Lords Sitting of 23 July 1987

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Bath and Wells.
Lord Sinclair—Took the Oath.
The Viscount of Arbuthnot—Took the Oath.

Air Transport: EC Liberalisation Proposals
Baroness Burton of Coventry: 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, following ratification, the Single European Act has become effective; what is now the position concerning Article 87 of the Treaty of Rome and its effect on the liberalisation of air transport in Europe; and whether they will make a statement to clarify the position as it now stands.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, the Single European Act came into force on 1st July. As a result, proposals for liberalisation of air transport made under Article 84 of the treaty can now be decided by the Council of Ministers acting by qualified majority. There is no change in the legal position regarding application of Article 87.
Baroness Burton of Coventry: My Lords, can we take it from the reply that the Minister has just given, and referring to an Answer he gave the House on 9th July, that the Commission and the European Parliament have completed the new procedures required for the Single European Act? If they have not, when do they expect to do so? Can he tell the House whether the Commission has withdrawn its list of exemptions to the competition rules of the treaty?
Lord Brabazon of Tara: My Lords, completion of arrangements for bringing the package back to the Council depends on a further opinion from the European Parliament, which cannot now be delivered until after the summer break. On the noble Baroness's second point, the Commission does not intend to withdraw its proposals for giving group exemptions, as that would have the effect of destroying the package.
Baroness Burton of Coventry: My Lords, can the Minister help further on that? Not knowing the date when the European Parliament returns to its work, does he anticipate, as he still cannot give an answer, that these matters will be discussed on 26th October at the meeting of the Air Transport Ministers Council?
May I also ask a further question which I think will be of interest to the entire House? Did the Minister note earlier this week a statement, repeated with
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much more force and with much more detail today, that the Commission would be keeping a watchful eye upon the proposed merger of British Caledonian and British Airways in order to see that the competition rules of the Treaty of Rome were not infringed?
Lord Brabazon of Tara: My Lords, I cannot give the noble Baroness a positive answer to her first question about whether the European Parliament will have completed its deliberations by October. I very much hope that that will be the case, but it certainly will have done by December.
As to the noble Baroness's second point about the view on the BA-BCal proposed merger, I am afraid I cannot speculate on such matters, as the proposed merger is under consideration by the Director General of Fair Trading. I am sure that my noble friend the Secretary of State for Trade and Industry will take all relevant factors into account in considering the director general's advice in due course; but it is true to say that the Commission is indeed taking an interest in this matter.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that when the workings of the European Parliament and the Commission are being discussed, the lack of clarity as to what they mean and what their procedures can do is very frustrating on matters such as that which the noble Baroness has raised, which require specific, clear answers so that people can operate?
Lord Brabazon of Tara: My Lords, I am not sure that I can assist my noble friend. It is a matter for the European Parliament and for the Commission.
Lord Bruce-Gardyne: My Lords, can my noble friend go one tiny stage further than he did in his Answer to the noble Baroness? Can he shed any light on whether Her Majesty's Government would view with enthusiasm or dismay the interest which the Commission is taking in the BA-BCal merger?
Lord Brabazon of Tara: My Lords, I am afraid I can go no further than I already have in my Answer.
Lord Taylor of Gryfe: My Lords, can the noble Lord answer as to the powers of the European Commission in commenting on the proposed merger? Do I assume that the ruling of the Office of Fair Trading will be what will guide Her Majesty's Government rather than a European Community directive?
Lord Brabazon of Tara: My Lords, we are straying from the Question on the Order Paper, which is about the liberalisation of European air transport in respect of the package which we have discussed on many occasions. I am afraid I can go no further on the subject of the merger.
Baroness Burton of Coventry: My Lords, if I can remember what the Minister said and phrase my questions succinctly, is he aware that I did not ask him for an opinion? I asked him for a simple answer to two simple questions. Is he aware that he told the

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House on 9th July that until these various procedures had been agreed with the European Parliament it was not possible to tell the House whether at the meeting on 26th October air transport would be included in the agenda? Can he say whether or not it will be included in the agenda?
Secondly, arising from the proposed merger, again I did not ask for an opinion. I asked whether it was correct that the Commission would be looking at the proposed merger in order to see that the competition rules were not infringed.
Lord Brabazon of Tara: My Lords, I answered that question when I said I understood that the Commission is interested in the case. On the noble Baroness's first question, I very much hope that the European Parliament will have considered the matter by the October Council. I cannot give a guarantee on that. In any case I would hope that if it has not done so by then it will have done so by December.
Lord Whaddon: My Lords, is the Minister aware of the concern expressed earlier this week by the small airlines in the United Kingdom regarding the proposed merger and their fear that competition will be undermined? Is he further aware that many of us have the sneaking feeling that, having abandoned their belief in monetarism, the Government may now be abandoning their belief in competition in the public interest?
Lord Brabazon of Tara: My Lords, we are going a very long way from the Question on the Order Paper. I have already said that I cannot speculate on the matter as it is in the hands of the Director General of Fair Trading at the moment.

Lights Advisory Committee Report
11.12 a.m.
Lord Campbell of Croy: My Lords, I beg leave to ask the first Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will give full, but rapid, consideration to the report of the Lights Advisory Committee which recommends that part of the system of lights and navigational aids is no longer necessary.
Lord Brabazon of Tara: My Lords, I am giving careful consideration to the Lights Advisory Committee's proposal for a review of the traditional aids to navigation. I shall take this forward in conjunction with our study of a separate report on future developments in marine navigational aids, which also recommended a scrutiny, with the users and lighthouse authorities, of the present range of lights and daymarks. The general lighthouse authorities are the bodies responsible for these matters, and I shall be pursuing these proposals in conjunction with them.
Lord Campbell of Croy: My Lords, I thank my noble friend for that assurance. Do the Government
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recognise the paradox that the cost of these navigational aids is now being met mainly by the larger vessels which do not need them because they have their own electronic equipment, as it is apparently impractical to collect the dues from the smaller vessels? Is the Minister aware that this penalises our merchant fleet and makes British ports less competitive?
Lord Brabazon of Tara: My Lords, I recognise the concern that is felt by the Lights Advisory Committee and by my noble friend on this issue. However, I do not think that the matter is so simple. Even some of the larger vessels need to use those aids; we also collect from smaller vessels. However, we are doing what we can to try to deal with this situation. As I said in my original Answer, we look very carefully at the proposals that are put before us, as indeed do the general lighthouse authorities.
Lord Carmichael of Kelvingrove: My Lords, is the Minister aware that no-one believes that none of the lights is required, but that there is a general feeling that there are too many lights and that the system is far too expensive? I am pleased to hear that he intends thoroughly to review the matter. Can he give us any idea when he will be able to publish some material on this subject? Surely he is aware that in the past few weeks the question of lights has been raised by Members from all parts of the House and that is is causing some concern to shipping interests.
Lord Brabazon of Tara: My Lords, I am aware of the situation and I certainly hold the view of the noble Lord, Lord Carmichael, that there is no question of all navigational aids being removed. Some are certainly very necessary. As I said, we are studying two separate reports—one from the Lights Advisory Committee and the other commissioned by ourselves—and there is a further report on the tender vessel requirements. We shall move forward as fast as we can but I cannot give a certain date when we may be able to take action. It is for the general lighthouse authorities, in consultation with us, to decide what to do.
Lord Greenway: My Lords, I welcome what the Minister has said with regard to taking note of the current plans of the lighthouse authorities about reducing the number of lights. In his discussions, will the Minister also bear in mind the importance of listening to ships' masters and officers at sea, whose views should be paramount in this case?
Lord Brabazon of Tara: My Lords, any question of closures would be for the general lighthouse authority concerned, which always consults the users when contemplating withdrawals.
Lord Ferrier: My Lords, is the Minister satisfied that the authorities are keeping in close touch with yacht clubs and cruising societies, such as the Clyde Cruising Club, in respect of this problem?
Lord Brabazon of Tara: My Lords, as I said, it is a matter for the general lighthouse authorities and they consult the users when proposing changes.
Lord Campbell of Croy: My Lords, is not the eventual solution to relinquish the navigational aids which are not strictly necessary and to meet the resulting reduced cost from general taxation, as is done by most of the other countries in North-West Europe?
Lord Brabazon of Tara: My Lords, within the limits of administrative practicability, the Government think it right that the costs of the lighthouse service should be met by those who use the services. I can hold out no prospect of the Exchequer taking over the £60 million annual cost of those services.

Terrorism: International Co-operation
11.17 a.m.
Lord Campbell of Croy: My Lords, I beg leave to ask the second Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are to participate in further international meetings or consultations aimed at improving arrangements to suppress and eliminate terrorism.
The Minister of State, Foreign and Commonwealth Office (Lord Glenarthur): My Lords, we are totally committed to the fight against terrorism and to the need for international co-operation to combat it, and will continue to play an active part in international bodies to secure a common, firm approach. We shall also continue bilateral exchanges with a wide range of countries further to strengthen international co-operation to combat terrorism.
Lord Campbell of Croy: My Lords, I am grateful to my noble friend for that welcome Answer. Does he agree that the Government will receive massive support for any special measures to counter terrorism, including kidnapping, and in particular measures to stop Middle Eastern feuds from being pursued by violent means on the streets of London?
Lord Glenarthur: My Lords, I quite agree with my noble friend. I think that it is very important that all forms of terrorism are met with the very greatest concern that all countries can possibly bring to bear through the many international fora which exist to try to discuss the ways of dealing with it. I can assure my noble friend that the Government will give the highest priority to that.
Lord Molloy: My Lords, does the Minister agree that the time has now come for the establishment of a permanent international commission to carry out the desires that he has expressed, which I am sure are supported by every Member of this House? Does he further agree that countries which may be friendly toward us, as well as those which are unfriendly, but which are engaged in some form of terrorism should also be rebuked and asked to stop such behaviour—not only those which, as we know full well, thrive on such a terribly evil system?
Lord Glenarthur: My Lords, there are a number of international fora at present within the 12 of which the TREVI is perhaps the most important. There are the Summit Seven, the Council of Europe and other contacts as well for the United Nations through NATO and CSCE.
Lord Chalfont: My Lords, is the Minister aware that as chairman of the Institute for the Study of Terrorism I attend frequent meetings in the United States, Western Europe and elsewhere? The Government have a very high reputation for their attitude to terrorism and the extent to which they are prepared to engage in international co-operation. In the context of the supplementary Question that was asked by the noble Lord, Lord Campbell, may I put one specific question to him? Can he give the House an assurance that Her Majesty's Government are keeping a very careful eye on the activities of the very large number of Iranian students in London?
Lord Glenarthur: Yes, my Lords. I appreciate the noble Lord's responsibilities and interest in this field, and I am very glad to hear his comments about the strength of feeling and support for the way in which the United Kingdom Government have approached this problem. So far as Iranian students are concerned, I can of course tell the noble Lord that we constantly keep this sort of matter under review.
Lord Mellish: My Lords, is this not an appropriate time to put on record our deep appreciation of the work done by the police in combating terrorism? There are so many people—there are some in this House—who take a lot of delight in criticising the police. It would not be a bad idea to praise them now and again.
Lord Glenarthur: My Lords, I entirely agree with the noble Lord. As the House will be aware, at this moment they are investigating yet another deplorable outrage on the streets of London and I am very grateful for the noble Lord's kind remarks.

Phoenix House: AIDS Funding
11.21 a.m.
Lord Ennals: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have yet decided to make a grant for core funding for Phoenix House from sums allocated for the treatment of drug addicts and AIDS victims.
The Earl of Arran: My Lords, Phoenix House local projects have already been allocated over £1 million from the centrally-funded drugs initiative in recognition of the valuable work they do. We have also given very careful consideration to Phoenix House's application for a grant towards its headquarters' costs. However we were not convinced that a grant would secure improvements in the units which it is running or represent value for money in comparison with competing bids for funding.
Lord Ennals: My Lords, I thank the Minister for his reply. Is he aware that Phoenix House is the largest voluntary organisation providing treatment for drug addiction? In fact 45 per cent. of those who are treated by NGOs are treated by Phoenix House. Is the noble Lord aware of some of the advances that we are making in terms of the first purpose-built family unit and new extensions to the extra four centres that we are already providing? Is he further aware of the contribution that we are now making to the treatment of AIDS, because of drug addicts being subject to AIDS? How does the noble Lord think that an organisation like this, with these responsibilities in this field, can sustain itself for a central administration which, of course, is absolutely urgent and essential to fulfil the tasks that we have taken on with the co-operation of the Government?
The Earl of Arran: My Lords, we fully acknowledge the substantial contribution which Phoenix House is making to the development of services for drug misusers across the country. We are recognising this by allocating it grants totalling over £1 million over the period 1984–89 under the central funding initiative. Indeed it is receiving more funds under the initiative than any other single voluntary organisation.
Baroness Seear: My Lords, perhaps I may be allowed to support this Question. I speak having an interest, because I am chairman of APEX, which works closely with Phoenix House. I should like to ask the Minister to look again very carefully at the whole question of core funding, because monies made available—and this applies also to APEX—frequently do not carry core funding. However, without adequate headquarters' support it is impossible to maintain the work going on all over the country to deal with drugs and rehabilitation work. All grant bodies seem to ignore the fact that core funding, however economical one is, is absolutely essential.
The Earl of Arran: My Lords, I should particularly like to thank the noble Baroness for her most sensitive and sensible remarks. Of course the Government always keep a very strict eye on core funding.
Lord Ennals: My Lords, I am also extremely grateful to the noble Baroness who, much better than I, said what I wanted to say. Will the Minister agree to look at it again? Is he aware that Mrs. Edwina Currie came down and had a look at Lewisham House? She had a long talk with the officers, of whom I am one. She was very impressed with what she saw and seemed to give the green light, as we hope, to some core funding. May I ask again: how does the Minister think that an organisation like this, dealing with a problem that is high on the priority list of an organisation, can provide its core funding? Does he not agree that each time we set up a new unit there is more to support and therefore there is a need for more trained people to serve centrally?
The Earl of Arran: My Lords, I am indeed aware of the visit of my right honourable friend to Phoenix
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House. I would also add that the Government are very aware of the plight and the tragic circumstances of those who contract the AIDS virus. Inevitably, therefore, there are bound to be heavy demands on government for financial assistance. However, government must at all times maintain a sense of proportion and balance with regard to the amount of financial assistance that they may decide to give to any one organisation.
Lord Glenamara: My Lords, will the noble Earl dissociate the Government from a full page advertisement which appeared in the press last week, which was in the worst possible taste and gave great offence to the Jewish community in this country?
The Earl of Arran: My Lords, I regret that that question is somewhat wide of the mark.
Lord Ennals: My Lords, I hope that that was not in any way related to Phoenix House.
The Earl of Arran: My Lords, I fear that I cannot answer that question.

Statements: Inconsistencies
11.25 a.m.
The Lord President of the Council (Viscount Whitelaw): My Lords, with the leave of the House I should like to make a Statement concerning yesterday's business. Yesterday afternoon, my right honourable friend the Secretary of State for Education and Science made a Statement in another place on government proposals to prevent local authorities from depriving polytechnics or colleges under their control of their assets. This Statement was later repeated in this House by my noble friend Lord Arran.
I have since received a complaint from noble Lords opposite that my noble friend had been reluctant to give to the House information covering Nottinghamshire County Council which my right honourable friend the Secretary of State had in fact already given in another place. It has been put to me that the Government had hesitated in laying before this House information which had already been divulged in another place, and that this was improper.
I have to say that as a general rule when a junior Minister repeats in one House a Statement being made at about the same time in the other House by the Secretary of State, it is quite possible for the information given to each House to differ slightly. Indeed, I must say that when I repeat a Statement made by my right honourable friend the Prime Minister that may very well happen too, and I should be accused of it as well. The Secretary of State, as the man in charge of his department, has a certain degree of discretion to modify his answers, which of course the junior Minister repeating the Statement does not have. This is inevitable, and I am sure that all noble Lords understand this.
Yesterday, however, the Statement was taken in your Lordships' House as is our custom when we

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hold two short debates, after the end of the first debate—about one hour after the Statement had been made to the Commons. The opportunity did exist, therefore, for the proceedings in another place to be reported to my noble friend. But I regret to say that this did not happen. Consequently, when he came to repeat the Statement he was not in possession of the information which would have enabled him to convey the facts in question to this House.
I wish to apologise unreservedly to the House for this failure in communication on the part of the Government, for which of course I am responsible. I can assure the House that, where Statements are repeated in this House some time after they have been delivered in another place, I shall ensure that Lords Ministers are fully acquainted with what was said in another place so that such inconsistencies may be avoided for the future.
Lord McIntosh of Haringey: My Lords, I should like to thank the Leader of the House for that Statement and for his usual courtesy and precision in making it. I should like to assure him that I accept what he has said unreservedly and without any qualification or hesitation. There are two further points which need to be made. First, in no sense were our comments yesterday intended as any personal criticism of the noble Earl, Lord Arran. So far as we are concerned, he played a perfectly straight bat and we have no complaint about his response to the question. The issue, as the noble Viscount knows and he has said, is wider than that.
Secondly, the Secretary of State made allegations in the Statement about the conduct of a small number of local authorities. If the Secretary of State makes a statement of that kind he must expect to be questioned on it and he must expect to have some kind of answer. It is not good enough for him to name as an example one local authority which has, he claims, transgressed.
In particular it is not good enough for him to name one Labour local authority when we are aware that there are at least two Conservative local authorities, Hampshire and Essex, which may be equally accused of transgression by the Secretary of State. Would it not be wise—I put this as a rhetorical question as I am not expecting an answer from the noble Viscount—for Secretaries of State in those circumstances in response to questions, not to make allegations which cannot be substantiated, and which of their very nature without substantiation draw into question the propriety of the actions of the other 104 local education authorities?
Viscount Whitelaw: My Lords, I do not think that your Lordships will expect me to start entering into the controversy surrounding the Statement. I am grateful to the noble Lord for accepting my apology for something which I felt was within my responsibility and which I should ensure happens in future. I thought that I had already ensured that that would happen but as I apparently have not, I shall certainly see that it does in the future. That is why I made an apology.
I do not wish to argue with the rest of the noble Lord's remarks. I do not necessarily either accept or
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in any way agree with what he says, but I shall ensure that his remarks are passed on to my right honourable friend the Secretary of State and he will obviously consider what has been said.
Lord Diamond: My Lords, I too participated in yesterday's proceedings and I should like on behalf of all on the Alliance Benches to say how grateful we are to the Leader of the House for having dealt with this matter in his usual masterly and responsible way.

Western Isles Islands Council (Vatersay Causeway) Order Confirmation Bill
Read a third time, and passed.

Consolidated Fund (Appropriation) Bill
Read a second time; Committee negatived.
Then, Standing Order No. 44 having been suspended (pursuant to Resolution), Bill read a third time, and passed.

Finance Bill
11.34 a.m.
The Secretary of State for Trade and Industry (Lord Young of Graffham): My Lords, I beg to move, That the Bill be now read a second time.
The Bill completes the package of measures announced last March in the Budget speech of my right honourable friend the Chancellor of the Exchequer. The Budget, with the two Finance Bills which have succeeded it, was set against the most favourable economic background seen by this country for many years. It provided clear evidence of the success of the Government's policies of sound finance, low borrowing and low inflation. Those policies have enabled the Chancellor in one year to cut taxes and borrowing while at the same time increasing resources for priority public services. We intend to stick to those policies, which have brought about our present economic success.
Noble Lords will recall the positive assessment of the economy which I gave in the debate on the Address. The key facts are striking. The United Kingdom economy is entering its seventh successive year of growth. From being at the bottom of the European growth league for two decades, we have now moved to the top. What we are seeing is a transformation in the performance of British industry. That transformation is based on a record of achievement and confidence about the future.
Over the 12 months to the first quarter of this year the output of both manufacturing and services grew by more than 4 per cent. and manufacturing has risen further in April and in May. Output in the construction industry, a key indicator of firms' confidence in the future, grew by nearly 12 per cent. and a higher proportion of manufacturers are expecting output growth to continue over the next four months than at any other time since the CBI

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began to collect that information in its present form over 10 years ago.
A further sign of industry's confidence in the future is the investment intentions survey carried out by my department, the DTI. That survey indicates a rise of about 8 per cent. in real terms in industrial investment in 1987 and a similar rise for 1988. The rate of growth of new businesses is also striking with net business start-ups averaging 500 per month for all the months of this decade.
Although the main international institutions are revising down their forecasts for other industrial economies, they have revised their forecasts for the United Kingdom up. They share our confidence that the growth of the economy will be sustained even in the face of the slowing down of world growth generally.
For five years now growth in the United Kingdom has been combined with low inflation. During last year inflation reached its lowest level for almost 20 years and it is increasingly accepted that it is set to stay low. We shall not let up in the fight against inflation, which is at the very heart of our economic strategy.
High growth and low inflation are now also being accompanied at last by a significant improvement in the labour market. Figures released last week show that employment has now grown every quarter for four years and unemployment has fallen every month for a year and by a record amount. Indeed, the fall in the unemployment rate over the last year is faster than in any other major industrial country. It is not just the official statistics that show that. Since 1983 the United Kingdom has created over 1 million jobs more than the rest of the European Community put together. That is also clear from newspapers all over the country, which have pages and pages full of job advertisements.
But while we are reaping the benefits of this unparalleled record of achievement we must hold firm to the disciplines which were needed to bring it about in the first place and which are still vital to ensure continued success. We have shown that steady sustained growth can be achieved in the long run only by strengthening the supply side of the economy and liberating the enterprise and productive potential of the British people. We have achieved that by firm control of public expenditure, by containing the public sector's demands on the country's resources, by reducing controls, by releasing enterprises from the shackles of state control and by encouraging the spread of wealth and ownership.
The success of the recent sale of the British Airports Authority in which more than 2 million people have bought shares is a further important step in that direction. All that promotes that sense of freedom and personal responsibility which gives people a real incentive to work harder for themselves and for their families. Tax reform has had a vital part to play in that process.
Lord Diamond: My Lords, the noble Lord is now talking about tax reform and has left the general economy. Will he say nothing about the trade figures which were issued yesterday and which point in a totally different direction?
Lord Young of Graffham: My Lords, I am perfectly happy to deal with the trade figures. I can well understand that the noble Lord, Lord Diamond, wishes to clutch at the only straw which may give him a little comfort in the whole of my long litany of continuing success. It is quite ludicrous to read so much into a single month's figures. For the year so far we have had a surplus on the current account and exports remain strong. The last CBI survey showed more companies reporting higher export orders than ever before in the history of the survey. Our trading position is sound. The trade performance this year is in line with recent forecasts. The current account for the year so far is still in surplus despite the halving of oil prices, which has taken £4 billion out of the current account.
As regards manufacturing industry, we have brought our unit labour cost increases more into line with those of our competitors. Indeed since early 1981 our competitiveness has improved by 30 per cent. against our major competitors. Since 1980, growth in manufacturing productivity has outstripped that in all other major industrial countries.
Most forecasters expect our share of world trade to increase in 1987. I have spent decades of my life watching our share of world trade decrease. In the last few years, it has started to increase. Manufacturing output and productivity are buoyant and 1987 is still expected to be the best year for growth since 1973. Let us look at the months to come before we start to form a conclusion about one month's trade figures.
Returning to tax reform, that is still the foundation and has a vital part to play in the whole process. The measures implemented in the Finance Act, together with those before us today, continue a key theme which we have been pursuing since 1979. The major objective is tax reduction to allow people to keep more of their own money to spend or save as they wish, and to allow companies to keep more of their own profits. We have reduced the basic rate of tax from 33 per cent. to 27 per cent. and we are committed to reducing it further as soon as we can prudently do so. Our main rate of corporation tax is now among the lowest in the industrialised world. Hand in hand with tax reduction, we have reformed and simplified the tax structure to reduce distortions, to lighten the administrative burden and to promote fair competition.
The future prosperity of our economy depends critically on continuing the process of tax reduction and reform. We must sustain the conditions for continued growth to create more jobs and support the improvements in public services that I am sure all in your Lordships' House want to see. However, that will only be possible if we exercise continued restraint in public spending in order to make room for further reductions in the burden of tax. Even continued success does not remove the need for tough decisions.
The Bill we have before us today contains a number of measures designed to continue the process of reform. In the time we have it will not be possible to mention all of the clauses of the Bill. However, I shall discuss the most important measures which are designed to improve the flexibility of the economy, to

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promote greater personal choice and to improve further the system of corporation tax.
Noble Lords will recall that I spoke in the Second Reading debate on the Finance Bill almost exactly a year ago about the Green Paper on profit-related pay, which was presented to Parliament jointly by the Chancellor, my predecessor as Secretary of State for Trade and Industry and myself as Secretary of State for Employment at that time. I spoke then about the need for wider adoption of profit-related pay to help to break down the "them" and "us" barrier which has so bedevilled British industry for years. I am glad to report that following the consultation period we decided to go ahead with this worthwhile new scheme to encourage the extension of profit-related pay throughout the economy.
That is a scheme which builds on success. Many successful companies already have schemes which give employees a direct stake in the future of their company through share ownership. A record number of employee share schemes was approved by the Inland Revenue in the year to June 1987. A further 210 schemes brings the total to 1,313. There is growing recognition of the importance of cash-based profit sharing or profit-related pay which owes something to the success with which these arrangements are already applied by some employers and something to the interest which has been aroused by the development of our own proposals over the last 18 months. Improving the flexibility of the labour market is a vital part of our strategy to improve the supply performance of the economy and thus increase the prospect of profits and jobs.
In essence, the advantages of profit-related pay are very simple. A part of the employee's cash pay is formally linked in value to the profits of the business in which they work. Other things being equal, higher profits will lead to higher pay, and lower profits will mean that total pay is temporarily lower than it otherwise would have been. That means that employees have a direct stake in the success of the business. It means higher pay if that has been earned by higher profits. That is the route to higher living standards which can be sustained. If business conditions are difficult, then it means greater job security.
For the employer the profit-related pay scheme can mean a more committed workforce with better incentives to profitability and productivity. If times are difficult and profits fall, then part of the necessary strain may be taken by a temporary fall in pay, perhaps as an alternative to redundancies.
Essentially, profit-related pay is about two things. First, it involves employee identification with the success of the company and, secondly, it involves pay flexibility, which is so vital to any company's competitive performance. The measures introduced in this Bill will give workers a valuable tax relief worth up to the equivalent of four pence off the basic rate. Profit-related pay will send strong signals through business units and those signals could, in the long run, have a profound effect on industrial relations and management in this country.
I believe that this scheme is a challenge to employers throughout Britain. Some 20,000 employers have already established their interest with
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the Inland Revenue, including 120 out of our top 250 companies. I very much hope that this number will grow once the tax relief has been enacted, and that they will follow that up and take advantage of the relief which is on offer in order to use it as a tool to help them install profit-related pay schemes. Thus, as a consequence, output, employment and productivity can rise and the whole economy can benefit.
The largest group of clauses in the Bill contain important and far-reaching changes for private pensions. The objectives are to widen individual choice, to encourage job mobility and, to ensure a fairer deal for the taxpayer. Much has already been done to widen the pensions choice. Many employers have established occupational pension schemes for their staff, with the help of generous tax reliefs. At present, over 10 million people are currently members of occupational schemes. But more can be done. There are still some 10 million employees who are not in an occupational scheme and who make no private provision for retirement. A central feature of our strategy is to bring private pensions within the reach of these employees for two reasons: to provide them with a pension of their own and to increase their independence of the state.
The new personal pensions will be available to all employees who are not in an occupational scheme; to the minority of employees who choose to opt out of their occupational scheme; and to the self-employed. These schemes will be available from next January. The legislation is based on the present, broadly similar, retirement annuities provision. But, in addition to being brought up to date, the new measures incorporate a number of new features which have been widely welcomed. The 1986 Social Security Act enables employees to contract-out of the additional component of the state scheme through a personal pension. The Finance Bill now provides the necessary tax procedures to achieve this result.
In addition, the Bill enables a much wider range of pension providers to establish personal pension schemes. As well as insurance companies and friendly societies the field will now be open to banks, building societies and unit trusts to provide welcome added competition.
The Bill also contains provisions to allow members of occupational schemes to make additional voluntary contributions to a pension plan completely separate from their employers scheme up to tax approval limits on contributions and benefits. This development has been widely welcomed, and taken together with other changes will dramatically increase the choice of how to provide for retirement. A further purpose of our reforms is to remove as far as possible the pension obstacles to job mobility. There is no quick and easy solution but the very existence of the new pension opportunities I have just described will, together with the much greater transferability of pension rights, greatly reduce its worst impact.
The changes we propose do not increase the already generous tax regime for retirement provision, but simply extend it potentially to each and every employee. However, the improvements we propose can be justified only if the tax reliefs for pensions are not abused. We felt it necessary to impose some

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limited restrictions to guard against misuse of the tax reliefs, particularly by a small number of very high earners. These restrictions will have no impact whatsoever on the vast majority of pension scheme members. For ordinary working people the scope for abuse has never been available.
The measures I have outlined comprise some of the main changes in a continuing process of pension reform which was initiated by my right honourable friend the previous Secretary of State for Social Services over three years ago. The proposals in this current Finance Bill build on and extend the changes made in the recent social security legislation and provide a better pension deal for millions and millions of employees, and also the millions of self-employed in this country.
The Bill contains a number of clauses dealing with the taxation of companies which I should now like to draw to the attention of your Lordships' House. These are designed to promote further the principles of simplicity, fairness and effectiveness which underlay the major reforms of the corporation tax regime which we introduced in 1984.
Noble Lords will also be aware that one of the main points of debate on the Bill in the other place related to its provisions on the tax treatment of Lloyd's reinsurance to close arrangements. The legislation is necessary to ensure that the amount of the reinsurance to close premiums can be properly scrutinised for tax purposes. The original proposals in the April Finance Bill have been revised in the light of discussions with Lloyd's. In its revised form, the clause provides a free-standing test for tax deductability which takes full account of the special nature of the Lloyd's reinsurance to close arrangements. It meets the concern which Lloyd's expressed about the proposals in their original form. The chairman of Lloyd's has said that Lloyd's regard the clause as workable and acceptable.
The Bill puts in place a new system of accounting for and paying corporation tax, known as pay and file, which will make life a lot easier for companies of all sizes. The new pay and file system, which follows on the recommendations of the Keith Committee, will add an efficient and modern administrative system for collecting the tax. We have consulted widely with the business community, which has generally welcomed the new system. Pay and file will mean major changes for the revenue, taxpayers and tax practitioners. It cannot be introduced before 1992 but we are legislating now to allow sufficient time for all those affected to make the necessary changes to their operating systems.
The Bill also contains a measure to streamline the taxation of companies' capital gains. These gains will now be taxed at normal corporation tax rates, and qualify for set-off of advanced corporation tax. Now that we have brought the main corporation tax rate down from 52 per cent. to 35 per cent. we see no justification for a different rate on capital gains. This is a useful simplification removing the need for the present complicated adjustment. For over 80 per cent. of companies who pay at the small companies rate, the rate of tax gains will fall from 30 per cent. to 27 per cent.
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After representations, we have decided that the tax rate on gains earned for policy holders of life assurance companies will remain at 30 per cent. pending the outcome of the review of the taxation of life assurance which my right honourable friend the Chief Secretary announced on 8th July. As part of our continuing programme of tax reduction and tax reform we intend to eliminate unintended or unjustified tax reliefs which can give some companies an unfair competitive advantage and cause tax rates for the majority of taxpayers to be higher than they would otherwise need to be.
The Bill contains a number of clauses designed to meet this objective. For example, we did not think it right that companies in multinational groups which enjoy dual residence should secure tax relief twice on one and the same interest payment. A further clause ensures that the controlled foreign companies legislation is not side-stepped by moving the residents of the foreign company to the United Kingdom before payment of a dividend.
In respect of the clauses dealing with double taxation relief on interest on certain overseas loans, we received a number of representations from the banks. In the light of these we have decided to double—to 1st April 1989—the transitional period before the new provision takes effect for loans which were already in existence on 1st April this year.
The measures before us today complete the programme of reforms announced in my right honourable friend's Budget. These build upon our solid record or achievement in tax reform which has set an international trend. The Bill contains important measures which will further our objectives of increasing flexibility and freedom and promoting simplicity and fairness in the tax system. The programme of tax reduction and tax reform will continue as a vital part of our strategy to liberate the energy and the enterprise of the British people. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Young of Graffham.)
11.57 a.m.
Lord Bruce of Donington: My Lords, far be it from me to endeavour to be unkind to the noble Lord in any way by saying anything that will remove from him the sense of euphoria into which he has apparently mesmerised himself.
The noble Lord has given his usual recitation, uttered today, I thought, with a little weariness possibly induced by continued repetition of what he considers the achievements of his Government to be since they embarked upon their course. I am sorry to have to bring him down to earth, because the extent of euphoria now experienced by the Government is entirely relative and has to be considered against the depths to which this Government plunged the economy in 1980 to 1981, and produced the colossal unemployment that still remains with us.
Even today, after all the so-called achievements, manufacturing output in total is still not what it was in 1979. Manufacturing investment is still between 16 per cent. and 18 per cent. below what it was in 1979. So what does all the achievement amount to? It

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amounts to steady efforts to drag themselves out of the pit which they dug themselves. It reminds me of a saying which may commend itself to the House, the mood that is epitomised by the saying: "Hit me over the head with a hammer; it is so nice when it stops."
The noble Lord ignored one factor until prompted by the noble Lord, Lord Diamond. It is a matter of the utmost seriousness. The noble Lord said that one must not take too much notice of, or view with undue seriousness, the results of one month's trade figures. On the whole, I tend to agree. Needless to say, the figures were sufficiently bad for the City of London, which he supports so warmly, to get into a terrific panic. The City takes the matter very seriously, as indeed it might. For whatever the noble Lord may say, the future of the United Kingdom ultimately depends upon the output of its manufacturing industries, their expansion, and their competitiveness, and, above all, upon the ability to achieve again what we did until five years ago; that is, a surplus of trade on our visible account.
If one were to take by themselves the figures for this month and project them over a whole year, they would show a visible deficit of some £12 billion. I agree, however, with the noble Lord that it would be wrong and silly to try to read too much into one month's figures. Even reading them on the basis of the average for the past five months or on the basis of the last quarter, the projected adverse figure on visible trade is still either £7 billion, £8 billion or £9 billion. On can take one's choice.
What is noteworthy, and what I trust the Government will recognise if they have not already done so, is that the greater part of the deficit arises from United Kingdom trade with the European Community. There is a very close correlation. In 1986 our deficit with the European Community totalled some £9 billion. That, of course, goes beyond manufactures as it covers all visible trade. So far, in the current year, there is a similar correlation between the two. I make no pro-or anti-European point, but those who are fond of saying that 48 per cent. of our exports go to Europe might also bear in mind that 52 per cent. of our imports come from Europe. It is a point that should be borne in mind.
The lessons for the Government are very clear. The whole question of our exchange rate and interest rate policy has to be seriously considered in the course of the next two or three months and before we meet again. There has to be some further surge of Government support for manufacturing industry in a variety of ways. They certainly cannot turn it round within three months, but we would expect some constructive proposals from the Government to stimulate further manufacturing industry.
We have had the opportunity of reading the excellent little book on the campaign written by somebody with inside information of Conservative Central Office. I found it vastly entertaining and I commend it to your Lordships. There are some very interesting remarks from the noble Lord himself about which I have not time to inform the House. It is clear that the Conservative Government regards the future of Britain in terms of the City of London and in terms of its financial and other invisible services. This is where the Government's whole thrust
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goes, and it is to this that they are overwhelmingly committed in a variety of ways.
Lord Bruce-Gardyne: My Lords, I apologise for interrupting the noble Lord. He said that he would be looking for the Government to give further stimulus to manufacturing industry. My noble friend pointed out that the current rate of growth of manufacturing industry and manufacturing output appears to be about 4 per cent. per annum. What rate would the noble Lord regard as acceptable?
Lord Bruce of Donington: My Lords, the noble Lord knows perfectly well from his own position in the City. I have read extremely carefully his very interesting and learned contributions to the press. He knows, or ought to know, that there is a widespread view in industry that the existing capacity of British manufacturing industry which was decimated in the 1980s, is now showing signs of capacity strain. Therefore, there has to be serious consideration given by the Government to increasing manufacturing capacity. If private capital cannot do it, then public capital has to be put up for that purpose. That is my answer.
Since we are going to be away for three months, we have to consider now the question of tax reform of which the noble Lord made much mention. We have to consider in particular the position relating to value added tax and developments that may occur before this House reassembles.
When noble Lords opposite talk of the burden of taxation, they mean, of course, direct taxation. Reliefs of indirect taxation go beyond their comprehension of tax relief. If there is to be any relief from taxation, it is direct taxation they have in mind. Direct taxation is, of course—if one can put the term in inverted commas—a "progressive" form of taxation in that the extent of people's incomes and their resources is taken into account in determining at what rate they pay tax. There is some relationship—some may not think it comprehensive enough—between the tax levy and ability to pay. Indirect taxes, including, in particular, value added tax, are regressive in the sense that no matter what your resources are, no matter how poor or rich you are, you pay the same rate of tax on the articles that you acquire.
It is very interesting, in view of the Government's claim to have made such progress in the field of taxation, to observe exactly what has happened. From 1978–79 to the current financial year, the total yield in income tax has increased from £19 billion to an anticipated £40 billion per annum; that is, an increase of 110 per cent. Value added tax, on the other hand, has increased from £4.7 billion to £23.81 billion in the current year—an increase of some 396 per cent. Therefore, value added tax, the regressive tax, has increased at a far higher rate than the ordinary income tax that people pay. That of course is in conformity with the immortal words of the then Chancellor of the Exchequer in 1979 when contrary to election undertakings VAT was increased from 8 per cent. to 15 per cent. In his winding up speech he said:
"I shall be leaving people with more money in their pockets with which to the pay the increased VAT".
Indeed, that is the philosophy of the party opposite.

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That becomes of importance since, while we are away until 20th October or thereabouts, moves are afoot to increase the burden of VAT in this country. Some of those moves may be altogether outside the control of the Government. I shall have more to say about that. First, there is still the case brought against the Government in the European Court to abolish zero rating and to standardise other rates of tax on a whole series of other items but more particularly on new building construction, about which I shall say something presently.
Your Lordships will be aware that I tabled a Question for Written Answer endeavouring to ascertain the amount of the VAT levy upon the British public that would come into operation on the assumption that we lose the action. The noble Lord replied (at col. 1380 of Hansard) on 21st July:
"The amount of extra VAT revenue would depend on the new liability of the items to which the noble Lord refers. This would need to be determined in the light of the judgment of the European Court of Justice".
The noble Lord was not able to give a figure. Therefore, we cannot make an estimate at this stage, though I am reluctant to believe that the Government do not have an estimate in mind of the amount of extra revenue that would accrue to the Treasury and therefore the eventual extra VAT impost that would fall on the British people in the event of the case succeeding.
I give an example. Let us assume that it was decided, and was enforceable—I hope that the noble and learned Lord, Lord Denning, will have some words to say about that—that about 200,000 new houses every year would be subject to 15 per cent. VAT on a low average price of about £30,000 per house, which is extremely conservative. That would increase the price of new dwellings by £4,500 per house and yield additional revenue of about £900 million a year to Customs and Excise and therefore to the Treasury. That is not an insignificant sum. Indeed, it would have very wide repercussions in the British economy in regard to mortgages and the price of what one could call second-hand houses. It would have an impact on the economy which even the noble Lord, with all his euphoria, would not dismiss as being entirely insignificant.
Therefore, I have sought to elicit from the Government the arguments they are putting before the European Court so that we can fight the case. I assume for the moment that the Government are stern in fighting the case, despite the temptation for the Treasury to lay its hands on what are clearly large sums of money. I hold the view that the pleadings should be made public. The noble Lord knows quite well by now—if he does not I shall spell it out to him, chapter and verse—that it is established beyond all reasonable doubt that the Government can and ought to publish their pleas.
There is no monopoly of legal wisdom within the Government. In fact, after looking at some of the recent actions, particularly in relation to the Official Secrets Act and various others, one wonders where the legal wisdom of the Government is.
Lord Young of Graffham: My Lords, the noble Lord will recall that I wrote to him on this matter
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only yesterday. I told him precisely why we were unable to allow the pleadings to come into view and that we have gone back to the Commission's legal service and asked the Commission formally to change its mind. If it does so, we shall then publish the Government's case.
Lord Bruce of Donington: My Lords, I was about to inform the House of the correspondence which the noble Lord was kind enough to address to me. I accept immediately his assurance that at a very early date the fullest publicity will be given to the pleadings that the Government have put forward. As I say, there is no monopoly of legal wisdom within the Government. There are eminent lawyers outside this House, as well as inside it, who are experts in this field. Therefore, we shall want to know the position very quickly.
I now refer to the second arm in regard to the proposed increases in VAT as comprised in the Cockfield proposals. So far I have been unable to obtain a copy of the proposals, although I hope to do so. Everyone outside the country seems to have them but not those of us in this Parliament of Westminster. Your Lordships will recall that the noble Lord, Lord Cockfield, was very loyal Member of Her Majesty's Government, who formerly occupied the position now occupied by the noble Lord. The noble Lord, Lord Cockfield, is seeking harmonisation of taxation in Europe. He has brought forward proposals for the abolition of zero rating in the United Kingdom over a whole series of items. He has also brought forward proposals for the other ratings to apply in other spheres. Once again, it is not yet possible, until we have seen the actual proposals, to quantify the impact on the United Kingdom public of the extra taxes that would arise if the Cockfield proposals were accepted, save in regard to food.
Lord Young of Graffham: My Lords, I hope that the noble Lord will forgive me for once again interrupting. My right honourable friend the Prime Minister said, as reported in The Times on 30th May and Accountancy Age on 4th June, that if the Community brought in a Community law to change our capacity to zero rate the items that we want to zero rate, the Government would use our veto against it. It is a measure which requires the unanimous agreement of all 12 members of the Community and the Government have said that we would block such a move.
Lord Bruce of Donington: My Lords, the noble Lord is kind to anticipate me. I was about the reproduce exactly the words of the Prime Minister. He must not be too impatient. He must allow me to proceed in my own way. I was endeavouring to inform the House of what the impact would be if the efforts of the United Kingdom were unsuccessful in avoiding the Cockfield proposals, or indeed if as part of a package deal VAT was traded off against some other factor that was deemed to be desirable in the United Kingdom's interests within the Community.
The imposition of VAT on food of some 4 per cent., which is the fancied figure, is one which oddly is favoured by the House of Lords Select Committee on Community matters in its report HL 127/84. I

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have no further commment on that. It would cost £1 billion a year. That would be 50p per week for each adult in this country. That is in addition to the 84p already paid in respect of storage and the extra cost imposed by the EC CAP structure of some £11.50 per family.
As the noble Lord said, the Prime Minister has declared herself against the proposal, or has she? I shall reproduce the question asked in the other place by the Leader of the Opposition on 16th July:
"The problem is the move to impose VAT on what are currently zero-rated items of considerable importance to the family budget. Does the right hon. Lady agree with the word of the Paymaster General that the Government would 'in fact veto VAT on food, fuel, children's clothing and shoes'—Yes or No?"
The Prime Minister replied:
"My hon. Friend the Paymaster General specifically confirmed what I said during the general election campaign, and that was his precise purpose".
She did not say yes or no. She continued:
"I am well aware of the words that he used. I am amazed that the right hon. Gentleman does not welcome the fall in unemployment". [Official Report, Commons, 16/7/87; col. 1271.]
A yes or no was not given. That moved the Financial Times the next day to publish a feature headed:
"Thatcher keeps options open on VAT".
We should like to have this afternoon a precise and unequivocal answer from the noble Lord as to whether they will veto VAT on food, fuel, children's clothing and shoes.
It is no good the noble Lord saying "I have nothing to add to the statement made by my right honourable friend the Prime Minister". Either he is empowered to say yes or no or he is not. If he equivocates, the doubt which was voiced, not from Labour Party headquarters in Walworth Road, but from Bracken House, the headquarters of the Financial Times.
"Thatcher keeps options open on VAT".
I have two principal questions to ask the noble Lord. First, I wish to know what the Government's action will be if the VAT case against them in the European Court goes against them. What will happen? Under the terms of the Single European Act and the Treaty of Rome is the European Court's decision then automatically enforceable in the United Kingdom? Is it an automatic directive to the Treasury to levy the particular sum? If that is so, it will be the first time that the raising of taxation in the United Kingdom will have been entrusted to a body outside the United Kingdom. We want to have a statement about that position.
We want an assurance that if the matter arises between now and 20th October, when we resume, Britain will withhold her vote on the Cockfield proposals under the requirement of Article 17 of the Single European Act. If the noble Lord can give us those assurances it will be helpful. We wish the Government well during the next three months. They will need it, but we are fearful, nonetheless, that nothing they are likely to do over the next three months will substantially ameliorate the plight of the majority of people in the United Kingdom.
12.25 p.m.
Baroness Seear: My Lords, the Secretary of State will perhaps be pleased to hear that from these
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Benches we welcome certain aspects of the Finance Bill. We do not frequently please the Secretary of State from these Benches. Today will not be a total exception to that general practice. We are, for example, obviously glad to see progress made on profit-related pay. It would be surprising if we were not glad to see that as we have been advocating it for at least 50 years, from the days of the yellow book, long, long before it occurred to the Government that it might be a good way forward.
However, repentance however late is welcome and therefore we welcome the profit-related element in the Finance Bill. We also welcome the steps taken on personal pensions, about which my noble friend Lord Banks will say more shortly. Personal pensions are valuable in themselves, and my noble friend will speak about that, but they are also valuable in so far as they are a step towards a greater degree of mobility of labour. The Secretary of State referred to that point.
There can be no doubt that in the past many forms of pension have tied people to employers when it would have been much better for the employer, the individual and the economy if a break had been made and the person concerned had gone elsewhere.
This is where we start to part company. If mobility of labour is a serious purpose of the Government—I think that the Secretary of State is aware of how important it is in relation to the economy—other things could have been contained in the Finance Bill which would have helped the mobility of labour and which in our view should have had a higher priority than some of the decisions made by the Govenment.
The Secretary of State will be aware now—he will have been even more aware in his job as Secretary of State for Employment—of the extent to which progress is being held up by inadequate mobility of labour. As he knows, it is pretty well impossible to fill skilled and technical jobs because people cannot move. That means that we must drive towards improving the availability of housing, which is seriously holding up mobility. The Buckinghamshire area, with which I am most directly connected, is a high-tech area and there is no doubt that we cannot recruit the people we require because, while one can still buy a house in the North-West or the North-East for £20,000—£30,000, one cannot buy a hen coop for that amount in Buckinghamshire.
Something could well have been done through the Finance Bill to ease the housing position. One way would have been to put more public funding into the improvement of housing, be it the building of more public housing or money made available for the adaptation of houses, so that more houses are made available.
Another improvement which could have been included in the Finance Bill, and which would have had an effect at the higher end of the housing market, would be if, as we on these Benches have always advocated, tax relief on mortgages was limited to the basic rate of tax. At present, the allowing of tax relief on mortgages at the higher rates of tax is a direct encouragement to the increase in house prices which in London and the South-East has taken off to a most alarming extent, and which is affecting mobility in a variety of ways.

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In our view money devoted to that end would have been money well spent both from the point of view of individuals and of getting a much more flexible and mobile economy. I am sure the Secretary of State agrees that that has to be a major objective.
Having mentioned those aspects of the Finance Bill with which we are very much in agreement, I fear I have to say that there are many matters omitted from the Bill which we would dearly like to have seen. The noble Lord will not be surprised to hear that, unlike the Secretary of State, we believe that money would have been better spent not on the further relief of the income tax payer—the reduction of 2p on tax requirement—but, where necessary, on proper investment not only in the infrastructure, on the encouragement of investment on railway development, and on housing, but in the whole field of education and research development. It is not for nothing that very serious and responsible vice chancellors are saying that they do not know what the future will hold for their pure and applied science departments because of the failure to put sufficient money into those areas. This is an investment which is urgently needed and will not come from the private sector. If the Government consider that their present educational proposals, in particular the contract funding which is being put forward, are a sufficient solution to this, I can only tell them that there is very widespread and responsible opposition to this view throughout a great deal of the educational world. Money spent there rather than a reduction in taxation would have been a very great improvement in the Finance Bill.
When the noble Lord gave us this euphoric description of what is happening in the economy—and one understands this up to a point—he was highly selective in his presentation. We in this House believe in having as much consensus and agreement as we can. We do not believe in adversarial politics for their own sake. If only the noble Lord would sometimes agree that all is not totally well in the economy at the present time, he would find that many of us would go a long way to collaborate in order to improve matters. We all know that unemployment is falling, but our figure is still almost the highest in the industrial world. The Secretary of State also knows perfectly well that a great many of the new jobs have gone on a part-time basis to women. I have nothing against women working, and working on a part-time basis, but it gives a false picture of the degree of recovery when so many of the new jobs are to be found in that area.
Nor has the noble Lord said anything about the excessively high level of interest rates—far higher than among most of our competitors—which holds back a great deal of the kind of development that he wants. We understand why it is being done. We recognise that there are difficulties in relation to the exchange rate. I for my part believe that nothing is more important than getting stability in the exchange rate. I shall not talk again about the EMS—we understand that this affects the level of interest rates—but it is not a satisfactory position. If the noble Lord would be prepared to discuss these matters with us, it would be a great deal more convincing and satisfactory than to be asked always
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to applaud what the Government are doing. Not only in the Finance Bill but in the general economy it is not good enough for the Government not to recognise that there are still very serious problems indeed.
Another problem, to which the noble Lord did not refer, and which is generally agreed among all commentators to be the Achilles' heel of the Government's policy—I think that his Achilles has two heels—is not only the continuing increase in pay settlements, but where overtime earnings increase the total take-home pay and therefore increase unit costs. I know that unit costs so far have not increased as much as was feared. However, the fact remains that our increase in earnings is going up faster than that of our competitors. This, combined with the reduction in taxation, gives a real boost to imports. It is not surprising that our balance of trade is down, and that over the past three months there has been a fall of 4 per cent. in our exports. This may be a flash in the pan; it may be temporary, as the noble Lord, Lord Bruce, said. However, the policies that the Government are pursuing by putting more money into consumers' pockets through their tax deductions and by failing to control the extent to which pay increases are going up, undoubtedly encourage the increase in imports, which could have an extremely adverse effect. This is one reason why we think that the money available could have been better distributed than by putting it into the pockets of consumers. Of course if pay increases continue to go up, our competitive position will worsen. The noble Lord shakes his head. If pay increases and labour unit costs go up and those of our competitors do not, it must have a deteriorating effect.
Lord Young of Graffham: My Lords, forgive me, but our unit labour costs have been increasing at a slower rate than those of France, Germany and our principal ocmpetitors. Our competitors unit labour costs have been increasing over the past few months. I understand the concern of the noble Baroness, which the Government share, about the general level of wage settlements.
Baroness Seear: My Lords, I have already said that unit costs have not gone up as much as we feared they might, but if the trend on pay continues increasing at its present rate, this position cannot continue. I imagine that the noble Lord believes and hopes, as does the Chancellor of the Exchequer, that profit-related pay will provide a curb on wage increases and therefore will have a highly desirable effect on unit costs. That may well be so, and it has always been one of the reasons why one has believed in the advantages of profit-related pay. However, we on these Benches, who have always supported profit-related pay, have always said that it has to be done in a climate of a high degree of collaboration and consultation with labour and labour representatives.
I am a person who has been critical of corporatism. I do not like corporatism. However, I believe that one cannot have the kind of progress inside an enterprise, or in the economy as a whole, unless one carries the trade union movement with one. It seems to me to be gratuitous and an unnecessary insult to the Labour movement to have snubbed NEDO, which is a useful

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consultative body, and at the same time to plan to undermine the position of the MSC—to a large extent the work of the Secretary of State—by altering the balance between employer representation and trade union representation. What must the trade union movement think? What must be the effect on the kind of consensus, agreement and support that ought to be coming from the Labour movement and which will have to come if the changes that the Government wish to see are to be brought into force, if they treat the trade union movement in this way?
As the House knows I speak by no means as an unqualified admirer of the trade union movement. We have never had a penny out of the trade union movement, and are never likely to. Nonetheless, that kind of support is essential. The Government behaviour at the present time is likely to cause alienation. There is the element of "We are the masters now" which does not go well with the kind of prosperity we wish to see.
By convention, a debate on the Finance Bill in this House is used for the discussion of general economic matters. I now wish to raise briefly one matter which it may be thought is somewhat outside the matters normally discussed under this heading. Local government finance is a very important part of the financing of the country and has a very big economic impact in the country. We debated earlier in the last Parliament the question of the poll tax in relation to Scotland. We shall be debating it again, alas, in relation to this country.
However, perhaps I may put on record something that I find quite extraordinary. We are all agreed in this House that rates as such leave very much to be desired. They are neither a very efficient nor a very fair way of raising local finance. But why in all this discussion has it been presented to us that the only possible alternative is the community tax? It is now 11 years since Sir Frank Layfield was asked to examine local government finance. In that report he came up with the statement that,
"a local income tax…on personal incomes, levied according to where people live, is the only serious candidate for a new source of local revenue that could give a substantial yield and at the same time maintain or enhance accountability".
Those surely are exactly the objectives which the Government say they have in local finance. Why, in all the inquiry about local finance, enormously important as it is both economically and socially, has there been no full discussion about those Layfield recommendations, no discussion as to why local income tax is not to be the preferred option? I know that in the Layfield Report it was said that the cost of doing it would be considerable, that there would be difficulties in that regard.
However, that was 11 years ago. Since that time there have been enormous advances in computerisation which makes the whole issue of local income tax a great deal easier. At least in the discussion of the poll tax and in the reform of local government finance the discussion of local income tax should have occupied a prominent position as we on these Benches have always urged. I expect it is much too late, but I should at least like to put on the record that a great opportunity is being lost at a time when we are considering a basic change in local government finance; that there has been no real
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discussion of the option which Layfield said was the most serious option to the present system.
12.42 p.m.
Lord Boyd-Carpenter: My Lords, one of the most attractive features of the noble Lord, Lord Bruce of Donington, is his consistency. He always runs true to form, and he ran splendidly true to form this morning. He began by accusing my noble friend Lord Young of Graffham of the grave offence of euphoria, ignoring perhaps the fact that my noble friend has quite a lot to be euphoric about. But the noble Lord followed his own consistent line of grasping at (if I may mix metaphors) any straw of gloom that he could find. He even appeared to derive enormous pleasure from the fact that the City in its habitual way had reacted to certain figures in the past few hours.
I can console him, because the reaction of the City in the past few hours is absolutely nothing to what was its reaction when at one moment during the general election campaign it appeared possible that the noble Lord and his friends might be put in charge of our affairs. Then there was a very considerable reaction indeed.
Lord Molloy: My Lords, may I—
Lord Bruce of Donington: My Lords, if I may—
Lord Boyd-Carpenter: I have mentioned the noble Lord, Lord Bruce of Donington, so I must give way to him, if the noble Lord behind him will forgive me.
Lord Bruce of Donington: My Lords, I am quite sure that the noble Lord, Lord Boyd-Carpenter, would not wish to misrepresent me in any way. The noble Lord will recall that I too cast doubt upon the judgment of the City of London in this matter; that I did not accept that the reaction of the City of London to the trade figures was necessarily the correct one. If the noble Lord reads the Official Report, he will find that that is so.
Lord Boyd-Carpenter: My Lords, I am glad to hear that explanation from the noble Lord but it does not explain why in the circumstances he thought it was necessary to mention the matter at all. If he takes that view, it would appear to be wholly irrelevant to his argument. The noble Lord himself was seizing rapidly at any conceivable bit of bad news he could grasp. But I thought he went too far, though he has done it before, when he proceeded to attribute the unemployment figures solely to the action of Her Majesty's Government in, I think he said, 1980. I think he will find when he reads Hansard that that is what he said.
The noble Lord knows as well as any of us, and perhaps better, that regrettably high rates of unemployment have been common throughout our European neighbours and indeed throughout the industrial world for a good many years past, in countries and places where the policies of Her Majesty's Government have absolutely nothing to do with the case. The noble Lord really should know your Lordships' House better than to drag out that old—I shall not say "herring"—misleading statement.

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The noble Lord also did not appear quite to understand the nature of taxation. He said that those who talked about the burden of taxation were concerned only with direct taxation. That is quite untrue. He also said that indirect taxation always had to be at the same rate for everybody. Again, that is not true. If the noble Lord goes outside this House to buy a bottle of beer and a bottle of whisky he will find that the rate of tax is quite different on those two delectable commodities. Indeed, if his recollection goes back, as it should, to what in my view was a much better tax than VAT, the old purchase tax, he will remember that that was deliberately graduated at different levels of tax in accordance with whether the article taxed was, or was thought to be, a luxury or a necessity. My recollection serves me, from the days when I had the pleasure of operating that tax, that on jewellery and expensive scents it was 66⅔ per cent. and on things that were near necessities it was 5 per cent. or 10 per cent. and very often zero rated.
There is nothing in the nature of indirect taxation as such that makes it, as the noble Lord suggested, regressive. His criticism, if any, should have been directed to VAT. I share his dislike of VAT. I think it is a bad tax. I believe it to be inflationary in its effects.
That brings me to follow up the point that the noble Lord perfectly legitimately raised as to the proceedings before that eclectic body, the European Court, against the British Government on the subject of VAT. It is certainly news to me that any outside body, however august, has any right to lay down what British rates of taxation shall be. It is my understanding that it is still Parliament, and in practice another place, that has the right to determine the rates of tax. It would be an interesting point if the European Commission's action before the European Court should be successful, it being directed, as I understand it, against the British Government.
What would happen? As your Lordships know, no British Government can be certain what Parliament would do. The British Government could theoretically, I suppose, be ordered to impose this taxation, but if Parliament rejected it I should have thought the matter would end there. I understand that, although he is not on the speakers' list, the noble and learned Lord, Lord Denning—who as your Lordships know has made a close study of this extraordinary subject—is to address your Lordships later. I for one am much looking forward to what he has to say on the matter.
As I said, in the meanwhile it seems to me quite outrageous that any outside body should seek to determine what British rates of taxation should be, and I hope and believe that Her Majesty's Government, noble Lords in this House and honourable Members in another place will resist fully any attempt to impose its idea of taxation upon the British people.
I come now to a question where I am afraid I profoundly differ from what the noble Baroness, Lady Seear, said about the level of taxation in this country. I am sorry that, having delivered herself of that somewhat heated oration, she immediately departed. If I may be allowed respectfully to say so, that is not quite in accordance with the practice and
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good manners of this House, but I shall nonetheless seek to reply to her.
She said that it would be better to encourage investment by not reducing income tax, but by using the public resources made available through making no reduction in income tax by way of investment. That argument is only sustainable if one takes the view—which I know is taken by noble Lords on the Labour Front Bench, though it is surprising to learn that it is taken by one section of the Alliance—that all good investment is made by government. There is no greater discouragement to investment, particularly investment in projects which may take quite a time to fructify, than high taxation. As I see it, one of the major purposes in reducing direct taxation is to encourage investment. One understands that those who speak for the Alliance in the present situation do so subject to certain technical difficulties, shall we say? Even then, the argument seems so astonishing that it is difficult to understand how so distinguished a figure as the noble Baroness should possibly have propounded that argument.
I should like to comment on the general question of taxation. The good features of this Finance Bill—the provisions in respect of profit-related pay and personal pensions—are all plainly designed against the background of a high rate of taxation and with a desire to alleviate the ill effects of that rate in taxation in respect of particularly meritorious causes. That is good and I strongly support those proposals in the first two parts of the Bill.
However, it does not take one away from the basic fact that the level of direct taxation in this country is still too high. In the light of the good report to which my noble friend referred—stigmatised as euphoric—and of the progress over the past few years, it is disappointing that after eight years of Conservative government we should still be taxing some part of some people's income at a rate of 60 per cent. That is a confiscatory rate, justifiable perhaps by war or great emergencies but, I suggest, not justifiable at a time when the economy is successfully progressing; nor is it calculated to stimulate that progress.
Again and again we hear about the brain drain and the fact that people with high technical qualifications are leaving this country. One of the reasons that some of them give for leaving is the high rate of taxation on their earnings. In the case of a brilliant research worker, for example, the period of high earnings is generally quite short—sometimes five or six years. I remember being told by the head of one large company that his research people were over the hill by the time they reached the age of 35. If one has a high earning capacity for a relatively short period, one wants to exercise that earning capacity in an area where one is allowed to keep a reasonable proportion of those earnings. It is a great mistake to assume that because someone has high earnings in one year he will have continuous earnings at that level for all his life. That is not our experience. I urge upon my noble friend the desirability of reducing income tax and, despite the criticisms which will undoubtedly be made, in particular reducing the intolerably high rates.
One has only to contrast our highest rates of taxation with those ruling in the United States, and

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then contrast the enormous expansion and wealth of the United States which has been helped by a much more sensible policy in direct taxation. I hope that we may be able to learn a little from them.
I think that we still have serious anomalies in our taxation system which discourage exactly what it is that the Government are trying to encourage. If one wants to build up a business and see that more and more spending is done through private hands rather than public hands, surely it is essential to leave more of people's earnings in their own hands. Take the question of charities. In my view, it is quite wrong to assume that all support for good causes must come from taxation and central government funds. It is better to leave people with a reasonable proportion of their earnings and to allow private charity to operate. Private charity is apt to operate much more discriminatingly than is possible for the government machine.
One has only to look over our history to see the building up of great charitable trusts over the years, such as the Nuffield Trust, as a result of people earning large sums of money and being prepared to seek to apply them in this way. In the economic sense, choice by the citizen of what he will buy is a good regulator of the economy, and from the social welfare point of view there is an enormous amount to be said for reducing excessive rates of taxation.
When dealing with the previous Finance Bill I pointed out (so I shall not weary your Lordships again) the oppressive provisions of taxation in respect of married couples. It is particularly oppressive in this day and age when the majority of wives work. The point which I made then was that, for a high earning couple, it is financially better for them to live in sin than to marry, and that is a deplorable state of affairs. I hope that the Government will regard the correction of this situation as a matter of some urgency.
The very high rate of inheritance tax and the very low level at which it begins to bite is also a matter of concern. The Government pride themselves, and rightly so, on turning our society into a home-owning democracy. What is the use of encouraging people to acquire a home if you then make it extremely difficult to pass on that home to one's family? If you tax the principal residence with the full rate of inheritance tax, you make it impossible in many cases for people to pass on to their family the homes that they have painfully and painstakingly acquired over a working life.
There is a good precedent which I commend to my noble friend. As I understand the matter, capital gains tax does not operate on the sale of one's principal home or residence. Why should not that exception be applied to inheritance tax? It would provide enormous relief to a great many families. It would also have the advantage that when a famous or stately home passes as a result of death, we should be spared the continual flurry and effort to raise funds and so on in order to keep the various treasures in this country and to keep these lovely houses together.
In almost all cases where the problem has arisen it has been because an enormous tax bill has been presented on the death of the previous owner. I suggest that it would do a great deal of good in many
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directions if one's principal home or residence were entirely exempted from inheritance tax.
It is often suggested that there is some peculiarity, almost eccentricity, about those of us who protest against the present high rate of taxation, but it is worthwhile remembering how new it is. If one goes back to the Lloyd George Budget of 1909, which produced the Parliament Act and our present constitutional situation, the rate of tax which outraged your Lordships' House at that time—outraged it to a point of singularly silly action, which it took—was a rate of 1s 3d in the pound: approximately 6p or 6 per cent. taxation.
Over our lifetime, undoubtedly partly as a result of the emergencies of two world wars, we have grown accustomed to very high rates of personal taxation. I should like to hear from my noble friend when he replies some indication that the Government, having dealt with so many problems, having had some success in dealing with a great many other problems, are now taking seriously the problem of the high rates of personal taxation. I believe that there is nothing that could give a greater lift to our economy, a greater encouragement to enterprise, to initiative, to the setting up of new businesses, to savings, than a drastic reduction in the rates of direct taxation; in other words, leaving people more share of the money they have earned to spend for themselves.
I would commend to my noble friend—and I should have commended it to the noble Baroness, Lady Seear, if she had come back; but she has not—that this philosophy goes back to Gladstone, who said that it was a good thing to allow money to fructify in the pockets of the people. I do not know whether the various branches of the Alliance still have a regard for Gladstone, but I think many of us on this side of the House have a respect for his judgment in that regard as in so many others. I hope that my noble friend will be able to give us just a little encouragement, just a little light at the end of the tunnel—and that tunnel leading to the Channel Tunnel.
Lord Molloy: My Lords, before the noble Lord sits down, perhaps I may say that when he made his remarks about the City he was probably quite accurate. But this tiny group of people could voice opinions which could have a deleterious effect on Great Britain's trade and industry, and on the possibility of a different government from a Conservative Government they were quite prepared to indulge in that form of treachery.
Lord Boyd-Carpenter: My Lords, the noble Lord has no right to refer to people's judgment in this regard as an act of treachery. If people with some experience of finance, having studied the election programme of the Labour Party, thought that it would have disastrous effects on our national economy, they were surely right to say so; and in my view they were dead right in saying so.
1.12 p.m.
Lord Houghton of Sowerby: My Lords, when a noble Lord has been speaking for 18 minutes and has sat down I think that other noble Lords ought to let him continue to sit. I see no point in dragging a noble

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Lord to his feet again after he has sat down, having made an interesting speech lasting that amount of time.
The more budget debates I attend—I think I have attended 37 of them—the greater the sense of unreality one gets of such debates in your Lordships' House. The cloud of the humiliation of 1911 has never been removed from this Chamber when we debate finance. Any observer of our proceedings would never believe, following a long and descriptive speech by the Minister and a long reply from my noble friend Lord Bruce, that before teatime the Bill will have passed through all its stages and gone off for Royal Assent. They would say, "whatever is wrong with that place? They can discuss pornography until the cows come home but they cannot discuss national finance. Sex, but not finance. Abortion, but not finance." It really gets our deliberations out of proportion.
If we are to discuss running to form and old hands, the noble Lord, Lord Boyd-Carpenter, my noble friend Lord Bruce and I are all old hands in Budget debates. So, presumably, we have some form to run to. I am a bit doubtful whether I have. But my noble friend Lord Bruce, politically speaking, runs to form in a spirit of congenital discontent. The noble Lord, Lord Boyd-Carpenter, when he is running to form, deals with his critics in a high spirit of jocular disdain. I do not know what I do when I am running to form. I have to get my form while I am on my feet, and I am not always sure when I get up what it is going to be. There is such a wide choice when discussing finance and taxation that one can really pick and choose where one likes.
I want to be serious for a moment or two on the trend of concessions in our taxation system of which this Bill provides yet another example. The first 60 or 70 clauses deal with an additional array of tax concessions to increase flexibility or to encourage something to be done—what I would call fiscal manipulation for social, economic or even political ends. We have to be careful when using the taxation system for these ancillary purposes. We have to realise the use to which they might eventually be put.
I first felt concern about this trend many years ago when the late Sir Gerald Nabarro suggested using the taxation system to encourage the installation of fuel-saving equipment and appliances. I was a little doubtful about it at the time. When you depart from taxation as a means of raising revenue for the general purposes of running the nation's affairs and trying to distribute it fairly between one citizen and another, then you open up the way to lots of digressions which will suit either pressure groups or the aims of a particular phase in our affairs. It is as if our fiscal system were made of plastic, capable of being pulled about, shaped and adjusted to events or circumstances as they arise.
We have in the Finance Bill before us the concessions for wages based on company profits. In the previous year we had concessions for contributions to charities through the pay-as-you-earn system. We have had concessions for profit sharing. We have had the enormous concessions which have grown and become magnified in the system such as mortgage interest relief.
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Some of these concessions have grown to disproportionate size and have become almost an economic menace. They have had results that nobody anticipated. When mortgage interest relief was first used for house purchase in present conditions, nobody realised the effect that it would have on house prices. There is not the slightest doubt that tax relief on mortgage interest has contributed, and is contributing now, to higher prices of domestic accommodation which has become more freely available. It has become profitable to invest in perhaps the most certain investment with capital appreciation that one can make at the present time.
Once concessions have been granted, they become extremely difficult to remove. Alternatively, they become so politically important that you pursue them and enlarge them until they reach a condition of being positively unfair to the rest of taxpayers. We have to bear this in mind. I can think of possible uses of this system of tax concessions that might be made by governments of another political complexion. I mention only one as a purely hypothetical case.
Trade union membership is falling. Trade unions are in difficulties, Trade union membership in some of our newer industries is not prospering. It may be that some government may say, "We must do something to stimulate trade union membership. It is important that we have strong and independent unions, therefore let us do something to encourage trade union membership. Among other things we could make trade union contributions tax deductible and by way of increasing the inducement we could say that members of trade unions should have tax relief on their expenses for travelling to and from work".
There is no end to the bias that can be introduced into the taxation system if a government like to use the majority they have to force it through. There are no principles of equity as between one citizen and another which seem to prevent such a distortion of the system of taxation. I have been looking at the Daily Telegraph of yesterday. It was very interesting and offered some ideas which the Chancellor might have to consider in relation to a comprehensive scheme of tax reform.
One was that the totality of concessions from the burden of taxation in any individual case should be limited. There should be a ceiling to it because, it was stated, if a person of ample means and diversified activities liked to apply his interests with fiscal judgment he could get relief on mortgages and in respect of pensions; he could get relief on farming, on forestry and on business expansion. Indeed if he got enough reliefs he could reduce his tax burden to minimum dimensions. So it was suggested that the Chancellor might have to put a ceiling upon the total of the concessions available in respect of personal taxation.
Such matters may be important in connection with a review of our taxation system, but what I am submitting to the Secretary of State now is that in embarking upon this review of taxation, probably on a scale which might satisfy President Reagan, a great deal of research should be done and a great deal of information should be provided on the incidence of taxation, the effect on the citizen and the cost of the

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concessions so that we all know what the cost of this adds up to, because we know far too little about it.
Are there any principles of taxation left? My noble friend Lord Bruce referred to the principle of progressive taxation, but progressive taxation is by no means the only or even in some respects the principal form of taxation today. We have a progressive system, which is income tax. We have a proportionate system, which is national insurance. We have indirect taxation and we have now a new tax looming, the community charge.
Progressive taxation is based on an assumption of ability to pay, graduated accorded to means. A proportionate tax takes no account of ability to pay but makes a levy in proportion to gross receipts. A community charge will be a new feature of our taxation system: a flat rate based on a locally determined fixed charge, which we are now coming to call a poll tax. I agree with the noble Baroness, Lady Seear, that when we come to talk about the community charge probably some discussion might take place on what the possible alternatives are.
I do not agree with the noble Baroness that a local income tax is the most attractive alternative to the present rating system. There are many difficulties about a local income tax. I was on a Royal Commission that examined this very carefully indeed, and we were not impressed with the feasibility of a local income tax grafted on to the national system of taxation and possibly subject to the same reliefs all the time. Would they run in harmony or could one be different from another? There is a lot to consider in that connection.
As for the relationship between direct and indirect taxation, Gladstone talked about that; it was one of the things he said in 1888. He was playfully suggesting that he had to look at these two attractive sisters, Miss Direct Taxation and Miss Indirect Taxation. They were equally attractive sisters, he said, and he had to pay due court to both. That suggested that he had to keep them in balance and affections had to be evenly distributed.
We have come a long way since then. I am not sure that we should regard indirect taxation with the distaste that we used to. I recall that the late Hugh Dalton always explained his philosophy on this matter with loud roars of laughter. He used to say that one of the strongest cases for indirect taxation was that it was purely voluntary. If you liked to dress yourself in brown paper and live in the woods you could escape it altogether. In that sense, indirect taxation was levied according to the expenditure of the citizen. That is the theory, but when taxation is usually mounted in such diversified directions as to catch you whatever you do, there is no escape from it.
The novelty tax is nearly always a failure. The trouble with the British public is that they like what they have got used to, whether or not it is fair, and if you try to reform it the cry goes up, "How many winners and how many losers?". We are a nation of winners and losers. Everybody has to be a winner or a loser when we come to taxation, when we come to social benefit, when we come to almost any reform of any kind. It will be tough going for a Chancellor who tries to reform the taxation system to any worthwhile
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degree if he is going to be unduly oppressed by the numbers of winners or losers. If you cannot reform the tax system to make it fairer other than by giving concessions to all, it is a very difficult job to carry through reforms.
Those are a few random remarks on this Bill. But I hope that when the time comes we can be provided with a fairly comprehensive survey of what is involved in the totality of the tax burden on the citizen and in what direction reforms will make it all more fair. I do not think we can consider particular sectors of the fiscal system in isolation. Also your Lordships' House ought to be given greater opportunity at least of discussing these matters even though we still accept the restraints upon our power to amend the legislation which may be before us.
It is not appropriate to the importance of this subject that on the last day before a Recess that is going to last so long we are driven to pass the Bill in all its stages. I pay respect to the Minister for giving us a full dress survey of the Bill and the economic conditions behind it when, in my recollection of earlier days in your Lordships' House, a Minister would get up and move the Second Reading of a Bill like this without saying a single word about it. That was an affront to the dignity of the House. A few of us then raised questions on the Finance Bill, for example.
I went to the length of shocking the Lord Chancellor and the Chief Whip of the day by calling a Division on the Third Reading of the Finance Bill. The noble and learned Lord, Lord Hailsham, came fuming with indignation into the Chamber. The Chief Whip came across the Chamber and said that such a thing was not done, and so on. I felt the size of a pea by that time. We could not get any Tellers either. It was a horrible experience that I do not intend to repeat. I might run away with the Mace but I shall never again call a Division on the Third Reading of a Finance Bill.
At least let us have time to conduct our discussions and have a more full dress debate. I have spoken for longer than I usually speak—though I am not sure whether or not I have run to form—but I hope that the noble Lord will play a full part as the senior Minister in this House in providing us with an opportunity to discuss tax reforms whenever they come along.
1.20 p.m.
Lord Banks: My Lords, the noble Lord, Lord Houghton of Sowerby, spoke of "old hands in budget debates". I am certainly not one of those, because during the 12½ years that I have been a Member of your Lordships' House this is the first occasion on which I have intervened during the Second Reading of a Finance Bill. I wanted to do so this year because, as the noble Lord, Lord Young of Graffham, made clear, the Bill that is before us inaugurates the new pensions era. In particular, it sets out the new tax regime for personal pensions which, as we have heard, come into force next January. Pensions are controlled partly by the Department of Health and Social Security and partly by the Inland Revenue. Personal pensions stem from the Social Security Act 1986 but their attractiveness depends to a very large extent on the tax regime established in this Bill.

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I have to declare an interest in that I am a registered insurance broker specialising in life assurance and pensions, and I have an additional interest in that I believe I was the first person in this country to suggest that what we now think of as Section 226 personal policies with an employer's contribution should be made available to employed persons who have no satisfactory occupational scheme. In October 1958, in an article in the News Chronicle, I proposed, first, that the basic pension should be substantially increased, and, secondly, that all those who were not covered by a satisfactory occupational pension scheme should be able to save up to 3 per cent. of their earnings in a personal pension policy and claim a matching contribution from a central account financed by a levy on all employers who did not have a satisfactory occupational scheme. That eventually became the policy of the Liberal Party in 1960 and it has been endorsed at intervals since then.
However, if that plan in both its parts—the substantially increased basic pension and the personal pension plan with employer's contribution available for those not in a satisfactory occupational scheme—had been adopted, no earnings-related scheme would have been necessary and a much simpler system would have been established. The Government's personal pension plan provides, where personal pension plans are used to contract out of the state earnings-related pension scheme, for an employer's contribution and an employee's contribution to be paid to the policy by means of central collection through the Department of Health and Social Security, which is very much as I suggested 29 years ago and which naturally I welcome.
Some three years ago, when the Government's plans for the future of pensions were not known, I put forward a plan which was approved by the social security committees of both the Liberal and the Social Democrat parties. That plan was to abolish the state earnings-related pension scheme while maintaining accrued rights under that scheme and to direct the current contracting-out rebate, which would no longer be required, to pay for a 25 per cent. increase in the basic pension. I still believe that that could be done. The new personal pensions could then be operated precisely on the basis that I suggested in 1956.
The new state, occupational and personal pensions arrangements will be rather complicated and complex. There will be defined benefit occupational schemes, some contracted in but most contracted out; money purchase occupational schemes, some contracted in and some contracted out; occupational additional voluntary contributions, some with tax-free lump sums and some without; free-standing additional voluntary contributions without tax-free lump sums; employed personal pension holders, some contracted out, some not; self-employed personal pension holders; and self-employed Section 226 pension holders, who are people who have contracts that were taken out before January 1988 but who will be able to continue to pay into those policies. I think that it will be some time before the implications of those arrangements are widely understood throughout the community.
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I should like to turn to one or two specific points. The Minister mentioned that the Bill provides for an increased number of providers of pensions, and he mentioned building societies among them. However, in the past few weeks there has been a great deal of speculation as to whether or not building societies will be able to provide personal pensions, and whether the legislation is such as to make it possible for them to do so. Perhaps the Minister could clarify that point.
In future it will only be possible to have a two-thirds pension after 20 years' service with a particular employer instead of 10 years, as is now the case. It has been pointed out that that will tend to create immobility of labour among older employees. The National Association of Pension Funds has suggested that years of service with a previous employer in an approved scheme should be taken into account in computing the 20 years or proportion of those years that an individual has accomplished. An amendment in another place with that aim was not accepted, but I should like to emphasise that those who supported that concept were not at all suggesting that there should be any amalgamation of the pension schemes of the different employers.
However, as regards an employee who spends 10 years with one employer in an occupational scheme and then 10 years with another employer, it remains a fact that had he remained with the first employer he could have qualified for a two-thirds pension. Indeed, why should he not have it when he has changed his job, if the second employer is prepared to meet whatever is required in the way of costs?
As regards free-standing additional voluntary contributions, at the present time some employers provide for their employees to make additional voluntary contributions either into their occupational scheme or into another scheme which runs parallel to it. Under the new arrangement they will have to make such provision; but more than that, if he wishes the employee will be able to effect his own additional voluntary contributions scheme quite independently and separately, so that if he were paying 5 per cent. of his earnings into an occupational scheme he could quite independently of his employer put 10 per cent. into what is called a free-standing additional voluntary contribution.
One of the difficulties is that it is not possible to say precisely what the benefit will be under the free-standing additional voluntary contribution and it may provide more than the revenue limits when aggregated with the occupational scheme. If the occupational scheme were then reduced to keep within the limits, the employee himself would be subsidising his employer's scheme to a greater extent than the 5 per cent. or whatever that he was bound to pay into it.
An amendment was moved in another place which had the objective of saying that the benefits to be obtained from a free-standing additional voluntary contribution should not be restricted in any way. In other words, they should be treated exactly as personal pensions are treated. But the Government spokesman pointed out that the additional voluntary contributions, whether free-standing or not, are part of the occupational scheme arrangement and must be subject to occupational scheme rules; and that if the

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employee was a member of a non-contributory scheme he would have 15 per cent. which he could put into a free-standing additional voluntary contribution scheme, and it might be that he ended up with a pension rate in excess of the revenue limits. The government spokesman said that an employee could take out a personal pension if he wanted that, though of course he would have to opt out of his occupational scheme to do so.
I should like to suggest a way out. I suggest that where the aggregate exceeds the revenue limits, then the cash value of the balance in the additional voluntary contribution over what is required to reach revenue limits should be returned, less tax at a specified rate. That would be treating it rather similarly to the way in which the return of contributions to an early leaver is treated at the moment. I suggest that the rate of tax should be 20 per cent. and not 10 per cent. and that higher rates of tax above the standard rates should apply.
Under the new arrangements, Section 226 policies will he replaced by personal pensions from January 1988. The tax regime, as the noble Lord, Lord Young of Graffham, explained, will be very similar but there are some differences. Under the personal pension, benefits may be taken at age 50, not at age 60. But I understand that this will not apply to those who hold Section 226 policies. But those people may, as I understand it, continue to pay both annual premiums and single premiums into their Section 226 contract. I assume that they will be able, if in the older group for whom the contribution limits are raised for personal pensions, to pay into Section 226 contract at the new rate.
I regret that personal pensions are starting ahead of the new arrangements for contracting out of money purchase schemes—they are starting in January as opposed to April—and that it will be possible for anyone taking out a personal pension in the first three months of next year to pay an additional year's contribution and secure a 3 per cent. incentive bonus. That will tend to encourage people who have no occupational scheme to set up a personal pension, when it might be that their employer was intending to introduce in April a money purchase scheme which would be more beneficial for them.
I think it will be necessary to monitor the introduction of personal pensions very carefully, because it will not always be to the advantage of the individual to switch to personal pensions from the state earnings-related pension scheme or from an optional scheme. I think it will be necessary to apply the "best advice" principle of the Financial Services Act very strictly in this respect.
In conclusion, perhaps I may say that so far as concerns personal pensions I welcome the introduction of something resembling a plan that I have advocated for years, but I regret that it is set in such a complicated and confusing setting.
1.34 p.m.
Lord Bruce-Gardyne: My Lords, like, I think, most of your Lordships in this debate, I confess that I intend to go a little beyond the precise terms of the Finance Bill. But before I do so, I want to comment on two items in the Bill and in both cases, to
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congratulate the Government on what seems to me an admirable, model way of handling consultations.
I refer to the outcome of discussions about the RTC provisions with regard to Lloyd's and also to the outcome of negotiations about the treatment of capital gains tax accruing to individual policyholders. In each case it seems to me that the negotiations provided an absolute model of how sensible arrangements should work between government and Whitehall and the outside world. I strongly congratulate my noble friend and my right honourable friends on that extremely sensible outcome.
I must confess that I am not quite so enthusiastic about the profit related pay scheme, basically for the reasons advanced by the noble Lord, Lord Houghton, with whose remarks I found myself very much in agreement. We should beware of spreading ever wider the system of so-called tax expenditures. A couple of years ago, my right honourable friend the Chancellor hoisted to his masthead the slogan of fiscal neutrality. I was very pleased about that. I believe that fiscal neutrality is a splendid target to aim at. I have to say that in the instance of profit related pay, we seem to be going somewhat in the opposite direction. The same might also be said of the personal pension taxation provisions.
I agreed very much with my noble friend Lord Boyd-Carpenter. The key is not to devise new tax loopholes, but to get the rates down and to consolidate the base. Talking of consolidating the base, I want also to refer to a subject which has cropped up on several occasions during the debate, in particular, in the contributions of the noble Lord, Lord Bruce, and my noble friend Lord Boyd-Carpenter. I refer to possible reductions in zero rating of VAT.
I must confess that I was a little astonished by what I heard and, if my noble friend Lord Boyd-Carpenter will forgive me, by the outrage he expressed at the notion of external authorities imposing upon the other place the rates of taxation which should be levied on the British taxpayer. I thought that this was inherent in the 1971 European Communities Act and seen to be such. Indeed, I would venture to suggest that we have seen many instances actually in operation.
I recall to your Lordships the occasion when my right honourable friend the present Chancellor, in his Budget a couple of years ago, introduced reductions in taxation on wines and an increase in taxation on beer. There was no secret about why that was done. It was done because we were obliged by the rules of the Community to do so. I do not honestly see what else one could expect if we are going to participate in a customs union.
One of the essences of a customs union is that you abandon some authority over your autonomy in matters of tax policy. I simply cannot understand why at this late stage, 15 years on, we should be expressing outrage and astonishment that this should happen. It is to my mind of the essence of the customs union; it is clearly described as such, as I see it, in the 1971 European Communities Act.
The answer to the noble Lord, Lord Bruce of Donington, is, surely, that if the courts were to find against us in the present case we should have to get

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the necessary amendment to legislation through the other place. Of course that is right. As my noble friend Lord Boyd-Carpenter pointed out, the Government can only propose and the other place might dispose in the opposite direction. Then we should be in a proper pickle. If the courts decided that in specific instances our zero rating—for instance, for new building—was unacceptable under the rules of the Community and if we persisted in it, a UK taxpayer could challenge in the European Court on his own behalf. So we would be in an impossible position. Fortunately the Government have a substantial majority in another place. I imagine that they could persuade the other place to act in conformity with the conclusion of the courts. But that is no innovation. It has been the case for 15 years now; so I must confess that I was a little surprised by the outburst of amazement and indignation.
Lord Bruce of Donington: My Lords, I am grateful to the noble Lord. Will he tell us whether he has addressed his mind to what would happen if the other place rejected the recommendations of the Government or the legislation put forward by the Government in conformity with the court decision? What would happen then, and what would the noble Lord wish to happen?
Lord Bruce-Gardyne: My Lords, I must say that we would be in a very considerable tangle. We should have two conflicting positions of law, both open to the UK citizen. I must honestly say that the only logic of that position would be to exercise the sovereign right, which we have in any case, to withdraw from the European Community because such a position was not consistent with the nature of a customs union. We would be deluding ourselves if we thought otherwise.
Lord Boyd-Carpenter: My Lords, surely, in the difficult situation which the noble Lord envisages, there is a fairly simple solution. If we find ourselves unable to agree with the Community on taxation there is nothing to stop the Community bringing its taxation into line with us.
Lord Bruce-Gardyne: My Lords, I accept, of course, what my noble friend says in that respect. But we should not necessarily exaggerate our ability to convince the rest of the Community that everybody is out of step but our Jack. We should not rely on that.
However I want to turn, as a number of noble Lords have done, to the economic background to the Finance Bill referred to by my noble friend in his opening speech. I should have thought that his description of the condition of expansion, indeed the boom in the economy today was nothing other than a statement of fact and one with which it is frankly impossible to disagree. As regards the latest trade returns, it seems that some of the argument is a little old fashioned. The noble Lord, Lord Bruce of Donington, insisted that the City had overdone its reaction yesterday. I agree however, with my noble friend Loyd Boyd-Carpenter that the noble Lord then seemed to suggest that there was perhaps something pretty nasty lurking in the woodshed.
Of course we all remember the days back in the 1960s when the fate of governments hung on monthly
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trade returns. I remember Nigel Birch once predicting the moment when the noble Lord, Lord Wilson of Rievaulx, would greet a freak good month's trade returns by summoning the Household Cavalry, organising a flourish of trumpets and emerging himself wearing what Nigel Birch described as his "Anguilla Star".
Certainly in those days trade returns were watched with tremendous anxiety. But those were the days of fixed exchange rates. If we had a series of bad trade returns we were then liable to have a massive wave of speculation against the currency leading perhaps to the humiliation of a false devaluation. But all that has now gone. In the free and fancy world of floating exchange rates, there is no real reason why there should be dramatic emotion about any particular month's trade returns or even a series of bad trade returns. For goodness sake, the United States through the early 1980s was running an enormous and rapidly accelerating trade deficit as it still is. For many years that was accompanied by a rising dollar and the great strength of the dollar on the foreign exchange markets.
In themselves the trade returns of today are not things about which we should indulge in panic or despair. What is true and what would worry the City to some extent is that they may be symptoms of something else, in particular symptoms of a propensity to draw in imports because industry is approaching the limits of capacity or because of the scale of the current boom in personal credit.
I wish to refer to personal credit. It is the one point where I continue to have small worries in two respects; from a prudential point of view and the potential impact in due course on the rate of domestic inflation. As regards the prudential position, I find preoccupying the scale of lending to the personal sector. The Chancellor has rightly pointed out that it is overwhelmingly in the form of housing finance. However it seems to me that that finance is increasingly geared to a higher valuation of housing property which may be 100 per cent. and in some cases may even be in excess of 100 per cent. The ratio of loans to individual income has risen very substantially in the last few years. Of course that is fine so long as house prices continue to rise. We tend to assume that this is bound to continue ineluctably as we have known that phenomenon for most of our lives.
It is worth reflecting that in some parts of the country within the last four years the value of prime agricultural land has fallen by up to 50 per cent. That has happened in four or five years. It would have been regarded equally as unthinkable until a few years ago.
I do not see that there is any reason to assume that we could not have a substantial adjustment at some stage in housing prices. Some of the borrowing would then look prudentially pretty unsound. The more immediate question is whether we are not in some danger of seeing the current credit boom spill over into inflation. I know that the so-called broad money aggregate has now been dismissed from the vocabulary of our concerns. It is a dial which whirls around without connection to the engine, so we are told. I hope that is true; but I am bound to say that if it should turn out that the dial had some connection with the engine one should be worrying a bit about the speed.

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That is not all. There is also the scale of lending both corporate and personal from the banks, and the acceleration in the price of real assets, both houses and shares. So far it is true we have not seen another factor which I know is the one which the Government have been watching very closely—any significant pressure on the exchange rate. Presumably, if that were to materialise, there would be some move towards a hardening of interest rates to correct the pressures which might materialise. My noble friend said in his opening remarks that we were determined to maintain a tight hold on inflation. But we need to watch it and to make sure that monetary conditions are such that we are not preparing for some significant acceleration in prices within the next 12 to 18 months. I hope I am wrong on that.
1.49 p.m.
Lord Graham of Edmonton: My Lords, the debate on the Finance Bill in your Lordships' House is clearly very different from Finance Bill debates in another place. In the context of things, not least the need to be economical with time, one needs to dip into the lucky bag and bring out one or two points upon which one wishes to make what one hopes will be helpful contributions.
I am bound to say that I listened with a great deal of respect to the speech made by the Secretary of State in introducing this debate. I took particular note of what he said on two points. The first was the profit-related pay aspect and the second was the question of the changes in personal pensions. The Minister will recall, as I do, one or two of his phrases such as, "this will provide wider choice" and "it will be a fair deal for the taxpayer". He also drew our attention to the way in which banks, building societies and unit trusts were now likely to enter a field hitherto not open to them. He told us that the changes would remove obstacles to job mobility and provide a better deal for millions.
I do not dispute the general thrust of trying to induce, by means of encouragement in one form or another, more and more people who have hitherto not been prudent enough or had the opportunity to enjoy a pension to do so. I recall that when I began my employment at the age of 14 with the Newcastle-upon-Tyne Co-operative Society one of the greatest attractions for my mother was that there would be a pension at the end. Fifty-one years on, she felt that that would be a good thing.
We all know that there were not that many companies or firms which had company pensions at that time. I therefore simply wish to relate the views of the Co-operative movement, in whose service I have been for many years. I declare my interest today openly, honestly and proudly. I am sure that the Minister knows that the Co-operative movement has a substantial stake in its pension provisions. It is worth recalling that there are currently over 100 Co-operative pension schemes with current assets exceeding £1 billion. Those schemes are responsible for some 80,000 members and some 30,000 pensioners. The vast majority of schemes are self-administered, contributory final salary arrangements which are not used for contracting out.
In connection with the changes in Clauses 18 to 57 and to Schedule 2, I wish to draw to the attention of
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the House matters which are not of stupendous importance but which may be capable of improving personal pensions. We believe that there are disadvantages in the occupational and company pension field. I am very grateful to have been present when the noble Lord, Lord Banks, spoke earlier. He spoke from long experience and although he and I do not speak from the same brief, I am certain that he has been talking to many of the same people who have put their points of view to me.
We need to recall that Clauses 18 to 57 deal with the new tax regime for personal pension schemes and that they are available to employees who are not members of an occupational pension scheme and to the self-employed. However, it will not be possible to have a personal pension and a company pension at the same time. The previous Finance Bill, which came out in March 1987 before the general election, appeared to allow members in contracted-in company pension schemes to have a concurrent personal pension provided that only minimum contributions paid by the DHSS were invested in it.
Alas, in the Bill which we are debating today, the limited co-existence of occupational and personal pension schemes has been specifically blocked. We understand that the principles involved have been argued. The noble Lord, Lord Banks, alluded to unsuccessful amendments in another place. I hope that the Minister will feel able to say some kind words about those arrangements as they proceed. The introduction of the amendments from the Finance Bill of March 1987 to the present Bill appears to give rise to needless complications since it does not make it clear what happens if an employee opts out of an employer's scheme during the course of a tax year.
I ask the Minister whether, if the employer's scheme is not contracted out of SERPS, the employee is entitled to a payment from the DHSS in respect of the whole or a part of the year? If the latter is the case, that would appear to conflict with DHSS proposals and to pose considerable administrative problems. The logic that existed in the earlier Finance Bill is still valid now.
The noble Lord, Lord Banks, quite properly dealt with the anomalies that exist in respect of additional voluntary contributions. Clause 58 and Schedule 3 amend the current tax legislation concerning occupational pension schemes to implement the proposals originally announced on Budget Day. The Bill imposes heavy burdens on company schemes. Although the Co-operative movement welcomes the wider introduction of additional voluntary contributions, it is strongly of the view that people should have the opportunity to take out a personal pension, or freestanding AVC, without foregoing the security of occupational schemes. I am sure that the Minister and his advisers intend saying something on that same point, which was made by the noble Lord, Lord Banks. I should be grateful if he would take that on board.
Perhaps I may quote from a document provided by the National Association of Pension Funds Limited which is a respected body. It strongly condemns the arrangements in the current Finance Bill concerning personal pensions. It argues for two solutions. The first would ensure that freestanding AVCs should be as freestanding as personal pensions so that the

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benefits are not aggregated with those of an occupational scheme. A case for that was made at greater length and very cogently by the noble Lord, Lord Banks, when he spoke earlier.
In respect of the change from 10 to 20 years as the minimum period during which a pension benefit of two-thirds of final salary can be obtained, it also has a solution. It is to allow pensionable service in former schemes to be included when calculating the 20-year qualifying period. In equity, and particularly bearing in mind the desire of the Government and the Minister to encourage not merely high salaries for those who earn them but also people to make prudent arrangements for their retirement and old age, I should have thought that those matters could be looked at very closely indeed.
I think that the Minister is entitled to a kind word as regards the Government's plans in respect to profit-related pay. It is not an easy matter to get right. However, I am a firm believer that those who help to make the profits should be entitled to a share of the profits they have helped to make. One can argue that a fair pension is a fair return for such profits. But we know that the whole nexus of giving to workers, shareholders and managers is geared to encouraging people either to work harder or to work better. The particular concern is to give them a share of what they are earning. Perhaps the Minister can therefore take on board that, while I give a general welcome to making sure the workers get a better share, we need to make sure that it does not dilute the security that workers enjoy. I realise that the Minister was careful to point out that the more profit that is made, the greater the likelihood that work would be retained, and that more work retained would mean fewer redundancies. To that extent, the workers get a share of the profits. The case made out by the Minister concerning a fair pension for those who have helped to create profits and wealth will be warmly welcomed throughout your Lordships' House. Certainly I welcome it, and I speak on behalf of the Co-operative movement. We shall want to make sure that the arrangements that the Minister makes are fair and equitable. I hope that he and his advisers will take on board the fact that at the moment members of company pension funds, when considering the new arrangements, feel they are going to be at a disadvantage. We want to see that everybody who benefits does not do so to the detriment of others.
2 p.m.
Lord Denning: My Lords, my name is not on the list of speakers. However, during the course of the discussion, a matter of profound importance has arisen. I refer to the imposition of value added tax on so many goods and supplies which are made on our people and of which a goodly slice is payable to the European Commission.
First, I deal with the proposals that are in hand for taxing and levying VAT tax on many more items. It is said that the tax will be levied on children's shoes, clothing and the like. It is still only a proposal, and we do not know the details. However, the White Paper issued by the European Commission indicates that by the year 1992 they hope to achieve the completion of the internal market. Naturally enough they will want
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all VAT tax to be harmonious throughout all the member states. A significant sentence in the White Paper indicates they will, if need be take proceedings against the member states in order to ensure that harmonious tax is levied throughout the Community. I understand that the Prime Minister and the Paymaster General have stated that they will use their veto against some of the proposals in order to express objection to them going through.
I particularly want to deal with VAT, which is at present leviable throughout the United Kingdom and which this Parliament has zero rated—that is to say, no tax is payable on the construction of new houses and buildings; on petrol, and so forth, supplied to businesses, or on new services and the like. In other words, in the schedule to our own value added tax we have zero rated all those important items.
The European Commission have said according to their directive we had no right whatever to zero rate those items. They have accused us, before the European Court of Justice, of inserting the zero ratings wrongly in our own statute. They have accused us of breaking the Treaty of Rome. They ask the European Court of Justice to declare that the statute of this country is invalid under their law. My Lords, is that permissible?
The question has been raised before by the noble Lord, Lord Bruce of Donington, as to what are the pleadings in the case. We should like to know what is the precise accusation against the United Kingdom. We should like to know what defence is being put forward on our behalf. The Government say that they will fight the case, and fight it vigorously—but can they know all the right points that should be taken? I gather from what the Minister has just said that at last they are proposing to allow us to see the pleadings in this vitally important case. It has taken a long time to drag the pleadings out.
The Commission declined for weeks and months to let the people of England, or this Parliament, see the pleadings. That is quite contrary to all our concepts in English law. Under English law the pleadings of the parties should be made open, whether they are written or oral argument. Everything must be done in open court. No party is allowed to make secret and confidential communications to the judges. It would be rejected at once. Therefore, we ought to be able to see the pleadings, whether written or oral, which are being laid before the European Court of Justice against us, and in our defence. I gather that at last the European Commission may consider that point.
However, a more important point than the pleadings concerns the nature of the order that is sought against us. It is sought to declare that a statute of this Parliament was invalid and contrary to the Treaty of Rome. The European Commission issued a directive and said that we have not obeyed the treaty and we have not implemented it properly. Our Government will say—and I shall support them—that we have implemented it correctly. The Parliament not the Government—have implemented it in the value added tax of 1983. The European Commission have gone through the schedule to that very Act of Parliament and have said "this is wrong," or "that is wrong," as though they could criticise and condemn our own Acts of Parliament. They are going much too far.

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If they continue in this manner the sovereignty of this Parliament is being challenged. The Commission have no right whatever to seek to declare invalid the Acts of Paliament of the United Kingdom. In the course of the discussion, the noble Lord, Lord Bruce of Donington, passed me a note with the following question:
"If the European Court rules against us in September (it is due for hearing on 14th September) what can we do if the decision becomes automatically applied?".
My Lords, what can we do? I say that so far as concerns the United Kingdom, the European Commission is inferior and the European Court of Justice is inferior to our own courts. We still have sovereignty in this country over Her Majesty's courts and sovereignty over the law which is to be applied by our courts. We are not to be dictated to by a European Commission or a European court as to what our laws should be.
"What is to be done?" asks the noble Lord, Lord Bruce of Donington. What is to be done if the European Court says, "Oh yes, you are to levy value added tax on these new houses and buildings and the like and it does not matter what is in the Act". My answer is that if the European Court says that, then it has no jurisdiction whatever to make such a law apply to our own country and our own laws.
I say that Her Majesty's courts are still superior. The Attorney-General can go to our own courts and say that the European Commission and the European Court of Justice have exceeded their jurisdiction; they have gone beyond the jurisdiction properly attributed to them. Our own courts, right up to the House of Lords, can issue a judicial review to those bodies which are exceeding their jurisdiction in this way. That is my answer to the noble Lord, Lord Bruce of Donington. We have a remedy in our own courts and the Attorney-General ought to take it if need be. I return to the fundamental issue. How long we have fought for the principle that no tax whatever should be levied upon the people of England except by the sanction and the authority of this Parliament.
Lord Bruce-Gardyne: Would the noble and learned Lord allow me to interrupt?
Lord Denning: I do not mind. I shall let you steal a minute. I should like to say that as a fundamental principle.
Lord Bruce-Gardyne: I apologise for interrupting the noble and learned Lord. Can he explain to us how he sees a customs union operating if the individual national parliaments within that customs union can, at their entirely unfettered discretion, impose taxes on goods which pass across the frontiers which may deflect trade within that customs union? How can that be compatible with the operation of a customs union?
Lord Denning: That is the very point. I can understand the argument of the European Commission, and I can understand what the views of the European Court of Justice may be. I can understand that it may make it difficult for them to enforce.
The point I come back to is English law and not Community law. In this country the law of England
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prevails. May I repeat that no tax can be imposed or levied upon our people except with the sanction of Parliament. What is being challenged is the authority of Parliament which passed the Value Added Tax Act of 1983. If it is to be altered, it must be altered by the free will of Parliament.
Let us be persuaded, if need be, by the European Commission or whoever likes to persuade us, to impose higher taxes; to impose value added tax on new houses, and so on. Let us be persuaded of that and let the Government be persuaded of it, if need be. Let it be brought before Parliament to sanction. That is the only way—not to command or force us—but to persuade us, if need be, that we ought to change our Act, and in those circumstances that we ought to go ahead in accordance with all the customs unions. Let it be by persuasion and not by force. Let the Government submit to all proper persuasion but do not let us be taken to a Court of Justice and be accused of breaking our own treaties. In other words, I would still support the sovereignty of the Parliament of this country and the sovereignty of the courts.
2.13 p.m.
Lord Young of Graffham: My Lords, we have had a very good debate on the Finance Bill; indeed, if the trend continues, in a few years' time I can see that we shall be having days of debate on the Finance Bill. Of course, the contribution from the noble Lord, Lord Bruce of Donington, was yet another marvellous example of accusing me of euphoria. I shall not go into that. Other noble Lords have explained to the noble Lord opposite that I was merely reciting what is actually happening in the world.
The noble Lord asked one or two interesting questions and said that the Government should take steps to stimulate manufacturing industry by investing public capital—perhaps even to restore the nationalised industries, and I know not what. Surely, if we have learnt one lesson, and one lesson only in the decade of the 1980s, it is that manufacturing industry is restored as soon as the manufacturers themselves pay attention to design, delivery and the quality of the goods that they manufacture. That is not a function of government, no matter how much they might wish to influence it. Government can assist manufacturers, but they must do it themselves. Quite simply, the manufacturers are doing it themselves, and that is why performance is getting better.
Noble Lords opposite—I suspect that they have not read the Finance Bill because their comments did not have much to do with it—built a castle in the air about their fears of the imposition of VAT on certain items. Indeed, they set off a chain of thought that was followed by many other noble Lords. The Prime Minister has said time and again that for Europe to change the zero rating basis of VAT would require the United Kingdom Government's agreement since it must be a unanimous decision. The Prime Minister has said, and my colleagues have confirmed it, that the Government would apply our veto. Therefore, that proposal cannot come about.
I am grateful to the noble Baroness, Lady Seear, for her welcome both to profit-related pay and to personal pensions. I am well aware that there are now

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frequent occasions on which the noble Baroness welcomes some of the actions taken by this Government and I am quite happy to accept that welcome when it does come. The noble Baroness referred to mobility of labour. Of course mobility of labour is essential at a time when there are increasing signs of skill shortages across the nation. That is why we propose to decontrol the rents of new lettings. That will help restore a private rented sector and the extension of assured tenancy so that we can allow more people to move around the country.
I venture to disagree with the noble Baroness in one or two areas. First, unemployment is, of course, still too high. It will always be too high until we can get it down way beneath the present figures. However, it is lower today than it is in France. We should also occasionally take note of the fact that while it has been going down in this country for the past year, unemployment has been going up almost everywhere else in Europe. That at least shows a trend in the right direction. One of the reasons why I believe unemployment is going down in this country is that, although our earnings are increasing, our unit labour costs are putting us in an increasingly competitive position.
I make one small point. Consensus itself is not an abstract virtue. It does not exist by itself. It is very good to agree, and it is very good to agree with as many people as possible in society when we propose to introduce new taxes. Indeed, when we looked at profit-related pay it was in a Green Paper and we had extensive consultations with the trade unions as well as employers. The results bear all the hallmarks of listening to those consultations and I believe that there we show the benefits of consultation.
As regards Neddy, there will still be four meetings a year and many of the little Neddies will be operating. Therefore, I believe that we shall have a more effective organisation as a result of that.
To take a final theme on consultations, I refer to the community charge. We issued a Green Paper in January 1986 entitled Paying for Local Government which carefully examined the case for local income tax. The Green Paper demolished that case. Local income tax would put up to 14 pence in the pound on top of national income tax. Again, it would be paid by only 20 million out of 35 million voters. Therefore, it would not make much difference to bringing back responsibility to local government.
I am grateful to my noble friend Lord Boyd-Carpenter for his reminiscences about purchase tax. Indeed, there are times when I look at purchase tax with faint envy, but that is going back some way. I am grateful to my noble friend for asking how one manages to encourage investment by increasing tax. It is only as we have managed to reduce taxes that we now begin to see investment continuing. However, I accept the gentle admonishment of my noble friend about the tax rate of 60 per cent. I will ensure that his wise remarks are passed to my right honourable friend the Chancellor of the Exchequer and I will persuade him to read those remarks with great care. I hope that we may see results in the years ahead and that we can continue with our acknowledged aim of reducing the burden of taxation on individuals. I shall also pass on my noble friend's suggestion about
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principal homes being exempt from liability to certain taxes.
I always listen with great interest to the noble Lord, Lord Houghton of Sowerby, and I am grateful to him for wisely drawing attention to the dangers of using the tax system for non-fiscal purposes. When he quoted Gladstone in 1888, he did it with such force that I thought that perhaps he had been there at the time. I gather that he had read about it. He took us down an interesting path. He looked at the many different ways in whch we can raise taxes. The fact that Hugh Dalton may have described indirect taxes as purely voluntary does not seem to be relevant in today's world of VAT. I find it difficult to avoid paying VAT. There are not many items on which it is not charged.
I am grateful to the noble Lord, Lord Banks, with his great depth of experience in the insurance world. I must confess that I did not follow the detail of all his points. I shall pass on the many points that he made to those who are more concerned with the matters and ensure that they are looked into. The noble Lord asked whether building socieites could provide pension services. The answer is: yes in theory, but there are some difficulties. However, those difficulties are being discussed; the Finance Bill provides for that. However, the technical difficulty of the definition of deposits within a building society is being investigated. I hope that those difficulties can be overcome before much longer.
The noble Lord and the noble Lord, Lord Graham of Edmonton, asked whether years of previous service with an employer could be taken into account. That issue has been discussed extensively in another place and was rejected there. Alas, I think that that is the final answer, but I shall pass on a copy of the noble Lords' speeches and if I have any further information I shall write to them.
I am grateful to my noble friend Lord Bruce-Gardyne. I am happy to accept his congratulations on our consultations over recent changes in the tax system. I shall pass them on to those who consulted. I am always worried when those who sit behind me agree with those who sit on the other side of the House. My noble friend agreed with the noble Lord, Lord Houghton of Sowerby, and I shall therefore pay considerable attention to their remarks. I shall read them with great interest. I am also grateful to my noble friend for what I shall describe as his mature reflections on yesterday's trade figures. I am sure that when we meet again in some three month's time we shall see that those figures have not set a new trend. I listened with great care to my noble friend's views on personal lending and its effect on inflation. Although I shall be deprived of hearing from him for the next three months, I shall no doubt have the opportunity to read his views from time to time, and no doubt his theme will be continued if the figures do not change.
I am grateful to the noble Lord, Lord Graham of Edmonton, for his welcome for the principles of profit-related pay. I shall read his remarks about portable pensions with great care. Alas, I do not think I can offer him much help over years of previous service. He raised a number of points into which I shall look. If I may, I shall reply to him.
I am grateful to the noble and learned Lord, Lord Denning. I am sure that during the course of a long

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and distinguished career the noble and learned Lord would not have been overly amused by anyone who wished to break the rules of his court. In doing what we have done about the pleadings, we are of course following the procedures of the European Court. I am sure that he would be the first of your Lordships to affirm that the rules of the court must be followed. However, I hope that before much longer the terms of our pleadings will be available. I hope that before we meet again the court's decision will have come and gone and that once more the fears about the imposition of VAT willl have disappeared by the autumn.
It has been a good debate. I am glad that we have two Finance Bills this year and that we have been able to conclude the agenda which my right honourable friend the Chancellor of the Exchequer set at the time of his Budget Statement earlier this year.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 16th July), Bill read a third time, and passed.

Hovercraft (Civil Liability) (Amendment) Order 1987
2.25 p.m.
Lord Brabazon of Tara Lord Brabazon of Tara rose to move, That the draft order laid before the House on 9th July be approved [2nd Report of the Joint Committee].
The noble Lord said: My Lords, I beg to move. I hope and trust that this will be non-controversial. The purpose of this draft order is to increase the limit of liability for operators of hovercraft as currently prescribed in the Hovercraft (Civil Liability) Order 1986 in respect of claims made against them arising from the death or personal injury of passengers carried by hovercraft.
The hovercraft liability regime is somewhat different from that for ships. However, the maximum per passenger liability for death or personal injury is derived from the Athens Convention. This draft order seeks to increase the present liability limit to £80,009 in line with the increase introduced on 1st June under the Athens Convention, for ships. In that respect the order therefore restores parity between the two types of transport.
The terms of the Athens Convention have been applied under UK law since 1977 and the convention entered into force internationally on 28th April of this year. The tragic loss of the "Herald of Free Enterprise" on 6th March brought the convention into sharp focus. The Government subsequently announced their decision to avail themselves of the right given in the Athens Convention to increase the limit of death or injury of sea passengers carried by UK carriers to £80,009. As the House is aware, that increase came into effect on 1st June. It is appropriate that this revised limit should be extended to hovercraft to maintain the link with ships. The draft order does no more or less. I commend it to your Lordships.
Moved, That the draft order laid before the House on 9th July be approved [2nd Report of the Joint Committee].—(Lord Brabazon of Tara.)
Lord Carmichael of Kelvingrove: My Lords, I am most grateful to the Minister for his explanation of the draft order. Perhaps I may also take this opportunity of thanking him for his thoughtfulness in providing a written explanation of what on the face of it is an order which is very difficult to comprehend. With his explanation, and with the benefit of having had time to study the written letter that he was kind enough to send my noble friend Lord Underhill and myself, it has made the order much more intelligible. We are very happy that the Minister has brought it before the House.
On Question, Motion agreed to.

Bunk Beds (Entrapment Hazards) (Safety) Regulations 1987
2.28 p.m.
Lord Beaverbrook Lord Beaverbrook rose to move, That the draft regulations laid before the House on 7th July be approved [2nd Report of the Joint Committee].
The noble Lord said: My Lords, these draft regulations are necessary to prevent serious accidents in which young children—mostly between two and six years old—have slipped through a gap in a bunk bed and trapped their heads. They are concerned with making safe any such gaps in the construction of a hunk bed which can give rise to this hazard. The department has consulted all interested organisations, including trade consumer and health bodies. Views have also been sought from hoteliers, caravan manufacturers and others in the holiday trade who make use of bunk beds. All agree on the need for the regulations.
As a result of the helpful comments we have received some improvements to the draft regulations have been made, without the need for major revision. For example, a strength requirement has been added to ensure that the boundaries of regulated gaps do not expand beyond the upper limit of 75 millimetres when under pressure from a child's body.
All beds with a sleeping surface—that is, the surface which supports the mattress—at a height of 800 millimetres or more above floor level will come within the scope of the regulations. They will apply not only to bunk beds with two sleeping units but also to single beds with a high sleeping surface above a storage space or play area.
The draft regulations specify particular dimensions for gaps in relevant parts of a bed. Any gap in the sleeping surface of a bunk bed will be required not to exceed 75 millimetres. Gaps elsewhere in the structure of the bed must be between 60 millimetres and 75 millimetres. All regulated gaps must be measured in accordance with the method prescribed in the schedule to the draft regulations. This specifies the use of a cone apparatus—illustrated in the schedule—which must be capable of exerting a force of 100 Newtons (about 22lbs.) to the boundaries of any gap. This is the strength requirement which I mentioned earlier. In addition, the cone will be used, without the application of any force, to measure those gaps which must also be at least 60 millimetres.
The 60 millimetre and 75 millimetre dimensions are derived from anthropometric data on children between two and six years. This is the age group most at risk. Taking account of head, chest, hip and limb

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measurements, and their capacity to compress, 75 millimetres provides a gap which is too small for a child's body to slip through and trap the head. Sixty millimetres is big enough to prevent an arm or leg being trapped.
The "permissible gap" criteria will apply to gaps which are at or above the sleeping surface of a bed which is 800 millimetres or more above floor level. Thus in the case of a bunk bed with two sleeping surfaces, the requirements will relate only to the upper bed. This is because the particular hazard with which we are dealing only arises in beds with a high sleeping surface, from which the child's body can be suspended by the neck.
Entrapment accidents have caused serious injuries, some fatalities and a great many near misses. The requirements of the draft regulations are not unduly burdensome or costly. Some manufacturers have already redesigned their beds in advance of the regulations and have not encountered any particular problems in doing so.
Finally, I should point out that there is a printing error in Regulation 2. An extraneous question mark appears in the fourth line from the bottom of the first page. This question mark will be removed on final printing. I invite your Lordships to approve the draft regulations.
Moved, That the draft regulations laid before the House on 7th July be approved [2nd Report of the Joint Committee.]—(Lord Beaverbrook.)
Lord Williams of Elvel: My Lords, the House will be grateful to the noble Lord for introducing the regulations and for explaining them so carefully. They provide a solution, possibly a partial solution, to what has become a serious problem—that of children between the ages of two and six years (who, as the noble Lord said, are most at risk) slipping through gaps which should really not be there under proper safety provisions and maiming themselves or indeed sometimes killing themselves. We on this side of the House give a very warm welcome to the regulations, which we feel are necessary.
I have only one question to ask the noble Lord. It concerns not the bunk beds that may be sold or supplied in the future but those which are in use and continue to be in use. Is there any mechanism (there may be none) by which the Government can ensure that those already in use are brought up to the standards of those which are to be sold in the future if these regulations are put into effect? I hope the noble Lord will be able to give us some reassurances, though I recognise that there may be statutory problems concerning the powers of the Government to do so. Having asked that question, in the hope of a responsible, sensible and encouraging reply, as I say we warmly welcome the regulations and congratulate the Government on bringing them forward.
Earl Ferrers: My Lords, before my noble friend replies may I say that I have found his speech absolutely fascinating? It has entered a whole sphere which I did not know about. I did not know that children were in the habit of sliding through bunk beds and hanging themselves. It seems to me quite extraordinary. Can my noble friend say how often
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this happens? Is it a frequent occurrence or does it happen quite seldom? Presumably it must be a great deal more frequent than most noble Lords would think; otherwise my noble friend would not have brought in such regulations.
Lord Somers: My Lords, will the noble Lord be so kind as to tell me what 75 millimetres is in English?
Baroness Phillips: My Lords, mine is perhaps a rather simpler question. Are these regulations mandatory or voluntary? My work on British Standards has shown me that voluntary codes are almost useless, but mandatory codes work better.
Lord Taylor of Blackburn: My Lords, following on from the question put to the Minister by the noble Lord, Lord Williams of Elvel, as regards cases where these kinds of beds have been in use for some time, is it possible—through organisations such as the Royal Society for the Prevention of Accidents, local authority associations, the Boy Scout association and other such organisations which use bunk beds for one purpose or another—for the Government to draw attention to the dangers of the present structure through a publicity campaign?
Lord Beaverbrook: My Lords, I am grateful to the noble Lord, Lord Williams, for asking that question. The answer is that some of the beds currently in use could be a danger to children. The department issued a press release on 15th October 1986 urging parents who had already purchased bunk beds to check the gaps. They were advised to contact their supplier if they had any doubts about the safety of their beds. Manufacturers have produced modification kits for existing bunk beds to reduce the size of gaps in guard rails, which is a major area of concern.
In regard to the question put to me by the noble Baroness, Lady Phillips, these are mandatory regulations. I am not equipped with a ruler at the Dispatch Box in order that I may interpret dimensions into inches, but perhaps I can let the noble Lord know the answer to his questions, at a later time.
Lord Tordoff: My Lords, if I may assist, the answer is approximately three inches.
A noble Lord: My Lords, I have just worked it out; it is 2·9 inches.
Lord Beaverbrook: My Lords, with regard to the point raised by the noble Lord, Lord Taylor, in respect of a publicity campaign, all parents should be careful about the use of beds of this nature, whether it be in the home or wherever. The department issued a press notice and I hope that all people using bunk beds will take careful note of the potential dangers which can be experienced.
In reply to my noble friend Lord Ferrers, I believe that there have been nine deaths since 1968. That of course is nine too many. I commend these regulations to your Lordships.
On Question, Motion agreed to.

Royal Assent
2.38 p.m.
The Lord Chancellor (Lord Havers): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:

Appropriation (No. 2) Act,

Finance (No. 2) Act,

British Shipbuilders (Borrowing Powers) Act,

Channel Tunnel Act,

Western Isles Islands Council (Vatersay Causeway) Order Confirmation Act,

Masonic Trust for Girls and Boys Act,

Essex Act.

Lords' Expenses
2.39 p.m.
Viscount Whitelaw: My Lords, I beg to move the Lords expenses Motion standing in my name on the Order Paper. As noble Lords will be aware, the terms of this Motion reflect the recommendations of the Top Salaries Review Body which last April published its review of parliamentary secretarial allowances. The TSRB also made certain other recommendations affecting the Lords—on the questions of short money and of a possible special secretarial allowance to active Back-Bench Peers. It may be for the convenience of the House if, in moving the Lords expenses Motion, I say a few words on these other matters too.
I turn first to the Motion on Lords expenses. At present, noble Lords can claim up to £20 for each day of attendance at the House for costs incurred on secretarial work, postage and certain additional expenses such as the cost of equipment, or books or periodicals, and Lords' Ministers and paid office holders may claim an allowance of £2,334 a year for secretarial expenses in connection with parliamentary correspondence. The TSRB did its work with customary diligence and as part of its scrutiny sent questionnaires to a one-in-two sample of Peers who had attended the House in the 1985–86 Session. The results of the survey are set out at pages 17 to 19 of Volume 2 of the report.
Having regard to the evidence of Peers' actual expenditure on secretarial, postage and related costs and having regard also to the character of your Lordships' House, the TSRB has recommended no changes to the basis on which the allowance should be paid. It has however recommended that the allowance should be increased from £20 to £22 a day. It has also recommended an increase from £2,334 to £2,570 a year for ministerial secretarial expenses.
The TSRB proposes that annual uprating by reference to the percentage increase in the pay of senior personal secretaries in the Civil Service should be continued. The Government accept all these recommendations and the Motion now before your Lordships will give effect to them from 1st August, 1987. I hope that the House will agree to these increases.
That is all I want to say about the secretarial allowances. But before sitting down I should like to say something about short money and an allowance for active Back-Bench Peers. Short money, as the
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opposition Front Benches and former Members of the House of Commons will know, is the financial assistance made available from government funds to the opposition parties to assist them in carrying out their parliamentary business. The amount currently paid to the parties and the formula which determines that amount are clearly set out on page 21 of the TSRB report. Broadly speaking, it is based on the number of MPs and the votes cast at the general election.
This money, at the discretion of the party leaders, may be used to support the work of the Lords, too. And the opposition Front Benches do, I know, receive some support from this quarter. In the course of its review of secretarial allowances the TSRB looked very hard at the resources available to opposition Front-Bench Peers. It concluded that very little short money reached the Lords and suggested that a separate allocation should be sufficient to provide the main Opposition party with eight to 10 research assistants with similar provision for the other parties based on the formula used in the House of Commons. These are questions that can be considered during the current review of short money that is taking place between the Government and opposition parties through the usual channels.
The issue of whether to have a separate allocation for the Lords' opposition parties or whether to continue to provide an overall sum and leave it to the parties to decide upon allocation themselves, is obviously something that the leaders of the opposition parties in this House would have a view about. I am sure that they are in touch with their colleagues in another place about it. It is primarily a matter for each of the opposition parties to decide themselves. However, I can say that if the opposition parties did agree that they wanted part of the short money reserved for the Lords' opposition parties, the Government would certainly not obstruct this development.
As to the size of the addition proposed by the TSRB, I must say that the Government have reservations as it is based on a notional number of research assistants. We have in mind a rather smaller sum, its use to be at the discretion of the parties in the House. But these details are for the review. This will be conducted as expeditiously as possible with, I know, the full participation of the leaders of the parties in this House. I shall of course report the outcome to the House in due course.
I turn finally to the question of some kind of enhanced secretarial allowance for active Back-Bench Peers. The TSRB received evidence of the higher level of activity in your Lordships' House in recent years, of the greater public awareness of its role and the increase in lobbying to which noble Lords are exposed. This point was also made to the TSRB and I know that my noble friend Lord Boyd-Carpenter proposed to say something about this. Some Peers find that correspondence relating to parliamentary business continues in Recesses, for which Peers cannot claim any allowance.
However, the TSRB could make no recommendation as to the introduction of some kind of extra allowance for the more active Back-Bench Peers. It considered that the problems of establishing the level of need and the question of who should be eligible to receive the allowance were

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insurmountable. Instead, it suggested that I, as Leader of the House, might wish to invite the House to consider the matter further. But that leaves the question for me, and indeed for your Lordships' House. The first question that we have to decide—which may as time goes on cause us a little difficulty—is what exactly is an active Back-Bench Peer and who decides who is such an active Back-Bench Peer—and of course what does his activity consist of?
There are all sorts of answers that I think different parts of the House would consider giving. I suspect that my noble friend the Chief Whip would have one idea of what an active Back-Bench Peer was, and others might have a different idea. So this matter is not an easy one, although it is easy to point to the difficulties. I naturally share the dilemma which has been thrust straight back at me. However, I would genuinely be extremely happy to listen to any workable schemes that may be proposed by your Lordships. We would be very determined to consider them to see whether we can overcome some of the problems. I think they are formidable but that does not necessarily mean that schemes for dealing with them cannot be thought out.
I hope I have not wearied the House too much by speaking at such length. I am happy to say that I have now covered all the recommendations made by the TSRB relating to your Lordships' House and its secretarial needs. I hope your Lordships will agree that I have been able to give an encouraging response on behalf of the Government to all those recommendations except one. Only the recommendations on the Peers' secretarial allowance and the other expenses allowances need immediate action by the House, and accordingly I invite your Lordships to agree to the Motion before you. I beg to move.
Moved, That the limits on the expenses which Lords may recover under paragraphs (1)(d) and (3) of the Resolution of 22nd July 1980 should be determined as follows—

(a) for paragraph (1)(d) of the Resolution (office, secretarial and research allowance) the limit for any year shall be the appropriate amount multiplied by the number of days of attendance in that year falling within paragraph (1)(a) of the Resolution, the appropriate amount for this purpose being determined as follows—

(i) for expenses incurred in the year beginning with 1st August 1987, the appropriate amount shall be £22;

(ii) for expenses incurred in any subsequent year, the appropriate amount shall be the amount obtained by increasing what was the appropriate amount for expenses incurred in the immediately preceding year by the relevant percentage (so that, if the relevant percentage for any year is nil, the appropriate amount remains the same for expenses incurred in that year);

(b) for paragraph (3) of the Resolution (office holders' secretarial allowance) the limit shall be—

(i) for the year beginning with 1st August 1987, £2,570:

(ii) for any subsequent year, the amount obtained by increasing the limit applicable to the immediately preceding year by the relevant percentage (so that, if the relevant percentage for any year is nil, the limit remains the same for that year).

In this Resolution "year" means a year beginning with 1st August, and for the purposes of this Resolution—

(i) the relevant percentage for any year is the percentage by which the amount of salary (exclusive of allowances and overtime) payable for the period of twelve months ending with 31st March in that year to a person in the Home Civil Service at the maximum point on the scale for Senior Personal Secretaries and in receipt of Inner London weighting exceeds the corresponding amount for the period of twelve months ending with 31st March in the immediately preceding year;

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(ii) any fraction of a pound in an amount obtained under subparagraph (ii) of paragraph (a) or (b) above shall be treated as a whole pound if it is not less than 50 pence, but shall otherwise be disregarded.—(Viscount Whitelaw.)

2.50 p.m.
Lord Ponsonby of Shulbrede: My Lords, I should like to thank the noble Viscount the Leader of the House for so concisely introducing the recommendation on the Lords' secretarial allowance. During our last consideration a year ago on the level of Peers' secretarial allowance, your Lordships found yourselves retrospectively in some difficulties in that another place considered a similar resolution on an allowance after your Lordships, and they took a dramatically different attitude from that taken by your Lordships.
As a result, the top salaries review was set into motion. On this occasion the noble Viscount has very wisely decided that your Lordships should consider their resolution on this matter of the secretarial allowance after the other place had considered their resolution. That was done on Tuesday night and the conclusion of the debate is available only in today's Hansard. Once again the other place has decided not entirely to follow the recommendations of the review body in their entirety. I am concerned that, again, that produces a situation of unequal treatment between Members of the two Houses.
So far as concerns the other place, the review body came to the conclusion that the level of secretarial allowance fixed last year was higher than could be justified and that the figure should mark time, indexation not applying to that figure until the lower figure that was suggested by the review body had reached the present level of allowance in another place by process of annual indexation. The decision the other night of another place was that indexation should immediately apply in the financial year starting in April 1988 to the figure agreed for secretarial allowance last year.
After very full and thorough investigation, the review body suggested that the right figure for your Lordships' daily secretarial allowance was £22 and that that figure should be effective from 1st August, as is mentioned in the terms of the Motion before your Lordships' House this afternoon. However, if your Lordships are to enjoy some equality of treatment with the other place it seems that that figure should also be subject to indexation from 1st August this year.
In effect, the review body has said that the correct figure for secretarial expenses for your Lordships is £22, in the same way that it gave the figure for another place. The other place has added indexation-plus on to that figure, whereas your Lordships are to receive just that figure. This is a matter that I have been able fully to consider only in the past few hours as the terms of the resolution were only available from this morning's Hansard. However, I shall be grateful if the noble Viscount the Leader of the House will consider whether that situation can be rectified by increasing the amount for your Lordships' secretarial allowance by indexation for this year in addition. I am advised that that figure is about 4.5 per cent., which would amount to another £1 on the

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secretarial allowance, making a total of £23 rather than £22.
There is another matter that I should like to discuss concerning unequal treatment between your Lordships and Members of another place, which has been raised with me by various Members of this Chamber. Members of this House and Members of another place act as parliamentary delegates to European assemblies; namely, the North Atlantic Assembly, Western European Union and the Council of Europe. As such they receive a per diem allowance of 920 French francs, which is paid by the House in order to cover subsistence and expenses. The current value of that sum is around £100 but I am advised that it is no more than is necessary for the expenses involved in attending meetings.
When attending those meetings Members of another place continue to be able to draw their secretarial allowance in the Commons. The Commons secretarial allowance is paid on an annual basis whereas your Lordships' secretarial allowance is paid on a daily basis. It seems to me that Peers who, as part of their parliamentary duties, are members of parliamentary delegations to those organisations and attend those meetings should qualify for a secretarial allowance. The business of reimbursing secretaries continues during the time that they are attending those meetings. I should be grateful if the noble Viscount the Leader of the House could comment on that as well.
Perhaps I may now move, as did the Leader of the House, to the question of short money. We are of course pleased about the proposal in the report that there should be a separately defined allowance for the opposition parties in this House. Indeed, I was very interested in what the Leader of the House said. The ominous part of his remarks was perhaps that a rather smaller sum might be available for this than was envisaged by the Top Salaries Review Body. One wonders whether he was thinking of something marginally less—perhaps 10 per cent. less—than what the review body had in mind, or something considerably smaller than that.
It would he useful if the Leader of the House could give some indication as to what he meant by "a rather smaller sum". It is true—and this, in a sense, is something about which we are very pleased—that if this recommendation were fully implemented it would make a very substantial difference to the ability of the opposition parties to function effectively.
Finally, I come to the hoary question of an enhanced secretarial allowance for active Peers. I hope we are thinking in terms of active Peers in all parts of the House and not just solely of Back-Bench Peers. The review body found this a very difficult problem. Indeed, it said at paragraph 69 of its report:
"we concluded … that it would be wrong to differentiate … between frequent attenders and those who attend less frequently but make a valuable contribution to the work of the House. We believed that the introduction of different levels of allowance would give rise to difficulties of definition and undoubtedly some injustice as between Peers on either side of whatever dividing line was established".
As the Leader of the House has said, it concluded—almost in desperation, one feels—by saying:
"This is a matter which the Leader of the House may wish to invite the House to consider further".
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Indeed it is a hoary problem to define what is an active Peer. At one time, your Lordships had what is now referred to as an assiduity allowance, and a Peer could not claim for attendance unless he had attended on a minimum number of occasions. That told against those Peers who might have certain special interests so did not attend very often, and were therefore penalised.
Another suggestion has been made that it should be based on the number of votes in which a Peer takes part. That would also run into difficulties. An even further suggestion has been made that the allowance should be based on the number of column inches in Hansard that a Peer's speech takes up. That would lead inevitably to the proceedings of your Lordships' House grinding to a halt. Indeed, I think one can honestly say that a workable scheme has not been produced.
There is, as I have indicated, an overriding argument against any scheme, because it would inevitably produce unfairness of treatment between different Peers. One is reminded that in another place, with one or two exceptions, every Front-Bench and Back-Bench MP, other than Ministers, is treated equally. It would be difficult to argue for unequal treatment of Peers when there is no unequal treatment of Members of another place. Those are some of the issues which arise from this report, I look forward to hearing noble Lords' comments on this report and to the reply of the Leader of the House.
Lord Tordoff: My Lords, from these Benches I too should like to thank the noble Viscount for introducing this Motion. I also thank the chairman of the review body, the noble Lord, Lord Plowden, and his team for the remarkably detailed report that they have produced. Those of us who read it in detail recognise the House as it is, the way in which it works and also the difficulties that are outlined in reaching solutions to its difficult problems.
On the question of secretarial allowance, I heard what the noble Lord, Lord Ponsonby of Shulbrede, said when he compared this House with another place. I do not wish to follow that argument too closely. I believe that noble Lords should be properly reimbursed in the form of a secretarial allowance for the costs that they incur in this place. That should be decided not totally without reference to another place, but a conclusion should not necessarily be derived from anything that may be done in another place.
Noble Lords will remember that a few years ago I persuaded your Lordships that our motor car allowances could well be dealt with in a slightly different way because of the different circumstances that existed in this place, and noble Lords were good enough to agree with that. Therefore we do have situations where we do not necessarily follow along the same tramlines as another place. I do not think that the indexation of this year's allowance is a major issue. The review body has gone into the needs of this House and has come up with a solution which I think we should accept.
When it comes to short money not unnaturally we on these Benches in particular welcome the suggestion that short money should be made

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available to Opposition Front Benches in your Lordships' House because at the moment Front Bench spokesmen receive no contribution at all, although I hope that we play an active and useful part in your Lordships' House.
I was slightly worried by the tone of the noble Viscount's remarks in that there seemed to be a suggestion that there would perhaps be no new money coming forward. I may be misinterpreting what he said but I hope that it is not true. I hope that it will be impossible to offer short money to your Lordships' House in its own right. May I perhaps suggest that as regards your Lordships' House it should be renamed Glenamara money.
It is an undoubted fact that noble Lords on the Front Benches of the non-official Opposition find it difficult to provide the kind of services and back-up which are necessary for them to do their job in this House. It is very good to see that recognised in the report and I hope that the Government will recognise it too. As regards staff numbers, it seems to me that again the Government should be careful before they move away from the numbers that are recommended in the report because they represent a reasonable funding for a reasonable number of research and secretarial assistants both for the Labour party and for the Alliance Peers.
As regards active Back-Bench Peers, all recognise that it is not easy. I do not believe that it is impossible to find some solution to this problem. Although, as the noble Viscount has said, the report fails to make a recommendation and puts the problem very firmly in his broad lap, nevertheless one should notice that paragraph 71 of the report states:
"Our management consultants have recommended that parties in the Lords should be able to nominate active back-bench Peers who would receive an annual maximum secretarial allowance of £5,000 in return for a guarantee that they would, unless prevented by illness, attend the House on a minimum number of occasions annually."
The views of a professional management consultancy should not be totally ignored. Although perhaps they do not recognise the subtleties of the difficulties that can exist in your Lordships' House, nevertheless I should not wish this moment to go by and for us simply to say that the review body was unable to recommend anything, because clearly the management consultants recommended something to the review body.
I hope that there is a possibility of finding a way through the difficulties which exist in offering support to active Back-Bench Peers. Like the noble Lord, Lord Ponsonby of Shulbrede, I feel that active Peers are not always associated with the Back-Benches. There are also one or two of us on the Front Benches who are moderately active!
This is a very good report and I am glad that the Government have responded to the degree that they have. I hope that the noble Viscount will be able to give a little more reassurance on the points raised by the noble Lord, Lord Ponsonby, and myself. I believe that in recent years this House has played an increasing part in improving legislation going through Parliament. The time has come to take some positive step forward to support the activities of many noble Lords in all parts of the House who find
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it very difficult to obtain the necessary quality of service because of the difficulty in finding research and secretarial backup. Having said that, we certainly support the Motion.
3.6 p.m.
Lord Shackleton: My Lords, I hope that your Lordships will forgive me if I set this discussion against the whole parliamentary situation. Noble Lords who have served in another place and others will be aware that back in the late 1940s when Members of another place were paid £600 a year, there was a great reluctance to pay them any more. I remember Quintin Hogg, as he then was, boldly recommending a salary of £2,000 a year; I refer of course to the noble and learned Lord, Lord Hailsham.
Parliament has consistently, despite its qualities, undervalued its services. That is particularly true of your Lordships' House. I suggest that the Plowden Committee did not really understand the problems of this House; the committee coped with it. However, if we look at the membership of the committee, there was no one who could recall the curious phrase "an active Peer".
We all tend to underrate the services of this House. Indeed, we sometimes wonder whether anybody likes us except ourselves. However, recently I think there has been a certain degree of recognition. In terms of cost-effectiveness, the reports of your Lordships' House and the service that we render in committees of the House or in Select Committees is most extraordinarily good value for money. If I may refer to the Select Committee on Science and Technology, it is astonishing that that committee has led to major changes in government policy on science. I have just become the new chairman of the committee in succession to the noble Lord, Lord Sherfield, who did a tremendous job. It is extraordinary that a committee without any resources except its members, one-and-a-half very able clerks and a specialist adviser can produce a report leading to major changes in the structure of government.
I put that forward as the background, because it may well be that there is no solution to the problem. I was, however, a little disturbed when a member of the Plowden Committee remarked to me: "I do not know how we can pay what you think you ought to get, since you are a non-elected House". That is not the point. It is not our fault. Approximately 15 or 20 years ago a number of noble Lords, including the noble Lord, Lord Carrington, Mr. Crossman, the noble Earl, Lord Jellicoe, and myself were involved in putting forward proposals for the reform of the House. Both sets of proposals on debate and on Second Reading were overwhelmingly approved by both Houses. They were finally defeated as a result of weakness on the part of the Labour Government and in the face of what can only be described as a filibuster by Mr. Michael Foot, who did not want to see the House of Lords reformed, and Mr. Enoch Powell, who did not want it altered at all.
The result is that we carry on rather successfully without reform and indeed with a degree of recognition. We had to face these issues and at that

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time we came up with a concept of a two-tier House (although that is not what I am proposing now), which everybody thought was very complicated. In particular we recognised, the value of a phrase which we use, "occasional excellence"; that is to say, those noble Lords who attended the House very occasionally but who bring a degree of expertise and knowledge. Therefore, in deciding what might be called the full-time House—I shall not go into the complicated details; we modelled it, although I asked the Ministry of Defence to model it because it could not be done elsewhere—we came up with a solution in which those who were salaried and voting members had to put in two-thirds attendance.
I am speaking on behalf of the so-called active Peers. It is appalling that hitherto the Liberal Party has not received any short money or help. Since the noble Viscount the Leader of the House said that he is sponsoring and pushing this debate because he wants to know our opinion, I say that we treat this House abominably badly. We do not provide the accommodation we should. I share an office with three other noble Lords. I happen to have a secretary but the papers of one noble Lord or noble Baroness who shares my office overflow from her desk to mine, and she is constantly filing them or throwing them away. She could (and he could) do with a secretary. Noble Lords should certainly put in a minimum amount of attendance.
The calculation which was strongly recommended by the survey committee was that there should be a secretarial allowance of up to £5,000. My recommendation is that payment should be made direct to the secretary, as I believe happens in the other place, on the undertaking that the work done by the Secretary is in the public service.
I stress that fact because noble Lords who have been in the other place and take part in other public activities have an enormous amount of work which is not directly parliamentary but which springs from parliamentary activities. I could give many examples, but I refer to the fact—because I always refer to the Falklands in every speech I make—that I was picked to go to the Falklands as an ex-Minister and a Member of the House of Lords, and hardly a day goes by that I do not get a letter on the subject. All noble Lords know the pressure which springs from membership of this House. I hear, as indeed do other noble Lords, from constituents of 30 years ago.
Therefore, my suggestion is that there should be a payment, as recommended, up to £5,000. I stress that this is not a hard-luck story on my part. For many of these years my firm, which paid me a handsome salary (as indeed is the case with other noble Lords), also provided me with secretaries. That has come to an end. I now pay a secretary £5,000 a year and I am very happy to do so. I still go out to work in order to pay for the secretary. I am chairman of a committee and I have to write letters, but I cannot use the clerks for this purpose.
I ask the noble Viscount to be rather more brave than the noble Lord, Lord Plowden, and his people and to see whether a scheme can be worked out set against the background that this House needs a review of its facilities and services. I hope that this
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point can be further considered and payment made direct to a secretary in return for a certificate stating that x amount of work was in the public field.
3.15 p.m.
Lord Boyd-Carpenter: My Lords, although I would not agree with the specific proposal that the noble Lord, Lord Shackleton, has presented to your Lordships, I agree with the spirit of his approach and the importance of being more self-confident about the service which your Lordships' House renders to the public.
I direct my few remarks solely to the secretarial allowance. The present allowance has one basic defect, it seems to me. It is related only to days of attendance; it is in the nature of things not payable during recesses. Our other allowances—subsistence, night subsistence and so on—are rightly related to days of attendance.
The secretarial allowance is quite different in kind. As the Plowden Committee states:
"The point has been made that correspondence continues when the House is in recess, but Peers cannot claim the daily allowance which is payable only for days on which the House is sitting."
It is my experience, and I think also the experience of a good many of your Lordships, that, particularly since your Lordships' House has been televised, we get a very considerable body of correspondence relating to our duties here. The correspondence is from all sorts of people—from cranks and lunatics, from lobbyists, from good causes and people responsible for admirable charitable and other organisations, and from members of the public who either agree or disagree with what we say. We receive correspondence from members of the public who feel that they have a view they would like ventilated in Parliament and who take the sensible view that there is a very much better chance of it being ventilated here than in another place.
There is a steady and, in my experience, fairly substantial volume of correspondence. It has been steadily expanding ever since the House was televised. The brutal fact is that it does not stop tonight when your Lordships' House rises for three months. It goes on. To take the line that one is not going to deal with that correspondence would be doing a singular disservice to your Lordships' House. I do not think anybody would really recommend that one should adopt such a churlish, unhelpful and unpublic-spirited attitude. The fact remains that we receive no allowance whatever once the House has risen. Indeed, it has not been mentioned but, unlike Members of another place, in dealing with correspondence we also have to pay our own postage which in this day and age is not insignificant.
Therefore, a very real problem faces a good many Members of your Lordships' House. It is not met simply by altering the precise amount paid in respect of days of attendance; it requires a more radical solution. I share the distaste which has been expressed in seeking to classify some Peers as active, some as less active and some as active Back Benchers. That is an invidious thing to do. It would put a difficult task on those who have to make the assessment. I do not think it is necessary.

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I venture to put a suggestion which I hope my noble friend the Lord President will consider. After each Session or after each sitting, whichever you like, the average amount claimed by way of secretarial allowance would be a good indication of what that expenditure has actually been related to one's attendance here. One can pay either that sum or, if preferred, a sum related to it—perhaps two-thirds or three-quarters of it—per week during the subsequent recess. That has the advantage of maintaining the original link with attendance. It also has the advantage of avoiding the invidious distinction between active and less active Peers. It would have the further practical advantage of giving to noble Lords who have to face this correspondence at least some financial support for it.
There is, of course, another aspect in human terms. If one employs a secretary or, as I do, shares a secretary, one cannot possibly say, "Well, we have come to 23rd July; you are sacked until October". That is not possible in human terms. If one employs a secretary one must continue the employment for a consistent period over the year. Indeed, if one did not, I understand that one could be taken to an industrial tribunal and quite rightly turned down by that tribunal and mulcted for your pains. Therefore, it is unrealistic to rely on a secretarial allowance tied to daily attendance. That is acceptable during the sittings and probably a good rough and ready indicator of how much time one has put in here and the justification for having secretarial expenses. But it makes a nonsense when we come to recesses—any recesses—and in particular when we come, as we are in a few hours' time, to a recess lasting three months.
With respect to the Top Salaries Review Body—and I take the comment of the noble Lord, Lord Shackleton, on its composition—I believe that it made heavy weather of the idea of having to distinguish between active and non-active Peers. I suggest that the formula I have proposed or something like it—I am not asking your Lordships to accept it because it is my idea—relating the amount paid to the amount payable in respect of Sessions would help to bridge the gap. It would still leave most of your Lordships considerably out of pocket but it would deal with what I believe to be not only a real and personal grievance of a good many of your Lordships but also a factor working against the public position and public relations of this House.
I suggest that there is a public interest. I agree very much with the noble Lord, Lord Shackleton, that your Lordships should not only be active in this Chamber but, in correspondence with those members of the public who take the trouble to write, should show active and polite interest in the views put to them. It is made financially difficult for noble Lords if the allowance is cut off simply because the House is in recess.
3.23 p.m.
Lord Houghton of Sowerby: My Lords, my noble friend Lord Shackleton is right in saying that our difficulties derive from this continued neglect of the reform of your Lordships' House. Additional
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responsibilities and an extra load of work are being imposed on a House which is inadequately constituted and serviced for the work we now have to do.
The level of service I am getting in this House at the moment compares pretty well with what I received as a tax clerk when I was first in the Inland Revenue in 1915. It is no better. I even had a telephone in 1915. We did not begin with a shorthand typist but we soon got one. I think we are a classic example of British genteel poverty. We cannot be expected to do our job in these circumstances.
If one is active in this House on controversial matters one soon receives fan mail. I wish that more of your Lordships would take an interest in animal welfare. You would then receive plenty of correspondence. If you are known as the animal man, you get a load of it. You become a patron of all the animal protection societies in the country. You will be asked to go to meetings all over the place. If you go and miss your attendance in your Lordships' House you will be fined £90 because you were not here overnight. The position is ridiculous. If we were to apply our minds to the problem, I am sure that a solution could be found.
I should like to ask a few questions. Who decides when this House sits? Why did we not sit the other Monday? Who says that we are to have a three-day week when we come back in the autumn? When do we begin a four-day week? We have just passed the Finance Bill through all its stages in three hours. We began the debate as if the Second Reading were going to last all day, and the Committee stage was to follow. By 2.30 p.m. it had been sent on its way. It has probably received the Royal Assent by now. That is how we do business on the last day before the recess. Why could we not sit tomorrow? Why cannot we have days upon which we discuss matters and brood upon them? This is a House for philosophy, for looking at the broad perspective of our political affairs.
We should have some regular meeting days. We should be able to rely on being in this place when we expect to be here. We are told that we are not meeting on a Monday and so all the allowances go for that day. You tell the secretary not to come, and she does not get any pay. You come up in the usual way, and get no subsistence for being here, but you must come overnight. All this is a rag-bag. The matter deserves much more consideration than it is receiving.
The secretarial allowance is under consideration. We should not pursue too closely comparisons with the other place. It is an elected Chamber. The Members all have constituency responsibilities. They are all under the supervision of the party Whips. They have a degree of oversight of their activities. They have political ambitions, and that does not apply to your Lordships. It is an entirely different Chamber. We must consider our requirements in the light of our work and composition.
The difference here is that we derive from different sources and come here for different reasons. There are Peers by succession. They are born to come here. They are under no obligation to attend regularly or to feel any devotion to the work of the House. Some

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of them have other interests. In the circumstances, their approach to the House may be different from that of others who come from other sources. Some Peers are nominated to come here to work. There are others to whom a Peerage is an honour which carries no political or parliamentary obligations. We are a mixed bag. There are varying degrees of activity.
Those who devote ourselves almost wholly to your Lordships' House cope with a daily mail which requires all the part-time services to do the filing and keep the records in some sort of order. I have never worked in such a mess as I have to at present. I cannot cope with the load of stuff that comes in every day, and which is necessary if one works in different fields in your Lordships' House.
With regard to the secretarial allowance, it is not the money we want; it is the service. Why cannot we have a secretarial service? The Civil Service has ample resources to provide this House with a secretarial service. All we need is the room for us to work. I know the problems and difficulties during the recess, but is there any reason why we should not come here to work during the recess? This is our workplace. We have a desk here—if we are lucky. Why cannot we be regarded as working at our headquarters, which is the House of Lords?
I accept the friendly words of the Leader of the House that this may be given further consideration. I think that we should apply our minds to it. There are several choices. One is that we abandon the idea of a flat rate secretarial allowance and apply a differential allowance by reference to proven expenditure on private secretarial services. Another option is to provide secretarial services, to have a secretarial pool upon which we can draw. It will then be seen what claim we make upon the pooled resources. There could be a combination of the two. The claims of individual active Members could be looked at by a House committee to see what is the best provision to make for particular people.
We should not be afraid of differentiation, or of the complexities of administration. Why do we all have to be standardised? We have a lot of business tycoons in your Lordships' House. They are solving every day of the week such problems as how to get the services they want, how to pay for them, and how to differentiate between people who give them. There is bound to be a solution, and I sincerely hope that we shall try to find it.
We ought not to think of attendances only. Perhaps a combination of different factors would constitute some degree of activity such as attendances, division records, the load of correspondence, and so forth. Some of us will not live long enough to take full advantage of anything that may be done but we ought to make the attempt to provide for the different degrees of mobility—vitality, if you like. We are different in that regard also. Some need more help than others.
However, one thing is certain—that so long as we have to go to the House of Commons for the money we shall probably not have the sympathetic consideration that we ought to have. At least it is not constantly talking of abolishing us, as it used to do.
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We are at least safe in our genteel poverty. We can rely on keeping it, and we can now build on it.
When the House of Commons wishes to obtain something it puts down a resolution, votes for it, and, despite government objection, the Members all go home and say, "We have settled it", and they have. They know how to do it. We are supplicants; they are masters of finance. Indeed, their ambitions now far exceed those of the House of Commons of the past. Let us have a go at it. Let us try to find the solution. We shall then make conditions happier all round. We shall then write our correspondence with a lighter heart. We shall be more courteous to the people who worry us and we can put at the bottom, "We receive no state aid", like the RSPCA.
3.34 p.m.
Lord Diamond: My Lords, I seek your Lordships' permission to speak in the gap which is in the speakers' list. I have given notice and apologise that I did not put my name down on the list as I did not realise that there would be one. I shall accordingly be very brief.
I wish to begin by thanking the noble Viscount the Leader of the House for the way in which he has introduced this Motion and to make two preliminary points. First, I do not believe that your Lordships' House can function at its best unless it has effective opposition. Effective opposition requires the resources for it to be effective. Secondly, I feel that your Lordships' House has been increasingly useful to the nation and that it should be enabled to continue to be so. It is against that background and the fact that the nation is getting its second Chamber on the cheap that I shall make two suggestions. When I say "on the cheap" I hope that in his summing up the noble Viscount will not—as he usually does—twit me for being a Chief Secretary turned spendthrift.
Viscount Whitelaw: Not on this occasion, my Lords.
Lord Diamond: My Lords, more than one Chief Secretary has spoken in this debate, and if the noble Viscount accuses me of that I would be bound to remind him that one of the things I did as Chief Secretary was to provide resources for the then Conservative Opposition in the House of Commons, which I thought was absolutely essential in the interests of democracy even though my advisers did not share my view completely at the time.
There are two points only which are at issue. The first concerns short money. The noble Viscount has said a number of helpful things about short money; but, as has already been pointed out by my noble friend Lord Tordoff, one of the things he said was capable of being interpreted as meaning that the existing short money would be divided into two parts. That is of no interest to us whatsoever. I am sure that I must have misunderstood the noble Viscount because the report makes it absolutely clear that what is being talked about is the extra burden. The report in paragraph 67 refers to the increase in the burden of work in the House of Lords. It is that increase that we are concerned about and it is therefore an increase in the short money that we are interested in.

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The review board took the view that the evidence it was receiving pointed to the need for short money rather than within the narrow limits of its immediate remit. Therefore it was the board who proposed that this difficulty should be met out of additional short money. I hope the noble Viscount will be able to tell me that what he intended to say referred to additional new money and not to dividing the existing fund.
My second very short point is with regard to the difficulty of defining active Peers. We should have no difficult whatsoever in defining active Peers. I can say that on behalf of my colleagues, the officers of the SDP, and myself with regard to our own party. I am sure that the officers of the Liberal Party would have no difficulty in defining it so far as concerns their members. I see not difficulty. We all realise that it is going on. We all realise that those who are able to put in a great deal of time are absolutely essential to the regular running of the House and the work it does both in Committee and in the Chamber. I am grateful, therefore, to the noble Viscount for having said that he will consider this matter further. He has not closed his mind to it. He has heard several speeches all pointing in the same direction; namely, that this matter, and also the various proposals put to him, should be considered further.
3.38 p.m.
Viscount Whitelaw: My Lords, I am grateful to the noble Lords who have taken part in this debate because we have had quite a wide range of views. Stemming from a fairly narrow subject we have broadened out our position, and that all adds to the interest because it is to the background of what we are doing in detail that we need to look further.
I want to start by saying something following what was said by one of my distinguished predecessors as Leader of the House, the noble Lord, Lord Shackleton. He referred, as indeed have others, including my noble friend Lord Boyd-Carpenter, to the need not to underrate ourselves as a House in that the service of your Lordships' House to the nation is very considerable. I believe it is true that that has been increasingly recognised in recent years, and it is very important.
Since coming to your Lordships' House I have always spoken as though I had just arrived. I cannot continue in that way because I have moved into a second Parliament. In that first Parliament I learnt a great deal and it was all in the same direction. I learnt of what your Lordships' House does for the nation and I learnt a great deal about which I had absolutely no idea when I was in the House of Commons. I suspect that in that regard I was in exactly the same position as are the vast majority of Members of the House of Commons today. I can assure your Lordships that I shall do everything in my power to ensure that my colleagues in the Government in the House of Commons appreciate the needs and requirements of the House of Lords. That is part of my answer to the noble Lord, Lord Houghton of Sowerby.
It is sometimes a difficult task to make others appreciate some of the problems which we face and
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some of the differences in our procedure. I cannot claim that I always succeed in doing so. The noble Lord, Lord Shackleton, referred to the distinguished committee on which he sat with the late Mr. Crossman, my noble friend Lord Carrington and others. The noble Lord was kind enough to omit one of the villains in the piece who failed to get the business through the House of Commons. One was Mr. Michael Foot, for his reasons, and another was Mr. Enoch Powell, for his reasons. My noble friend Lord Carrington always said that there was a third villain in this piece. That was the then Opposition Chief Whip who was totally incapable of controlling his supporters and getting them into the Lobby behind the Government in order to get the business through. He had little doubt who that person was. The noble Lord, Lord Shackleton, and your Lordships will know very well that it was me, so I do not wish to shirk my responsibility in this matter. Whether it would have been better had it all gone through is a matter which many of your Lordships may question. Nevertheless, I want to accept my responsibility.
In reply to the noble Lord, Lord Houghton of Sowerby, I suggest that if he wishes to discover how to attract correspondence, no one who has been Home Secretary could have any doubt as to how that should be done. I add capital punishment and immigration to his proposal about the Animal Protection Society. If one were to take all three issues together, I can assure noble Lords that it would be a recipe for massive correspondence. A massive amount of secretarial assistance would be required and there would be a considerable increase in expenditure all round.
Turning to the question of who is responsible for when the House sits and when it does not, that unfortunate person is now standing here. Many people advise me on the business and I assure the noble Lord that there may be the odd Monday at this time of year and, possibly, early in the Autumn when we might not sit. However, he will have no difficulty in appearing in this House on a sitting day from the beginning of next year onwards. I see the difficulty of changes and I am prepared to discuss them through the usual channels.
I should like to turn to some of the more detailed points which were made. The noble Lord, Lord Ponsonby, asked about the change made by the other place. As was said by the noble Lord, Lord Houghton of Sowerby, they took it into their heads to do it and did it. Should we therefore follow? The noble Lord, Lord Ponsonby, questioned whether we might. The noble Lord, Lord Tordoff, thought that we should not necessarily do so, as did the noble Lord, Lord Houghton of Sowerby. We are in a different position because the two Houses are different.
Members of the House of Commons have constituents, are representatives and have a massive correspondence. I can inform the noble Lord, Lord Houghton of Sowerby, that my successor in my former constituency has approximately three times the correspondence that I had. Whether people concluded that it was not worth writing to me, I do not know. However, I think that most Members in another place are in that position. There is a

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difference. In this Resolution we are putting forward what the TSRB has recommended, having looked carefully at our requirements. I have to say that the proposed level is £3 higher than the average expenditure of the survey of expenditure which the TSRB carried out. I think one has to accept its figures, and £22 a day was what it recommended. It is 10 per cent. higher than last year. As I have negotiated for your Lordships' House on the basis of taking the TSRB recommendation and accepting it it would now be difficult suddenly for us to change. That is why I suggest that we should not in fact do so.
The noble Lord, Lord Ponsonby, then asked me about secretarial allowances for members of delegations. This has been represented to me as far as WEU, the Council of Europe, and the North Atlantic Alliance are concerned. It is important to look into this, and it should be done. I have undertaken to those noble Lords who came to see me on the subject that I shall look into it, and I shall undertake to the House now and to the noble Lord, Lord Ponsonby, that we should. There is an element of fairness in what he suggested and an element of unfairness in the present situation. As Peers and Members are doing exactly the same job on that occasion, we should try to see whether there is some way in which we could help.
On the question of short money, the noble Lord, Lord Ponsonby, asked me what I meant. I think it would be fair to say that the actual figures for the short money will obviously be the subject of discussion between the parties. That was set out as a position, but of course what happens in the negotiations is a matter still to be discussed.
As for the money coming straight to the parties in this House and not through the Commons, at this stage that must be a matter for the parties themselves to negotiate with their own parties in another place if they can. However, I have no doubt where my sympathies lie in this matter. But equally I have my problems with my colleagues in the Government in another place as well. I have to negotiate with them on this matter, as do the other parties with their parties in another place. I hope that we can all do it on that basis. I shall obviously wish to keep in close contact with the parties in your Lordships' House on how that matter is progressing.
We then come to the question of the active Back-Bench Peers. The noble Lord, Lord Shackleton, the noble Lord, Lord Houghton, and particularly my noble friend Lord Boyd-Carpenter all produced various ways in which this might be carried forward. I think everyone recognised that it is far from easy. The noble Lord, Lord Houghton, said that Members in businesses—and there are many in this House—were adept at carrying through such schemes. I suspect that if ever they were put in the position of trying to differentiate between their own colleagues on the same board, they might find a certain amount of difficulty in doing so, and that is where their expertise as businessmen might make it rather difficult to do the sort of job that we have to do here. This is a decision which in the end would have to go through your Lordships' House, would have to be accepted by your Lordships' House, and would of course mean differentiating between
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different Members on some basis or another. Therein lies the difficulty, and the reason why the TSRB did not decide to make a recommendation.
My noble friend Lord Boyd-Carpenter put forward an extremely ingenious suggestion. I think it must be looked at carefully. I do not doubt that there would be arguments that it was difficult to deal with. There are obvious difficulties, but it is certainly important that we should look at it carefully and see whether it could form the basis of some scheme, because the question of secretarial allowances in the Recesses is one which exercises a good many noble Lords and I should like to help if it is at all possible. We should look to see whether a scheme could be workable. The problem is simply that if it became one which was the subject of a great deal of argument and jealousy as between noble Lords, it would be extremely difficult for any scheme then to get through this House, and it might create a lot of feeling in the process.
I believe that it is my job to avoid that. It is certainly not my job to look at the difficulties and simply say that because it is difficult it cannot be done. I am quite clear that there are those of your Lordships, like the noble Lord, Lord Diamond, who want to see something done in this field. I am certainly not twitting him today, but I am encouraging him to move from his past position and to help me see whether he can devise a scheme which might please his successors as Chief Secretary. So it would be very helpful if we could find some scheme of that sort.
I think that I have answered most of the points that have been made and on that basis I hope that the House will agree to the Motion before it.
On Question, Motion agreed to.

Ministerial and other Salaries Order 1987
3.51 p.m.
Viscount Whitelaw: My Lords, I beg to move that the Ministerial and other Salaries Order 1987 be approved. This order increases salaries payable under the Ministerial and other Salaries Act 1975 to Ministers, to salaried Members of the Opposition in both Houses and to the Speaker of the House of Commons. The new rates, which are set out in the schedule to the order, will take effect from 1st January 1988.
The salaries of Ministers and other paid office-holders were last increased in January 1987 under the terms of the Ministerial and other Salaries Order 1983 and they would remain at these levels unless superseded by this new order.
The Government have laid this present order against the background of the 21.9 per cent. increase in the salaries of Members of Parliament on 1st January 1988, following the House of Commons decision to link the parliamentary salary to a Civil Service payscale. The Government did not consider that a similar percentage increase in the salaries of Ministers and other office-holders was justified and they propose instead that all Ministers and office-holders' salaries should be increased by

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£4,048—that is to say, by the same cash increase that will be received by Members of Parliament. I beg to move.
Moved, That the draft order laid before the House on 16th July be approved [2nd Report of the Joint Committee].—(Viscount Whitelaw.)
On Question, Motion agreed to.

EC Food Surpluses
3.52 p.m.
Viscount Hanworth Viscount Hanworth rose to ask Her Majesty's Government how the policy of reducing EC surpluses may affect the United Kingdom's self-sufficiency in food.
The noble Viscount said: My Lords, I am not a farmer, and I do not know enough about the European Community problems of supporting agriculture to suggest how this successive drain on Community finances should be reduced. This Question is concerned only with the measures to be taken to reduce the surpluses of meat, butter, wine and other commodities, and in particular what should be done by Britain or what may be forced upon us.
Not so long ago almost everybody thought that Britain should try to become more self-supporting in the food it produced. Great progress has been made in this direction. It seems that we are now thinking of reversing this ideal and taking land out of agricultural production, in some cases permanently. During the last war we had to dig up every acre available to produce more food. I accept that if there was a nuclear war such a concept might be unimportant because of its limited duration. However, that is only one scenario and if a war were to be fought with conventional weapons it might not be a short one. We thought that both the last wars would be over quickly, and we were wrong.
Leaving aside the possible threat in time of war, much more important now is the fact that if agriculture is cut down we may be more dependent on our exports to balance our trade. Oil and gas are running out. Hopefully, exports will fill the gap, but they may not do so. And it is not so long ago that Labour and others talked about a siege economy. In such a situation, even if none of these possible scenarios applies, there is a clear advantage in remaining as self-supporting in food production as possible because it provides economic stability and history shows that sooner or later self-sufficiency may be important. It follows that although I support the EC in the reduction of surpluses, I deplore anything that irreversibly reduces our agricultural potential—which does not include the planting of trees.
In any case, surely it is not necessary to do so. Whatever we do—except perhaps giving agricultural land to developers—will cost money. We should consider alternative strategies. I suggest that one solution would be to reduce the excessive use of nitrogen fertilisers in areas where their present high levels are not essential. Already we have a problem in keeping within the EC's maximum limit of nitrogen
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in our water supplies. We only do so by pumping more water out of the wells, thus reducing the water table to a dangerous level, which sometimes affects the stability of ancient buildings and much else. It is a temporary expedient that cannot be maintained successfully in the future.
The noble Earl, Lord Ferrers, put forward the idea of a tax on nitrogen fertilisers, and I should be interested to learn why the Government think that idea impracticable. Hormone and antibiotic treatment of farm animals have greatly increased milk and meat yields but have unfortunate side effects. There is doubt about how far it is wise to use antibiotics in that way. There are inevitable resistance problems that may inhibit the effective use of similar antibiotics for the human population. Not only that—the poor cows are being forced to produce more milk than is good for their health. Moreover, one must wonder whether the forced increase in production of milk and eggs, for example, provides the same quality of food that otherwise would be the case. Most certainly, with or without adequate justification many people question that practice and select free-range eggs and similar natural products.
There are two other considerations, the first of which is that the world is short of food and people are dying from malnutrition. I accept the argument that just pouring in free food for the starving, if it is done indiscriminately, can delay their efforts toward self-sufficiency. However, "indiscriminately" is the criterion. If—and I repeat if—one takes a hard-nosed attitude and excludes the relief of real famine, most certainly one should not promote medical treatment of very young children who cannot be sustained on the existing or future capability of their land. The answer must be to employ some of our agricultural surpluses to relieve the problem.
As for the second consideration, I have already said that whatever we do will involve expenditure in compensation for reducing output unless land is sold off permanently for development, which I want to avoid. Therefore there is a case for considering biomass production for energy or other chemical needs. Alcohol for petrol is just one possible example but environmentalists will give many others. Unfortunately I think that just at this moment in the energy field all these equate to the situation of alternative and renewable sources of energy. We should continue to undertake research but at the present time there is no biomass process which is near enough economic or of sufficient size to provide a solution to the agricultural surpluses.
However, the use of alcohol as a blender to petrol should be mentioned. Ethyl alcohol can easily be produced from sugar beet. It is easier to synthesise than methyl alcohol and is much less poisonous. It could be blended at up to 10 per cent. by volume without causing any problems or changes in existing engines. But it is estimated that it would be uneconomical unless the cost of crude oil rose to about three times its present value, which is up to 80 dollars a barrel.
It is sometimes thought that it could be used as an octane improver. It is true that it can somewhat increase the research octane number, RON, but not the motor octane number, MON. The latter

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represents the condition of an engine working at high speed under fairly heavy load. Under these conditions, what is referred to as high-speed knock may occur and it can wreck an engine almost instantaneously. It follows that small additions of alcohol would be no substitute for lead or for refineries producing, at extra cost, higher octane fuel.
In conclusion, I ask the Government how they propose to reply to the EC and what steps they are now considering to meet their wishes.
4.1 p.m.
Lord Gallacher: My Lords, we are indebted to the noble Viscount, Lord Hanworth, for raising this Question. Also we are particularly pleased to welcome the noble Baroness, Lady Trumpington, back to the House in a new capacity. I hope that she is enjoying the lusher pastures of Whitehall Place.
We must ask ourselves in the first instance, as the EC is inevitably involved in all this, whether the surpluses which are the result of the common agricultural policy are going to be reduced. We need to ask ourselves in all seriousness whether the other 11 member states see this problem in the same acute light as we do in Britain; and, having seen it, whether they will be willing to take the decisive action which the British Government feel is necessary if some changes are to be made in the present surplus situation.
Given that willingness, we then need to ask what form the reductions are likely to take. Are they going to he entirely EC measures or will it be a question of delegating authority to member states to undertake reductions, operating within a framework directive or something of that kind? Not inappropriately, too, we must ask ourselves how costly it would be to effect these reductions and who will meet the costs. Will it be a charge on the common agricultural policy or on the two funds, social and regional, or again will the bill be passed in the main back to member states?
In this connection I take as my starting point in referring to this matter the report of a speech made by the new Minister of Agriculture, Mr. MacGregor, which was carried in The Times on 18th July 1987. He was quoted as saying that the need is to take a substantial area of farmland out of production, possibly as much as 1,750,000 acres during the next few years, and he accepted that such a reduction carried with it considerable implications.
In addition, he also said in the same speech that even though these measures were necessary he,
"pledged his support for the family farm, which he described as vital both for the environment and for the economic health of rural communities".
I think that a reduction in agricultural cultivation of the order of 1,750,000 acres is such that it raises at once the whole question of the future of land use in this country. If time permits, I should like to say a word on that later.
In addition, the United Kingdom is reported as having already sent a memorandum to the Community in anticipation of the December Summit setting out some specific proposals for reducing agricultural surpluses. These are said to be making the 5½ per cent. "temporary suspension" of dairy
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quotas permanent; setting the quota in line with domestic consumption needs and net exports; reducing beef intervention until it acts as no more than a safety net; cutting the cereals intervention period and lowering buying-in prices; introducing a cost-effective cereals land set-aside programme; setting a maximum cereals production ceiling, with a price reduction during the current season if output exceeds the threshold; strengthening the oilseeds guaranteed threshold system and replacing the current system of support for oilseeds with a flat rate of aid per hectare; increasing sugar production levies to ensure that they cover the cost of the market regime; and cutting the sheepmeat basic price. That is a pretty formidable list of measures and presumably it has been tabled seriously by the United Kingdom Government and may form the basis of discussion at the summit, if not indeed by agriculture Ministers before that time.
Turning to a consideration of these proposals one must say that even if the present dairy quotas were made permanent they may not be sufficient as they already provide a 6 per cent. surplus over current consumption. Milk is a slowly declining market in the United Kingdom. The sales for liquid consumption on rounds are estimated to fall by 10 per cent. over the next three years. There is also the current switch to skimmed milks, and the United Kingdom Intervention Board in its 1986 report mentioned the fact that 38 per cent. of United Kingdom butter production in 1986 was taken into intervention by the board. Skimmed milk powder is also going into intervention in substantial quantities and the cost of storing and the eventual disposal of those stocks is now not merely high but bordering on the horrendous. One asks oneself therefore how dairy farmers can diversify if further quota cuts are made. Many of them are farming on land which is less suited to arable cultivation and in any case it is in the area of arable cultivation that the UK overproduction problem is greatest.
If such farmers go into beef as a main activity they may find that the beef intervention system is reduced to a mere safety net. In any case beef consumption in this country has only marginally increased and then the increase is attributable to eating out rather than consumption in the home. Over the years the red meat industry has lost out significantly to white meat and that trend continues.
Cutting the sheepmeat basic price as proposed in the British memorandum is one possibilty. It may be that as we are now only 80 per cent self-sufficient in sheepmeat that is a reasonable proposition. But if lowland farmers unable to produce either cereals or milk decide to diversify into sheep we may find ourselves in the same postion with sheepmeat as regards surpluses as we are for red meat. In any case such diversification in the lowlands would have a disastrous effect on upland farmers and it may be that that consideration is very much in the mind of the Minister of Agriculture in the proposals that he is making.
The co-responsibility levy which was introduced for cereals about two years ago, plus the other devices to restrict intervention facility for cereals, have failed to halt or even stabilise production. Set-aside is now

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a favoured option but no one has yet said whether set-aside, if it becomes a reality, will be on a voluntary or on a compulsory basis. Neither do we know much about the cost of set-aside, what effect it will have on the environment and whether it can be supervised on a community-wide basis.
A maximum ceiling on cereals production with lower prices if output exceeds threshold is possible. Even in the United Kingdom such a proposal poses an administrative problem and this is undoubtedly greater elsewhere where farms are smaller and the number of farmers to be supervised much greater.
Higher sugar production levies to cover the cost of the present EC regime are undoubtedly justified, but will the Council of Agricultural Ministers agree to that? Past resistance to any suggestions of that kind has been considerable in the agriculture council.
It is true to say that where there is an EC commodity regime, whatever its form, structural surpluses exist. Such regimes are wine, olive oil, tobacco, oilseeds and fruit and vegetables, to name but a few. Yet with the humble potato, for which no regime exists and where growth is still supervised by a single statutory marketing board, we are able in the United Kingdom to keep a reasonable balance between supply and demand, even after imports, with only a minimum call upon the Government to intervene during periods of unusual weather.
So we are entitled to ask ourselves, looking at the surplus question, whether the mechanics of the common agricultural policy are not capable of improvement. Would repatriation of the problem of solving surpluses within a framework laid down by Brussels not be preferable and more workable? Of course contraction is an infinitely harder exercise in agriculture than expanding production. It is for that reason that one has the distinct feeling that some form of repatriation is probably justified and certainly deserves more study than it has had hitherto.
As I said at the outset, the scale of the problem raises the question of alternative land use. The other possibility is biotechnology in agriculture, the ALURE package, the creation of environmentally sensitive areas, farm forestry development and various other diversification schemes which are important. But in my view they are on the fringe of the problem as at present devised. If 1,750,000 acres of land are taken out, what will happen to that land? Where will it be? Is it to be taken out across the United Kingdom as a whole or on a selective basis?
Membership of the EC has contributed to the North-South divide in this country. It was an inevitable if unforeseen result of joining the Community. We now have a situation in which a three-bedroom, semi-detached house in the South-East is double the price of such a dwelling in other regions of the United Kingdom. As building material and labour costs are about the same throughout the nation, the price difference is entirely due to higher land values. The South-East is becoming a no-go area for many people not already resident there. I regard that as a dangerous situation for any government, especially when agricultural land is in surplus and
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there is the prospect of that land being disposed of or at least not used for cultivation.
In our view, there is a great need for an agreed rural land and employment policy to be devised between the Ministry of Agriculture and the Department of the Environment. Those two great departments of state, faced with this problem, need a common objective. If food surpluses are currently an expensive embarrassment, they are at the same time a tribute to the farmers of the United Kingdom, who by their skill in cultivation have fed the nation in war and peace and who now find themselves in the situation of perhaps facing stringent measures as a result of their efficiency. Reduction of surpluses will undoubtedly be a difficult exercise and in our view it may be a much more costly exercise than people contemplate at the present time.
4.12 p.m.
Lord Mackie of Benshie: My Lords, I apologise to the House for not putting my name down in this debate. However, I should like to stress to the noble Baroness, Lady Trumpington, the urgency of the problem. By all accounts, we are going to have another record harvest all over Europe. Extraordinary measures have already been taken to provide enough money to run the policy. That appears to be a simple matter of not paying dues and making countries wait for the money that they are laying out.
I have been in contact today with a Russian delegation to the IPU. I asked a specific question (with tongue in cheek) about the dangers of increased agricultural production in Russia. The answer was that they were very hopeful that the measures they were taking in terms of the liberalisation or commonsense being applied by Mr. Gorbachev were going to improve the agricultural situation in Russia at long last.
The urgency is very great and I do not see anything being done. We have had a small package in the form of ALURE; but the Government seem to be unable to put over to the EC that that is a necessary step to take. I should have thought it was not only necessary but urgent. It cannot be done without EC money. I do not think it would be practicable to renationalise in these matters. We are in the EC and we have to stay there. I should like to know how the Government will deal with that.
Moreover, I should also like to hear from the noble Baroness how much she expects farm incomes to drop this year. All the signs and the NFU forecasts are that farm incomes will drop by at least 15 per cent. this year. It is a terribly serious situation, and I look forward to hearing what the noble Baroness has to say, but without much hope that it can solve the problem before it blows up.
4.15 p.m.
The Parliamentary Under-Secretary of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington): My Lords, may I first of all thank the noble Lord, Lord Gallacher, for his very nice welcome? I am tempted to tell him of my visit to the South Sheep Show where the president introduced

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me to the assembled crowd of mostly New Zealand sheep shearers by saying: "There are three things in life you must not have: an old dog, an old sheep and an old woman." I had great pleasure in saying to him and I say to you now, "This old ewe is very happy"!
May I begin by saying that I am very conscious of the excellence of my predecessor. I know that he was much loved and respected throughout the agricultural scene. I did not know that he was going to be here, but I am jolly well going to say it—this debate gives me the opportunity to wish my noble friend Lord Belstead very well in his new role in the Department of the Environment. MAFF's loss is my gain and I can only say that I shall try to do my best.
The noble Viscount, Lord Hanworth, has initiated a short debate on a very important subject. I agree with the noble Lord, Lord Mackie, and I wish I had known in advance that he was going to speak. Had we not been about to draw stumps I feel sure many other noble Lords would have wished to speak. I shall limit my remarks to the title of the debate.
The noble Viscount began his speech by saying that he was not a farmer. Neither am I. But the very words "give us this day our daily bread" show first, how we cannot (any of us) remain very far from the act of creating that bread; and secondly, that we are indeed fortunate in the UK to live in a land where the soil is, on the whole, extremely fertile, and where, on the whole, the climate favours growth in all things connected with agriculture. Add to that the fact that we are surrounded by the sea and all that is in it, we could be forgiven for taking a smug attitude to our particular situation.
However, there are other obvious factors which must be taken into account. The noble Viscount is absolutely right when he said that during the last war we had to dig up every acre available to produce more food. But I dispute his remarks (which I paraphrase) that if we take some land out of agricultural production we would do so permanently. There is no reason why a good deal of land could not be put back into agriculture in the sort of national emergency which he mentions.
Moreover, since 1945 vast improvements and scientific advances have been made resulting in great increases in productivity and the speed with which production can be expanded. Of course we are not—indeed cannot be—self-sufficient in food. Neither are our partners in the Community. We do not grow tea, coffee, cocoa, or bananas—to name but a few items. Some of us grow certain items better than others. So, we have to take this debate in the broad international context against the background of both the European Community and the world agricultural situation.
I must say that I agree with the noble Viscount, Lord Hanworth, that, in any national economy, self-sufficiency in major commodities is a desirable objective. However, the reality is that we are now part of Europe and we cannot look at ourselves as in former years in isolation. So far as concerns agriculture, the United Kingdom's position is one that has improved over recent years. When we joined the European Community in 1973 we produced about 60 per cent. of our needs in temperate
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foodstuffs: we now produce over 80 per cent. Over the same period the European Community's level of self sufficiency in the major commodities has also increased.
It should be remembered that there have been significant technological developments which have given production increases, for example, for cereals of about 3 per cent. per annum. This trend is likely to continue even if price policies do not in themselves stimulate production. The current levels of agricultural surpluses reflect the European Community's oversufficiency in many commodities.
The noble Lord also suggested that agricultural surpluses should be used to relieve the problems of the starving and of famine-hit countries. There are, alas, still areas of the world where food is in tragically short supply. We are doing a great deal to help. Last year we provided 110,000 tonnes of grain and we in the Community will continue to spend hundreds of millions of pounds on famine relief and longer-term aid. But there is a limit to the extent to which Community surpluses can be used to help such problems. Our food surpluses are not suitable for all climates and bulk food costs a great deal to transport and distribute. Then again, it is often better to provide cash to buy food from neighbouring countries than to supply it ourselves. Above all, the most valuable help we can provide is technical and financial aid to enable these countries better to provide for themselves.
The noble Lord, Lord Gallacher, pointed out that reducing agricultural production could have a significant effect on the use of land. We fully recognise that the rural areas of our country are facing a time of change, which should be seen, I hope, as a time of opportunity. With many agricultural products in surplus, the need now is to foster the diversification of the rural economy. Our policy is to smooth this path of change so that the vital and complementary objectives of a healthy rural economy and an attractive rural environment can be achieved. It was with this in mind that we published on 10th March a set of documents entitled Farming and Rural Enterprise explaining the Government's policies for the rural economy, and we have announced a number of new initiatives in this area over the past few months.
In seeking to reduce Community surpluses, we have in mind the need to achieve a reasonable balance between the agricultural, social and economic needs of rural areas. Integration of these elements is now of course given statutory backing by Section 17 of the 1986 Agriculture Act. I believe that ideas of this kind are increasingly being recognised in Europe. An example of this recognition is the approval given to the concept of environmentally sensitive areas, which we originated. A further six environmentally sensitive areas in England and two in Wales were announced on 15th May.
I have seen one in the South Downs, and it was a very heartening picture to find not only co-operation and the desire from farmers to participate but also very happy communication between the county council and other bodies. I found that a very heartening experience.

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We intend to introduce the necessary legislation for the farm woodland scheme during this Session. Further, the adaptation of the farm capital grants system to contribute to the protection of the environment and of course the free conservation advice which we offer to farmers also deserve a mention.
To take up one of the points made by the noble Lord, Lord Gallacher, we shall also be introducing a new diversification grants scheme. Details of our proposals are set out in a consultation document issued on 15th May 1987. They include capital and marketing grants for a wide range of on-farm activities including on-farm tourism, recreation and sporting facilities, value-added food processing and farm shops. The proposals have been widely welcomed.
I think it is important to take up a few minutes of your Lordships' time to speak about the excessive use of nitrogen fertilisers. The question of nitrate pollution of water has been reviewed by the nitrate co-ordination group, and government are now assessing its recommendations, as well as those contained in the more recent House of Commons Environment Committee report on the pollution of rivers and estuaries.
It would, of course, be possible to reduce cereal production and the production of other crops in surplus by restricting the application of nitrogen. Two methods have been suggested, as the noble Viscount mentioned: a tax or levy on fertilisers or a quota. Several studies have indicated that a levy would need to be pitched at a very high level indeed—several times the cost of the fertiliser—to have any effect on production. Clearly, that would have serious consequences for the viability of many farmers. It would be very difficult to ensure that crops not in surplus are not affected.
A nitrogen quota system might have a less damaging effect on farm business but would suffer from other drawbacks. It would be costly to introduce and to implement equitably. It would peg back production of crops in areas where we might want to see an increase. If allocated on a hectarage basis it would act inequitably; for example, because of the different response rate of various types of soil. There is also a danger that the high production costs that would result would be passed on to the consumer, unless some form of price control was imposed.
Even if some workable arrangements could be found, which I doubt, they would have to be applied throughout the European Community if the competitive position of United Kingdom farmers is not to be eroded. Any form of nitrogen limitation on a Community-wide basis would be an administrative nightmare and would be extremely difficult, if not impossible, to police. There is also the danger that the Community would be competing in world markets with one arm tied behind its back.
It has been agreed that an integrated approach to the problem should be adopted involving blending and treatment of water supplies as well as a reduction in nitrate leaching resulting from agricultural
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activities. We must ensure that the right balance of measures is adopted in particular localities so that individual farmers are not unfairly penalised. We therefore need to make a very thorough study of the practicality of protection policies before making any proposals.
I realise only too well that I have touched on only a very few issues pertaining to this terribly important and complicated subject. The Government's approach to the common agricultural policy, as exemplified in this year's price fixing negotiations, is to bring a greater realism to that policy. The United Kingdom has pressed consistently for action to tackle the problems of over-production and the very considerable burden placed upon the Community's budget by the storage and disposal of surpluses.
I am sure the noble Lord, Lord Gallacher, will agree that there can be no economic sense, and no long-term security for our industry in maintaining a situation where about one-half of the entire budget of the European Community—some £12½ billion—goes on the storage and disposal of food for which there is no remotely economic market. Of course, in order to tackle the problem of surpluses it is on production that we must focus. That primarily means maintaining a restrictive price policy. That is bound to bear hard on some producers. Hence the need for complementary measures to help farmers adjust to the changing situation and secure the long term viability of our agriculture industry.
It is now widely recognised that there is an urgent need for concerted international action aimed at reforming world trade in agricultural products. The United Kingdom has been in the forefront of those seeking proper reform of the common agricultural policy. With our Community partners we shall be working hard to achieve a successful outcome to the Uruguay round of multilateral trade negotiations.
The principal objective of these negotiations must be to bring agricultural markets into better balance through genuine liberalisation of trade and a reduction in the levels of assistance to, and government involvement with, agriculture. Market forces must increasingly be brought to bear on producers if agriculture is to develop efficiently and dynamically and much-needed resources are to be freed for other sectors of our economies.
Important steps have already been taken to make the common agricultural policy more market orientated, with reduced price support and with intervention systems fulfilling better their proper role of providing a safety net and not an alternative market outlet. A number of noble Lords have expressed concern about the possible effects which reform and cuts in the level of support might have on British farmers. However, the Government are committed to reform of the common agricultural policy because we are not prepared to consider the alternative of waiting for it to collapse in chaos. We believe that would be far worse for our producers.
My right honourable friend the Minister in another place has pledged that he will resist any measures which would discriminate against the United Kingdom. In the short time that I have been associated with MAFF, I have had several

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opportunities to get out and about, to see what is going on and to listen to experts. I am very impressed by the realistic and positive opinions I have heard. You have only to go to such shows as the Lincoln, the Kent and the Royal to see proof of the excellence of British farming and farmers' readiness to adapt to the different needs of the future.
The subject of our debate this afternoon is clearly a difficult one. The cost of the common agricultural policy has increased by about 14 per cent. each year since 1983 and the problems of surpluses are well known. I am sure your Lordships will agree that the changes which are necessary to ensure the future of the CAP will not be easy and cannot be made overnight. However, the policies being pursued by this Government, some of which I have set out in reply to this debate, are aimed towards tackling these problems. I believe that the industry will respond to the challenges it faces and continue to play its important role in our national economy and towards the well-being of our rural economy.

Adjournment
4.32 p.m.
Lord Denham: My Lords, in moving, That the House do now adjourn, I should like to express on behalf of my noble friends behind me the usual good wishes at this time of the year that we have in the past. We may not be in quite the same position as before, because I recall in previous years standing in somewhat of a white sheet at this moment, apologising to your Lordships for the length and lateness of the hours that had been demanded of you. I do not have to do that now. While your Lordships have been coasting gently and pleasantly towards this moment, we should recognise that many of the staff who serve us so well and who look after us with such great kindness have to a certain extent been working just as hard, just as efficiently and just as cheerfully as they have in the past. I hope therefore that your Lordships will be just as grateful to them as before.
While as far as your Lordships are concerned this Recess is not so much needed for the rest by way of recuperation, I am afraid that when we come back in the autumn we shall be back to normal again. We shall not of course have the benefit of the gap caused by Prorogation and the rather slow bringing in of Bills to which we are accustomed at that time. While rest by way of recuperation will not be needed in the Recess, rest by way of preparation for things to come will be. It is that which my noble friends and I wish noble Lords in other parts of the House the full benefit of.
Moved, That the House do now adjourn.—(Lord Denham.)
Lord Ponsonby of Shulbrede: My Lords, I should like to associate those of us on this side of the House with the best wishes for the vacation which the noble Lord the Chief Whip has expressed to your
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Lordships. As he says, he does not stand in a white sheet today, but he probably will do so this time next year when no doubt we shall have had a considerable number of late nights. However, I should like to associate myself particularly with the remarks he made about the staff of the House.
Although noble Lords may be going away for a period of three months until the House resumes in October, some of us may not be going away for as long a time. While we are away the security staff will be on duty all the time; the restaurant staff will be on duty for most of the time; the cleaners will be on duty continually throughout that period; and those involved in the maintenance of the fabric of the House no doubt will be seizing the opportunity to restore the wear and tear of past years. To all those members of the staff of the House, to those who are more visible to us—the attendants, those who clerk the House—we also wish a happy Recess. I can assure the noble Lord that we shall return invigorated for the battles ahead in October.
Lord Tordoff: My Lords, from these Benches I join in thanking the noble Lord the Chief Whip for his good wishes, and we return them. The noble Lord, Lord Ponsonby, in his comprehensive comments covered virtually all the people to whom we should offer our thanks. I agree with every word.
The thought of the Chief Whip in a white sheet has never occurred to me. Some Members of your Lordships' House will still be doing a little work. One or two of the Select Committees will be paying visits, and the clerks with them. We shall not all be totally idle. Nor do I altogether recognise what the noble Lord the Chief Whip said in terms of our having been coasting during the last few weeks. That may be so for those who were not deeply involved in the election campaign but for those of us who were, I assure your Lordships that this break comes not a minute too soon. I also hope that the word can go out from this House that the Meteorological Office can now turn on the sunshine so that we can enjoy the summer.
Having said that, I wish noble Lords on all sides and all the staff of the House a very good, happy and enjoyable break. As the sounds of the Criminal Justice Bill Committee stage approach later in the summer we shall, as the noble Lord, Lord Ponsonby, said, come back greatly revivified and we shall sit in awe listening to the lawyers producing niceties at the Committee stage of the Bill. Until then let us all have a happy break.
Baroness Hylton-Foster: My Lords, I am sure that all those sitting on the Cross-Benches, which are normally full to overflowing, would like to reinforce the thanks that have already been given to the staff for their splendid advice and help, which is always given with such kindness and courtesy. We should also like to join with others in wishing both Peers and staff a very enjoyable Recess.
House adjourned for the Summer Recess at twenty-two minutes before five o'clock until Tuesday, 20th October next.