Lords Sitting of 9 November 1987

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

Electricity: Winter Supplies
Lord Stoddart of Swindon: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what are the prospects of maintaining the electricity supply to all parts of the United Kingdom during the coming winter.
Viscount Davidson: My Lords, the electricity supply industry plans to meet demand during cold winters and has sufficient generating capacity plant to meet forecast demand for the coming winter. The area boards' distribution network in southern England was severely damaged in the storm of 16th October. The boards mounted a massive exercise to effect repairs rapidly and to restore power to all customers. Some of this work was, of necessity, temporary. The boards have now embarked on a major programme of permanent repairs. The system will be more vulnerable until this work is complete, but every effort is being made to restore the system as quickly as possible.
Lord Stoddart of Swindon: My Lords, I thank the noble Viscount for that full reply. Does he agree that it was the dedication of the staff and the integration of the system that saved the country, particularly the South of England, from absolute catastrophe on the night of the great hurricane on 16th October? Does he also agree that the South of England is under great threat because of a shortage of generating capacity and a lack of transmission capacity to transfer electricity from the north to the south of the country? Are the Government urging along the two new power stations in the South of England and making it possible for them to be completed at the earliest moment?
Viscount Davidson: My Lords, I agree with the noble Lord that after the unprecedented devastation caused by the storm on 16th October there was a magnificent effort by the electricity industry to reconnnect so many consumers so quickly in such dangerous and arduous conditions.
As regards future power stations in the South of England, the CEGB has recently lodged an application for a pressurised water reactor at Hinkley Point in Somerset and has announced its intention to submit applications around the end of the year for two new coal-fired stations. One is planned to be sited at Fawley near Southampton. Each application will be considered on its merits and will be subject to obtaining the appropriate planning, safety and environmental consents. I can assure the noble Lord that the Government are fully apprised of the urgency of this matter.

BR: Locomotive Tenders
2.43 p.m.
Lord Dean of Beswick: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what proportion of the 100 Class 60 new locomotives for British Rail were tendered for by British Railway Engineering Limited and by United States and European companies respectively.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, I understand that in August the British Railways Board issued invitations to tender for new diesel locomotives to a number of British and overseas engine manufacturing companies. British Rail Engineering Limited, which does not manufacture engines, was not invited to tender as a main contractor. Tenders were due to be submitted to the Railways Board by last Friday, 6th November. The Government have no information on the tender responses, which are commercially confidential.
Lord Dean of Beswick: My Lords, I am grateful for that detailed reply from the Minister. Is he aware that, because I was formerly a locomotive engineer of 20 years' standing, I am absolutely appalled to learn that the workforce of BREL were not allowed to tender for that work, which they should have done? We shall not therefore even know whether the price from abroad is really competitive compared with that from our own people. Will the Minister use his best endeavours to place a moratorium on the letting of this contract in order to give the British workforce an opportunity to tender, and not once again appear to be making it easier for our competitors both on the Continent and in America to take work that is sorely needed from this country?
Lord Brabazon of Tara: My Lords, as I said in my original Answer, British Rail wished the tender to go to manufacturers of engines rather than manufacturers of locomotives, and British Rail Engineering Limited does not manufacture engines. It is not true to say that British firms have not been invited to tender. I understand that both GEC and Hawker Siddeley (Brush) have tendered.
Lord Underhill: My Lords, does the Minister not consider it a strange attitude towards competition policy for the board to issue, as recently as 26th October, a statement to the effect that the fact that BREL has not been asked to tender is not disadvantageous to the company, as it might become the major subcontractor? Does he not agree that it could possibly work the other way: that one of the other firms could be the main subcontractor to BREL, if BREL were successful in its arguments? This procedure seems to be standing competition policy on its head. Is it not a fact that when BREL was reorganised one of the groups was called the New Build and Repair Group? Does that not imply that it was able to build equipment of that kind? Is this

1199
decision not also linked with the terrible cuts and redundancies in the railway works?
Lord Brabazon of Tara: My Lords, I do not believe that it is disadvantageous to BREL not to be able to tender as the main contractor. In fact, in many ways it gives it a better chance of getting business than if it had been the main contractor. If BREL had been the main contractor it would have either won or lost the tender. As it is, it can tender for subcontracting work from anybody who wins the tender. The redundancies at BREL have no connection with the question of tenders for the new locomotive. Job losses are due to a fall in the repair and maintenance workload and much of that is an inevitable consequence of investment in modern rolling stock, which is designed to need much less maintenance and repair.
Baroness Turner of Camden: My Lords, I apologise for rising after my noble friend but I should like to put a question on the issue of employment because it seems to me to be a very important one. Is the Minister aware that the trade unions were advised last September that there would be reductions of 2,939 jobs at Crewe, Derby and York, 487 of them being salaried posts, and that those redundancies have been announced by BREL? Does the Minister agree that we must give some priority to trying to maintain the skilled workforce at BREL and that work should be put its way wherever possible.
Lord Brabazon of Tara: My Lords, if BREL is a successful subcontractor in this contract, it will of course gain from it. But as I said, this proposed contract is not a reason for the redundancies at BREL.
Lord Dean of Beswick: My Lords, is the Minister not aware that the workforce in BREL are of the opinion that they could be a successful main contractor? Bearing in mind that the French, the Germans, the Americans and other people involved in the tendering never appear to make it easy for us to obtain work in those countries and also bearing in mind the terribly adverse balance of payments on manufacturing industry in this country, with special emphasis on engineering, may I ask the Minister whether this policy will he looked at again? I am sure that if this work were done over here, it would have a beneficial effect on our balance of payments in manufacturing industry.
Lord Brabazon of Tara: My Lords, as I have already said, British Rail decided that it wanted to go to an engine contractor rather than a locomotive contractor as the main contractor for this project. British Rail Engineering does not make engines. The chairman of British Rail has, however, said on a number of occasions that B.R. would prefer to buy British if UK manufacturers can match overseas competition. I am sure that my right honourable friend would endorse that thinking of the board.
Lord Mowbray and Stourton: My Lords, while fully subscribing to the ideals of competitive tendering for
1200
contracts, does my noble friend agree that we might learn something from our French friends across the Channel when they look at tenders from friends nearer home with a slightly favourable eye?
Lord Brabazon of Tara: My Lords, that would be a matter for British Rail. It has of course invited two British firms, anyway, that I know of, to tender for this work, and I hope that they are successful.
The Lord Bishop of Derby: My Lords, while thanking the noble Lord for the factual nature of his replies, are Her Majesty's Government aware of the local feeling—for example, in Derby where there are to be 1,500 job losses—that these redundancies are due to this particular element of government policy? Can he do something to allay the suspicion there and elsewhere that the Government have in mind a policy of reducing British Rail Engineering to such an extent that there will he more and more job losses in the future?
Lord Brabazon of Tara: My Lords, obviously I appreciate the concern of the right reverend Prelate the Bishop of Derby, but I have to say that British Rail Engineering has to compete for new build orders both at home and abroad. So far as at home is concerned, British Rail plans to spend 1 billion on new locomotives and rolling stock over the next five years, so there will be plenty of business around to be tendered for.
The Earl of Onslow: My Lords, will there not be many more complaints if British Rail buys the wrong engine and so increases its losses, which then have to be paid for by the taxpayer? One man's subsidy is another man's tax rise.
Lord Brabazon of Tara: My Lords, I certainly sympathise with the views of my noble friend. In the past British Rail has not always got the best equipment that it might have got. That is why I believe that it is taking a more commercial view about the tendering process in the future.
Lord Molloy: My Lords, can the Minister give any details in relation to the reply that he has just given, criticising British Rail? He said that off the cuff so easily, and his noble friend asked the question so easily, that I think we are entitled to know if he has any details to substantiate that.
Lord Brabazon of Tara: My Lords, I have no details with me at the moment. But I think it is a fact that is widely recognised that some of the equipment it has had in the past has not been reliable.

Speed Limits: Enforcement
2.46 p.m.
Lord Belhaven and Stenton: 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 are satisfied with the enforcement of speed limits on motorways and other roads and, if not, what steps they intend to take to see that the law is obeyed.
The Earl of Arran: My Lords, the responsibility for enforcing speed limits rests with individual chief officers of police, and we are satisfied that the police give a proper degree of attention to the performance of this duty. Nevertheless, the Government and the police arc at all times looking for ways of improving enforcement.
Lord Belhaven and Stenton: My Lords, I thank my noble friend for that reply. Perhaps I may ask him whether he saw a programme on, I think, Channel 4 last week, where a police officer said that when he travelled in a police car on a motorway he was travelling in a small bubble of law observance. Will my noble friend consider the suggestion that more police cars should travel on the motorways and fewer lurk on bridges and in lay-bys? Although they may catch one or two offenders by doing that, by actually driving on the motorways they may prevent far more offences taking place, because they are happening all the time.
The Earl of Arran: My Lords, I have to tell my noble friend that I did not see that programme on television last week. However police cars are deployed, whether it be on bridges, on motorways themselves or on certain roads, their purpose is the same— to apprehend any culprit and indeed to try to deter any would-be culprit.
Lord Grimond: My Lords, have the Government received certain police representations that the speed limits should be raised? If so, what is their attitude, and what is their attitude in general to the present speed limits?
The Earl of Arran: My Lords, there are currently no plans to alter the motorway speed limit. Reviews of the speed limit in 1984–85 concluded that the present limit gives the correct balance between the need for safe travel and convenient travel.
Lord Jenkins of Putney: My Lords, is the noble Earl aware that a speed limit of 55 mph is enforced beneficially in the United States of America; and would it not be a good idea to introduce a similar limit in this country with a view to reducing accidents? Is the noble Earl aware that if the police in this country are unenthusiastic about enforcing even the present limit, it would probably be a good idea to create a special national traffic police authority?
The Earl of Arran: My Lords, I am not aware of the methods adopted in America. I think it really is up to each individual chief constable in his particular area to decide how to go about enforcing the law.
Lord Paget of Northampton: My Lords, will the Minister confirm that on the basis of accidents per car mile British motorways have the best record of any roads anywhere in the world?
The Earl of Arran: My Lords, while I am delighted to know that that may possibly be true, I cannot actually confirm that. I can tell the noble Lord however that motorways are seven times safer than urban roads.
The Earl of Lauderdale: My Lords, is my noble friend the Minister aware that because the speed limit in the United States is so low it is unenforceable? If one tries to drive at 55 miles an hour there trucks and every other kind of vehicle race past.
The Earl of Arran: My Lords, I am glad to hear that that is true. Obviously the reason why we keep to the present speed limits in this country is so that the law can be enforceable.
Lord Underhill: My Lords, I appreciate that the Question deals with other roads as well as motorways. However, does the Minister recall that on 22nd October the Minister sitting on his left promised to look into whether or not there had been a survey into the cause of accidents on motorways? Has that survey been put into operation? I understand that in January 1985 a road traffic law review was set up under Dr. Peter North. That was two and a half years ago. Will the Minister tell us how that is progressing and whether it will deal with the question of enforcement as well as other aspects of road traffic law?
The Earl of Arran: My Lords, the answer to the noble Lord is that the road traffic law review's report is expected to be published in the early part of next year. It is expected that it will take account of all the forms that the noble Lord has mentioned.
Lord Foley: My Lords, is my noble friend aware that the 55 miles an hour speed limit introduced in the 1950s in America was not introduced in order to lower speeds, but because of the petrol shortage at that time? It was introduced as a method of saving fuel. Therefore it is not relevant in today's circumstances. But is my noble friend not of the opinion that if people drive at 70 miles an hour today on the motorways of this country they are passed by virtually everybody? Would it not be more practical to impose a speed limit of 80 miles an hour and then enforce it rigorously?
The Earl of Arran: My Lords, I was under the impression that I had just answered my noble friend on that very point.
Lord Cledwyn of Penrhos: My Lords, first will the Minister say what the speed limit is for lorries on motorways? Secondly, will the Minister say whether there is any speed limit within London at all? Does the 30 miles an hour speed limit apply in London? It seems that the traffic in London is either crawling at about two miles an hour because of intolerable congestion or, when it is freed on to roads out of London, it is travelling at around 60 miles an hour. What steps are the Government taking to deal with the general problem of congestion in the capital city?
The Earl of Arran: My Lords, in reply to the first question of the noble Lord the Leader of the Opposition on speed limits, for cars and light vehicles the limit is 60 miles an hour on single lane carriageways unless otherwise marked or lined with street lamps. The speed limit is 70 miles an hour on dual carriageways and motorways. If the noble Lord wishes to have more data on those vehicles which exceed 7.5 tonnes I can continue.
Lord Nugent of Guildford: My Lords, is my noble friend aware that the American experience on motorways, which is far greater than anyone else's, shows clearly that traffic police is the only way to control speed on motorways? Is my noble friend prepared to take a real, long and critical look at that point to see what it costs and whether we could afford it?
The Earl of Arran: My Lords, I thank my noble friend for that. I am very aware that obviously the more police cars there can be on motorways, or indeed on ordinary roads, the better. As I said originally, as much as possible is being done to find ways and means of improving safety on roads. It is regrettable but nevertheless a fact that many of the accidents that occur on our roads are due to either foolishness or selfishness. Both show scant regard for the safety of fellow motorists and can often result in tragic circumstances.
Lord Tordoff: My Lords, will the Minister tell the House whether the Government are giving any thought to introducing the kind of equipment which the police in Holland use? There photographs which show both the speed, the time and the number plate of the car are taken. That makes enforcement far easier than in this country.
The Earl of Arran: My Lords, the Government are always looking at improvements, and particularly at the moment at technological improvements.
The Lord President of the Council (Viscount Whitelaw): My Lords, the House may feel that we are moving slowly on this Question. We have had it before and perhaps we can return to it again on another occasion.

Pirate Radio Stations: Investigation
2.55 p.m.
Lord Aylestone: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will strengthen the Radio Investigation Service of the Department of Trade and Industry with a view to expediting the closure of pirate radio stations and clearing the frequencies for the existing legal local radio stations and the proposed community and neighbourhood radio stations.
The Secretary of State for Trade and Industry (Lord Young of Graffham): My Lords, we are concerned about the interference which unlicensed broadcasting stations cause to legal radio users. My department's Radio Investigation Service already acts promptly by removing offending transmitters when unlicensed stations disrupt authorised radio communications. Where possible, it also prosecutes those responsible. It has taken account of the need to make spectrum provision for the new services contemplated in the broadcasting Green Paper.
The cost of radio regulation is largely met from fees paid by legal radio users. We have to consider whether the benefits they could expect from a strengthening of the Radio Investigation Service would justify the increased costs to them. So far broadcasters have been unwilling to see their costs increase substantially.
In order to free resources for the important work of keeping the radio spectrum clear of unacceptable interference, I have decided that in future dealers will be required to show that they have taken measures to cure broadcast reception problems before referring them to the Radio Investigation Service.
Lord Aylestone: My Lords, in thanking the Minister for his reply and acknowledging fully the work that the Radio Investigation Service has already done, is the Minister aware that the pirates are rather like mushrooms? They spring up overnight. At the present moment in the Greater London area there are over 20 of them and there is probably an equal number in the rest of the country. Does the Minister agree that a strengthening of his department's RIS by an increase in numbers would speed up this work in preparation for the work that has to be done under the proposed Green Paper on Broadcasting? For example, I am told that in the whole of the county of Sussex there are only two of those offices functioning, and they cover part of Surrey as well. Of course chasing the pirates is not their only function.
Lord Young of Graffham: My Lords, so far this year the Radio Investigation Service has carried out 309 raids against 66 unlicensed stations. That is a 50 per cent. increase on last year. Of the 309 raids, 257 were carried out against 38 stations in the London area. So far this year some 45 people have been successfully prosecuted. This is a difficult problem. We suspect that there are about 86 unlicensed stations in the country of which 39 are in London. But about a dozen, mainly in London, attempt to operate commercially on a daily basis. There are many technical problems involved in catching people. Since the practice has grown up those undertaking this kind of pirate radio station separate the studios from the transmitters.
Lord Aylestone: My Lords, does the Minister realise that many of the larger stations in London not only advertise the frequency on which they are broadcasting but the address of the transmitter?
Lord Young of Graffham: My Lords, if they seriously broadcast the address of the transmitters

1205
we would have few problems. What they are actually doing is using unmanned transmitters and separate studios at a different location. That presents us with technical problems, but I should be happy to accept any advice from the noble Lord if it will help to increase the number of prosecutions.
Lord Jenkins of Putney: My Lords, will the noble Lord say where the finance comes from to support these pirate radio stations? Would it he possible to look into the matter from that point of view to see if the problem can be tackled in that way?
Lord Young of Graffham: My Lords, often this is carried out by groups who fund themselves. It is rarely carried out on the commercial radio services, of the kind that noble Lords would recognise. I suspect that there are on occasion those who actually pay money in order to have records broadcast, but that is very much in the minority.

Business
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Lyell will, with the leave of the House, repeat a Statement which is to be made in another place on the terrorist attack in Enniskillen.

Infant Life (Preservation) Bill [H.L.]
3.2 p.m.
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the Motion standing in my name on the Order Paper.
As the House will recall, the Infant Life (Preservation) Bill was introduced in the last Session by the right reverend Prelate the Bishop of Birmingham. That Bill and the Select Committee to which it was referred came to an end with the Dissolution of Parliament in May. However, a similar Bill was re-introduced during the current Session and after a Second Reading on 22nd July was referred to a Select Committee.
The Committee of Selection have now proposed the Members of the Select Committee as set out on the Order Paper. However, I should mention that when the Committee of Selection met they did not know that the right reverend Prelate the Bishop of St. Albans, who had been a member of the committee in the last Session, would be unable to serve. He has been replaced by the right reverend Prelate the Bishop of Gloucester. I have consulted all the members of the Committee of Selection concerning the change and they have raised no objection. I beg to move.
Moved, That, as proposed by the Committee of Selection, the following Lords be named of the Select Committee on the Bill:

Brightman L. (Chairman)

Butterworth, L.

Faithfull, B.

Gloucester Bp.

1206

Houghton of Sowerby, L.

Hunter of Newington, L.

Llewelyn-Davies of Hastoe, B.

McGregor of Durris, L.

Warnock, B.

That the Minutes of Evidence taken before the Committee from time to time be printed and, if the Committee think fit, be delivered out.
That the Proceedings of the Select Committee on the Infant Life (Preservation) Bill [H.L.] in the last Session of Parliament be referred to the Committee.
That the Committee have power to appoint Specialist Advisers.
That the Committee do meet on Tuesday. 10th November at eleven o'clock.—(The Chairman of Committees.)
On Question, Motion agreed to.

Financing the European Community
Lord Kearton Lord Kearton rose to move, That this House takes note of the Report of the European Communities Committee on Financing the Community. (4th Report, 1987–88, HL Paper 14).
The noble Lord said: I beg leave to move that the House takes note of the report, Financing the Community, submitted by the Select Committee on the European Communities. In so doing, I must first thank the noble Lords who were members of Sub-Committee A and who worked so assiduously on the considerable volume of papers and tables of figures with which they had to deal. In particular, I should like to record the contribution of our late colleague Lord Rhodes. He studied and commented on the documentation and the transcripts of evidence, although he was unable to attend the committee. He will be greatly missed, especially for his wisdom and his great good nature.
The sub-committee was also much indebted to its specialist adviser. Professor Stephen Holt, and to its indefatigable clerk, Mr. Andrew Makower.
The report concerns itself with a series of Commission papers which deal with the deterioration of the Commission's finances in recent years. They also put forward initiatives and specific recommendations to improve the situation. Those recommendations take account of significant new developments in the role of the Community. As the minutes of evidence show, the sub-committee was fortunate in the very high calibre of those witnesses appearing before it and in the frankness of their answers to questions.
It is a pleasure that one of the witnesses, the noble Lord, Lord Plumb, who was a president of the European Parliament, has chosen the occasion of this debate to make his maiden speech in this House. We look forward with the keenest interest to hearing him.
The future development and prosperity of our country greatly concerns us all. It is now generally accepted across the political spectrum and in the country that our economic future is indissolubly tied to that of the European Community. In that future, the programme introduced two years ago to complete

1207
the Community's internal market by 1992 and the ratification last year of the Single European Act were major advances. As the Committee's report reminds us, those giant steps involved the Community in new commitments, both moral and financial.
The present difficulties with the Community budget must be kept in proportion. They are symptoms of changing circumstances and priorities within the Community. They should be approached rationally and not emotionally. Excesses are to be deplored and must be corrected. But let us not forget that the Community budget is, in relative terms, a modest affair. It is a very small percentage of the total of national budgets and even if it is reformed and enlarged, as it will be if the Commission's proposals for the future are accepted, it will remain relatively modest.
Obviously we all want Community funds to be spent wisely and constructively. That is a purpose which is strongly evident in the Commission itself. With the lessons of the past painfully learnt, wiser spending is a firm prospect for the future. The forthcoming Copenhagen Summit gives us the opportunity to make that prospect a reality.
The Commission's proposals for a reformed budget—the so-called Delors package, named after the president of the Commission—are summarised in paragraphs 7 to 17 of the committee's report. The reform of the Community's common agricultural policy—the CAP—is absolutely fundamental in the package. The CAP fulfilled its purposes and had great success in the past. But in recent years it has produced services which are costly to Community taxpayers and Community consumers, and it has been put into effect by complex and costly administrative procedures.
The present defects and excesses of the policy, both in the round and in detail, have been fully disclosed in the series of reports from the agricultural subcommittee of the select committee. The Commission now puts forward measures to bring agricultural output under control by a comprehensive system of stabilising mechanisms. Those mechanisms would control both output and product prices. A key feature of the new system is that the mechanisms would have legal force and would he administered by the Commission.
The failure of previous efforts to reform the CAP in any effective way lies with a basic defect in previous budgetary arrangements. The collective Council of Agricultural Ministers regularly agreed measures for agriculural support not covered by the EC budget. The Council of Finance Ministers did not bring them to order. The adoption of support measures meant that the Commission was legally committed to the spending consequences without having sufficient funds to meet the bills. As a result, unfunded deficits built up and the Commission and the member states had to take special steps—one might almost call them dodges—to close the books each year. Those were steps of a nature which repeatedly brought strongly adverse comment from the Community's Court of Auditors.
The committee fully supports the Commission's intention to bring agricultural spending under control and to make budgetary discipline legally enforceable. Since the committee reported, details of the Commission's proposals on output ceilings and on prices have been released. Whether they are sufficient to bring spending under control as quickly as the committee, from a financial standpoint, would deem desirable is still a matter of consideration. The views of the agricultural sub-committee will no doubt soon contribute to the debate on that matter.
It must be recognised that the new measures, however sensible and constructive, will not have much effect on the present level of agricultural spending. They will be largely concerned with preventing further runaway growth in such spending and in preventing the building up of unwanted stocks. The committee hopes that further developments will ensure that the present level of spending will be directed in future, as the noble Lord, Lord Plumb, suggested in his evidence, more to people than to product. It would be a disastrous and unacceptable output of the reforms if they led to rural depopulation and dereliction.
Although the reform of the CAP is, in the committee's view, a sine qua non, the Delors proposals have many other aspects for the Community's development. As a package, they are dedicated towards making a success of the many facets of the Europe of the Twlelve, a community of more than 300 million people. That is a vision that has been profoundly and deeply expressed by many national leaders, and by none more than our own Prime Minister.
Perhaps I may say at this point that in my view, praise is due to the right honourable and learned Foreign Secretary and his department for the patient and tireless way in which they have pursued the path forward to turn aspirations into reality. I feel also that Members of this House can take pride in the fact that it is one of their own number—the noble Lord, Lord Cockfield—who, as a Commissioner, has produced the detailed plan and timetable of the measures needed to make a reality of a true Community internal market by 1992.
A complete internal market will be a major component of our future economic growth. It will require the relinquishment of national exclusivity in many areas not least in matters of tax and fiscal harmonisation. In the immediate context the actions which need to be taken will not in themselves directly affect Community spending.
A key area which has budgetary consequences is the development of the Community's structural policy. The goal is further convergence and improved cohesion between member states. Paragraph 10 of the report of the Committee summarises what is intended and paragraph 32 touches upon some of the considerations which are relevant. The structural proposals are developments on which the poorer members of the Community place great store.
The Committee supports the Commission's proposals and supports increased Community spending, competently managed and controlled, to meet the stated objectives. The report of the

1209
Community's Court of Auditors, which is largely accepted by the Commission, has highlighted past deficiencies in the carrying out of structural policy. It is clear to us that there is now a determination within the Commission that in the future monitoring of spending will be much tauter and much more up to date than it has been in the past.
There are other policies and programmes which are part of the Delors package which will affect budget expenditure. The Committee did not consider these in detail. It contented itself with observing in paragraph 45 that in such fields as research and protection of the environment Community spending could be encouraged if it offered better value for money than spending at national level.
So far I have discussed the Delors proposals in terms of the direction and control of expenditure. Equally important are the proposals to change the basis upon which revenue is raised. The main change is that the present VAT revenue, consisting of a variable levy on a notional base, should be replaced by a fixed levy of 1 per cent. on each member state's actual VAT base, plus a new resource levied at a variable rate on that part of each member's GNP which is not subject to VAT.
The amount of Commission revenue would be limited by reference to a ceiling expressed as a percentage of total Community GNP. The Commission proposes that this ceiling should rise to 1·4 per cent. of Community GNP by 1992. There are other minor changes and the effect of all the changes together is that by this date, namely 1992, resources available to the Community would be up by about 50 per cent. on the 1987 level.
A corollary for Britain of the new system is that the calculations would be changed in which Britain's budgetary refund, agreed at the Fontainebleau Summit in 1984, is calculated. This would not affect the 1987 refund receivable in 1988, but it could mean a reduction in future years, especially in the earlier period of such a re-arrangement.
I refer the House to the report itself for the evidence and the discussions relating to the totality of the new budgetary proposals. I am sure that noble Lords speaking later in the debate will take up specific points and amplify them.
The Committee itself was satisfied that the Community needed more resources and that the build-up proposed by the Commission was broadly right. The financial settlement of 1984, which was intended to set the course for the future, was, in the event, fatally flawed. The accumulated liabilities of the past and the measures needed to ensure progress in the future—a future which will bring very considerable economic and structural benefits to the community—inevitably means that new revenues will have to be provided.
The Committee thought that the plans of the Commission to relate contributions to each member state's GNP were fair. This main conclusion and others are set out in paragraph No. 49 of the report of the Committee.
It seems clear from generally published information that all the 12 member states and the
1210
European Parliament look reasonably favourably on the Commission's proposals. The individual states have different reservations about various aspects of the package as does the European Parliament. These differences are almost certainly soluble without sacrifice of larger aims.
However, there is a particular sticking point of principle for Her Majesty's Government. Where Her Majesty's Government differ from fellow members is in their absolute insistence that the debacle of Fountainebleau should not be repeated. This debacle in budgetary control was not the fault of the Commission in Brussels. As I have made clear, it was due to the power of the Council of Ministers to commit the Community to legally binding expenditure without increasing the receipts to meet the expenditure. Her Majesty's Government wishes to see firm, precise and legally binding budgetary discipline a fundamental part of any changed way of raising, let alone increasing, the level of Community resources. The Committee unreservedly agrees with this objective of Her Majesty's Government which, when it is achieved, would be a major factor in strengthening the Community.
Where the Committee does have some misgivings is about the wisdom of insisting that any future system of budgetary refund arrangements for the United Kingdom should be at least as favourable as those which at present exist. It is also a matter for regret that the impression is sometimes given that an extension of Community spending in any field is inherently likely to be extravagant and inefficient.
With regard to the first of these points the Committee naturally welcomes the desire of Her Majesty's representatives to protect British interests. The Committee also hopes that longer term considerations which offer a much greater prize are fully taken into account when negotiations about the rebate are conducted in earnest.
With regard to the second point, the Committee feels that, it is right indeed to insist upon proper monetary accountability. It also believes that a positive acknowledgement by Her Majesty's Government that some transfer of wealth within the Community is essential for cohesiveness and solidarity for the future, would be realistic and constructive. The richer members of the Community have special responsibilities. The recent progress and growth of the United Kingdom economy is relevant in this regard.
The Committee earnestly wants the Government to win their argument at the Copenhagen Summit for proper budgetary control for the EC. With such control they trust that the Government will go along with an expansion of budgetary resources on the lines proposed by the Commission. They feel that obtaining success in the budgetary control argument is likely to be helped by the Government stressing even more than they have done in the past the deep commitment which they have to the future development of the Community, with an acknowledgement of the moral and financial obligations such a deep commitment entails. My Lords, I beg to move that the House takes note of the Committee's report.
Moved, That this House takes note of the report of the European Communities Committee on Financing the Community (4th Report, 1978–88, HL Paper 14) —(Lord Kearton.)
3.19 p.m.
Lord Plumb: My Lords, if it is not too presumptuous of me as a newcomer and as a member of another parliamentary institution—a mere infant by comparison with this noble House—may I first of all congratulate the noble Lord, Lord Kearton, and the noble Lords on his Select Committee for their excellent report, the conclusions of which I heartlily agree with.
I should also like to thank them for affording me the opportunity of giving evidence to the committee last July. I therefore welcome in particular this opportunity today to speak to the report following the excellent presentation by the noble Lord, Lord Kearton.
On that occasion when I was privileged to give evidence I was asked whether I thought that the next five or six months were critical, particularly on financing the EC. I had no hestitation in saying that they were critical; indeed, they were crucial. As is so well stated in the report, the 1987 budget procedure was unusually lengthly and involved a tortuous dispute over a relatively small sum of money. Since then we have grappled with a supplementary budget, but for 1988 the situation is far more desperate since the deadline has passed when Council should have placed a draft budget before us.
Therefore, the need for progress, for the exercise of political will by governments and by member states, is today all the more urgent and all the more crucial. As the noble Lord, Lord Kearton, said, the forthcoming Copenhagen summit must break the back of the problems before it if the European Community itself is not to slide backwards with a detrimental effect for every one of our 321 million citizens.
When I spoke at the last European Council, the last summit meeting in Brussels, I concentrated on four main points. I believe they remain valid today. First, there is the achievement of the internal market in Europe and the closer identification of our economies. That is not just a vaguely desirable objective but a commercial and economic necessity. It is indeed the motor of economic growth, especially in these uncertain times, and it sits squarely with the priorities of the economic policies of Her Majesty's Government. It seeks to liberate the European market from the unnecessary constraints often imposed by nationalist objectives. In all of this, of course, protectionism within Europe as well as anywhere else is in the long run self-defeating, illusory and negative. However, an extension of free trade, on the contrary, holds out the glittering prospects of more prosperity and more jobs.
Secondly, and at the heart of the many problems we face in the Community, is the overwhelming need to modernise the common agricultural policy. Our surpluses damage the Community's reputation while paradoxically failing to give sufficient benefit to many
1212
of its farmers. The present situation damages our trading system and therefore we must take resolute action to correct the many imbalances. When 50 per cent. of the money spent in supporting the common agricultural policy goes towards the cost of storing or disposing of surplus stocks, it is of no benefit to the farmer or the consumer and is a useless burden on the taxpayer.
The central element in all this, therefore, is a managed market, particularly in the cereal sector where we need an effective set-aside scheme to reduce the volume of production. This is not just a British problem and not just a European problem, but a problem of world-wide proportions. That is why I have initiated a world food conference to be held next April in Brussels; a conference hopefully drawing together the experts from every continent and every link in the food chain, to search for a coherent set of proposals and to help to bring the food equation into better balance. This is a matter of high degree and high importance on the agenda of GATT, and I hope we are in a position to make a substantial input into those deliberations.
We in the European Parliament have proposed a clear shift in agricultural expenditure towards structural support. Therefore we must think not only of products but also of people. We must think not only of technology but of the very life of rural societies which depend not only on an economically healthy farming community but on employment in rural areas. However, we must do so in cost-effective ways. We obviously must operate under budgetary control and under budgetary discipline.
Thirdly, and against this background, the Community will need to finance its existing commitments and new obligations which it has taken on with the Single European Act. Additional resources will be necessary. The Community simply must be put on a sound financial footing, one that is sensible, adequate and fair. It is indeed longer-term proposals which we are looking for. We cannot afford ad hoc annual budgets. Each failure to agree adds to uncertainty and frustration; and it certainly adds to confusion. In all this, it is the ordinary people in member states who end up suffering—those who are involved in small organisations, the beneficiaries of the social and regional funds.
Lastly, we must concentrate on the positive aspects of building the Community. It is time to put aside the deplorable waste of time and energy which for so long Europe has suffered over the budgetary questions. There are many other important tasks to consume our energy, not least the building of a politically united Europe. Yesterday we remember; today we must concentrate on the peace and security of our people. These therefore are the main items of immediate concern.
In my other institutional incarnation, we are energetically coming to grips with our co-legislative role under the Single European Act. I shall be privileged on behalf of the European Parliament to put its views forward to the European Council when it takes place in Copenhagen. Today I welcome this report and welcome in particular the interest of your

1213
Lordships on these many issues which are of such importance to us all.
3.27 p.m.
Lord Banks: My Lords, it is a particular privilege this afternoon to follow the noble Lord, Lord Plumb. I congratulate him most warmly on his maiden speech, both on the way in which he delivered it to the House and on its content. It is appropriate that the President of the European Parliament should take part in this debate in this House this afternoon. I am sure that the whole House wishes to congratulate the noble Lord on having been elected to such an important position of leadership within the Community. His speech was made with all the authority of his years in the European Parliament since 1979 and his leadership for five years of the European Democratic Group, together of course with his distinguished service to the National Farmers' Union in many capacities and latterly as its president. We look forward to many equally authoritative contributions from him in the future.
I join him in thanking Sub-committee A of the Select Committee for this most valuable report. It is indeed a particularly significant one since it deals with matters which have been at issue between our country and the other countries in the Community. I also thank the noble Lord, Lord Kearton, for his clear and comprehensive introduction of the report to the House.
I believe we have three views outlined in the report. First, there is the Commission's view in two documents; the immediate subject of the report supported by the evidence of Commissioner Christophersen. Secondly, there is the British Government's view as expressed at the Brussels summit and in the evidence to the committee of Mrs. Chalker and Mr. Brooke. Thirdly, there is the committee's view which takes a middle way, upholding the Commission on some points and the Government on others. I am glad that the report places the blame for the present financial situation of the Community firmly on the shoulders of the Council of Ministers, the 12 Governments, and not on the Commission. It is clear that there are many complicated aspects of the problem. Three overriding issues are raised in the report. The first is: does the Community need further resources? The second is: how can budgetary discipline be established, particularly in view of past failures? The third is: should the implementation of budgetary discipline precede any agreements on increased resources for the Community?
First: does the Community need further resources? I think it is widely felt that the effect of completing the internal market by 1992 will, among other things, be to accentuate regional disparities within the Community, and that that will need rectification. Such rectification will involve Community expenditure. The importance which the Government of Ireland give to that aspect of the development of the completion of the market was demonstrated by the recent speech of the President of Ireland to the European Parliament. I think that he was probably expressing the views of many of the 12 Governments in what he said.
1214
It is generally agreed that the admission of Spain and Portugal has placed further burdens on the Community's budget. The Single European Act has legitimised, if that is the correct word, many aspects of Community expenditures and has given rise to the supposition that those will be further developed. In his evidence before the committee and in his speech this afternoon the noble Lord, Lord Plumb, has made it clear he is convinced that further resources are necessary; and so did the noble Lord, Lord Kearton, in his introductory remarks this afternoon. The Commission has suggested a change from basing contributions on VAT to basing them on Community GNP. I was glad that the committee approved of that. The total level of expenditure, as the noble Lord, Lord Kearton, explained, which the Commission recommends is 1.4 per cent. of the Community's GNP.
Lord Harmar-Nicholls: My Lords, will the noble Lord give way? Out of kindness to my noble friend Lord Plumb, I do not remember that he said that extra resources had to be forthcoming, irrespective of whether the vital economies and greater efficiency in running the Community had been first brought about.
Lord Banks: My Lords, I was merely saying that, as I understood it, the noble Lord, Lord Plumb, said in his evidence and in his speech this afternoon that he believes there will be a need for further resources. I have no doubt he believes that many other things must be achieved as well. One may possibly depend upon the other. He has expressed a view in favour of an increase in Community resources.
As I was saying, the Commission has suggested that the total level of expenditure should be 1.4 per cent. of the Community's GNP. That would involve a 50 per cent. increase in resources. That has of course led some people to point out that in recent years there has already been an increase in resources. The point we must bear in mind is the point made by the noble Lord, Lord Kearton, that the Community's total budget is less than 1 per cent. of the GNP of the EC. The British Government will no doubt be satisfied if they can hold their own expenditure at something like 40 per cent. of the country's GDP. Community expenditure is less than 1 per cent. of the GNP of the EC, which, as the noble Lord, Lord Kearton, said, is a modest affair. It is about half of what we spend on social security in Britain alone.
It is 10 years since the McDougall Report suggested 2.5 per cent. of GNP as an appropriate target level. Against that, 1.4 per cent. appears to be rather modest. Hearing all the talk which one hears from time to time of inflated Community expenditure, the public may not realise that the Community of 12 nations spends only about 15 per cent. of what the United Kingdom Government alone spend. It may be argued that the expenditure could be better applied, and that we do not receive the value for money that we should like; but that is another matter.
I welcome the Committee's statement:
"The Committee agree with the Commission that the financial settlement of 1984 was woefully inadequate, and that the Community needs more resources".

1215
I am sure that is right. It seems that the Government hesitate to agree with that.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for giving way. Will he clarify the position by saying he appreciates that if the 1.4 per cent. were applied to GNP it would need, according to the Treasury, an extra £900 million net per annum from this country to accommodate that?
Lord Banks: My Lords, I fully accept that that was the Treasury estimate. It seems to me that the Government hesitate to agree, although Mrs. Chalker said in evidence:
"We have never ruled out a further growth in funds".
She went on to say:
"One point four per cent. of GNP is equivalent at the present time to 2.25 per cent. of VAT…. Certainly, 1.4 per cent. of GNP is not acceptable".
Mr. Brooke said of the Commission's proposals:
"Increases on this scale are totally unrealistic".
We are entitled to ask why those measures are regarded as unrealistic, and, if that is the opinion, what the Government feel is the appropriate level for Community expenditure in the years which lie ahead. The Government may be persuaded by the committee's view expressed in this report to give us some indication of their feeling on this matter. It would ensure a better hearing for the Government's case on control of expenditure if it were clear that they were not opposed, in principle, to a significant increase in resources.
My second question was: how can budgetary discipline be established? The noble Lord, Lord Kearton, pointed out that even if budgetary control were established it would not necessarily and immediately mean a reduction in expenditure. It means control of expenditure—keeping it within limits. If a reduction is to be achieved it no doubt would mean lower prices and targets. To establish control the Commission proposes the introduction of a system of stabilisers—quotas, cut-off points, co-responsibility levies and so on.
The committee likes some of those proposals; it does not like others. I think that is also the Government's view. As I understand it, the Government are in favour, in principle, of a system of stabilisers, but the point which the Government and the committee make is that control must be legally enforceable.
I should like to ask the noble Lord who is to reply on behalf of the Government whether he is confident that an agreement on that point will be achieved at Copenhagen. I am bound to say that is a point which seems to be eminently sensible. But how far does that system of control have to be in operation before any increase in funds can even be considered?
It seems as though the Government are requesting reductions in the CAP without any commitment to increase resources. In that context, I should like to quote again an article by Derek Prag, a Conservative Member of the European Parliament, which I quoted in the debate on the Address. He wrote this article in the May/June issue of the European.
1216
It was an article in which he was putting forward what he thought were the good points of the Government's policy with regard to Europe, but he ended on this critical note:
"What is criticised above all"—
that is, by others in the Community—
"is the locking of further expenditure in desirable policy areas until the CAP has been reformed. Since as everyone knows, reform of the CAP without a major social upheaval would have to be spread out over a minimum of three years—and probably nearer five—this looks suspiciously like holding up the development of the Community. The aim of reforming the farm policy is impeccable—the method, perhaps, in this case, too harsh".
It seems that the whole exercise ought to proceed together. For example, farmers whose incomes are reduced below an acceptable level should have a means of directing the support available; and that, if it is to come from the Community, involves increased Community expenditure. The Commission has suggested a plan on these lines which the committee thinks is inadequate. However, that scheme, or an improved scheme as the committee wants must be in place as lower prices targets and budgetary discipline begin to bite. While the Government should seek agreement on budgetary discipline, including legal enforceability, I think that they should indicate the increase in funds that they feel could accompany the introduction of such a regime.
Finally, in presenting the United Kingdom view to the Community, why do the Government have to represent it in such a way as to antagonise all our partners? We seem to have done the same thing in the Commonwealth. Surely much clearer support for the development of the EC budget, coupled with a more diplomatic attitude, might make some of our other views more acceptable to our partners.

Enniskillen Terrorist Attack
3.41 p.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Lyell): My Lords, with your Lordships' permission I will repeat a Statement which is at present being made by my right honourable friend the Secretary of State for Northern Ireland in another place. The Statement is as follows:
"I will with permission, Mr. Speaker, make a Statement on yesterday's terrorist attack at the war memorial in Enniskillen. This occurred shortly before the parade arrived for the formal wreath-laying ceremony. I should explain to the House that the normal procedure in Enniskillen is that the parade forms up and marches to the war memorial where the act of remembrance takes place, and then marches to the cathedral for the Remembrance Day service.
"At 10.45 a.m., as spectators were gathering near the war memorial, a bomb exploded in the St. Michael's reading room, outside which a number of people were taking up their normal vantage point. No warning whatsoever had been given. The explosion demolished the gable wall, which fell, crushing the waiting spectators. Eleven people were killed and more than 60 injured. Of the injured, 21 were detained in hospital overnight, of

1217
whom five are very seriously ill indeed. Among those killed are three elderly couples, a young nurse and an off-duty policeman.
"I know I speak on behalf of the whole House in expressing our deepest sympathy to those bereaved and injured and to all their relatives and friends, at this appalling outrage. I should like also to pay tribute to the absolutely outstanding way in which all the emergency services responded to their terrible task.
"It is clear from the location chosen for the bomb and the absence of any warning that those responsible for this monstrous act set out deliberately to kill and maim ordinary members of the public: people from both communities who had come together on a Sunday morning, young and old, like thousands upon thousands of others throughout the United Kingdom, to honour the memory of those who have died in two world wars and since. In all the tragedy of the terrorist compaign, this outrage stands out in its awfulness. To perpetrate such an outrage against people, for many of whom the occasion was already one of sorrow and remembrance, betrays a total lack of any human feeling. Nor could there have been a more deliberately provocative act, more calculated to stir up sectarian hatred, than this outrage on this special and solemn day.
"There is a deep sense of anger and outrage felt throughout Northern Ireland today. I know there will be many who will call for retaliation. I say to them most urgently that they must not be provoked. Further acts of violence will only play into the hands of the terrorists and make more difficult the task of the security forces. What we must do instead is to determine that every possible assistance is given to the RUC and the security forces in their continuing fight against terrorism and in particular to bring those responsible for this atrocious crime to justice, wherever they may be. There must be some who have in the past given tacit support to the terrorists or who have preferred too often to look the other way, who must surely be horrified at yesterday's outrage. If they or indeed anybody else have any information at all to identify the culprits, and if their revulsion at this terrible crime is genuine, then they must ensure that they give the RUC any help they can, whether by using the confidential telephone or by whatever means they choose.
"Since my visit yesterday afternoon to Enniskillen, I have had initial meetings with the Chief Constable and also the General Officer Commanding and the Commander Land Forces. In addition, in the light of the serious recent events in the security field both north and south of the border and the successful seizure of the major arms shipment and the implications that flow from that, I will be having further urgent talks with Irish Ministers about security. In this connection, I appreciate the strong message of support and cooperation my right honourable friend, the Prime Minister has received from the Taoiseach.
"There are those who believe that this latest, most foul attack is a measure of the frustration of
1218
the terrorists in the light of the considerable recent successes of the security forces. Whatever their motives, it is true that the courage and resourcefulness of the security forces, backed up by the same courage and steadfastness of the community at large and aided significantly by international co-operation, have inflicted severe blows on the terrorists. Nonetheless, yesterday's outrage shows the evil threat they still pose and the vital need for the whole community to continue to stand steadfastly against them.
"There are two messages that I wish the House to send today. The first is to the people of Northern Ireland of our resolve to stand firmly with them in the fight against terrorism and to assure them of our full support. The second is to make clear to the men of violence that no threat or outrage destroys our resolve but rather makes us all the more determined to rid the Province of the evil of terrorism".
My Lords, that concludes the Statement.
3.45 p.m.
Lord Cledwyn of Penrhos: My Lords, we on this side of the House join with the noble Lord. Lord Lyell, in our total condemnation of the appalling atrocity committed in Enniskillen. There are no mitigating circumstances, no vestige of defence which can be advanced in support of this terrible act. It has nothing to do with patriotic loyalty. It is in fact an unmitigated evil and it reflects the extent to which these wicked people are prepared to go.
Those responsible for supplying these people with the means and weapons to commit these crimes must also be condemned; and if there is any government who assist or condone the supply of arms then they too are guilty of criminal conduct.
Noble Lords: Hear, hear!
Lord Cledwyn of Penrhos: My Lords, we must not overlook the fact, as the Statement points out, that one of the objectives of this calculated outrage is to secure a reaction by way of reprisals. I am sure that all of us would strongly support the appeal that no such action be taken as it would only play into the hands of the perpetrators.
I also join the noble Lord in expressing our very deep sympathy for the families of those who died and for those who are injured. We also express our great appreciation for the courage and compassion shown by the emergency services—the police, the fire brigade, the army, the ambulance service and the nurses—and indeed by civilians, who did all they could to help those involved in this tragedy.
It is of course too soon to examine this event in detail, but perhaps the noble Lord will be kind enough to answer one or two questions. First, will he assure us that the Government will move very quickly to set up a review of the machinery of the security services in Northern Ireland? We shall at the end of the day be judged by the effectiveness of the action we take. Does he not agree that security cannot be really effective unless there is complete understanding, coordination and co-operation on both sides of the

1219
border? I welcome the announcement that the Secretary of State is to meet officials in Northern Ireland very soon, and also Irish Ministers.
Will the noble Lord also urge his right honourable friend the Prime Minister to initiate talks as soon as possible with Mr. Charles Haughey, whose condemnation we also noted with satisfaction? Close and understanding co-operation between the two governments in London and in Dublin is now absolutely essential.
Lord Harris of Greenwich: My Lords, my noble friends and I should like to associate ourselves with everything the Minister and the noble Lord, Lord Cledwyn, have said. Is the Minister aware that many of us have in the past used harsh language to describe terrorist incidents in Northern Ireland, but that it is extremely difficult to find adequate language to describe what happened yesterday? It was an ultimate act of obscenity on a day of remembrance for those who have died to save the freedom of the people of Britain and indeed the freedom of the people of Ireland as well. Is the Minister aware that we should also like to be associated with everything he said about the Royal Ulster Constabulary, and obviously the need, as the noble Lord, Lord Cledwyn, said, to further improve security in the border areas and the degree of collaboration between the security authorities on both sides of the border?
Is the Minister also aware that many of us very much hope that those who have been responsible for raising money in the United States, through organisations such as NORAID, will pause when they realise what happened yesterday, and that it is quite impossible for terrorist organisations such as the IRA to exist without substantial financial support from outside Ireland? Let us hope that as a result of what happened yesterday there will be some pause, there will be some hesitation, among those who have supported NORAID in the past.
I also ask the Minister whether he agrees that all those who deplore violence in Ireland—I am sure that many do, both south and north of the border, in the aftermath of this appalling tragedy—will realise that nothing would do more to improve the general security climate in Northern Ireland than to obtain support in the Dail for the extradition provisions of the Anglo-Irish Agreement. Nothing would do more damage to the IRA. Let us hope that the only memorial we may be able to achieve for those innocent people who were murdered in Enniskillen yesterday is to ensure that that agreement is ratified.
Lord Lyell: My Lords, I think that all your Lordships will be most grateful, indeed, heartily grateful, for the forthright comments that have come both from the noble Lord, Lord Cledwyn, and from the noble Lord, Lord Harris. I shall pass on all their thoughts and good wishes to my right honourable friends and to everyone in Northern Ireland, especially the security forces.
The noble Lord, Lord Cledwyn, wished me to assure him that we would be reviewing the role of the security services in Northern Ireland. I assure the noble Lord and your Lordships that my right
1220
honourable friend has had meetings already this morning. He is returning tonight for further meetings with the relevant gentlemen and, I suspect, one or two ladies, in Northern Ireland. The effectiveness of the security services in the fight against terrorism is a continuous process. If there is anything that we have learnt from what happened yesterday I have no doubt that we shall take swift action to remedy any shortcomings.
The noble Lord, Lord Cledwyn, may wish to know that on his return my right honourable friend the Secretary of State will be discussing security policy in the light of recent events. I am advised that the additional battalions of the army which are at present in the Province will remain as long as necessary. I understand that there may be an increase of 150 personnel in the Ulster Defence Regiment. I wish to note the successes of the security forces in Belfast. I am sure your Lordships will be pleased to know that a van containing over 1,200 pounds in weight of explosives was intercepted and the driver was arrested. That is as far as I want to go today. But this was clearly the forerunner of a further outrage last night. I hope that the security services have learnt—if there is anything that we may learn—from yesterday's incident and that we may apply those lessons very quickly.
The noble Lord, Lord Harris, expressed very clearly any civilised person's feelings about yesterday's outrage. Perhaps I should remind your Lordships that among the victims who were injured, slightly or more seriously, were girl guides, boy scouts and members of the British Legion. Security co-operation on the border and all over the Province is a problem that is occupying both my right honourable friend the Secretary of State and my honourable colleagues who are specially charged with this aspect in Northern Ireland. I am sure your Lordships would not wish me to give you details today.
I agree with the noble Lord, Lord Harris, in wishing that this dreadful outrage will at least be some form of brake on NORAID and other similar organisations in the United States. The fruits of their financial collections are only too evident in scenes such as we saw yesterday in Enniskillen. I shall also note the noble Lord's comments about the Dail, the review of the extradition provisions and the European convention on the suppression of terrorism. But that is something very much for the Dail. I am sure it will note both what has been said in your Lordships' House and the events of yesterday.
Lord Fitt: My Lords, will the noble Lord convey to the Prime Minister the gratitude of the vast majority of the Irish people for the expressions which she made and the words which she used in the aftermath of this terrible disaster on Sunday when she spoke outside Downing Street, particularly when she referred to the desecration of the dead—those dead who included many thousands of Irishmen, north and south of the border, who gave their lives in the two world wars?
Will the noble Lord also accept that of all the tragedies that have been brought about by the activities of the IRA, this was by far the most

1221
identifiable as a vicious, ruthless, heartless attack on the Protestant community in Northern Ireland? This is a community which has suffered so much over the past 20 years.
Finally, will the Minister say what it is necessary should be said: that the IRA could not carry on its activities, could not survive, were it not for the help and the support that has been given to it by a considerable section of the Catholic community? A considerable section of the Catholic community, a number of people in Northern Ireland, today know the identity of these murderers who perpetrated this terrible crime. There cannot be any hope of any political advance for anyone, but in particular the Catholic minority, until the minority begins to cooperate with the security forces by making certain that these acts can never again be repeated.
Lord Lyell: My Lords, all of us agree that comments such as we have heard from the noble Lord, Lord Fitt, of all people in your Lordships' House, are most welcome. Indeed, all of us support him as a man of immense courage since he has lived in West Belfast. Those of your Lordships who know a little of Belfast, as I do, will appreciate the courage and steadfastness that has been shown by the noble Lord throughout the years. Certainly I shall convey the comments and thoughts of the noble Lord to my right honourable friend the Prime Minister. I am sure the noble Lord and the House will accept that it is a bit early and that I could not give any reaction, but I shall certainly pass on to my right honourable friend everything that the noble Lord has said.
As regards the noble Lord's thoughts on the acts of the Provisional IRA, in so far as one can decipher any rational process in its thoughts this is probably the meanest and most vicious act that it has carried out. It seeks publicity; it has had publicity. But the Statement, I hope, shows that such appalling attacks will not deter this Government or this nation from attempting to suppress the evil of terrorism which has plagued Northern Ireland for far too long. Indeed, what the noble Lord has said reiterates what I set out in the Statement. I stressed that the Provisional IRA and terrorism could not succeed and could not live or even thrive—if one can use those two words—in Northern Ireland or anywhere else without the tacit support of, I suspect, a relatively small number of people and the support through looking the other way of, I hope, an equally small number of people. As I said in the Statement, I hope that the outrage at Enniskillen yesterday will at least cause people who have expressed genuine revulsion to examine their consciences and to do what is necessary to suppress terrorism.
4 p.m.
Baroness Ewart-Biggs: My Lords, I should like to support what noble Lords have said in expressing my condolences to the families of the victims of the atrocity and to wish them courage in the time ahead. In support of what the noble Lord, Lord Harris, has said, the best way to commemorate the dead is to examine, clearly and closely, our own actions in the wake of these disasters. I should like to ask the Minister three questions. First, arc we quite sure that
1222
we give Northern Ireland a high enough priority on our agenda? Secondly, are we going to use the Anglo-Irish Agreement, unpopular though it is at the moment with the Protestant community, for the purposes for which it was set up—to co-ordinate the actions of the security forces of the North and South in order to ensure that no opportunities are lost to wage war against the men of violence? Thirdly, when there is a disaster on this side of the Irish Sea, very often a fund is set up to show the good will of the public. The people of Northern Ireland endure crisis all the time. Would it not be right if on this occasion we set up a fund to help the relatives of the victims who have been so grievously hurt?
Lord Lyell: My Lords, we are all grateful to the noble Baroness for expressing her condolences to the bereaved and injured in Enniskillen. I shall see that her condolences are passed on and I am sure that her remarks will be read widely in Northern Ireland.
I hope that our actions both in Government and in security matters are relevant. Indeed, in the Statement I repeated my right honourable friend's steadfast plea in another place not to retaliate. This plea was put most eloquently last night by the Primate of All Ireland.
The noble Baroness asked three questions. As regards the high priority given to Northern Ireland, I am too often absent from your Lordships' House working in Northern Ireland but I believe that the Government put a very, very high priority on matters in Northern Ireland. I believe that in the past three years we have shown that commitment with the Anglo-Irish Agreement. I hope your Lordships will see that it is a first step and an important and crucial step in attempting to remove the threat of terrorism and to bring a happier chapter into the history of Ireland and indeed Anglo-Irish relationships.
I note the noble Baroness's remarks about a fund. I am not able to give any information today about what funds are being set up in Northern Ireland or elsewhere. However, we are most grateful for her thoughts on that matter.
Lord Chalfont: My Lords, while it is understandable that we should express revulsion and an appalling sense of outrage at these events, will the noble Lord accept, as I have said before in your Lordships' House, that this is very unlikely to have any effect on the people who have committed these crimes? This is after all what they are about doing. They want to create a sense of fear and outrage.
Perhaps I may put two points about the security situation in Northern Ireland which I hope the noble Lord and his colleagues will take into account in considering further steps. Is the noble Lord happy that the security forces in Northern Ireland are not operating at the moment under undue restrictions? I have to tell him that many people think that they are. Many people believe for example that, as the noble Lord, Lord Fitt, has said, the identity of a great number of these criminals is known not only to the Catholic community, or certain sections of the Catholic community, but to the security forces? Is it not now time to consider some form of action which would prevent these offences taking place rather than waiting until they have taken place?

1223
Is the noble Lord happy that all modern technology and systems of defence are taken into account in the business of protecting the border? Finally, is he not now convinced that this is not just a simple internal security operation? This is a terrorist organisation with which we are at war. Should we not now be taking far more drastic action against it?
Lord Lyell: My Lords, the noble Lord asked whether the security forces are under undue restrictions. It is the Government's view that they are free to carry out their duties but—and I have to add three words—within the law. This is particularly relevant and particularly necessary. I have an idea of what the noble Lord would wish me to go on to, but I can tell him that we have further powers in reserve. These are only in reserve. I hope that we shall not want to take any further action than we need to take at the moment.
The noble Lord asked about technology on the border and elsewhere. I am constantly amazed by the use of modern technology and by the ceaseless work and dogged persistence involved in tracking down criminals and, indeed, all aspects of security on the border. The security forces are using all aspects of modern technology. I know that my right honourable friend the Secretary of State gives a particularly high priority to law and order and to the protective services in Northern Ireland.
With regard to the noble Lord's third question, all of us are aware that this is a terrorist organisation. But, as I said in the Statement, we believe that terrorism can only be eliminated by persistent and continual efforts allied to firm action by the security forces within the law. This has been our policy and what it will continue to be. I am in no doubt that we shall persist until such time as we can eliminate terrorism. I note what the noble Lord has said.
The Earl of Onslow: My Lords, this is, I suppose, by far the nastiest piece of terrorism that has happened in Northern Ireland, on a par perhaps with Eichman and his horrors. Is it not worthwhile getting together with the Government of the Republic and using this absolute horror for a major publicity campaign in the United States to try and further dry up the already falling funds to NO RAID? Anything that can be used to dilute those funds must be to the benefit of us all. If it can be done in conjunction with the Government of the Republic, and if we can use this dreadful and appalling massacre, perhaps there is something that may come out of it.
Lord Lyell: My Lords, I have no doubt that when my right honourable friend meets the Irish Ministers, and when they continue to discuss security and other matters, this outrage will be fairly high on the agenda. I have no doubt that both Her Majesty's Government and the Government of the Republic will want to take every possible action to try to reduce the flow of arms, materials and money to the terrorist cause. What my noble friend has suggested may well come to pass. I hope it does. However, I shall see that his comments are passed on to my right honourable friend and I hope they will be of some help.
Lord Molloy: My Lords, may I make a small point on behalf of the Royal British Legion, of which I am the metropolitan area president? Perhaps I may inform the Minister that there is anger, shock and grief at the moment, but mostly anger. Will the Government endeavour to do what they can to stop Libya supplying arms to these people? That is shocking. It is even worse when they can get financial assistance from the country we regard as our greatest ally. The United States of America cannot have it both ways. This matter is creating a great deal of anger—and I can speak with some authority—among members of the Royal British Legion.
Lord Lyell: My Lords, I accept what the noble Lord has said. Indeed, I referred to members of the Royal British Legion who were injured yesterday in the outrage in Enniskillen. I am sure that his remarks will be much appreciated by members of the Royal British Legion in Enniskillen and throughout Northern Ireland.
In reply to the noble Lord's two questions, we have a certain amount of assistance around the world in trying to suppress terrorism. I believe that your Lordships would agree that arms, from wherever they come, destined in furtherance of terrorism should be taken out of circulation. We are aware that the flow of arms continues to swirl around the world but we hope that there will be further successes, as has recently been evidenced. We are very grateful to our French friends for what they have achieved so far.
The noble Lord mentioned the United States and NORAID. We have had firm and forthright messages of support from all over the world—and not least from President Reagan. I am sure that the outrage at Enniskillen will be prominent in the news headlines in the United States. One would hope that would go a considerable way to cutting funds to well-wishers and, I quote, "sympathisers" of the Irish cause in the United States. It has been made abundantly clear by politicians of all shades in the United States of America that contributions to NORAID and similar such funds do nothing at all to help the situation in Ireland, north or south.
Lord Moran: My Lords, while joining in sincere condolences to those who have suffered in this terrible crime may I ask the Minister whether it is correct that Enniskillen lies in a constituency in which 194 people have been killed by terrorists since 1970? If that is correct, does it not suggest that it is necessary for the Government to take more determined action to protect innocent people in this part of the United Kingdom?
Concerning cross-border security, I am glad to hear from the Minister that the Secretary of State proposes to have discussions with Ministers in the Republic. However, do not the rather bizarre events following the recent kidnapping in the Republic suggest that the security forces there do not have the numbers, the resources, or the training to deal adequately with the terrorist threat, so that it is therefore for us and for our security forces to protect people in Fermanagh?
Lord Lyell: My Lords, regarding the noble Lord's first question, I understand that the honourable Member for Fermanagh and South Tyrone has frequently asked how many people have been made amenable for this number of murders, which I think the noble Lord said is in the region of 194 but I am told that it is close to 200. I understand that 31 persons have been charged in Northern Ireland over the years in connection with deaths in this particular constituency of the honourable Member. Apart from these 31, one more has been charged with murder in the Republic of Ireland, but the murder took place at Belleek in Fermanagh. Therefore, that is a total of 32 who have been made amenable for these murders.
To turn to the events that we have read about in the Irish Republic, I certainly would not want to comment at all on what has happened there since I have not seen—and I suggest that your Lordships do not know—the full details as to what has happened or what has not happened. I would not wish to criticise in any way some particularly brave men in the Garda Siochana who have a particularly hard job. We are particularly grateful for much of their co-operation. Your Lordships may read things in the media; but, as the noble Lord of all people should know, perhaps we should not take it all as gospel truth.

Financing the European Community
4.16 p.m.
Debate resumed.
Lord Barnett: My Lords, in returning to the debate on the European Communities Committee, I am happy to begin by congratulating the noble Lord, Lord Plumb, on a most excellent maiden speech. I am sure that your Lordships will have been delighted to hear him and will look forward to hearing him on many future occasions given his expertise, his knowledge and experience in this important field. I certainly shall, and I am grateful to him for the contribution he made to our debate.
I should also like to begin by congratulating the noble Lord, Lord Kearton, and his committee. I should like to congratulate the noble Lord himself for the way he spoke today, and the committee for the report which they have delivered to your Lordships' House. I would want to put a slightly different emphasis on it—although I agree with much of what is in the report—and I should like to note just one or two of the inconsistencies in the report.
I have always strongly believed that it is in the national interest that the European Economic Community should succeed and that we should be a strongly-working member of that Community. At the same time, when (as I have) one has been for some years or more attending finance meetings in Brussels, Luxembourg, and Strasbourg, it is difficult to retain initial enthusiasm and willingness to be optimistic at all times. That does not mean that we should not retain that optimism and should not seek to achieve the success that I still believe to be in the national interest.
1226
The central question, as has been pointed out by the committee, is the budget itself and particularly the agricultural question. The noble Lord, Lord Plumb, emphasised to us some of the particular nonsenses that relate to the excessive cost of the agricultural element in the budget. The committee do so in paragraphs 49(i) to 49(v).
I both agree and disagree—as the noble Baroness, Lady Trumpington, might sometimes say—with what the committee said in paragraph 49(ii). I think it is worth quoting:
"Additional resources must not be made available until Community spending is properly controlled. The system of 'budgetary discipline' agreed in 1984 is fundamentally flawed; new machinery is required."
I entirely agree that a system of budgetary discipline is required and that the present system is fundamentally flawed. But to precede that by saying:
"Additional resources must not be made available until Community spending is properly controlled"—
is something I do not entirely agree with. The fact is that you will never totally control any expenditure—and I have tried my hand at it for some years—and it is particularly difficult in the field of agriculture.
I do not pretend to be as expert as the noble Lord, but you will always have either under-production or over-production in the field of agriculture. There are some areas which affect this particular industry. We think we have troubles in the rest of our industries; but there are areas which affect the agriculture industry that it is just not possible to control, as we all know. It is declared that we will not move forward at all until we get total control of that particular item of expenditure. I know that that is not precisely what the Committee said, but I shall come later to some of the things it did say. However, for anyone to say that we must not make any progress in an area that is vital to our national interest until we can totally and properly control something that it is impossible, totally and properly, to control seems to be as much a nonsense as the agricultural policy itself.
Lord Harmar-Nicholls: My Lords, surely it is possible to control the amount of money available. We need not have increased the 1 per cent. to 1.4 per cent. If the amount of money available is controlled, then it is up to the people to ensure that expenditure is kept within those limits.
Lord Barnett: My Lords, with respect to the noble Lord, I must tell him that the fact is that one cannot control it in that way precisely because of the reasons I gave. One would need to have the kind of supplementary budget that we have had over recent years, because there will be people within the agricultural community who, as the noble Lord would be the first to agree, we must help out of particular difficulties. So my answer to that point is to say that, no, that is not a solution, much as I should like to it be. As he knows, throughout much of my political life I have tried to control public expenditure. I did not have always the degree of success that I should have liked, although I am happy to say that I left a percentage of GDP in public expenditure lower than it is likely to be in the current year.

1227
Perhaps I may turn to what the committee noted in paragraph 44 as an especially vital area. It is again worth quoting from that paragraph:
"In view of the vital importance of the completion of the internal market for the Community, and the benefits which will undoubtedly accrue to all the Member States, the Committee recommend that Her Majesty's Government agree to such increase in the structural funds as will help to secure this objective".
I very much agree with that statement. However, as I have pointed out, the committee also consider that we must wait until the budget is under control. Fortunately, the Government seem to take a slightly different view.
The other day, in answer to a question that I put to him about zero rating for VAT—something which I happen to believe is impossible to continue along present lines if we are to have a true internal market—the noble Lord, Lord Young, started off by commenting on something which I had not said: I certainly did not suggest a desire to unify all VAT rates. He went on to refer to the Prime Minister, saying:
"She has also said that it is not right that anyone should tie the hands of the Chancellors of the Exchequer for an indefinite period".
The noble Lord did not clarify what was an indefinite period, but continued:
"Therefore she has confined her requirement to food, gas, electricity and children's clothing. There are no present plans for making any changes".—[Official Report, 3/11/87; col. 891.]
That is a delightfully ambiguous statement, if I may say so. I personally should be delighted to hear the Minister make it less ambiguous or unambiguous when he replies.
I appreciate the political problems that face any government in this field. Any government will be attacked from all sides, even by the noble Lord, Lord Harmar-Nicholls, if they concede one inch in the negotiations. I hope that they will not be attacked by the Select Committee and I do not believe that they will be. Certainly they will not be attacked by me.
However, for reasons implicit in the remarks of the noble Lord, Lord Kearton, the committee happily concluded its report on an inconsistent note. After the comments from paragraph 49 that I have already quoted, the committee then states in paragraph 49(vii):
"The Committee conclude that although these developments are likely to work to the short-term financial disadvantages of the United Kingdom, Her Majesty's Government must be prepared to give some ground for the sake of the future of the Community".
I entirely agree with that statement but it is not consistent with everything in the report that has gone before.
I understand the Government's difficulties. I do not expect them to enter negotiations by admitting in advance just how much they will give way, whether it be the 1.4 per cent., or whatever percentage, of GDP. That is a ridiculous way to negotiate. Of course they cannot say in advance what they will do.
For myself, I am willing to accept what I conclude to be the deliberately ambiguous statement of the Secretary of State, and I hope that it signifies some willingness to give ground. Certainly we shall need to give some ground and show some flexibility and willingness to compromise if there is to be any chance
1228
for that vision of the European Economic Community, which I believe would be of enormous benefit for all the member countries in the Community and not least for ourselves.
4.27 p.m.
Lord Greenhill of Harrow: My Lords, I can understand the anxiety of the House to return from discussion of Northern Ireland to this Select Committee report, but I was disappointed to be deprived of asking questions about Northern Ireland. However, I shall ask them and pursue the matter in a different way. I intend to ask the Minister whether he is satisfied with the way the churches are handling the present situation there. I do not want to pursue this matter any further now but shall do so outside the Chamber.
I should like to congratulate the noble Lord, Lord Plumb, on his effective maiden speech and I should also like to thank him for his work in the European Parliament. It has enhanced the reputation of that institution and reflected credit on this country. I know that it is customary to pay tribute to the chairman of a sub-committee on which one has served, but I think that in this case a special tribute is well merited for the very effective chairmanship by the noble Lord, Lord Kearton, of a committee dealing with a very complicated question.
Discussion on a Select Committee report in this Chamber is designed to draw out the views of those Members of the House who did not serve on the committee. So far that has effectively been done, as was demonstrated particularly by the speech of the noble Lord, Lord Barnett. As a member of the committee I do not want to take up the time of the House by repeating views that have already been trenchantly expressed in the document under discussion, but I should like quickly to draw particular attention to four simple and basic points made by the Select Committee.
It is said, first, that Her Majesty's Government are entirely justified in insisting that Community spending is brought under firm control; secondly, that it is reasonable for the Commission to aim in the long term to increase its expenditure to accommodate the legitimate requirements and expectations of members, especially the new members; thirdly, that the European Council of Heads of State and Governments bears the heaviest responsibility for the proper co-ordination and advancement of the Commission's work, but that this Council has generally speaking failed to discharge adequately that responsibility; fourthly, that the right atmosphere for agreement in that Council is not necessarily achieved by confrontational attitudes since, for historical reasons, sometimes justly and sometimes unjustly, the United Kingdom is still regarded with some suspicion, and ministers should therefore seek to minimise that suspicion by well-chosen speeches and sensible compromises.
Lastly, I should like to mention one additional point that I am tempted to elaborate but which goes outside the scope of the present debate. The budget problem is only one part of a much larger problem. In the past, international crises of the kind that we are now experiencing have served only to increase

1229
nationalistic selfishness. One has only to recall the oil crisis in the 1970s. In my view it is vitally important for this country that such nationalistic attitudes are replaced by genuine international co-operation. I believe that the Government are perfectly aware of that. However, first and foremost the Government should give urgent priority to making a success of the European Community in the widest sense.
The United Kingdom and its European partners are in danger of being overwhelmed by future developments in the Far East and by changes in United States' policy, to say nothing of possible advances in the Soviet Union. If we do not make a reality of European co-operation and consolidation in foreign, defence and economic policies we must fear for our future.
4.30 p.m.
The Earl of Bessborough: My Lords, I too should like to thank the noble Lord, Lord Kearton, and his colleagues for this admirable report. I have worked with the noble Lord in a more distant part of the world and appreciate his quite remarkable ability to cope with complex problems. This is a Select Committee report of which your Lordships should be proud and, as may have been said before, the reports of your Lordships' European Communities Committee are considered—I think the noble Lord, Lord Plumb, would agree with this—to be the best of all those emanating from the 12 national parliaments.
In mentioning the noble Lord, Lord Plumb I, too, should like to congratulate my noble friend on his excellent and remarkably uncontroversial maiden speech; yet he made the essential points. I hope that your Lordships will think it appropriate that the first British Vice-President of the Parliament, your humble servant, should congratulate its first British President, which is a post of great importance and significance in the European Community. After six and a half years in the Parliament I know full well the sort of extremely difficult problems which which he has to deal. I had the privilege of sitting on the Budget Committee of the European Parliament for some six and a half years from 1973 to 1979 and continue, therefore, to be interested in following EC budgetary matters. At one time I did indeed lead the delegation of the European Parliament to the Council of Ministers in what was described as the "conciliation procedure".
From what I read in the press and elsewhere the wrangling between Parliament and Council seems to continue and I only hope, as I said in our debates on the European Communities (Amendment) Bill when we were discussing the Single European Act, that the conciliation procedure between Parliament and Council can be made to operate more smoothly and effectively. Indeed, when I was concerned with this and when the noble Lord, Lord Barnett, was Chief Secretary to the Treasury—and I was most interested in the noble Lord's contribution to this debate—certainly it seemed to me that the conciliation procedure worked quite well. However, I must stress that I am being entirely non-party-political in this matter.
I had a meeting in Paris only last Thursday which was attended by distinguished personalities from all
1230
12 member states. Following this meeting I had a conversation with a well-known permanent representative of another member state in Brussels, who is a great friend of this country. He said that what distressed him most about the British policy in the Community—and I am only quoting it and reporting it here; I am not agreeing with it exactly—was that when we held the presidency of the Council we would put budgetary questions first on the agenda rather than perhaps discussing primarily questions in which progress was being made, namely, political cooperation, the Single European Act, joint ventures in research and development, the internal market and bringing down non-tariff barriers to trade. However, I fully agree with Her Majesty's Government that revenue should determine expenditure, and not the other way round.
I shall not detain your Lordships for more than a moment. All I wish to say this afternoon is that in principle I am supportive of the Delors package and its concern with stimulating economic growth. I hope that my noble friend Lord Brabazon will be able to confirm, or partly confirm, the report in The Times of 7th November that this new method of paying for the EC is backed by the Government. I was interested to read in that report that Danish hopes were boosted by the talks in September between my right honourable friend the Prime Minister and Mr. Paul Schluter, the Danish Prime Minister, who is now President of the Council, whom I knew and greatly respected when we were both members of the European Parliament. I shall certainly be interested in the comments of my noble friend Lord Brabazon on this report.
Overspending amounting to £3 billion a year must be stopped. I agree with our Select Committee in paragraph 46 when they state that they would welcome a new GNP-based resource and a new ceiling based on GNP and, I assume, on economic growth rather than on 1·4 per cent. of VAT. I am not going to discuss what percentage on GNP would be appropriate, although I noted what noble Lords opposite said on this. I agree that the "budgetary discipline", as agreed in 1984, is fundamentally flawed and that new machinery is required.
I was one of those responsible in the European Parliament's Budget Committee, together with my honourable friend Michael Shaw and the noble Lord, Lord Bruce, for setting up the Community's Court of Auditors. Both my honourable friend and the noble Lord made important contributions for controlling expenses. However, not all is well at the moment for it must, in the end, be for the Council itself to act. I would agree with the noble Lord, Lord Kearton, and his committee that Her Majesty's Government may have to give some ground for the sake of the future of the Community; I was certainly most interested that the noble Lord, Lord Barnett, agreed with this.
I am all for careful examination by our own Department of Trade and Industry and other departments of spending on every European science and technology project, but I hope that consideration of budgetary aspects will not halt the advance of Europe in competing with Japan and the United States of America.

1231
I was also glad to hear my noble friend Lord Young of Graffham say to the noble Lord, Lord Bruce, on 4th November that the Government will do their utmost to ensure that the Community does not adopt a budget in excess of its own resources' ceiling, unless and until the Council decides unanimously to raise that ceiling. It is quite clear that the Community cannot spend money that it does not have.
Finally, I should like to go a bit further than the report and take this opportunity of expressing the hope that the Government will now agree that the time is ripe—and we have heard this quite often—and indeed right to accept the exchange rate mechanism of the European monetary system in order to show that we are now prepared to play the game—the European game—under the same rules as other member states. I say this despite the fact that I recognise that being part of that mechanism would not have changed our position in so far as recent adjustments in the stock market were concerned. Moreover, now that the United States dollar is weak, I should like to see more general use made of the European Currency Unit which might eventually be thought of as an alternative to the dollar in international markets. Then ultimately I hope we might achieve European monetary union. I know that this goes beyond the scope of the noble Lord's report, but I hope that my noble friend Lord Brabazon will forgive me for having transgressed in this way. I thank the noble Lord, Lord Kearton for his report and my noble friend Lord Plumb for his highly important maiden speech.
4.41 p.m.
Lord Gladwyn: My Lords, I should like to start by adding to what seems to have been a chorus of praise, in which I think the noble Lord, Lord Plumb, participated in his very powerful maiden speech, for the committee and its chairman on what seems to me as a non-expert to have been a really first-class report. I—again as non-expert— wholly agree with all the conclusions in this report. I only hope that Her Majesty's Government when they come to reply to this debate will announce their ability to do so too. If not, I shall be very interested to hear exactly why they object to any of these conclusions so that we may know where we stand. I may be wrong, but I think that Her Majesty's Government have already accepted—have they not?—the proposal that in principle members' contributions to revenue should be based on GNP rather than on VAT. If that is not so, I shall be interested to hear it.
As the noble Lord, Lord Barnett, said, the whole matter is summed-up in the final paragraph, subparagraph (vii) of paragraph 49, which states that:
"The Committee conclude that although these developments are likely to work to the short-term financial disadvantage of the United Kingdom, Her Majesty's Government must be prepared to give some ground for the sake of the future of the Community."
That sums up, broadly speaking, the whole purport of the report.
Having said that, I should like to devote two or three minutes to considering the report in the light of the rather hazardous situation in which we now find ourselves as a result of the recent stock market crash
1232
and the accompanying weakness of the dollar. We must all hope—no doubt with some confidence in view of the latest reports we have on the tape—that these events will be followed by, at any rate, some recovery in the markets and some stabilisation of the exchanges. Most experts, anyhow on this side of the Atlantic, seem to think that the chief reason for the collapse—and certainly the Chancellor of the Exchequer seems to think it—lies in the fearful United States budget deficit resulting from the disastrous "supply side" economic policy, as it is called, adopted by President Reagan in 1981 and resolutely pursued ever since. "Reaganomics" were, I believe, originally approved by our Prime Minister though it seems she has now seen the light, her recent intervention with the President and her whole attitude having been denounced by what seems to be a majority of Republican spokesmen in the United States. Naturally everything depends in practice on whether the President himself sees the light.
But it also seems that we are unlikely to be out of the wood unless the Germans and the Japanese, even at some risk of a return to a measure of inflation, by one means or another do something to prevent the dollar from disappearing over the horizon. We can only hope that that will be so.
However—and this is the only point I really want to make—it is possible, and even probable, that we may soon find ourselves having to cope with an American recession necessarily involving some protection of the United States market. Surely therefore we must now at least be thinking of what we should do in such a distressing event.
The French have a phrase "envisageous le pire"—that is, to contemplate the worst—which is a very wise thing to do. To say this is not to be pessimistic, which is the last thing I want to be. I only suggest that there are now some precautions which should necessarily be taken.
I have long believed—and have indeed said—that one of the less fatal results (perhaps the only good result) of some American recession would be actually to oblige members of the Community to advance much more rapidly in the direction of real economic and indeed political unity. Surely in such circumstances, if the worst should happen, there must be an increase in inter-Community trade, if only to offset any loss of trade—and there might be a very great loss of trade—with America. If the Community were to survive at all in such circumstances, it must be by accepting very quickly what the noble Lord, Lord Cockfield, has been trying so long to achieve—namely, the abolition of all remaining barriers to trade—and also by agreement on the budget, which as recommended essentially by our committee, would involve our having to abandon our rather individual approach by making some concessions to what is undoubtedly the majority view, and also—I say this in parenthesis—by joining the EMS.
I know it is useless to ask the Government to consider specifically what they would do in a hypothetical situation—I quite recognise that—but I suggest that they should at least ponder on such possibilities and on what they might have to do if

1233
some recession should unfortunately occur. There would obviously be political consequences, too, and they might be dire, for there would be many in America who, faced by a recession, would no doubt be inclined for one reason or another, to blame the Europeans and this might result in a majority in Congress deciding to withdraw a portion, if not all, of their troops in Europe leaving the Europeans to look after their own defence. It would clearly be out of order at the moment to go any further in that direction; but I suggest it is something that might be pursued even now, in increased collaboration with the French who, whatever their policy may be at the moment, in that regrettable event would undoubtedly find themselves with us in a rather leaky boat.
I repeat that I have no desire to appear pessimistic, but I should like to be reassured that the Government arc at least conferring with other members of the Community on steps that might have to be taken in Europe, more especially if by any chance the situation produced by the worldwide collapse of shares were to take a serious turn for the worse.
4.49 p.m.
Lord Seebohm: My Lords, this is a comparatively short report and I strongly recommend anyone who has not done so to read it. It gives a fairly clear explanation of how the Commission got into this state and, the recommendations seem to me not only sensible but much in line with government thinking. There is one point that I ought to make right at the start.
In my view, and I think in the view of the Committee, the Commission itself is not responsible for the mess we are in. The fault lies almost entirely with the Council of Ministers. The oral evidence given by Mr. Christophersen—he is the EC Budget Commissioner—was very interesting and most revealing. I have little doubt that if his recommendations and those of his predecessors had been followed the present chaotic situation would not have arisen. The calibre of the Commission and of the Commissioners has been underrated. The Commissioners are of a very high quality. Any policy giving them more powers of decision and legal authority to implement the general directions of the Council of Ministers would be a good thing.
I do not wish to dwell to any extent on the troubles with the CAP. We have had several separate debates in the House on this subject and it need not be pursued by me. But the Agricultural Ministers have consistently ignored the Commission, have made no provisions for the writing down of stocks and have set their faces in the past against price reductions.
Anyone with accountancy experience or who has been involved in business would find it quite incomprehensible how people of ministerial status should pile up liabilities in the future with no arrangements whatsoever for their liquidation. They must have known that those liabilities were quite beyond the resources available to the Community.
It must be aknowledged that outside events have contributed to the problem. I must say that to ameliorate the feelings that I have about the Agricultural Council. One such event is the slide of
1234
the dollar. Over the years that may have cost the Community something in the order of 4 billion ecu. That is the equivalent of £3 billion. It will be even worse this year with the continued slide of the dollar.
It is now vital to make the budget a legally enforceable instrument rather than a guideline. As Mr. Christophersen said, that must apply right across the board, not only to agriculture. The Council and Parliament as well as the budget authorities must all be involved in the monitoring of the execution of the budget.
As has already been said, the expenditure of the Community in terms of the GNP of the Community as a whole is not very heavy. I should like to see the development of the internal market supported financially, if that is necessary. I should like to see more expenditure on helping the backward nations and the derelict areas. I would approve of greater contributions from member states if we were certain that those funds would be wisely spent. The Prime Minister is absolutely right to insist on financial discipline as a sine qua non for additional finance.
So what of the future? Since the report we are debating was finalised, there have been a number of communications from the Commission which I imagine are intended to crystallise the agenda for the Copenhagen meeting. But perhaps it might help your Lordships if, first, I explain very briefly the present system of decision-taking. Reference is made frequently to the Council of Ministers which has to approve any regulations or directives or the budget and so forth.
Whatever was stated in the treaty it has evolved since then that there is no such thing as the Council of Ministers. There are six Councils: the Budget Council, the Internal Market Council, the Economic and Finance Council, the Agricultural Council and the Transport Council. Each takes its own decisions and consists of the appropriate Ministers of member states. There is no overriding Council apart from the summit of Heads of State which meets twice a year. That is where important decisions take place and where more should take place. As noble Lords can see, at present there is little or no possibility of real discipline being exercised.
I wish to make brief reference to what I think has occurred in some of the documents that have appeared since our report was published. The documents' first proposal is that the Commission should be empowered in future to adopt a very strict approach to forecasting and budgeting and to create an overall general reserve from which to draw in case of need. At this point I should like to reply to the noble Lord, Lord Barnett, by saying that I am sure that he knows perfectly well and better than I do that in the United Kingdom there are always provisions in the Budget for unforeseen events. It is perfectly possible to allow the same provisions in the agricultural sector as in any other sector.
The second proposal is to change the present system in the agricultural guarantee section from advance payments to reimbursements in order to move to the principle of providing a safety net rather than a fixed price. Thirdly, in the spirit of the Single Act there is the proposal to develop the use of the ecu

1235
not only as an accounting instrument but also as an instrument for expressing the Community's financial rights and obligations and as an instrument of payment thereby avoiding the complication of 12 different currencies and moving exchange rates. It has now become clear that with the unreliability of the financial policies of the United States and the ability of Japan to see its own interests with the utmost clarity, it is necessary for the Economic Community to become a reality so that it can stand up and not be blown over by the United States' or Japan's misbehaviour.
All those suggestions and some others which I have not had time to mention depend in my view on giving the Commission legal powers to see that the budget, once agreed, is binding and that the appropriate machinery is in place for continuous monitoring of the expenditure.
I have made no mention whatsoever of increasing the competence of the European Parliament. I had rather hoped that the noble Lord, Lord Plumb, might have said something in his very excellent speech. I expect that it will be the subject of another debate. Certain proposals are now coming forward from the Commission. I have read them. They seem to me to be basically sound but rather cumbersome in execution. That is all I wish to say.
4.54 p.m.
Lord Benson: My Lords, I have only one short point to make. I should not have asked for permission to do so if I had known what the noble Lord, Lord Seebohm intended to say. The report follows a number of others which have drawn attention to the sorry state of the Community's finances. One of the main thrusts of the report is contained in six lines in paragraph 39 which states:
"The Committee consider that the blame for the state of Community finance rests not with the Commission, but with the Council of Ministers…This is in part due to the composition of the Council of Ministers, since no specific Council has ultimate financial responsibility. The Committee consider that this can only rest with the European Council of Heads of State and Governments; but that Council has not yet succeeded in producing either effective procedures or the political will to use them.".
The plain fact is that until the European Council of Heads of State and Governments does exercise political will, so long will the European finances be in a disorganised state.
For my part I feel that unless this position is grasped, unless political will is expressed, the whole future of the European Community is in doubt and in danger. I do not think that my colleagues on the sub-committee feel quite so strongly as I do, but it is common ground that unless political will is exercised and the organisation put into a proper state, the fulfilment of the short-term and long-term aims of the Community will be frustrated.
4.56 p.m.
Lord Walston: My Lords, as other noble Lords have said, the report is an admirable one. It was introduced by its admirable chairman in an admirable speech. I do not say that out of politeness. I do not think that the noble Lord, Lord Kearton,
1236
goes much for insincere politeness. I say that because I believe it to be true; and it is manifestly true.
This debate has been first class, with many outstanding speeches. I must mention the speech of the noble Lord whom I shall for the moment call my noble friend; that is, the noble Lord, Lord Plumb. It is good to see him sitting on any Bench, though it would be nicer to see him sitting on these Benches. However, it is far better to listen to his wisdom and to his experience.
Two points which my noble friend made stand out in particular. He made the point that the whole report must be set in a far wider context than that of agriculture, important though agriculture is, especially from the financial point of view. That was emphasised by the noble Lords, Lord Seebohm and Lord Benson. Whether their prognostications and forebodings are true or not, there can be no doubt that the world is crying out for a strong and wise financial and economic leadership. Regrettably, that is sadly lacking both from the other side of the Atlantic and in the Pacific, from Japan. The European countries should be able to provide wisdom individually. However, they are not strong enough economically to be listened to as individuals. It is only as a collective body that they can have the influence which is so badly needed at the present time.
Having said that, I reiterate what other noble Lords have said in that from the purely financial point of view agricultural spending is the key to the whole spending of the Community. That takes between 60 per cent. and 65 per cent. of the total amount.
The noble Lord, Lord Barnett, told your Lordships that it was impossible totally and properly to control agricultural expenditure. Those words are his and not mine. Of course that is true. But for all that, there can be a far stricter control on agricultural spending than there now is within the Community. I suggest that the key to achieving that is to place an absolutely firm limit on total spending for every significant agricultural commodity which would have to be adhered to.
I know that in theory that has been done. However, the controls, such as they are, are far too remote, far too slight and far too delayed. There is now something which is called a stabiliser. That system has been operating in a mild way for a year or two with regard to certain commodities. As your Lordships will have read in the report, the Commission proposes to bring in a series of automatic budget stabilisers, which are defined as being any mechanism which operates within a CAP regime to keep expenditure within the budgetary allocation. That can mean anything or nothing, and if one goes on past experience and what we have heard from other noble Lords it may mean nothing.
In Community spending on agriculture today there is a double paradox. If there is a good harvest in the conventional sense, the treasuries of the member states wring their collective hands. For them it is a bad harvest because it will cost them more. That is the first paradox. The second paradox is that when there is a good harvest, farmers do not need much support because they have a lot of grain, sugar, milk or

1237
whatever to sell. However, that is the time when it costs the Community most. With a bad harvest, farmers need more support but the treasuries rub their collective hands because they will have to fork out less at a time when it is most needed.
That cannot be a wise policy upon which to base the expenditure of the greater part of the Community budget. Without going into great detail, I suggest to your Lordships, as I have done on previous occasions, that the solution must lie eventually in increased liberalisation of agricultural trade and, at the same time, retention of the essentials of the common agricultural policy to ensure that there is not only free trade in agricultural commodities between all member states but that the costs of production are, to as great an extent as possible, maintained at an even level. As a result, no one country should have a greater advantage over other countries than that which was given to it by its soil, climate, the skill of its farmers and so on. Free trade in agricultural products should be maintained and, where possible, enlarged outside the Community as well. I believe that that is possible.
We should ensure that such cash as is available goes only to producers and is not, as the noble Lord, Lord Plumb, so rightly pointed out, syphoned off for the cost of storage, disposal of surpluses, and to other people who come in to achieve the objectives. The vast amounts of money which are spent (and they should be smaller amounts) should go directly to the people for whom it was originally intended—the producers of food.
That leads to the inevitable and logical conclusion that there should be a support policy of social rather than economic payments to farmers who will suffer if the present common agricultural policy is to continue. That is well brought out in paragraph 43 of the report, which says:
"the Committee are disappointed with the limited plan of direct income supplements which the Commission is proposing, and consider it would still leave large numbers of small farmers in serious trouble when support prices come down. (The Committee would make a similar criticism of the British Government's new measures of 9th February which will involve expenditure of only £25 million: this is a small sum in relation to the need)".
I am in full agreement with that, although I would, with some hesitation, point out that not only small farmers are liable to suffer because of the change in the common agricultural policy. There may well be some large farmers and many farm workers who will also suffer. We must not lose sight of that.
Since social needs and methods of meeting them vary greatly between the member states, payments should be partially funded by Community resources. It should be open to individual member states to supplement social payments—provided that they are not used to further increase production—according to the various levels of standards of living and amenities enjoyed by other workers within each country. There is no need to remind your Lordships of the differences between Greece and Portugal, on one hand, and the Netherlands and Denmark, on the other. It should be open to each member state to supplement whatever the Community is able to provide for purely social reasons. The administration of such payments should be left to individual
1238
governments so that bureaucracy is minimised and distribution is carried out to the satisfaction of the individual country.
Your Lordships may feel that I have spent too long on the common agricultural policy, but I make no apology for that because, as I said at the beginning, and as we all know, unless the CAP is drastically reformed there will be no curtailment of expenditure and the budget will not be brought under control. Without some radical solution on these lines, that over-spending will continue; the Community as we know it will be placed in increasing jeopardy and its ability to play the part that it should play in the world economic scene will be even less than it is at the present time.
My final comment is to give the strongest possible support to the two points mentioned in paragraphs 47 and 48. At the end of paragraph 47 the report says:
"if the Government are right in claiming, as they do, that according to several indicators the British economy is improving relative to that of other Member States, some concession on the abatement would be appropriate, and it would help secure an agreement which will, among other things, bring the benefits of the completion of the internal market".
The report continues in paragraph 48:
"Finally, the Committee urge on Her Majesty's Government the importance of improving the presentation of their policies in the Community. National interests must of course on occasions be protected, and all Member States do so, but this should be done in a context which is more recognisably communautaire. The Government must emphasise that their refusal to discuss increasing the Community's resources is based not on considerations of national profit and loss but on the desire shared by citizens of all Member States to see an end to the excesses of the CAP, and in particular to the surpluses which damage the Community in the eyes of the world".
This is a report which I hope will not only be read very widely but will influence Her Majesty's Government in this country and the Community and its members in Brussels and their respective capitals.
5.14 p.m.
Lord Bruce of Donington: My Lords, we on this side of the House are most grateful to the noble Lord, Lord Kearton, for having introduced to your Lordships' House perhaps one of the most important reports that it has had the opportunity to lay before it over the past four to five years.
I personally am indebted to the noble Lord, Lord Kearton, who presided over the committee concerned with investigating this matter with the indulgence and kindness he extended to me in allowing me to participate fully in the proceedings of the committee. In fact his kindness went further. In my view he dealt very kindly with the evidence that was laid before the committee, and I invite the House to give urgent attention to it.
I am afraid that I shall have to interpret the evidence in slightly more astringent terms than those with which the report itself deals with it and also the manner in which the noble Lord, Lord Kearton, himself has touched upon the evidence. Unusually perhaps for me I find myself firmly behind the iron resolve of the Prime Minister in this matter. I am surprised that tribute has not been paid to her resolve from all quarters of the House.

1239
The title of the report and the subject we are discussing is Financing the Community. I hope I take the House with me when I say that the purpose of financing is to provide funds for the achievement of specific projects or objectives. Some of these objectives may be very wide in scope and cover whole industries. I take the example of agriculture. Some will be devoted to more specific and possibly smaller purposes. I think it must be agreed between us that if a project or a purpose is to be financed, it must be financed adequately. In common with normal business and accounting principles we should have an adequate reserve for contingencies. Above all, I trust you will all agree, my Lords, that there must be value for money.
There will be few who will dissent from the general philosophy of Her Majesty's Government that problems are not solved by slinging money at them. That applies in the same manner to any project in the United Kingdom and in the EC as well. A problem is not solved, an objective or an ideal reached or perhaps the Holy Grail obtained purely by slinging money at it. As the noble Earl, Lord Bessborough, will confirm, because he and I, together with Sir Michael Shaw worked very closely on these matters the expenditure of the EC is divided into two. One kind of expenditure is obligatory (or in Continental terms, compulsory), and the other is non-obligatory or non-compulsory.
Dealing with the latter type of expenditure first, this occupies about 25 per cent. of the Community's expenditure and comprise expenditure on the regional social funds, on research and development and a limited part of the farming funds in terms of the guidance funds. It is widely used by member states including the United Kingdom in substitution for expenditure that would normally be incurred within our own budget.
Strictly speaking, this is slightly dishonest from the EC standpoint. I deplore the fact that governments have adopted this device because EC expenditure on the regional social funds is supposed to be additional to that provided by member states. As the noble Lord, Lord Barnett, will well appreciate, there is the obligation of additionality which was very rarely observed by member states. Nevertheless, the non-obligatory expenditure, broadly speaking, is easily controllable.
It is the obligatory expenditure or the compulsory expenditure which is overwhelmingly the common agricultural policy. That expenditure is in fact the Community itself and it is important. It is all very well to say that one does not want to discuss the CAP unduly because the CAP is not the whole Community. In fact I would draw your Lordships' attention to the last speech of the right honourable Roy Jenkins, to the European Parliament on the 17th December. He said in, I thought, a somewhat melancholy fashion:
"As I told the European Council, we have a largely agricultural community with political trimmings and an incomplete common market in industrial goods with a common external tariff".
That indeed is a fair summary of the European Community—a common agricultural policy with a few peripherals.
1240
It is important that your Lordships should realise that there is virtually no control at all over 75 per cent. of the budget of the European Community. There is no control over common agricultural policy expenditure under the CAP. Budgets are entirely immaterial. As the noble Lord, Lord Kearton, knows—I am quite sure he would confirm if necessary, though he would not wish to interrupt me—the budget entries in respect of the common agricultural policy are merely guidelines. They are likely to be varied by supplementary estimates at a later stage, and for all practical purposes nobody pays the blindest bit of attention to them.
It is the regulations that are passed by the European Council—whether or not these are based upon proposals arising from the Commission—that govern the amount of expenditure. They are open-ended. There is a legal responsibility by the European Community backed, if necessary, by the European Court of Justice, that according to the price levels for the commodities affected, determined in the agricultural council of Ministers and enshrined in the regulations, any farmer can obtain subsidies on the basis of whatever production he produces and on the basis of the stipulated intervention price. The greater the amount he produces, the greater the income he receives in respect of it.
There is no question of any budgetary control in the normal sense that we understand it. This can be verified. I will not waste your Lordships' time by citing the passages, but I can assure the House that they are all here and can be produced out of the excellent evidence of Mr. Christophersen the Europe Budget commissioner. I pay tribute to him. In my experience over the past seven years he has probably been the most honest and forthright of all the commissioners in telling the whole world the unvarnished truth of exactly what happens in the finances of the Community. It is a great pity that the national media of this country—press, radio and television—have not devoted sufficient importance to this vital item in the whole of the finances of Europe so that, in the main, the population do not know of the existence of the facts or of the procedures that actually take place there.
Of course some of the agricultural expenditure does an enormous amount of good. There is no question about that. The farming communities in parts of Europe would have been very ill-placed if it had not been for the provision of finance in this way. However, with regard to the United Kingdom, let there be no doubt that the funds available to British agriculture from the CAP—incidentally, they also go on the Minister of Agriculture's estimates and are paid direct by the British Government to the intervention agencies, and so on, through to the farmers—have benefited, in the main, some 12 per cent. of British farmers. They have mostly benefited the larger ones; and it is not the case, as in some cases on the Continent, that the smaller farmers have benefited all that much.
Therefore, some of the money—remember, you cannot solve a problem by slinging money at it—has been well expended and will continue to be well expended. However, the setting of prices by the intervention board on the basis of the regulations

1241
that are passed by the council has resulted in the overproduction of butter, beef, cereals, wine and milk to an extent which amounts to billions—I repeat, my Lords, billions—of pounds that is entirely wasted. There is this element of wasteful expenditure of which the United Kingdom itself bears its share and to which our attention should be directed. If one eliminated all the items of waste and all the items of fraud—and I am going to refer to that as well—it would be unnecessary to raise the finances of the Community beyond its present 1.4 per cent. based on the VAT base. We have billions of surplus items in store which are rapidly deteriorating and for which the Commission itself admits it has made no provision whatever. It is going to have to write them off at the rate of £1.5 billion per year, of which the United Kingdom is going to have to bear its share. There is another waste in the Community funds of which the United Kingdom is paying her share; that is, the cost of refrigerated storage throughout Europe. About £2 billion a year is spent on excess storage costs for goods that are not going to be required and that are deteriorating. Therefore there is that continued drain on the resources of the Community.
That is not all. Your Lordships may have noticed a report in The Times of 15th October last from which we now learn that the European Commission is launching a fraud inquiry as losses rise to £2 billion a year. We are talking of billions. We are talking of fraud on a massive scale occurring not, I am happy to say, in the main in the United Kingdon, as perusal of the auditors' report will show, but in other European countries. This is done by driving cattle to and fro over the frontiers and by a whole series of other measures. That money is being lost.
I submit to your Lordships that Her Majesty's Government are right to insist that no further funds be made available to the European Community until proper financial control is exercised. This is not only the philosophy of the Prime Minister, but it happens to be my philosophy as well, and it is extraordinary that that should be so.
It is not enough to eliminate the frauds and the wasteful expenditure which runs into billions of pounds. It is all very well when one refers to billions to say that it is only X per cent. of the national income or only X per cent. of the budget. One does not use the same terms when people are dying in our hospitals because of lack of medical equipment. One does not say it then when people are dying because of lack of treatment due to artificial cash limits being imposed upon the National Health Service and the local authorities. One does not say then that it is only an ignominious proportion of the national income.
The reason it is happening was clearly put forward by the noble Lords, Lord Seebohm and Lord Benson. We can quote the old proverb that the fish rots from the head and not from the tail. Where it is wrong is in the Council. The report of the evidence makes clear how that happens. Agricultural Ministers meet year by year to determine prices. They decide what the price should be. Mr. Gaston Thorn of the little republic of Luxembourg put forward a suggestion that finance Ministers should be involved in this at the same time so that when they reach a price
1242
decision, they (including the Chancellor of the Exchequer or the Financial Secretary to the Treasury) could advise them of what the consequences on national finances should be.
That was the suggestion of Gaston Thorn, but the British Government and other governments neglected it, as a result of which the agricultural Ministers determined a price level on the basis of which they could go back to their constituents and say, "Aah! We fought for your interests." They can say to the farmers, "We protected your interests in the matter." However, at the same time, the finance Ministers, who were not involved, and who in one instance walked out of the meeting at Luxembourg, could avoid taking responsibility but could also take the credit by protesting at the lack of financial stability. That is hypocrisy on the worst possible scale.
One of the cures for that would be for the Prime Minister possibly to relinquish her chairmanship of the Cabinet sub-committee on privatisation, which has perhaps fallen rather into temporary disrepute, and to form a new Cabinet sub-committee to deal with EC finances and presided over by the Prime Minister, because, clearly, the Foreign Secretary and the Minister of Agriculture, Fisheries and Food are incapable of dealing with the problem themselves. There therefore have to be changes at the top. There has to be change in the agricultural regulations, including the stabilisers which have been mentioned. There has to be a ruthless prosecution of fraud and a tightening up of procedures. There has to be the adoption of an agreed system of accounting, instead of the miserable creative accounting which amounts to the fiddling of accounts with which the public are presented at present. There has to be a repatriation of some of the agricultural support away from the community, where it cannot presently be controlled, to the United Kingdom where it can.
I am sorry to have to adopt a slightly more astringent attitude towards this report than some of your Lordships. I do so more in sorrow than in anger. I am one of those who, together with the noble Earl, Lord Bessborough, devoted four years, practically full-time, to supporting the Community as a United Kingdom representative. I do not think that even my worst political enemy would accuse me of neglecting my duty in that regard. It is a matter of great regret to me to have to address your Lordships' House in these terms.
Like so many of your Lordships' I am a member of Europe. I am also a Briton. So long as I speak in your Lordships' House, it is as a Briton that I shall continue to speak with the European being a second priority.
5.33 p.m.
Lord Brabazon of Tara: My Lords, this debate has been both important and timely. Important, because of the large sums of money involved in the proposals under discussion, and also of course because of our very real commitment to the European Community. Timely, because we are now in the thick of negotiations on the future financing of the Community, leading up to the European Council at Copenhagen next month.

1243
I have listened with great interest to the points made by noble Lords today. I am sure that noble Lords will not think it invidious if I select two of them for special mention. First, the noble Lord, Lord Kearton, to whom we owe thanks not only for proposing today's Motion but also for chairing the sub-committee which produced the report we are considering today. Secondly, perhaps I may congratulate my noble friend Lord Plumb who selected an opportune moment for the first British President of the European Parliament to make a most impressive maiden speech in this House.
I should like, if I may, to begin by outlining very briefly the Government's general approach to the current negotiations on financing the Community; then to respond to the main points in the Select Committee's report; and, finally, to reply to some of the other matters raised by noble Lords today.
First, I should like to stress that the UK is adopting a constructive approach to the future financing negotiations. The key areas are CAP reform and budget discipline. The UK made clear at the European Council in Brussels in June that we were not prepared to address the question of additional resources until agreement is reached on effective and binding control over Community spending, particularly agricultural spending. The proper and effective control of agricultural expenditure, as identified by the noble Lord, Lord Bruce of Donington, is absolutely essential. I am delighted that he supports the Government's approach of seeking proper reform of the CAP.
The essential requirement for reform of the CAP is the introduction of automatic stabilisers together with other provisions to ensure that any given limits on agricultural expenditure can be respected. If an agreement is to be reached at Copenhagen in December, the widely accepted principle of stabilisers must be translated into specific, quantified decisions so that it is certain that the new arrangements will work effectively and as intended. In other words the agricultural guideline must become a real limit on agricultural spending.
The noble Lord, Lord Banks, referred to the Commission's proposals for agricultural stabilisers. The Government have made it clear that agreement on effective agricultural stabilisers is essential if there is to be a settlement at Copenhagen. We are pressing hard for agreement within that timetable, but my right honourable friend the Prime Minister has made it clear that we shall not accept measures that are not effective.
We also need to ensure that effective budget discipline applies to non-agricultural spending. The proposal by the Commission for a doubling of the structural funds is in our opinion quite unrealistic—I shall come back to that point in a moment because I know that the Select Committee had its own views on the matter.
As far as the UK abatement is concerned, any changes to the Fontainebleau abatement system (which has served us well) must improve our overall position.
1244
We accept that the Commission's proposal for a new own resource based on the difference between GNP and the VAT base could make the own resources system fairer. The proposal deserves consideration, although, in answer to a question from my noble friend Lord Bessborough and the noble Lord, Lord Gladwyn, we have not at this stage agreed to the proposal, whatever it may have said in The Times on Saturday. The Government are working hard for agreement at Copenhagen, though clearly agreement will not be easy. The noble Lord, Lord Benson, referred to the importance of political will to solve the Community's problems. We have that will. Heads of Government agreed in June that decisions on all issues must be made together. Interim or partial solutions would not do. We need an overall agreement which is clear, complete and legally binding.
Against that background, perhaps I could now turn to the Select Committee's report. First of all, I should like to welcome the committee's endorsement of our general negotiating position. As the committee says:
"spending must be brought under firm control before any decision is reached on increasing the Community's resources".
A number of noble Lords have echoed that today. I was pleased, for instance, to hear the noble Lord, Lord Seebohm, say that my right honourable friend the Prime Minister is absolutely right to insist on control of expenditure as a sine qua non before there is any question of extra finances.
Secondly, the committee is absolutely right to stress the importance in this context of budgetary disciplne in general and control of agricultural spending in particular.
The Government are firmly committed to ensuring that budgetary discipline in the Community is made more effective, building on the Council's unanimous budgetary discipline conclusions of 1984. We must now ensure that the constraints agreed then bite more effectively on expenditure.
On agricultural spending, the committee has rightly drawn attention to the need for the guideline on agricultural expenditure to be made effective by legally binding and effective controls in each product régime. These "stabilisers" and other budgetary controls of the kind are needed to ensure that any potential overspend in a particular commodity régime will be dealt with before it becomes irreversible. There is now widespread recognition in the Community of the need for stabilisers. Our aim will be to reach agreement on specific quantified mechanisms for each régime.
The noble Lord, Lord Barnett suggested that introduction of proper budgetary discipline in agriculture was not a feasible aim. The Government do not accept that any area of Community expenditure should be exempt from the need for budgetary discipline, as applies to domestic expenditure; proposals for stabilisers are part of the Commission's response to the need to control agricultural expenditure. This was a point made by the noble Lords, Lord Seebohm and Lord Walston.
The committee has also stressed the importance of tighter budget management, drawing attention in

1245
particular to the question of transfers of unspent balances. It is a key principle for the UK that funds controlled by the Community should be managed at least as efficiently as they are in the member states. We have proposed specific improvements to tighten up on the use of funds and ensure more effective control by the budgetary authority. These ideas and proposals put foward by the Commission are now under detailed discussion in Brussels. We have made clear that we expect to see real progress in this area.
Thirdly, there is the question whether the Community needs more resources. The committee says that it does. The Government's position, as I said earlier, is that until we have agreement on control of spending it does not make sense to address the question of any increases. What I would say, however, is that the increase in the own resources ceiling proposed by the Commission—equivalent to an increase of 45 per cent. in 1992—is quite unrealistic, as well as being inconsistent with the need to make budget discipline more effective.
Fourthly, the committee says that once agricultural spending has been brought under control, spending should be increased on the structural funds, and on other policies such as research and the environment, so long as action at Community level offers value for money. We could certainly endorse the emphasis on value for money. But I would sound a couple of notes of caution about the rest of the recommendation.
We need to ensure that "non-obligatory" expenditure—broadly speaking, non-agricultural spending—does not grow excessively. This is best achieved through respect of the so-called "maximum rate" limitation on such expenditure in the annual budgetary procedure, which is an important element in budgetary discipline.
On the structural funds, yes, we recognise the role that they play. But that does not mean that we should go along with the Commission's plans to double them in size. We should not forget that they have grown by almost a third in real terms over the last three years and if the Community gets its priorities right, there will be scope for further real growth in the years ahead without infringing budget discipline. Moreover, the funds have always taken account of the problems of the poorer member states. However, in answer to the noble Lord, Lord Kearton, and others, we do not accept that increases in the funds are needed specifically to "compensate" for completion of the internal market. That is a process from which all member states, not just the more prosperous ones, should gain. Therefore there is no justification for the Commission's extravagant proposals to double the structural funds in real terms.
Fifthly, the committee recommends that if agricultural support is to be brought under control, parallel steps should be taken to prevent rural depopulation and dereliction. They refer specifically to income supplements. I was interested to hear what the noble Lord, Lord Walston, had to say on this subject. Direct income aids to farmers could be considered as being one way in which the transition to a more market-oriented CAP could possibly be eased. It is important however that any such aids, if
1246
they were agreed, should be linked to the achievement of genuine CAP reform. They should also be degressive and time-limited, and financed by member states within a Community framework. The Government have of course already announced a package of measures to assist the process of adjustment in this country under the Farming and Rural Enterprises Initiative. Indeed, your Lordships are currently considering the Farmland and Rural Development Bill which includes powers to introduce the new farm woodland scheme and grants for diversification.
Sixthly, the committee supports the Commission's proposals for a new own resource related to GNP, and for the own resources ceiling to be based on GNP. I have already said that we think the new own resource deserves consideration. As for the ceiling, while recognising the arguments in favour of the proposal, we also need to bear in mind that using a GNP base—whatever the percentage rate chosen—would mean that the ceiling could be substantially higher by 1992 than if defined on the present basis. The question of moving to a GNP ceiling, like the proposal for an increase in the ceiling, cannot sensibly be addressed unless and until we have agreement on effective control of expenditure for the future.
Lastly, the committee recommends that the Government should show some flexibility over the proposals to replace the UK's abatement mechanism, which has served the UK well. I would remind your Lordships that by the end of 1987 we shall have benefited from abatements worth over £2.8 billion. I should like to explain why we cannot accept the committee's charge of over-rigidity on this issue.
I listened with care to the point made by the noble Lord, Lord Kearton, about the need for the UK to give ground on this point. However, I feel I must remind the noble Lord and others that despite our abatement our net contribution has increased substantially since Fontainebleau in 1984. We are the second largest net contributor to the Community budget. Any changes in expenditure along the lines proposed by the Commission would be likely to make our imbalance significantly worse. Meanwhile other member states more prosperous than us remain substantial net recipients from the budget.
The new mechanism proposed by the Commission would cut the UK's abatement by about half. Overall the commission's proposals could, on our estimates, increase our net contribution by about some £800 to £900 million a year at today's prices—a point upon which the noble Lord, Lord Bruce of Donington commented. I am sure therefore that noble Lords will understand why we are not prepared to change the present system (which can only be changed by unanimous agreement and with approval of national parliaments) unless our overall position is thereby improved.
I have tried to cover many of the issues raised by noble Lords today, but there are a few specific points on which I should like to respond now. The noble Lord, Lord Bruce, talked about the additionality of Community expenditure and suggested that expenditure on the social and regional funds was not additional to domestic spending plans. This is not

1247
strictly accurate. The availability of Community spending allows total public expenditure in the UK to be higher than otherwise would be the case.
My noble friend Lord Plumb and others have stressed the importance of competing in the internal market. We quite agree with that. It is indeed a major United Kingdom priority. During the United Kingdom presidency last year the Council adopted or agreed 48 individual measures which will help to remove barriers, but this momentum needs to be maintained if the internal market is to be achieved by 1992.
The noble Lord, Lord Greenhill, and others stressed the need for the Government to show a positive approach to Europe. We thoroughly agree. It is significant that future financing negotiations are not one against 11: the United Kingdom against the rest. The need for CAP reform and better discipline is now widely accepted.
Lastly, on specific points, my noble friend Lord Bessborough and the noble Lord, Lord Gladwyn, spoke once again of the desirability of our joining the exchange rate mechanism of the European monetary system. I fear that once again, having answered that question on several occasions I have nothing further to add other than to say that we keep the issue under continual review—a reply with which the noble Lord, Lord Ezra, will be thoroughly familiar.
As I said before, this has been an important and most interesting debate. I should like to conclude by referring to the comment in the Select Committee's report that the Government should stress the positive side of its approach to Europe. Our approach to the European Community is positive. We are committed to the Community and that is one reason why we are striving to put its finances in order. At the same time of course we are determined to protect the interests of British taxpayers and consumers. These objectives are not incompatible. In the current negotiations we are doing our utmost to ensure that the deal that is reached is good for Britain and good for Europe; and I am sure that noble Lords would support that approach.
5.50 p.m.
Lord Kearton: My Lords, in winding up the discussion I should like very sincerely to thank all those noble Lords who have taken part in the debate. I should particularly like to refer to the noble Lord, Lord Plumb, whose contribution was so powerful. We are delighted that he has appeared here to make his maiden speech and we look forward to many more speeches from him on European affairs in particular.
I think all the speakers were commendably brief. The noble Lord, Lord Bruce, had the record. I am sure he wanted to speak for longer than anyone else. He mentioned that he was astringent. I should have used the word "strident" myself. Nevertheless, many of the things that he said were not in conflict with the committee's general conclusions.
I should like to thank the Minister for his reply in winding up for the Government. I should like to compliment him on the way he presented it. He was
1248
extremely clear and cogent, and the speech was courteously and lucidly argued. Having paid the Minister this compliment, I hope he will not mind if I say that I found his speech like the curate's egg—good in parts and not so good in others. The Government, as they often do, take the line that if you agree with them you are splendid people. If you venture to have a slightly different point of view you are spendthrift, narrow-minded, unrealistic and really a very doubtful character indeed.
When one looks at the membership of the Select Committee one finds a high concentration of financially eminent people of great distinction. I think the idea that they are recklessly improvident with the interests of the United Kingdom is a charge that cannot be sustained. So I am taking the charitable and very natural view that the Minister must retain the Government's bargaining position in negotiations at Copenhagen. I very much appreciated his comment that the Government really wanted to see the Community succeed and that they shared the vision expressed so powerfully by many Members of this House today.
We wish the Government well and hope that in the outcome they move a little further than in the Minister's speech towards the recommendations of the Select Committee. I formally beg to move that the House takes note of the report.
On Question, Motion agreed to.

Overseas Trade: Select Committee's Report
5.52 p.m.
Lord Aldington Lord Aldington rose to ask Her Majesty's Government on what grounds they consider the 1985 Report of the Select Committee on Overseas Trade to have been largely discredited by events (per Lord Beaverbrook 21st October HL Deb. col. 121) and which of the recommendations they regret having accepted.
The noble Lord said: My Lords, I propose this evening to do my best to show to the House that the report of the Select Committee on Overseas Trade published in October 1985 has most certainly not been "largely discredited". I propose to do this in the hope that my noble friend will be able to agree with enough of what I say to withdraw from the records of this House a rather sudden Government slur upon and condemnation of that report.
The report's analysis and conclusions, which cover the long term in the past and the long term in the future, are still relevant and will be relevant for some years to come. They form a report that many of us had hoped—this applied, I believe, to the whole House when it was discussed two years ago—would be studied by many students both now and in the future. That is why I have asked your Lordships to discuss the matter this afternoon, so that we still have a report which does not suffer from discredit by the Government.
I am in the difficult position of anyone asking a Question in not knowing what the Minister will say in reply and, because it is an Unstarred Question, not being able to challenge any of the points he may

1249
make. Thus, I shall have to spread my fire rather widely. It was a wide ranging report which offers a wide target. I must make clear that I am not in any way questioning the Government's right to disagree or, indeed, to raise their disagreements. Those matters can be debated. The report was designed to provoke a nationwide debate. This House welcomed it as a basis for such an important nationwide debate. And that debate has indeed been going on. My only concern tonight—I ask your Lordships to be similarly concerned—is that the Government no longer think it worthy of debate, for that is what the words mean.
We are not dealing this evening with disagreements. We are dealing with the charge of discredit. It would have been no surprise to me if my noble friend Lord Beaverbrook had said in reply to the noble Lord, Lord Hatch of Lusby, that he disagreed with the report on some points including its references to Neddy, to consensus and to co-operation. That is a point of view. I do not agree with him; I stand by what was said in the report. But my noble friend would most certainly not have provoked me to start this debate if he had merely said that he disagreed. Instead—I must remind the House of the words—he used these devastating words:
"the Report … has largely been discredited by events since then".
He went on to rub it in when the noble Lord, Lord Ezra gave him a chance to retreat. The House has learned to take my noble friend's words most seriously. Not only do we like him, but we admire his mastery of all kinds of briefs and the admirable way in which he speaks to us on behalf of the Government. I welcome his courage tonight in standing here alone in defending himself and not inviting either the Leader or the noble Lord, Lord Young of Graffham, to answer me directly.
It is possible that if I had been here that afternoon I might have been provoked into teasing my noble friend by asking him to which of the three questions asked by the noble Lord, Lord Hatch—because that is what the matter amounted to—he was directing that devastating answer. He was asked, first, whether he had read the report; secondly, whether he had noted the recommendation referred to; and, thirdly, whether the Government were acting accordingly. His dismissive reply reads to me as a strong negative answer to all three questions, including the first. Of course, I forgive him for that. He has a great deal to do. As a penance for him I have felt bound to read the whole report again, and I imagine he has had to suffer the same burden.
First, let me try to remind the House of the theme and main points of the report and of some of the Government's considered statements in this House in the past two years on the issues. While doing that, I refer to some very welcome improvements during those two years which seem to confirm, not discredit, what we said. I shall summarise some of the relevant events in statistics that have taken place since July 1985 when we finished the report. Our analyses showed that there had been a deterioration in British manufacturing performance as a whole over very many years, indeed over many decades. Of course there are a number of first class manufacturers, and we said so; but there are not enough. That is still true.
Our theme was that the national attitude to trade and manufacturing—I stress the words "trade" and "manufacturing"—needs to change and change radically if we are to avoid a major social and economic crisis in our nation's affairs in the foreseable future. We were not saying tomorrow, or the next year or the year after; we were looking far further ahead. The Goverment agreed with us about long term deterioration. They agreed with us about the importance of a change in national attitude which they said applied to the whole of the non-oil trading sector. I have no quarrel with that. We were not asked to report upon the whole of that sector.
The Government did not agree with our warning of the direness of the consequences of failing to change those attitudes and failing to reverse the long-term trends. That warning was directed, as most of the report was, at the longer term future and not at the next few years. It was not a forecast; it was a challenge. There is no way in which rational minds can discredit in two years that warning.
The warning struck a note of urgency because we were persuaded that it would take many years to reverse the long-term trends of deteriorating manufacturing performance, many years to build up a larger and more modern fully competitive manufacturing base, and many years to pull ourselves up the international league table of GDP per person. At that time, we were seventeenth. The sooner the process started the better, so it seemed to us. And, my Lords, as I shall show, it has started. Certainly, we gave a special importance to manufacturing—we were asked to do that—but we did not undervalue other sectors of the British economy such as the services sector, much of which is interdependent with manufacturing.
As to the importance of manufacturing I need only refer to the debate of 11th March 1987 on a Motion from the Leader of the Opposition. The Leader of the House supported the Motion calling attention to the importance of manufacturing industry to Britain's economic prosperity and added:
"Nor can there be any disagreement over the vital responsibility on the government of the day to pursue policies conducive to the health of manufacturing industry".—[Official Report, 11/3/87; col. 1058.]
So I do not think that we need argue much about that. There are no events in the past two years that could have discredited what we said on the major long-term issue of the importance of manufacturing to Britain's future. Certainly, the debate on the powerful report on civil research and development of the noble Lord, Lord Sherfield, and his committee did not.
I return to 3rd December 1985, the day on which we debated the report. It may have been forgotten that the noble Lord, Lord Young of Graffham, speaking for the Government, used these words:
"I should like the House to be clear at the outset that there is much in the committee's analysis and in their recommendations with which the Government unreservedly agree. But we have serious misgivings about some parts of the report".—[Official Report, 3/12/85, col. 1202.]
Misgivings do not discredit. The noble Lord specifically welcomed the call to change attitudes and stressed the importance of the role of the education system, as we had done in the report. I want to say here that in my opinion the Government themselves

1251
have played a big part by their policies and by their leadership in starting a real change in those attitudes and in coaxing a welcome change in education circles regarding the importance of manufacturing as a career. But they would agree that we have a long way to go. The fruits of these changes will not mature for several years yet.
My noble friend went on to take the next six major points of the report and gave his views on every single one beginning with the word, "Yes". What we said on the need to improve competitiveness he blessed; what we said on the importance of restraining pay settlements he blessed. We said that there must be regard to cost competitiveness. Happily, in recent months, this regard has been had, with the result that unit costs have risen only a small bit. But the point will always be valid.
My noble friend liked what we said about productivity. Happily, productivity has improved sharply in recent quarters, and the average increase in manufacturing productivity of 4 per cent. per annum since 1979 is an important achievement. But, as the report stressed, it is relative productivity with our competitors that matters even more. I want to quote from page 336 of the Bank of England Quarterly Bulletin of August 1987 which makes the same point:
"The rather encouraging picture needs qualification in two ways. First, despite better productivity performance in the UK in recent years than in other industrial countries, UK levels of productivity remain below those of many of our major competitors".
The second point was a warning about unit labour costs rising too fast in the future, when productivity increases which have been considerable—7 per cent. in recent quarters—average 4 per cent. and not higher figures. Both these points are implicit in the so-called discredited report.
Critics have argued that the report was directed solely towards the Government, whereas in fact it keeps on saying, if one reads it, that all people and all sections of society are involved. A large part of its discussions and conclusions refer to what industry, all who work in it, need to have in mind—competitiveness, investment, quality, design, reliability, delivery times, after sales service and marketing generally. All were discussed and illuminated by the evidence given to us by the successful leaders of great companies, and much progress has been made in all of them. Of course, these factors depend upon the people who manage and work in industry. Managers must be allowed to manage; and that is much better now than when we wrote. It is not unconnected with the Government's industrial relations legislation.
It remains true that in the modern world all governments have the role of leadership and help. I say again that the Government are to be praised for their role in starting a change in national attitudes. I do not mind at all if they say that that role had been performed before we reported. It merely proves how right they should think we were in our report. Their benificent action has not been confined to climates and tones. I am pleased that their exchange rate policy now has the same aim as we suggested; namely, stability at an industrially competitive rate. Of course, world events may intervene to upset the rates
1252
from time to time. But it is the aim of policy that matters. Likewise, with interest rates, the aim has been lower rates subject to exchange and anti-inflationary requirements. We stressed that rates of interest higher than our competitors were harmful. There is nothing discreditable about that, my Lords. The CBI is still emphasising the point even now.
Let us look for a moment at the very important measures in training taken by my noble friend Lord Young of Graffham. Certainly, industry itself ought to have done more in the past. There were some praiseworthy exceptions but not enough. What my noble friend has done is very much in keeping with the challenge from overseas and with what we had in mind. May the whole of industry follow up!
I know I have taken some time but I said that I would have to range widely. I come now to the statistical matters reflecting events since 1985. I have already said that manufacturing industry has done well. It has increased its output, its productivity and its general competitiveness. Exports have risen in a splendid way and the loss of share of world trade has been halted. I shall give a few figures. I have already given output per head. Output itself is 5 per cent. higher than in 1986 and probably more; but in 1986 it was only I per cent. higher than in 1985. Output is now higher than in 1979 but it is still below the level of 1973, whereas other countries' output is well above their 1973 performance.
There is one very important theme to our report. Manufacturing output in 1986–87 rose faster than did gross domestic product, as achieved by our richer competitor countries over the years. This is the first time for many years that it has happened. As to exports, in volume, the third quarter of 1987 showed an increase above the 1985 average of 12½ per cent., but the ratio of exports of manufactured goods to manufactured sales plus imports has fallen in that time; so we want to be careful that we do not get too complacent.
We must not forget imports. The report did not; some people do. Imports in volume in the third quarter of 1987 were 23 per cent.—not 12½ per cent.—above the 1985 average. This leads to the balance of trade in manufactured goods, which is what this House asked us to look into when they set us up in 1984. In 1985 there was a deficit of £3 billion; in 1986 it was just under £5½ billion; in the first three quarters of 1987 it was £4.8 billion; and the Financial Statement and Budget report forecasts a deficit for the year of £8 billion. I do not think it will be as much as that.
Import penetration has generally worsened since 1985 for most parts of manufacturing. The exceptions are chemicals, other transport equipment, and one or two smaller activities, but in the main it has worsened. Which of those events largely descredits the report? None, I submit.
Now it is said, "But look at the great strength of our total economy"—which I do—"and the quite sustainable position on the current account"—which I do too. I have all the confidence that the Chancellor has in the strength of our economy at the immediate time. Some will be heard to say, "You despondent members of the Select Committee forecast great doom by now". We did not, my Lords; never did we do that.
I have to repeat something here which my noble friend the former Under-Secretary of State for Trade—and he is a friend as well as my noble friend—in this House refused to hear on a famous occasion. We were not despondent. We issued a challenge. We had a faith in the British people once they understood the real position, and that is what we tried to show. Many of us had faith in Her Majesty's Government too. To be despondent is to be without faith.
We made no forecasts ourselves. We referred to the oil situation, but we did not base our report on the difficulties of oil, and we specifically said that if, for example, the price of oil fell sharply predictions would alter. But our report did not depend on estimates of what would happen in the short-term future. We were concerned with long-term trends and the need to reverse them for long-term reasons.
The oil balance has fallen by £4 billion. That gap has been partly filled by the wonderful performance of invisibles—a sign of the great success and value of our financial services and of the product of overseas investment. But the gap has not been wholly filled. So why, oh why, are the theme and conclusions of our report suddenly thought to be largely discredited? I wait to hear, and to hear which of the important conclusions that the Government told us they had unreservedly accepted they now largely regret having accepted.
6.14 p.m.
Lord Hatch of Lusby: My Lords, as the noble Lord, Lord Aldington, has reminded us, it was the Minister, the noble Lord, Lord Beaverbrook, who told me a few days ago, on 21st October, that our report was largely discredited. When the noble Lord, Lord Ezra, gave him an opportunity of withdrawing that charge he went on to say that it had been overtaken by events.
I sympathise with the Minister. He was not a Minister when the report was published, and no doubt he was largely ignorant both of its contents and of its reception. I believe that tonight he should not have been left to answer this charge, because he was speaking for the Government when he made those charges against a committee of this House and we should be entitled tonight to have a senior Minister answering this charge on behalf of the Government. Indeed, I should have expected, when those two comments were made and the Leader of the House was sitting next to the noble Lord, that he would have got up then and withdrawn the Government's charge that the committee's report was either discredited or overtaken by events.
I have no doubt that the Minister has read the reports of the CBI conference last week. No doubt he will have read the comments of the director general, John Banham, who called for a rebuilding of the industrial base of this country; who called for greater investment in plant and equipment, in innovation and technology, and above all in people. He went on to propose that there should be greater partnership between business and the public sector, particularly in education, in training, and in the inner cities. This is entirely in accord with what your committee reported to this House, and those parts were certainly
1254
sympathetically received by the Government if not totally approved.
Today we are told by the Chancellor of the Exchequer that we have a strong, booming economy. If it is so strong, then how is it that the indicators show that we are about to face a reduction in growth next year? It would appear to me, despite what the noble Lord, Lord Aldington, has said—and here I disagree with him—that the Government have been only half-hearted, if that, in putting our recommendations into practice.
When we examined the Chancellor as a committee he made it plain that he was the high priest of cutting public expenditure. Last week he appears to have been hoping to be recognised as the angel of greater spending. When he boasts both ways of keeping spending under control and of increasing spending, if those increases are looked at and put beside the increase in prices and the inflation that he himself forecast for next year, they become very small beer indeed.
Even when he was meeting us at the time that he was so opposed to any increase in public expenditure, public expenditure had increased under this Government. It had increased by 11 per cent. since 1979 in real terms. But on what has it been increased? So far as I can see, one of the pariahs of government expenditure has been in the encouragement of British industry and the restoration of our manufacturing base.
We are told that growth will be between 3 per cent. and 4 per cent. this year, but we are then told that it is going to fall to 2½ per cent. next year and that inflation is going to increase. Is that the sign of a strong economy? On the other side, if one follows the Chancellor and argues both ways, if we have a strong economy why is that not being used for the purposes of restoring our manufacturing industry, and particularly for cutting the growing deficit in our manufacturers?
Other countries do it, and our committee, as your Lordships know, went to look at other countries to try to learn some lessons. We found that since 1966 West Germany's share of world manufacturing exports has increased to 20 per cent., allowing the West Germans to spend over 40 per cent. more on health care than Britain does; allowing West Germany to provide an average pension of 41 per cent. of the average weekly wage, whereas in this country the figure is only 23 per cent. How is it that the Germans can do it and we are not doing it? I believe that the report is still relevant in the answer to that question. We have seen the trade deficit increasing year by year since 1983, and we pointed out in our report the grave dangers of that. We are now told that this year that deficit will be £7.5 billion. Next year it will be £9 billion.
If the manufacturing base of our exports is going to decline as it is declining, what is going to take its place? The noble Lord, Lord Aldington, half suggested that the service industries might do it, but not exports. This country's wealth and economic strength has been built up on manufacturing exports, and certainly our export industry is not going to be helped by the increases of 15 per cent. in electricity

1255
charges over the next two years. Nor should we neglect the fact, as again was referred to in our report, that it is not just a deficit in manufacturing exports that is undermining the economy of this country. According to the Chancellor, the balance of payments deficit is due to increase by 40 per cent. next year to £3.5 billion, despite the fact that we still have the windfalls of North Sea oil every year.
When the noble Lord, Lord Aldington, talked about increased productivity he quite rightly compared it with that of other countries. My Lords, do you realise that since 1979 output per head in this country has increased in the non-oil industries by no more than 1¾ per cent? Nor can we expect that industry in this country is going to regain its strength when the Government—and this is totally against all the recommendations of the Select Committee report, carefully worked out—are decimating the use of the National Economic Development Councils.
We have pointed out in the report that in Germany, in France and in Japan the combination, the co-operation between the trade unions, the management and the Government is the bedrock on which manufacturing industry has been based. When this Government start to undermine the use of the NEDDYs of this country they are undermining the chance of that national consensus on the importance of manufacturing industry which we found in our major industrial competitors.
I must say one last word about the subject that I dealt with almost exclusively in the debate that we had when the committee's report was published, because this has been my special interest through the committee and in its report; that is, the relationship between this country and the potential in the third world; between this country as an aid donor and this country as a potential beneficiary of that great untapped market.
I received only today from the major British exporters a letter from which I should like to quote one paragraph. It reads as follows:
"We are concerned that the Government is still not giving sufficient lead in the promotion of a much more enterprising attitude in relation to overseas trade. It is most important that Government and Whitehall representatives in the UK and overseas promote the UK in competition with other Governments. This change should include a much more robust attitude to the use of UK's overseas aid budget for the benefit of the UK as well as the recipient countries".
This was the theme of the speech I made in the debate on the report. I believe it still stands, and I believe that if you read the evidence that was given to our committee you will see that one industrialist after another said that when the Government cut overseas aid they are making it more difficult for manufacturers to get markets overseas, and therefore they are reducing British employment. I have given this example many times. We have seen this in the British Leyland example in Bathurst. We have seen it many times since, but the Government are still cutting overseas aid.
I should like to ask the Minister one question of which I have given him notice. Is it the case that in last week's Autumn Statement the Chancellor announced that only £90 million was to be added to our present overseas aid budget? If that is correct,
1256
what percentage increase does it represent? And if it is correct, when that £90 million is added to our present overseas budget where will that leave the United Kingdom in face of the United Nations target of 0.7 per cent. of GDP to be given in overseas aid each year? This is not simply a question of charity; it is intimately and directly connected to the whole burden of our report. It is intimately and directly connected to the restoration of manufacturing industry in this country. It is directly connected to our future as an exporting nation, and it is directly connected to employment in this country.
6.28 p.m.
Lord Ezra: My Lords, I am very pleased to be standing here tonight in support of the Question asked by the noble Lord, Lord Aldington. Together with other Members of the Select Committee, I spent many months in very fruitful and useful discussion on the issue which was put to us by your Lordships' House.
I should like to say, before proceeding to the substance of the Question, that I believe we are here faced with an issue of principle. Your Lordships have recently been debating the procedures of this House. We have generally agreed that, on the whole the procedures work fairly well; but one thing is of great importance when we consider our affairs, and that is that we have gained in the public mind an increasing reputation for free objective and frank discussion of the major issues facing the country.
I believe that the report which we are here discussing was an illustration of that. After all, the Members of the Committee were representative of all the parties in your Lordships' House. We came out with a very clear analysis, having heard the leading personalities in the country concerned with these matters, in Government; in industry; in trade and in the trade unions.
We came to our conclusions; and as the noble Lord, Lord Aldington, said, many of our recommendations were accepted specifically by the noble Lord, Lord Young, when he spoke in the debate on the report. Some of the emphasis in our report was not accepted, but I feel that that in no way justifies the views recently expressed in answer to a supplementary question in this House. I very much hope that the noble Lord, Lord Beaverbrook, for whom I have a great regard, will explain to us precisely what he had in mind, and no doubt he will do so. I also hope that he will confirm that it remains the Government's policy to enable this House fully and freely to confront all the major issues that may arise and that any reports which may be prepared by future select committees will be dealt with in debate as objectively as possible by the Government Benches as well as by all other Benches.
Turning to the substance of the report, if the Select Committee had been set up today to look at the issue, let me ask whether it would have reported differently. I think that is a fair test because in fact the noble Lord, Lord Beaverbrook, said that events had changed. Of course much has happened since the Select Committee reported; and I am sure that my colleagues on the Select Committee would agree that there would have been a different emphasis. For

1257
example, we noted at the time of our report that the productivity of British industry was lagging, whereas now we would note that it has shown considerable improvement. That is a positive statement that would go into a report written today. However, what we should still have drawn attention to—and our inquiry would still have been entirely relevant to it—is our balance of trade in manufactures. It is almost precisely four years to the day since I put an Unstarred Question on this subject in this House. The date was 10th November 1983, which was the year in which we started showing a deficit in our manufactured trade for the first time for very many years.
It was as a result of the ensuing discussion that the Select Committee was set up. Regrettably it is still a fact today that we have a problem in that connection. In the Autumn Statement, and in his subsequent speeches, the Chancellor of the Exchequer freely admitted that with the decline in oil revenues we shall be running into a balance of payments deficit of something of the order of £2·5 billion this year. He admitted that it could be £3·5 billion next year, and he has not estimated what the position might be thereafter.
That is the essential problem that the committee was tackling and it made recommendations on how to overcome it. I am glad to say that many of the recommendations were not only accepted but acted upon, as the noble Lord, Lord Aldington, pointed out. The fact remains that we as a country are still faced with that problem. As the oil revenues decline, and in spite of substantial earnings from invisibles, there is likely to be a progressive increase of the deficiency in our balance of payments. Therefore, it is not unreasonable to be concerned about that issue. It is the specific issue which the Select Committee was set up to consider.
In the Government's reply to the report we were told that the committee should have concerned itself more widely with the economy. That is not what the committee was set up to do. It referred more widely to the economy but specified in particular what it considered ought to be done about manufacturing industry.
I conclude that had the committee been set up today, while it should of course have paid tribute to the progress made in the productivity of the manufacturing industry in the interval, it should still have drawn attention to the underlying problem of the balance of trade and still have made what I consider to be the same thoroughly constructive proposals on how that problem should be resolved. I think that that is all the more relevant in the present context.
The British economy is doing relatively well compared with others but Britain cannot isolate itself from the rest of the world. After all, one third of our GDP involves overseas trade; and the rest of the world is in serious difficulty, as we well know. This has had an immediately unsettling impact on financial markets, and there is a risk, which is being considered in the press, in television and radio, of that unease in financial markets spreading to industrial markets. That must be avoided and we must hope that it will be. However, we have to make
1258
absolutely sure that should that event take place in world terms, it is minimised so far as we are concerned.
Therefore many of the recommendations in our report are extremely relevant to the situation today. For example, there is the need to reduce interest rates, which in some measure the Chancellor of the Exchequer has already undertaken, and the need to establish a competitive currency on a stable basis, which was also a recommendation of our report. There is the need to make absolutely sure that we undertake the necessary investment not only in manufacturing industry itself but in the supporting infrastructure. That is being done progressively. Those are all measures that we recommended and they are all as relevant today as they were at the time that the report was written.
Therefore I conclude by saying that I am indeed disturbed, as must be the other members of the Select Committee, that this very constructive report which as the noble Lord, Lord Aldington, rightly said, concerns itself with the long term and makes very positive recommendations—many of which the Government supported at the time and have since implemented—should now be regarded as outdated. Indeed even stronger words were used about it.
I very much hope that as a result of this debate and in due course the reply from the noble Lord, Lord Beaverbrook, we shall have confirmation of what the noble Lord, Lord Young, said in receiving the report, and that many of the measures that the committee recommended should be taken have in fact been implemented and will continue to be undertaken in order to ensure that our manufacturing industry returns to the position that it held in the past so that it makes good the gap that will surely otherwise open up in our balance of payments.
6.38 p.m.
Lord Greenhill of Harrow: My Lords, I share the dissatisfaction of the noble Lord, Lord Aldington, with the remarks of the noble Lord, Lord Beaverbrook, and I look forward to his elaboration of them. I am confident that the noble Lord will be able to look after himself; I do not concur with the suggestion of the noble Lord, Lord Hatch, that he needs the protection of a senior colleague.
Since the report was published the Government have been justly able to claim credit for the improved situation in industry and overseas trade. That improvement is undoubted in the short-term but likely to be insufficient in the long-term. However, important long-term anxieties were voiced in the report and I should be most interested to learn how the Government now view them.
Among the long-term anxieties were the unsatisfactory public attitudes to trade and industry, educational short-comings, the impossibility of service industries wholly filling the gap left by manufacturing decline and doubts about the automatic growth of new and unforeseen industry, and particularly the possibility of balance-of-payment problems towards the end of this century. Can these anxieties now be ignored?

1259
So far as the change in public attitudes to industry is concerned, a determined effort has been made by many, and I have little doubt that some headway has been made and is being made.
However, the events of the past few weeks, when the vision of the City streets paved with gold has blurred, will perhaps do more than anything to raise doubts in young people's minds about the choice of their careers, and these doubts may well be helpful to industry in need of talent. This country's educational shortcomings are undeniable at all levels. The Government, and many of the educational institutions themselves, have shown a welcome determination to tackle these problems over a wide area. However, any beneficial effect cannot be but long-deferred and our relative disadvantage must persist for some time.
During recent years the service industries have achieved much both in terms of earnings and in numbers of employees, but they can never fully substitute for the loss of manufacturing capacity. That was the view that the Government seemed to share at the time the report was published.
The events of recent weeks have reinforced the view of the committee for there is surely at least a prospect of reduced earnings in the longer term for invisible exports, and the income from our vast overseas investments seems more likely to fall than to increase. In their evidence to the committee, Government witnesses made much of their assertion that new sunrise industries would automatically and inevitably arise. The committee was sceptical about the extent of this automaticity. Do Ministers believe that this sceptism has been in any way discredited?
However, the most serious anxiety of the committee was the possibility in the long-term of severe balance of payment difficulties, if not a crisis. It is true that the decline in domestic oil production is more gradual than was once anticipated. There is the possibility of a significant rise of the future oil price; this has been frequently forecast. Can our visible and invisible exports possibly increase to an extent which would preclude such a balance of payments crisis? It is perhaps too much to ask Ministers to forecast the long-term future. However, I hope that in their calculations they do not dismiss or discredit the warnings which the Select Committee recorded.
6.45 p.m.
Lord Hanson: My Lords, once more the House is indebted to my noble friend Lord Aldington for raising this matter representing, as he does, such a formidable body of committee members experienced not only in manufacturing but in financial services, energy, and international trade.
Manufacturing, as I said in the original debate on 3rd December 1985, is the subject of particular importance to the nation, to us all, and to me in particular. I think that the central theme of my noble friend, Lord Aldington's speech at that time was that there was a need, as he said tonight, to change attitudes, and while I did not agree then with some of the points made by my noble friend I think that as the
1260
noble Lord, Lord Ezra, said that is somewhat a question of emphasis. There is much in the report, as everybody agreed at the time, that was extremely valuable to note; but it was my own view, and it is my own view today, that there was a little too much argument about the primacy of need of manufacturing over service industry: that our oil reserves are peaking so we must busy ourselves to stimulate the manufacaturing sector. That was, I believe, where we began to differ on this matter: this question of stimulation. My own view is that events have proved over the past two years that while the basis of the Committee's report was very accurate, and pointed out most of the things that obtain today, the course was already set for a good deal of improvement in manufacturing, and this of course has been proved. My noble friend Lord Aldington, has answered his own questions very well tonight by reciting all the good things that have happened and therefore it is not up to me to go over those again.
The noble Lord, Lord Hatch, took us on a slightly different path which I do not attempt to address; but, nevertheless, all the things that have happened have addressed the basic problems that face manufacturing in this country today. That is to say, the question of self-help. We are now the second-creditor nation in the world. The United Kingdom economy has grown faster than all the major countries since 1980, and with it the productivity growth in Britain's manufacturing industry has been among the highest in the major industrial countries. The inflation rates have been held down, a factor of the utmost importance to all of us in industry; indeed, the most important factor. Progress has continued in dealing with the loss-making nationalised industries and restoring them to their proper place in the profitable private manufacturing sector.
At the time of the debate I said that one of the principal problems of manufacturing has been that we have priced ourselves out of competition, and when we price ourselves back into competition our industry will grow, and I believe that has happened. It may well have happened as a result of the report; it may well have happened that there has been stimulation to manufacturers reading the words of the noble Lord's report. However, I took the view—and this is a question of emphasis—that it has been, largely with this whole problem, one of going out and getting the job done oneself. It is not a question that any goodwill will come from proposals for more government tinkering with this and that; interfering with that or, throwing money at the other. That was what I said at the time, and I still believe it now very strongly.
I feel that the point about education made by both the noble Lords, Lord Aldington and Lord Underhill, is still of primary importance. I said this at the time; and I think this is something which came out of the report very truly: education has a crucial role in this matter of change because there are so many examples of change taking place already.
These are encouraging signs from the Government that will encourage us in industry to see more young people coming into industry. We shall hear it talked about. It is no longer the dirty word that it has been in the past, to a degree, among certain governments.

1261
Now the encouragement is there. Therefore, my Lords, I welcome the formation of the city technology colleges and their concentration on educating our boys and girls to play their part, as the noble Lord, Lord Underhill, said, in an economy to which it is increasingly recognised they must be attracted. It must be made known to them that wealth must be created before it can be distributed.
We in industry look forward very much in due course to the influx from among the children of today coming to join us tomorrow; and in particular those graduates from city technology colleges. Therefore I am happy to give my own view that some aspects of the report have been overtaken by events. The positive attitude of this Government, as my noble friend Lord Aldington said, is having its effect on all parts of the economy; in particular, manufacturing. There is evidently no need for the stimulation which excited my attention in the original report as being unnecessary. I believe that industry itself will continue to create the success that it is creating at the moment.
Lord Greenhill of Harrow: My Lords, I am flattered to be mistaken for the noble Lord, Lord Underhill. I hope that that is correctly reported in the record.
Lord Hanson: I apologise to the noble Lord.
6.50 p.m.
Lord Barnett: My Lords, I am delighted to follow the noble Lord, Lord Hanson, in his attempt to support the Government. I am always interested to hear his support for the Government, but I should just have thought that occasionally he might be slightly more discriminating in that support. Tonight, even with his support, he was not able to agree with his noble friend the Minister in the words that the report was discredited. I noted that he could not quite bring himself to say that.
I do not wish to take up too much of the time of your Lordships' House, but, like others, I have said that the noble Lord, Lord Beaverbrook, is a very nice man. I like him very much indeed. Indeed I thought the debate would not take place today, because I half thought that he would make a grovelling apology to the noble Lord, Lord Aldington, and then we would not have had a debate, instead of which I assume that he is now going to defend what he said. At least I must assume that, or maybe he is now going to make a grovelling apology.
However, I listened with great interest to the noble Lord, Lord Aldington, who tried his best, while strongly defending the committee and, rightly, saying a few words in support of the Government. I understand that, as we all do in your Lordships' House, and he was quite right. The economy is stronger today than it was when the report came out. But, as he rightly said, the report was not dealing with the short-term strengths or lack of strengths of the economic situation. That is why I simply cannot understand how it can be said to be largely discredited. I take it as read that, provided there is no disagreement about the facts, the facts are not discredited. They are facts on the record. The noble
1262
Lord, Lord Aldington, quoted quite a number of them and they are not to be either agreed with or disagreed with. They are facts.
Indeed the noble Viscount the Leader of the House, in setting up the committee, as the noble Lord, Lord Ezra, said, gave it the following terms of reference, which are quoted on page 86 of the report:
"That a Select Committee be appointed to consider the causes and implications of the deficit in the United Kingdom's balance of trade in manufactures; and to make recommendations".
As has been said, the committee was not being asked to look into the strengths and the weaknesses of the immediate economic situation. The report mentions one or two things that are now wrong, and in paragraph 231.2 one reads that they:
"led to such a severe fall in the output of manufacturing that output has yet to recover its 1979 level".
I am delighted that output has now recovered to that level, but I am bound to say that, as a member of that administration, the level in 1979 was not particularly high. It was not something with which I was delighted. It was quite a low level.
Indeed, the noble Lord, Lord Aldington, and other members of the committee have made clear exactly what the Prime Minister has always said, that it is as much the responsibility and fault of past governments, both Labour and Conservative. She does not quite put it in that way, but she hints at it. She has constantly blamed those past governments for precisely the kind of problems that the report brings out. I am delighted to see the noble Lord nodding. If I had not said that, it would not have been known that he had been nodding.
However, the central point, as the noble Lord, Lord Greenhill, said, was the question of the deficit on manufacturing trade. We have had some facts from the noble Lord, Lord Aldington, and I shall not repeat them, but the fact is that there is a huge deficit on manufacturing trade. That is a fact which cannot be discredited. It happens to be regrettable, but it cannot be discredited, neither largely nor "smally"—if that is the right word. It is not in any way discredited.
Can anybody doubt that if we did not have North Sea oil—which is a central part of what the committee was saying—either today or in some years' time, and there was a deficit on the current account of the balance of payments of something like £12 billion to £15 billion, that would not be a serious matter which would affect the decisions we needed to make on economic matters? So can anybody really say, and can the Minister really say, that this report is largely discredited when you take the central point on page 83, which reads:
"Taken together, these"
and this is giving various reasons for the deficit—
"constitute a grave threat to the standard of living and to the economic and political stability of the nation.".
Surely nobody can dispute that. Of course we shall have to take different economic decisions long before we reach that position, but can anyone imagine that it is not serious, that it is not grave? If one accepts that, how can one really say that this report is—and I quote the Minister's words—"largely discredited"?

1263
I hope that in the event when he winds up the debate the Minister who, as I have said is a very nice man, will say that he apologies to the noble Lord, Lord Aldington, who on general matters wholly supports the Government on almost everything else. Therefore, while the report is not discredited, it is basically putting before your Lordships major problems which face this nation, and I hope the Minister accepts that serious steps will need to be taken to deal with them.
6.57 p.m.
The Viscount of Falkland: My Lords, I shall not detain your Lordships long, as I am following in this Unstarred Question some masterly and robust speeches, particularly the speeches of the noble Lord, Lord Aldington, and of my noble friend Lord Ezra. I do not believe for a moment that the noble Lord, Lord Beaverbrook, actually meant what he said when he chose the word "discredited", because it is quite plain, and it has been demonstrated here, that the report of the Select Committee of your Lordships' House and the findings of that committee have not been discredited. The fundamentals are exactly the same as they were when we reported to your Lordships' House in 1985.
As my noble friend Lord Ezra has said, in the short term since 1985 quite naturally there have been very important and very encouraging changes, as many noble Lords have said. There has been an encouraging change of attitude in the country towards wealth production and the importance of wealth creation to the future standard of living of our people. There has been an important increased income into the coffers of the Exchequer, although one must say that one cannot expect that kind of income to continue indefinitely. The bedrock of our prosperity in this country in recent years has been manufacturing. The manufacturing base of this country has been reduced. The manufacturing base which remains is more efficient. All this is encouraging.
However, what worries me is the fact that after a Select Committee of your Lordships' House met over 10 months and was, apart from myself, I modestly say, composed of a dozen or so highly distinguished members, people who have held high office in public and private life in this country, and who made that effort and that gesture to public life, the Government should now feel, if they do feel—I do not really believe it and I hope that the noble Lord, Lord Beaverbrook, will prove me right—that those findings, which were agreed at the time by the Government, have been discredited.
There was when the report was first published what certain sections of the press called a "knee jerk" reaction to it. Why there should have been a knee jerk reaction was not clear except that there were certain differences of opinion on matters of emphasis in that report. That came out when we discussed it. There are still differences on matters of emphasis in that report such as the relative importance of services to manufacturing, and so on.
However, what worries me more is the fact that after this period of time a Select Committee of your
1264
Lordships' House should be felt to be an irritation to Her Majesty's Government The other day I read a copy of Hansard concerning the report of the group which was set up to examine the working of the House. One noble Lord said that it was a fact of life that Select Committees of this House (and presumably of the other place as well) are always a matter of irritation and annoyance to civil servants and the Government. I am not too bothered about that because I speak to a number of schools about the workings of our House. I expect that many noble Lords receive such invitations. Something that I always stress to the schoolchildren, and something in which they are always particularly interested, is the workings of Select Committees.
As the noble Lord, Lord Ezra, said, the standing of your Lordships' House in the country today is very high. I know that it is also very high in the eyes of young people because I speak to sixth formers. One thing on which they all agree is that there is no forum in our land which is better placed or better qualified to examine subjects of national interest in depth and take a long-term view than the Select Committees of your Lordships' House. That is precisely what this Select Committee did. It reported to your Lordships' House. Unlike many Select Committees' reports, this committee's report was given prime time in your Lordships' House. It received a good deal of publicity and for several weeks it was the subject of press comment.
I suggest that what has needled the Government is of course the fact that certain people have used the report time and time again to bang the Government over the head. That is irritating and I myself would feel irritated by it. Therefore I am hoping that the noble Lord, Lord Beaverbrook, will in some way prove me right and concede what needs to be conceded—as the country knows what the situation is—that forums such as your Lordships' House are an extremely valuable contribution to thinking in this country. However, I do not expect the noble Lord, Lord Beaverbrook, to admit that the Government are needled at being banged over the head.
The financial aspects of this country are very short-term. Many aspects of this country are very short-term. We need people who consider things in depth and who take at least a 10 to 15 year view. That is precisely what we did, as the noble Lord, Lord Aldington, said. We had the time to do that. The Select Committee took up the time of people who were extremely busy and that of people who gave up their time for no remuneration. That is always the case with Select Committees of your Lordships' House. A great deal of public service goes on here and that is not something which is given great credit in the country today. But I believe that the country as a whole and those who increasingly watch television and see the proceedings of your Lordships' House, and who understand the kind of activity that goes on behind the scenes in Select Committees, place great value upon them.
At first I took the remarks of the noble Lord, Lord Beaverbrook—which I thought were liverish to say the least—as slightly unmannerly. I think that that view would be shared by those who were in the Chamber at the time. I was not in the Chamber but

1265
I read the noble Lord's remarks in Hansard with astonishment. Anyone who saw the debate on television would have been surprised. I am sure that as the noble Lord, Lord Beaverbrook, is charming and able he will have the grace to say to us that he acted or spoke impetuously. In my book he certainly chose the wrong word. I have been through Roget's Thesaurus and the Oxford Dictionary and I can find absolutely no justification for the word "discredited". I hope that the noble Lord will at least find another word with which he can correct the impression that he gave on that day. The country does not expect that kind of criticism of what is an extraordinarily effective forum for examining matters of national importance. Select Committees are also one of the few forums for examining such matters.
This debate has been a remarkable one for an Unstarred Question at this time of the day. If I may comfort the noble Lord, Lord Beaverbrook, my impression is that this debate will have done nothing but good so his remarks may well have been of benefit to us all.
7.5 p.m.
Lord Lucas of Chilworth: My Lords, I would not deny the importance of your Lordships' Select Committee's report, published as it was in mid-1985. However, it addressed questions which were largely apparent in 1984. I cannot see in any way that the Government have cast a slur on either that committee or the report, or indeed the members of the committee. Indeed, I find the putting down of this Unstarred Question by the noble Lord, Lord Aldington, as being a little oversensitive. The noble Lord referred to our debate on 11th March this year. His actions were not recorded in Hansard on that evening although his words were, and I found his words also to have been somewhat oversensitive. But perhaps that represented the degree of importance that he felt about this matter.
It is not for me to answer in any way for my noble friend or for the Government. They can do that perfectly well for themselves. However, on that afternoon of 21st October when I was in your Lordships' House and heard the exchange I felt that my noble friend had used the word in the context of the NEDCs. Perhaps rather more broadly and generously we might have thought that my noble friend was indicating to your Lordships that the Government were shifting the emphasis of what they were doing in response not only to the report of your Lordships' Select Committee but to what they have always wanted to do.
In paragraph 7 of Chapter 1 of the report the committee considers the need for a change of attitude to manufacturing industry. That is repeated in paragraphs 126 and 232. In paragraph 232 the Select Committee states that it hopes the Government will support such initiatives as Industry Year. Industry Year 1986 was the child of the Royal Society of Arts. It was fostered by the Government, by industry and by education. It is true to say that there has been a significant shift in attitude. That change is continuing and will, I believe, continue as a result of the relationships that have been formed between educational establishments and industry.
1266
The noble Lord, Lord Hatch of Lusby, tried to establish a difference between manufacturing industry and the service industry. I do not believe that those two industries can be separated, because very much of what went on in a manufacturing industry and was considered by the standard definition and classifications as manufacturing has now moved out of manufacturing and gone into what we popularly call the service industry. Many of the separations are quite arbitrary and do not reflect truly what manufacturing industry is about.
As other noble Lords have suggested, manufacturing industry with its service sector is enjoying a historically high annual growth rate. That reverses the trends of the late 1970s and the early 1980s. It is to those trends that I think the Select Committee report was particularly directed. It is a fact that the manufacturing sector contribution to total exports by the old classfication of both visible and invisible is at present double that of the more popularly called service sector.
As my noble friend Lord Hanson has said, a number of changes have occurred in recent times. Output, productivity and profitability are all on an ascending curve. That has led us to have a far greater competitive edge in the world market which has in turn become increasingly more competitive. While profits are relatively high, we can now see adjustments by industry. A number of people might call that fine tuning. It is fine tuning in terms of the relationship between industry and education, the skills requirement, investment and research and development.
Most of those things are directly the responsibility of industry. I believe that that is accepted by industry. They are conditional upon the Government's domestic policy. I have believed for many years that those policies are, broadly speaking, right within this context. For example, the Ford Motor Company has announced a £1.9 billion investment programme. It has announced the building of a new plant in Dundee which will employ some 450 people. For an American-parented company—although I believe that the Ford Motor Company is as English as almost any other English company— to announce that kind of investment demonstrates confidence in the economy and in the way that the Government are managing the economy. Therefore, I believe that those things have changed.
The other condition which industry must take cognisance of is the world situation. Much emphasis has been placed on that in recent days. As regards the Government's resolve that we should remain an open trading society, non-protectionist and seek to reduce protectionism wherever it may occur, I attended, on behalf of the Government, a GATT meeting in New Zealand in February. At that meeting there was an absolute resolve that protectionist policies should be removed wherever possible and a fair trading policy adopted, certainly throughout the Community and among the members of GATT.
Perhaps I may also comment on the Government's support not only through BOTB but notably through the overseas posts, which is not always seen or recognised. In the short time I was with the

1267
Department of Trade and Industry, I visited some 30 overseas posts. I think I saw many of the commercial officers working in them. They have become increasingly more sophisticated and more aware of the needs of industry at home. I believe that they are doing a very good job and that they should have all the support that industry and indeed your Lordships can give them.
Finally, I believe that the Government show a commitment to the Select Committee' report in general terms. The parts where they perhaps disagree are set out quite clearly in the Command Paper published in December. I believe that the Government should, as is already happening and as is necessary, shift some of their emphasis from that which we perceived to be absolutely paramount in 1984 and 1985 at the time of the publication of the report. It is for British industry to show an equal commitment to change and to the world's market places. Then we shall see, as we are beginning to see, a change in the curve to which the noble Lord, Lord Barnett, referred.
7.15 p.m.
Lord Kearton: My Lords, coming ninth in the list of speakers I find that most of the things I might have said have already been said more powerfully and more effectively. However, there are one or two considerations which it may be worth while to draw to the attention of your Lordships.
One matter is that in 1984 and 1985, when the relative decline of manufacturing industry in this country was causing great concern in many quarters, a number of government speakers made statements which indicated that they regarded the decline of manufacturing industry with equanimity and even complacency. I think the report refers to certain speeches which more or less said just that.
By the time the report was published, the attitude of the Government had changed and they had become much more aware of the fact that it was not a good thing for manufacturing industry to continue to decline. Like the noble Lord, Lord Aldington, I feel that the Government deserve enormous credit for the changes they have effected in national attitudes and priorities. One of the outcomes has been that manufacturing industry is truly in a much better state today than for some years past. It looks as though the decline has been halted.
But is that enough? I suggest it is not, as my noble friend Lord Greenhill has pointed out. The deficit in manufactured trade has continued to increase. Our exports have risen, but so have our imports. The right honourable gentleman the Chancellor of the Exchequer is suggesting that the decline will continue into 1988.
One of the recommendations of the committee was that much new investment in industry was going to make existing industry much more efficient. That has been achieved. However, the report also went on to say that the committee was worried that there was not sufficient investment in new industry and products. That worry still exists. In fact, at the recent CBI conference it was one of the points made by several speakers and by the director general. Industry
1268
needs to invest more, and to invest more in new products.
Another matter which was touched on by the noble Lord, Lord Barnett, was the cushion of oil. In the debate two years ago I gave some figures concerning oil reserves and production. In his answer, the noble Lord, Lord Young, said:
"I hope that the noble Lord will accept that somehow as time goes by the reserves seem to be more and more".—[Official Report, 3/12/85; col. 1290.]
That optimism has not been borne out by Department of Energy statistics. For instance, 12 years ago at the end of 1975 the total proven and probable initial oil reserves were 2,210 million tonnes. But at the end of 1986, according to the Department of Energy, the initial proven and probable reserves were 2,280 million tonnes. In other words, there was practically no change over a period of 11 to 12 years in spite of over a thousand experimental and appraisal wells.
In an Answer in the other place only a week or two ago the Minister mentioned that to date cumulative production was 952 million tonnes. He also mentioned that the rate of production had now begun to fall. From 1984 to 1986 the rate of oil production had been steady at about 122 million tonnes per year. So far in 1987 production is down by about 5 per cent. One can therefore hazard a guess that by the end of the year production will be perhaps 116 million tonnes. The significance of this figure is that it is at the lower end of the Brown Book estimates from the Department of Energy.
In his Autumn Statement the Chancellor acknowledged that oil production would decline. He said that he hoped that in 1988 production will be midway between the upper and lower of the Brown Book estimates. That would represent an improvement over the 1987 performance and one can only hope that he is right.
In the debate two years ago I drew attention to the fact that we might no longer have an exportable oil surplus in the early 1990s. The Brown Book published this year gives oil production in the year 1991 as lying within the range of 70 to 105 million tonnes. The lower end would just about satisfy home demand and leave no surplus. One hopes that oil production will stay high for rather longer, but it would not be prudent for the Government to depend on it in their forward planning. That was the point made two years ago, and I think it is valid to make the same point today.
Another point on the trade figures which I do not think has been mentioned is that in the last two years they have been considerably helped by devaluation of the pound. If we have a situation now where the pound increases in value relative to other currencies, as it is doing at the moment, if we do not increase our investment in new industry, and if oil production does not do better, then a main conclusion of the report of two years ago, that in a period in the early 1990s we may be facing serious problems, still seems to me to be a very valid conclusion.
I can say no more than state how much I enjoyed and agreed with the noble Lord, Lord Aldington's, robust defence of the original report.
7.23 p.m.
Baroness Seear: My Lords, there can be very few people in your Lordships' House who have not at some time or other made a rather rash and foolish remark off the cuff which they wish subsequently that they had not stated. If the noble Lord, Lord Beaverbrook, says that on 21st October he had a headache or even a hangover, I for my part certainly would not hold it against him and would be very relieved to hear that that was in fact the case, because, with great respect to him, that would not matter very much. What would matter would be if he was, as he is always supposed to be—and it must be very boring always to have to do it—speaking strictly for the Government and expressing only the serious and considered view of the Government. If he can get himself out of it by saying he was not doing that, he may not endear himself to the Government but I think it would endear him to your Lordships' House.
I was not on the committee and I am not included among the august people who made up that committee, but it really was a most distinguished body. The years of experience in industry of all kinds and the level of responsibility that has been handled by the members of that committee mean that they are a very formidable band. It is the privilege of your Lordships' House that we have such people here on our Select Committees. It is for this reason, as other people have hinted but I can far more easily say because I am not one of them, that this is a major reason that your Lordships' House has the respect in the country that it has.
That level of experience and knowledge is not to be compared in any way with the level of experience and knowledge of most politicians in or out of government or which the departments can bring. They cannot compare with the knowledge and experience of that committee. To challenge them in that kind of way is rather like the first year student taking on the professors. Just occasionally the first year student is right, but not usually. So it is as well to have regard to the calibre of the people who have in fact put forward these proposals.
I want to pick up a point which I think was made by the noble Lord, Lord Hanson. We perhaps confuse ourselves somewhat by trying to make a sharp distinction between manufacturing and services. The fact of the matter is that I do not believe that classification is valid. It is a very crude one at any time. I do not think it helps very much to understand what is going on because so many things which are considered to be services are directly used in what is considered to be manufacturing industry. Without them those industries would be unable to make the progress that they do. If we ceased using those two very crude definitions, I think that we would get on a great deal better.
What we are really interested in are the economic activities which most add value and which most increase our share of world trade. One can identify certain developments in certain forms of economic activity which have a greater added value and which do more to increase the share of world trade. If one analyses them in detail one would find that they were made up of a mixture of what we have traditionally called manufacturing and what we call services. The
1270
interplay between the two is considerable and progessively in the future it will be more so. If we did not talk quite as much in those terms as we have done in the past, it would help us to clear our minds.
I think that everybody has admitted that since the report came out there has been progress. Up to a point the Government take credit for this. It is also fair to say that matters over which they have had no control have contributed very greatly to the success which has taken place. In part this has been due to the fall in commodity prices, which nobody has mentioned. It certainly made it easier to get inflation under control and it has contributed to a reduction in manufacturing costs. As the noble Lord, Lord Kearton, said, unquestionably another factor has been the change in the value of the pound which has made us a great deal more competitive than we were at the time the report was written. If you were out to fault the Government on it, you could say that it was the excessively high level of the pound in the early 1980s which to a considerable extent put manufacturing industry into the bad position in which it found itself. The righting of a mistake is always to be welcomed, but it does not undo the fact that it was a mistake in the first place. However, progress there certainly has been. It really is not the enormous success which it has been cracked up to be.
As other noble Lords have pointed out, we are now back to where we were in 1979 and our share of world trade for manufacturing industry is still lamentable. I notice that in the Autumn Statement and in the material backing up the Autumn Statement, the only claim which is made is that the share of world trade, which fell so heavily from the later 1960s, through the 1970s and into the early 1980s, has fallen no further since 1981.
At the turn of the century we had 33 per cent. of world trade and in 1963, according to the Autumn Statement, it was at 16 per cent. In 1981 that had fallen to just about 7 per cent. It is not therefore a very proud claim that that position has now stabilised. One is glad that it has now stabilised otherwise we would have gone right through the floor. It is still something which leaves a great deal of room for improvement.
Need for improvement plainly still exists. Much of what has happened deals with the immediate present and, as is said in the Select Committee report, to a considerable extent we are under the tyranny of the immediate; and yet it is the long-term, as I think everybody has said, to which the committee was drawing attention and it is to the long-term that we should now be drawing attention.
That is true but so far from the report having been overtaken by events, in the past three weeks events have underlined the importance of the report in the sense that it is ever more important that we should improve our competitive position. In view of what has been happening over the past three weeks we can no longer assume that the more favourable trends which could and have been identified, are going to continue.
I draw attention briefly to some of the areas in which it is of the greatest importance that the points made in the report should be emphasised even more than they needed to be emphasised in the past. I dare

1271
say that a good many people have read the report from the chief economist of the NatWest pointing out the very great difficulties in which we find ourselves, assuming, as we must, that the American trading position will become very difficult indeed. The need is for greater competitiveness with Japan and with the European Community. Unless we are able to shift our trade in that direction, the position which has been created by what is happening in America may well land us in a very serious position indeed. That underlines the importance of doing even more of those things which have helped us along the way so far.
First, with regard to exchange rates, we must look very carefully again at how competitive we can make ourselves and how far we can let out exchange rates fall in order to increase our competitiveness. We need to look again, too, at the EMS. I know this has been raised already in your Lordships' House this afternoon and I know the inevitable answer and the reason why, but if we want to deal with problems of exchange rates intelligently inside the European Community—and the need for this gets greater and not less because of the current situation—then surely the EMS is where we ought to be.
We must also, if we are to increase our competitiveness, get inflation down. If we are to run into a very difficult trading situation, we must lower exchange rates so that we can trade more competitively overseas, and there must be a reduction in interest rates so that to some extent we can boost the domestic economy. That is what we seriously must do. Both measures were recommended by the committee's report and, so far from being out of date, both have a new relevance because of what has happened in the past three weeks.
I briefly also underline the education question. We should increase our quality as well as our price. Members of your Lordships' House have been saying that much has been done; I can only say that a great deal remains to be done. It will not be achieved over the long-term if we skimp on payments to universities and undermine civil research. Those are some ways in which the points made in the report, far from being overtaken by events and discredited, have a new urgency because of the situation in which we now find ourselves.
7.34 p.m.
Lord Williams of Elvel: My Lords, the House is grateful to the noble Lord, Lord Aldington, for putting this Question to the Government. I do not mean that the noble Lord was right in picking up what was perhaps an unpremeditated remark by the noble Lord, Lord Beaverbrook, at Question Time and I am certainly not asking for the grovelling apology to which my noble friend Lord Barnett referred.
I believe it is extremely useful every two years or so—after all, it is just over two years since this report was published—to review the analysis and recommendations in the report and that your Lordships should be able to discuss progress. Therefore, I concentrate on that particular aspect of this question rather than asking the noble Lord, Lord
1272
Beaverbrook, what his reply will be in response to the particular remark he made.
A number of your Lordships, particularly those on the Select Committee, have drawn attention to the terms of reference of the Select Committee, and that is absolutely right. The committee was set up to look at the long term and not at the short term. It was also set up to look at the manufacturing trade balance and the causes and the implications of that balance. This evening I believe that we should look at two aspects. The first is whether that analysis contained in the report still stands up in the light of events and with hindsight to what has happened in the past two years, and, secondly, to see whether the recommendations which the report made have been followed and if not, why not?
The noble Lord, Lord Kearton, I thought was absolutely right to draw our attention to one event which has taken place since the publication of the report: the very successful devaluation of the pound sterling during 1986, particularly against the deutschemark. This gave a substantial boost to our manufacturing exports and has fed its way through into the surge of exports that we have seen in 1987. The noble Lord, Lord Greenhill, was also right to draw our attention to a slightly negative factor; namely, that the world stock markets over the past months have engaged in a sharp correction—some may call it a crash—and that may affect in the medium term the level of world economic activity particularly, as the noble Baroness, Lady Seear, said, in the United States.
In the context of those two developments it is right, proper and opportune at this moment to look again at the analysis that the report produced for us. The noble Lord, Lord Kearton, also made a very important point—which is my first point about the analysis—in looking at North Sea oil production. It is sometimes claimed, occasionally by some euphoric articles in the press, that North Sea oil production is not really in decline, that it is not a secular trend but that somehow exploration is going to get going again and that in the next decade we shall see much more development.
We can only rely, as always, on government figures and what the noble Lord, Lord Barnett, correctly refers to as the facts. The noble Lord, Lord Kearton, rightly pointed out that the Department of Energy Brown Book in 1987 does not in fact produce forecasts which are materially different from those contained in the report of your Lordships' Select Committee. The 1988 House of Lords estimate, which the noble Lord, Lord Aldington, says was not an estimate made by his committee but drew on statistics provided from the Department of Energy and the Treasury, was between 85 million tonnes and 120 million tonnes. The latest Department of Energy Brown Book figures are between 105 million tonnes and 125 million tonnes. Indeed, the Department of Energy produces an estimate for oil production by 1989 which is more or less exactly what Lord Aldington's committee produced for 1988. Therefore, if anything, there has been perhaps a year's imbalance between the two; but that is not a bad record of forecasting, if I may put it like that. By 1991, as the noble Lord, Lord Kearton, pointed out,

1273
the Department of Energy itself forecasts oil production from the North Sea at between 70 million and 105 million tonnes per annum. That is significantly worse than anything which your Lordships' committee produced in its report.
Of course, that is reflected in the oil balance which is forecast by the Chancellor for 1988, which is a surplus now of only 3 billion, and as production goes down, we can see that growing smaller and smaller.
On the score of North Sea oil production, I do not believe that the analysis contained in the Select Committee's report was grievously at fault. I believe that the secular trend has been established and will continue. There is no evidence of a turn around in that. The central problem that the Select Committee points out is: what happens when North Sea oil stops bailing us out?
The second point of the report's analysis to which I should like to refer relates to the invisible balance. There was a great deal of discussion as to how far services would be able to take over from manufacturing. I use the expression, despite the strictures of the noble Baroness, Lady Seear, because we do not have statistics to mingle services with manufacturing; we have to look at what we have.
In 1985, the United Kingdom ran a surplus of £5·38 billion in services. In 1986, the surplus was £4·99 billion. In other words, on services we lost a further share of world trade. The noble Lord, Lord Lucas of Chilworth, frowns at me. I have to tell him that I am quoting from government figures upon which I always have to rely.
Overall, of course, in our invisible balance, there was a move from £5·1 billion in surplus to £7·48 billion in surplus. But that improvement was due, first, to the reduction in overseas earnings from the North Sea—in other words, a repatriation of profits from the North Sea due to the price decline and, secondly, a reduction in net transfer payments to the European Community, which together made up approximately £3·1 billion. So any argument that the invisible balance would in some way come to the rescue of the visible imbalance has yet to be proved by the statistics.
Indeed, when the Chancellor forecast, as he has just done, that we will run an £8·5 billion surplus in invisibles in 1988, I can only reply that we have had many discussions in this House—the noble Lord, Lord Ezra, will remember them well—about government estimates of what the invisible surplus is. Somehow it seems to vanish like the snow in spring, as we get down to reality.
The third part of the analysis relates to the manufacturing trade balance. The noble Baroness, Lady Seear, referred to our share of world trade. She rightly said that we have just been moving along, not very happily; but we are stabilised. I point out that in 1979—like the noble Lord, Lord Barnett, I am not proud of anything that we came out with in 1979—the United Kingdom share of world manufactures was 9·1 per cent. In 1983, it was 7.9 per cent., and since then until the second quarter of 1987 it goes 7·6, 7·9, 7·6, and 7·8 per cent.
Baroness Seear: My Lords, if I may interrupt the noble Lord, I did not say that we had been going on happily. I said that we had been falling seriously.
Lord Williams of Elvel: My Lords, I am grateful to the noble Baroness. We have not been going on happily; we have been going on unhappily. It has not been falling seriously in those years; it has been static since 1983.
I regard 7.9 per cent. to 7.8 per cent. as a "situation status" if I may use that expression. Manufacturing output has picked up—that is welcome—in the past year or so. Nevertheless, I have to remind your Lordships that the committee pointed to a serious comparison with other industrial countries. The latest figures, for the second quarter of 1987, show US manufacturing output up by 18 per cent. since 1979, German output up by 8 per cent. and Japanese output up by 30 per cent. Our manufacturing output was down 2.3 per cent. and France's down 3 per cent. We cannot claim that there has been a great turn around.
When we look at the main points of the analysis that the Select Committee made, I cannot believe that they have been shown by events and with hindsight to be discredited. I believe that they were one of the most remarkable pieces of forecasting and prediction that I have seen. As we all know and as the Chancellor said in his Autumn Statement, forecasting is a very, very difficult business, and, given the effect of the world stock markets, it has now become more difficult.
If the analysis is still valid, what of the recommendations? I accept what the noble Lord, Lord Aldington, said. There has been an improvement in competitiveness thanks, in my view, to the devaluation of 1986—in particular, the devaluation against the deutschemark. I accept somewhat more reluctantly than other noble Lords that there has been a change in national attitude. I believe that there has been a change in government attitude; I am not sure that there has been a change in national attitude.
The change in government attitude has been rather subtle. Whereas three or four years ago, as noble Lords will remember, we were run by a doctrinal Government with a specific theological view of how the economy behaved, we are now run by a rather pragmatic Government who say, "Oh, sterling M3 is not very right. Perhaps Mo is not right. We will now have the exchange rate as the main indicator. Public spending is perhaps not all that bad. It might come in." Now, we have, I think, a pragmatic Chancellor. I welcome that, because I think it is one of the points that the Select Committee was trying to make.
I am not sure that we have achieved exchange rate stability. Until a few weeks ago, I thought that we were tracking the deutschemark in the shadow exchange rate mechanism, and that we were on the point of achieving at least that exchange rate stability. But now all that is a bit open. The sterling/dollar exchange rate has moved rather sharply, and we do not know where it will go.
The main recommendations of the Select Committee on interest rates; on the consensus for the

1275
National Economic Development Council, trade unions, management and government working together; on investment; on civil research and development; on training; and on the support by government for major export projects: where are all those? I would argue that the Government have not yet learnt the lesson that your Lordships' Select Committee tried to put to them—that in order to get the manufacturing trade balance anywhere near where it has to be when North Sea oil starts to run down, they must take the lead themselves.
I believe that the question of the noble Lord, Lord Aldington, is well put. I do not ask the noble Lord, Lord Beaverbrook, to retract in any way. He may wish to apologise, or whatever. I do not ask for that. I ask him for a serious reply to the points that the noble Lord, Lord Aldington, and other noble Lords have made this evening.
7.48 p.m.
Lord Beaverbrook: My Lords, when the report of the Select Committee chaired by my noble friend Lord Aldington was first debated in this House, my noble friend Lord Young of Graffham acknowledged both the importance of the subject and the contribution which the Select Committee had made to the discussion. Both have been amply confirmed by what we have heard tonight.
Many of the Select Committee's conclusions were then and still are accepted by the Government. I cite as examples the committee's findings on the importance of initiative and enterprise; on the need for both price and non-price competitiveness; on the priority to be given to positive attitudes to business among the young, and to fostering the development of the skills needed in industry. The Government not only accepted the views of the committee; we have acted on them.
Where the Government differed from the committee was over its central thesis on the origins and significance of the deficit in the balance of trade in manufactured goods, and over the policies which the committee's reasoning led it to propose. We believe that the committee took too pessimistic a view of the resilience of manufacturing industry; and that the performance of manufacturing in the period since the committee reported has not borne out the committee's fears, but has confirmed the correctness of the Government's approach. This is the point that I was making, perhaps in a rather shorthand way, when I responded to the Question of the noble Lord, Lord Basnett, in your Lordships' House some two weeks ago. If my choice of words has given offence, I of course unreservedly apologise to your Lordships and most particularly to my noble friend Lord Aldington. I was perhaps using words in a robust tradition set by the committee itself when in its report it describes the report of a senior Treasury official, Mr. Byatt, as discredited.
Lord Williams of Elvel: My Lords, I am sorry to interrupt. Does the noble Lord agree with that analysis?
Lord Beaverbrook: My Lords, to have read all these reports for this debate would have been perhaps a little time-consuming; but now that the noble Lord brings it up, I shall of course look at Mr. Byatt's report with some interest.
In the two years since the committee reported, manufacturing output has risen by 5 per cent. and is now rising at a rate of 5 per cent. a year. The whole of the loss in the recession of 1979 to 1981 has now been made good. The important point—and this is a point that was brought up by the noble Lord, Lord Barnett—is that it is not only back to the 1979 level but it is still growing and is forecast to continue to grow.
Two years ago manufacturing productivity had risen by 30 per cent. since the depth of the recession. Now the rise has been extended to 48 per cent. This is a rate of productivity growth matched by none of our competitors. As a direct result, over the past year unit labour cost growth in British manufacturing industry has fallen and is closer to that of other major industrial countries. This has happened despite a continuing tendency for pay settlements in British manufacturing industry to run ahead of those of our competitors. But the committee was quite right to see excessive pay settlements as one of the main threats to the continuing improvement in the competitive performance of British industry.
Trends in manufacturing investment were until recently distorted by the progressive withdrawal of 100 per cent. first year tax allowances for capital investment which provided an incentive to bring such investment forward. Now that this distortion is out of the system, we see that manufacturing investment rose by no fewer than 7 per cent. between the second half of 1986 and the first half of 1987. Earlier projections of 4 per cent. growth in manufacturing investment for 1987 as a whole now seem likely to be exceeded, and healthy growth is expected to continue into next year.
Profitability is of course a major determinant of investment. After five years of uninterrupted growth, the real rate of return on assets achieved by manufacturing industry last year had recovered from a low point of 2 per cent. in 1981 to 7·2 per cent. last year. This will not only provide the resources companies need for investment, it will give them the confidence they need to commit these resources.
There are encouraging signs too that industry has taken to heart the committee's words on non-price competitiveness. The quality and design of British products has improved immeasurably over the past few years. Together with more favourable exchange rates, and the increasing realisation that improvements in labour relations are here to stay, this is leading more and more international companies to increase the output of their United Kingdom operations, both to supply the British market and for export. Partly because of this, in the third quarter of this year, the volume of our manufactured exports, excluding erratics, was at record levels, 11 per cent. higher than a year ago, and 40 per cent. up on their trough level of early 1981. After many years of decline, our volume share of world trade in manufactures has held its own since 1981. And if world trade expands as forecast, British

1277
manufactured exports should continue to grow through 1988.
Imports of course are rising a little faster, and the Industry Act forecast published with the Autumn Statement predicts that there will be modest deficits in the balance of payments this year and next. With last year's collapse in the price of oil only partly made good, and the British economy continuing to expand faster than those of other major industrial countries, this is only to be expected. There will continue to be a deficit in the balance of trade in manufactured goods, and it may even widen a little. But this one indicator is, I believe, less central to the underlying performance of the economy than the committee suggested. Its view that "sustainable growth has not been possible, and will not be possible without a favourable trade balance in manufactures" has not been borne out by events. Indeed, both the progress of manufacturing industry over recent years, and the prospects for the future, are widely seen by outside commentators as one of the most encouraging features of the British economy.
The Select Committee was of course right to point out that North Sea oil revenues are bound to decline. Indeed, they have done so much more rapidly than either the committee or anyone else could have foreseen, as a result of the collapse and partial recovery of the oil price. Now, the volume of North Sea oil production is also beginning to decline, and the oil trade surplus is likely to fall by about £1 billion in 1988. But this will in part be offset by buoyant earnings from invisibles, and particularly from the returns on our increasing portfolio of overseas assets. What matters is that the whole of the British economy, manufacturing and non-manufacturing sectors alike, should be equipped to meet the demands of a rapidly changing commercial environment, alert to the needs of the market, and quick to take advantage of all opportunities.
The Government differed from the committee in our analysis of the problem; so it is to be expected that our policy prescriptions should also differ. We recognise that manufacturing will have a vital place in the economy as far ahead as any of us can foresee. So of course will the service industries. As it is, the contributions, both direct and indirect to export earnings of what are classified as manufacturing and service activities are very similar. Estimates indicate figures around £30 billion for manufacturing and £25 billion for services for 1985. Nor can we foresee with any precision the relative importance of different sectors in the years ahead, and all our experience suggests that we should be very ill-advised to try. Indeed, as mentioned by the noble Baroness, Lady Seear, the very distinction between manufacturing and services is becoming less and less helpful. I would not go quite as far as the adviser to President Reagan, who said that manufacturing would become a service activity. But when computer hardware is a manufacture and software is a service, and when the effect of a manufacturing company contracting out its legal advice, or the disposal of its factory waste, is to boost the share of services in the economy at the expense of manufacturing it is at least legitimate to wonder whether the distinction has much value as a basis for policy.
1278
Indeed, Mr. John Banham of the CBI said last week:
"Manufacturing and services are interdependent; we do not need to choose between them. We must not choose between them".
This is why the Government see no reason to discriminate in their policies towards industry between manufacturing and service industries, still less for "picking winners" between manufacturing sectors, with the costs that implies for those not selected. What is needed is a climate in which industry—in the broad sense of those who are part of the market economy, not of manufacturing or of service industry—can expand and flourish. This requires low inflation; control of public spending; low taxes; the removal of unnecessary burdens on business; an expanded role for the private sector; and measures to enable markets to work more flexibly and effectively. All these this Government have provided.
Many of the Select Committee's specific recommendations were very much in tune with this approach, and were well calculated to improve both the capacity and the willingness of those in business to take advantage of new opportunities, wherever they appear. These are the qualities needed if the revival which the British economy has experienced in the 1980s is to continue into the 1990s. But they are needed in banking as much as in chemicals; in software as much as in hardware; in consultancy as much as in construction. Policies which discriminate between sectors implicitly second guess the way markets will develop. That is hard enough in all conscience for those who make a career in business. It is a field in which governments have not excelled in the past, and which they would be well advised to avoid in future.
I shall now turn to some of the specific points made by noble Lords. The noble Lord, Lord Hatch, asked me a question about overseas aid. After the Autumn Statement the UK will devote 0·32 per cent. of GNP to official development assistance. This compares with France's figure of 0·49 per cent., with the United States of America of 0·23 per cent., and an OECD average of 0·36 per cent. Overseas aid expenditure in 1988–89 will increase by £100 million on the 1987–88 estimated outturn. That is an increase of 7½ per cent. in cash terms. The increase in the net overseas aid programme provides for growth in real terms over the next three years.
My noble friend Lord Hanson and the noble Lord, Lord Greenhill, mentioned the importance of the awareness of wealth creation and enterprise in schools. My noble friend the Secretary of State for Trade and Industry has just announced the new objectives for the department. One objective is the encouragement of the growth of links between schools and the world of work. The Government will be taking initiatives in this area. The Government, through the industry education unit of the DTI, has taken a number of steps to promote awareness of both wealth creation and enterprise in schools. Examples include the mini enterprise in schools project which is designed to promote enterprise activity in schools throughout the United Kingdom. The schools curriculum industry partnership aims to promote students' understanding of industry and

1279
industrial society through the school curriculum and the work-shadowing programme, under which students shadow people in business for a week to try to dispel myths about industry.
My noble friend Lord Lucas of Chilworth mentioned Industry Year. I can tell him that the Government gave full support to the Industry Year campaign to change attitudes to industry organised by the Royal Society for the Encouragement of Arts, Manufactures and Commerce. The Government have provided £1 million towards the £1·5 million central running costs of the campaign and contributed to regional activities. On top of this, the Government launched new initiatives for Industry Year totalling £6 million. Additionally, many existing government activities support the Industry Year objectives of increasing awareness of the importance of industry and wealth creation.
The noble Lord, Lord Kearton, mentioned the difficulties of unstable exchange rates. Since the Plaza agreement of September 1985 the pound has appreciated against the dollar but fallen significantly against the yen, the deutschemark and the French franc. This exchange rate pattern has benefited many but not all United Kingdom exporters. The noble Lord, Lord Williams, mentioned the decline in the exchange rate, particularly against the deutschemark. I welcome the recognition both from the noble Lord, Lord Williams, and the noble Baroness, Lady Seear, that manufacturing exports have responded to exchange rate movements in the way that the Government anticipated.
The noble Lord, Lord Kearton, also mentioned the trend in imports. Recent figures have been very erratic, but some rise in imports is inevitable as the economy expands. As expected, much of the rise in imports over the past year is of basic materials, semi-manufactures, capital and intermediate goods reflecting rising output and investment.
The noble Lord, Lord Williams of Elvel, mentioned the OECD economic outlook. This shows that the United Kingdom had the largest invisible surplus in the world in 1986. It is likely to maintain its leading position in 1987. The invisible surplus is forecast to rise further from £7.5 billion in 1987 to over £8.5 billion in 1988, as the noble Lord, Lord Williams, noted. The net overseas assets of the United Kingdom rose by £37 billion since the end of 1985 to £114 billion by the end of 1986. This is the highest recorded level since the war and is second only to Japan.
We have all along accepted a number of the committee's individual conclusions and recommendations, and we have no reason to change our mind on those. But from the beginning the Government have been unable to accept the committee's view on some fundamental issues. Far from posing the grave threat to our economic and political stability which the committee foresaw, a sharper than expected fall in oil revenues has contributed to a more favourable pattern of exchange rates which in turn has contributed to improved manufacturng performance.
In our view, the committee attached both to manufacturing and to the manufacturing trade
1280
balance a special significance for which there is perhaps no economic justification. All wealth-creating activities are important and the manufacturing trade balance is only one element in the overall balance of payments. Furthermore, the trade balance of any sector is not a reliable indicator of its performance. Events since the committee reported have vindicated both our analysis and our policies. We shall therefore continue to pursue those even-handed policies which have served all sectors of industry so well, and which offer the best prospects for our future prosperity.
I hope that my noble friend Lord Aldington will recognise that in obeying this summons to the headmaster's study this evening I have at least now made quite clear the Government's position on his committee's report.

British Rail Bill
Committed to an Unopposed Bill Committee.

Bexley London Borough Council Bill
Returned from the Commons with the amendments agreed to.
House adjourned at five minutes past eight o'clock.