. In any case, my friendly bank manager has always been in London and I have communicated with him as necessary by letter. That is the choice part of it.
As to whether polarisation restricts, distorts or prevents competition, I am sure your Lordships have all been informed by the SIB, as I was, of its explanations. But I think it is worth putting them down on the record as a balance to the debate. In that connection it says that all rules and requirements are restrictive, and one would accept that. They are, and that is one of the problems. But it also says that without them markets could not operate and nor could investors be protected. Life assurance and unit trusts are an area where improved protection for the small investor is of paramount necessity and unbiased advice from an agent working entirely for the client is an important option. That surely is the burden of the proposed system that we are debating.
Lord Bruce-Gardyne: My Lords. I apologise for interrupting my noble friend. Would he say that advice would be likely, certainly or assuredly to be entirely unbiased when an independent agent received a commission of X in the case of one product and a commission of three-X in the case of another?
Lord Mottistone: Yes, my Lords, it would in this sense. I checked up on this point. As I understand it, there will be a normal commission rate, which admittedly will not be a public figure but will be agreed by the parent body which is to be allocated the duty of looking after this aspect. It will be known within the industry and known to my noble friend the Minister. But it will not necessarily have to be declared as in the normal case. But if there is a commission which is two or three times as much as the normal, a declaration will have to be made of exactly what it is. That part of the rules will have to be accepted. In that respect it will be made clear to the customer that there is a special bias. Polarisation is the only policeable way of removing bias.
There is an anti-competitive aspect in this. There must be, because any regulation of whatever sort has an anti-competitive element within it. But the anticompetitive cost in terms of constraint on the way intermediaries operate is small compared with the advantage to the consumer of the greater likelihood of a product best suited to his needs. That is the nub of the argument.
I do not wish to absorb any more time. However, my noble friend Lord Campbell of Croy, in his concluding remarks, asked, "Why not disclosure

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rather than polarisation". The argument is that where disclosure is allowed in the securities and money markets, a dual capacity operation is permitted because the announcement of dual capacity gives the client knowledge that it is there. However, in addition, and more importantly, it is easy to check on whether the best advice is given because all securities of a given type are identical—one ICI share at a given time is identical to another—and this can be readily checked. In life assurance, on the other hand, no two contracts are the same and the choice for the customer depends on long-term performance. Thus, it is extremely difficult to check whether the agent has done his best for his client unless one has polarisation.
Without wishing to burden your Lordships further, and because most of what needs to be said has been said, perhaps I may just summarise, in addition to what I have said about commission arrangements, on what I understand is likely to be the case for controlling the independent adviser. He would have to say that he was such on his writing paper and in dicussions with his customer. He would have to say that he was a member of an appropriate governing body—the body which must agree the normal commission rate. He would have to give evidence, or have evidence, of the steps he had taken to give the best advice if anyone challenged him as to whether or not it was the best advice.
It seems to me that the arrangements for controlling the independent adviser are going to be pretty stiff. If I take the remarks of the noble Lord, Lord Banks, aright, it will be unfair competition if the advisers have to compete against the bank manager, with his supporting expertise, on absolutely level terms. I suspect that this is the area where the noble Lord, Lord Banks, thought that many people might go out of business. One must be fair not only to the customer but also to the people supplying the information and the best advice which the customer really needs. I hope that the Government will not obstruct the introduction of polarisation.
9.23 p.m.
Lord Shaughnessy: My Lords, I did not have my name down to speak, but I ask the indulgence of your Lordships in hearing me for a moment. I am impressed with the concept of confusion involved in this discussion in the application of the Securities and Investments Board under polarisation. The brief states that,
"The investor will be confused as to the nature of the service available to him and as to the position of the person advising him and accordingly liable to make decisions based on erroneous assumptions".
The prescription of the rules as they appear in the basic document is certainly one of confusion and whatever the potential veniality of an honest bank manager in advising his clients, I suggest that he is performing a better function than these rules would seem to imply.
9.24 p.m.
Lord Williams of Elvel: My Lords, we must be grateful to the noble Viscount for raising this Question. With great respect. I take issue with him on
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the question of timing. I am not sure that it is the right time for a debate when the Financial Services Act passed by Parliament is in the process of being implemented. The SIB draft rules are in front of the Office of Fair Trading, and it is at the point at which the Office of Fair Trading makes up its mind what is its view of these rules that I suspect the noble Viscount's Question might be more appropriate.
Under Section 122 of the Financial Services Act the Director General may publish his report. A Question of this nature coming at that time would certainly bring pressure to bear on the Director General to publish a report that otherwise he might not consider it appropriate to publish. Nevertheless, I have to apologise to the noble Viscount for pressing him before the debate on exactly what was the meaning of the second "they" in his Question. He was kind enough to explain that, having thought about it a little, "they" must mean the Government, since the Government were the only people who could do anything about it and that "they", as the noble Lord, Lord Mottistone, felt, could not mean the rules. I apologise if I threw some of your Lordships into confusion by my pre-debate intervention.
Had the noble Viscount not given me that interpretation of the second "they" in his Question, I should have had a great deal of sympathy for the Minister as the Government at this point have no case to answer. There is nothing that the Government either can or indeed should do about this. Parliament has passed an Act. The Act is in force, and that has to be the Government's position. As the noble Viscount pointed out, he did not expect to get a detailed answer from the Minister this evening and I am sure that the noble Lord will oblige the noble Viscount by not giving a very detailed answer.
As a number of noble Lords have said, this whole debate took place when the Financial Services Bill was before your Lordships' House. An amendment was introduced by the noble Lord. Lord Ezra. A number of noble Lords who have intervened this evening took part in that debate. The basic problem is whether bank managers. building society branch managers and certain others—I shall come to certain others in a moment—should have a treatment in the sale of life insurance and unit trusts different from the treatment of life insurance salesmen who may belong to other institutions.
When this question first came up in the Financial Services Bill I had a certain amount of sympathy for the case, and particularly for the TSB case which was explained very well to us at that time, that perhaps banks (and in particular clearing banks) and building societies were in a special position. If at the time the noble Lord. Lord Ezra, had been able to devise an amendment to the Bill which focused narrowly on banks and building societies and their branches it might have attracted a certain amount of support from this side.
On the other hand, when we looked at the possibility of drafting such an amendment, we found it impossible. In my view—and this is my first point—polarisation is indivisible. You either have polarisation across the range in the same product—life assurance or unit trusts—or you do not have it at all.

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I do not see how you can invent rules and regulations that are applied to one group of people selling product A that do not apply to a different group of people selling the same product. I find that a difficult concept and I do not see how it could be written into law. I would regard the thought that banks and building societies might be special cases in respect of polarisation as being something of a non-starter if polarisation is to apply at all.
Many noble Lords have commented on the virtues of high street bank managers. I have nothing against high street bank managers or indeed, if I may address myself to the noble Lord, Lord Campbell of Croy, against building society branch managers. They are all extremely worthy men. However, I am reminded of what the noble and learned Lord, Lord Templeman, said during the course of the Financial Services Bill. He made a very moving speech about the role of the family solicitor and how the family solicitor was the parent, guide and friend in all matters. I had a lecture earlier this afternoon from my noble friend Lord Morton of Shuna, who told me that the Scottish solicitor is much more of a friend and counsellor than the English solicitor and that the Scottish solicitor—I am sure that the noble and learned Lord the Lord Advocate will support my noble friend—is the person to whom everyone turns for proper financial advice, advice on marital affairs, and so on.
Lord O'Brien of Lothbury: My Lords, does not the noble Lord agree that only a minority of people employ a solicitor on a regular basis, whereas nearly everyone uses a bank manager?
Lord Williams of Elvel: My Lords, I have to disagree with the noble Lord, Lord O'Brien. A majority of people in this country do not have bank accounts. Indeed, although I do not have any figures in mind I suspect that at some time in their lives more people use a solicitor than use a bank. At the last count, some 40 per cent. of the population did not have a bank account. The building society movement is of course different because more people have a building society account, or share account, than have a bank account. Therefore I am not sure that the noble Lord's point is entirely correct.
We are dealing with a conflict of interests and I believe that every noble Lord who has spoken recognises that. There are two ways of dealing with conflicts of interest. The noble Lord, Lord Campbell of Croy, carefully set out that you either have some sort of rule or you have total disclosure. The noble Lord, Lord Campbell, and indeed other noble Lords said the answer in this case is total disclosure.
I am bound to say again that I share the doubts of the noble Lord, Lord Mottistone, about whether total disclosure is, first, possible, and, secondly, enforceable; and if disclosure is not possible and enforceable we must look again at rules. Nevertheless, there is something of a muddle. Noble Lords on all sides have expressed the opinion that through the publication of the SIB rules we have got ourselves into something of a jam. I should like to follow the noble Viscount, Lord Colville, the noble Lord, Lord Tryon, and the noble Earl, Lord Ferrers, along the path of what actually happens now to get ourselves out of this jam.
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What happens if the Director General of Fair Trading, who is required to report on the SIB rules, advises the Secretary of State that polarisation rules are unnecessarily restrictive of competition? That is what the Director General is required to advise the Secretary of State on.
There are two possibilities. The Secretary of State may overrule the Director General. He may decide that although the Director General makes his point nevertheless it is important for the protection of investors that the particular rules in the SIB rule book should remain as they are and remove the words "unnecessarily restrictive". In other words, he can overrule the Director General and say that he will issue the delegation order with the rules as they are in the present rule book. In those circumstances and under the Act the delegation order would be to the SIB. The Act does not give the Secretary of State the choice of another designated agency provided the SIB satisfies the qualifications under Chapter XIV of the Act and under one of the sections of the designated agency provision.
Alternatively, the Secretary of State may decide that the Director General is right and that the polarisation rules are, for example, unnecessarily restrictive of competition. What can he do then? Clearly he cannot at that point issue a delegation order because he is prohibited from doing so by the Act. He cannot make an order changing the SIB rule book. He can only make an order changing the SIB rule book after he has made a delegation order making the SIB the designated agency. However, between the point at which he receives the Director General's report and makes a delegation order he has no power at all to change the SIB rule book.
Of course he has influence. The Secretary of State can say to the SIB, "Now, my friends, you are applying to be a designated agency and you want a delegation order from me. I have to tell you that I am not prepared to give you a delegation order and make you the designated agency unless you change your rules". As we know, the SIB is a private company, with directors like those of any other private company who meet and take decisions in the interests of their shareholders, as all companies do. At this point the directors say, "Well, we have considered this but we are not prepared to change our rules. We think our rules are perfectly satisfactory".
What does the Secretary of State do then? Either he climbs down and says, "Well, after all, I have thought again and I am prepared to overrule the director general", or he does not climb down and then he has to look for another designated agency; or if he cannot find another designated agency to designate, he has to do the whole job himself, which is where we were when we started to debate this Bill.
In my view all this could easily have been avoided by the simple procedure of the Government adopting what the Opposition wanted, which was statutory regulation and the SIB as a statutory body. Now, having come full circle, I ask the noble Lord whether my analysis of the Act is right. I believe it is and, like the noble Viscount, I have looked at the Act very carefully. If I am right, are the Government on the

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hook and would they not have done better to accept our view in the first place?
9.36 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, I knew that we should have an extremely well informed and expert debate this evening. I must confess that a couple of hours or so ago I was not so sure that it would be as amiable and good natured as it has turned out to be. Let me just dispose of the question that the noble Lord, Lord Williams of Elvel, posed in a fascinating speech in which he drew a hypothetical scenario. No, we are not on a hook.
Let me turn to the Question that is before us tonight. With regret I have to say to my noble friend Lord Colville of Culross that I am not in a position to give him a definitive answer and I think I should explain why. The House will recall that before the Securities and Investments Board can assume its regulatory functions under the Act is has to be designated and have functions transferred to it by order of the Secretary of State. Before that order can take effect, it has to be approved by both Houses of Parliament. Whatever else may be said, certainly your Lordships and Members of another place will have a further opportunity to debate this and any other matters relating to the designation of the SIB.
During the passage of the Bill Parliament also provided for a vetting process before the order can be drafted. Under the Act any rules, regulations and other guidance that the SIB proposes to make—and one might as well accept that it is the SIB which is the designated agency, or it certainly has applied to be so—have to be scrutinised by the Director General of Fair Trading. who will consider.
"whether … the rules, regulations, guidance … have, or are intended or likely to have, to any significant extent the effect of restricting, distorting, or preventing competition".
I quote from the Act there. The director general will report to my right honourable friend the Secretary of State. The Secretary of State then has to consider the report and if he considers that the anti-competitive effects identified by the director general are significant, then the Act does not allow him to designate the SIB unless he is satisfied that this anti-competitive effect is—and again I quote from the Act—
"not greater than is necessary for investor protection".
I have spelt out this process in some detail because it is central to the Question that my noble friend has asked. This process is under way. My right honourable friend the Secretary of State has received a request from the SIB for the transfer of powers under the Act and copies of the proposed rules, 'regulations and guidance. These were published on 12th December. If I may say something to the noble Lord, Lord Tryon, here, it is from that date until the end of this month—I may be wrong by a day or two—that the SIB asked for comment on the booklet. Voluminous it may well be, but there is adequate opportunity for comment to be made.
Viscount Colville of Culross: My Lords, this touches on the question that I asked my noble friend. The whole point is that the time is not adequate. It is far too
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short for the extreme complexity of some of these things to be followed through by embryonic SROs which are trying to set up their own regulatory systems. I know that a number have given notice to the SIB that they cannot do it in time. That is why I wish to know the machinery for doing it later.
Lord Lucas of Chilworth: My Lords, if my noble friend will perhaps allow me to continue a little further, I think that he will find his question answered.
The Director General of Fair Trading is considering the very question that is on the Order Paper tonight. I therefore hope that my noble friend will understand that, before the Director General has reported and before my right honourable friend has had the opportunity to consider the report, it would be wrong of me to answer it.
The noble Lord says that the period is too short. We have been considering this business now for nearly two years. With regard to the final rules, which are not very different from the draft rules that have been available to interested parties, I do not think that the period is too short. Representation can be made to my right honourable friend the Secretary of State up to and including the date at which an order is laid before Parliament. My noble friend and others have the opportunity to put their points of view when the order comes before Parliament, so there is plenty of time.
My noble friend Lord Colville raised two specific queries on which I ought to comment. I am not sure whether it was he or Lord Tryon who expressed concern about how polarisation might affect the less sophisticated, but both they and my noble friend Lord Bruce-Gardyne certainly spoke about the less sophisticated people who rely upon the local bank manager for advice. I will pass on the noble Lords' concern about rural areas.
I ought here to say something about the effect of polarisation. If a local bank branch—perhaps I may address this also to my noble friend Lord Boardman—acts as a company representative selling only the bank's products, the customer has two options if he wishes to obtain independent advice. He can contact an independent intermediary in the nearest town, or the local bank branch may refer him to the bank's separate, independent intermediary subsidiary, provided that it has one. As an illustration of the distance that a person may have to travel for independent advice, from Beccles to Edinburgh is something of an exaggeration.
With modern technology, that advice is available almost at the pressing of a switch. If the local bank branch is as isolated as noble Lords have suggested, it probably opens only three mornings a week, so the consumer cannot talk to his local, friendly bank manager as effectively as some people have suggested. I do not see great difficulty there. The consumer can do the two things I have suggested.
SIB's draft proposed rules will allow the local bank branch to act as a channel of communicatio between the customer and the bank intermediary, again provided that the local branch does not advise on the merit of the intermediary's recommendations. There is no restriction on the form of the channel of

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communication. It may be by computer, by the pressing of a button, by telephone or by letter.
My noble friend and others asked me about the scope for changing SIB's proposed rules, which are before the Director General of Fair Trading. Before my right honourable friend the Secretary of Stage can make an order transferring to SIB the functions made under the Act, he must be satisfied, as we know, on two counts in respect of the rules it proposes to make. First, he must be satisfied that the rules offer investors adequate protection and comply with the principles set out in Schedule 8 to the Act, which noble Lords will recall. Secondly, if after considering the report from the director general the Secretary of State considers that SIB's rules are likely to have significant anti-competitive effects, then, as I have explained, he must be satisfied that such effects are no greater than required for investor protection.
That brings me to the point on amending the rules about which my noble friend Lord Colville and the noble Lord, Lord Tryon, asked. The Act which Parliament has passed does not provide for SIB rules to be approved. That would be inconsistent with the concept of a practitioner-based framework. Rather. Parliament will be asked whether on the basis of the proposals put forward by SIB it wishes SIB to exercise the function of a designated agency, including the ability to make rules. As I explained, there are checks and balances before that stage is reached.
That consideration is under way. I cannot prejudge my honourable friend's decision. If he is not satisfied with SIB's rules on either of the two counts— the point about which my noble friend Lord Ferrers asked—I have no doubt that he will tell SIB so. It will then be up to SIB to produce proposals for rules which will meet the Act's requirements. Of course SIB, if that is what it is to be, must satisfy Parliament that it can exercise the relevant functions. At the end of the day, and this goes back to the point made by the noble Lord, Lord Williams, the Secretary of State can hold the authority unto himself. That is the ultimate sanction.
The noble Lord, Lord Banks. asked me about the costs of the regime. He and others will appreciate that it is unrealistic that the improvements in investor protection for which we are looking, and for which everybody is looking, can take place without some increase in costs. That is to be appreciated. I merely say to the noble Lord. Lord Banks, that we are aware of the concerns of the smaller intermediaries about costs and we shall certainly have to take them into account.
My noble friend Lord Bruce-Gardyne asked me about disclosures of commission and the ending of cold-calling. The noble Lord, Lord Graham of Edmonton, made a similar point. SIB's rules will be scrutinised by the Director General of Fair Trading and by my right honourable friend. In those circumstances it is difficult for me to comment on specific rules. We expect the rules to contain provisions for the disclosure of commissions by independent intermediaries. SIB also envisages a
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commissions agreement to reduce the conflict of interest for such intermediaries. There are rules to regulate cold-calling by salesmen. Let me add that the proposals are similar to those that the Government suggested in the White Paper of January 1985 which most of us have had the opportunity of discussing.
The noble Lord, Lord O'Brien, and my noble friend Lord Campbell of Croy, raised the point quite shortly but nevertheless succinctly that polarisation would upset the special relationship between a bank manager and his customer. I think I have partly answered that point in my earlier remarks. But perhaps we could all agree that, for many people, bank managers do hold a special position of trust.
It has been argued by some that because of that presumption of trust, there is a greater need for investor protection. In this respect, a balance has to be struck between the need to protect the consumer from biased advice on the one hand and the need to avoid over-regulation on the other. That is the balance currently being considered. I assure your Lordships that everything which has been said this evening will be taken into account and considered when the Director General of Fair Trading's report is to hand and my right honourable friend comes to consider all of these matters.
Finally, let me say that I have carefully noted what has been said. I appreciate that the new regulatory system will have far-reaching implications. We accept that our desire to improve the standards of investor protection is an aim which your Lordships and which Parliament has endorsed. There is no doubt that that will involve changes and some difficult decisions. Of course we want to take into account the views of all those who are affected by the changes. many of which have been put before us this evening.
Before reaching his decision on whether to make an order designating SIB, my right honourable friend will take into account not only the report from the DGFT to which I have referred but also the views which are currently being expressed outside your Lordships' House, and certainly those which have been so well expressed this evening. All the representations which we receive on this or any other aspect of SIB's proposals will be taken into account.
I have tried in somewhat difficult circumstances to explain to your Lordships how we see this process. I have said why I am not able precisely to answer the Question. My noble friend understands that. With that, I hope that those noble Lords who still have some problems uppermost in their minds will convey them to us so that we can give them the proper consideration that they deserve.

Mid Glamorgan County Council Bill [H.L.]
Returned from the Commons agreed to with amendments; the amendments considered and agreed to.
House adjourned at four minutes before ten o'clock.