Lords Sitting of 18 December 1989

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

Share Dealing: Commission Rates
Lord Monson Lord Monson asked Her Majesty's Government:
Whether, in view of the fact that minimum commissions for dealing in stocks and shares have generally risen by between 100 and 614 per cent. since the Big Bang, compared with an inflation rate of only 19 per cent. over the same period, such high minimum commissions do not impede the effective functioning of the share-owning democracy which they are trying to foster.
The Minister of State, Department of Trade and Industry (Lord Trefgarne): My Lords, I share the noble Lord's concern that commission rates should not discourage wider share ownership. I do not believe they do. Some firms' minimum commission charge remains £20 or less. The average commission rate paid by United Kingdom private clients has shown a consistent downward trend from at least 1980, falling from more than 1 per cent. then to 0·61 per cent. now.
Lord Monson: My Lords, I thank the noble Lord for that Answer and can only assume that he has not read the leading article in the Financial Times of 5th December which takes a very much less sanguine view of the situation. Does he agree that however beneficial the Big Bang has been for institutional shareholders, it has been a disaster for small shareholders? Secondly, does he agree that a society in which the investments of millions of small shareholders consist merely of £200 or £300 of shares in a couple of privatised industries, shares which cannot be sold profitably because commission absorbs more than 10 per cent. of the proceeds,
2
cannot be considered a genuine shareowning democracy in the proper sense of that term?
Lord Trefgarne: My Lords, I am afraid that I do not agree with the noble Lord. The Big Bang, as he refers to it, has been of benefit to small investors too. They need to shop around to find the best deal. That is now made much more easy by the fact that the Stock Exchange publishes a free directory of member firms interested in private client business, giving details of their services, with in many cases commission rates. So shop around is the message to small investors.
Lord Renton: My Lords, is my noble friend aware that, in addition to their commissions and sometimes instead of their commissions, some stockbrokers make fixed charges and use the Financial Services Act as an excuse for doing so?
Lord Trefgarne: My Lords, any stockbroker who charges too much is likely to lose the business that he is seeking to attract.
Lord Peston: My Lords, I am as puzzled by the noble Lord's Answer as the noble Lord, Lord Monson. I was completely in favour of Big Bang but remember the great worry at the time that small shareholders would suffer. I should have thought that the evidence overwhelmingly shows that the small shareholder finds himself with large charges. Is the noble Lord quite certain in terms of what he knows of the subject that it is economic for small shareholders to buy shares at the present time? All the material that I have read suggests that it is expensive for the small shareholder to trade.
Lord Trefgarne: My Lords, I am not claiming that all stockbrokers reduce their charges to small investors. Some do, and they are therefore likely to attract much more of the business from small investors; and good luck to them. The number of small shareholders in this country has increased dramatically in recent times. Indeed following the water privatisation the other day the number is now something in excess of 10 million.
Lord Annan: My Lords, is it not a fact that the small investor often does better if he invests with a stockbroker not in the City of London but in the provinces?
Lord Trefgarne: My Lords, I think the noble Lord is quite right. There is undoubtedly a range of very competitive stockbroking services available outside the City of London, which I would commend to many small investors.
Lord Monson: My Lords, does the noble Lord agree that even the £20 minimum commission charge, which can be found occasionally although not very often, would absorb 8 per cent. of a £250 bargain or 10 per cent. of a £200 bargain? Many privatisation allocations fall within that category.
Lord Trefgarne: My Lords, the noble Lord's arithmetic is no doubt correct, but I am told that some minimum charges are less than the £20 to which he points.

North Sea Oil: Capital Investment
2.41 p.m.
The Viscount of Oxfuird The Viscount of Oxfuird asked Her Majesty's Government:
How capital investment in the North Sea oil industry in the first half of 1989 compares with that in the first half of 1988.
Viscount Ullswater: My Lords, capital investment in the North Sea oil and gas industry in the first half of 1989 was 19 per cent. higher at £1·2 billion than in the first half of 1988.
The Viscount of Oxfuird: My Lords, I thank my noble friend for that Answer. Can he give an indication of what further investment is anticipated for 1990?
Viscount Ullswater: My Lords, increased investment in 1989 is good news for the health and future prospects of the North Sea and for the supply industry. Estimates from the National Economic Development Office indicate that investment will reach £3·7 billion in 1990, which is an increase of 75 per cent. compared with the £2·1 billion in 1988.
Lord Peston: My Lords, can the noble Viscount place the answer in a slightly longer term perspective? It is good to see that North Sea oil investment has recovered after the accidents and crises that hit the North Sea, but how does the present position compare with the general investment we experienced in this area over the past decade? Does he believe that investment is buoyant enough in terms of exploiting the future potential of the North Sea oil fields?
Viscount Ullswater: My Lords, I have figures for 1985 onwards. Investment in that year was £2·8 billion; in 1986 it was £2·6 billion; in 1987 it was £2 billion; and the 1988 figure which I have already
4
given to the House was £2·1 billion. Investment in the first half of 1989 at £1·2 billion shows a genuine increase. The oil industry has responded well to the challenge of developing fields in an era of lower oil prices.
Lord Harmar-Nicholls: My Lords, my noble friend gives good figures in terms of the amount invested. However, is he satisfied that the facilities and the expertise are available to exploit it to the full? I ask that because there has been some suggestion that the availability of the necessary expertise has been disbanded and spread out and therefore will not be available to enable full use to be made of the investment about which he has told us.
Viscount Ullswater: My Lords, I believe that most of the investment which I have outlined is supplied by United Kingdom companies and that the percentage is around 80 per cent. I think I can say that Britain has now taken the lead in off-shore oil and gas technology, notably in subsea techniques, floating production systems and slimline fixed structures.
The Viscount of Oxfuird: My Lords, can my noble friend give the House some indication as regards employment within the oil industry at present?
Viscount Ullswater: My Lords, the total workforce employed on off-shore UK oil and gas installations is estimated at around 30,000. In relation to Scotland, a training agency estimated in June 1989 that 60,000 persons were involved in companies the total output of which was dedicated to the oil industry. Moreover, the numbers would be much larger if other firms supplying only a proportion of their output were included.

Ethiopian and Eritrea: Arms Supplies
2.44 p.m.
Lord John-Mackie Lord John-Mackie asked Her Majesty's Government:
What arms are being supplied by this country to Ethiopia and Eritrea.
Lord Reay: None, my Lords.
Lord John-Mackie: My Lords, I thank the noble Lord for that satisfactory Answer. However, is he aware of the background to the Question? It was at a meeting at the kirk door of a small church, near where I lived in Scotland, when the sermon was being discussed —the noble and learned Lord the Lord Chancellor will know the situation pretty well. The preacher had asked for help for Ethiopia. My brother-in-law, who was one of the farmers present, offered to send 30 tonnes of wheat to the country. However, someone said to him, "Well, it may go on the same boat carrying arms to the Ethiopian Government who are shooting up the lorries which are delivering that wheat to the areas where the starving people are".

5
I am glad that we are not supplying arms to the country. I sincerely hope that the noble Lord is correct in his Answer.
Lord Reay: My Lords, I can reassure the noble Lord that we are not supplying arms to either side in the conflict. Moreover, we have not been doing so since the late 1970s.
Lord Cledwyn of Penrhos: My Lords, while we are grateful to the noble Lord for his assurances, is it not the case that arms are being supplied to both sides —that is, to the government by the Soviet Union and to those who are waging the civil war against them by Israel and the Gulf States? These are all countries with which Her Majesty's Government have good relations. Therefore, can he say what representations the Government are making to those who are supplying arms to a country which is on the verge of an appalling famine and which is in the middle of a wicked civil war?
Lord Reay: My Lords, the Ethiopian Government continues to be supplied by the Soviet Union, and by various other Eastern European and communist countries. The Soviet Union has supplied over £4 billion-worth of arms since 1977. However, the Soviet Union has said that it will not renew its bilateral arms agreement on its expiry in 1991. It has also withdrawn its military advisers. We strongly welcome that change of approach.
Baroness Ewart-Biggs: My Lords, I too was happy to hear the Minister's Answer. However, can he say whether he has any information about the Ethiopian Government allowing relief aid to be transported to rebel-held territories?
Lord Reay: My Lords, in our view, one of the most important issues at present is the very great need for an agreement which enables access for relief supplies to get through to those who need them in the rebel territories. In fact, there are conflicting indications of what are the intentions of the Ethiopian Government, but until now they have not agreed to the various proposals put to them as regards allowing supplies to go to the rebel areas.

Animal Welfare: EC Proposals
2.48 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
Whether they will consult the British Veterinary Association on European Community proposals concerned with all aspects of animal welfare.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington): Yes, my Lords; we value their helpful contribution.
Lord Molloy: My Lords, I hope that the noble Baroness is aware of the fact that I readily accept her succinct but satisfying response. However, is she further aware that, like the RSPCA and the British Veterinary Association, British veterinary surgeons
6
are much concerned about methods of transportation of animals on the Continent which would be outlawed in this country? Can she confirm that that particular aspect will be borne in mind?
Baroness Trumpington: Yes, my Lords.
Lord Molloy: My Lords, can the noble Baroness further confirm that, if what we desire should be the correct treatment of animals is not adhered to in Europe, our Government will stress the need for very effective deterrent measures?
Baroness Trumpington: Yes my Lords.

Standing Orders (Private Bills): Select Committee
2.49 p.m.
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That a Select Committee on the Standing Orders be appointed; and that as proposed by the Committee of Selection the Lords following, with the Chairman of Committees, be named of the Committee:

Cawley, L.

Dilhorne, V.

Grey, E.

Jacques, L.

Mowbray and Stourton, L.

Strabolgi, L.

Thurlow, L.

—(The Chairman of Committees.)
On Question, Motion agreed to.

Delors Committee Report: ECC Report
2.50 p.m.
Lord Kearton Lord Kearton rose to move, That this House takes note of the Report of the European Communities Committee on the Delors Committee Report (2nd Report, HL Paper 3).
The noble Lord said: My Lords, the inquiry was conducted by Sub-Committee A of the Select Committee. Written and oral evidence was received from a body of distinguished and authoritative witnesses who are listed on page 26 of the report. The committee reiterates its thanks to them. The members of the sub-committee, who are named on page 25, worked hard on the report with vigorous discussion.
In the event, the report is a collective one, as is the tradition. I warmly thank the members whose combined breadth of experience was exceptional. I am also glad to put on record the committee's great appreciation of the help it received from its specialist adviser, Professor David Begg, of Birkbeck College, in what was his second stint with the committee. Finally, I thank once again the committee's clerk,

7
Mr. William Sleath, whose industry, ability and patience are equally remarkable. All members of the committee, particularly myself, are much in his debt.
Our inquiry began in the summer in the wake of the Madrid summit which received and considered the Delors Report. The inquiry continued into the autumn and was finished in November. The report was published before the Strasbourg summit. The report was topical then and it is topical now.
Part 1 of the report gives the historical background. Calls for the European Community to create an economic and monetary union are not new. The first plans were drawn up 20 years ago before the United Kingdom joined the Community. Real progress began in 1979 when the European monetary system was set up. The United Kingdom was a founder member of the European monetary system which aimed at closer co-operation, but did not join its key feature, the exchange rate mechanism. The objective of the ERM is currency stability. As the House will recall, countries which belong to the ERM are given a central parity against the currencies of the other member states but are allowed to fluctuate either side of that parity within an agreed band.
The parity must be defended by foreign exchange intervention or by tools of economic policy such as the interest rate. Realignments are not ruled out but must take place by muutual consent. Initially, changes in parity were fairly frequent. But since 1983 they have been rare. The states which are members of the ERM are satisfied that it has been much in their interest to belong to it. The interest and inflation rates of members have converged downwards.
When, 10 years ago, the United Kingdom decided not to join the ERM, there were good reasons. The pound was about to become a petrocurrency; inflation in the United Kingdom was high; and the European currency scene was mixed. If the pound sterling had been an early member of the ERM the strains might have been too much. The 1980s have seen the Community making great forward strides. The Single European Act amended the original treaty in many important aspects, especially by allowing qualified majority voting to be binding in selected areas and by increasing the role, although still heavily circumscribed, of the European Parliament.
Article 1 of the Single European Act states the objective as:
"concrete progress towards European unity".
The form of that unity is not defined. Article 20 deals with co-operation in economic and monetary policy, economic and monetary union. It states that,
"to ensure the convergence of economic and monetary policies … Member States … shall take account of the experience acquired … within the framework of the European Monetary System".
A later paragraph recognises that further development in the field of economic and monetary policy might necessitate institutional changes. Such changes would require unanimous agreement and the appropriate amendment of the treaty.
The 1985 White Paper on the completion of the internal market, a paper which owed so much to the
8
brilliance, vision and thoroughness of our noble colleague Lord Cockfield, who was then vice-president of the Commission, was a firm and comprehensive programme. The consequent flow of agreed directives and regulations from the Commission means that the machinery should all be in place, as targeted, by the end of 1992. Some is in place now and already operative. The establishment of the European financial area, a key objective, should be complete by mid-1990. Some difficult areas covering fiscal matters remain but they are under active negotiation. Those manifold advances have taken calls for closer European unity made by heads of state at successive European summits —calls always unanimously endorsed —beyond rhetoric. There is now serious intent.
The Hanover summit of June 1988 set up a committee under the chairmanship of the Commission president, M. Delors, to report on economic and monetary union. The members were the 12 governors of the national central banks of the Community, the vice-president of the Commission and three academic experts. All sat in a private capacity, not as representatives.
The Delors Report concentrates upon defining the means by which economic and monetary union could be achieved. The goal is a Community with policies geared to price stability, balanced growth, converging standards of living, high employment and external equilibrium.
Paragraphs 8 to 16 of the committee's report summarise the contents of the Delors Report. In brief, monetary union is clearly defined. It includes fully liberalised capital movements and fully integrated financial markets. Currencies must be fully integrated and exchange rates firmly and irrevocably fixed. Monetary union requires a common monetary policy in pursuit of common macro-economic policies. Economic union is less closely defined. It would require an effective competition policy, common policies for structural changes, the ironing out of major economic imbalances within the Community and the adoption of a prudent fiscal stance by all member countries.
Both monetary and economic union would require some pooling of individual national sovereignty. That pooling would affect areas regarded in the United Kingdom as the very core of sovereignty. However, the Delors Report stresses that pooling would not entail a United States of Europe. The Community of individual nations would continue to exist. The nations would be more closely bound together but would retain different economic, social, cultural and political characteristics.
The report emphasises that the changes put forward should be implemented in line with the principle of subsidiarity. Power would only transfer to new Community institutions where absolutely necessary.
The Delors Committee envisaged three stages to achieve economic and monetary union. Stage One would strengthen existing economic and monetary policy co-ordination. The Committee of Central Bankers would take a more active and public role in determining the direction of national monetary

9
policy. The Council of Economic and Finance Ministers (ECOFIN) would begin a surveillance of member states' economic development and produce guidelines for national monetary policy. All Community currencies would become members of the ERM.
During Stage One, set to begin on 1st July 1990, negotiations between member governments would be put in train to discuss any required amendments to the EC treaty involving the setting up of new Community institutions, such as a central bank of some sort.
Stage Two of Delors was seen as transitional with more and more collective decision-taking in economic matters, including structural changes, with an embryonic central bank in place. Changes in parity would be rare.
Stage Three would see the Council having the power to make binding decisions for members states in regard to budget deficits. Exchange rates would be locked irrevocably and a fully operational European central bank would pool all official reserves. If the Community chose to move towards a common currency, it could then do so. The Madrid summit accepted Stage One of the Delors proposals and agreed 1st July 1990 as a starting date. The competent bodies in the Commission were asked to proceed with the necessary provisions and that work is already in hand.
The Delors Report, in its famous paragraph 39, states that the decision to enter upon the first stage should be a decision to embark upon the entire process. This was not agreed in Madrid. Future progress would have to take account of the parallelism between economic and monetary aspects, fully respect the principle of subsidiarity and allow for the diversity of specific situations. Nevertheless, the Madrid meeting reiterated and restated its determination progressively to achieve economic and monetary union in the perspective of the internal market and economic and social cohesion.
Stages Two and Three of the Delors proposals were not seen as a blueprint but were to act as a basis for intergovernmental discussions. In November of this year the United Kingdom Government published an alternative route to monetary and economic union to that set out in Stages Two and Three of Delors. The proposals were well leaked beforehand and later witnesses who gave evidence to the sub-committee inquiry were well aware of them. Essentially the proposals were evolutionary, not depending on new community institutions, and relied heavily on intergovernmental co-operation and on the interplay of monetary market forces.
The extensive evidence received in the inquiry is set out in Part 2, paragraphs 21 to 64 of the committee's report. The cross headings refer to the case for economic and monetary union; to the case against; to the European monetary system and Stage One of the Delors proposals; to central controls and fiscal and budgeting policies as outlined in Stages Two and Three of Delors; to the institutional aspects of Stages Two and Three of the proposals; to the fate of the depressed regions in a monetary union; and finally to the threat of a two-tier Europe.
As would be expected, there are conflicting strands of opinion from those expressing an ultimate federalism to those expressing a sturdy scepticism about the whole process. I am sure that some of the points made will be picked up and expanded by later speakers in the debate, so I shall not dwell on the details of the evidence but pass on to Part 3 of the report—the opinion of the committee.
This begins in paragraph 65 by stressing that member states have very positively committed themselves to some form of economic and monetary union and that the Single European Act and the White Paper 1992 objectives have built up pressures towards making positive progress. The acceptance of Stage One of the Delors proposals is itself a major step forward. A key feature is that in Stage One all member states join the exchange rate mechanism.
The United Kingdom Government have been saying for some years that they will join the exchange rate mechanism when the time is right. Some years ago the pound ceased to be a petrocurrency and inflation in the UK was sharply reduced in the 1980s. Sub-committee A, in its previous reports which covered changes in membership and chairmanship, has been urging that the UK joins the exchange rate mechanism sooner rather than later. At Madrid this year the United Kingdom Government clarified their position. They would join the ERM once three conditions had been met. These were: that UK inflation must have fallen from its 1989 peak; that the present members of the exchange rate mechanism must have successfully accommodated the free movement of capital; and that a single market in financial services must have been successfully completed.
The commitee concluded that the second and third of these reservations were not serious objections. The fact that France has this very month removed the last vestiges of its control of capital movements six months ahead of schedule, with hardly a ripple on the parities of the exchange rate mechanism, confirms this. The committee's view was that removal of the residuary Italian capital controls would also go through smoothly. The directives to establish a truly single market in financial services are well in hand. Considerable progress has already been made. The sub-committee felt that there was no reason to suppose that there would be a sudden halt to the process.
The third reason has more substance. From an inflation rate of just over 3 per cent. in early 1988, the UK figure rose steadily to past 8 per cent. in the late summer of this year. After falling to 7·3 per cent., it was back to 7·7 per cent. in November. The inflation rate excluding the effect of mortgage interest is currently just over 6 per cent. The Treasury has predicted that rates will fall next year. The EC current average is about 5·2 per cent., with West Germany at 3·3 per cent.
The experience in this decade of countries already in the exchange rate mechanism is that membership exerted a discipline which led to inflation being brought down. If the UK rate is confidently expected to fall somewhat next year, there would seem to be no reason why the difference between a moderately

11
high UK rate against the EC average should be a decisive reason against entry.
Entering the exchange rate mechanism would require considerable negotiation with the existing member countries. The exchange rate parity band for the pound and possible adjustments of the other currencies would all need to be thrashed out. But the committee, having weighed the pros and cons, came down in favour of joining before July 1990 —the date on which Stage One of the Delors proposals begins.
There have been two developments since the committee reported. The Prime Minister has indicated that a doctrinaire insistence on the minutiae of the three conditions has been abandoned. On the other hand, the Bank of England has indicated that up to three years of low inflation are necessary to restore credibility to the United Kingdom's economic policy. That in itself is a most surprising statement in view of the stories we have had so persistently of our wonderful economic success.
Dr Pöhl of the Bundesbank has also expressed doubt about early entry in view of the United Kingdom's economic weakness. Recent statements by the present Chancellor have been notably cautious about the UK's economic prospects. Would that the Government had accepted the Select Committee's advice some years ago and joined the ERM then. There is a strong possibility that the present state of affairs would have been avoided.
Entering the exchange rate mechanism will always be a risk for the United Kingdom. The time will never be ideal. But past procrastination has not turned out well. My personal view is that the committee's recommendations still stand. The arguments for an early joining of the exchange rate mechanism rest on more than the economic gains to be expected, albeit these gains would be after perhaps a rather painful transitional period. The additional and stronger arguments are political.
The committee fully shares the thrust of the United Kingdom Government's reservations about undue haste in proceeding to full economic and monetary union in the Community. The completion of the 1992 directives and regulations and their full implementation are momentous. Taken alongside the progressive realisation of Stage One of Delors, together they represent an enormous move forward The changes will need to be established and their harmonious operability proven before proceeding further.
Lord Harmar-Nicholls: My Lords, before the noble Lord leaves that point, perhaps I may intervene. He seems to have said with some confidence that the committee approved this line. Does he think that, if at that time the committee had had in front of it the statements that both the Governor of the Bank of England and the President of the Bundesbank were recommending against that action at this time because of the great risk, it would have been as adamant as he suggests to the House?
Lord Kearton: My Lords, I cannot speak for the committee because those developments have arisen in the past few days. My comments referred to my own views.
Discussions on the way forward beyond Stage One of Delors are firmly on the agenda. The United Kingdom Government have said that they think that the discussions due to start at intergovernmental level at the end of 1990 are premature. But they will take part. It is hard to believe that the United Kingdom will be a full partner in such discussions unless it is a member of the exchange rate mechanism. Yet the outcome of the discussions could settle the shape of the European Economic Community at the end of the 1990s. In the report the committee sets out its own doubts about Stages Two and Three of Delors and airs the vital issues involved. They are contained in paragraphs 70 to 80 of the report and I am sure that they will be brought out by subsequent speakers.
The sudden and dramatic changes in the political situation in Eastern Europe have heightened the importance of the future development of the European Economic Community. Some member states, notably France, have seen the Eastern European changes as making more essential, indeed urgent, speedy moves towards closer EC integration. In principle, this seems to have been accepted by the major European economic power, West Germany. An association of Poland and Hungary with the EC is already planned. Economic aid to these countries is to be co-ordinated from Brussels. Austria and perhaps other EFTA countries are also moving closer to the EC. All the evidence is that the present American Administration are very much in favour of a stronger European Economic Community. In today's world the United Kingdom is no longer a major force in the military or economic spheres but it still has a considerable political influence. However, without a gain in economic strength, this influence will inevitably be eroded.
The collapse in the Russian position, internally and externally, is rooted in economic causes, not in military weakness. The breathtaking rise of Japan, far outreaching the long-ago aim which led it to militaristic adventure and catastrophic defeat, is an economic success. The falling away of the American influence, which dominated the world for 20-odd years after the end of the second world war, is due to relative economic decline.
The weight of the evidence is that the European Economic Community has the potential to be a great economic success, acting as a magnet to neighbouring countries. It is a time of great change for the European Economic Community. The Select Committee felt that the United Kingdom should be at the centre of such developments, both giving and receiving strength from a closer union —a union whose final form would be one in which the United Kingdom had a major part in shaping and in which it would play a major role.
Joining the exchange rate mechanism in the first half of next year would go far to convince our fellow members of our serious intent matching their serious intent. Notwithstanding the reservations of Dr. Pöhl,

13
they still want us in. European businessmen want us in. We positively must take the plunge. I beg to move.
Moved, That this House takes note of the Report of the European Communities Committee on the Delors Committee Report (2nd Report, HL Paper 3). —(Lord Kearton.)
3.11 p.m.
Lord Cockfield: My Lords, I wish first to congratulate the noble Lord, Lord Kearton, and the Select Committee on another report of quite outstanding quality, deep insight and considerable wisdom. I agree broadly with the conclusions to which the committee comes. I myself gave evidence to the committee; I shall not therefore repeat everything that I said on that occasion. However, there is one important point on which I disagree with the report of the Delors Committee. The point is not dealt with directly in the report of the Select Committee, although it is touched upon inferentially.
I regard the whole process of economic and monetary union as a sequential process. The Delors Committee treats economic and monetary union as if they were two parts of a single process which had to be carried forward together, inextricably linked one to the other. I do not believe that that is either right or necessary. The correct course, I suggest, is that we move from the completion of the single market, which the heads of government last year declared was now irreversible, to the single currency, and from the single currency to the single economy. That kind of progressive approach to the problems has a number of advantages. It is not only logically more sustainable; it also means that one can make progress without necessarily facing immediately many of the problems that economic union, for example, will give rise to. We can learn from experience as we go along to ensure that the successive steps we take are better founded. I wish to quote from the report on a particular point because it bears considerably on this point. The report states in paragraph 77:
"The Delors Committee's proposals to place limits on budgetary and fiscal policy therefore seem unwise and are not justifiable".
That comment relates not to monetary union but to economic union.
If one approaches the matter in the sequential way that I would prefer, one does not have to face these major problems of fiscal policy until one comes to economic union. I shall come back to that point in a moment, but it is one of considerable importance.
I turn now to a comment made by my noble friend the Leader of the House in reply to a question that I raised following the Statement on the Strasbourg summit. My noble friend said:
"if my noble friend cares to look at Hansard of another place for 2nd November 1989 he will see that politicians in another place were not prepared to agree that the absolutely basic reason for the existence of another place should be forfeit". —[Official Report, 12/12/89; col. 1244.]
I was talking specifically about monetary union and monetary policy. With all due respect to my noble friend the Leader of the House, what he said about the absolutely basic reason for the existence
14
of another place is based on a complete misconception of both the constitutional position and of the way that events have developed over the years. If one is looking at the fundamental basic reasons for another place, the story really starts with the case of Rex v. Hampden. That was the spark which lit the tinder and started the conflagration of the civil war. At the end of that civil war and ultimately in the Bill of Rights 1688, the constitutional position we have, which forms the basis of the fundamental position of another place, was then determined. That fundamental basis is the right to vote expenditure, and the right to vote taxation to meet that expenditure. It has nothing to do with monetary policy at all.
John Hampden had never heard of monetary policy. That is not surprising because monetary policy in his day did not exist. Monetary theory and monetary policy are a development of the latter half of the 19th century. Throughout most of recorded history the medium of exchange was gold and currencies were based upon gold. It was only with the development of the banking system and of credit together with the issue of bank notes that monetary theory and monetary policy came on the stage at all. Even in those early days in the 19th century, what governments could do was very little indeed because most major currencies were still linked to gold. Where there was monetary policy it was not administered by government at all but by the Bank of England in this country. It was not until 1946 that Mr. Hugh Dalton, as he then was, nationalised the Bank of England.
Lord Callaghan of Cardiff: No, my Lords, Parliament did.
Lord Cockfield: My Lords, I beg the noble Lord's pardon. I remember seeing him sitting in his place in this Chamber, which was then occupied by another place, when Parliament approved the proposal put forward by Mr. Dalton as he then was (he subsequently became Lord Dalton), for the nationalisation of the Bank of England. He specifically explained that on the basis that it was to enable the Government to take control of monetary policy. Even then what the Government could do was very limited because of the existence of the Bretton Woods agreement. It was only in 1973, with the breakdown of the Bretton Woods system, that politicians and Parliament secured effective control over monetary policy.
It is a very interesting reflection on the intellectual approach of our Government to these matters that they have reversed nearly all the other major steps taken by that Government of 1945–51 to bring greater areas of industry under the control of Parliament by way of nationalisation. They have done so on the grounds that they are fields in which polticians and parliaments ought not to be involved.
Again, the development of prices and incomes policies, in which at one time governments were heavily involved, are areas in which our Government say that government ought no longer to be involved. Even in the monetary field our own Government have abandoned one of the major instruments of

15
monetary policy; namely, exchange controls. They have been very critical —unjustifiably critical —of some of our European partners, alleging that they are not so anxious to abandon monetary controls as we are ourselves. That is a criticism which events have shown to be unfounded because the French Government have moved ahead of time.
The whole concept of monetary policy from the point of view of its exercise by governments is a relatively new development. It has nothing to do with the fundamental reasons for the existence of another place.
Let us look at what has happened. In 1967 —and I shall explain in a moment why I take that date —the pound sterling was worth 10 deutschemarks. This morning it was worth 2·75 deutschemarks. In other words, over that relatively short period of time, which will be within the memory of many noble Lords sitting here today, the pound sterling in relation to the deutschemark has lost nearly three-quarters of its value. I take 1967 because the period from then until now spans the life of two Labour administrations and two Conservative administrations. So the point that I am making is not a party political point at all.
If your Lordships are not satisfied with that illustration, perhaps I may give another. The big oil price increase in 1973 which sparked off the recession of the 1970s by itself would have put 4 per cent. on to price levels. In fact, by the time the repercussions had ended, the increase in prices in this country was nearer 400 per cent. than 4 per cent. That was a failure of the management of our monetary policy. Other countries did badly too, but few of them as badly as we did. That is why the deutschemark today is worth nearly four times as much in terms of the pound as it was before the events that I have just described.
The truth of the matter is that monetary policy, subject to the broad objectives being laid down at political level —in other words, is monetary policy to be directed to the avoidance of inflation? —is a technical and not a political matter. All experience shows that once politicians become involved, the results are disastrous. I see some pleasure on the faces of noble Lords opposite; but if they wish to analyse the events of those past 20 years or so in detail they will find that they have to bear a very, very heavy part of the burden of guilt themselves. That is why I believe that fundamentally the Delors Report is right in saying that monetary policy ought to be administered by a technical body —in this instance, the European system of central banks.
My noble friend Lord Harmar-Nicholls quoted Dr. Pohl. It is always very, very dangerous to quote Dr. Pohl because one needs to ask oneself why he said what he said. What he said —which was reported in the press yesterday or today —was based on a view of the British economy and of our financial management which is not in any way complimentary to the efforts of our own Government.
Lord Harmar-Nicholls: My Lords, I coupled his name with that of the Bank of England.
Lord Cockfield: I shall not speak for the Governor of the Bank of England; he can answer for himself. Dr. Pöhl has been brought into the discussion on a number of occasions, and I simply suggest that people who quote him should ask themselves why Dr. Pöhl has said what he has said.
If there is one criticism of the Delors Report on the issue, and I am sure that it is what underlies Dr. Pöhl's comment, it is that the Delors committee leaves too much room for the politicians to interfere in these matters. That is why I say that one should be careful about quoting Dr. Pöhl.
I want to end by saying that I believe, as the committee believes, that it is immensely to the advantage of this country to enter into monetary union and to play a full part in the development of the single currency. I believe that we can do so without any prejudice to the considerations of parliamentary sovereignty which so concerned my noble friend the Leader of the House the other day. When we come to deal with economic union, very much more difficult issues will arise. We shall need to debate those issues in the light of developments in the next few years as monetary union comes into effect. It would be a serious error of judgment to join battle with the other member states of the Community on issues which do not arise now, which may not arise for many years to come and indeed may never arise at all.
3.28 p.m.
Lord Williams of Elvel: My Lords, I agree with the noble Lord, Lord Cockfield, that the House will be particularly grateful to the noble Lord, Lord Kearton, for introducing the report of your Lordships' Select Committee on the Delors proposals. I say "particularly" because, together with the noble Lord, Lord Cockfield, I believe that the noble Lord, Lord Kearton, has presented us with a report which is not just up to the usual high standards of committees which he has the honour to chair but which in my view —and I hope I speak for many noble Lords —is quite exceptional in the breadth of its perception and in the quality of its argument. I congratulate very sincerely the noble Lord and his Select Committee on their efforts. I am very glad that they have received nothing but praise from all sides, and rightly so.
The subject matter of the Select Committee's report, as the noble Lord, Lord Kearton, pointed out, is of the highest importance. It is not concerned simply with whether we should or should not enter a particular alliance or whether we should or should not adopt a particular trading policy. We are here concerned with the whole future shape of our economy and indeed —let us not forget it —our political and social structure. In the light of that rather sombre reflection, I should say that there is one conclusion of the Select Committee that we can wholeheartedly endorse; namely, the view that we should not be pushed into unsatisfactory arrangements by purely short-term pressures. We must choose our path with care.
On the other hand, the world does not stand still and our corner of the world seems to have been moving rather fast recently. Since the publication of

17
the Select Committee's report, the political earthquake in Eastern Europe seems to have moved even in recent days further east and into the Soviet Union. The European Council has met at Strasbourg and decided to speed up the process of economic and monetary union by setting up an inter-governmental conference to discuss further steps. The Italian Government have indicated that they wish to hurry along the timetable. The Community's central bankers have decided to extend the remit of their committee, so as, in the words of their chairman, Dr. Pöhl —whom I quote with diffidence after the remarks of the noble Lord, Lord Cockfield —to:
"make the Committee a kind of forerunner for the future European Central banking system".
Last and by no means least, as both the noble Lords, Lord Kearton and Lord Cockfield, said, France has decided to remove her remaining exchange controls in two weeks' time.
So the train is moving forward, and moving forward rather fast. It is clear that we in the United Kingdom must make sure not only that we are not left behind, but that we do not occupy such inferior seats as to have only a tangential say on the crucial question of in what direction the train is heading. Having established that position, we must also make heard our voice on the speed at which the train is to travel. There is a delicate balance to be struck between urging the train on —if I may continue that analogy —so as to keep up the momentum, and making sure that the destination is the right one. I must make it clear —I shall expand on this point in a moment —that, however fast or slow the train travels, there are some destinations at which we on our side would certainly not wish to alight.
We accept the Select Committee's view that we should join the exchange rate mechanism. We are in favour of early, negotiated entry. It would not —I shall be perfectly frank about this —be anything other than a tough negotiation. No government would jump in blind. I do not believe that any noble Lord would expect that; we would certainly not do so ourselves. After all, sterling is the most heavily traded EMS currency after the deutschemark. It is also a currency in which a fair proportion of world trade is still transacted. That means that the system's swap arrangements must be enlarged to take account of that fact and of the possibility —and perhaps certainty —that, with the deutschemark and sterling in the same currency bloc, the volume of any speculative attack against any one of the EMS currencies is liable to be increased.
We must obviously enter at a sensible rate. We wish to see increased support for regional policy and, as I have said before, more emphasis on co-operative growth which will allow our manufacturing industry to start to close the deficit with our European partners which has grown so alarmingly over the years.
We do not view any of those conditions as being in any way impossible; indeed, they all reflect practical concerns already on the European agenda. Perhaps I may give your Lordships one example. A resolution in the European Parliament which was presented to the Strasbourg summit called not only for sterling's
18
entry into the exchange rate mechanism as soon as possible, but also urged an
"active industrial policy … coupled with extensive regional policies … control of speculative movements … and the elimination of the largest intra-Community deficits and surpluses".
We are delighted that our ideas find favour with the European Parliament and even more delighted that that resolution was voted by the Conservative group in that parliament. We must congratulate it on that.
The noble Lord, Kearton, raised the issued of the differential inflation rate between ourselves and our Community partners as being a possible barrier to immediate entry. I confess that my problem in replying to that point is rather like the problem of the man who asked the way to Dublin and was told in reply that, if he wanted to go to Dublin, he should not have started from there in the first place. It is the Government who have stoked up the fires of inflation and are now trying to bomb the forests with their only bomb; namely high-level interest rates.
I explained our views on that point in our debate on the Address, and I do not wish to go over that ground again. Suffice it to say that although the Government are in something of a mess on inflation —although, perhaps for his own reasons, Dr. PM brought out that point and the Bank of England have brought it out —we do not see that as being a final barrier to early entry into the exchange rate mechanism. It means that other alternative and more effective counter-inflationary policies —in other words, not replying solely on the interest rate weapon —must be adopted to bring down the differential. But I do not underestimate the seriousness of that differential.
I invite your Lordships to consider the position that I have just outlined; namely, early negotiated entry into the exchange rate mechanism. We would consider the difference between that and the Government's position. As the noble Lord, Lord Kearton, said, their position seems to vary, perhaps according to the Prime Minister's moods which seem to become less and less predictable as she continues in office.
I should like to summarise the most recent pronouncements. There was the Madrid position: our inflation to be back down, free movement of capital among the present members of the exchange rate mechanism and substantial completion of the single market in financial services. Then there was the Walden interview position: in addition to the Madrid conditions, there appeared the notion that all our Community partners had in some way to run their affairs in exactly the same way that we ran ours with no more of those wicked subsidies, for instance. Latterly, there have been the Financial Times conditions which retreat back to the Madrid position, but now say only that those conditions should be "broadly met", whatever that may mean.
I have no doubt that there will be other formulations in the future. Perhaps the noble Earl will be able to give us another formulation today; but, like all those formulations, it will be yet another discovered version of the synoptic gospels over which Biblical scholars will labour in order to find out what the markets will do in the following days.

19
We do not yet have a final position and I do not suppose that the noble Earl will give us one today, although we would welcome it.
It will go on like this. Unfortunately, it does not do us much good; indeed, it does us positive harm because each and every twist and turn raises doubts about the credibility of the Government's attachment and commitment to the whole principle of the thing. "Can we trust them?" is the question that the rest of Europe now asks itself. Until that is answered in the affirmative, the opportunity to have a proper say in decisions about where Europe should be heading will not be ours to grasp.
So much for Delors Stage One. But the next question is: what is to follow Delors Stage One? Here I take the point made by the noble Lord, Lord Cockfield. There is a difference between economic and monetary union and there is no doubt that the two have tended to become confused in discussion. But what happens after Delors Stage One remains very much to be seen. All I can say now is that we hope that it will not be Delors Stages Two and Three in their present form because we share the Select Committee's reservations about those, and have some of our own as well.
The Treasury clearly took a different view about monetary union from other witnesses before the Select Committee. It believed that the definition need not embrace irrevocably fixed exchange rates and a common monetary policy. The Treasury plan for competing currencies is the demonstration of that view. Although it is described as a plan, I rather think that it is not much more than a description of how a European monetary system might operate once all members of the Community have become full members of the system and the single market in goods, services and capital flows has been achieved. It would simply result in what is called now the Treasury plan. It is therefore not so much a plan as a sketch of what might happen under certain circumstances.
However, it has the merit of pointing up some major difficulties in Delors Stages Two and Three. It comes as something of a relief to note that the Delors Committee itself did not intend those proposals as a blueprint for the future of Europe. They may be a useful starting point for debate and discussion —and we shall certainly join that debate and discussion —but as they stand I am afraid that we do not think that they will do.
Before I give two —and I promise it will only be two—out of several points of objection that we have to Delors Stages Two and Three in their present form, perhaps I may invite your Lordships to look for a moment at the background of developments in the Community against which discussions will take place. Let us very briefly summarise the changes that will take place in our political and economic landscape if and when the single market, the social charter and Delors Stage One are completed successfully. There will be free movement of people and capital throughout the Community. There will be freedom of establishment of banks and other financial institutions. There will be freedom for all
20
to conduct business without geographical restriction or nationalistic bias. Exchange rates will be virtually fixed and realignments progressively rarer. The rights of workers and the protection of employee and consumer will be enshrined in law throughout the Community. That is a formidable programme. Even by that time, assuming all goes to plan, the old Europe of national states in which we have grown up will no longer be with us; a new Europe will already have taken its place.
I do not make any judgment on whether that outcome is desirable or not. I simply invite your Lordships to consider the facts as they present themselves. It would be absurd to imagine that all that can take place without a major effort of economic, political and, I think, personal adjustment, not only in this country but in every country of the Community. I should guess that there will be many surprises along the way.
It is against that background that I believe we should look at Delors Stages Two and Three. The Select Committee report advises us that a satisfactory form of union can best be assured by waiting for proof that Stage One is a success. That seems to us to be a necessary condition but it does not follow that it is a sufficient condition —that even if Stage One is a success, the form of union that succeeds it will automatically be a success as well. There is more to it than that.
I promised your Lordships to state two reservations about Stages Two and Three of the Delors proposals. One concerns monetary union and the other concerns economic union.
First, we should not be willing to accept any system of central banks which would be independent of political control. If we are not attracted to the idea that the Bank of England should have some kind of extraconstitutional status and be in some way independent of government —and we are not attracted by that idea —we are certainly not attracted to the prospect of a European system of central banks, operating perhaps a common European currency and a common European monetary policy somewhere in political outer space —a sort of extraterrestrial "Star Trek" Bundesbank. So far as we are concerned that is not on the political agenda.
Secondly, with regard to economic union not only do we not accept that binding rules for budgetary or fiscal policy are a necessary condition for the achievement of monetary union, but for us it is politically quite unacceptable to go any distance at all down that route. A future Labour Government will want freedom of manoeuvre in budgetary policy to secure the public expenditure that is necessary to restore our battered infrastructure and our social services. We shall need freedom of manoeuvre in fiscal policy not only generally but more particularly in the light of the devolution proposals that we have for Scotland and other parts of the United Kingdom.
It all adds up simply to this. We accept the Select Committee's conclusion that the United Kingdom should play its proper role in the implementation of Stage One and that we should do so with enthusiasm. Furthermore, we wish to book our ticket to play our part in the debate on progress toward economic and

21
monetary union and on the different ways in which that can be achieved. We wish to be constructive in that debate. But it must be a debate the result of which is uncertain, and the debate must take place in the context of what is politically realistic in the new Europe of the single market, Delors Stage One and the social charter. That is the right approach and that is the one that we shall adopt.
3.45 p.m.
Lord Bonham-Carter: My Lords, I too should like to join the noble Lords, Lord Cockfield and Lord Williams of Elvel, in thanking the noble Lord, Lord Kearton, and his collegues for producing this admirable, clear and wise report. It could scarcely have been done at a better time. I am sure that we are all grateful for its guidance. As always, I listened with the greatest interest to what the noble Lord, Lord Cockfield, had to say on this topic. I feel very much persuaded by his preference for a sequential procedure from monetary to economic union rather than for the parallel route suggested in the Delors report.
Of course there are many different approaches to the Delors report but, as in everything connected with the European Community, though the means are economic the end is political. With the passage of the Single European Act and as 1992 approaches, we are reaching a point at which the political element, and questions about political ends and means, institutions and accountability, and indeed sovereignty, will come more and more to the forefront of the debate. As economic integration develops it will affect more and more closely the everyday life of ordinary people. As demands for accountability increase, the size of the democratic deficit will become abundantly apparent. The debate about the meaning of European union and the role of the European Parliament and the Council of Ministers will become increasingly urgent.
It is in that context, the political context, that I should like to look once more at the recommendation of the Select Committee that this country should join the ERM sooner rather than later. The economic arguments have been set forth extremely clearly by the noble Lord, Lord Kearton, and the two noble Lords who spoke before me, and my noble friend Lord Ezra I know will be dealing with that matter towards the end of the debate. I do not regard myself as qualified to speak with authority on this issue but having read the Delors report, the report of your Lordships' Select Committee, the report of the Treasury and Civil Service Committee and the evidence submitted to those bodies, I am bound to say that, with one or two predictable exceptions, the body of expert opinion (or so I judge it) is in favour of our joining —to which we are in any case committed —sooner rather than later. It is a view, I would add, which is articulated by every member of the Government directly they leave, whether they happen to be Sir Leon Brittan, Mr. Nigel Lawson or Mr. Michael Heseltine.
If it is argued that we should not join now because our inflation is too high, it could be answered that most people have found that, by joining, their rates of inflation are lowered. If it is argued that it would
22
deprive us of using the rate of interest as a means of controlling inflation, it could be answered that there are other ways of controlling inflation, some of them fiscal. If it is said that we must wait and see whether economic convergence within the Community is such as to allow us to join, it could again be answered that membership of ERM tends to increase the pressures toward economic convergence and the achievement of it; and so on.
I should like to return to the political argument. As the report argues, it is the case that joining the ERM has become a symbol of our commitment to the European idea. No matter what the Government may say —and as the noble Lord, Lord Williams of Elvel, said —that commitment is not apparent to outside observers. Nor is it apparent to our colleagues and partners in the European Community. If noble Lords wish to know why, I suggest that they read the evidence of the Financial Secretary to the Treasury, Mr. Lilley, and it will become pretty clear. However, if it has become a symbol of our commitment, it is only by joining that we shall be able to dispel that interpretation of British policy. By joining we shall, in addition, be able to influence the structure, the shape and the institutions of the European Community that is coming into being. On the other hand, if we continue to prevaricate and delay, if we set more and more vague conditions that have to be satisfied, as they have been described in the Financial Times, then the European Community will develop in monetary and economic union in our absence and our interests will be neglected.
We constantly inveigh against the shortcomings of the common agricultural policy. The common agricultural policy was made in our absence and did not naturally take into account our interests. We should remember that lesson and not repeat the mistake that we made in the past.
Finally, we shall become a peripheral element in a new Europe which can and should become a centre of political and financial influence internationally and which can and should speak on equal terms with the United States, Japan and with whatever emerges from the present Russian revolution. Thus, even if economic arguments for joining the ERM sooner rather than later were evenly balanced, the political argument seems to me to be overwhelming. It is set forth in paragraph 82 of the Select Committee's report, which states:
"To protect the United Kingdom's own interests, both economic and political, the Committee believe that it is imperative to play an active role, first in the full implementation of Stage One and then in pressing for further progress … This can only be achieved by joining the ERM soon, and the Committee suggest before July 1990".
That leads me to what I believe is the fundamental objection to the progress of the European Community in a political way of the present Government and of the Prime Minister. It is the question of sovereignty, which I do not think we should burke. Put in another way, we have to ask ourselves whether we would have greater control over our destiny within a European Community which is developing along Delors lines or outside it in isolation.

23
The policy of splendid isolation first articulated in 1896 by Goschen was a policy that was supposed to maximise, not minimise, this country's influence in a Eurocentric world, where peace was preserved by the balance of power and where by our isolation we could maintain and control that balance. That was the theory, even though within a decade of its articulation we had abandoned it. But we no longer live in a Eurocentric world but in one of increasing economic and political interdependence. One need go no further than to take the example of the Bundesbank and our rate of interest's response to the change by the Bundesbank. It is immediate. That is hardly a good example of sovereignty.
It is odd that a government who take sovereignty so seriously should prefer the diktat of the Bundesbank to the actions of a committee of bankers on which we are represented, as Delors suggests. On these Benches we do not look forward to a Europe of sovereign states. The past hardly encourages one to believe that that is a good idea. We have always believed that the pooling of sovereignty was essential to the political aim which inspired the EC. We also believe that the progress of the Community —its magnetic attraction both to EFTA and the states of Eastern Europe —vindicate that idea. Furthermore, the extraordinary events which have already been referred to in this debate in Central and Eastern Europe and the ensuing instability and flux which can only be dangerous make the creation of a strong and stable European Community more than ever important.
Finally, the prospect of the re-unification of Germany —which whatever anyone may say is now firmly on the agenda —makes the political and economic consolidation of the Community, with Germany firmly anchored within it politically and economically, more than ever important. It is for that reason that we should be grateful to the noble Lord, Lord Kearton, and his colleagues for giving us an opportunity to hold this debate at this time with a report which so clearly and admirably clarifies the issue that we are discussing. Once more I should like to express my thanks to him and to his colleagues for what they have done.
I hope that when the Minister replies to the debate we shall have a statement that this country will join the ERM before or by July 1990; and in addition perhaps an answer to the question put to Mr. Lilley in committee by the noble Lord, Lord Aldington, when he asked for the Government's interpretation of the economic and monetary union which they favour if they do not favour that which was set forth by Mr. Delors in his report.
3.57 p.m.
Lord Greenhill of Harrow: My Lords, I should like to join with others in paying tribute to the presentation of the report by the noble Lord, Lord Kearton. As a junior member of the committee I do not have a great deal to add to what he stated so well. However, I should like to speak very briefly on some points.
I believe that 1989 will be remembered in the future as the year in which the British people first
24
became fully aware of the European Community. They voted in significant numbers for a European Parliament and daily received instruction on the EMS from the press and radio. During that year not a few public figures underwent a conversion comparable to that of St. Paul; and, like all converts, entered with enthusiasm into the controversy. I hope that our report tenders advice to the Government and others in an unprejudiced way and at a very critical time.
Amidst cries of, "Missing the bus again", one had to try to forget which country vetoed our entry into the Community; and, in the face of reproaches of isolation now levelled at us, one has to try not to recall how isolated we were in 1940. However, it is perhaps appropriate at Christmas for recriminations to be set aside. I believe that now a comparatively satisfactory state of affairs must be recognised to exist from our point of view. That is compatible with the findings of our report.
I suggest that the state of affairs after the Strasbourg Council is as follows. First, it is the clear intention of Her Majesty's Government to enter the ERM when certain conditions are broadly met. Not "whether" but "when" is the cry. There was once a widely held view that the Government had no intention of joining and was interested only in spoiling tactics or, in rugby terms, "kicking the ball deep into touch". If that was once true it is, I believe, no longer so.
The committee discussed "when" and after a certain amount of argument agreed on July 1990. There were witnesses, not least Sir Leon Brittan, who could see no objection to joining now. His attitude was that "everything would be all right on the night". I confess that I do not feel qualified to judge unassisted. I feel more confidence in the judgment of those who await the fulfilment, at least partially, of certain conditions. That was the opinion of the committee. Those who say "now" are, for the most part, in the happy position of not carrying the responsibility for such a decision if it proves to be a serious mistake.
Secondly, it is satisfactory that Delors Stage One is accepted by all. However, there is increasing recognition by many that Stages Two and Three are very much open to argument and amendment. The dramatic political developments in Europe have changed the scenario. On 11th December it was stated in The Times that,
"All plans drawn up before the Berlin Wall started to crumble are threatened with obsolescence. The Delors plan is a prime candidate for rethinking.
That surely cannot be denied.
The third satisfactory feature of the present situation is that the proposed inter-governmental conference has been put off for at least a year. During that year of postponement the problems of Delors Stages Two and Three can be thoroughly and profitably studied against the background of the changing European scene. The postponement was fortuitous and revealed the delicate nature of French/German relations. It has happily prevented a rush into premature decisions.
The year 1990 may see many changes in Europe. At the end of the year the original agenda for the

25
postponed meeting may well have been overtaken by events and will be found to be too narrow. I notice that many people fall in the habit of referring to the Community as "Europe". The Community is not Europe; it is 12 European states. Europe is larger than the Community. During the next year the possibility exists of an East German election with a truly democratic vote which may include a recommendation for or against reunification. Perhaps it is wise to issue a word of warning about those who are outspoken about the dangers of reunification. By expressing their doubts and fears, may they not be hastening the wish of the Germans to reunify?
After the East German election there will be the West German election on 2nd December. During the year there will also be other meetings involving European security and future plans for NATO. The American government are clearly considering initiatives which will not find favour with some Community members. Hopefully, the European development bank will be formed and its resources may include money from countries outside Europe which will wish to exercise a powerful voice in the policy of the bank.
All those are highly sensitive matters and will interact with each other. Therefore, is it not possible that by the end of 1990 we shall find ourselves in very different scenery? In all these meetings, Her Majesty's Government, far from being marginalised, can play an equal part with their partners and our views cannot be lightly set aside. I feel certain that if the Community is to advance it should do so at a prudent speed, and 1990 is an appropriate year for thoughtful and innovative debate.
4.6 p.m.
Lord Boardman: My Lords, I also welcome the report of the Kearton Committee. I congratulate the noble Lord on its presentation. It was interesting to hear the speech of the noble Lord, Lord Greenhill, who put the report in the context of foreign affairs of which he has vast experience.
I believe that the Delors Report contains a fundamental flaw. Stage One and Stages Two and Three are of different qualities. Stage One is different in character and in its national constitution. Yet the report imposes a requirement —I use the word loosely —that entering into Stage One means a commitment to embark on the whole process of Stages Two and Three. My noble friend Lord Cockfield referred to that as a sequential process and I understand that that may be another way of describing it. Even so, I believe that the flaw remains in that Stage One is of a different quality from Stages Two and Three.
Stage One seeks co-operation and consultation among the partners aimed at greater convergence of economic performance through the strengthening of economic and monetary policy co-ordination. It involves achieving freedom of capital movement, greater use of the ecu and joining the ERM. In essence, it is partners within the European Community consulting to make the most effective use of their individual economic resources.
26
Stages Two and Three are very different. They involve the transfer of partners' independence on key national issues to some type of corporate entity where decisions will be made centrally at some group headquarters. That would cover a range of vital national issues such as taxation, public expenditure and so forth. If that process of transfer takes place, who will "call the shots" on those vital issues?
I understand and praise the prudence of our Government and of others who show hesitation in plunging into such unknown territory at this stage. At present the governments of all member states are answerable to their electorates. They stand or fall on the performance that they produce, or appear to produce. But after Stage Three has come into operation, how will that judgment be passed by an electorate? How will the electorate respond? Will they be disenfranchised?
I turn now to the European central bank. To whom will that be accountable with its vast leverage? The trite answer is to say the Bundesbank; yet that has a responsibility to the German economy. It has independence from direct government intervention but it cannot claim to be a completely free-floating body accountable to no one. If there is a European central bank, who will appoint and dismiss the governors? Will it be the Council of Ministers, or the European Parliament, or will those powers be given to 12 wise men? Who will appoint them? It may evolve. I believe that over time we shall have a European central bank and also a common currency, but to commit ourselves to that path at this stage is quite premature.
At the risk of inviting criticism from my noble friend Lord Cockfield, I quote Dr. Karl Otto Pöhl who said:
"Economic and monetary union needs neither a central bank nor a common currency".
I am not sure what was his separate motive for that. My noble friend suggested that one should not consider Dr. Pöhl's remarks without looking at their purpose. If he was concerned that a European central bank might damage the strong anti-inflation stand and policies of the West German Government, then I can understand what he was saying. There must obviously be the fear that a European central bank would be less likely to follow the strict, strong and stringent rules of a low-inflation country and that it would finish up pursuing a policy that was the average of the 12. The noble Lord, Lord Williams of Elvel, made reservations on this matter which I certainly share.
With regard to the common currency, I welcome the development of the ecu. I believe that it has a more important role to play. As I have said, I believe that over time we shall develop a common European currency but that at this stage it is premature to be planning such a move. Like the committee, I urge that we concentrate on Stage One which is itself stretching and very demanding in many of the requirements which have to be fulfilled to make it work properly. We should allow Stages Two and Three to evolve in the light of the experience we gain.
I turn now to the exchange rate mechanism. I confess that over the years I have blown hot and

27
cold on the subject. I am sure that I am not alone. It is rather like trying to find a picnic spot in a motor car: you pass the ideal place before you realise it and you go on thinking that something better will turn up. That has been my view about when we should have joined the ERM. There have been times when it would have been right to do so but it is a matter for speculation as to what effect it would have had on our inflation rate and the stability of exchange rates. I believe that both would have been better.
Certainly I do not believe that today is the time for joining the exchange rate mechanism. The conditions laid down at Madrid, and since spelt out a little more fully and qualified, are right. It is necessary that there should be satisfactorily shown to be freedom of capital movement within Europe. The announcement by the French of the removal of exchange controls indicates that the concern many of us felt about their impact on European currencies was unjustified. It seems that our concern should be satisfied by July 1990 —the date when the Kearton Committee hopes that we can join the exchange rate mechanism.
On the substantial completion of the single market for financial services, I have rather more reservations. I feel there is a good deal of delay among some members of the Community. There is German reluctance to open up its market for insurance; similarly, there is French reluctance with regard to telecommunications. One wonders why some of the fire directed at the British Government for dragging their feet is not diverted towards other offenders.
I believe that it is important, before we join the ERM, for the UK inflation rate to be much lower. I hope and believe that we shall see it declining well in 1990. However, I believe it is rash to speculate that it will be down to the necessary level by July 1990 when the Select Committee believes that we should join the ERM. I understand the reservations spoken of by the noble Lord, Lord Greenhill of Harrow. I understand indeed that he had those reservations at the time the subject was discussed.
Turning to the exchange rate itself, I believe it is very important to achieve a stable rate for the benefit of industry and commerce. It is a key matter for them. To maintain the rate at an artificially high level by very high interest rates can be a mixed blessing. I recognise that a lower exchange rate can have serious inflationary consequences; but too high an exchange rate encourages imports and deters exports with serious consequences on the trade balance, while high interest rates add significantly to costs and wage demands. Within that package there is also a high inflationary risk. It is a difficult balance to achieve. I congratulate the Chancellor of the Exchequer on the speed with which he has grasped the fundamentals of the great problems that fall on his desk. I am encouraged by the way he has started and by his efforts to achieve a balance which I believe to be right.
It has been rightly said that the Conservative Party is not —nor should it ever be —the party of devaluation. We should seek exchange rates that
28
we believe to be maintainable and ensure that we maintain them in order to achieve stability. But at the end of the day the market decides and the judgment is not an easy one to make. If we can fix the rates at a maintainable level and have the policies which enable us to maintain them, then, at that time, it must be right to enter the exchange rate mechanism.
4.16 p.m.
Lord Stoddart of Swindon: My Lords, I too wish to congratulate the noble Lord, Lord Kearton, upon the manner in which he presented the Committee's report. I also congratulate the Committee in bringing forward this report which to date, at any rate, has resulted in a fascinating and stimulating discussion. I agree with the conclusion of the Committee at paragraph 81 that:
"The Community must not be rushed into an unsatisfactory form of economic and monetary union as a result of short-term pressures".
I was glad to hear the reservations uttered from the Front Bench on behalf of the Labour Party by my noble friend Lord Williams of Elvel. I agree very much with those reservations. There is no doubt that over the past weeks and months there have been enormous pressures on the British Government and the Tory Party to go forward to economic and monetary union at a pace which would not suit this country nor the Community itself. There has undoubtedly been an attempt to stampede the Government and the Conservative Party into premature agreement on ERM and EMU.
I was surprised to hear the Prime Minister described by Mr. Heath as "a narrow little nationalist". That is not the kind of language one expects to hear from the Conservative Party in this country. No doubt it is the kind of language that Mr. Brezhnev used about Mr. Lech Walesa and Mr. Dubcek. I hope that Mr. Heath, particularly when speaking from Paris, will moderate his language a little.
This issue, involving as it does our future independence and the economic wellbeing of our people and our country, is far too serious for us to be railroaded into economic and monetary union by a powerful group of fanatical Euro-federalists. I do not believe that the people of this country want to go down that road. For millions of our people the question involves too great an inroad into our sovereignty. That sovereignty, in my view, belongs to the people and not to Parliament. Too much of that sovereignty has already been ceded to the institutions of the EC by what has been an unwary or sleepy Parliament, particularly an unwary and sleepy House of Commons.
Paragraph 82 of the conclusion speaks of the need for the United Kingdom to convince its Community partners of its European credentials. It suggests that this is more important than ever and because it is important we should join the ERM before July 1992. That is not a very good reason for joining before 1992. Before we do so we need to ensure that joining is in the best economic and financial interests of this country and to prove our European credentials —as if we had not already done so.

29
We already run a trading deficit of enormous proportions —£16 billion last year with the Community, which would collapse without that deficit; without being able to push all those imports into this country. We handed over our fishing waters with baleful effects on British fishermen. We land most of our North Sea oil on the Continent for refining. We pay to the European Community £2 billion a year for little or no return. We changed our currency to a decimal system. We decimalised our weights and measures. We put up food costs by £13·50 for each family in the United Kingdom and put thousands of workers, including farmers, out of jobs. We have ruined Britain's traditional landscape and poisoned the land with nitrates. We agreed to a system which allows this country to be out-voted on a whole range of interests; and we allow niggling regulations, like the one reported over the weekend which will ban charities from making toys for sale unless they have some sort of licence and will penalise them by a fine of up to £2,000 or six months' imprisonment. If, by all those things and many more, we have not proved our European credentials, then I do not know what more we have to do.
The word "British" is almost becoming a dirty word. If one dares to stand up for British rights one is called "a little Englander" by the Euro-cranks. Even I am called a little Englander sometimes although I was born in South Wales. That is the situation which we have reached.
However, the immediate question is whether early entry to the ERM will be beneficial. The Governor of the Bank of England clearly does not think so. We have heard about that in the debate. On Thursday of last week he was telling central bankers —it is important to know who he was telling —in Italy that the Government should resist political pressure to join the ERM before the economy is in better balance. Perhaps I may quote from the Daily Telegraph of Thursday, 14th December exactly what he is reported as saying:
"The Government should resist political pressure to join the European exchange rate mechanism before the economy is in better balance".
The article continues by explaining that the Governor,
"made it clear that premature entry would be disruptive not only for Britain but for the Community as a whole".
It further states that he,
"was anxious also to preserve Britain's right to pursue an independent monetary policy, setting interest rates to control credit growth instead of having targets imposed from outside, on a collective basis".
Even I can agree with that. The article further added:
"Looking beyond the immediate question of when Britain should join the ERM, the Governor supported Mrs. Thatcher in her opposition to rapid moves towards full monetary union, involving Treaty changes and the creation of new European institutions."
There we have it from the Governor of the Bank of England. It is clear that he believes it would be damaging for us to join the ERM at this point in time and before our economy is ready for it. Nevertheless, the EMS is supported by the Select Committee and most of the witnesses who appeared before it. However, I wonder whether the committee and all the experts are right; or are they kidding
30
themselves and the country that all we need to do to succeed is to become a full member of the ERM?
I have to say —I have said this before and I shall continue to say it —that there is no panacea to cure all our economic ills. There is no substitute for hard work and effective management of the economy. That is what we need; not joining the ERM. That will not solve the fundamental problems of our economy.
We should perhaps look at what has happened to France since it joined the ERM in 1981. First, unemployment in France has increased by 1 million to 2·5 million. In this country outside the EMS, it has been falling. In spite of this the franc is 15 per cent. higher against the deutschmark than in 1981. It should be falling to reduce unemployment, but it has been rising and hurting those people who are on the dole. The number of new jobs created in France has been very small indeed. Imports of manufactured goods have risen faster than exports and the balance of trade in manufacturing has fallen from a surplus of 11·3 billion dollars in 1979 to a deficit of 8·4 billion dollars in 1988. In France the rich have become richer; property owners have done better than wage earners; wage restraint has been the order of the day and, as a result, average wages lost 2 per cent. of their purchasing power between 1982 and 1988.
That is the experience of France within the ERM. It contrasts —although I do not like saying this —with experience in this country, where unemployment has been falling, real wages have risen and gross domestic product has grown faster than in any other country inside Europe except Germany. There is, therefore, no certainty that joining the ERM will cure all our economic ills.
Apparent support for the ERM —and I am speaking about ordinary folk —arises from the fact that people have been led to believe that interest rates will immediately fall, and fall fast, if we join the ERM. Businessmen and mortgage payers alike are, under those circumstances, likely to agree that the ERM is good and say, "Let's go in". What they do not understand is that interest rates could only come down significantly —all noble Lords on all sides of the House know this —if severe deflation were to be introduced, leading to a huge increase in unemployment and many bankruptcies. That is the alternative. It is an alternative that we ought to understand is the one that is available. That is why we should be extremely careful about making hasty decisions as to whether we go into the ERM.
I have to say to mortgage payers that there have been some very interesting articles lately about the ERM. The Financial Times of 5th December contained an article upon the subject by John Muellbauer and Anthony Murphy. I shall not refer to it in detail, but the headline was: "No ERM Entry Without a Property Tax". This theme was taken up by the Sunday Express only yesterday. The Sunday Express states in regard to the ERM:
"The only way of countering a renewed upturn in inflation would be to raise taxation to counter the impact of falling interest rates and take spending power out of the economy that way.
"The Treasury is looking for alternative ways of increasing revenues, apart from income tax. It is more than possible that

31
the new Chancellor, Mr. John Major, in order to mitigate the surge of borrowing which would otherwise take place, will direct some of his tax increases specifically at the housing market".
He may very well be thinking of introducing capital gains tax on profits made from the sale of houses. Mortgage payers who believe that they will do well out of our going into the ERM perhaps ought to think again. What they will gain on the swings, they will lose on the roundabouts.
I have said all that I wished to say. I hope that the strictures of a number of noble Lords concerning hasty decisions on EMS and ERM will be heeded. I should like to thank the noble Lord, Lord Kearton, for his report and the manner in which he introduced it.
4.32 p.m.
Lord Roll of Ipsden: My Lords, we are once again indebted to my noble friend Lord Kearton for introducing this debate on a report prepared under his chairmanship. It deals with a subject of tremendous importance. I make so bold as to say that, next to the question of the restructuring of the European security system —to which it has some relevance —this is a subject which will profoundly affect our lives and those of future generations. I should like to say at once that I broadly agree with the conclusions of the report.
It may have been thought to be hazardous to bring the report out just before the Strasbourg meeting of heads of government, when very important decisions were going to be taken on precisely the matters dealt with in the report. However, just a little over a week since the Strasbourg meeting we see that, broadly speaking, the balance of the conclusions of the report has been confirmed. We can now see fairly clearly what at the moment is agreed Community policy.
The inclusion of sterling in the exchange rate mechanism agreed at the Madrid Summit and the acknowledgement that this operational part of the European monetary system is a vital element in the further progress of European integration have now been unanimously confirmed. Together with the capital liberalisation measures and the energetic pursuit of the single market, it marks Stage One of the Delors programme. It is confirmed that that stage will begin next July. Regrettably, some doubt remains as to the timing of the entry of the pound. I am pleased that the earlier suggestion that one of our conditions should be the completion of the single market forms no part of the Government's policy, for it could mean a delay at least until 1992, and that reasonable progress —and various other adjectives have been used —a concept which is very well established in English practice and in English law, should be the test.
As the noble Lord, Lord Kearton, reminded us, the Select Committee recommended in two earlier reports the entry of the pound into the ERM. It now recommends that this should happen by 1st July 1990. I respect the doubts expressed by the Governor of the Bank of England in regard to premature action. However, when I hear words like "rushing into things" and "being railroaded into the exchange rate mechanism", I cannot help reminding noble Lords
32
that if we enter next year the European monetary system will be 11 years old. That is a fairly long gestation period. I do not know of many examples in the animal kingdom of such length.
Given the fact that liberalisation of capital movements by France and Italy is to be completed by 1st July 1990 —and with regard to France it will be virtually completed at the beginning of next year —and given the intergovernmental conference to discuss the future after Stage One, which is to commence by the end of next year, I believe that it is essential that we should enter that phase in the same position as our partners. When I was more intimately familiar with the ways of Whitehall and of central banks than I am now, I would have taken a small bet that secret negotiations were already under way covering the precise circumstances of the abolition of capital controls, including such matters as closer co-operation by the tax authorities to minimise possibilities of tax evasion, a possible revision of the range of fluctuations allowed in the exchange rate mechanism and above all the date and terms of the pound's entry into the ERM and the very important co-operative arrangements to deal with post-entry disturbances. Perhaps the machine is working as it did 20 years ago. I very much hope that it is and that such negotiations are already taking place.
What will be the situation after that? We have resisted the proposal for an intergovernmental conference, but now that it is to take place, I am pleased that we have said that we will participate. An old French proverb says
"Those who are absent are always in the wrong".
It took us 17 years, from approximately 1957 to 1973, to repair the damage that we did, primarily to ourselves, by our absence from the Messina Conference, which laid the foundations for the Treaty of Rome. We may not have repaired the damage completely. I am very pleased that we have learnt the lesson.
The conference is to consider progress after Stage One. The Delors proposals for Stages Two and Three must form an important basis of the discussion and negotiation, but it will be open to the participants to propose variations and alternatives. The report before us counsels caution on the later stages of economic and monetary union. Many people, including myself, who regard ultimate monetary and economic union, whatever that may be, as desirable, recognise that major issues, not only of an economic and financial nature but of a broadly political and constitutional nature, will need to be resolved.
Before the Strasbourg summit a high-level official committee, including representatives from our Treasury and Foreign Office, prepared a report entitled On the Principal Questions Posed by the Implementation of Economic and Monetary Union. This report has not publicly received the attention which it deserves. It contains a complete and highly instructive annotated agenda covering the whole range of questions that will need to be tackled by the intergovernmental conference. In the light of this report, the Government, however doubtful they may be about Stages Two and Three of the Delors report,

33
need not fear that any of the issues that they consider important can possibly be overlooked. They can, and I hope that they will, enter those negotiations in a constructive spirit.
Clearly, a major intellectual and political debate will ensue; but it is now possible to comment on some of the elements involved. Delors assumes that Stages Two and Three will require new or revised institutions and, therefore, new treaties or revisions of the Treaty of Rome. The report prepared by the official committee to which I have referred assumes the same thing, at least by implication. The creation of a European central bank, whether or not it is federal, and a common currency would need to be based on a treaty. It is difficult to see how it could be otherwise. This would also have to lay down rules on the very difficult question of ultimate accountability combined with what is in many quarters desired —namely, independence, in day-to-day operations of a European central bank.
So far the Government have shown considerable antipathy, to put it mildly, to the idea of new institutions and to the whole concept of Stages Two and Three. There is very much in the substantive elements particularly of Stage Three as outlined in the Delors report which is highly debatable. The Select Committee has drawn attention to some of these matters, particularly the proposals relating to budgetary policy. As they stand, they appear not to be feasible on the broadest political grounds for a long time to come, if ever; nor is it established clearly—certainly not to my mind —that they are either necessary or desirable, at least in the detail proposed, given the uncertain state of our knowledge of the relation between fiscal and monetary policy and how this changes from country to country and from time to time.
The Government have already fired one shot in this battle by producing a Treasury paper entitled An Evolutionary Approach to Economic and Monetary Union which appeared too late to be more than briefly referred to in the Select Committee report, although the noble Lord, Lord Kearton, referred to it in his introduction. The Delors proposals for further development are of course also evolutionary in the sense that they are based on the completion and strengthening of the European monetary system and beyond it the single market, both of which necessarily require institutions and operations which are monitored by institutions. It is difficult to escape the conclusion that if economic and monetary union are to mean something more than just co-operation, further institutional developments will almost certainly be needed.
As to the Treasury paper, too much attention has been addressed to the so-called "competing currencies" element in it. The essence of the Treasury proposal is that there should be no deliberate moves beyond Stage One and that the many desirable developments which it outlines will happen, as it were, by themselves. This is based on the view, and I quote, that:
"The forces released in Stage One will reshape all our economies along new European lines. By any standards Stage One is an unprecedented endeavour whose significance cannot be overstated".
34
Stage One comprises the creation of the single market and the single financial area as well as the completion of the European monetary system. But it is significant how much of the benefits of Stage One, which in the Treasury's opinion make further deliberate stages unnecessary, are ascribed in the Treasury paper to the operation of the European monetary system, which is incidentally also credited with having produced,
"greater convergence of inflation".
It is rather ironic that, not being full members of the European monetary system, a status which we have resisted for so long, and also having displayed very ambivalent views on the role of exchange rate policy in the management of the economy, we should now place so much emphasis on this one element. However, let us remember that,
"Joy shall be in heaven over one sinner that repenteth more than over ninety and nine persons, which need no repentence".
The essence of the proposed "evolutionary approach" is that nothing needs to be done by way of deliberate Community action, devices, mechanisms or institutions that would not spontaneously come about after Stage One, though over an unspecified period of time.
This is a perfectly conceivable picture— I admit that straight away —but one cannot help thinking that our friends on the Continent, particularly given the momentous events in Eastern Europe —in this respect I differ very much from my noble friend Lord Greenhill —and the significant developments in American foreign policy which have become evident in the past week or two are much more likely to be moved by Andrew Marvell's words to his coy mistress,
"But at my back I always hear
Time's winged chariot drawing near";
and one may wonder whether what has been set in train and achieved so far and on which the Treasury paper heaps such praise could have been achieved without the Single European Act, without the European monetary system and without the repeated and solemn commitments to economic and monetary union by the heads of government. Our friends on the Continent may well recall the words of Jean Monnet, who knew a thing or two about these matters:
"The best plans remain ineffective unless we include instruments for decision and a timetable".
We shall see. History has its own imperatives and we cannot now be sure what these will produce.
With all its caution on Stages Two and Three, the Select Committee takes a somewhat different view from the Treasury, for it states that:
"in the long run, exchange rate stability may well be harder to maintain without an institutional framework"
It also accepts that to exploit the gains of a single market,
"requires economic and monetary union particularly in the form of a common currency".
This being,
"an enormous step towards the Community goal of joining the leading ranks of world economics".
That surely must remain an overriding objective.

35
In this connection I should like to add a brief final word on the position of the City of London, which is important since broadly the financial sector accounts for about one-seventh of our gross domestic product. Of course I would not pretend for one moment to speak for the City on all these great matters but I believe that many in the Square Mile will agree with an extremely perceptive leader in the Financial Times a week or so ago on at least one aspect of this debate. The question is whether the eventual emergence of rigidly fixed exchange rates and a fortiori of a single currency, together with a European central bank will diminish the role of London as a pre-eminent international financial centre.
The article makes three points. First, it argues that it would be disadvantageous for the City if the United Kingdom were not fully involved in the current process for further European integration. This danger, happily, is or soon will be out of the way. Secondly, the article argues that the location of a future European central bank need have no more than symbolic significance. That is more debatable. I personally would hope very much that, even if the board of some future European central bank, if ever there is one, were to be placed elsewhere, the Bank of England would nevertheless be its operating arm, just as the New York Fed is in the present American system.
The third point is particularly important and rather novel. It is that the real "threat" to London lies in the progressive liberalisation of other markets. This may seem paradoxical. However, I think it is true, but only in the sense that any enlargement of the market, any increase in the number of participants and the scope of competition and above all any equalisation of the advantages which London has undoubtedly enjoyed because of its openness are bound to constitute a challenge, at least in the short term. But to this we have been used for a long time. I do not think that we need look to the future in this regard without confidence provided we are prepared to meet this challenge as hitherto.
4.48 p.m.
Lord Geddes: My Lords, I too should like to thank the noble Lord, Lord Kearton, not only for the excellent and, as usual, most succinct way in which he introduced this debate but even more so for the way he chaired our sub-committee. He did so with supreme tact, enormous knowledge and not a little humour. All of us on the sub-committee and indeed noble Lords on all sides of the House are enormously indebted to him.
In June 1983 the Heads of Government of EC member states together with their foreign ministers signed the solemn declaration on European union in Stuttgart. It reaffirmed the basic European policy of economic and monetary union. As other noble Lords have said this afternoon and indeed before, there is of course divergence of opinion as to what economic and monetary union actually means. But to rely on questions of semantics as the reason for delaying participation is akin to discussing the proverbial length of that well-known piece of string.
36
It is widely accepted and indeed recommended by the report that Stages Two and Three of the Delors Report need a great deal of further consideration. But surely few people, except perhaps the noble Lord, Lord Stoddart, can be in any doubt as to the next logical step here in the United Kingdom; namely, our entry into the ERM. The arguments have been well rehearsed. I shall certainly not reiterate them at length. I shall leave that to others, especially the economists.
However, I should like to say that in my view the evidence —I stress this point, because the conclusions, in the report are based on the evidence which was submitted to the committee —in favour of our entry into the ERM is overwhelming. Perhaps I may divert for just one moment and refer to the intervention made by my noble friend Lord Harmar-Nicholls during the speech of the noble Lord, Lord Kearton. In this respect, speaking as a member of the committee, all I can say is that nothing has happened since the publication of the report to alter my opinion.
Those countries which already participate in the mechanism have found that is has succeeded in giving them a large degree of exchange rate stability. ERM members have increasingly benefited from low inflation and have enjoyed relatively low levels of interest rates. We should not underestimate the United Kingdom's importance in the matter. I sincerely believe that our membership of the ERM is not seen on the Continent of Europe as just the addition of another country for the sake of neatness and symmetry; rather it is seen as a major change within the ERM.
Mr. van der Klugt, who is both president of the Association for the Monetary Union of Europe and chairman of Philips, made the following comments in his evidence. He said:
"If the Community is ever going to get together it cannot be without the pound".
He then continued with an interesting sentence over which I have puzzled frequently since. He said:
"Either there is no Community or it [the United Kingdom] must be in".
Because of the perceived importance of the United Kingdom's membership, I believe that our joining would in itself encourage a period of digestion and pause for reflection before the commencement of Stages Two and Three. If we seize the opportunity and take advantage of the United Kingdom's present standing in the matter, then we also have a chance to be an enormous influence on Stages Two and Three. It is an opportunity which will otherwise surely be lost.
Failure to seize that opportunity —that is, to join the ERM by July 1990 —will not result in the rest of Europe calling a halt to the EMU. In all probability, based on all the evidence we received, the result would be quite the reverse. Mr. John Banham, the director general of the CBI, made the point that the degree of success and momentum generated by the single European market and 1992 was so great that it was bound to encourage the other members to press ahead at full speed. He said:
"That is no reason … to stand aside. I would have thought that it was a reason to get into the brake-van so that we are able to apply the brake".

37
I must comment that I personally would have preferred the analogy of the engine rather than the brake-van so that we could influence the speed in a positive manner rather than a negative manner. However, the EC is committed and will carry on without the United Kingdom, if necessary. That could well mean, as other noble Lords have mentioned this afternoon, that the much discussed two-tier Europe will emerge. Economically that would surely be highly damaging to the United Kingdom.
We were told that CBI members have already found that the United Kingdom's non-membership of the ERM has had a serious adverse effect on their ability to build profitable, long-term strategic positions in some of the key markets in Europe. As the document produced by the Treasury in November this year, entitled, as we have just heard from the noble Lord, Lord Roll, An Evolutionary Approach to Economic and Monetary Union, pointed out,
"Greater use will be made of low inflation currencies at the expense of high inflation ones in both transactions and deposits".
Sterling, presently a high inflation curency, will surely suffer at the expense of the deutschemark. As my noble friend Lord Cockfield pointed out in his speech to your Lordships on 22nd November this year,
"if we do not join in the monetary union, what will inevitably happen will be that the financial centre of Europe will shift from London to Frankfurt. If that happens, neither this generation nor future generations will ever forgive us".—[Official Report, 22/11/89; col. 76.]
Those are wise words.
A common currency is the logical, ultimate aim of the EMU. The Delors Committee Report pointed out that as the European financial area became a reality, governments would realise that their national monetary autonomy was increasingly illusory. In his evidence, Sir Leon Brittan said that the inevitable result of permanently fixed interest rates is in effect a common currency. The real problem is persuading people that it is so fixed. It is a psychological barrier more than anything else. It is surely a barrier which we must surmount. It must become our acknowledged objective.
As the noble Lord, Lord Greenhill, among others, said, we are at a momentous time in European history. The recent events in Eastern Europe, the rise of Japan to a position of international economic dominance and the continuing strength of the United States are all challenges which must be met and which can only be faced successfully by a Europe operating as a soundly based economic union, with the United Kingdom a fully participating member.
In conclusions, I make no apology for quoting part of paragraph 82, as did the noble Lord, Lord Bonham-Carter. There are two sentences in that passage which are absolutely fundamental. They read:
"The need for the United Kingdom to convince its Community partners of its European credentials is more important than ever. This can only be achieved by joining the ERM soon, and the Committee suggest before July 1990".
As a member of the sub-committee, I wholeheartedly endorse that conclusion.
4.57 p.m.
Lord Harris of High Cross: My Lords, I believe that it will generally be agreed that we have had a series of absolutely first-class speeches which have maintained the quality and high seriousness of the opening contributions made by the noble Lords, Lord Kearton and Lord Cockfield. I feel that unless the speeches suddenly become shorter, I may have to crave the indulgence of the House to leave in the midst of the closing orations.
I know that I must not economise with time before congratulating members of the Select Committee on what I thought was an outstanding report. I noticed that the chairman, the noble Lord, Lord Kearton, was always ready with a fund of questions to keep the witnesses on their toes. In something of the same spirit, like the noble Lord, Lord Stoddart, I believe that we must not be deterred from asking questions by what appears to be the psychological intimidation of the Euro zealots who demand blind approval of every dotty Delors dream as a test of what the noble Lord, Lord Geddes, called cur "European credentials".
I wish to make clear my starting position. As an Englishman, I rejoice to be part of the human, historical and geographical mosaic which is modern Europe. I have a strong stake in the Continent, and I have four Anglo-French grand-daughters to prove it. For the past 30 years among my closest personal friends have been leading professional economists, especially from France, Germany and Italy. As classical liberals they mostly share my admiration for the Prime Minster, who comes under so much criticism from Europe. They share that admiration as they share admiration for the noble Lord, Lord Cockfield, as not so much the midwife of the single market, but as its chief progenitor.
We see the 12 nations as being engaged in the liberating task of dismantling decades, even centuries, of obstacles to trade and mobility that have dulled, deadened and distorted economic and social progress. That historic task has now to be pushed through against continued resistance by narrow, nationalistic and producer interests, often disguised by rhetoric about the social charter and technical standards. We have our hands full with 1992 without forever being distracted by new divisive schemes.
Of course a much widened and diverse market works better with a single, stable unit of account and medium of exchange. The gold standard and pound sterling provided that role from the end of the Napoleonic wars until the outbreak of the First World War. It undoubtedly wonderfully encouraged trade by reducing transaction costs and removing uncertainties. I suspect that M. Delors would not have approved of the gold standard because it did not require the likes of him to invent it. That distinction goes to the heart of the debate over the EMU. Hayek, whom I would argue is the greatest living European economist, has warned over the decades about what he calls the constructivists who believe that they know enough to redesign social institutions from scratch. He has pointed to the gradual emergence of markets and money, as of

39
language, as examples of spontaneous evolution and development.
The idea of inventing a new money is akin to the vain ambitions of those well-meaning crackpots who thought that they could invent a new language in the name of Esperanto. Both are examples of what Hayek has called the "fatal conceit": the pretence to knowledge and powers that we do not have. In place of such crude and clumsy construction, Hayek has shown how competition —in goods, institutions and ideas —is the optimal discovery procedure of what will serve us best. An open market, whether in mousetraps, mince pies, money or methodologies, encourages better ways of serving our diverse requirements and preferences.
It was not until his eighth decade that Hayek in 1976 stumbled on the question of whether money was a public good that had to be provided by government. The resurgence of inflation in the 1960s led him to ponder the abuse by politicians of all parties, of their control over national money. Thus, he had begun to see that through legal tender laws and exchange controls national governments could compel citizens to accept depreciating paper money. It was merely another case of the abuse of monopoly power. There has followed a rich, scholarly literature on the merits of competition in currencies, and the denationalisation of money.
Two major conclusions bear on the latest Delors Report. The first is that the monopoly of money is as dangerous as a monopoly in any other product or service. The second is that monetary authorities should be as independent as conceivable from the discretionary influence of politicans who, irrespective of party, will always be tempted to inflate in order to collect seignorage on new issues or in the hope of a short-term stimulus to output and employment.
The improved performance of the EMS since 1979, about which we have heard, provides a dramatic illustration of the merits of competition in currencies. It is the comparative stability of the deutschemark under the independent management of the Bundesbank that has provided the anchor and example to keep the franc and the lira from their old habit of depreciation. In the same way, it is the Treasury's failure to maintain low inflation that has increased the attraction of the ERM even for critics like myself who prefer floating to fixed exchange rates and believe that attempts to fix will delay adjustments and store up trouble for the future. With competing currencies, each monetary authority comes under pressure to match the stability of the best on pain of its currency being increasingly supplanted by another.
The success of the deutschemark however is the product of a unique combination of German history, psychology and competence, together with an independent Bundesbank constitutionally committed to safeguarding the currency.
I have time only to ask a number of questions. My first is a friendly question for members of the Select Committee. Why press for early British membership without emphasising that the exchange rate at which
40
we join must be sustainable? After all, it was no less an authority than Samuel Brittan who blamed the damaging failure of the experiment to shadow the deutschemark in 1988 on aiming at too low a rate. The present danger may be of entering at too high a rate.
My next questions are mostly for M. Delors. I shall see that they reach him when Hansard is published. My first is: why make a decision to join the ERM an irrevocable first step to Stages Two and Three? If the full EMS is as successful as advocates claim, what is the hurry to replace it? If the deutschemark continues to outperform competing currencies, it will increasingly be adopted as a unit of account and store of value without any edict from Brussels. If the constructivists insist on inventing a new currency at short order and imposing it in place of all existing moneys, what do we do if it proves unstable? Other noble Lords have asked the same question.
Let us suppose that the EMU is run no better than the CAP which is the chief example to date of the Commission's deplorable handiwork. What if the Treasury memorandum is right to fear a higher inflation for the EMU, nearer to the European average than to the German best? What confidence can we have in the Delors Report when paragraph 32 says that the new system will be committed to price stability, while paragraph 16 says that policies should also be geared to,
"balanced growth, converging standards of living, high employment and external equilibrium"?
That is almost a formula for a progressive debasement of the currency.
I come to my last question which is something of a knock-out. Would M. Delors wish to have his pension rights fixed in a newly invented EMU or would he, like the rest of us, prefer deutschemarks?
5.7 p.m.
Lord Butterworth: My Lords, I should like to congratulate and thank the noble Lord, Lord Kearton, because he led me, as a member of the committee, skilfully through the thickets of economic and monetary union. I differ from some of my colleagues in that I regretted that a date by which Britain should have joined the EMU was placed in the report. There was no doubt that the weight of evidence was in favour of Britain joining sooner rather than later. Many witnesses were convinced that we should be more effective arguing from within rather than by remaining outside the ERM. Many of the arguments were political.
It cannot be right that we should ignore the economic arguments completely. Your Lordships may have noticed that the report suggests that Britain should join the ERM before July 1990. Notice that it suggests; it does not recommend. That may be because we had no evidence in favour of one date rather than another. It is far better not to choose any date because the Government must have discretion about the date upon which we should join.
As my right honourable friend the Prime Minister made clear last week, we have already agreed to join. The only question is when. On that, she made the

41
point that the conditions were not rigid but should be broadly met. In suggesting a date, the committee would seem to have departed from its normal gubernatorial stance and to have ignored one of the most elementary rules of bargaining by suggesting that one of our strong cards should be revealed virtually before negotiations to join the ERM have properly begun.
Moreover, as my noble friend Lord Boardman pointed out, it should not be forgotten that the fulfilment of some of our conditions for entry to the ERM require action by our partners and not by us. Our records show that of the 88 measures on the single market which by now should have been adopted, we have to implement only three. The Commission's figures show that France and Germany need to implement 18, Spain 38 and Italy 50. As has already been pointed out, the most important problem is to get inflation down before we go in. Premature entry with inflation and interest rates too high may not only be damaging internally to our own economic interests but disruptive of the ERM itself. Bretton Woods worked so long as inflation was low in most countries, but it could not contain high and divergent inflation rates.
At home, premature entry might undermine our anti-inflationary policy if it induced an artificial confidence in the exchange rates requiring premature reduction in interest rates; in short, the maintenance of the exchange rate being achieved at the cost of sacrificing domestic stability.
On Stages Two and Three of Delors, as has already been pointed out, our committee urges that no particular form of economic and monetary union should be accepted before we have had experience of Stage One. The components of Stage One —the completion of the single market, the European financial area, the reform of the structural funds —are all existing Community objectives. However, as the report points out, taken together with the development of monetary co-operation —and I now quote —"Stage One becomes a quantum leap in its own right rather than purely a preparatory stage".
The Delors Report envisages moving, even before the single market is established, by administrative fiat to irrevocably fixed exchange rates. That means in effect a single currency and the need for a central bank of some kind. The strongest argument in favour of a single currency, as the report points out, is that it would enable the gains of the single market to be exploited to the full. However, the overall final objective must be to create a Europe able to compete with every other powerful economic centre, be it the United States or Japan. A single market which turned out to be not sufficiently strong to achieve that objective would have failed.
The Government, in their alternative to Delors, are in effect saying that the creation of a truly successful and competitive Europe does not depend upon adopting now a single currency but upon cultivating a Europe which is economically strong.
If the objectives of Stage One are realised, inflationary pressures will be sharply reduced, the ERM will become more stable and the economic
42
and monetary policies of the member countries will gradually converge. This evolutionary approach requires no statutory amendment, no treaty amendment. It could develop into a system of fixed exchange rates if that were eventually to be desired. But it would be wrong to decide now that the next stage must be a common currency with the necessity for a central bank. Incidentally, no one has explained how such a central bank can be made democratically accountable. There would, I suspect, be little enthusiasm for making it accountable to the European Parliament at Strasbourg. It is not easy to see what machinery could be invented for making it truly accountable to the national governments.
Finally, perhaps I may say something about the momentous changes in Eastern Europe. Our report records the virtual unanimity of witnesses on the undesirability of a two-tier Europe. But may we not be beginning to see the evolution of a multi-tier Europe which may better fit the needs and aspirations of the more complex Europe which is emerging? We already have some indication that the old narrow Community of 12 was becoming a two-tier club, a core in two parts; one part probably consisting of France, Germany, Italy, Benelux and in the future perhaps Iberia, developing out of the Schengen Agreement into an increasingly federal group. The other part of the core would consist of countries like Britain, Ireland, Denmark and Greece, full members of the Community, integral parts of the single market but detached from some of the emerging federal institutions.
Of course that will take time, but in the future there could be a third tier of countries enjoying close association with the Community, access to the market, but with only a limited influence upon the making of Community rules. A fourth tier might be other countries which had an association with the Community and access to the market but which were also eligible for aid. These last two tiers could include the EFTA countries, Turkey and the East European countries, Hungary, Poland and Czechslovakia, when they had become democratised.
In this dream of mine it would be possible for there to be movement between different tiers. Norway and Austria might at some stage join the full Community. Some parts of the Soviet Union —for example, the Baltic republics —might join the third tier. What of Russia itself? Some form of association with an extended Europe might assist it Al its present economic problems, but that is clearly outside the ambit of this debate.
A structure of several tiers might better fit the more complicated Europe which is emerging and reflect the view of most people that Europe extends much further east than the boundaries of the Twelve. At some stage in the future, on looking back we may regard the present Community as a constitutional structure invented to cater for the temporary conditions of the cold war before the Berlin Wall was breached.
It would seem that the changes which are taking place in Europe are inducing our colleagues to adopt a slower pace. As has already been mentioned, Germany has asked that the intergovernmental conference on Stages Two and Three of Delors

43
should be deferred until the end of next year. It is again Germany which has just deferred the signing of the Schengen Agreement. Maybe the additional thought which a slower pace will make possible will result in more states seeing the virtues of an evolutionary approach, especially as the consequences of Stages Two and Three of Delors become more widely known.
5.20 p.m.
Lord Ardwick: My Lords, I must congratulate the noble Lord, Lord Butterworth, on bringing an original idea on this much discussed subject into the Chamber. I do not intend to follow him down the path of a multi-tiered Europe, but at least it is refreshing to hear that view. First, I wish not only to thank the noble Lord, Lord Kearton, but also to say that I thought his presentation of the report today was as good as any I have heard in this Chamber of the many excellent reports from that committee.
I am sorry that some time ago I had to leave the sub-committee, on which I was sitting because of other parliamentary duties on the mornings that the committee held its regular meetings. I particularly regretted missing the inquiry into the Delors Report on economic and monetary union. It is just over a decade since I was rapporteur on this subject in the European Parliament for the appropriate committee. For a year I thought of little else. European monetary union was coming out of one ear and EMS out of the other. It was a particularly interesting time as the president of the Commission, the noble Lord, Lord Jenkins of Hillhead, was campaigning to revive not economic and monetary union but monetary union alone. I hope that the noble Lord, Lord Cockfield, will note that.
The noble Lord, Lord Jenkins, was campaigning to revive monetary union as an aim once more of the Community. Meanwhile, the parallel proposal to create the EMS was born and developed. Inevitably, EMU and EMS became mixed up as they are again today in this country—not only mixed up, but confused. I tried with insufficient skill and insufficient authority to make the clear separation which M. Delors and his committee have done. I never succeeded, even in my own committee. To many MEPs any substantial measure of economic and monetary integration was economic and monetary union. Union in the European sense is a beautiful word on a par with mother love, but much vaguer than that.
I defined EMU rigorously as a union in which a single currency replaces the currencies of member states and implies a central monetary authority. I said that it required at least the framework of a federal system and a loss of national power to conduct macro-economic policies and distinctive corporate taxation. My colleagues were shocked. They asked me whether I could be less brutal. I was confronting their beautiful dream with the reality of daylight. I tell my story today because I suspect that many Europeans have still not come to terms with the brutal reality that M. Delors is proposing. The
44
complaint has been made, even in another place, that although we have the version of M. Delors of EMU, we still do not know what union really implies and what alternatives there may be to it. Yet it was a project to which the British Government were totally committed, alongside the existing member states and the other newcomers, at the pre-entry summit in Paris as long ago as October 1972. We were to achieve EMU by 1980 and it was to be irreversible.
Even in those days there were three stages. Stage One was called the snake. Stage Two consisted of joint preparation of economic policies and Stage Three was the creation of a central banking system and fixed and immovable currency parities. Of course, it never happened. The world monetary crisis blew the snake out of the tunnel and three years later Robert Marjolin, former vice-president of the Commission, reported that never had economic and monetary policies in the Community been so discordant and so divergent.
It was not only the crisis, exacerbated by the oil problem, that caused the hitch. It was, said M. Marjolin,
"just as if the Governments had undertaken the enterprise in the naive belief that it was sufficient to decree the formation of a EMU for this to come about at the end of a few years without great effort or difficult and painful economic and political transformations".
I wonder whether even now, as my fellow Europeanists cheer on EMU, they have visualised the difficult and painful transformations that will be required. However, if complacency exists on one side, it is matched by unnecessary gloom on the other among people who fear that Europe will become a melting pot like the USA and that we shall lose a vital part of our national identity.
I remember the noble Lord, Lord Jenkins, in the course of his campaign, arguing that there was no need to develop the Community on a traditional federal scale. He said that a definitive monetary union could be attained on a budget of only 5 or 7 per cent. of Community GNP and that great progress could be made on half that sum. In other words, the budget of the Community would be less than the budget of any one of the major member nations. The Community, he said, should be given only those functions which it could perform better than the member nations. That concept has lately become known by the terrible name of subsidiarity.
One of the problems we have in considering EMU is that it is so technically formidable. It is, of course, the invention not of politicians but of bankers. M. Delors, a banker, had a committee full of bankers and academics. The committee of the noble Lord, Lord Kearton, also contains distinguished economists, accountants, academics and bankers. That is inevitable: the nature of the committee requires it to contain such experts. However, there is no one on the committee whom I would call a politician's politician. I began to consider who would constitute a politician's politician. I thought of the noble Lord, Lord Boyd-Carpenter; then it suddenly struck me that he was once a Treasury Minister. So he, too suffers from the déformation professionnelle. There were no politicians among those who gave

45
evidence. I thought I had found one when I read the letters "MEP" after the name of John Stevens. Alas, when I turned to his evidence I found that he began by stating:
"By way of warning I should explain to you that I am a former foreign exchange and government bond trader of some twelve years of active market experience".
I wish to make a plea for non-specialist politicians to enter this subject. Even today, we are all old hands at the European game and some of us are former Members of the European Parliament. No debate on Europe would be complete without the voice of my noble friend Lord Stoddart of Swindon. I wish to make a plea to politicians to get into this subject on a more philosophic plane. Whether the Prime Minister will keep us out of the European exhange rate mechanism until the general election is an interesting and important question. Perhaps we have to go on talking about her loss of a Chancellor; yet these are minor aspects of the question as regards whether we are going to change our monetary arrangements for ever.
Such serious political comment as has taken place is on the theme of the general loss of sovereignty that EMU might entail. That is a real problem but there are other deep problems. Every politician must ask himself what the effect would be on his own party and its principles. Today the parties are in a period of change. But whatever changes my own party is making or contemplating it will remain a party dedicated to the systematic reduction of inequality, to increased educational opportunity, to high social welfare and to minimum unemployment.
Whatever the social charter may say, would EMU place obstructions or facilities in the way of such goals? Conservatives may ask whether the entrepreneurial skills that they value so highly will have the opportunities and the respect they deserve in the new Europe, whether high profit margins can be maintained with higher levels of investment and whether lower taxation will be encouraged.
As I say, these are difficult questions. We are all looking for new solutions. Just as we on this side of the House no longer hold to simple Keynesian certainties so the other side is discovering that simple monetarism is not all that it was once cracked up to be. With less certainty than we once had that we can manage our national economies, we have to contemplate the loss of our capacity, or the capacity that we imagine we have, to direct national macro-economic policies.
Despite all that I remain a good European. The report has the usual virtues of the work of the committee. It is clear, thorough and wise. I too hope that we join the ERM before July 1990. Like the committee I accept the potential economic gains of EMU. I believe however that the political implications are also central to any decision.
The committee sees that at some stage the Community will have to face a key question; namely, how to achieve the economic advantages of economic and monetary union without jeopardising the influence that member states now have over domestic policy. So the committee argues —I believe rightly —that the constitution of the union and
46
institutions such as the European central bank will be critical. It is essential to build in safeguards for democratic accountability, both national and European. But such decisions cannot be taken until the fundamental changes for Stage One have proved successful.
Like the committee I see that a soundly based Community will be better able to face the challenges that will be brought about by the changes in Eastern Europe and the relationship of the super-powers. The great argument for EMU remains. It will give Europe a stronger voice in the councils of the world.
5.33 p.m.
Lord Monson: My Lords, I notice that yet again the noble Baroness, Lady Elles, has been drawn to speak immediately after me in a debate on European Community matters. It would be nice to think that this time round the remarks that I propose to make would be more palatable to the noble Baroness than hitherto, but being realistic I fear that that is unlikely.
I agree with the noble Lords, Lord Williams of Elvel and Lord Bonham-Carter, and many others that this is a most stimulating and extremely well written and well set out report, as one might expect. Although the version without the detailed evidence is only 25½ pages long it took me well over an hour to go through it, allowing for copious marginal notes and numerous underlinings. To do full justice to the many vitally important issues that it raises would require speeches of almost a similar duration from every speaker. Happily for all concerned that is quite out of the question. Therefore it is impossible to cover all the points raised by the report and necessary to be selective.
First, I must take issue with the committee over one most unfortunate phrase in paragraph 82, which I hope is no more than an uncharacteristic slip of the pen. This phrase was mentioned by the noble Lord, Lord Stoddart of Swindon, and my noble friend Lord Harris of High Cross. The committee argues that:
"The need for the United Kingdom to convince its Community partners of its European credentials is more important than ever".
The noble Lord, Lord Stoddart, and my noble friend Lord Harris have dealt most effectively with some aspects of that unfortunate phrase. But there are one or two other aspects which I should like to mention. It should not be necessary to point out that Britain has been geographically part of Europe at least since the Ice Age and probably since long before then and part of European civilisation at least since the time of the Romans. Our European credentials are self-evident and need no reiteration.
Secondly, Europe consists of 26 nation states of which only 12 form part of the European Community. If I were an inhabitant of one of the other 16 countries I should be extremely angry at the assumption that "Europe" is synonymous with the European Community. I was delighted that my noble friend Lord Greenhill of Harrow made the same point in a most forceful manner. It would be nice to think that his forceful remarks would be heeded by every newspaper editor and opinion former in this country. I fear that the rot must have

47
set in with the invention of that dreadful phrase "good Europeans", reminiscent of those awful Victorian hymns which exhort children to be meek and mild, obedient and good, with particular emphasis on the words "obedient" and "good".
According to this arrogant theory a person who is steeped in European culture, who speaks several European languages fluently, who travels widely and extensively throughout Europe, and who has hundreds of friends and acquaintances in every part of Europe, north and south, east and west, is nevertheless deemed to be a bad European unless he or she is an enthusiast for ever closer European integration —political, monetary, economic and cultural. By that token it would appear that my noble friend Lord Harris is a bad European despite his close family and business links with the continent of Europe. By the same token the Swedes, Norwegians, the Austrians, the Swiss, the Hungarians, the Poles and so on are deemed to be excluded automatically from the elect brotherhood of "good Europeans" by virtue of the fact that their countries are outside the European Community.
That is all part and parcel of the attitude which sees the Community not as a useful means to an end but as a quasi religion, or even as an actual religion. That is a proposition which I should delight in demolishing if time permitted, which it does not.
I turn now to the committee's detailed conclusions. Working backwards, it is heartening to read the committee's arguments for extreme caution over any moves towards Stages Two and Three of Delors. It is also gratifying that the great majority of the witnesses endorsed the need for extreme caution. It is all the more to be regretted, therefore, that the committee did not widen its net to embrace distinguished witnesses from continental Europe whose painstaking researches have led them into strong opposition to Stages Two and Three of Delors and in at least one case opposition to Stage One also. I refer, for example, to Professor Roland Vaubel of the University of Mannheim, Professor Antonio Martino of the University of Rome, Professor Pascal Salin of the Université de Paris-Dauphine, and Professor Francisco Cabrillo of Madrid University, whose conclusions can be found in an excellent Bruges Group pamphlet.
If the committee had had the time to study that pamphlet it might not have come to the conclusion in paragraph 80 that:
"Economic logic will encourage the setting up of a European Central Bank, sooner rather than later",
unless the European bank were to take shape in the rather different form suggested by Professor Martino in the pamphlet to which I referred. He suggests:
a European Central Bank with only one function: that of exchanging on request national currencies for ECU at the going EMS rate. Such a central bank would not be able to create money, would have no discretionary powers, and, therefore, would not need any form of political control on its decisions. Its action, however, would perform a tremendously important function, because the possibility of exchanging one's national currency for ECU would discipline the behaviour of high inflation countries, who would risk seeing people move out of their currencies and choose to resort to the ECU … there would be no surrender of 'monetary sovereignty' on the part of national governments, both
48
because national currencies would continue to exist and because the European central bank would not be empowered to create money".
These four continental European academics also point out that West Germany's low inflation rate is by no means entirely due to the skiful action of the Bundesbank —whose record on inflation is not quite as good as it is cracked up to be; I shall return to that point in a moment —but to the terror of inflation ingrained in every German as a result of the hyperinflation of the 1920s and early 1930s. If that innate German caution over inflation, therefore, were to be diluted by the much more inflationary tendencies of the other 11 member states (which would be bound in one way or another to influence the composition, guidelines and possibly even the day-to-day or month-to-month activities of any new European central bank), one could safely anticipate a rise in the average EC inflation rate. The noble Lord, Lord Boardman, made just that point. That remains true, whoever is delegated to keep an eye on the keepers. Someone, obviously, must do so. Like the noble Lord, Lord Williams, I do not think that public opinion in any Community country would tolerate central bankers having a totally free hand in the matter.
Handing control over to the European Parliament would not help either, as the noble Lord, Lord Butterworth, stressed. Parliamentarians like to be re-elected, particularly those from countries such as Greece where proportional representation produces wafer-thin electorial victories. In any case, the composition of the European Parliament is essentially undemocratic: I do not think that enough people are aware of that point. Luxembourg has six times as many MEPS as it is entitled to on a per capita basis and the Republic of Ireland has two and half times as many. In contrast, the United Kingdom, France, West Germany and Italy are all under-represented on a per capita basis. That may not matter so long as the European Parliament is essentially a talking shop, but it matters very much if more powers are to be granted to that institution.
Switching to paragraphs 74 and 75 of the report, it is good to see that the committee has come out strongly against excessive regional aid, which is too often bound up with pork barrel politics. One almost invariably associates pork barrel politics with inefficiency, waste and often corruption. There is quite enough inefficiency, waste and corruption associated with the common agricultural policy as things stand.
Finally, perhaps I may turn to what is probably the most important part of the report, in that almost immediate action is urged upon the Government by the sub-committee; namely, the proposal that this country should join the exchange rate mechanism within the next six months, come what may, and ideally the sooner the better. The arguments against such a course need no spelling out. They have been mentioned here several times before, not necessarily this afternoon, but on previous occasions, as well as in the press. Sterling is still a petrocurrency. It is still more widely used in world trade than any other European currency, as the noble Lord, Lord Williams, pointed out. There was the declaration by

49
Herr Pöhl on 19th November and repeated, I think, subsequently, that the time is not yet ripe for Britain to join the EMS. There is the fact that joining now would lead to a credit explosion and frustrate the Chancellor's efforts to control inflation unless taxes were to be raised sharply in the spring Budget as a counterbalance to cheaper credit, which would surely be an extremely retrograde step. As my noble friend Lord Harris emphasises, there is also the difficulty in deciding what would be the least disadvantageous rate at which to join —2·70 DM, 2·80 DM, 3 DM, 3·10 DM or 3·20 DM; each of those parities has good arguments for and against. Furthermore, there is the problem that EMS membership is already posing for Spain whose peseta is grossly overvalued at the moment. It is also commonly accepted that both the French franc and the Italian lira are also over-valued vis-à-vis the deutschemark.
Another factor that has not been mentioned is that in eight out of the past 20 years the supposedly virtuous Bundesbank has permitted a German inflation rate in excess of 5 per cent. per annum. That rate would have been considered shockingly high in this country a generation ago.
Perhaps I should let the last word rest with Professor Salin, writing from Paris, who said:
"Refusing to join the EMS would be the best contribution the British government could make to real European integration".
5.45 p.m.
Baroness Elles: My Lords, I should like to reassure the noble Lord, Lord Monson, that I in no way requested the Chief Whip to put my name down after his, but each time that I speak after him I am modestly reminded that we are in a democratic debating Chamber and there is little danger of my slavishly following the speaker before me.
I should like to thank most warmly the noble Lord, Lord Kearton, for his introduction to the debate. It was a measure of the high standard of speeches this afternoon on what is clearly an intractable and difficult subject. Each speaker has picked out certain aspects which are of particular interest to him or her. I should also like to say how much I enjoyed hearing my noble friend Lord Cockfield, with his forceful thinking and stimulating eloquence of which so many Europeans have had the benefit for the last four years. It was a great pleasure to hear him in the House today.
There seem to be two immediate points arising from this excellent report: first, the suggestion that the United Kingdom should join the ERM by July 1990 and, secondly, that there should be no rush to an unsatisfactory form of EMU and that we should await proof of success of Stage One. While agreeing with the second conclusion, I have serious doubt as to the wisdom of being able to decide that for sterling to join the ERM in the near future will be good either for Britain or for existing members of the ERM.
The vast majority of noble Lords, including myself, have stated support for British membership of the ERM for at least the last three years. Indeed, 1985 or 1986 was probably the crucial time when we could have joined and it would certainly have been better for Britain if we had done so. We have
50
just reached a stage at which certain important movements are taking place. There has been no realignment of currencies within the ERM for almost three years. A realignment of one kind or another is liable to occur. There is also the effect of the liberalisation of capital movements on the exchanges. While France has almost completed the necessary steps —it has been said that there has been very little movement as a result —Italy still has to do so, but it is not possible at this point in time to foresee with guaranteed exactitude —if that is ever possible in forecasting an economy—what might happen.
There are also two important political developments. First, there is the formation of the European economic space, with EFTA, our largest export market, joining with the EC in a more integrated economic area. Noble Lords have spoken about Europe, the Community and the different terminology for what makes up the countries of Europe, but there is ever closer union —if I may put it like that —between EFTA and the EC. It is likely that the EFTA countries will merge much more closely in the economic and monetary sense with the EC in the near future. That is in EFTA's interests and it is seeking that. That is bound to have some repercussions. There is also the uncertainty with regard to the East German currency and the effect that that might have on the deutschemark —possibly not a great deal, but it cannot be discounted. Having lived through periods of economic stability, events in Eastern Europe cannot be ignored.
The conditions for membership of the ERM laid down by my right honourable friend the Prime Minister at Madrid —namely, liberalisation of capital —will be achieved. It is almost there. Substantial completion of a single European market in financial services is now well on the way. It was announced only last week that the second banking directive has now been adopted by the Community. The insider trading directive and the mutual funds directive, known as USITS in Euro-jargon, have also been adopted. So there is a whole float of financial services directives already in place. However the third condition —a lower rate of inflation in the United Kingdom —is a more difficult proposition. My view, which was shadowed slightly by the Governor of the Bank of England —is that membership of the ERM could help achieve that aim.
But not joining today or in the near future will not in any way create a two-tier Europe. Whenever we are accused of standing on the brink, there is always that fear of a two-tier Europe. There is no fear of such an event happening. The European Community needs Britain just as much as Britain needs the European Community.
It is important to remember that very often it is the United Kingdom which leads the way and other countries which cause obstructions. Those of us who have worked at a lower level in the European Parliament —perhaps not at quite the dizzy heights of many noble Lords here present —know that over and over again the United Kingdom has been in agreement on a whole raft of proposals. It is other countries which have hesitated, caused obstruction

51
and stopped us from going ahead with proposals which had originally been a matter of agreement. My noble friend Lord Butterworth mentioned the Schengen agreement. I should like to think that if Britain had been part of that agreement those countries would not have got to the brink before realising that they were making grave and serious mistakes about the problems of immigration and crowds, problems to which they have suddenly woken up just before signing an agreement.
It is perhaps Britain's role in the Community to say: "Stop and look before you go down a certain road. Make sure that the road which you go down is clear. Make sure that the outcome is for the benefit of everybody". Regrettably the Schengen agreement was not in fact signed, but those countries have now been reconsidering. That is what happens in Community policy. It is nothing new. Britain is not the only one who sometimes hesitates before deciding which is the right road to take.
So the major preoccupation for the immediate term remains realignments and adjustments, and as other noble Lords have mentioned, agreements by other member states. I have yet to hear one noble Lord give me or any other Member of this House evidence to show that all the other member states are screaming for us to join. I have not heard one member state scream and I do not in any way intend to quote Dr. Pöhl.
Stages Two and Three of the Delors report provide a useful blueprint for EMU. But modesty alone would convince one that there can be more than one way to reach that objective. For instance. I have always believed that the need for the City to remain a major financial centre requires not only membership of the ERM but would benefit enormously from dealing in a single currency. Industry and commerce as the single European market is completed will also demand a single currency to avoid exchange costs. All who travel —and there can be no one from this House who does not cross the Channel from time to time —would certainly benefit from having one currency rather than having sheaves of notes in different currencies, particularly in view of the increased amount of travel, the creation of the single market and cross-border trade. In the meantime I hope that the increase in the use of the ecu will extend to further private transactions.
This is a short reaction to the report. It is a valuable report. I believe that there is a great deal of work to be done on Stage One, let alone Stages Two and Three. In conclusion I shall quote the Governor of the Bank of England. He gave very sound advice in his evidence on page 5 of the report:
"I think that Stage 1 needs to last until we are satisfied that, above all, the Single Market is working efficiently".
He said further that:
"we should not seek to push forward or accelerate formal movements to monetary union until there is in parallel adequate convergence in the real economic situation".
5.54 p.m.
Lord Seebohm: My Lords, at this late stage of the debate I shall miss out the compliments although had I made them they would have been just as
52
sincere. Straightaway I must say that I found this to be an excellent report. Apart from one small exception, which I shall mention later, I agree entirely with its conclusions. The implications are clear; namely, that economic and monetary union in themselves are highly desirable and that steps should be taken to achieve those ends as soon as is reasonably practicable. I stress the words, "reasonably practicable".
It is necessary first to satisfy oneself that they are indeed desirable. I have no doubt whatever that if the Community is to compete effectively with America and Japan and also with the newly industrialised countries —the NICs, which are no longer newly industrialised and some of them are already well established and highly competitive —those ends are not only desirable but essential.
From 1955 to 1972 I was employed in an overseas bank. As I said before in a previous debate on the single financial area, I look back with considerable nostalgia to the period prior to 1967 when our previous colonies, including the British West Indies, the many African states, South Africa, Malta, Cyprus and other countries, were in the sterling area. At that time we had fixed exchange rates, freedom of movement of capital and reserves and in some areas overseas the British pound note in fact circulated freely with the local currency. It was a period of steady increase in trade and in the standard of living of those member countries.
With regard to the evidence, I should like first to refer to that of Mr. John Banham of the CBI. He pointed out to the commitee that the exchange rate stability or predictability were of very great importance; large and unexpected changes had been disastrous to many firms, particularly small firms which did not have the capacity to undertake currency hedging operations, which in any case were very expensive. He also pointed out that over half of our trade is now with the Community. He went on to say that his members want full membership of the ERM as early as possible and that most members support a move to fixed but adjustable exchange rates leading to a common currency. But he agreed that before moving beyond Stage One of the Delors report there must be a much closer range of inflation rates. Industrialists find it much easier to accept some transfer of sovereignty than do politicians but they still think it wrong to force the pace and agree that it may still be some time before monetary union can be achieved.
That view was strongly supported by ICI, which accepted the need for monetary union with irrevocable fixed exchange rates, a Community central bank and ultimately a single currency. In fact it was concerned that the steps to achieve that as outlined in the Delors report might unduly delay its implementation. I believe it is fair to say that industry and commerce look forward to the day when there is a common currency and hope that it will not be too long delayed.
Speaking for myself as a banker I fully agree with that view. The difficulties in quoting for contracts or even constructing catalogues with meaningful prices are immense. Alternative suggestions about leaving

53
it to the marketplace after the removal of exchange controls seem to me a futile proposition and in present circumstances would simply mean that we move to a deutschemark unit of reference —which may be all right at the present time but we do not know what will happen to Germany after what has occurred in Europe —just as the Bretton Woods system moved to the dollar when the price of gold became virtually irrelevant. That of course collapsed completely in 1971.
I come to the question of sovereignty. I have already stated the views of the wealth creators. I now turn to politicians whose motivation is the retention of power. Evidence was taken from Mr. Peter Lilley, Financial Secretary to the Treasury. At page 57 of the report he said that:
"Stage One will start on 1 July 1990. In the course of Stage One Britain and I think other countries, will become participants in the exchange rate mechanism, but it is in the course of Stage One, which has a beginning but no defined end".
What I found even more depressing was his reply to the chairman's question: "Is the Government convinced of the economic benefits of monetary union?" He replied (it is at page 60):
"It all depends on what sort of monetary union is envisaged. We certainly see the benefits of closer monetary co-operation, initially of membership of the exchange rate mechanism and of avoidance of the sort of incompatible monetary and economic policies which you mentioned".
That seems to me as cagey a reply as one can imagine. It took 45 words in order to say no. I believe that the gap between the private sector and the Government is becoming more like a ravine.
I found the evidence of Mr. Van der Klugt, the chairman of Philips, most interesting. He said and I quote it because I consider it very important:
"I believe that since the British Government have signed the Treaty of Rome,"—
and he might have added, "the Single European Act"—
"the time is past that you can pretend to be an independent unit. It must be possible to bring across that the independence of your country, the dignity of your country and the sovereignty of your country must be limited if you want to live in a world of growing relationships. I would submit respectfully that in my country and in other countries of Europe as well, including the UK, the question of sovereignty is much less important than the question of co-operation. I think the prosperity of the working population takes precedence over the imaginary question of sovereignty, at least in the old fashioned way".
While agreeing with Mr. Van der Klugt, we must ensure that the principle of subsidiarity is rigorously enforced. I am sorry to bring in this word. We seem to have a new Community dictionary. That is the latest word. I have had to find out what it means. We have already had the trouble of learning what we mean by "additionality", "cohesion". "convergence" and so on. Brussels should legislate on nothing that can properly be done by member states. On this I am probably in agreement with the noble Lord, Lord Harris, and the Bruges group.
Finally, as an ex-banker I ought to say something on the question of a European central bank. I have no doubt that it must come. I do not think that there is any real doubt that if we move to a common currency it is a sine qua non. My hope is that it should be as independent as possible. The independence of the Bundesbank and the independence of the Fed in
54
America seem good examples of the principle. I must regret the day that the Governor of the Bank of England lost his eyebrows, which put the fear of God into me and London bankers when I was young.
I visualise that the governor and senior staff would probably be chosen by a committee of member central banks and that the accountability would be to the Council of Ministers, which would not use its authority any more than the German Government do over the Bundesbank. I naturally hope that it will be sited in London but its location is not to my mind very important.
I conclude by congratulating the Select Committee on its conclusions —with the one exception that I mentioned. It has been referred to by the noble Lord, Lord Boardman, and by others; that is, putting a date on entering the ERM. I should have preferred that it had said "as soon as inflation is clearly under control and there is a steady improvement in the balance of payments". That could well be before July 1990, but I am afraid that I consider it unlikely.
6.4 p.m.
Lord Harmar-Nicholls: My Lords, I never know whether it is an advantage or disadvantage for one's name to be at the end of a list of speakers. The disadvantage is that everyone has made the points that one would have liked to have made in one's own way and with one's own emphasis. As one would expect, this has happened in this case. I have signposted the points that I should like to have made, but they have already been made effectively. It would be wrong and presumptuous to repeat them. However, there may be some ad vantage in considering the issues that have been raised in the debate to try to interpret some of the parliamentary language that is not always understood outside the House.
Parliamentary debates do not take place in order for Members to perform in front of one another inside Parliament. The parliamentary debate —in particular the resultant publication of Hansard—is to let people outside the House know what Members of Parliament think. Those people have to pay the piper for good or ill. Therefore, the phraseology and the language is not always in terms that they clearly understand. A good example came from my noble friend Lord Cockfield whom I admire so much. He is one of the most formidable debaters whom I have heard in either House. He is learned in what I call the machinery side of government in a way that few people are. However, that is only one side of the issue. I refer to my noble friend Lord Cockfield because those who draw up lists recognise importance. His name was at the top of the list, and rightly so. No one was likely to be more authoritative on the points that he wished to make, and the noble Lord therefore heads the list. He is an expert on the machinery side. He showed such expertise when he spoke as Minister from the Dispatch Box.
However, he also knows how to cover up a possible weakness in his argument. There is nothing wrong with that provided that someone is available to disclose the cover-up. On this occasion it was how he dealt with the issue of whether or not we are

55
moving into a completely new area if we accept the report immediately and put it into operation at once. The noble Lord referred back to Rex v. Hampden and the civil war. He said that we had never had power over monetary policy until the Labour Government nationalised the Bank of England. He argued that it was only at that point that there was any risk of the Government directing monetary policy.
What he was covering up —I do not think that he did so deliberately —was this. While I believe that he was right that government as the Executive did not have control over monetary policy, since Rex v. Hampden, Parliament always has done. The Executive —a government —have no powers until Parliament gives it the powers. But Parliament itself has always had that power.
My noble friend, the Leader of the House had argued that if we were speedily to hand over the powers we would be knocking the bottom out of the powers of the other place. My noble friend Lord Cockfield now says: "No, they have never had such powers." I remind him that the other place is not the Government; it is Parliament. I have spent 39 years in one House or another. I recognise the political, tactical side of Parliament. My noble friend, on the other hand, has spent about 18 to 20 years concerned with the machinery side —the Civil Service. Had he had experience of sitting on the Public Accounts Committee, listening to the debates on the Consolidated Fund, he would have recognised that Parliament is jealous and has always used the ultimate power it has over the monetary policy of this country. I believe that that was what my noble friend meant in his reply. If we consider the speech of my noble friend within such argument, there will be a better understanding of the issue.
A little interpretation is necessary with regard to the speech of the noble Lord, Lord Williams. He had a very difficult job which he did very well. It is very difficult to have to serve two masters. The noble Lord knew that he had to do so. The first master he had to serve today was the new Labour Party image. That image is based to a large extent upon exaggerating the supposed frailties and weaknesses of the Prime Minister. He therefore could say nothing openly in praise of the Prime Minister and her Government. But he had to say something; otherwise he would not be moving with the times. He therefore had to give the approach of the Labour Party to these important matters. He said, "We would agree to negotiate. How different to the woman who will not talk to anyone about anything unless they accept exactly what she says." He now says, "We shall be the great negotiators. That is the difference." The noble Lord has to build up the party's reputation in such areas where in the past it has seemed tied to dyed-in-the-wool Marxist ideas.
When the noble Lord said that if his party had the power, it would negotiate, he did not tell us the terms upon which it would negotiate. The noble Lord will be able to intervene; he will see my point. Having established that he would negotiate, as distinct from this stiff-necked person who is ruining our reputation among our friends in Europe, the noble Lord then
56
gave two or three conditions that he and his party would wish to see. He did so in order to satisfy his noble friend Lord Stoddart who made an excellent speech —
Lord Williams of Elvel: My Lords—
Lord Harmar-Nicholls: My Lords, perhaps I may finish this point. I shall then be delighted to give way. The noble Lord, having made the point, added the two or three conditions that he said he would wish to follow. These are identical to those which the Prime Minister has said she wants before taking the next step. I did not recognise a great deal of difference.
Lord Williams of Elvel: My Lords, first, the noble Lord accused me of not giving any conditions of negotiation. I thought that I was absolutely clear in what I said. I do not know whether the noble Lord was asleep when I was speaking but I made our position absolutely clear—
Lord Harmar-Nicholls: My Lords, no, I was listening intently.
Lord Williams of Elvel: My Lords, secondly, the conditions are not those for which the Prime Minister has asked. For instance, I have never heard the Prime Minister ask for a co-operative growth strategy or for reasonable development. And so it goes on.
Lord Harmar-Nicholls: My Lords, that is one condition with which the Prime Minister may not agree. As regards the others, he required the exchanges to be right; he said that the inflation position must be right. Those are precisely the points that the Prime Minister is making.
For the benefit of those who will pay us the compliment of reading Hansard, I make the point that when reading the noble Lord's speech they must remember that he is an expert City man —he is one of its great authorities and jolly good at it —but he must now play the role of politician speaking from the Front Bench with an election in two years' time. He must keep his troops at the back happy —and they still do not want to go into Europe very much —and at the same time give a responsible impression to the people outside. That is the only point that I am making in that respect.
It was good that from his party's point of view the noble Lord was balanced to some extent with his noble friend, Lord Stoddart, whose speech was so good. I thought that he answered completely those people who charge this country with not being communautaire and not being prepared to play their part. We have almost changed our way of life and he set out the position wonderfully. We have said, "Yes, we want to play providing that the terms of the game are reasonably satisfactory to us". The noble Lord made a point that I completely endorse.
I want Europe to be an outstanding success as a group because we are part of Europe. However, I do not want Europe to be successful at the expense of Britain being unsuccessful. I resigned as a junior

57
minister in the Macmillan Government because I did not like the Treaty of Rome at all. That was a great sacrifice because I was ambitious and thought that I was going to be good —
Lord Graham of Edmonton: Your time will come! It is early days.
Lord Harmar-Nicholls: My Lords, I did not realise that the debate would continue for 12 or 14 years and that the time between being on and off the escalator was too long. But I have not done badly; I am not complaining on that score. All I am saying is that the speed must be taken into account.
The speech which pleased me more than any other was that of the noble Lord, Lord Greenhill of Harrow. He is the only noble Lord who has brought us up to date. All the other speeches, like the report, have been based on a different world. I refer to the revolution in Eastern Europe. We should now view the situation differently. The noble Lord, Lord Roll, said that he could not accept what was said by his noble friend Lord Greenhill. I am frightened of the noble Lord, Lord Roll, because when I was a junior minister he was the financial pundit in the Government. And God, he knew his stuff! I was frightened to death of him, as he knew.
I was surprised to hear the noble Lord say that he could not accept the assessment of his noble friend Lord Greenhill that the great happenings in Eastern Europe had not had an effect on what we should do. I believe that they have. A report compiled before those incidents is bound to be out of date although I do not know to what extent. However, I know the noble Lord, Lord Roll, well enough to say that if he had been living in San Francisco and had been negotiating to buy a house a month before the earthquake, he would, after that event, take another look at the contract before signing. I believe that the happenings in Eastern Europe are equivalent —
Lord Roll of Ipsden: My Lords, perhaps the noble Lord will allow me to say that at no time did I say that the events in Eastern Europe had no effect whatever. I certainly do not believe that; I described them as "momentous". The difference between my noble friend Lord Greenhill and myself is that whereas he believes that the events argue in favour of delaying the process of European integration in the Community, I believe the opposite —that they argue in favour of accelerating it.
Lord Harmar-Nicholls: My Lords, that is exactly the point that I was making. I was saying, as the noble Lord, Lord Greenhill, said with much more authority, that the events in Eastern Europe are bound to have affected the situation. Therefore, one can mean only that one ought not to sign the contract in the analogy that I gave until one has considered the difference that the events will make. I am surprised that the noble Lord was not on to that point before he began.
My noble friend Lord Geddes was most effective in the point that he was making, but I must disagree with him on one aspect. He sat on the committee, so I do not know from where he gained his impressions
58
other than from the evidence given to the committee. He said he believed that if we do not sign, and sign quickly, it will mean the possibility of the centre of our banking and finance moving to Frankfurt. I believe the exact opposite. I believe that if we sign prematurely —that is, at a time when it will work to our disadvantage—experts in the City of London will not take long to pack up their typewriters and files and move off to what they believe to be the most effective place. In moving here people helped to make the City of London the centre of finance. I believe that the same can happen again. We are on the perimeter of the European Community and by acting prematurely, particularly in the field of banking and the City —that is why I listened particularly to the noble Lord, Lord Seebohm —we shall do unbelievable harm. For almost a century we have never had a proper balance of trade in our favour from material goods alone; only when invisible exports have been taken into account. We rely upon them now more than ever and it would be a bad move to be premature and put them at risk.
These points have already been made so much better. However, I am saying that if, eventually, we believe it right to join the ERM let us wait until the conditions show that it is safe and proper to do so. We have heard quoted evidence from the CBI, from my noble friend and others. Why can we not listen to the evidence from the Government —that is from the government of the day, whichever party? They have access to sources of information and knowledge not available to others. The CBI knows its stuff in connection with its particular line of country. However, the Government have that plus all kinds of other information; for instance, ambassadorial reports and knowledge from any sources which are not always made public. Why should the Government be the last body to be taken into account, whatever government it may be? I believe that we have been fortunate enough in this country for a century or more to have governments which one could trust and which were not there for mean, nasty or selfish reasons. Of course they want to win elections but by and large their main concern is to give proper leadership to the country to the benefit of the people. Why cannot we take what they say into consideration?
I now wish to refer to a matter which does not concern this report but flows from the report of Sub-Committee C dealing with the social charter. I sat in the European Parliament for five years and I now sit in your Lordships' House. On more than one occasion I have paid great tribute in both places to the importance of the Select Committee's reports. In the whole of Europe the reports of the House of Lords Select Committees are looked on with greater esteem than almost any other documents. I am proud of that fact and of the standards that we should all try to maintain. However, certain little tactics occurred last week that I hope will not interfere with the feeling that the committee reports are objective and impartial in the way that they are presented.
There is no criticism at all of the chairman of the Select Committee on Europe. She cannot answer at the moment because she is not strictly within the House; she is not there but she is within hearing.

59
There is no criticism at all in that direction. It was very interesting that the social charter draft was not produced anywhere in Europe until May 1989. The EC discussed it in June 1989; the Commission draft was not produced until September 1989 and our Sub-Committee C was given the task of examining it. The last of its meetings was on 14th November.
The print of it was made on 5th December with instructions that it had to be printed at once. That has never happened before. My investigations show me that never has a report been submitted in the morning with instructions that it has to be in print and circulated on the same day. It was printed on the same day and the chairman of the sub-committee made a very effective radio contribution on the very day that the Prime Minister was going to Strasbourg to argue this country's point of view, as she saw it.
I do not believe it is the job of sub-committees to try to guide what the policies will be. Their job is to produce the evidence in the reports and it is for everyone to take into account their strengths and weaknesses. It was admitted that it was done deliberately because it was desired to get the report out before the Strasbourg meeting. That certainly could not have helped the Prime Minister. I only put that on the record. I know the noble Lord was on the committee and it is he I am talking about, among others if they were parties to what occurred. All I am saying at this stage is that I hope that future reports will not be rushed through in order to influence decisions that may flow from them.
Lord Bonham-Carter: My Lords, might I, as a member of the committee, say that the noble Lord has every right to say what he likes about the proceedings of the committee? But this hardly seems to be the moment when we are discussing the report of another committee. An opportunty will arise when we discuss the social charter. I hope at that time that the noble Lord will make any objections that he has, but not on this occasion.
Lord Harmar-Nicholls: My Lords, that is very proper. Perhaps I may answer that point first. I absolutely agree. That is what I wanted to do. The first person I approached to make the point was the chairman of the sub-committee himself, the noble Lord, Lord Allen. He said that there was nothing he could do. I then approached other leaders of the House who have the necessary contacts. I was told that if I wanted to put the matter on the record there was no way of breaking in. The debate that we are having now is an opportunity for the issue to be put on the record. I am now doing so in the light of advice I have received. It may have been wrong advice. For those who are listening I hope that they will take the advice and not repeat in future what happened last week.
Lord Williams of Elvel: My Lords, the noble Lord appears to have made a rather serious allegation —
Lord Harmar-Nicholls: My Lords, I have.
Lord Williams of Elvel Lord Williams of Elvel —about the conduct of our committee business in this House. I am not sure
60
that this is the right moment for him to make it. I hope very much that he will consider whether he should not withdraw the allegation he has made on the Floor of the House and deal with the matter through the usual channels.
Lord Harmar-Nicholls: My Lords, of course I shall not withdraw the allegation. The noble Lord has a job to do and he is following it as a Member of the Front Bench as indeed has my noble friend. This matter is addressed to the people who organise the business of the House. I have given the dates and they will now be on the record. If the noble Lord will look at those dates and see how they follow on, he can come to his own conclusions as to whether or not the impartiality and objectivity, which it is vital that our committees should have, were helped or hindered by the way in which this particular matter was dealt with last week. He can come to his own conclusions. I have come to mine.
6.26 p.m.
Lord Ezra: My Lords, it is always an interesting experience both to listen to and in this case to follow the noble Lord, Lord Harmar-Nicholls. He made many trenchant and vigorous statements, some of which I found rather surprising. He was speaking about the undoubted contribution to our overseas balance of the financial services. He said that they have always contributed to a positive balance, whereas material substances —I believe that was the phrase he used —have always been traded at a loss. That is totally untrue.
The history of this country since the industrial revolution has been based on our vigorous trade in manufactured goods. We traditionally imported raw materials, converted them with our skills and sold them abroad with profit. It was only in 1983 that the balance changed. I am one of those who hopes that very soon we shall see that situation being restored. Therefore, I do not agree that we should run down the contribution —I do not know whether the noble Lord meant to —that manufacturing industry has made historically to the balance of payments in this country.
We have come to the stage in this debate, so ably and effectively introduced by the noble Lord, Lord Kearton, when a degree of summing up is called for. The noble Earl will be summing up from the Government's point of view and the noble Lord, Lord Bruce, from the Labour Party's point of view. I shall sum up as I see the situation, injecting a few of my own views. The debate has divided itself into two parts; the first part has been concerned with the ERM and the second with what comes after.
Our deliberations have been enormously helped by the skill with which this very difficult issue has been presented in the report of the sub-committee. It gave us the background, encapsulated it, summarised the evidence and gave us its conclusions. As regards the ERM, I believe that we as a nation have now pretty well effectively reached the conclusion that we should join. The Government have certainly been very firm in their statements to that effect —the Prime Minister on successive occasions and the Chancellor of the Exchequer during an important

61
debate on this subject in another place on 2nd November.
The Treasury's document dealing with the alternative proposals after Stage One of Delors has emphasised the importance of that stage and of the need to develop it further. Therefore that subject does not seem to be a matter for debate any further. What is the subject for debate is when we actually join. That was considered a good deal during today's discussion. The report itself recommends that we should aim to join before 1st July 1990. I shall summarise what I consider to be the advantages and disadvantages of so doing; then I shall express my personal opinion. The advantage of making it known that we intend to join before 1st July 1990 is because that is the date when Stage One of Delors takes effect. As we support Stage One it seems not unreasonable that we should make an effort to begin participating in it fully at that date.
Secondly, there is not the slightest doubt that by that time obstacles to capital flows from our major partners will have been effectively removed. We heard of what the French Government decided; we know what the Italian Government decided, and all other governments are working in that direction, but all the major partners will have dismantled their exchange control limits by that date so that that objective will have been met. The creation of a single market is proceeding apace. It is very difficult to say when a particular degree of progress made will satisfy whatever requirement might have been meant in laying down the conditions, but there is considerable progress, helped and stimulated by the British response to the creation of the single market. That will have moved forward substantially by July of next year.
Thirdly, one could say that the Government are firmly of the opinion —and I hope very much that they are right —that inflation will have begun to come down by then. If we remove from inflation the impact of mortgage interest —if it came down by two or possibly three points with luck —we would not be too far off some of the levels elsewhere in the European Community. The prospect, therefore, is that perhaps these three conditions could be met by then.
The question could be raised, "Why mention the date? Let us wait until then and, if all works out reasonably well, let us take the plunge". There is some merit in mentioning it, in spite of the difficulties which were so clearly and convincingly indicated by a number of noble Lords. The merit would be to show that we are really serious and to set up our position for negotiation in the subsequent stages. Furthermore, it could have a positive impact on the currency and eliminate one of the pressures which might lead to a further upward movement in interest rates.
If an announcement to that effect were made in advance I do not think that it should be made irrevocably. I would tend to do it using the French phrase, en principe. En principe effectively means that that is your general intention, other things being equal. If everything works out reasonably, that is what you do. My view, therefore, is that there would
62
be some merit in the Government following up their clear statement of commitment to joining the ERM when their conditions are satisfied and saying that it would be their intention en principe—subject to these conditions being reasonably satisfied —to do so by 1st July 1990 because of the importance of that date in the sequence of events.
We move on to what will happen next. I was enormously struck by the comments of the noble Lord, Lord Cockfield, who said that this should be regarded as a sequential process rather than trying to deal with the monetary and economic aspects of convergence at the same time. There is much merit in that. If we successfully establish Stage One on a joint basis, which will be cemented by Britain's joining the ERM, then it will be right to concentrate on the further monetary implications and leave the wider economic matters to a later stage, particularly as the proposals in Delors raise a number of doubts. One part of Delors that I have doubts about is the attempt to control the budgets in the way proposed.
If one concentrates on the monetary aspects there are a number of options. Delors Stages Two or Three have clearly been presented as a blueprint for discussion, otherwise they would not have convened the intergovernmental conference that is due to take place in December of next year. We should prepare ourselves much more vigorously and effectively than we have so far for the line that we will take then. I say more effectively than so far because I am not absolutely sure where the Treasury's alternative takes us.
I read with great care the debate in another place on 2nd November. There were a number of interventions from all sides of the House when the Chancellor of the Exchequer was speaking, asking whether this concept of competitive exchange rates would not inevitably lead to the total dominance of the financial market by the deutschmark. The deutschmark is already in such a strong position that, if it is left free to operate in competition with other weaker currencies, it is difficult to see any other outcome than to put it in an even stronger position. That is not what we want; that is not, I believe, what the Germans want. They do not want to be dominant within the Community. They want to play their effective role.
While the Delors proposals, therefore, may suggest things that ought to be modified, our alternative ought to be much more carefully thought out than the Treasury's current proposals, which do not seem to lead anywhere in particular. They open up a competitive market but do not indicate what the consequences will be. It is merely said "Let us hope in due course that that will lead to convergence". It might or it might not. I believe that it would lead to the total dominance of the financial market by the deutschmark.
An alternative approach, therefore, needs to be tried. I should like here to speak on behalf of my noble friend Lord Cobbold, because he is unable to be present. He asked me to mention one alternative to which he referred briefly in an earlier debate. It is one of a number that could be considered. It is based on the supposition that we join the ERM by 1st July 1990 with normal bands and that we equate

63
in this process with the French franc at 10 francs to the pound. As a next step, in co-operation with the French, we then indicate our intention of working together towards a bilateral monetary union within the EMS over a two-year period. This would be similar to that which exists between Belgium and Luxembourg and would be fixed at an exchange rate of 10 francs to the pound with a view to common and interchangeable note and coin issues.
He then proposes that we should move forward and consider having a similar agreement between the pound and the franc —which would have been fixed at this rate for that two-year period —with the peseta, the lira and the punt. The result of this process would present an alternative grouping to the deutschmark dominated group. This would not be done in any hostile sense but in the sense of achieving a balance of currencies. The ultimate final step would be to find the rate at which the two groups could come together.
As I say, that would have the benefit of providing a balanced solution to the situation and lead to the retention of national currencies. I put that forward on behalf of my noble friend merely to suggest that there are many ways of setting about this. The important thing is that we should be able to turn up in Rome —I believe that it is in Rome that this conference takes place —fully mandated, fully prepared and in the strongest possible position to argue about the various possibilities.
There has been mention of the various tiers into which Europe might be divided. Whatever happens in that respect —whether we have one tier of the Community countries, another of the EFTA six and perhaps another with the East European countries —there is only one tier to which this country could belong, based both on our history and on our potential; that is, to the first tier. I hope that we will always remain there.
6.40 p.m.
Lord Bruce of Donington: My Lords, for our part and on behalf of the majority of your Lordships I should like to join in the tributes that have been paid to the noble Lord, Lord Kearton, and his committee for the very thorough report that has been produced. No greater tribute could have been paid to the report than the fact that the variety of views expressed about its contents shows that each of your Lordships who has taken part in the debate has given it careful consideration.
As I listened to the different opinions, some of which were expressed by individual members of the distinguished committee, I thought of the maxim which states, "Experts should be on tap, never on top". If one were to try to obtain a collective view from the experts as to the next political steps which should be taken —it is the political dimension which, with respect, is not entirely prominent in this very technical document —it is the poltical aspect within a democracy such as the United Kingdom that deserves to receive our most urgent attention.
We not only represent the professions from which we come, the occupations or vocations upon which
64
we are severally embarked, but each of us in his own way, whether as a Memebr of another place or as a Member of this place in an advisory and revising capacity, has a duty to the people as a whole. It is to the people of the United Kingdom as a whole and in a wider sense to Europe that we are ultimately responsible. For example, who are we to say that it is in the best interests of the City of London and the practitioners within the square mile that such and such should happen? It is by no means conclusive that what is good for the City and for corporate power is of necessity to the benefit of the great bulk of the population of this country, many of whom would find it difficult to absorb the technicalities of this report. Many of them, alas, unless they are reminded by hardship or otherwise, would hardly be aware of the existence of the report.
The debate falls neatly into two parts—the desirability or otherwise, as a member of the EMS since March 1979, of this country joining the exchange rate mechanism. My noble friend Lord Williams of Elvel has made my party's position abundantly clear in regard to that matter. There must be entry at an effective rate of exchange; there must be adequate swap arrangements between central banks; there must be full and further development of regional policy within the Community; and, above all, there must be, and there must be perceived to be, policies adopted for the encouragement of growth. Those are the specific points which my party has decided are necessary before the United Kingdom enters the exchange rate mechanism.
Many noble Lords have emphasised, in my view quite rightly, that if we were to join the exchange rate mechanism in the most advantageous and necessary circumstances that we now envisage, that might not be the cure or panacea for the nation's problems, which day by day, as the trade deficit mounts up, become graver and graver.
I found myself in unexpected agreement with the noble Lord, Lord Cockfield. That is an unusual situation for me and I still dissent from many of the observations that he made upon monetary matters. However, I thought that the noble Lord was absolutely right —and he was supported by the noble Lord, Lord Boardman —in pointing out that there was a definite difference in demarcation between Stage One, which is implied with the joining of the exchange rate mechanism, and Stages Two and Three. The noble Lord, Lord Cockfield, put the matter very clearly and his remarks deserve emphasis. He said that, first, we must have the accomplishment of the single market, and with that the ERM. We shall then have time and a proper occasion to reappraise on a step-by-step basis where we have got to as a result of the achievement of the single market and joining the ERM. I think that the noble Lord is absolutely right.
There are some noble Lords and some people outside your Lordships' House who would join the ERM as an act of faith in pursuit of the Holy Grail, even though they did not understand what it meant or what it would imply. They pursue it because there is a European tag in front of it and, if it is European, it must be all right. I was very pleased that the noble

65
Lord, Lord Greenhill of Harrow, made a careful distinction. He pointed out that there were other countries in Europe aside from the Twelve.
We come to the considerations which were very properly raised by the noble Lord, Lord Cockfield, concerning the single market. It is accepted as axiomatic, almost without argument, probably throughout your Lordships' House and unanimously in the press, that the achievement of the single market in 1992 presents the greatest challenge to the country. This is nonsense. As noble Lords know, the single market has already been achieved to the extent of 95 per cent. We have been living within the single market or most of it, for the last 10 years, and we have been progressively developing. All that remains to be done is the completion of the financial services situation, the importance of which I do not wish to underestimate in any way. In addition, certain trade restrictions and unfair practices still exist. In relation to those practices, I observe a surprising silence by some of us in refraining from blaming the countries involved for holding back. Somehow it is quite communitaire for every other country apart from the United Kingdom to hold back on something. However, we know that in the British textile industry there are 450,000 workers whose jobs are in peril because of unfair practices and secret subventions in a number of countries which include Germany, France and Italy.
There is also the case of the subsidies given to fuel oil in the Netherlands which enable the Dutch horticultural industry virtually to drive a large number of our own horticulturalists on the South Coast out of business. One does not hear any complaint that the Dutch are being non-communitaire. So apart from those factors we already have a single market.
But is it right for us to assume that when eventually completed in 1992, the single market will be successful? The single market is based essentially on maximum play being given to market forces. This point has been adumbrated many times by the Government. Market forces have been in operation over a wide sphere of industrial activity in Europe ever since the Community's foundation. But what have been the results: Are we quite sure that this is the answer? Over the past 10 years unemployment in Europe has increased to 15 million and has only recently declined somewhat slightly owing to the more favourable results recorded by the Government in the United Kingdom. This decline is not wholly offset by increases in unemployment in France. Are we quite sure that free market forces are the answer? Are we quite sure that the working of Europe's economy on an entirely free market basis will deliver the goods?
We already know that it cannot because the whole structure of the Community, which permits and indeed encourages the development of the regional and structural fund, is in itself an indictment of the free market philosophy. As the years have passed the poorer parts of Europe have become poorer and the richer parts have become richer, a large-scale reproduction of what has happened in the United Kingdom where the rich have become richer and the poor have become poorer. What virtue is there then
66
in saying that our experience in the United Kingdom will not be reproduced on a larger scale within the larger area of Europe as a whole? The answer is that we do not yet know what the results will be.
But what we do know is that it will take a long time for the Federal Republic of Germany to ruin its railway network by abolishing its subsidies to German state railways and that it will also take a long time for the French to agree to reduce their massive subsidies to the French SNCF. This is despite the fact that, sound though these subsidies may be, they do not find an echo with our Government who are busily trying to abolish the subsidies that have hitherto subsisted on British railways. There is a long way to go. One's guess is that by the time industrial subsidies throughout the Community are abolished, if indeed Germany and France are ill-advised so to do in the manner that I have described, we shall probably be well into the mid-1990s.
Another factor to be considered is the abolition of home country preference clauses and other prudential restrictions on the behaviour of insurance companies and pension funds. My information is that this has not even been considered in any detailed form by the Commission. There is a long way to go.
For those reasons we on this side of the House believe in relation to the wider question of economic and monetary union that it is unwise to look at it from a structural point of view in the way that the Commission so far has. We say that democracy in Europe is important. We are against the establishment of a central bank that is subject to no democratic control. We are against any imposition on the United Kingdom by a body that is not responsible directly and democratically to anybody else of any regime that would restrict the right of the United Kingdom to make its own budgetary arrangements and its own arrangements for ordinary public expenditure. That is where we stand.
There is an often expressed feeling which I have experienced that if one ventures to criticise or cast doubt upon a proposal from the European Commission one commits a crime in European eyes and that if one criticises one is being non-communitaire. What nonsense! We on this side of the House examine all Commission proposals with great interest and give them most careful consideration. Some are important and command immediate and instinctive sympathy. I have in mind the social charter. Noble Lords on the other side of the House may disagree with me about the significance of the social charter. I think it is a constructive proposal which will take us a long way towards convergence with many of our Community associates, particularly in Germany where they practise Mitbestimmung. We should consider any proposal from the Commission not with hostility because it comes from the Commission but sympathetically and constructively. And if it meets with approval we should support it. However, if it does not there is no compelling reason why we should be called non-communitaire for not agreeing with every dot and comma that comes out of the Commission in Brussels. In 1988, as the noble Lord, Lord Cockfield, will well know, the Commission sent

67
out no fewer than 530 draft directives, decisions, instructions or regulations for absorption by Members of Parliament in all member states. Patience is needed when examining them but there is no reason why we should not put forward criticism.
I have only one real criticism of the conclusions reached by the Select Committee. It was touched upon by my noble friend Lord Stoddart of Swindon and other noble Lords. It concerns the remarkable statement:
"The need for the United Kingdom to convince its Community partners of its European credentials is more important than ever".
Why? Why should not other countries in Europe convince the British that they are sincere in what they propose to do? Why should we in the United Kingdom take this passive posture that calls upon us every time there is a scream from one quarter or other of Europe to say, "We didn't mean that. What we really meant to say was the other"? This is complete nonsense. It has become the practice —and one which I sincerely hope will stop —for us out of necessity to adopt this supine and subjective attitude towards other countries.
I believe that we are a great country. We have our defects, but so do other countries. However, I come from a generation which has lived through two wars; one took place during my childhood and the other took six years out of my life. I was taught the values and the ethos of the country into which I was born. I do not intend —indeed, I do not advise my colleagues to do so —to abandon what ought to be the centre of our existence; that is, the country which gave birth to us.
7 p.m.
The Paymaster General (The Earl of Caithness): My Lords, I too very much welcome the report prepared by the sub-committee of the Select Committee on the European Communities. The committee interviewed a particularly wide and interesting range of witnesses. It has produced stimulating conclusions. I should like to congratulate the members of the committee, under the chairmanship of the noble Lord, Lord Kearton, for their work.
However, I have to say that the Government do not accept every detail of those conclusions. I shall say more in a moment about our views. But today's debate —which, if I may say so, has been of the highest standard —has demonstrated how much common ground there is on all sides in the United Kingdom on the subject of economic and monetary union. I am grateful to all noble Lords who have taken part. Many speakers today have stressed the need for the Community to make real progress towards economic integration before it turns to questions about institutional devices such as a central bank and a common currency. Many noble Lords have emphasised the need to preserve national political accountability in economic and monetary matters. Many have also emphasised the need for careful analysis and thorough preparation before steps vital to the future of the Community are taken. These points are central to the Government's thinking on EMU.
68
In responding to your Lordships' debate, I propose to focus on four points in particular: first, the long history of dicussions in the Community about economic and monetary union, and the position we have now reached following the Strasbourg European Council; secondly, the objectives of EMU; thirdly, the UK's approach to achieving those objectives which we set out in our paper, An Evolutionary Approach to Economic and Monetary Union, widely circulated throughout the Community and, I am pleased to say, receiving increasing support; and, fourthly, our reservations about the Delors Report's approach.
The idea of moving towards economic and monetary union in the European Community has a long history. In 1970, a report by Mr. Pierre Werner, who was Prime Minister of Luxembourg at the time, made detailed proposals for progressing to economic and monetary union. He proposed transferring major economic policy decisions to Community level, adopting a single currency and setting up a single central bank. As the noble Lord, Lord Ardwick, reminded us, the Community endorsed those proposals in 1972 and agreed that full EMU would be achieved by December 1980 at the latest. After that endorsement other events intervened and nothing much came of the Werner proposals.
Nevertheless, throughout the 1970s the Community continued to endorse the principle of progressing towards economic and monetary union, and this was reaffirmed in the Single European Act of 1986. But as the noble Lord, Lord Bonham-Carter, knows, there has at no stage been an agreed definition of what EMU means or when it should be achieved.
There is now renewed interest in the possibility of moving towards closer economic and monetary co-operation. The Delors Report, published in April, set out one route by which this might be achieved. The Madrid European Council in June agreed that the first stage of the Delors prescription should be launched from 1st July 1990, and that further work should be done on developments beyond that. The European Council meeting held in Strasbourg just over a week ago took this process one step further by agreeing —on the basis of a majority view —that an inter-governmental conference on EMU should be convened by the end of 1990. The Prime Minister made clear at Strasbourg that the United Kingdom did not agree to a conference, since we do not accept the premise that changes to the Treaty of Rome are needed. But my right honourable friend the Prime Minister also made clear that the United Kingdom would take part in the conference, which would need a unanimous vote before any treaty changes were agreed.
Let me assure the noble Lord, Lord Greenhill of Harrow, that we shall be in the driver's cab of the train mentioned by the noble Lord, Lord Williams of Elvel. As my noble friend Lord Harmar-Nicholls and the noble Lord, Lord Greenhill of Harrow, said, it will give us at least another year to assess the dramatic changes in Europe.
In today's debate many noble Lords have emphasised the need for the United Kingdom to play a positive part in discussions about EMU. That

69
is indeed our intention, and —let me stress —it has always been our position. But it does not mean accepting ideas with which we fundamentally disagree. Contrary to the views of the noble Lord, Lord Bonham-Carter, and those of my noble friend Lord Geddes, it does not mean that the only way to be good Europeans is by agreeing with our Community partners, whether on the Delors Report or on any other issue. It means that the Government will continue to put forward their views, honestly and straightforwardly.
There is no difference between the UK and our partners about the economic and monetary objectives of EMU. We all want stable prices and stable exchange rates. We all want lower costs of financial transactions, especially across borders. We all want equal access to financial instruments and services. In other words, our common objective is to achieve maximum convergence between the economic and monetary conditions which prevail in each member state of the Community; to achieve conditions in which business can operate with the minimum of risk; and in which capital, people and goods move freely and are available on equal terms in all parts of the Community. Those are the real objectives of economic and monetary union.
Some in the Community may have a further objective: to pave the way for some form of federal Europe, a Europe in which some degree of sovereignty is permanently transferred to a new supranational authority. The UK does not accept the goal of political federalism. We do not believe that Europe should become another United States of America. Europe must remain a Community of different cultures and different national governments. The powers of the centre must be kept to a minimum. It is in the interests of democracy and personal liberty that decision-making is kept at the level closest to those governed. This philosophy colours our reactions to the centralising and institutional approach to EMU assumed in the Delors Report. Clearly it has weighed strongly with many of your Lordships in today's debate.
What then is the Government's approach to EMU? It is founded on three principles: strengthening the forces which make for stable prices; increasing the influence of markets and competition; and keeping control, at the national level, of economic policy making to the maximum extent possible. This is another way of expressing the Community's own doctrine of "subsidiarity". I am pleased that so many of your Lordships mentioned that third proposal. At one point I thought that some noble Lords would not do so. Indeed, it seemed that the noble Lord, Lord Seebohm, would not do so, given the tone of the rest of his speech. However, he did mention it and I am most grateful for that fact.
These principles are well respected in Stage One of the Delors Report. We fully support the decision to launch Stage One next July. It will involve: the dismantling of long-standing barriers to the movement of people, goods and services through completion of the single market programme; the strengthening of competition policy; the liberalisation of capital movements; stronger coordination of member states; economic and monetary policies;
70
and the inclusion of all currencies in the exchange rate mechanism of the European monetary system on equal terms.
Before I turn to the implications of these Stage One changes, I should touch on the question of the exchange rate mechanism. The committee reminded the House in its report that it has consistently supported UK membership of the exchange rate mechanism of the European monetary system in order to reinforce the Government's goals of low inflation and a stable macroeconomic environment. The Government are also firmly committed to UK participation. My right honourable friend the Prime Minister made it clear on her return from the Madrid Summit last June that sterling will enter the ERM during Stage One of the Delors Committee's proposals. The question is not whether the UK will join, but when.
In its conclusions, the committee went on to suggest that the UK should join the mechanism before July 1990. I am surprised that the noble Lord, Lord Kearton, did not seek to justify that point in his opening speech. I hoped that he would.
We think it unwise and simplistic to attempt to set any kind of timetable for UK entry other than that implicit in stating that we shall join during Stage One. I noted with interest the points which my noble friend Lord Butterworth made in support of the Government's position on that matter. We have made plain the circumstances in which sterling will become a member of the mechanism: when the level of UK inflation is significantly lower, when there is capital liberalisation in the Community and when real progress has been made towards completion of the single market, freedom of financial services and strengthened competition policy. The noble Lord, Lord Bruce of Donington, is right: the responsibility for fulfilling most of those conditions lies with other member states, not with us. We therefore believe that it would be misguided to set a specific date for UK entry. Indeed, that could give our partners quite the wrong signal about the importance we attach to the steps they themselves need to take.
I agree with the noble Lord Lord Stoddart of Swindon, that sterling's participation in the ERM is neither a precondition for success in meeting our own economic objectives nor a pancea for overcoming our economic problems. The rapid fall in inflation which we secured in the UK in the earlier part of this decade demonstrates that it is possible to bring inflation down while remaining outside the mechanism. When we join, the Government will certainly not be freed from the need to pursue an adequately tight monetary policy and business will still need to restrain the growth of unit labour costs. So no one should be seduced into expecting any immediate reduction in interest rates; indeed, membership will commit us to setting our rates at whatever level is needed to keep the exchange rate within its ERM bands.
I was grateful to the noble Lord, Lord Stoddart of Swindon, for the compliment he paid the Government on their economic policies over the past few years. I shall of course write to him separately on the point about toys which he mentioned. Nevertheless, in the right circumstances,

71
participation in the ERM should confer economic benefits on the UK in terms of greater currency stability within Europe and support for our anti-inflationary policies. I therefore confirm that sterling will join the mechanism when the conditions that I have reiterated today have been met.
I shall read with interest the speech of the noble Lord, Lord Williams of Elvel, because I thought that I detected a noticeable change in Labour's attitude to that issue. It was a speech with a distinctly communitaire gloss, but underneath there was more than one deep reservation about the Delors recommendations. They are reservations echoed by so many of your Lordships.
The Government and my noble friend Lord Cockfield believe in the evolutionary approach, but to where we evolve is the subject of our difference. The Government have explained in their paper An Evolutionary Approach to Economic and Monetary Union the importance of the Stage One programme. Stage One will progressively increase freedom of trade in both goods and services, and freedom of movement of capital and labour. In economic and monetary terms, national boundaries will have been substantially removed; but here I agree with my noble friend Lord Boardman, with all his experience. This task is a huge one and will take time to complete. The concept of the single market dates back to the Treaty of Rome in 1957; yet the programme of single market measures will not be formally completed until the end of 1992. It then has to be made a reality at national level.
It was therefore entirely appropriate that with her recent experience in the Community my noble friend Lady Elles reminded us that the United Kingdom has been among the leaders in pushing for progress. It was a UK presidency which set the 1992 programme moving, and the UK is in the lead, along with Denmark, in implementing the necessary measures.
As a result of Stage One, there will be much stronger pressures on all Community countries to pursue low inflation. Stable prices will in turn mean more stable exchange rates. After Stage One we believe that the Community should continue to build on those developments. Some further measures may be needed to strengthen the operation of market forces. They include lifting unnecessary restrictions on the use of Community currencies; for instance, restrictions on where or how savings may be invested, and making it easier and cheaper to use Community currencies by moving to technological advances, particularly in the banking area. Within the framework of the exchange rate mechanism, we expect that member states will pursue increasingly convergent economic policies and that margins of fluctuation between currencies would become increasingly narrow. We see no reason why the system could not evolve into one of fixed exchange rates; but that cannot and should not be decided now.
The important thing to stress is that those developments would result from competition between the monetary policies of the 12 member states of the Community, not from centralised,
72
bureaucratic direction. That leads me to our fundamental reservations about aspects of the Delors proposals. I shall single out three in particular. The first is, the Delors Report's proposals for a single Community monetary policy run by an independent system of central banks. That makes no provision for accountability for monetary policy to national governments or national parliaments. Yet, as my noble friend Lord Boardman said, the electorate would still hold governments and national authorities responsible for their economic wellbeing, and rightly so. My noble friend Lord Butterworth was right that accountability to the European Parliament is no substitute for that direct responsibility to our own national institutions. Moreover, there would be no effective means of bringing to account the central banking system for any failings, and there can be no guarantees that it would pursue successful anti-inflationary policies, whatever the treaty might require. Indeed, as the noble Lord, Lord Harris of High Cross, said there must be a danger that the proposals would lead to standardisation not on the best inflation performance, but on the average.
Secondly —here I welcome the support of the noble Lord, Lord Ezra, we believe that Community rules on the use of national budget deficits are neither necessary nor desirable. The Select Committee makes that point in its report, and I fully agree with its comments. Binding Community rules are unnecessary because monetary unions can and do tolerate diversity of budgetary positions. We should be clear that the Delors proposals would involve a considerable transfer of sovereignty over economic policy-making as well as monetary policy.
My third point is one mentioned by the noble Lord, Lord Monson, and concerns the proposal that there should be enhanced regional flows to compensate weaker member states for giving up exchange rate changes to bring about economic adjustments. We believe that the operation of the market, in which capital and labour can move freely to low-cost regions, is the way in which the Community's remoter regions will grow and prosper. The Community should move towards closer economic and monetary co-operation at a sustainable pace. It should not be necessary to make massive transfers of resources in order to cushion some parts which may not be ready for the changes concerned.
We do not believe that it can ever be possible to use new monetary institutions to drive forward the process of economic integration. For that reason I say to the noble Lord, Lord Roll of Ipsden, that real economic change must come first. Institutional change, if it is needed at all, should follow. That view has increasingly been echoed elsewhere in the Community, not least in the Federal Republic of Germany.
There is a great deal of work yet to be done on the Delors proposals and on those put forward by others, including the United Kingdom. We shall play our full part in this work. We shall not hesitate to make clear our reservations, where we have them; but our objective —to achieve the strongest possible

73
European economy —is the same as that of all our European partners.
The report from the Select Committee has stimulated an exceptionally useful debate. The Government will take full note of the points which have been made as further work on EMU moves forward.
Lord Kearton: My Lords, in making the final remarks in this long debate perhaps I may first thank the noble Earl for the tone of his comments in his summing up of the various points made. The impression gained by me is that there is an enormous amount of common ground on all sides of the House, as the Minister said. We all seem to be agreed on targets. The exact way in which we attain them is still under discussion. In other words, it comes down to tactics now and not to strategy.
The noble Earl would not expect me to agree with his reservations but I strongly welcome the positive tone of his remarks. If I may say so, it is a pleasant change that the Government's attitude has turned so much more positive in recent weeks.
I wish to thank all the noble Lords who took part in the debate. I thought that their contributions were of an amazingly high standard; they touched the whole gamut of possible interpretations. We had high philosophy, pragmatism, examination in depth and some humour and wit and we even had a little broad comedy now and then. All speakers made a valuable contribution to the debate and I am quite certain that the Minister means it when he says that the Government will read what was said in Hansard and take the points seriously. This has been an important debate, an important occasion, and I entirely agree with the noble Lord, Lord Roll, that the choices which this country has to face in the next 12 months will be the most critical in its post-war history.
I should like to conclude with a personal statement, with the indulgence of your Lordships. I have now finished my stint on the Select Committee on the European Communities. I am grateful to the House for the opportunity it has given me to serve on the committee. It has been a wonderful experience and most enjoyable to serve with so many able and brilliant colleagues. More than anything else I wish to pay tribute to the chairmen of the Select Committee, the noble Baronesses, Lady Serota, and her predecessor, Lady Llewelyn-Davies. Few members of the House who have not been members of the committee know the enormous workload it entails. There are all the sittings, the numerous reports have to be gone through, one has to decide which reports to refer to the Select Committee, attending the meetings of the Select Committees which produce the reports and guiding the Select Committees. It is a remarkable job and in my time it has been carried out by two remarkable ladies. I can only say that it has been an enormous privilege to work for both of them.
On Question, Motion agreed to.

Supply of Beer (Tied Estate) Order 1989
7.20 p.m.
Lord Trefgarne Lord Trefgarne rose to move, That the draft order laid before the House on 6th December be approved [3rd Report from the Joint Committee].
The noble Lord said: My Lords, I beg to move.
Your Lordships are familiar with the background to the MMC's investigation, its findings and its recommendations. These were debated by your Lordships on 16th June and the Government were able to take account of views expressed when reaching the decisions announced by my noble friend Lord Young on 10th July. I do not intend therefore to trouble your Lordships by going over old ground.
The subject of the Motion is the tied estate order which applies only to the national brewers and which contains all the measures that the Government intend to implement in respect of them. The term "national brewer" for this purpose means any brewer with 2,000 or more on-licensed premises or any group of companies with brewing interests which between them have more than 2,000 such premises.
The aim of the order is to open up the national brewers' large tied estates to competition from a wider range of drinks and suppliers. Agreements that tie an outlet to supplies from a particular brewer can in some circumstances be beneficial. The MMC recognised that they allow small brewers a secure market for their products. However, used to too great an extent, ties restrict market access by others and can be used to bolster a dominant market position. The approach embodied in this order is to limit the strength of ties when made by brewers who have substantial market power.
There are in essence three groups of provisions in the order. First, the order requires brewers or groups with more than 2,000 pubs to release a proportion of their estates from ties altogether. Half of the excess over 2,000 must be released. Thus a brewer with 6,000 pubs will be able to tie 4,000 and must release 2,000 from ties.
The second provision concerns the so-called guest beer. National brewers must allow their tied tenants and loan tied licensees to serve at least one draught cask-conditioned beer from another source.
Finally, the order requires national brewers to release ties on low alcohol beer and non-beer drinks. By non-beer drinks we mean products such as soft drinks ciders, wines and spirits. In addition, and following consultations, the Government have drafted this order to ensure that the tenant has as far as possible a genuine and unfettered choice of supplier for both the guest beer and the other drinks released from ties.
Brewers have until 1st May 1990 to implement the provisions concerning the guest beer and ties to other drinks. The release of part of their estate from ties altogether will require a substantial amount of reorganisation within their property portfolios and the Government thought it right to allow the brewers until 1st January 1992 to achieve this.
I would now like to say something about the background and the process of consultation that led

75
to the drafting of the order. The measures announced by the Government on 10th July were themselves the outcome of a wide-ranging debate about the MMC's report and its recommendations. I know that some noble Lords were concerned about the very principle of intervention in a successful industry. But governments in free market economies have always recognised that they need to reserve the power to intervene where the market is not operating properly. The MMC report provided evidence of market failures in the supply of beer, and the response the department received from the public at large after the MMC report was published suggested that the MMC's analysis struck a chord with many tipplers as well as with publicans.
The order was published for public comment on 22nd August. A substantial number of comments were received and a revised draft circulated for comment on 31st October. Because of the complexity of the order and the drafting changes that had been made to take account of earlier representations, the Government felt it right to allow a further opportunity for parties to see whether any drafting problems remained. The order in its present form incorporates changes made as a result of that process.
I have dwelt on this process because I know that some have suggested that we should have allowed more time for consultation and public debate. It is now almost nine months since the MMC report was published, and I hope it is clear from what I have said that the Government have been at pains to conduct the widest consultation at every stage.
During this process we heard arguments that the measures being proposed would bear too harshly on the national brewers and the department received many suggestions for ways in which the burdens of complying with the order could be reduced. On the other hand the department also heard from those who felt that the order did not go far enough in addressing the consumer's interests and should be tougher. The Government have tried to strike a balance between the interests of the consumer in greater choice and more open competition and the need to minimise the burden on the industry. This balance will not satisfy everyone. But I hope your Lordships will agree that a fair balance has nonetheless been struck.
We believe that this order will have a substantial effect on the market. It will open up large parts of the national brewers' estates to competition from other products. It will encourage small brewers who will have access to a larger market; provide sharper competition in low alcohol products and soft drinks; and contribute to the stimulation of an independent wholesale sector. It will be good for the consumer and good for the long-term health of the industry. I commend it to your Lordships.
Moved, That the draft order laid before the House on 6th December be approved [3rd Report from the Joint Committee] —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, the House will be grateful to the Minister for introducing the
76
Motion and the order. As he quite rightly points out, there has been a wide-ranging debate since the Monopolies and Mergers Commission published its report. The wide-ranging debate largely consisted of successive government cave-ins to the brewing interests. We are very disappointed that the Government did not adopt the recommendations of the body for which they are responsible—namely, the Monopolies and Mergers Commission. Nevertheless, that debate has taken place and I do not wish to go over the ground, however sorry I may be about the result.
Perhaps I may ask the noble Lord some questions about the order. First, what is the position of the Community's competition department on the tie? At the time of the Monopolies and Mergers Commission report it was stated that the directorate general responsible for competition was looking into the question of the tie and was due to report in the not too distant future. My understanding is that the matter is moving quite fast now. I should be grateful if the noble Lord could give us an estimate of when the Commission will make its final judgment about whether the tie as such is legal in terms of the Treaty of Rome.
Secondly, am I right in thinking that the exclusion of soft drinks from the tie simply puts into United Kingdom law the block exclusion that is already given to us by the Community? Is there anything extra in this measure that is not provided by the Community block exclusion? If that is the case, why do we have to have it included in the order in the first place? I could never quite understand when I was debating with the predecessor of the noble Lord at the Government Dispatch Box exactly why the block exclusion did not apply throughout the United Kingdom on soft drinks and why we needed United Kingdom legislation to make that effective.
Thirdly, am I right in thinking that this order extends the provisions that the noble Lord the Secretary of State announced before consultations took place on the order in two directions? First, am I right in saying that what is known as the Whitbread Umbrella —that is to say, groups of interconnected brewers; the Whitbread example is the clearest one —would be caught by this order, whereas in the original provisions that were set out by the Secretary of State of the day that was not the case? In the second respect, am I right in thinking that this order extends the possibility of providing a guest real ale in premises to the large brewers, whereas previously we had been led to believe that it was only the smaller regional brewers who would have that privilege? I should be grateful if the noble Lord could confirm whether I am right or wrong on those points. If I am right, I hope he will explain exactly what has led the Government to the conclusion to change the arrangements in those two respects.
Finally, will the order, taken together with the new primary legislation concerned with the landlord and tenant legislation, form the whole corpus of what we can expect as a result of the report of the Monopolies and Mergers Commission or will other orders and other legislation come before us? If other legislation is to come before us, when will that occur?
7.32 p.m.
Lord Kimball: My Lords, it would be churlish of me not to start by thanking the Minister for some progress over the period of negotiations and consultations that has taken place on the order. However, in my opinion we are faced with a sad evening in this House on three major points where there has been further dicrimination putting constraints upon the major brewers of Great Britain who own more than 2,000 outlets, thus making it difficult for them to compete for the supply of the free trade.
In this order all tied trade is treated the same, regardless of whether it constitutes a tenant or a free trade outlet tied by a loan. For all such outlets a brewer with more than 2,000 outlets himself must allow a cask conditioned beer to enter his public house. As my noble friend has said, he also has to free from a tie cider, wines, spirits, soft drinks, low-alcohol beers and alcohol-free beers. I should have thought there was a strong argument for allowing the major brewers to have every opportunity that we can give them to continue the important work they are doing in the development of alcohol-free beers and low-alcohol beers. It seems a pity that the tie will be removed in this area. These low-alcohol and alcohol-free beers are extremely expensive to produce. They involve an additional extra process, but they are a product that most people in this country want to be able to appreciate. Their quality is improving annually but there is still a lot to be done.
I shall now discuss what I regard as another unfair matter and that is the position in Scotland. In Scotland the majority of the licensed trade is undertaken in free houses. The brewers own very few outlets. However, a brewer with more than 2,000 outlets in the United Kingdom is placed at a competitive disadvantage in competing for the free trade in Scotland. Scottish and Newcastle Breweries is strong in Scotland but it is a fairly minor brewery, with fewer than 2,000 outlets. It will be able to tie for all beer, soft drinks, low-alcohol beer, non-alcohol beer, wines and spirits in all its outlets in Scotland, whereas a major brewer in England with more than 2,000 outlets will be constrained in its ability to tie. It will find itself in a weaker position in Scotland. This is an uneven playing field in which to take on the other brewers in a highly competitive business. Certainly in the case of Scotland this is a clear distortion of a free market by a Conservative Government. That is why I say this is a sad evening.
Even more nonsensical is the concept of a guest cask conditioned beer for free trade outlets tied by brewers with over 2,000 outlets. Under the order dealing with loan ties, licensed premises and wholesale premises, free trade outlets will be free of any tie within the next three months. To forbid them to enter into a voluntary supply arrangement for all their beer with a major brewing company is an unwarranted interference in the workings of the free market.
I think it is fair to say that, even if this order is some improvement on what was originally suggested, it still maintains the confusion that seems to exist
78
in the mind of the department. The department does not seem to understand the situation as it relates to property ties. The department has muddled those ties up with the loan ties. Those are two entirely different things. What is the logical reason why free trade should not be open to unrestricted and unregulated competition? What convincing argument have we had in our main debate here and in the excellent presentation of the weak case this evening by my noble friend that brewers with more than 2,000 outlets should be restricted in their ability to compete? The Government are interfering in a flagrant manner in a free and highly competitive market. In that market they are unfairly restricting the biggest and most successful companies.
7.37 p.m.
Lord Trefgarne: My Lords, in rising in front of the serried ranks of my supporters, I wish to thank both noble Lords for their contributions to this debate. I shall take the contributions in their reverse order. I shall deal first with the points raised by my noble friend Lord Kimball who asked about the position in Scotland. I believe I am right in saying that he suggested that the much larger brewers operating in Scotland who had substantial estates elsewhere might be at a disadvantage. I suspect that the issue boils down to one of competition in loan ties, for I find that in Scotland only 18 per cent. of fully on-licensed premises are brewer owned compared with 69 per cent. in England and Wales. But clearly a brewer such as Bass will not be able to offer loan ties which are exclusive to its products, whereas Scottish and Newcastle, for example, will be able to do so if it reduces its estate below 2,000 premises. However, I understand that at present the Scottish and Newcastle estate is a little larger than that. However, I do not accept that that makes the order unfair or discriminatory.
It is open to any brewer to reduce his estate below 2,000 premises and avoid the restrictions on the strength of the tie. Brewers who are already very large will be under greater restraints than others. However, this is a function of dealing with the monopoly situation. The essence of dealing with monopolies is that the largest players in the market have to live with restrictions so that others may compete on more equal terms.
Turning now to the other point raised by my noble friend, particularly relating to the question of property versus loan ties, the order applies the same restrictions to ties arising from property as it does to loan ties. In both cases such ties entered into by the national brewers must allow the person tied to buy a guest cask-conditioned beer from outside the tie. They may also only cover beer; they may not extend to low alcohol beers, soft drinks, cider, wines or spirits. There is no muddle here. The provisions are common to both. Indeed they need to be since otherwise brewers could easily get round the restrictions on the property tie by entering into loan ties. Clearly it would be anomalous to allow stronger ties in loan agreements than were allowed through ownership.
I turn now to the points raised by the noble Lord, Lord Williams. The first concerns the position of the

79
European Community on tying matters generally. I understand that the Commission's review is still in progress and I cannot anticipate either when the review will be completed or its conclusion. That matter is quite outside the Government's control, as the noble Lord will appreciate. We look forward with interest to receiving the Community's view in due course.
Secondly, the noble Lord asked about the exclusion of soft drinks and whether the new arrangements enshrine an existing European Community exemption. The order goes further than the European Community provisions. Soft drink ties must be abolished altogether by national brewers. The European Community allows such ties for five years provided the brewer matches the best terms. Clearly we go further than the European Community has provided for.
Thirdly, the noble Lord asked whether we should catch Whitbread now even though we did not do so before. The companies in the Whitbread group will be affected by the order in the sense that their pubs will count towards Whitbread's limit. However, that has always been the position.
Fourthly, the noble Lord asked whether the order extended guest beer to national brewers. A supplier of guest beer can be any brewer, national as well as regional, but that has always been the position. The decision will be for the licensee himself to make.
Fifthly, the noble Lord asked whether this was the sum total of the measures that we propose to bring forward. Orders may be brought forward to cover the information to be provided by national brewers to the Director General of Fair Trading. If necessary an interim order may be made to protect the position of tenants until the Landlord and Tenant (Licensed Premises) Bill receives Royal Assent.
I hope that I have dealt with all the points raised by noble Lords and that your Lordships feel that the order should be agreed to.
On Question, Motion agreed to.
British Waterways Board (Rateable Values) Order 1989
Railways (Rateable Values) Order 1989
Water Undertakers (Rateable Values) Order 1989
Electricity Generators (Rateable Values) Order 1989
Docks and Harbours (Rateable Values) Order 1989
Telecommunications Industry (Rateable Values) Order 1989
British Gas plc (Rateable Values) Order 1989
Electricity Supply Industry (Rateable Values) Order 1989
Non-Domestic Rating (Transitional Period) (Appropriate Fraction) Order 1989
7.43 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh) rose to move, That the draft orders laid before the House on 7th December be approved [3rd Report from the Joint Committee].
The noble Lord said: My Lords, with the leave of the House I wish to move that the nine orders standing in my name on the Order Paper be agreed to en bloc.
These orders are a part of the substantial corpus of subordinate legislation under the Local Government Finance Act 1988 which is necessary to implement the new system of business rating that takes effect on 1st April next year. The Non-Domestic Rating (Transitional Period) (Appropriate Fraction) Order provides a key part of the transitional scheme under which the effect of the new uniform business rate and the non-domestic valuation are to be phased in. The remaining eight orders all fix new rateable values for the so-called formula rated industries.
Under the uniform business rate locally fixed poundages will be replaced by a national poundage set in 1990–91 by the Secretary of State and updated in subsequent years by no more than the increase in the RPI. My right honourable friend hopes soon to be able to announce the poundage for 1990–91 but he has already given a provisional figure of 36. He will be aiming to raise from business broadly the same aggregate amount of rates in the first year of the new system as in the last year of the old. The UBR will remove the distortions caused by widely varying local poundages and rescue businesses from 15 years of average rate rises above the rate of inflation.
A revaluation of non-domestic property has also been carried out —the first since 1973. I hardly need say that if rates are to be retained for business property we must have up-to-date values, otherwise the old distortions will continue.
The average business will pay the same in rates in real terms under the new system as under the old but there will be a wide dispersion around the average. Businesses in the North and Midlands, especially in manufacturing, will tend to do well, while those in the South, particularly in retailing, will tend to face higher bills. The effects will be phased in for businesses facing the biggest increases over at least five years. The protection will, however, need to be paid for and we decided that the fairest way to do this was to phase in reductions in bills also. In that way the overall yield from business rates will remain the same, avoiding the need for a large subsidy from the taxpayer.
The retailing industry in particular has complained about the potential increase in its rate burden but that is entirely attributable to the revaluation, and the new rateable values in turn

81
merely reflect current patterns of retail rents. Retailers will of course benefit from the transitional protection written into the 1988 Act. I shall not deal further with that point here because of course the order we are debating tonight deals with those facing lower bills, not those facing increased bills.
The main framework of the transition was inserted into the 1988 Act by the Local Government and Housing Act 1989 and was debated by your Lordships' House only a few weeks ago. Broadly it provides that no rate bill will rise by more than 20 per cent. a year in real terms in the transitional period. For small properties the figure is 15 per cent. The appropriate fraction order in effect fixes the equivalent figures for properties attracting rate reductions. The order provides a formula for calculating maximum rate reductions in each year of the transition. Its effect is to place a limit on reduction in bills in 1990–91 of 10·5 per cent. in real terms for properties with a new rateable value of £15,000 or more in London and £10,000 or more elsewhere and 15·5 per cent. for properties with values below those thresholds. For 1991–92 the equivalent figures are 13 per cent. and 18 per cent.
Those figures, which are higher than we had previously thought likely, have been set using the latest information available about the revaluation so as to comply with the obligation in the 1988 Act that the transition must so far as practicable have a neutral effect on total rate revenue. They are higher in the second year partly because of the expected effect of appeals but also because the amount of protection for losers —which is confined to existing occupiers —will reduce over time as businesses move premises. We shall fix the figures for years after 1991–92 later when we have better information about, for instance, the effect of appeals.
Turning to formula rating, the eight draft orders before your Lordships prescribe either the rateable values of certain public utilities or the rules to be used in reaching those values. The orders mostly apply to utilities which have in the past had their rateable values prescribed in statutory instruments. In parallel with the general 1990 revaluation of all non-domestic property we have conducted a review of the undertakings rated in this way with a view to reaching new assessments or rules for assessment which will be effective from 1st April 1990.
The practice of formula rating certain industries started in the 1950s to overcome various technical problems associated with the assessment by conventional means of public utility undertakings. Those problems stemmed partly from case law on valuation methods and partly from the difficulties of apportioning an aggregate rateable value for the whole industry between rating districts. For the 1990 revaluation, we propose to continue the prescription of values in the following industries: water service companies and statutory water companies, the electricity supply industry, British Gas, British Telecom, the British Waterways Board, statutory docks and harbours, and also various railway operators, namely, the British Railways Board, London Underground, the Docklands Light Railway and Tyne & Wear Metro. Finally, to avoid distorting the taxation position of industries competing
82
directly in the same field, we shall for the first time be prescribing the assessments of Mercury Communications and of free-standing electricity generating stations.
In setting rateable values for those industries we have sought to reach the level of assessment that might have been made by conventional means. Where the necessary information exists we have adopted a method similar to the contractors' basis of valuation, which looks at the net cost of building or replacing a property and converts it to an annual sum by applying the decapitalisation rate. For the electricity, water, gas and telecommunications industries we have been able to use their net current cost accounts, suitably adjusted, to derive a rateable value in this way. For independent generators and the statutory water companies we have derived rateable values respectively from those of the electricity supply industry and the water service companies.
In the case of the canals, ports and railways industries no current cost accounts information is available. We have set those rateable values by reference to that percentage of turnover which we believe represents a fair assessment of other similar types of industry whose values have been set on a conventional basis.
The order setting values for the electricity supply industry is at this stage not complete. We do not as yet know precisely how the assets associated with nuclear power stations will be separated out from those of the National Power Company and we shall make the necessary order for the two new companies early next year. Their combined values are likely to reflect the total value of £598.6 million proposed in our recent consultation paper.
It is a well established practice in formula-rated industries to make an annual revision of the rateable value in the light of some global measure of changes in their use of property. Each order provides this annual review for its industry using a measure of occupation of property appropriate to its particular case. The orders introduce some major swings in rateable values which we believe are fully justified and when appropriate there will be transitional arrangements.
While I am convinced that the proposals are fair and reasonable and in line with what the 1990 revaluation will show, I do not believe this to be an ideal means of assessment. I believe that most industries currently assessed on this basis share that view. We therefore intend so far as is practicable to return all hereditaments whose values are currently prescribed in this way to conventional assessment for the next revaluation.
The assessments and provisions contained in the orders have been worked out as a result of extensive discussions with the industries involved, with the Valuation Office and with the local authority associations; they have also been the subject of public consultation. I believe that they represent fair and reasonable assesments for these industries. I hope that the House will support the orders. I beg to move.
Moved, That the draft orders laid before the House on 7th December be approved [3rd Report from the Joint Committee. —(Lord Hesketh.)
7.56 p.m.
Lord Graham of Edmonton: My Lords, I am grateful to the Minister for taking the care that he has in setting out the arguments in support of the orders. As he knows, it is the ninth order on the list about which I wish to speak.
The Minister said a great deal. Quite frankly, even if one understands the subject and the Minister speaks slowly —he did not speak fast —it would be difficult to assimilate the arguments, consequences and justification for even more changes on a subsequent revaluation. Many people outside the House will read with care what he said.
The Minister dealt with the matters with which we need to deal but he also ranged sufficiently widely to convince me that I am in order to set the orders in a slightly wider context. As he rightly said, we must deal not only with the direct effect of the order in which I am interested and with the marginal benefits of the latest announcement of the½ per cent. increase. He knows that we are dealing not only with the unified business rate; we are also dealing with the impending effect of the catastrophic —I would say horrendous —revaluations of certain hereditaments.
I declare an interest as secretary of the all-party retail group which comprises Members on all sides in both Houses who have connections with retailers. I am also a director of the Enfield and St. Albans Co-operative Society. I do not have any special brief from those bodies or any special plea to make on their behalf, save to say that co-operative societies include 7,000 or 8,000 shops, some large, some small, some in the North and some in the South. Many of the national retailers may well have large units in the North, the Midlands and the South.
The Minister might argue that we are talking in terms of swings and roundabouts and that you win some and you lose some. The phrase that comes to my mind is that this is just the tip of an iceberg. The matter will run and run because there are many people outside the House, and many people of his political persuasion in another place, who will be made to learn fully and painfully over the next few months exactly what they voted for when they voted for the introduction of the poll tax and the unified business rate.
Perhaps I may quote from a gentleman who has our respect —Mr. John Banham of the CBI —who said only last week:
"When reality really dawns in a few weeks' time, there may well be half a million furious business people, either with severely disappointed expectations or facing a succession of real increases of 20 per cent. in their annual rates bills".
He went on to say that the likely result would be a one point increase in the retail prices index, adding a further twist to the inflationary spiral.
Let us consider Mr. Banham's statement. I shall not make too much of the timing. The Minister was fair in saying that the last revaluation was in 1973. Another revaluation was due in 1978 when a Labour Government were in office. Eleven years have passed since then. I have been involved in all the arguments about how we can improve the present system, but the Government have grasped the nettle and
84
produced a scheme, the consequences of which we are now discussing.
One of the arguments deployed by the Minister and his colleagues—my noble friend Lord Dean who is on the Front Bench with me at this moment has engaged in those arguments as fully as I have over the last three or four years—was that it was unfair on local businesses to have to bear the burden of what were then called profligate local councils. We were told that the burden would be lifted and that they would be treated fairly, uniformly and in a businesslike way.
The Minister tells us that there is nothing final about this, but we are considering what his honourable friends have said is likely to be the figure of 36p. That is the extrapolated figure, based upon a current rate of 258p in the pound. I do not think that the Minister and his colleagues fully grasp the enormity of what that will mean to many businesses. The figure is 36p plus an allowance next year for the RPI. For every penny by which that 36p goes up, £1 billion will be added to the costs of retailers. That is absolutely catastrophic.
There are a number of ways in which those costs to retailers might be borne. The retailer who has his wits about him and sees that coming, as many have, will have made allowances in his plans. Many of them will decide that if their costs are to increase, they must be passed on to the consumer. After looking at their costs many of them will decide that they can absorb some of the costs but that extra imposte must ultimately be borne, as are all costs, by the consumer. Does the Minister appreciate that by acting in that way he is, as John Banham said, adding an extra twist to the inflationary burden?
The Minister was quite fair in saying that by and large industry will be better treated than retailing and that the North will be better treated than the South-East. I hold no brief to protect the South-East. According to my brief, the burden of the Government's imposition upon retailers is likely to be not only onerous —retailers will have to pay their fair share like everyone else —but punitive. For instance, let us look at the costs that have been borne in the past by businesses and at the new rateable value. The new rateable values have been assessed at 7·7 per cent. of what they are now. I am told that because of property values in some instances the rateable value will increase 20 times. When my informant gave me that information I said, "Stop! Are you telling me that someone who might now be liable for a rateable value of £100,000 will be faced with a rateable value of £2 million?" He said, "That is right".
Those words came from someone who deals in property and retailing. He knows the market. That increase will not only affect large businesses, it will have an impact on small businesses. The Minister and his colleagues have hit upon the figures of £10,000 and £15,000. In terms of property size, that represents rabbit hutches. They are tiny. The alleged benefit to come through this order is minuscule. The bulk of retailers will be very badly hit.
The Inland Revenue figures at the end of July 1989 showed that of 1·7 million businesses, 275,000

85
face increases of over 100 per cent., 249,000 face increases of between 50 per cent. and 100 per cent. and 443,000 face increases of up to 50 per cent. Confronted with those figures, what are the consequences? The Forum of Private Business, which is a reputable trade association, observed that as a consequence of the combination of both the unified business rate and the revaluation, 110,000 jobs could be lost as a result of the changes. Would the Minister and his colleagues care to comment on that calculation and accept that as a consequence of these changes there will be an enormous burden placed on the retailer?
The Minister could very well argue that in effect he is shifting the load from manufacturing and hard-pressed areas such as the Midlands and the North to those who are better able to bear it. The Minister reads the press and observes the markets; he knows that retailing is going through a very difficult period. Two or three years ago such changes could have been looked upon if not with equanimity then with some knowledge of ability to absorb. But the whole retailing scene is changing rapidly. There has been a complete change in the mix of retailing. Those with whom I consult and whose views I respect have advised me that retailing is not in the best condition to absorb these increases.
I should like to draw the Minister's attention to an article by Peter Wilsher which appeared yesterday in the Sunday Times and which gives two illustrations of this situation. The Minister talks in terms of formulae and poundages and puts forward abstract arguments. But what does that mean to individuals? For example, Marks & Spencer, whose mere presence in a new development can easily double a prospective rental, already face a bill of £35 million a year for rates. It can expect that amount to increase by about £9 million next year. Of course, it will have enormous after-tax profits and that increase can be absorbed. However, the picture is very different for the closely comparable Storehouse, which is another large, reputable and successful retailer. Marks & Spencer pays £35 million in rates; Storehouse pays £30 million in rates but its forecast for next year's gross profits is such that to add £8 million as the likely rates damage could make a very nasty dent. In other words, it will find that the additional on-cost will be difficult to bear. Those two companies are two giants, very highly organised, efficient and successful businesses.
As John Banham said, there are 500,000 —half a million, my Lords—little businesses. The party which the Minister represents says that it looks after small businesses better than any other party. However, he has added to the impost on small businesses to a degree which is disgraceful. He is simply putting forward a piece of legislation in the form of an order and we are limited in what we can do about it. As I understand it, each year the Minister will come forward and tell Parliament that he wants to add to the 36p a figure that he estimates he will need increased in line with the RPI. It is a debatable amount.
When the Minister was faced with the same kind of transitional costs for the domestic ratepayer, he worked out a formula which in effect meant that
86
while the gainers were left as such, the tab for those who lost was picked up over a transitional period by the Exchequer. Why does the Minister choose to favour the domestic ratepayer over the business ratepayer in this respect? Could it have anything to do with the revolution on the Back Benches of the Minister's party in another place which threatened all sorts of action and warned that if a cushion of some kind were not provided, then his party would be in very real trouble next year. I believe that there is a lot in that.
I ask the Minister to take this measure back to his right honourable friend and tell him that unless he is able to revise his intentions in the future, he will not only have a political storm —which I shall welcome —but also a much more difficult job to defend his actions at this Dispatch Box.
8.6 p.m.
Lord Hesketh: My Lords, as always, I am grateful for the remarks of the noble Lord, Lord Graham. I am also grateful to him for earlier today having brought to my attention the fact that he would refer in particular to the retail business.
When considering these orders, I believe that it is absolutely critical to see the UBR in its entirety. It is not an abstract device at all but a very real one. Perhaps I may go back to the noble Lord's first remarks which were very relevant. He referred to the fact that there had not been a revaluation since 1973 and then very cogently deployed his argument. He finished by saying, when he was displaying his reasons for not being happy with the proposals (which are not before us tonight but as he sees it are part and parcel of what he was describing), that such were the consequences of the scheme. In all truth, it must be fair and right to say that they are in part the consequences of not having a revaluation since 1973, and are not consequences only of the scheme.
The noble Lord went on to suggest that the introduction of the new system would be inflationary; but in my earlier remarks, I made the Government's position clear. It is that there is fiscal neutrality in these arrangements. It can hardly lead to inflation if the total sum of money to be raised will remain the same.
The noble Lord drew your Lordships' attention also to the possibility of profitability or otherwise of 'certain retailers and gave comparisons between two leading companies on the High Street. But the basis of raising taxation through the uniform business rate is a basis of valuation on property. In this case it is not the Government's responsibility to make an assessment on profitability within the context of what they are achieving by raising revenue through a basis of evaluation and a tax on property.
The noble Lord also drew attention to the fact that he felt that small businesses which he said that the Conservative Party claimed to support, were not being helped by the interim arrangements of £ 10,000 and £15,000 to protect and help smaller businesses with the transitional arrangements. However, the fact of the matter is that 75 per cent of non-domestic businesses rated at over £500 will be protected by those two levels of protection. That is a very substantial amount indeed.

87
Finally, I should make absolutely clear that one can look at these arrangements only in the overall context. Yes, some retailers will be paying more. However, I suggest that one considers what the opportunities will be for further employment in the North and in the Midlands where companies will be able to take on more men because they will be paying less. There is a totality in these arrangements that we hope and believe will be for the future good and benefit of all those involved. I fully understand and accept the position of the noble Lord, Lord Graham. I hope he understands that I also have a position which represents the other side. It has to be seen as the mirror image.
Lord Graham of Edmonton: My Lords, before the noble Lord sits down, he referred to the Government having consulted local authorities and a number of other bodies. Can he tell us to what extent consultations were taking place with representatives of retailers? I do not refer to individual retailers, though I could name one or two. However, reference has been made to Mr. Banham, speaking on behalf of the CBI. That represents many businesses. I refer also to advice to me from the Retail Cosortium, which represents many businesses including the large high street retailer; from the Chamber of Trade including the smaller retailers; and from the Co-operative sector. I do not press the point aggressively. However, if those people who will have to pay have made their views as clear to him as they have to me why are they so angry and concerned at the impact of the legislation?
Lord Hesketh: My Lords, I speak as a farmer. Farmers always tend to complain when they feel that they are at the wrong end. The Government have consulted the Group of Ten, the Retail Consortium and the Chambers of Commerce. We discussed the figures with the forum. We understand the position that the noble Lord, Lord Graham, has explained. However, as a responsible Government we have to accept the totality of the situation. We cannot look at the uniform business rate with only the retailer in mind. I commend the Motion.
On Question, Motion agreed to.

Prisons: Visitors' Centres
8.12 p.m.
Lord Dean of Beswick Lord Dean of Beswick rose to ask Her Majesty's Government what are their criteria for financial support to visitors' centres in prisons.
The noble Lord said: My Lords, this Unstarred Question is raised now as a matter of urgency with regard to some services that are provided on a voluntary basis in this country. Members of your Lordships' House will know that on 7th November the right reverend Prelate the Bishop of Manchester asked a Question about the visitors' centre at Strangeways prison in Manchester and referred to the fears for its future through lack of funding. The noble Earl, Lord Ferrers, replied to the Question. I ask this Unstarred Question to correct some matters stated by the noble Earl.
I was a little surprised at the lack of sympathy by the Minister on that day with regard to the plea made. Some of the noble Earl's briefing was not as factual and accurate as it might have been. In reply to the right reverend Prelate the Bishop of Manchester the noble Earl stated:
"I am bound to tell the right reverend Prelate—I am not inviting them; I am simply telling him —that we have not yet received any requests for funding". —[Official Report, 7/11/89; col. 537.]
Funds were available, but he implied in that answer that Selcare had not applied. Whoever supplied him with the brief, that information was quite wrong. The department had continually been made aware of the needs of Selcare last year and for many years to come. In addition, letters of request had been sent. It is obvious that the Minister was not advised of the up-to-date position.
I raised a question about Selcare's future. I received this answer from the Minister:
"I realise that the Selcare Trust takes an interest in the visitors' centre, as do the Save the Children Fund and the local Probation Service. One of the difficulties is that the cost of running Strangeways visitors' centre is a good deal higher than for most visitors' centres".—[Official Report, 7/11/89; col. 538.]
That is another erroneous answer because it was not comparing like with like. The Selcare Trust takes the overall responsibility and legal liability for the Selcare Centre. Other agencies share a great commitment, but not the legal liability. The Save the Children Fund has been tremendous but because of other commitments it will not be able to help to fund any part of the work after August 1990. That source will dry up.
On the cost of running the centre, we are advised by all professional advisers and the many agencies, statutory and voluntary, that have visited the centre that Manchester prison visitors' centre has the basic standard that all centres need. We should not be encouraged by anyone, least of all government, to lower our standards below the basic level. Nor should we expect the voluntary sector to pay more than its fair share of the costs for some service that is part of a statutory service. The voluntary sector is willing and able to organise and manage the centre at cost price, but a substantial amount of the cost must surely come from statutory or government funding.
During that exchange, the Minister spent a considerable time referring to the future prison programme. He referred to £230 million for new prisons. The voluntary sector, and in particular Selcare, is saying that the £16,000 allocated to Selcare last year —the total available nationally was, I believe, £60,000 —is totally inadequate. What surprised me and other Members in your Lordships' House was that the whole accent was placed on the new prison programme and new visitors' centres. The debate tonight is to discuss existing visitors' centres which are doing their best to survive.
Only today I received on my desk some correspondence from the noble Earl, Lord Ferrers, relating to a Written Question by the noble Lord, Lord Gainford. The Answer is not yet printed in Hansard, but the noble Earl graciously sent me a copy of the reply. The noble Lord, Lord Gainford asked Her Majesty's Government what is their policy

89
on the provision of prison visitors' centres. I shall not refer to the first paragraph. However, the second paragraph states:
"We already make a regular contribution towards the running costs of five visitors' centres, and emergency grants have also been made to a further four centres in this financial year. From April next year additional funds will be available to offer similar support to new centres".
That reply does not refer to the existing centres being able to look forward to more funding. I believe I am right in saying that the visitors' centre at Strangeways, Manchester, received some £16,000 last year. I hope for an increase in the amount.
It will take only a few minutes to indicate to your Lordships' House what takes place at the centre. Manchester prison visitors' centre was opened in December 1986 by the noble Viscount, Lord Whitelaw, and was visited in 1988 by Princess Anne. Its aim is to alleviate stress imposed on the friends and families of remand prisoners visiting Strangeways prison. Prior to December 1986, a visit to Strangeways meant a long wait in a queue on the pavement outside the prison. More often than not, this would be in cold and wet conditions. A not unfamiliar sight was groups of young children, some being fed by their mothers, some being changed, some sheltering under their parents' coats from the snow, hail, sleet, rain and so on.
It was clear that this treatment of visitors added to any sense of alienation from society and authority already felt by them. It encouraged illness and increased the stress being experienced often by women and children dependent on their menfolk who were then unable to support them in any way. As we know, this amounts to a sentence on dependants at a time when the prisoner probably as yet had not been found guilty of any crime, and may well be found innocent.
Since it was established, the centre in Manchester has become the official entry point to visitors going into the prison. Each year some 125,000 visitors go through the centre. The majority come from Greater Manchester, but 5 per cent. come from all parts of the country.
Manchester prison houses some 500 remand prisoners of whom over 25 per cent. are usually held for periods exceeding three months. All remand prisoners can receive a visit from relatives and/or friends on the six visiting days each week. Managing the centre is a group of voluntary and statutory bodies led by Selcare Trust. Staffing of the centre over the 6-day week opening is done by five full-time persons and a great number of volunteers.
The centre also provides crèche and changing facilities; an advice service (CAB); a health advice service provided by the local health authority; and a snack and coffee bar. In addition, visitors can be quite distressed after such visits and brief counselling help is available.
The projected cost of running this project in 1990–91 will be £79,846 excluding all management time and monies. We may raise between £6,000 and £7,000 locally and this year we received £15,000 towards our costs from the Home Office prison department. Therefore, we could expect, say £22,000 in total being possible towards next year's costs.
90
This of course leaves a £57,000 shortfall. Unless we receive £57,000 more from somewhere our prison visitors centre operation will have to be severely curtailed or closed. Nationally moneys available for the maintenance and setting up of prison visitors' centres throughout the country in 1989–90 amounted to just £60,000.
Are the Government now saying that their major concern is to spend more than £200 million on building new prisons with visitors' centres while turning their back on the centres at Strangeways prison and others? Those centres are carrying a heavy load performing that function and the Government should shoulder more. I believe that at least a case can be made of knock for knock or pound for pound.
I should like the Minister to take back the Question for a serious review. Unless the Government are prepared to do so and give more financial assistance there is no doubt that there will be a winding down of facilities at such prison visitors' centres. That can certainly be said of Strangeways and also of the other centres which I have not mentioned but which were included in the figures that I have quoted.
If the facilities are wound down or disappear they will not return. Do we have a government today who wish to see children standing out in the rain, wind, ice and snow with their mothers? Do they wish to see babies being fed and changed in such conditions? Do the Government wish to return to that? I do not believe so but I must warn them that if they do not alter their outlook and find more money on an increasing scale that will happen. The centres are carrying out the work outlined in the advisory notes recently issued by the Home Office and placed in your Lordships' Library.
This evening Selcare is holding a Christmas carol service in Manchester Cathedral. Its main purpose is to appeal for funds to enable it to carry on its excellent work. Christmas is a happy time when society is known to stretch out its hand in friendship and help those more unfortunate and under-privileged people in society who cannot help themselves. I hope that the carol service and its aim will be received with sympathy by the Government not only in respect of Strangeways but also other visitors' centres. The appeal is made on the red cloak and white beard of Father Christmas. I hope that the Government will find the sorely needed funds which Strangeways and other such establishments require immediately as a matter of urgency.
8.25 p.m.
Lord Donaldson of Kingsbridge: My Lords, the attendance in the House tonight relieves noble Lords of the need for eloquence. I shall be concerned only with the facts. The noble Lord, Lord Dean, introduced the subject so well, movingly and correctly. He spoke about running costs but I wish to speak also about capital costs. They must be considered as one item.
I do not have a great deal to add to the noble Lords's clear exposition of the necessity for visitors' centres and how many are seriously lacking in resources. He asked what were the Government's criteria for financial support for such necessities? I

91
looked up "criterion" in the Oxford Dictionary to be sure that we were talking about the same thing. The definition is: a canon or standard by which anything is judged or estimated. Therefore, the question amounts to this: how do the Government judge the adequacy of their present financial expenditure on visitors' centres in prisons? Surely, the answer must be, "Very inadequate".
In spending money on prisons it must always be a motive to maintain and strengthen family ties if possible. I suppose that the Government will say that they have made a start and agree that more money should be spent. It is all a question of priorities. Therefore, I assume that we are together as regards the basic moral principle; that is, the Minister, the Home Secretary and all ranks in the Home Office. It cannot be otherwise. I find it impossible to believe that anyone who has seen a wife and two or three children arriving at a distant prison can quarrel with the noble Lord's demand that every prison should have a visitors' centre. Sometimes there are no family ties to speak of. But that is a separate question. However, there are often close family ties and the experience of prison does much to weaken them. The Government claim to set great store by the family as a factor in modern society and I entirely agree with them. I give them full credit for not wanting to punish the innocent wife and children for the offender's crime, but that is what is now happening.
The question is: how can we help the Minister to persuade his colleagues—and above all, as usual, the Treasury —that a great deal more must be done and that such facilities should be given high priority? Does the Minister know of the position prison by prison? I doubt that he does. The first thing to do is to find out. I suggest that every governor be instructed to report on the condition of his prison's visiting arrangements and ask to get an estimate for bringing them up to the standard of some of the best. For example, I did not realise, as the noble Lord said, that the Strangeways centre is in danger of ceasing to function. I suppose the chief inspector's reports go some way in effecting improvements —certainly that apples to the last two prisons I have looked at, Durham and Wandsworth —but without financial estimates. As regards Wandsworth the chief inspector said that the prison badly needs a visitors' centre.
If I put down a Written Question on these lines will the noble Viscount find it helpful to him to move towards changing priorities a little? Someone has to help somebody if we are to have these changes made. It would be with the idea of being helpful if I asked a Question. I do not believe that the final figure for putting the matter right would be very great, certainly not in terms of the cost of new prison building, as the noble Lord, Lord Dean, has so eloquently explained. Given some determination, I believe that two or three years could bring 0about this fundamental improvement.
Of one point I am pretty sure: the £100,000 proposed as a start implies no solution before the millenium. The problem is so much less expensive in essence than sanitation that we must ask not to
92
have to wait, like sanitation, until the millenium for visitors' centres.
I have one more point to make. My view is that if a man is forcibly deprived of his liberty it is the duty of the power which deprives him of it —in this case the Government —to make sure that his family ties are spoiled as little as possible. So I believe that the Government have a moral duty to deal with this question themselves as a priority. However, public compassion, as the noble Lord has told us, has already made a good start in helping along such facilities as family centres, crèches, changing rooms and snack bars in various prisons.
Therefore, I think it should be a strict government duty to see to these matters. Yet I know that this Government would always prefer anything in the world rather than government help and presumably would welcome charitable intervention. I suggest the following programme, but under protest because I do not believe that it is a job for charity but for the people who shut up the men. First, we should know the facts so that we can see how much money is involved. Secondly, there should be a promise by the Government to put up half the cost, prison by prison, of putting matters right and maintaining the new provisions. Thirdly, there should be an appeal to the public for the other half of the money, strengthened by a pound-for-pound promise to double anything raised.
That is an absolutely specific proposal which it would be quite easy to carry out. There may be difficulties in raising the money, but I do not believe that there will be. This proposal is serious enough for it to be taken seriously. I am sure that all the visitors would be keen to help with local support. If a workable programme of this kind were available, a number of the larger charitable trusts would, I am sure, lend a hand. It has to be a programme, and that is the trouble. With the Home Office's valiant efforts for so long to put matters right, it has never given the public a programme. Exactly the same situation applies to sanitation and that is a much more difficult problem. This problem is not difficult and neither is it fearfully expensive.
We all agree that something needs to be done, but it will not be done without a vigorous government initiative. I beg the noble Viscount to persuade his friends that this programme is worth while and feasible and deserves the necessary priority.
8.34 p.m.
Baroness Ewart-Biggs: My Lords, I am extremely grateful to my noble friend for bringing this very important question before us. It is a very great pity that there are not more noble Lords here either to listen or to take part in a debate on a subject which is fundamental in terms of humanity and in practical good sense.
My noble friend described the situation concerning Strangeways visitors' centre. He explained clearly the dangerous position in which this extremely good centre finds itself. I have visited it myself and I very much admired the work that it has been doing. My noble friend explained the problems facing it. He has also put some penetrating

93
questions to the Minister and I look forward very much to hearing his answers. The noble Lord, Lord Donaldson, has also put some very hard facts before us about the finances of these all-important services. He has described how vital is their existence. He has been good enough to suggest a programme that I hope the noble Viscount who is to reply will find attractive.
Perhaps I may very briefly touch on three different aspects of the Question before us. I wish to say a further word about the vital need for visitors' centres from a humane point of view for the families. I sometimes feel that the general public has no idea of the difficulties that face mothers —they are practically always young mothers because so often the prisoners are young —who come with their young children on very long journeys. They often find it very difficult to co-ordinate their arrival with the time of the visit. These young mothers with their extremely small children have to wait outside the prison. Many of us who have seen that sight find it very hard to forget.
Those of us who have seen these lines of young mothers realise what they need. They need a cup of tea and to change the baby's nappy; they need some kind of support before they face what for them is a stressful moment —a visit to their husband or their partner. The centre at Strangeways takes these factors into account. There is someone there to talk to the mother before the visit, or afterwards if it has been a difficult one and things have gone wrong. Even if the visit has been very successful the mother needs to talk about it before she returns to the solitary life at home, trying to bring up the children and to cope with all the problems alone.
I remember visiting Grendon once and I asked a group of young prisoners about their backgrounds. I believe about three-quarters of them had had their fathers in prison. What a terrible inheritance that is.
Visiting time is an opportunity for them to be given some help. For example, they can be given toys to play with. There are also childcare workers who can help them with the great problems at home. They have a feeling of guilt that a parent has disappeared and obviously they are very much affected by the economies that have been imposed on the home while the father is away. They miss a parent and feel stigmatised at school and in the community if it is known that the father is away. The children need every kind of support, and the visitors' centres are places where they can be given that support so that they do not follow in the tragic paths of the fathers.
I wondered why the Save the Children Fund had taken such an interest in visitors' centres. I discovered that the interest began in Northern Ireland where I am happy to say that every prison has a visitors' centre. The Maze Prison applied many years ago for one officer from Save the Children Fund to help with its visitors' centre. Later the Save the Children Fund opened a model centre at the Crumlin Road Prison in Belfast, which is the best equipped centre.
To give noble Lords some idea of the staff involved, there is one manager-co-ordinator, four
94
childcare workers, a full-time canteen organiser, a part-time canteen worker and an advice and information worker. That is a model visitors' centre, which is in Northern Ireland where there is enormous voluntary support for work that goes on in the community, and it has achieved very great success. That is how the Save the Children Fund became involved in an area which one may not have thought it would go towards.
My second point is the importance of centres for the rehabilitation of prisoners. The noble Lord, Lord Donaldson, has touched on that enormously important aspect. The volunteers from New Bridge, with which I am associated, realise how vital is contact with the family. It is extremely important for the final, successful rehabilitation of prisoners. They know that without the support of families in visiting, successful rehabilitation is often jeopardised. We talk gloomily about the high rate of reconvictions, but I believe that we are fortunate that it is not even higher when one considers how little is put into the rehabilitation and after-care of prisoners. However, New Bridge realises that contact with the family is a major factor in resettlement, which will happen only if the marriage has stayed firm, and that is where a visitors' centre is of such importance.
I should like to say how best in my view a visitors' centre should be structured, because we all agree there should be one for every prison in this country. It would seem very primitive of us if we were not looking towards that. First —and this is the major subject of this debate —are the resources. Here we wonder whether the prison department has its priorities right. For 1990–91 the prison department is allocating from its expenditure only £103,000 for the whole of the country. That is the amount of money which will go into visitors' centres. What an amazing idea of priorities that is; 103,000 is in no way high enough.
One wonders how best to build such a service; how best to structure it. One can perhaps look at how victim support groups have grown out of local voluntary groups. The Government have supported them, quite rightly, with central funding. I am happy to say that victims are now thought of with much greater consideration and with much more constructive thinking. I take that as an example of how we can help prisoners' families in building up these visitors' centres. There is no doubt that the families look at voluntary agencies as something they can understand, whereas the criminal justice system is something they do not understand —the prison is something concerning their husband or partner. I am sure it would be right for the voluntary agencies to have a partnership and work out a way of dealing with different prisons because the needs might be quite different.
The Save the Children Fund is worried about the plans being made by the Government for building visitors' centres in all new prisons. It is right that they should be built, but there is concern about their design. They are to be called reception centres, which has a rather institutional tone about it. There will be benches which will be nailed to the ground for the visitors to sit down on. It does not sound as

95
though they are of absolutely the right design; but this again is something which could be discussed with an organisation like the Save the Children Fund, which has had so much experience in running these centres.
I hope that the Government will accept that these centres should be seen as part of the rehabilitation process. For example, the Home Office give grants to after-care hostels, accepting that these are part of the rehabilitation process. Why should they not see visitors' centres in the same light, as being of assistance to prisoners in not returning to crime after release? They could fund them out of resources allocated for rehabilitation, but obviously the amount needs to be very much greater. It is extraordinary that we are putting all our concentration and the vast majority of our resources into custody. But look at the result! It is not working. Why do we not try to redistribute those resources and put more into the process of rehabilitation? A very important part of that is visitors' centres.
8.45 p.m.
Viscount Ullswater: My Lords, we are all grateful to the noble Lord, Lord Dean of Beswick, for raising this important subject today. We have heard a great deal tonight about the value of visitors' reception centres. The Government share those views. None of us can possibly take any comfort from seeing the conditions in which the relatives and friends of prisoners must wait for visits at those prisons which do not yet have a visitors' centre. I am glad to say however that around 20 establishments do now have visitors' centres. The range of facilities that they are able to provide varies greatly; but all at least offer shelter and refreshment; the opportunity to rest after the journey, and prepare for the visit in a friendly and supportive atmosphere.
This can only be beneficial to all concerned. It is good for the inmates, because the visit is more likely to go well if his wife or partner has been able to relax beforehand and perhaps talk things through with a sympathetic volunteer. We know that a good visit can make a real difference to an inmate's morale, whether by easing frustration which might otherwise have boiled over, or by lifting a cloud of depression which could have led to suicidal behaviour. The benefits of this will be felt by the establishment itself. The noble Lord, Lord Donaldson, has rightly drawn our attention to this.
Above all, visitors' centres are for families. I believe that for far too long the hardships and anxieties faced by wives and children of prisoners, and sometimes by other relatives and friends, have received too little attention. They have been aptly described as forgotten victims. In some ways their position is like that of the victim of the crime because they must carry on living with the emotional and material consequences of somebody else's actions. Many wives of inmates speak of serving their own sentence.
The House will know that the Government have sought in recent years to recognise afresh the needs of victims of crime. We must also look seriously at
96
what more can and should be done to support the relatives of prisoners. The improvements of the conditions in which relatives prepare for visits, and in which visits actually take place, is only one aspect of this but it is the area in which the Prison Service is best placed to help.
I want to look first at capital spending on visitors' centres and other facilities for those visiting prisons. I should like to say to the noble Lord, Lord Donaldson, that prisons are being asked to give full details of facilities currently provided in visitors' centres and plans to develop new centres. Our policy is that all new establishments for the prison building programme should have a purpose-built visitors' centre. At present 14 prisons are being built or will start construction shortly, and we plan to provide visitors' centres at all of these. This is no small commitment. Purpose-built visitors' centres at new establishments can cost between £400,000 and £500,000 each. We estimate that the total cost of providing visitors' centres at the new establishments now being built is likely to be between £4 million and £5 million. This is impressive evidence of our commitment to help those who are visiting prisoners. We hope to offer wherever possible a full range of facilities. A standard design has been developed which provides for a refreshment area, baby-changing facilities, toilets, lockers, an interview room, an advice centre and a payphone. I agree with the noble Baroness, Lady Ewart-Biggs, that all of those facilities are required.
Lord Donaldson of Kingsbridge: My Lords, the noble Lord spoke of the sum of £4 million. Is that sum for equipping the 125 prisons which exist, quite apart from the 14 new prisons? That is the point that we are mainly concerned about.
Viscount Ullswater: My Lords, the figure that I quoted of between £4 million and £5 million is for the provision of new visitors' centres at the new prisons.
Lord Donaldson of Kingsbridge: My Lords, does that mean that there is no immediate plan to do anything about the 80 or 90 prisons? That is the point that I am chasing.
Viscount Ullswater: My Lords, I have not yet come to that point.
At existing establishments the Government are making a considerable investment in improving conditions generally. Major capital expenditure on existing establishments has increased sharply in recent years, from approximately £30 million in 1987/88 to £55 million in 1988/89 to over £70 million in the current financial year. Next year we aim to spend £120 million on major capital work at existing prisons and a further £20 million on major maintenance. Over the next three years a total of £400 million will be spent on refurbishing existing prisons.
We are focusing mainly on the upgrading of visiting rooms within prisons. In the past two years, new facilities for visits have opened, for example, at Parkhurst, Cardiff, Bristol and Gloucester. New

97
facilities are now being completed at Stafford. In the past year work has begun on new facilities at Leicester and Lincoln. In the next few months work is due to start on a much-needed new visitor complex at Bedford, and in the next two years, we hope that a start will be made on new facilities at Nottingham and Long Lartin. In addition, there are a large number of smaller schemes to improve conditions for visitors. These will include in the next few years improvements at Manchester, Wandsworth, Shrewsbury and Full Sutton.
Lord Dean of Beswick: My Lords, I am grateful to the Minister for giving way. The main thrust of my debate concerned Manchester; but the Question I asked was directed solely to the survival of Strangeways with which I am concerned; the carrying out, almost, of a statutory duty on a voluntary basis. I note what the Minister stated about heavy spending but I and the noble Lord, Lord Donaldson, are asking whether the Government should be looking at greater funding for the voluntary bodies that are at present in existence. They are doing a job on behalf of the community which is threatened by lack of finance.
Viscount Ullswater: My Lords, I am trying to answer the Question on the Order Paper and explain the funding of visitors' centres whether at Manchester of elsewhere. I hope to develop my argument a little further and then discuss Manchester.
We recognise that despite all this work, there will still be room for improvement. However, as noble Lords will appreciate, there are very many demands on the extra resources which have been provided to improve conditions in existing prisons. I need only mention integral sanitation to make the point.
It is against this background that we consider capital for visitor's centres at existing establishments. Visitors' centres will be provided in the redevelopments which are underway at Risley and Leeds. A visitors' centre was completed last year at Stafford and we are at present considering what assistance can be given to projects at Liverpool and Hindley. But there are many other competing demands and we believe that it is right at present to give a higher priority to improving conditions for inmates generally, including arrangements for visits within establishments, than to providing purpose-built premises for visitors' centres.
It is nevertheless possible that establishments will be able to obtain some limited funds from regional budgets so that, for example, portakabin accommodation can be provided. That is not an ideal situation; but it would give establishments a breathing space in which to explore whether more suitable accommodation might be found in the long term. We hope that local firms or trusts might be able to help in some cases.
While I am unable to promise a major programme of building new visitors' centres, I can point to a major increase in the level of our assistance with their running costs. The Home Office contribution in the past has been limited to grants totalling £12,000 which have been split between five centres with
98
probation service involvement. This year however the prison department has for the first time taken on some financial responsibility for the running costs of visitors' centres. It proved possible to agree one-off emergency grants to four centres which were experiencing difficulties, including that at Manchester. Those grants totalled £37,000.
My noble friend Lord Ferrers announced last week that from next year further substantial sums will be available. In 1990–91, the prison department will be able to make grants totalling around £103,000, which is the figure that the noble Baroness mentioned. That figure will be increased by £75,000 in real terms in each of the following two years.
My noble friend Lord Ferrers told the House on 7th November that the total sum earmarked over the next three years was £464,000. That figure should have been £564,000.
My noble friend also announced that a set of guidelines were being issued by the department to prison governors. They will also be circulated to other organisations working to promote visitors' centres. A copy has been placed in the Library of the House. The guidelines have been drawn up in consultation with bodies such as the Save the Children Fund and the National Association for the Care and Resettlement of Offenders (NACRO). They contain what might be called a statement of good practice. The aim is both to stimulate interest in the possibility of setting up new centres at prisons which need them and to give practical advice, though without laying down a rigid pattern of operation. In particular, we have stressed the importance of the centre being located outside the main gate so that it is not felt by visitors to be simply an extension of the prison's own arrangements for supervising visits. At the same time it is essential that the centre is linked by 'phone with the visits area in the prison so that visitors can be allowed into their visits in the order in which they arrive. Otherwise they will effectively have lost their place in the queue. The guidelines go on to give practical suggestions on facilities which centres can offer, drawing on the experience of some of the excellent initiatives already underway.
I wish to turn now to questions of management and funding. Visitors' centres are normally managed on a day-to-day basis by a co-ordinator, who in some cases may need to be a paid employee. Many centres make splendid use of volunteers to help supervise children's play areas, serve refreshments and generally to be on hand when visitors need to talk. The volunteers come from a variety of sources. Some are probation volunteers. Others belong to the Women's Royal Voluntary Service. Churches and student groups are frequently involved. The evidence is that there is a great deal of enthusiasm within the local community which can be tapped. My Lords, the Government very much welcome this broad base of support. We believe that the development of visitors' centres can and should be seen in terms of a partnership, involving not just the Prison Service but also a range of other statutory and non-statutory bodies which take an interest in the welfare of prisoners' families. This idea of partnership is central to our approach to the

99
allocation of grants because it is important that the resources of the Prison Service, which are inevitably limited, are spread as widely as possible. Our aim must be to see an essential level of service being provided for as many visitors as possible.
In drawing up our criteria we have worked on the basis that centres need above all to have an assured income to meet essential expenditure such as heating and lighting and where this is necessary to pay a co-ordinator. We are therefore prepared to make grants up to a maximum of £15,000. Many centres are able to operate successfully on this basis.
A number of requests for funding, all within the limit of £15,000, have already been received and are being carefully examined. Our priorities will be to help put new and recently established centres on a solid footing. Our support will be channelled primarily towards those centres which can demonstrate substantial community involvement. We believe public money is most effectively used where it unlocks other sources of support. By means of partnership with other interests we hope that at least five new centres can be established each year over the next three years. The increases in our budget over that period will allow us to maintain our funding of centres set up in earlier years where necessary, while also leaving additional money available for new projects. I hope noble Lords will agree that this is an ambitious and far-reaching programme.
I should also like to respond to the concerns of the noble Lord, Lord Dean of Beswick, about the Manchester visitors' centre, which I recognise provides an outstanding welfare service. As I have said, the bulk of the money will be directed to new initiatives. But we do not intend to neglect the needs of existing centres which run into financial difficulties. A sum of £16,000 has been specifically set aside in each year to help centres which might otherwise be threatened with closure. It is also possible that some of the money earmarked for new centres will be left over for allocation elsewhere.
I am aware of the position at Manchester and I know that considerable efforts are being made by the Selcare Trust to find new sources of funding. I very much hope that sponsorship can be found from within the local private and voluntary sectors, or indeed from other statutory agencies which have a particular interest in the specialised type of care which the centre provides. I know that officials from the Prison Department will be meeting with the secretary of the trust to review the options available, such as the scope for making greater use of volunteers. The department will also consider very carefully whether it is possible to give some direct assistance. But I have to say to the noble Lord that any help which we are able to give —and I cannot promise anything at this stage —is bound to be limited. We must consider the needs of other centres as well and it is too early to judge what the overall demand on our budget is likely to be.
In a supplementary question to a Question asked by the right reverend Prelate the Bishop of Manchester on 7th November, the noble Lord asked about the provision of funds. At that stage, we had received only a general request for support for
100
Selcare but no firm or precise bid. That is what my noble friend Lord Ferrers had as his brief. We have still not been sent a budget for 1991 and have no precise idea what other funds may be available or what sum is needed from us, although I agree that the noble Lord has given us some figures tonight which we shall study. Until this is available it is difficult for us to weigh Manchester's needs against those of other centres.
I should like to respond to the noble Lord, Lord Donaldson, and to the noble Baroness, Lady Ewart-Biggs, who suggested that family ties are important to inmates of prisons. A number of measures to improve inmates' contacts with their families were announced on 17th March of this year in a Written Answer in another place. These are set out at col. 363 of the Official Report. They included, for example, the installation of payphones and increased opportunities for home leave as well as increased support for visitors' centres.
This has been a most encouraging debate. The Government recognise that at many prisons much remains to be done to improve facilities for visitors. But we have heard good news about what is already going on in many corners of the prison estate. Our clear aim is to see visitors' centres securely established at all establishments which need them. We are committed actively to assisting that process. At the same time we shall be looking to others with an interest in the general welfare of prisoners' families to make their contribution too. I believe that through partnership we can look forward to significant developments in the years ahead.
Lord Donaldson of Kingsbridge: My Lords, before the noble Viscount sits down perhaps I may say that we have had a most encouraging reply for which I am very grateful. I am not clear about one point. He told us, if I remember correctly, that 20 prisons have visitors' centres. He also told us that there are plans to add five a year for three years. If my figures are right, it means that 90 out of the 125 prisons will still have nothing after three years. Is that too gloomy a view?
Viscount Ullswater. My Lords, the programme being undertaken at the moment for the provision of five new centres a year for three years is a start. It is the start of a new programme which has not been undertaken before. In that case I think it should be welcomed.
Buckinghamshire County Council Bill [H.L.]
London Local Authorities Bill [H.L.]
Nottinghamshire Park Estate Bill [H.L.]
Presented, read a first time, passed through all their remaining stages pro forma and sent to the Commons.

Isle of Wight Bill
Read a first time, passed through all its remaining stages pro forma and returned to the Commons with amendments.
Hythe Marina Village (Southampton) Wavescreen Bill
Read a first time, passed through all its remaining stages pro forma and returned to the Commons with amendments.
New Southgate Cemetry and Crematorium Limited Bill
Read a first time, passed through all its remaining stages pro forma and returned to the Commons with amendments.

Penzance Albert Pier Extension Bill
Read a first time, read a second time and reported from the Unopposed Bill Committee with amendments.
House adjourned at seven minutes past nine o'clock.