Lords Sitting of 9 November 1989

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Manchester
Earl Cairns Earl Cairns—Sat first in Parliament after the death of his father.
The Marquess of Downshire The Marquess of Downshire—Sat first in Parliament after the death of his kinsman.

Energy Efficiency: Resources
Lord Ezra Lord Ezra asked Her Majesty's Government:
Whether they are considering putting more resources into promotion of energy efficiency.
Viscount Ullswater: My Lords, the energy efficiency obligations that the Electricity Act imposes on the privatised supply companies and the Office of Electricity Regulation will bring more resources to bear on the promotion of energy efficiency. Resources for the Government's Energy Efficiency Office are reviewed each year in the public expenditure survey. A statement on the outcome of this year's survey will be made shortly.
Lord Ezra: My Lords, I thank the noble Viscount for that Answer. Does he agree that energy efficiency has now come to the centre of energy policy? It has been a matter of grave concern that in recent years the Government have reduced the contribution to the Energy Efficiency Office. Can he give an assurance that in the forthcoming statement to which he referred that factor will be taken properly into account and that proper signals will be given to the country at large that energy efficiency is now crucial both from the point of view of savings and of the environment?
Viscount Ullswater: My Lords, the figures for the next three years will be announced shortly. However, my right honourable friend the Prime Minister reaffirmed the Government's commitment to energy efficiency at the United Nations yesterday. At the Department of Energy we have refocused our information programme in order to provide specific information and advice on energy management in key industrial sectors and among major users in industrial areas. The key is our new best practice programme and the work of our regional energy efficiency officers.
Lord Stoddart of Swindon: My Lords, is it not clear that the Prime Minister gave the wrong signal yesterday at the United Nations by saying that nuclear energy was the way to solve the energy crisis and global warming? Is it not now clear that central to a policy on global warming and on energy efficiency is the conservation of energy and the finding of, commitment to, and exploitation of, alternative methods of generating electricity?
Viscount Ullswater: My Lords, the Government accepted that nuclear power alone was not going to solve the threat of global warming but recognised that nuclear power had a positive role to play in helping to curtail future carbon dioxide emissions. However, we believe that energy efficiency, nuclear power and other non-fossil sources are complementary rather than competitive means to an end.
Lord Hatch of Lusby: My Lords,what is the good of the Prime Minister reaffirming the Government's commitment to energy efficiency when her Government have been cutting the resources of the Energy Efficiency Office? Do the Government now understand that energy efficiency is more cost effective and more environmentally effective than nuclear energy? Do they realise that it is no good palming us off time after time by saying that they are complementary? They are not complementary; they are competitive. Will the Government—
Noble Lords: Order!
Lord Hatch of Lusby: My Lords, do the Government now recognise that energy efficiency is essential and should be given the same resources as nuclear energy has been given in the past?
Viscount Ullswater: My Lords, I cannot agree with the last comments of the noble Lord. However, the Government accept that all forms of energy production and use have some environmental consequences. Energy efficiency helps to keep these to a minimum. That is one good reason among many for the Government's continuing programme of work for the Energy Efficiency Office.
Lord Hailsham of Saint Marylebone: My Lords, is it not obvious that if the world becomes more prosperous —as it will need to be in order to feed its population —the demand for energy is bound to expand? Does it not follow that my noble friend is right in saying that both energy conservation and the use of every means of generating energy will become necessary?
Viscount Ullswater: My Lords, I agree with my noble and learned friend. One of the consequences of affluence is the need for more energy. However, we can mitigate the increase of generating more power by energy conservation.
Lord Whaddon: My Lords, bearing in mind the previous enthusiasm shown by the Government for nuclear energy and the tremendous problems that they have encountered over the past few days as regards the privatisation of nuclear, have they considered having urgent discussions with the French nuclear industry, which appears able to find ways of generating electricity efficiently using nuclear power but which we appear to be unable to do?
Viscount Ullswater: My Lords,I belive that French nuclear energy is outside the scope of the Question
Baroness Platt of Writtle: My Lords, can my noble friend tell the House what is being done to educate young people in the importance of energy conservation and efficiency?
Viscount Ullswater: My Lords, that is an extremely interesting question and I shall bring my noble friend's remarks to the attention of my right honourable friend the Secretary of State.
Lord Peston: My Lords, I believe the Minister said that the Government believe that the promotion of energy efficiency is in the public interest. Is it the case that re-affirmation and exhortation are good enough? Does he not agree that if we wish to promote energy efficiency we must make those who use energy inefficiently pay a high price for it —in other words, they should be taxed for using energy inefficiently —and those who use it efficiently should gain certain benefits? Is it not time that the Government intervened more actively to promote energy efficiency instead of merely talking about it?
Viscount Ullswater: My Lords, eventually the consumer will dictate his requirements in the energy which he uses. We are encouraging the manufacturers of white goods to display how much energy is consumed by each of their products.
Lord Peston: My Lords, perhaps I may press the matter a little further so that the Minister understands my question. We cannot leave the consumer to take the decision because he will take an inefficient decision. The Government must make it expensive for the consumer so that he takes an efficient decision. Does the Minister agree with that statement?
Viscount Ullswater: My Lords, no. We believe that the Government should provide the right information. The consumer should use energy as he thinks best.
The Earl of Lauderdale: My Lords, does my noble friend agree that there are sociological difficulties about taxing the energy wasters because many of them are poor, and to tax them could make their lives more difficult?
Viscount Ullswater: My Lords, I agree with my noble friend.
Lord Stoddart of Swindon: My Lords, can the Minister tell the House how the consumer will be able to decide whether he wishes to pay 6·2 pence per unit for nuclear energy or 2·6 pence per unit for coal energy?
Viscount Ullswater: My Lords, I am not sure that those figures are correct. However, the consumer is not given the choice when he uses energy. It is in his interests to use less energy if he can.
Noble Lords: Next Question!
Lord Borthwick: My Lords, if we wish to have a clean atmosphere why do we not use more natural
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forces? We have water, tides and wind, none of which causes damage to our climate. Why cannot we concentrate on more simple methods?
Viscount Ullswater: My Lords, my noble friend has raised an interesting point. Renewables will form part of future electricity generation but they can provide only a small proportion of the energy required.
Noble Lords: Next Question!
Lord Hatch of Lusby: My Lords, how can the Minister claim that the Government believe in energy efficiency when they have cut the resources for the Energy Efficiency Office?
Viscount Ullswater: My Lords, it is true to say that the reduction largely reflects the success to date of the Energy Efficiency Office programmes in raising consumer awareness.

Junior Hospital Doctors: Working Hours
3.19 p.m.
Lord Ennals Lord Ennals asked Her Majesty's Government: Whether they will now publish the result of their survey of the working hours of junior hospital doctors.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Hooper): My Lords, I assume the Question refers to the Government's initiative, launched in June 1988, aimed at reducing junior hospital doctors' rotas which are more onerous than one in three. Final reports on the initiative have just been received in the department and will need to be carefully analysed.
Lord Ennals: My Lords, my Question concerned a report commissioned two years ago which was received in the department in August and which I hope will be published. Will the Minister give an explanation as to why there is a discrepancy between assurances given during the passage through this House of the Bill of my noble friend Lord Rea that the situation of overworked junior hospital doctors was improving and the report's finding, which the noble Baroness will see when she reads it, that five hours extra per week are worked, particularly by casualty doctors and obstetricians?
Baroness Hooper: My Lords, the department commissioned a research project in 1985 known as the Dowie project. The field work was carried out in 1987. We pre-empted the results of that with our June 1988 initiative and, indeed, the other pilot studies initiative which has been launched.
The results of the survey show that extremely long hours are worked in some grades and specialties with very short periods of rest at house officer level. That bears out the Government's decision to launch the 1988 initiative which, as I say, we took before any results came through. However, so far we have received an interim report and my right honourable

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friend the Secretary of State is considering whether it is appropriate to publish it.
Lord Molloy: My Lords, can the noble Baroness say whether or not the recruitment of junior hospital doctors is improving?
Baroness Hooper: My Lords, we believe that the career possibilities for junior doctors are very relevant to recruitment. Of course, as the noble Lord knows, health authorities are responsible for determining the number of consultants required to meet service needs. Their strategic plans indicate an annual increase in consultants' numbers averaging 2 per cent. per annum.
In addition, Achieving a Balance —a 10-year plan to reform hospital medical staffing —aims to improve both the quality of service and junior doctors' careers by increasing the number of consultants and by bringing the numbers in training in each specialty into line with further consultant opportunities. The Government have recently announced the creation of 100 new consultant posts in the National Health Service.
Lord Ennals: My Lords, in the view of the interest shown by your Lordships' House, as demonstrated by the Bill which passed through it, does the Minister not agree that that information should be made public and that it is not something which the department should keep to itself? Does she not agree that this issue concerns the public who will wish to be informed about it?
Baroness Hooper: My Lords, I recognise the interest in this matter, particularly in your Lordships' House. Indeed, I reiterate that the initiatives already introduced by the Government fully meet the concerns which have been expressed; that is, the June 1988 initiative and the pilot studies initiative. However, I feel sure that my right honourable friend the Secretary of State will take all considerations into account in reaching his decision.
Lord Auckland: My Lords, does my noble friend have any figures as to the comparison between teaching hospitals and the district general hospitals where junior doctors are sometimes working quite exceptionally long hours?
Baroness Hooper: My Lords, not without notice. However, from the evidence of the initiatives, we know that substantial progress has been made in reducing onerous rotas. We now need to consider how best to further reduce the remaining onerous rotas. I believe that that is where the pilot studies will be of particular assistance.
Baroness Robson of Kiddington: My Lords, does the Minister agree that the Government's agreement to sanction another 100 consultant posts is completely different from their actual appointment by health authorities which at present do not have the money to appoint those extra consultants?
Baroness Hooper: My Lords, not at all. I believe that in responding to the question about the potential career possibilities for junior doctors, the end number of posts available is very relevant.
Lord Kennet: My Lords, can the Minister say whether or not the appointment of junior hospital doctors is improving?
Baroness Hooper: My Lords, from the noble Lord's question I am not sure whether he is talking about the improvement of quality or numbers of junior doctors. I understand that the numbers are not increasing, and I very much hope that the quality is improving.
Baroness Phillips: My Lords, can the Minister indicate from the survey which she has seen that the hours of junior doctors are far longer than almost any other workers within the hospital structure?
Baroness Hooper: My Lords, yes. As I tried to say, the history of this matter goes back to 1981 to a short report by the Select Committee in another place. It was as a result of insufficient progress in that area that the Department of Health commissioned research in 1985 and is taking the additional initiatives.
Lord Jenkins of Putney: My Lords, the noble Baroness told us that the number of junior doctors is not increasing. Is it static, or is it reducing?
Baroness Hooper: My Lords, I believe that it has levelled off.

Nature Conservation: Research
3.25 p.m.
Baroness Nicol Baroness Nicol asked Her Majesty's Government:
Whether they will outline the arrangements to be made for commissioning and carrying out the areas of research currently co-ordinated or conducted by the Nature Conservancy Council; and receiving advice on meeting the United Kingdom's obligations under international wildlife conservation treaties and conventions, following the proposed break up of the council.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh): My Lords, the Government are giving detailed consideration to these matters at present. A statement will be made in due course.
Baroness Nicol: My Lords, I thank the Minister for that rather predictable reply. Will the Government take on board the importance of keeping political independence in scientific research? Can he say that the Government will be quite sure to consider that centring any such political research in a government department would make it vulnerable to political pressure? Is that one of the considerations about which the Government are thinking?
Lord Hesketh: My Lords, I assure the noble Baroness that in no way are we considering political pressure. We are well aware of our obligations and we wish them to be fulfilled. The reason we have decided to divide between Scotland, Wales and England is that there is a world of difference between Ballater and Basingstoke.
Baroness Nicol: My Lords, I believe that there is a misunderstanding of my supplementary question. I was not suggesting that the Government were directly putting on political pressure. I was asking the Government to consider that in the future it would be better not to have any research body centred in a government department because it would be vulnerable.
Lord Hesketh: My Lords, our ambitions are merely to be more responsive. We have no desire to centre any research in a government department. Our desires are very straightforward in order to provide a more responsive approach so that both Wales and Scotland can achieve their own ambitions towards the countryside and conservation more efficiently than they do at present.
Lord Craigton: My Lords, is the Minister aware that there is serious concern and conflicting opinion about this matter? As a measure of that serious concern there are applications from all five major conservation bodies and all six statutory organisations, four for nature conservation and two for the countryside, to attend the meeting of the all-party conservation group at 4 o'clock today in the Moses Room. As always, Members of your Lordships' House and another place are welcome to attend.
Lord Hesketh: My Lords, I am not sure whether it is appropriate for the Minister to take advantage of the advertisement to attend such a meeting. However, I assure your Lordships' House that we are receiving comments and suggestions from many knowledgeable people and organisations and we are listening to all of them.
Baroness Strange: My Lords, after the commercial, I ask the Minister whether research into sandeels will continue after the split. If so, which part of the Nature Conservancy Council will be responsible for monitoring the research?
Lord Hesketh: My Lords, I believe it is true to say that my noble friend the Minister of State for Scotland is he who commands full respect of sandeels.
Lord Dean of Beswick: My Lords, is it not a fact that the Government are proceeding along this course without any consultation whatever with the people involved before arriving at a decision? Bearing in mind that over the past 10 years the Government have, in most cases, set their face quite rigidly against any form of devolution, why are they going in the opposite direction now? Is it not a fact that good judges on this subject are fearful that there may be some very damaging consequences as a result of this exercise?
Lord Hesketh: My Lords, as I said in my earlier remarks, we are responding to the differences that exist in different parts of the kingdom. I refer the noble Lord, Lord Dean of Beswick, to my earlier answer when I made it absolutely clear that we are engaged in heavy consultation and listening to those representations that are made on this matter.
Lord Dean of Beswick: My Lords, that answer is misleading. From what the Minister said, the Government are engaged in consultations, but they are not about the decision to disband the present set-up. The consultations are on meeting the demands that the Government are making and carrying out the exercise. They are not about the decision, and I do not think that that can be classed as consultation.
Lord Hesketh: My Lords, I can respond in only two ways. First, we believe that this answers a desire both in Scotland and in Wales. Secondly, I fear that the position of the noble Lord, Lord Dean, may be at odds with the Members of his party in another place who I am told support this decision.
The Viscount of Falkland: My Lords, can the noble Lord answer a question on a specific area of research —that of the problems of the breeding of sea birds around our shores? This was previously conducted by the chief scientist's directorate of the Nature Conservancy Council. Will this kind of research be farmed out to universities? It is unlikely to be carried out in a government department, so how does the Minister see that kind of research continuing?
Lord Hesketh: My Lords, we shall ensure that the new bodies have adequate scientific expertise. That expertise will be properly resourced because I should remind your Lordships that, under the current Government, since 1979 the Nature Conservancy Council's resources and expenditure have increased by 150 per cent. in real terms.
Baroness David: My Lords, can the Minister tell the House what the responses were, which had to be in by 30th September, to the consultation paper issued by the Scottish development department? Is it the case that 48 were opposed and 26 had reservations?
Lord Hesketh: My Lords, I have to admit to the noble Baroness that I do not have the responses ratio to which she referred. I will of course write to her.
Baroness White: My Lords, can it be explained why Scotland has had this consultation document and the Welsh Office has refused to issue anything?
Lord Hesketh: My Lords, even if there was no consultation document any voice in Wales that wishes to be heard will be listened to, as I said earlier.

War Widows: Pensions Differential
3.32 p.m.
Baroness Jeger Baroness Jeger asked Her Majesty's Government:
How pensions paid to war widows whose husbands were killed before 1973 differ from those payable to war widows whose husbands died after that date; and what arrangements Her Majesty's Government are making to remove any such difference.
The Parliamentary Under-Secretary of State, Ministry of Defence (The Earl of Arran): My Lords, under the war pensions scheme administered by the Department of Social Security, the pension of a war widow is the same regardless of when her husband served or died. The difference between those whose husbands' service ended before the 31st March 1973 and those whose husbands' service went beyond that date is that the lattter may also receive an attributable pension from the occupational scheme of the MoD. Her Majesty's Government have no plans to widen eligibility for the occupational pension.
Baroness Jeger: My Lords, does not the Minister realise that there is a great deal of public opinion and concern on all sides of this House and in the other place regarding the unfairness of a situation where widows of men who were killed in the first two world wars are receiving approximately half of that which is paid to war widows whose husbands have died since 1973? If the occupational element cannot be made retrospective, why not increase the social security element in the payment so as to bring these payments closer together?
I have to ask the Minister why widows of two world wars should be penalised because their husbands were killed before the new arrangements came in? What good does that do? What comfort is that to the widows of the first two wars? I am not necessarily asking that there should be retrospective occupational payments, but I am asking for retrospective justice. As there is agreement on all sides of both Houses, I see no reason why Parliament should not deal sternly with the bureaucratic and legalistic departmental excuses for continuing this injustice.
The Earl of Arran: My Lords, perhaps I may immediately say that all Members of your Lordships' House, and the whole of this country, are always aware of the immense and enduring debt of gratitude that we owe to those who laid down their lives during the two world wars, and indeed afterwards. In answer to the noble Baroness, the Government consider that that debt of gratitude is very adequately reflected in the preferential treatment that is given to war widows under the DSS scheme.
Lord Boyd-Carpenter: My Lords, is it not difficult to reconcile what my noble friend has very properly said about gratitude with discrimination against the older widow? Is it not the fact that, if anything, the older widows' needs are greater than those of the younger ones? Does my noble friend appreciate that,
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whatever the technicalities, although the department is responsible for the payments, public opinion finds it impossible to accept that there should be this discrimination?
The Earl of Arran: My Lords, this question has been examined on many previous occasions. I understand what my noble friend is saying, but the Government have an excellent record of provision for the more elderly war widows. First, the basic DSS war widows' pension is around 30 per cent. higher than that for widows on the basic state pension. Secondly, it is tax-free. Thirdly, there are special age allowances. Fourthly, those allowances are now also tax-free.
Lord Mayhew: My Lords, can the noble Earl say what the cost would be—presumably the decreasing cost —of bringing the pre-1973 war widows up to the level of the post-1973 war widows?
The Earl of Arran: My Lords, if the noble Lord is talking about the occupational pension scheme, the cost is thought to be in the region of £200 million. One would also have to associate it with the war disabled, which would bring it up to a further £400 million; making £600 million in all. Furthermore, if that were done, such retrospection would also have to apply to other public sectors.
Lady Saltoun of Abernethy: My Lords, are all the 53,000 widows who at present are not receiving the occupational pension widows of men who were killed in action or who died later from wounds? If not, can the Minister say how many of them are and would it not be possible to give them the occupational pension?
The Earl of Arran: My Lords, I am not certain whether such a table of the specific kind of people the noble Lady mentions exists. If I find it does exist, I will gladly impart that knowledge to her.
Lord Callaghan of Cardiff: My Lords, the Minister will be aware from the attention with which his answers have been received that there is a considerable degree not only of sympathy, but of uncertainty regarding the position of the Government. Do the concessions that he announced already apply to the pre-1973 war widows apply also to the post-1973 war widows? If they do, is not the whole point made by the noble Lord, Lord Boyd-Carpenter —namely, the disparity between pre-1973 and post-1973 —the one that matters? I believe we are speaking for a great many people in this House, so will the Minister go back and look at this matter again? There are other ways in which concessions can be made to see whether the position of those before 1973 and those after 1973 can be reconciled. That is the point.
The Earl of Arran: My Lords, I can understand the point made by the noble Lord, Lord Callaghan, but at the same time I ask the noble Lord to accept that this case has been examined in very great depth by the Govenment on many previous occasions and will continue to be examined by the Government.

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There is no one better qualified than the noble Lord, Lord Callaghan, to know that in any government there are priorities and the merits of each priority have to be examined very carefully.
Lord Molloy: My Lords, is the Minister aware that successive governments have failed to have proper and comprehensive discussions with the Royal British Legion, which is a specialist body in these matters? That organisation can guide any government on the proper course that they should take. Will the Minister be prepared to take the matter back to the department for the question to be looked at?
The Earl of Arran: My Lords, I can assure the noble Lord, Lord Molloy, that representations are made quite regularly by the Royal British Legion and that consultation does take place.
Lord Monson: My Lords, is the Minister aware that, if the current £619 per annum of subsidy to each higher rate taxpayer were done away with by limiting tax relief on mortgage interest to the standard rate of tax, there would be plenty of revenue available for equalising war widows' pensions and for many other desirable measures as well?
The Earl of Arran: My Lords, as I said before, I ask the noble Lord to appreciate and understand that there are many priorities. This particular priority has been looked at but, in the light of circumstances, other priorities have taken precedence.
Lord Callaghan of Cardiff: My Lords, I understand the Minister to be saying that it is a question of cost, because he also refers to priorities. I am well aware of that and that is why, in my first Budget as Chancellor of the Exchequer in 1964, I relieved many of the difficulties of war widows by easing the burden on their earnings. I regarded the problem as a top priority. If it is a question of cost, I ask the Minister whether he will look again at the situation in order to see whether there is a way of introducing a change by stages. It has been done before. As the noble Lord, Lord Mayhew, said, the problem is, alas, one that will diminish as time passes. I believe that the Minister would be doing the whole House a favour if he looked at the matter again, told the Treasury to produce the arguments, and, if it is a question of cost, asked the Treasury to find some graduated scheme to meet the situation.
The Earl of Arran: My Lords, I understand the position of the noble Lord, Lord Callaghan, and the question that he asks. I appreciate the feelings of your Lordships' House. In the circumstances. I shall draw to the attention of my right honourable friend the Secretary of State the points that have been made.
Viscount Eccles: My Lords, if the Government are to reconsider the position of these elderly widows, will they also please remember Members of Parliament who retired from the other place before 1964? We receive a pension that is a minute fraction of the pension received by those who retired after 1964.
The Earl of Arran: My Lords, that really is another question.

Business
3.43 p.m.
Lord Denham: My Lords, at a convenient moment this afternoon, my noble friend the Leader of the House will, with the leave of the House, repeat a Statement that is to be made in another place on Electricity Privatisation (Nuclear Power). This will be followed by my noble friend Lord Sanderson of Bowden, who will, again with the leave of the House, repeat a Statement on Scottish Electriciy Privatisation and Nuclear Power.
My Lords, it may be for the convenience of the House if I announce that consideration of Commons Amendments to the Companies Bill will be adjourned at about 7 p.m. for about one hour and that, during this adjournment, a Prayer to Annul the National Health Service (General Medical and Pharmaceutical Services) Amendment (No. 2) Regulations 1989 will be taken.

London Docklands Development Corporation (Vesting of Land) (London Borough of Southwark) Order 1989
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Second Report from the Hybrid Instruments Committee be agreed to (HL Paper 79).—(The Chairman of Committees.)
On Question, Motion agreed to.

Companies Bill [H.L.]
3.44 p.m.
The Minister of State, Department of Trade and Industry (Lord Trefgarne): My Lords, I beg to move that the Commons amendments be further considered.
Moved, That the Commons amendments be further considered.—(Lord Trefgarne.)
On Question, Motion agreed to.

MOTIONS AND AMENDMENTS MOVED ON CONSIDERATION OF COMMONS AMENDMENTS
[References are to Bill 130 as first printed for the Commons.]

COMMONS AMENDMENT
155 After Clause 104, under the heading 'Appointment and removal of auditors and related matters', insert—
Introduction
'.—(1) The following sections amend the provisions of the Companies Act 1985 relating to auditors by inserting new provisions in Chapter V of Part XI of that Act.
(2) The new provisions, together with the amendment made by section (Auditors of trade unions), replace the present provisions of that Chapter except section 389 (qualification for appointment as auditor) which is replaced by provisions in Part II of this Act.
Appointment of Auditors
.—(1) The following sections are inserted in Chapter V of Part XI of the Companies Act 1985 (auditors)—
"Appointment of Auditors
Duty to appoint auditors
384.—(1) Every company shall appoint an auditor or auditors in accordance with this Chapter.
This is subject to section 388A (dormant company exempt from obligation to appoint auditors).
(2) Auditors shall be appointed in accordance with section 385 (appointment at general meeting at which accounts are laid), except in the case of a private company which has elected to dispense with the laying of accounts in which case the appointment shall be made in accordance with section 385A.
(3) References in this Chapter to the end of the time for appointing auditors are to the end of the time within which an appointment must be made under section 385(2) or 385A(2), according to whichever of those sections applies.
(4) Sections 385 and 385A have effect subject to section 386 under which a private company may elect to dispense with the obligation to appoint auditors annually.
Appointment at general meeting at which accounts laid.
385.—(1) This section applies to every public company and to a private company which has not elected to dispense with the laying of accounts.
(2) The company shall, at each general meeting at which accounts are laid, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next general meeting at which accounts are laid.
(3) The first auditors of the company may be appointed by the directors at any time before the first general meeting of the company at which accounts are laid; and auditors so appointed shall hold office until the conclusion of that meeting.
(4) If the directors fail to exercise their powers under subsection (3), the powers may be exercised by the company in general meeting.
Appointment by private company which is not obliged to lay accounts.
385A.—(1) This section applies to a private company which has elected in accordance with section 253 to dispense with the laying of accounts before the company in general meeting.
(2) Auditors shall be appointed by the company in general meeting before the end of the period of 28 days beginning with the day on which copies of the company's annual accounts for the previous financial year are sent to members under section 238 or, if notice is given under section 253A(2) requiring the laying of the accounts before the company in general meeting, the conclusion of that meeting.
Auditors so appointed shall hold office from the end of that period or, as the case may be, the conclusion of that meeting until the end of the time for appointing auditors for the next financial year.
(3) The first auditors of the company may be appointed by the directors at any time before—

(a) the end of the period of 28 days beginning with the day on which copies of the company's first annual accounts are sent to members under section 238, or

(b) if notice is given under section 253A(2) requiring the laying of the accounts before the company in general meeting, the beginning of that meeting;

and auditors so appointed shall hold office until the end of that period or, as the case may be, the conclusion of that meeting.
(4) If the directors fail to exercise their powers under subsection (3), the powers may be exercised by the company in general meeting.
(5) Auditors holding office when the election is made shall, unless the company in general meet ing determines otherwise, continue to hold office until the end of the time for appointing auditors for the next financial year; and auditors holding office when an election ceases to have effect shall continue to hold office until the conclusion of the next general meeting of the company at which accounts are laid.
Election by private company to dispense with annual appointment
386.—(1) A private company may elect (by elective resolution in accordance with section 379A) to dispense with the obligation to appoint auditors annually.
(2) When such an election is in force the company's auditors shall be deemed to be re-appointed for each succeeding financial year on the expiry of the time for appointing auditors for that year, unless—

(a) a resolution has been passed under section 250 by virtue of which the company is exempt from the obligation to appoint auditors, or

(b) a resolution has been passed under section 393 to the effect that their appointment should be brought to an end.

(3) If the election ceases to be in fore the auditors then holding office shall continue to hold office—

(a) where section 385 then applies, until the conclusion of the next general meeting of the company at which accounts are laid;

(b) where section 385A then applies, until the end of the time for appointing auditors for the next financial year under that section.

(4) No account shall be taken of any loss of the opportunity of further deemed re-appointment under this section in ascertaining the amount of any compensation or damages payable to an auditor on his ceasing to hold office for any reason.
Appointment by Secretary of State in default of appointment by company
387.—(1) If in any case no auditors are appointed, re-appointed or deemed to be re-appointed before the end of the time for appointing auditors, the Secretary of State may appoint a person to fill the vacancy.
(2) In such a case the company shall within one week of the end of the time for appointing auditors give notice to the Secretary of State of his power having become exercisable.
If a company fails to give the notice required by this subsection, the company and every officer of it who is in default is guilty of an offence and liable to a fine and, for continued contravention, to a daily default fine.
Filling of casual vacancies
388.—(1) The directors, or the company in general meeting, may fill a casual vacancy in the office of auditor.
(2) While such a vacancy continues, any surviving or continuing auditor or auditors may continue to act.
(3) Special notice is required for a resolution at a general meeting of a company—

(a) filling a casual vacancy in the office of auditor, or

(b) re-appointing as auditor a retiring auditor who was appointed by the directors to fill a casual vacancy.

(4) On receipt of notice of such an intended resolution the company shall forthwith send a copy of it—

(a) to the person proposed to be appointed, and

(b) if the casual vacancy was caused by the resignation of an auditor, to the auditor who resigned.

Dormant company exempt from obligation to appoint auditors.
388A.—(1) A company which by virtue of section 250 (dormant companies: exemption from provisions as to audit of accounts) is exempt from the provisions of Part VII relating to the audit of accounts is also exempt from the obligation to appoint auditors.
(2) The following provisions apply if the exemption ceases.
(3)Where section 385 applies (appointment at general meeting at which accounts are laid), the directors may appoint auditors at any time before the next meeting of the company at which accounts are to be laid; and auditors so appointed shall hold office until the conclusion of that meeting.
(4) Where section 385A applies (appointment by private company not obliged to lay accounts), the directors may appoint auditors at any time before—

(a) the end of the period of 28 days beginning with the day on which copies of the company's annual accounts are next sent to members under section 238, or

(b) if notice is given under section 253(2) requiring the laying of the accounts before the company in general meeting, the beginning of that meeting;

and auditors so appointed shall hold office until the end of that period or, as the case may be, the conclusion of that meeting.
(5) If the directors fail to exercise their powers under subsection (3) or (4), the powers may be exercised by the company in general meeting.".
(2) In Schedule 24 to the Companies Act 1985 (punishment of offences), at the appropriate place insert—

"387(2)

Company failing to give Secretary of State notice of non-appointment of auditors.

Summary.

One-fifth of the statutory maximum.

One-fifth of the statutory maximum.".

(3) In section 46(2) of the Banking Act 1987 (duty of auditor of authorised institution to give notice to Bank of England of certain matters) for "appointed under section 384" substitute "appointed under Chapter V of Part XI"; and in section 46(4) (adaptation of references in relation to Northern Ireland) for "sections 384," substitute "Chapter V of Part XI and sections".
Rights of auditors
.—(1) The following sections are inserted in Chapter V of Part XI of the Companies Act 1985 (auditors)—
'Rights of auditors
Rights to information
389A.—(1) The auditors of a company have right of access at all times to the company's books, accounts and vouchers, and are entitled to require from the company's officers such information and explanations as they think necessary for the performance of their duties as auditors.
(2) An officer of a company commits an offence if he knowingly or recklessly makes to the company's auditors a statement (whether written or oral) which—

(a) conveys or purports to convey any information or explanations which the auditors require, or are entitled to require, as auditors of the company, and

(b) is misleading, false or deceptive in a material particular.

A person guilty of an offence under this subsection is liable to imprisonment or a fine, or both.
(3) A subsidiary undertaking which is a body corporate incorporated in Great Britain, and the auditors of such an undertaking, shall give to the auditors of any parent company of the undertaking such information and explanations as they may reasonably require for the purposes of their duties as auditors of that company.
If a subsidiary undertaking fails to comply with this subsection, the undertaking and every officer of it who is in default is guilty of an offence and liable to a fine; and if an auditor fails without reasonable excuse to comply with this subsection he is guilty of an offence and liable to a fine.
(4) A parent company having a subsidiary undertaking which is not a body corporate incorporated in Great Britain shall, if required by its auditors to do so, take all such steps as are reasonably open to it to obtain from the subsidiary undertaking such information and explanations as they may reasonably require for the purposes of their duties as auditors of that company.
If a parent company fails to comply with this subsection, the company and every officer of it who is in default is guilty of an offence and liable to a fine.
(5) Section 734 (criminal proceedings against unincorporated bodies) applies to an offence under subsection (3).'.
Right to attend company meetings, &c.
390.—(1) A company's auditors are entitled—

(a) to receive all notices of, and other communications relating to, any general meeting which a member of the company is entitled to receive;

(b) to attend any general meeting of the company; and

(c) to be heard at any general meeting which they attend on any part of the business of the meeting which concerns them as auditors.

(2) In relation to a written resolution proposed to be agreed to by a private company in accordance with section 381A, the company's auditors are entitled —

(a) to receive all such communications relating to the resolution as, by virtue of any provision of Schedule 15A, are required to be supplied to a member of the company.

(b) to give notice in accordance with section 38IC of their opinion that the resolution concerns them as auditors and should be considered by the company in general meeting or, as the case may be, by a meeting of the relevant class of members of the company,

(c) to attend any such meeting, and

(d) to be heard at any such meeting which they attend on any part of the business of the meeting which concerns them as auditors.

(3) The right to attend or be heard at a meeting is exercisable in the case of a body corporate or partnership by an individual authorised by it in writing to act as its representative at the meeting.".
(2) In section 734 of the Companies Act 1985 (criminal proceedings against unincorporated bodies), in subsection (1) (offences in relations to which the provisions apply), after "under" insert "section 389A(3) or".
(3) In Schedule 24 to the Companies Act 1985 (punishment of offences) at the appropriate place insert —

"389A(2)

Officer of company making false, misleading or deceptive statement to auditors.

1. On indictment.

2 years or a fine; or both.

2. Summary.

6 months or the statutory maximum; or both

389A(3)

Subsidiary undertaking or its auditor failing to give information to auditors of parent company.

Summary.

One-fifth of the statutory maximum.

389A(4)

Parent company failing to obtain from subsidiary undertaking information for purposes of audit.

Summary

one-fifth of the statutory maximum.".

(4) In Schedule 4 to the Iron and Steel Act 1982 (constitution and proceedings of publicly-owned companies that are private companies), in paragraph 3(6) (entitlement of auditors to attend and be heard at general meetings,&c.) for "387(1)" substitute "390(1)"
Remuneration of auditors
The following sections are inserted in Chapter V of Part XI of the Companies Act 1985 (auditors)—
Remuneration of auditors
390A.—(1) The remuneration of auditors appointed by the company in general meeting shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine.
(2) The remuneration of auditors appointed by the directors or the Secretary of State shall be fixed by the directors or the Secretary of State, as the case may be.
(3) There shall be stated in a note to the company's annual accounts the amount of the remuneration of the company's auditors in their capacity as such.
(4) For the purposes of this section "remuneration" includes sums paid in respect of expenses.
(5) This section applies in relation to benefits in kind as to payments in cash, and in relation to any such benefit references to its amount are to its estimated money value.
The nature of any such benefit shall also be disclosed.
Remuneration of auditors or their associates for non-audit work.
390B.—(1) The Secretary of State may make provision by regulations for securing the disclosure of the amount of any remuneration received or receivable by a company's auditors or their associates in respect of services other than those of auditors in their capacity as such.
(2) The regulations may —

(a) provide that "remuneration" includes sums paid in respect of expenses,

(b) apply in relation to benefits in kind as to payments in cash, and in relation to any such benefit require disclosure of its nature and its estimated money value,

(c) define "associate" in relation to an auditor,

(d) require the disclosure of remuneration in respect of services rendered to associated undertakings of the company, and

(e) define "associated undertaking" for that purpose.

(3) The regulations may require the auditors to disclose the relevant information in their report or require the relevant information to be disclosed in a note to the company's accounts and require the auditors to supply the directors of the company with such information as is necessary to enable that disclosure to be made.
(4) The regulations may make different provision for different cases.
(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament."
.—(1) The following sections are inserted in Chapter V of Part XI of the Companies Act 1985 (auditors) —
"Removal, resignation, &c. of auditors
Removal of auditors.
391.—(1) A company may by ordinary resolution at any time remove an auditor from office, notwithstanding anything in any agreement between it and him.
(2) Where a resolution removing an auditor is passed at a general meeting of a company, the company shall within 14 days given notice of that fact in the prescribed form to the registrar.
If a company fails to give the notice required by this subsection, the company and every officer of it who is in default is guilty of an offence and liable to a fine and, for continued contravention, to a daily default fine.
(3) Nothing in this section shall be taken as depriving a person removed under it of compensation or damages payable to him in respect of the termination of his appointment as auditor or of any appointment terminating with that as auditor.
(4) An auditor of a company who has been removed has, notwithstanding his removal, the rights conferred by section 390 in relation to any general meeting of the company —

(a) at which his term of office would otherwise have expired, or

(b) at which it is proposed to fill the vacancy caused by his removal.

In such a case the references in that section to matters concerning the auditors as auditors shall be construed as references to matters concerning him as a former auditor.
Rights of auditors who are removed or not re-appointed.
391A.—(1) Special notice is required for a resolution at a general meeting of a company —

(a) removing an auditor before the expiration of his term of office, or

(b) appointing as auditor a person other than a retiring auditor.

(2) On receipt of notice of such an intended resolution the company shall forthwith send a copy of it to the person proposed to be removed or, as the case may be, to the person proposed to be appointed and to the retiring auditor.
(3) The auditor proposed to be removed or (as the case may be) the retiring auditor may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.
(4) The company shall (unless the representations are received by it too late for it to do so) —

(a) in any notice of the resolution given to members of the company, state the fact of the representations having been made, and

(b) send a copy of the representations to every member of the company to whom notice of th e meeting is or has been sent.

(5) If a copy of any such representations is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.
(6) Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the court may order the company's costs on the application to be paid in whole or in part by the auditor notwithstanding that he is not a party to the application.
Resignation of auditors.
392.—(1) An auditor of a company may resign his office by depositing a notice in writing to that effect at the company's registered office.
The notice is not effective unless it is accompanied by the statement required by section 394.
(2) An effective notice of resignation operates to bring the auditor's term of office to an end as of the date on which the notice is deposited or on such later date as may be specified in it.
(3) The company shall within 14 days of the deposit of a notice of resignation send a copy of the notice to the registrar of companies.
If default is made in complying with this subsection, the company and every officer of it who is in default is guilty of an offence and liable to a fine and, for continued contravention, a daily default fine.
Rights of resigning auditors.
392A.—(1) This section applies where an auditor's notice of resignation is accompanied by a statement of circumstances which he considers should be brought to the attention of members or creditors of the company.
(2) He may deposit with the notice a signed requisition calling on the directors of the company forthwith duly to convene an extraordinary general meeting of the company for the purpose of receiving and considering such explanation of the circumstances connected with his resignation as he may wish to place before the meeting.
(3) He may request the company to circulate to its members—

(a) before the meeting convened on his requisition, or

955

(b) before any general meeting to which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation,

a statement in writing (not exceeding a reasonable length) of the circumstances connected with his resignation.
(4) The company shall (unless the statement is received too late for it to comply)—

(a) in any notice of the meeting given to members of the company, state the fact of the statement having been made, and

(b) send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent.

(5) If the directors do not within 21 days from the date of the deposit of a requisition under this section proceed duly to convene a meeting for a day not more than 28 days after the date on which the notice convening the meeting is given, every director who failed to take all reasonable steps so secure that a meeting was convened as mentioned above is guilty of an offence and liable to a fine.
(6) If a copy of the statement mentioned above is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the statement be read out at the meeting.
(7) Copies of a statement need not be sent out and the statement need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the court may order the company's costs on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
(8) An auditor who has resigned has, notwithstanding his resignation, the rights conferred by section 390 in relation to any such general meeting of the company as is mentioned in subsection (3)(a) or (b).
In such a case the references in that section to matters concerning the auditors as auditors shall be construed as references to matters concerning him as a former auditor.
Temination of appointment of auditors not appointed annually.
393.—(1) When an election is in force under section 386 (election by private company to dispense with annual appointment), any member of the company may deposit notice in writing at the company's registered office proposing that the appointment of the company's auditors be brought to an end.
No member may deposit more than one such notice in any financial year of the company.
(2) If such a notice is deposited it is the duty of the directors —

(a) to convene a general meeting of the company for a date not more than 28 days after the date on which the notice was given, and

(b) to propose at the meeting a resolution in a form enabling the company to decide whether the appointment of the company's auditors should be brought to an end.

(3) If the decision of the company at the meeting is that the appointment of the auditors should be brought to an end, the auditors shall not be deemed to be re-appointed when next they would be and, if the notice was deposited within the period immediately following the distribution of accounts, any deemed re-appointment for the financial year following that to which those accounts relate which has already occurred shall cease to have effect.
The period immediately following the distribution of accounts means the period beginning with the day on which copies of the company's annual accounts are sent
to members of the company under section 238 and ending 14 days after that day.
(4) If the directors do not within 14 days from the date of the deposit of the notice proceed duly to convene a meeting, the member who deposited the notice (or, if there was more than one, any of them) may himself convene the meeting; but any meeting so convened shall not be held after the expiration of three months from that date.
(5) A meeting convened under this section by a member shall be convened in the same manner, as nearly as possible, as that in which meetings are to be convened by directors.
(6) Any reasonable expenses incurred by a member by reason of the failure of the directors duly to convene a meeting shall be made good to him by the company; and any such sums shall be recouped by the company from such of the directors as were in default out of any sums payable, or to become payable, by the company by way of fees or other remuneration in respect of their services.
(7) This section has effect notwithstanding anything in any agreement between the company and its auditors; and no compensation or damages shall be payable by reason of the auditors' appointment being terminated under this section.".
(2) In Schedule 24 to the Companies Act 1985 (punishment of offences), at the appropriate place insert —

"391(2)

Failing to give notice to registrar of removal of auditor.

Summary.

One-fifth of the statutory maximum.

One-fiftieth of the statutory maximum.

392(3)

Company failing to forward notice of auditor's resignation to registrar.

1. On indictment.

A fine.

2. Summary.

The statutory maximum.

One-tenth of the statutory maximum.

392A(5)

Directors failing to convene meeting requisitioned by resigning auditor.

1. On indictment.

A fine.

2. Summary.

The statutory maximum.".

.—(1) The following section is inserted in Chapter V of Part XI of the Companies Act 1985 (auditors) —
Statement by person ceasing to hold office as auditor.
"Statement by person ceasing to hold office as auditor.
394.—(1) Where an auditor ceases for any reason to hold office, he shall deposit at the company's registered office a statement of any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company or, if he considers that there are no such circumstances, a statement that there are none.
(2) In the case of resignation, the statement shall be deposited along with the notice of resignation; in the case of failure to seek re-appointment, the statement shall be deposited not less than 14 days before the end of the time allowed for next appointing auditors; in any other case, the statement shall be deposited not later than the end of the period of 14 days beginning with the date on which he ceases to hold office.
(3) If the statement is of circumstances which the auditor considers should be brought to the attention of the members or creditors of the company, the company shall within 14 days of the deposit of the statement either—

(a) send a copy of it to every person who under section 238 is entitled to be sent copies of the accounts, or

(b) apply to the court.

(4) The company shall if it applies to the court notify the auditor of the application.
(5) Unless the auditor receives notice of such an application before the end of the period of 21 days beginning with the day on which he deposited the statement, he shall within a further seven days send a copy of the statement to the registrar.
(6) If the court is satisfied that the auditor is using the statement to secure needless publicity for defamatory matter —

957

(a) it shall direct that copies of the statement need not be sent out, and

(b) it may further order the company's costs on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application;

and the company shall wihtin 14 days of the court's decision send to the persons mentioned in subsection (3)(a) a statement setting out the effect of the order.
(7) If the court is not so satisfied, the company shall within 14 days of the court's decision—

(a) send copies of the statement to the persons mentioned in subsection (3)(a), and

(b) notify the auditor of the court's decision;

and the auditor shall within seven days of receiving such notice send a copy of the statement to the registrar.
Offences of failing to comply with s. 394.
394A.—(1) If a person ceasing to hold office as auditor fails to comply with section 394 he is guilty of an offence and liable to a fine.
(2) In proceedings for an offence under subsection (I) it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
(3) Sections 733 (liability of individuals for corporate default) and 734 (criminal proceedings against unincorporated bodies) apply to an offence under subsection (1).
(4) If a company makes default in complying with section 394, the company and every officer of it who is in default is guilty of an offence and liable to a fine and, for continued contravention, to a daily default fine.".
(2) In Schedule 24 to the Companies Act 1985 (punishment of offences), at the appropriate placeinsert—

"394A(1)

Person ceasing to hold office as auditor failing to deposit statement as to circumstances

1. On indictment.

A fine.

2. Summary.

The statutory maximum.

394A(4)

Company failing to comply with requirements as to statement of person ceasing to hold office as auditor

1. On indictment.

A fine.

2. Summary.

The statutory maximum.

One-tenth of the statutory maximum."

(3) In section 733 of the Companies Act 1985 (liability of individuals for corporate default), in subsection (1) (offences in relation to which provisions apply) after "216(3)" insert ",394A(1)".
(4) In section 734 of the Companies Act 1985 (criminal proceedings against unincorporated bodies), in subsection (1) (offences in relation to which the provisions apply), after "under" insert "section 394(1) or".
(5) In Schedule 22 to the Companies Act 1985 (unregistered companies), in the entry for sections 384 to 393, for "393" substitute "394A".
Auditors of trade unions and employers' associations.
In section 11 of the Trade Union and Labour Relations Act 1974 (duties of trade unions and employers' associations as to auditors, &c.), after subsection (8) insert—
"(9) Where a trade union or employers' association to which this section applies is a company within the meaning of the Companies Act 1985—

(a) subsection (3) above, and the provisions of paragraphs 6 to 15 of Schedule 2 to this Act, do not apply, and

(b) the rights and powers conferred, and duties imposed, by paragraphs 16 to 21 of that Schedule belong to the auditors of the company appointed under Chapter V of Part XI of that Act.".

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their
958
Amendment No. 155. I shall speak at the same time to Amendment No. 175.
The major amendment, No. 15.5, is, as your Lordships will see, extensive, but its practical effect is not as great as one might think. The amendment largely reproduces, without substantive changes but with a little reordering and tidying up, most of the present Chapter V of Part XI of the 1985 Companies Act, which deals with auditors. There are really only three changes of significance.
First, the amendment permits private companies, making use of the elective regime which your Lordships agreed to insert into the Bill, to elect out of the requirement of the Companies Act to appoint auditors annually. Secondly, the amendment makes certain changes to the auditors' provisions in the 1985 Act which are consequential to the Bill's provisions on the elective regime and eligibility for appointment as a company auditor. Thirdly, the amendment enables the Secretary of State to make regulations requiring the disclosure of the fees auditors or their associates receive from a company they audit in respect of services other than auditing.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT No. 155
155A Page 49 of the Commons Amendments, line 12 leave out ("are entitled to") and insert ("may").
Lord Williams of Elvel: My Lords, l beg to move Amendment No. 155A. In introducing Amendment No. 155, the noble Lord, Lord Trefgarne, rightly repeated, and to a certain extent reordered, some of the provisions in the 1985 Act. We accept that. However, in reordering the provisions we open up the possibility of further debate on whether the provisions of the 1985 Act themselves should not be brought further up to date in the Bill that we now have before us.
I speak to my amendment and to Commons Amendments Nos. 155 and 175. The object of my amendment is to explore with the Government whether it would not be sensible to reinforce the powers of auditors to require information. The new Section 389A of the Commons amendment states:
"The auditors of a company have right of access at all times … and are entitled to require from the company's officers such information".
It is the expression "are entitled to" that I find a little difficult to understand and I should like to be certain that it gives the auditors the essential powers required. The amendment that I propose provides that auditors have a right to require from the company's officers such information and explanation as they think necessary for the performance of their duties. I believe that to be a sensible method of expressing what auditors can do.
I turn from the specific amendment to the generality of Amendment No. 155. There are one or two questions that I wish to put to the noble Lord by way of seeking information rather than of objection. I fully understand that it is necessary to

959
rewrite the Companies Act 1985 to take account of the new elective regime relating to small companies.
I refer your Lordships to page 52 of the Commons amendments, which is part of a long amendment that covers several pages. New Section 391 refers to the removal of auditors. As I said before, this gives us an opportunity to look at the provision and to see whether it is sensible and right to keep it within the companies legislation. New Section 391 states:
"A company may by ordinary resolution at any time remove an auditor from office, notwithstanding anything in any agreement between it and him".
The removal of an auditor is a very dramatic event. I am simply wondering and questioning the noble Lord as to whether the Government have got it right in leaving it to be done by ordinary resolution rather than by something fiercer in the form of a special resolution. I assume that the company must have a general meeting in order to remove the auditor, because, as I understand it—the noble Lord will no doubt correct me if I am wrong—the ordinary resolution is an ordinary resolution in a general meeting rather than a ordinary resolution of the board. The company as such must have a general meeting to pass that resolution. If that is so, I do not quite understand why subsection (2) refers to,
"a general meeting of a company",
because subsection (2) implies that the removal of the auditor could be achieved in some other manner. Can the noble Lord enlighten me on that point?
Moving on in this long amendment after Clause 104, we come to the statement by a person ceasing to hold office as an auditor. The statement has to be deposited by the auditor at the company's registered office when for any reason he ceases to hold office. In other words, if he is sacked by ordinary resolution of the company, he must deposit a statement,
"of any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company or, if he considers that there are no such circumstances, a statement that there are none".
We discussed this point when the Bill was before the House prior to going to another place. It is slightly odd that an auditor, who is relieved of his contract as a result of an ordinary resolution in a general meeting of a company at which presumably all the issues are explained, must then produce a statement saying that there are no such circumstances which he thinks he ought to bring to the attention of the shareholders or the creditors.
Those are the points arising on Amendment No. 155. I should be grateful if the noble Lord could consider carefully what I have said about Amendment No. 155A. On our side of the House we wish the auditors to have as much power as possible to require from the officers of the company the information that they need. I beg to move.
Moved, That Amendment No. 155A, as an amendment to Amendment No. 155, be agreed to.—(Lord Williams of Elvel.)
Lord Lloyd of Kilgerran: My Lords, I congratulate the noble Lord, Lord Trefgarne, on the charming way in which, in a brief speech—I congratulate him too on his brevity—he disposed of an amendment
960
of 13 pages. I feel that I should start some period of exploration in regard to this splendid 13 page amendment which covers, as the noble Lord said, seven new clauses. Do the new clauses in any way cover the position of small and medium sized companies? I hope that he can help me on that one point. I intended to raise an issue arising from new Section 391 on page 52 of the Marshalled List of Commons Amendments. However, the noble Lord, Lord Williams, in his competent manner, has saved me having to say anything further about that.
The Minister said that seven new clauses are to be found in this long amendment. The seven new clauses will, I suppose, replace a certain number of sections in the Companies Act 1985. In their amendments the Government have removed sometimes as many as 30 or 40 sections from the 1985 Act. They have then inserted a number of clauses, usually using far more words than were contained in the sections they have removed. They then ask us as a revising Chamber to accept those new wordings which are sometimes totally different from the original wordings in the 1985 Act. They have in effect amended a large number of sections. As a cautious lawyer, if somebody tells me that he will rewrite a section in different words but that it means the same thing I somewhat doubt whether that is always possible. It leads to tremendous confusion.
The Government are taking out "X" sections and inserting "Y" sections. They are then saying that the theme of the"X" sections equals the theme of the "Y" sections. In effect they are saying that the law as stated in the inserted "Y" sections is the same as the law as expounded in the "X" sections taken out. But their wording in the "X" sections is different. We are asked as a revising Chamber to take the say so of the Government that they can change the wording of sections, put them back and then maintain that they are the same in law as the earlier sections.
I have been trying to follow this argument. I wish to ask the Minister some specific questions. Several of the new clauses deal with punishment of offences. At the bottom of page 48 of the Marshalled List of Commons Amendments we see the words:
"In Schedule 24 to the Companies Act 1985 (punishment of offences) at the appropriate place insert".
The punishment is then set out. Is the punishment set out there the same as the punishment in the old provision? If it is not the same punishment, why is it not the same punishment? In other words, are there any changes there?
The new clauses are so long that it is sometimes difficult to understand where they start and where they end. On page 50 under paragraph (3) we see the words:
"In Schedule 24 to the Companies Act 1985 (punishment of offences) at the appropriate place insert".
There follow certain punishments. I could continue in this way for some time. There are two other such provisions. The first is to be found at the bottom of page 55 and the top of page 56, the second on page 57. The noble Lord may say that the punishments are the same in all cases, although they are set out in different words. On what basis can he tell the

961
House—I am sure that he can, with all his charm and experience in the matter—that if a number of sections are removed and different words inserted the law in the new clauses will be the same as the law in the old sections? This is not semantics; it is a very serious matter. If the Government are proposing to take that kind of line and in effect to amend a huge section of the Bill without explaining why they are making such amendments, that is a policy that I should think requires further consideration by this House.
4 p.m.
Lord Trefgarne: My Lords, I must say that I was a little surprised to see this amendment on the Marshalled List. Rather than the auditors being entitled to require certain information and explanations from the company's officers, the noble Lord would have the Commons Amendment No. 155 read that the auditors may require such information and explanations.
I am not sure that it is right at this stage of the Bill's proceedings to be sensibly looking at such drafting points. It is all the more exasperating because there is nothing new in the provision in question as contained in the Commons amendment. I refer your Lordships to new Section 237(1) of the Companies Act 1985 contained in Clause 9 on page 16 of the Bill as it left this House. That subsection is reproduced exactly as new Section 384(3) of Commons Amendment No. 155.
The Commons amendment brings together various provisions relating to auditors which are contained in the Bill and in the Companies Act. As I mentioned, the substantive changes it makes are few. If the noble Lord had raised this point on Clause 9 at an earlier stage of the proceedings. I might have seen the merit of discussing the alternative wording. However, I think I would have concluded that I preferred the expression "entitled to". Incidentally, that is the wording which practitioners are used to. It is contained in the present Section 237 of the Companies Act. I do not believe that such an amendment put forward at this stage of the Bill's proceedings merits the degree of attention suggested.
I turn now to the remarks made by the noble Lord, Lord Lloyd of Kilgerran. The fairly minor changes I mentioned would have required extensive amendment to the auditors chapter of the Companies Act. We concluded that it would be better to replace the chapter rather than make a large series of opaque textual amendments to existing provisions.
We found it convenient to reorder some of the provisions so that, for example, the rights of auditors on removal from office follow the provisions of how auditors may be removed. We have also made a few drafting changes to existing provisions and incorporated into the amended chapter some of the other provisions affecting auditors which are at present scattered around the Bill and the Companies Act.
I hope your Lordships will agree that it would be helpful to users to have all the provisions on the
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appointment and removal of auditors and their rights in one place. The amendments were introduced and discussed in Committee in another place.
In answer specifically to the point made by the noble Lord, Lord Lloyd of Kilgerran, about the level of offences, I can confirm that these remain the same. However, we found it necessary to change some of the references because other amendments renumber the main provisions. I wish to emphasise the point that we are largely restating existing legislation in these amendments. I hope therefore that your Lordships will agree that the amendment put forward by the noble Lord, Lord Williams, is not appropriate.
Lord Williams of Elvel: My Lords, I fully understand what the noble Lord is saying: the Government are trying to restate what is in existing legislation. But restating it, as I pointed out, allows us to discuss it. If they had kept to the original wording and not bothered with any of the Commons amendments, we would not have had a chance to discuss the matter. It is the noble Lord's own fault if he receives such amendments from this side of the Chamber on matters which have already been before this House. I believe that the expression "may require" allows auditors much stronger powers than "entitled to require". I say that because to be entitled to do something does not necessarily achieve success. If the noble Lord is saying that he is not prepared at this stage to consider amendments of any kind whatever, we might as well be talking in a vacuum. However, if that is his view, either we divide on the issue or we let the matter go.
It is the privilege of this House to be a revising Chamber. I understood that the object of revising legislation was to ensure that it left this House in a better form than was the case when it arrived here. The noble Lord seems to disagree with me on that point. I shall not press the amendment to a Division because I do not feel strongly enough about the wording. Nevertheless, I hope that there will be some give from the Government when we put forward what we think are valid points and that we will not come up against a simple brick wall.
I also hope that when Government Ministers come to respond to amendments they will answer the questions which have been put to them. I do not believe that the noble Lord has answered all the questions raised by the noble Lord, Lord Lloyd of Kilgerran. Moreover, I do not believe that he has answered the point I made. As I said, I shall not press the matter further. I beg leave to withdraw the amendment.
Amendment No. 155A, as an amendment to Amendment No. 155, by leave, withdrawn.
On Question, Amendment No. 155 agreed to.

Electricity Privatisation: Nuclear Power
4.5 p.m.
The Lord Privy Seal (Lord Belstead): My Lords, with the leave of the House I shall repeat a Statement made in another place by my right honourable friend

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the Secretary of State for Energy. The Statement is as follows.
"With permission, Mr. Speaker, I should like to make a statement about electricity privatisation and nuclear power.
"The Government remain determined to complete electricity privatisation, with all the benefits it will bring, in the lifetime of this Parliament. The preparations for the new system have brought issues into the open. In particular, attention has been focused on the costs of nuclear power. The Government have for some time recognised that our nuclear power is more costly than power from fossil-fuelled generating stations. Nevertheless it has an important role to play in providing diversity of supply and in protecting the environment.
"My predecessor told the House on 24th July that the improved transparency brought about by the preparations for privatisation had revealed substantially increased costs, relating primarily to the Magnox stations. This led us to the conclusion that the Magnox stations should remain under government control. Contract negotiations for nuclear stations have moved on since July. Discussions have taken place about financing new nuclear power stations. The Government told the House on a number of occasions during the passage of the Bill that the arrangements for nuclear power would strike the appropriate balance between the interests of the taxpayer, the electricity consumer and the shareholder. In the event, unprecedented guarantees were being sought. I am not willing to underwrite the private sector in this way.
"Given these factors, the Government have concluded that the English AGRs and Sizewell B should remain, along with the Magnox stations, in a government-owned company. This company will inherit all the nuclear-related assets, expertise and support currently residing in the CEGB, including the CEGB's rightly praised expertise in health and safety. Safety will continue to be paramount. Standards will be maintained at their present high level.
"I am happy to announce that Mr. John Collier, Chairman of the United Kingdom Atomic Energy Authority, has agreed to become chairman of the new nuclear company. He brings to this vital task a wealth of experience in the nuclear industry and well-recognised leadership qualities. The company will be a substantial one, with a positive cash flow. It could provide between 15 per cent. and 20 per cent. of electricity supplied in the mid-90s. The company will retain the ability to construct and operate new nuclear capacity. It will not own any fossil generating stations. Thus the prospects for fossil generators will remain essentially unaffected.
"The CEGB's other power stations will be allocated between National Power and Power Gen as previously announced. Both companies will be major fossil-based generators, and will be privatised this Parliament as will the distribution companies.
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"We want to preserve the strategic role of nuclear power in order to maintain adequate diversity of electricity supply, avoid too great a reliance on a single fuel and obtain the benefits of this environmentally clean source of energy. As a result of privatisation, there will be competition in the electricity market which is likely of itself to lead to greater fuel diversity. There are already a number of proposals for new generating projects based on combined cycle gas turbine technology, which of course leads to lower carbon dioxide emissions. Oil-fired stations have a role to play.
"In the light of their performance to date, it should be possible, subject to the views of the Nuclear Installations Inspectorate, for the lifetime of at least some of the Magnox stations to be extended. The Government will make available the funds for any justifiable investment for this purpose.
"In view of the factors I have mentioned bearing on diversity, some of which relate to fossil fuels, the non-fossil obligation will be set at a level which can be satisfied without the construction of new nuclear stations beyond Sizewell B. The Government attach the highest importance to the successful completion and operation of Sizewell B in order to maintain the PWR option in the United Kingdom.
"I am asking the CEGB to consider urgently what action it wishes to take with respect to its applications for my consent to build PWR stations at Hinkley Point C, Wylfa B and Sizewell C. The Government's Statement is being communicated to the Hinkley Point C inquiry.
"There will continue to be the opportunity, as has been made clear previously, for other non-fossil generation to contribute to the non-fossil fuel obligation. In particular, we will maintain the arrangements for the 600mw special tranche for renewables announced by my right honourable friend during the summer.
"My proposals will not have an impact on the electricity industry's carbon dioxide emissions until about the turn of the century. By then we fully expect gas-fired stations to be playing an important role in electricity generation, and by maintaining the nuclear option we are creating the opportunity for a longer term contribution from economic nuclear power.
"The distribution companies need to be clear what their obligations will be for a reasonable period ahead. The Government will wish to review the prospects for nuclear power as the Sizewell B project nears completion in 1994.
"The nuclear company has a long-term future as a supplier of nuclear-generated electricity. This should provide continuing attractive employment opportunities. The pension rights of existing staff will be protected, as will their ability to benefit from the sale of the rest of the industry. I shall be discussing the implementation of these proposals with all parties concerned, including the trade unions.
"The price of the nuclear company's electricity will be set at a level consistent with its earning a

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return appropriate to public sector bodies. Since the price of nuclear electricity is likely still to be somewhat higher than that of fossil-fuelled electricity, the fossil fuel levy will be used to share the additional cost over all electricity suppliers.
"This decision will help preserve diversity of supply and maintain the nuclear option. We will complete electricity privatisation in the lifetime of this Parliament, and in so doing will safeguard the interests of consumers, taxpayers and shareholders alike."
My Lords, that completes the Statement.
4.14 p.m.
Lord Williams of Elvel: My Lords, the House will be grateful to the noble Lord the Leader of the House for repeating a Statement made in another place. The House will also, I am sure, sympathise with the noble Lord the Leader of the House on having to read out a Statement which represents a complete mess. The whole privatisation programme has come to what must be its final stage. It should be scrapped.
Is the noble Lord the Leader of the House aware that in July we debated that issue in the House and that the Government deployed many arguments to explain why the nuclear sector should be privatised within National Power? Is the noble Lord the Leader of the House aware that the Government won a Division on that matter, and now the Government have to come back and admit that they were wrong? What has happened? Have they now had new ideas, or have they simply thought it through a little more carefully than they did in the summer?
On the specifics of the Statement, I have to say that it raises a myriad of questions. Let me take some of them. I cannot take them all because there are far too many. Let me ask the noble Lord the Leader of the House some questions. How will the fossil fuel levy work now? It was, after all, designed to ensure that nuclear power could be ring-fenced, would not compete with other power sources and would be subsidised by fossil fuel. Since the nuclear sector will remain under public ownership, how will that work?
Why is nuclear power to be, in the words of the Statement more expensive than fossil fuel generated power? The price is still likely to be somewhat higher. Why? On a marginal cost basis, which is what the grid operates off now, nuclear power is substantially lower in cost than fossil fuel. What extra elements are there? Is one the provision for de-commissioning that has to be built in to achieve that extraordinary statement? Why will the grid, presuming that it will, continue to operate on a price merit order rather than a cost merit order? Will that not change the whole basis of the grid's operations? Why should the Government continue with Sizewell B? What is the point of spending more than a billion pounds, given the cost over-runs, on Sizewell B, when we know from what the Government have said that they will ask the CEGB not to go ahead with Hinkley Point C, Wylfa B and Sizewell C? Does one PWR maintain the PWR option in this country? That is a ludicrous statement.
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The Government also seem to doubt whether it is possible to float National Power with the nuclear sector in it. Perhaps I may remind the noble Lord the Leader of the House that I made chat point on Second Reading of the Electricity Bill when it came before your Lordships. The point was not accepted by the Government then; it has been accepted today. Now that it has been accepted, why does the division between National Power and Power Gen have to be the same as it was before? The whole point of giving 70 per cent. of the market to National Power was to ensure that it could carry the nuclear sector, which is known to be unprofitable. If we take out nuclear, why should National Power have 70 per cent.? Why should not others come in? Why should not the nuclear company also go in for fossil-fuel stations? I thought that the Government wanted to encourage competition. Why should not the public sector compete with the private sector on reasonable terms?
I could go on. There are thousands of questions; but it is pointless to go on with this rubbish. To be absolutely honest, it is the longest running farce since Sir Brian Rix left the Whitehall Theatre. It would be funny if it were not so absolutely pathetic. I wish that the Government would now come to the only logical conclusion and say that they must start again from scratch and stop this privatisation business, and let us get on with running the electricity business in the way that it should be run.
Lord Ezra: My Lords, the noble Lord the Leader of the House has read to us a most important Statement made in another place. We spent many days debating the Electricity Bill in this place. We are now confronted with the situation in which the whole nature of that Bill has been fundamentally altered. At the start, I should like to ask the noble Lord the Leader of the House, who, in a sense, is the guardian of the Constitution so far as we are concerned, whether or not he thinks that a constitutional issue arises. We have, after all, spent a long time debating a Bill on the basis of certain clearly defined principles. The principle of the Bill was that the whole electricity industry would be sold to the private sector. We are now told that the Government have reached a decision that we should have a combination of private and public ownership and that the whole of the nuclear side, something for which we pressed at the time, should now be taken away.
As the noble Lord, Lord Williams, has rightly pointed out, not only does that fundamentally alter the nature of the Bill which we spent so many days debating, but it raises the whole issue of the structure of the privatised electricity segment. The reason National Power was given 70 per cent. of the generating capacity and the other company was given only 30 per cent. was so that National Power could accommodate the nuclear segment. That was made very clear.
Now that the nuclear segement is to be removed, there is no reason any longer for that dominant position of National Power in relation to Power Gen. In fact, there is every reason now to subdivide the CEGB into many more parts—four, five or six—in order to enable real competition to take place. That

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is what the Government have always said was their intention.
I think that we are faced today with a situation that is about as fundamental as any we have had in recent years. We have spent a long time on the Bill and now its whole nature has been fundamentally changed. I should like the noble Lord the Leader of the House to indicate to us whether, in the light of this major decision which the Government have reached after the passage of the Bill, they will consider at the very least altering the proposed structure for the power stations in England so as to enable more competition to take place in the privately owned sector. Will they also contemplate quite seriously bringing the whole project back to this House so that we can consider it on the basis of the new premises?
Lord Belstead: My Lords, I thank noble Lords for their responses to the Statement. The noble Lord, Lord Williams, began with a fundamental criticism of it. I would only say to him and to your Lordships that these proposals will have the advantage of ensuring that electricity privatisation is completed during this Parliament. We believe that consumers will benefit from competition. As the Statement which I read out made clear, it is a fact that many of the costs of the nuclear industry have only begun to emerge as the preparation for privatisation has continued. The noble Lord, Lord Williams, shakes his head. Perhaps he will forgive me. I very rarely venture to criticise him, but there is just an element of complacency on the other side of the House.
Noble Lords: Oh!
Lord Belstead: My Lords, the fact that under nationalisation costs can remain hidden which have now begun to emerge is something which I believe is not satisfactory. Although I am disappointed in the Statement I made today, I take considerable comfort from the fact that at least we now know that costs that were hidden have begun to emerge. We have therefore taken a straightforward decision which we have come immediately to both Houses to announce.
I think that the noble Earl, Lord Halsbury, will ask a question in a moment. Perhaps I may briefly say, yes, the noble Lord, Lord Williams, is absolutely right in saying that the House debated at considerable length the noble Earl's important amendment. I give the answer unreservedly to the noble Earl that on that occasion he was—as he so often is—entirely right.
However, I ask your Lordships to consider this. The Statement makes quite clear that subsequent to the debate on the noble Earl's amendment, since the end of July the contract negotiations have begun to demonstrate that what the Central Electricity Generating Board has had to do as regards its AGRs and the future PWR stations is to make unprecedented demands on both costs and on government underwriting if it is to go to the market.
I say quite seriously to your Lordships that the Government have tried to take the greatest care over this aspect of privatisation. We have finally come to
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the conclusion which the noble Earl urged on us towards the end of July. Once again I say that I believe it has been good that the preparation for privatisation has made transparent many costs which would otherwise have been hidden.
The noble Lord, Lord Williams, asked me a direct question: how would the levy work? I shall give the noble Lord a direct answer. It will work exactly as it was intended to work previously. Nuclear power is still likely to be higher than fossil power. The levy will identify the extra costs borne by the public electricity suppliers and ensure that they are fairly shared out. The noble Lord is very knowledgeable about these subjects and he was absolutely right that one of the matters which makes the nuclear costs high—I am sure there are others—is the back-end costs.
The noble Lord, Lord Williams, asked me: why on earth continue with Sizewell B? The answer is very simple but it is important. It is vital that we continue to maintain the nuclear option. We are absolutely committed to maintaining it. In addition, it is relevant that nearly half the cost of Sizewell B has already been incurred.
Both noble Lords asked: what about the split between National Power and Power Gen? The Bill has always provided for the entry into the industry of more generators. The Statement I repeated makes quite clear that the generators are waiting. Noble Lords look doubtful, but the Statement I repeated makes quite clear that the generators are keen to come in. If that is the case as regards presumably the very small generators, I do not believe that it will be in any way impossible to have the two main generators—National Power and Power Gen—with their respective allocations of percentages of the fossil generating capacity.
Finally, the noble Lord, Lord Ezra, said that he felt there was a constitutional issue. With great respect to him, I do not think that there is. What I have repeated today requires no legislation. The fact of the matter is that the parent Act provides for the CEGB functions to be split between different companies, of which the new nuclear company will be one. Therefore, while listening with interest to the noble Lord, I do not agree with the point he made.
The Earl of Halsbury: My Lords, I thank the noble Lord the Leader of the House for the very gracious terms in which he referred to my amendment. I was of course in league with the noble Lords, Lord Williams and Lord Ezra. We all three put our names to it, together with the noble Lord on my left in this Chamber and on the right in politics, but who is not here this afternoon.
It is perfectly true that I gave to Cecil Parkinson before he drafted the Bill advice which was based on intuitive knowledge of what I was talking about. I wish to explain to your Lordships, in order that we do not get across one another, that there would not be any nuclear power in the world if we had not started projects without first seeing the end of the road. For a long time the question of what we would do with high level waste was in debate. We now

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know that the French have solved it, and the Swedes have solved it. We know that we can do it.
Nobody has ever yet successfully concluded the decommissioning of a station. We have made a start at Chapel Cross, but Torness was built for a life of 30 years at 100 per cent. load factor. Of course it will not achieve that. At 75 per cent. load factor it will have a life of 40 years. How on earth can one ask the City to guess what a major undertaking will cost 40 years hence? It is a perfectly impossible proposition. It always was from the beginning. What the negotiations have shown is what I knew intuitively to be right and is confirmed by the accountants. Without wishing to appear to gloat, I thank the noble Lord the Leader of the House for his complimentary remarks on my having been right, and I resume my seat.
Lord Belstead: My Lords, I simply say to the noble Lord, Lord Williams, that I do not renege on what I said before. The noble Earl is generally right and he was right on that occasion. The noble Lord, Lord Williams, may wish to talk further to me about it but I am sure he will accept that when I said we had taken great care in looking at the nuclear option so far as concerns privatisation, I was speaking the truth. There is a wealth of evidence over the years which I have to say did not lead the Government to the conclusion that unprecedented guarantees would be asked for at the last moment by National Power. It felt it had to make these requests. I make no criticism but simply state that as a matter of fact.
4.30 p.m.
Lord Renton: My Lords, is my noble friend aware that the economics of building, operating and decommissioning nuclear power stations have from the outset, and continuing right up through the past 30 years, been fraught with uncertainties? In view of the forbidding new cost factors which have now come to light and to which my noble friend refers, should not the Government be congratulated on their sense of realism in the decision which they have taken? Is it not rather strange that noble Lords on the Opposition Front Benches should, instead of rejoicing at the decision, complain that the Government have decided not to do what they always said should not be done?
Lord Belstead: My Lords, I am grateful to my noble friend. I said earlier that I thought one of the benefits of this decision—I say this of course from this side of the House—is that we can proceed more smoothly towards privatisation. But perhaps it is more to the taste of noble Lords on the other side of the House if I respond to my noble friend by saying that another of the benefits is that the consumer will benefit. The consumer will no longer have to pay the costs which would have arisen from financing nuclear power in the private sector. That will also benefit the taxpayer.
Lord Diamond: My Lords, inasmuch as I spent the majority of my Second Reading speech in appealing to the Government and giving the reasons why
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nuclear generation should be excluded from a Bill if we were compelled to have a Bill on the privatisation of electricity, it will naturally follow that I can do no other than congratulate the Government on the Statement which they have belatedly made. However, they refused to accept that view and made that very clear from the beginning. All of us debated this Bill on the basis that there would be complete privatisation, including nuclear generation.
The whole of the legislation has now been altered. I ask the noble Lord the Leader of the House as Leader whether he is proposing to recommit the whole legislation so that this myriad of questions which the noble Lord, Lord Williams of Elvel, correctly referred to can be discussed and explained by the Government in terms of the form their policy will take. If the noble Lord the Leader of the House is not prepared to do that, is he at least prepared to bring forward some statement that can be debated fully, not for one afternoon but for the inevitable days of debate that will take place on what constitutes a new piece of legislation?
Having regard to my little knowledge of the rules of another place, I am astonished that such a thing will be permitted in another place, as this measure is such a total contradiction of the objectives of the legislation as they were originally laid out. The first question I wish to ask the noble Lord is whether arrangements will be made so that all 1 he questions can be covered—that would take a whole day to set out—and answers and explanations given.
Secondly, will the noble Lord explain now, in the light of the change of circumstances, what the Government's policy is with regard to nuclear generation? The Statement gives us no hope at all. It is written in very general terms. The phrase "keeping options open' does not tell us what is going to happen. The phrase "re-examining in the years ahead", does not tell us what is going to happen. What is the present Government's policy in the light of these new circumstances with regard to nuclear generation?
What are the arrangements for costs? Are the distributing companies going to be compelled to take electricity generated in this way, no matter what the cost is? All that is revealed in the Statement is that the Government will add on what they consider essential, and that cost will be passed on. Is that what the Government now have in mind? I wanted to ask whether that is what the legislation will provide, but one is in the totally absurd situation of not knowing what the law is going to be in view of this fundamental change of approach of the Government.
What will be the rights of the watchdog which was set up? Will he have powers to examine the costs of nuclear generation in the same way as he had before when it was to be privatised? Will he have the same rights to make comments and reports with regard to publicly-owned nuclear generation and the price at which that is being passed on to distributors and through them to consumers? There is a myriad of questions that one could ask and it is quite hopeless to attempt to cover them. Therefore, I shall leave it at that.
Lord Belstead: My Lords, with respect to the noble Lord, I am a little surprised that he has returned to what he calls a constitutional point. As he claimed, it is absolutely the case that he made a significant speech on the Second Reading of the legislation in which he referred in terms to this matter. The noble Lord referred to it in the terms of what has now happened. It is a little strange therefore for him at the beginning of the legislation, and other noble Lords as the legislation was going through, to say that nuclear generation should be taken out of the privatisation, and yet when the Government finally come to the House and say quite openly and honestly to your Lordships that that is what they intend to do and give the reasons why, he then turns round and says that that raises a great constitutional issue. If I may say so, it does not raise a great constitutional issue. The Government's decision responds to what the noble Lord himself called for. Further, if I may say so, this side of the House believes it contributes to the public good, along with the privatisation of fossil fuel generation. Finally, as I explained earlier but shall now repeat, the decision I have announced today does not raise the minutiae of a constitutional issue because it requires no primary legislation.
The noble Lord also asked me about the Government's policy on nuclear generation. It is simply to finish Sizewell B in order to keep the nuclear option open and to review the position on nuclear generation in the light of progress on Sizewell. However, the Statement makes it clear that we continue to believe in the importance of nuclear generation. Incidentally, let us not forget that when Sizewell comes on stream it will produce more than one-third of what all the Magnox stations together produce today.
Finally, the noble Lord asked about costs. I quite understand why he asked that question. Under this wholly government owned company, prices will be a matter for commercial negotiation between the distributing companies and the new nuclear company. However, the Government will require the nuclear company to earn a return appropriate to public sector industries.
The Earl of Lauderdale: My Lords, is my noble friend aware that many of us who took part in the legislation now wish to congratulate the Government on having seen the light and shown the courage to respond to that vision? There is more joy in Heaven over one sinner who repenteth. This decision is better late than never. Having said that, I also wish to congratulate my noble friend on the Government's choice of Mr. Collier to head up the new company. It is difficult to think of a better choice. However, that raises other questions that I wish to allude to. Will my noble friend say a little more about the proposed structure of the company? Will he, if not now, on a later occasion when he has time to brief himself on the minutiae, take up the point made by the noble Lord, Lord Williams of Elvel, about the working of the grid and the merit order and whether it must now to some extent at least reflect costs as well as price?
Finally, will the handling of nuclear power by a government-controlled company lead the
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Government to review recent decisions cutting back research on the fast reactors?
There are other questions which one could ask, but now is not the time. I support the noble Lord, Lord Diamond, in hoping that in the new Session we can have a debate on the whole issue.
Lord Belstead: My Lords, I apologise to the noble Lord, Lord Diamond. A debate is a matter for the usual channels.
I am grateful to my noble friend the Earl of Lauderdale for what he has said. He was characteristically generous and I was particularly glad that he was generous about the announcement of the appointment of Mr. Collier. The board of the new company will be a matter for discussion with the new chairman.
I hear what my noble friend said regarding R&D. I am advised that the operation of the merit order will not be affected by the decisions announced today. The stations with the lowest operating costs will be run first.
Lord Stoddart of Swindon: My Lords, I welcome the noble Lord's Statement and thank him for it. However, does it not show that the Government launched their privatisation programme with undue haste and a complete lack of preparation? Are they not to be condemned for that fact? Should they not have understood exactly what electricity privatisation meant, gone into the full costs and come forward with a properly prepared Bill?
Is it not even worse than that? Is it not the case that over the past few decades the Government and the department have been either fooled or lied to by those in charge of our nuclear power programme, or that there has been collusion? There has been collusion between the CEGB, the Department of Energy and private industry to foist upon this country a system of generation which is far dearer than conventional electricity and which carries dangers which other forms of generation do not.
Are the House and the electorate not entitled to have a full public inquiry into what has gone on in the nuclear industry over the past 20 to 25 years, irrespective of which government has been in power? Do not the figures which have recently been published, showing that the cost of nuclear-generated electricity is likely to be two-and-a-half times the cost of fossil fuels, support my demand that there should now be a full public inquiry into what has gone on?
Perhaps I may also ask the noble Lord why, having decided, perhaps properly—I shall not go into that issue—to hive off nuclear power into a government-owned body, the Government have decided in the case of Sizewell B to throw good money after bad. There is no way in which Sizewell B can be profitable. There is no way in which Sizewell B can produce electricity more cheaply than coal-fired power stations at present. Why have the Government told the House that they will continue to throw money at Sizewell B at the same time as telling us that Sizewell B will not produce electricity at a cost which is competitive with coal?

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Does the noble Lord not realise that, even at this stage when the additional costs over and above estimate are projected to be between £500 million and £1,000 million, it would be beneficial to convert the construction to either oil or coal-fired generation? It would be possible to convert the boilers for less than the present cost overrun.
Noble Lords: Too long!
Lord Stoddart of Swindon: Yes, it is too long, I quite agree, and I am coming to a conclusion. But I urge the Government, in the interests of good government and of democracy, to take on board the points that have been made this afternoon. I hope that they will arrange for a public inquiry to be held.
4.45 p.m.
Lord Belstead: My Lords, the noble Lord has a great deal of expertise in the subject. However, with respect, I believe that his last point goes over ground that has already been covered. Briefly, we have decided to continue with Sizewell B because we believe that it is very important to keep the PWR nuclear option in the United Kingdom in order to retain diversity of supply and because of the environmental benefits.
The noble Lord spoke critically about responsibility for the costs. Perhaps all that I ought to say this afternoon because of time constraints—and there is a Scottish Statement to come after this one—is to repeat that there have been benefits in the story of preparation for privatisation, in that the true costs of the nuclear industry have emerged.
The noble Lord was characteristically fair in speaking about the last 20 years. To give one obvious example, it is in the nature of the cost-plus arrangements that have applied in the nuclear industry to date that insufficient attention is paid to future costs since those costs can always be passed on to customers in the future. Preparation for privatisation has focused attention on those future costs.
Lord Gray of Contin: My Lords, does my noble friend accept that many of us sympathise with him very strongly, as we do with the Secretary of State, for having to make the Statement which he has repeated this afternoon? There are also many who believe that what has happened may in the long run be for the best. When, during the debate on the amendment that has already been referred to, I suggested that the noble Earl, Lord Halsbury, might not have had a monopoly of wisdom on the organisation of the electricity industry, perhaps I did not appreciate his perceptive qualities.
Does my noble friend agree that the Opposition cannot have it both ways? With the nuclear industry virtually removed from the privatisation is not the privatisation of the electricity industry, bearing in mind that there is still generation apart from nuclear generation and the merits of the other parts of the industry, now one of the most attractive privatisation opportunities for investors which this Government have so far produced?
Lord Belstead: My Lords, my answer to my noble friend's second question is a resounding yes. I am very grateful to him for asking that. I am also grateful to my noble friend for saying that he believes that, although there are disappointments arising from the Statement, it is for the best that the Statement is made this afternoon.
Lord Hooson: My Lords, the Minister has said that the CEGB have already incurred half the contractual costs for Sizewell B. Can the noble Lord say what that sum amounts to? Can he also say what are the total costs which have been incurred so far for Hinkley B, Wylfa B and Sizewell C?
Lord Belstead: My Lords, as I think I said, the total costs for Sizewell are very nearly half the expected total cost of £2 billion at 1939 prices. I am afraid that I do not have the figures for the other power stations which the noble Lord mentioned. However, figures were given in a CEGB memorandum for Hinkley, Wylfa and the preparations for Sizewell C for 1989. I do not have those figures in my head, but they are tiny compared with the cost of Sizewell B.
Lord Peston: My Lords, perhaps I may ask three brief questions. I should add that I do not ask them unsympathetically. I appreciate the difficulties into which the Government have got themselves, although one cannot resist saying "I told you so", as they did not have to do it. Perhaps the noble Lord will at least reflect on three of the answers that he has given.
First, on the constitutional question, he has treated the noble Lords, Lord Ezra and Lord Diamond, as the stupid boys in the class. I should like to join them as another stupid boy. Will he again explain why a Bill, which the Government insisted sought to privatise the whole of the industry, suddenly becomes an Act to privatise some of the industry, and why no constitutional or other legal issues arise? I can only say that, having spent as much time on the Bill as any noble Lord, I am simply bewildered as to how the fundamentals of the Act can change, yet one just shrugs it off and says that there is no problem here. I admit stupidity here. but I should like to have the matter explained to me again, as I think the other noble Lords would too.
Secondly, will the noble Lord reflect again on the point made by my noble friend Lord Williams of Elvel about the new nuclear company? It will compete. The Government have said that competition is of the essence here. Again, I cannot see the logic of them limiting the way in which it may compete. The noble Lord may not want to answer that question now, but, once the Government go ahead in that new way, the new nuclear company could validly compete using fossil fuels as well. Again, I think that the Government should at least reflect on that possibility.
My third point relates to costs. Certainly, since I first studied the subject, which is over 25 years ago, I have been perfectly well aware that the zealots in this field exaggerate the benefits and underestimate the costs. I have known that from the very first

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day when, as a young man, I started to study the economics of nuclear power. I have therefore also known that one allows for that. What has shocked me—and I understand that it has shocked the Government—is the scale on which that has taken place. It is beyond anything that I in my most cynical mood ever thought of. The point raised by my noble friend Lord Stoddart of Swindon about the need for an inquiry should not be rejected, therefore.
This is not a party political issue. It has to do with efficient decision-making in the public sector. I do not make a party political point. I should like to know how the issue became as big as it did and how we only found out as late as we did. I do not argue about the merits of the Act but, in the interests of good government, the present Government should at least consider looking into the matter. I do not press the point any more strongly than that, but it is certainly one to which I should like to know the answer.
Lord Belstead: My Lords, I am grateful to the noble Lord for having put three good questions. We say that they are good questions if they are difficult to answer.
On the noble Lord's first point, I take issue with noble Lords opposite on the so-called constitutional point. I am surprised, when the exception of nuclear from privatisation was urged so strongly from the other side of the House, and by other noble Lords as well, and when the Government are now proceeding in that way, that it can be held to be some great new constitutional point. It would be so if, in addition we had to go back and change the Act, but absolutely no primary legislation will be needed. That is why I disagreed on that point.
On the question of the new nuclear company, the Government believe that it is sensible policy to leave the fossil companies to go forward to what my noble friend Lord Gray of Contin forecast would be a successful privatisation.
Finally, the costs of decommissioning are not known because decommissioning has not been undertaken in the United Kingdom. We are talking here about underwriting and the provision needed for the future. It was there that those who negotiated contracts began to find that they were running into difficulties. It was because of that that the Government felt that the straightforward thing to do was to keep nuclear in the public sector.
Lord Ezra: My Lords, before the noble Lord sits down, perhaps I may put this point to him. Those of us who said that the exclusion of nuclear, which we certainly pressed for and which we welcome, raises a number of other issues had in mind the point that it could affect the remaining structure. We raise that point because we believe that the proposed division of the CEGB into two parts, which was relevant when nuclear was included, is now no longer relevant. How will that issue be addressed?
Lord Belstead: My Lords, with great respect to the noble Lord, I have answered that question. I made two points. First, to change course at this moment would be a questionable thing to do when, as my
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noble friend Lord Gray of Contin rightly pointed out, there are two fossil fuel undertakings which will now proceed to a successful privatisation.
Secondly—noble Lords will forgive me if I repeat the point—when there is provision in the Act and a clear statement in the Statement which I have repeated today that there are new generators who will be keen to come into the market, I can only believe that my noble friend Lord Gray of Contin is absolutely correct and that, with the percentages that they have, both National Power and Power Gen have bright futures ahead of them in the privatised market.
Viscount Hood: My Lords, perhaps I may ask my noble friend the Leader of the House whether the Government intend to keep the allocation of fossil fuel stations as planned? If that is so, the size of National Power will be materially reduced because it will no longer have the nuclear stations. That would perhaps be helpful to the competition which the Government intend to provide.
Lord Belstead: My Lords, the answer to my noble friend Lord Hood is yes. He is correct in his assumption. The percentage of stations which National Power will have has been reduced. It is 62 per cent. to National Power and 38 per cent. to Power Gen.
Lord Hatch of Lusby: My Lords, the noble Lord the Leader of the House is in danger of misleading the House.
Noble Lords: No!
Lord Hatch of Lusby: My Lords, if the noble Lord reads the debates on the Electricity Bill, he will see that the cost of nuclear energy has not been revealed since negotiations were undertaken in connection with the Bill. Those costs were constantly put to the Government from Second Reading onwards and the Government refused to listen to them and continually refuted them. They have wasted the time of this House. They asked us to debate a Bill which is now to be completely changed. Noble Lords opposite say that we should now be thankful that they have done what we asked them, but not a bit of it. We were opposed from the start to privatisation per se but we are very much more opposed to a form of privatisation in which it appears that the taxpayer will bear the major costs, thus subsidising the private companies that will be set up. The taxpayer will pay the heavy costs in the nuclear sector of the industry, allowing the private companies to make profits. The losses and expenses will be borne by the taxpayer.
That is a fundamental difference from the Bill which the Government put forward and which we debated here day and night. If the noble Lord the Leader of the House just brushes aside the constitutional point, I ask him to think again. The Government brought forward a Bill which is no longer the Bill that has been put on to the statute book. It is fundamentally different. Our debates were just a waste of time. Surely, on constitutional grounds, when the Government have made such a

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fundamental change to the Act, it is their duty to seek that the House should recommit it and that we should then have an opportunity to debate the new Bill which they propose to put into statute rather than going on with a hybrid Bill which has been changed by fiat of the Government without any consultation or debate in this House.
5 p.m.
Lord Belstead: My Lords, on the noble Lord's first point that the issues we have been discussing have been quite clear to everybody all the time, I think we have really come full circle. I can only repeat what has been said in the Statement: the House has been given the best information available. New factors have come to light since the Electricity Act completed its passage, and we have laid our proposals before your Lordships at the earliest possible moment.
The second point that the noble Lord made was that the Act has now been changed. The answer to that is no, it has not. That is a point I have made two or three times before. Thirdly, the noble Lord mentioned quite an important point: that in some way the taxpayer will not come out of this well. With great respect to the noble Lord, it is important that I should say that that is not so. As I said in the Statement, we were not prepared to pay the risk premium for which the banks and National Power were asking. So far as the rest of the industry is concerned, which will be privatised, we are determined to get full value for the taxpayer in the proceeds.
The noble Lord, Lord Diamond, asked about the running of the new nuclear company. I made it clear that the Government will expect a proper return from that company. It is perfectly true that Schedule 12, which deals with grants for back-end costs, remains in the Act, but with that one exception I would expect the new company to be run on a proper commercial basis.
Noble Lords: Next Statement!
Lord Howie of Troon: My Lords, from this side of the House I should like to congratulate the Government on having done something extremely sensible, albeit rather late in the day, and albeit they were advised long ago to do so. Secondly, I would ask the Government not to be unduly overweighed by the cold water that has been thrown on the nuclear programme as a whole by my noble friend Lord Williams —whom I congratulate on his recent appointment —and my noble friend Lord Stoddart. I hope that the Government will continue to support nuclear power rather beyond what seems to be the extent of the support in today's Statement.
Lastly, I should like your Lordships to support the noble Lord, Lord Diamond, and others who have raised the constitutional issue, although I would not quite call it that. Does the noble Lord the Leader of the House recollect that, as Leader of the House, he is the servant of the House and not merely of the Government? So far in this Statement he has appeared as a Minister, a servant of the
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Government, rather than as a servant of the House as a Whole.
It is apparent to most of us that, although the Act might not have been changed, the context in which the Bill was discussed has been changed quite substantially. I merely ask the Leader of the House —as Leader of the House and not as a member of the Government —whether he will enter into consultations with my noble friends on the Front Bench and on other Front Benches to see whether or not the Act can be reconsidered, as its context has been substantially altered.
Lord Belstead: My Lords, I am grateful to the noble Lord for what he has said about the future of nuclear power. We remain committed to a continuing role for it. The PWR option in the United Kingdom remains very much open. Sizewell B, as I said earlier, will provide capacity equal to about one-third of the total Magnox capacity, and indeed the Magnox stations' lives can be extended. Therefore, we are very much on the same side as the noble Lord so far as that is concerned.
In my capacity as Leader of the House of course I take seriously what the noble Lord, Lord Howie, has said about what has been called the constitutional point from the other side of the House. However, I have to say, wearing my Leader's hat, that I really do not agree with what noble Lords have said on that particular point.
Lord Diamond: My Lords, before —
Noble Lords: Next Statement!
Lord Diamond: My Lords, I have a really important point to make which I shall make as shortly as I can. I realise how long we have been discussing this. If this Bill had been introduced in the form which now applies —that is to say, there was a proposal by the Government to select certain activities out of the industry for privatisation and to leave others —would it not have taken on the nature of a hybrid Bill, and therefore have had to be considered in the way in which hybrid Bills have to be considered?
Lord Belstead: My Lords, of course I shall look at that point.

Electricity Privatisation, Scotland: Nuclear Power
5.5 p.m.
The Minister of State, Scottish Office (Lord Sanderson of Bowden): My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:
"With permission, Mr. Speaker, I wish to make a Statement about the future of the electricity supply industry in Scotland.

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"The House has heard earlier today the Statement by my right honourable friend the Secretary of State for Energy describing the continuing uncertainties over the costs and longer-term liabilities associated with nuclear power. These uncertainties are also relevant to the Government's proposals for the privatisation of the electricity supply industry in Scotland. I have therefore reassessed my plans for the restructuring and privatisation of the Scottish industry and wish to inform the House of my conclusions.
"Honourable Members will be aware of the important role that nuclear power plays in the Scottish system —the AGR stations at Torness and Hunterston B represent 25 per cent. of the generating capacity held by the Scottish Boards. Hunterston A Magnox station is now approaching the end of its useful life and is scheduled for closure in the near future. The SSEB's nuclear stations have an excellent record of safe performance, and I commend the management and staff of the board for their achievement in constructing and operating them.
"Despite this successful operational performance, the Government have had to examine carefully the future cost uncertainties associated with the nuclear operations in Scotland as elsewhere in the United Kingdom. After close consultation with the industry, and our financial advisers, we have concluded that the full flotation could not be successfully achieved without wide-ranging and unequivocal indemnity from Government for future cost escalations. We do not consider that it would be in the public interest to confer such indemnity and have therefore decided that the nuclear enterprise in Scotland should remain in the public sector.
"We had already proposed that the nuclear assets would be held by a separate company, Scottish Nuclear Ltd. This company will now remain publicly owned and will be responsible for the continued safe operation of the stations. The staff presently engaged in nuclear matters will be employed by the new company, thus ensuring the retention of the essential expertise required to maintain safe and efficient operation of the stations for the continuing benefit of Scottish consumers. The company will enter into contracts for the sale of its output with the Scottish supply companies —Scottish Power and Hydro Electric. It is certainly our intention that Scottish consumers should continue to benefit from the large investment in nuclear capacity.
"Also, the industry north and south of the Border has been investigating the economic case for upgrading the capcity of the interconnector between Scotland and England. There is a further opportunity which we must now explore to export Scottish output to England and Wales, thus contributing to the diversity of supplies there and maximising the overall economic use of these major assets to the benefit of all concerned.
"The greater proportion of the Scottish industry will be privatised. This will consist of two highly successful transmission, distribution and supply
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businesses with strong local identities and a modern and diverse portfolio of generating stations. They will own around 75 per cent. of generating capacity and employ 14,000 of the total 16,000 staff in the Scottish Electricity industry. It is our intention to prepare these companies for privatisation within the current Parliament, and my department is assessing with our professional advisers and in consultation with the industry the detailed implications of the Government's decision to withhold the nuclear assets from the sale.
"There will need to be detailed discussions with regard to the proper relationship of the nuclear company with the other parts of the industry. These will be made easier by our previous decision to place all of the nuclear assets in a separate company. I shall wish to ensure that the revised arrangements have no adverse effects on the economy and efficiency of operation of the industry in Scotland and that there will be no adverse implications for tariffs as a result of these changes.
"It will be central to our plans to safeguard the position of the existing staff engaged in the nuclear company. In particular, their pension rights will be protected. The Government will also ensure that these staff will be able to benefit from the flotation of the other parts of the industry. We shall be discussing the detailed implementation of these proposals with the management and the trade unions. The Scottish nuclear company can look forward to a successful and productive future, working in close co-operation with the other electricity companies in Scotland.
"I believe that a proper and carefully balanced mixture of private and public ownership will achieve our objectives and be of real benefit to electricity consumers. The nuclear enterprise will continue to play an important role in delivering a safe, reliable and competitively priced supply of electricity to the people of Scotland for many years to come. Scottish Power and Hydro-Electric will flourish in the private sector and deliver an improved service to their customers in the new environment".
My Lords, that concludes the Statement.
Lord Carmichael of Kelvingrove: My Lords, I should like to thank the Minister for his courtesy in reading the Statement to the House and for making sure that the staff will be looked after in the new set-up. I am sure that they will be grateful for the assurances. There are many questions to be asked, some of which have been asked in regard to the earlier Statement. One or two questions apply specifically to Scotland.
With great respect to the Leader of the House, I think that in future many constitutional lawyers will pore over this Statement, particularly as it applies to Scotland. As the noble Lord, Lord Diamond, asked, would the Bill not have had at least a whiff of hybridity had it been brought in earlier: There is always the temptation to say, "I told you so." It is not I who told you so. I and many other people have quoted the chairman of the SSEB. He said quite

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clearly last December that if the current arrangements in the Bill stood, his company would be totally unsaleable. It has taken a long time for the Government to listen to somebody they should have listened to on behalf of the industry.
There is another point that is interesting from the Scottish point of view, partly because of the size of the industry. The Minister now believes that the nuclear industry and the non-nuclear industry can, with different controls —one nationalised and one non-nationalised —live happily together. However, the Minister in another place said very clearly that there was no possibility of trying to run the two industries unless they were under private enterprise and that therefore there was no room for the mixture as suggested.
I believe that the Minister is inaccurate when he says that AGRs represent only 25 per cent. of the generating capacity in Scotland. He knows that 60 per cent. Of all electricity sold in Scotland comes from nuclear capacity. The noble Lord must know that the chairman of the SSEB said at the beginning of the year that this was the jewel in the crown of the electricity supply industry in Scotland. The Minister must also be aware of the agitation expressed in the Scottish newspapers. All the newspapers are questioning this matter and saying that the whole thing is a mess.
Many questions could be asked, but the only one I should like to ask specifically is this. In Scotland, where there is a high generation of nuclear power, how will the price be set? Will it be merely a matter of marginal costs or will there be some way of determining how the price will be applied to the private industry? In particular, what will be the position of pump storage? It is only a small part, but a very important part, of the Scottish electricity industry. A great deal of the benefit of pump storage comes from superfluous nuclear power at off-peak periods. This is a subject that demands a full and wide debate in the next Session.
Lord Ezra: My Lords, I am grateful to the noble Lord for reading out the Statement. As someone who has been familiar with the Scottish electricity industry over many years, I should like to say that I fully concur with the tribute paid to that industry in the Statement. I was always under the impression that the AGRs in Scotland had been operating very successfully. Therefore, while I was not surprised that the decision had been reached by the Government to remove the nuclear stations from the English and Welsh electricity industry, I had not come to the same conclusion about Scotland. Perhaps the noble Lord can explain why that decision was reached.
The Scottish industry has been very efficient and very successful. For that reason I applaud the proposal that perhaps the interconnector between Scotland and England and Wales could be extended. That would be in the interests of competition.
I should like to make a final point which refers back to the debate on the previous Statement. It is indicated in the Statement that the Government feel
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that a proper combination of public and private ownership of electricity generation is the right solution. I agree with that comment, but that is not the proposition that was initially before us. Therefore it still raises the question of whether we spend a long time debating a Bill which subsequently was fundamentally changed withcut considering what the consequential effects could be. It raises the question in Scotland and England of whether, without the nuclear stations, the composition of the fossil fuel companies under privatisation is correct and whether those might not be somewhat adjusted consequentially.
Lord Sanderson of Bowden: My Lords, I am grateful to the noble Lord, Lord Carmichael, and the noble Lord, Lord Ezra, for their comments. With regard to the latter point raised by the noble Lord, Lord Ezra, we have had a fair debate on the constitutional aspects and I do not propose to labour that point in my reply. I should like to take up the other points which have been raised.
The noble Lord, Lord Carmichael, said that Mr. Miller, the chairman of the SSEB, had given advice to the Government. I am happy to tell the noble Lord that Mr. Miller, who is still the chairman of that company, has issued a statement today. It says:
"SSEB regret the Government's decision not to include nuclear stations in the electricity privatisation —although we accept that in the light of the withdrawal of the England and Wales stations, the decision was inevitable".
That leads on to the point made by the noble Lord, Lord Ezra. As the noble Lord will know, with his knowledge of the City, there is now such major uncertainty in the minds of the investors that it would not have been possible to proceed with our arrangements north of the Border. The advisers to the Secretary of State were unanimous in that conclusion.
The noble Lord, Lord Carmichael, raised the question of capacity. The figure given in the Statement is correct. However, I ought to elaborate on that matter. The latest figures we have are for October 1989. They include the percentage of the various elements of the Scottish generation. They are: coal and slurry generation, 45 per cent.; nuclear, 25 per cent.; steam and pump storage, 7 per cent.; hydro-electric, 12 per cent.; and diesel, gas, turbine and wind, 1 per cent.
The noble Lord will understand that the percentage of nuclear is still at a lowish figure compared with the 60 per cent. to which it is intended that it should rise. Therefore, it is absolutely essential that the arrangements that will apply as far as concerns the publicly owned nuclear company will be the subject of contracts and that the tarriff continuity will be retained. The price will be set by contract subject to the tariffs being no higher than would have been the case under the previous proposals.
I hope that I have answered the major concerns of noble Lords.
The Earl of Halsbury: My Lords, it would not be right to repeat the generalities that I raised on the earlier Statement. However, I believe that it would

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be very helpful if the Government were to publish what the costs now are believed to be from various sources, not only in Scotland but in the UK, Belgium and France. The nuclear component in Belgium and France is more like 70 per cent. I do not know what provision those countries make for future decommissioning of stations or how much of it is financed privately and how much publicly. In France many factors are different, but the nuclear component is still 70 per cent.
Finally, what are the future prospects for Dounreay?
Lord Sanderson of Bowden: My Lords, I thank the noble Earl for his question. I shall visit Dounreay next week. I do not think that this Statement makes any difference to the earlier decisions of the Government on Dounreay as a PWR. This is obviously a matter that one will have to consider. However, my estimation is that it does not make any change at this stage.
Yes, the noble Lord is quite right. Various assumptions are made as to the costs of nuclear power. I should like to raise with my right honourable friend whether we can get to the bottom of this bottomless pit. There are clear differentiations to be made between the running costs of Torness, and so on, and the major problem —the capital costs and the decommissioning liabilities.
Lord Diamond: My Lords, I thank the noble Lord for repeating the Statement. Will he explain in more detail what will happen about the cost of electricity to the consumer in Scotland? Have we a final conclusion as to what the nuclear decommissioning costs, and therefore the total cost of nuclear electricity generation, will be? Will the consumer in Scotland have to pay the cost willy-nilly because it has been passed on by government fiat? Will the watchdog set up under the legislation have the same powers on government retained activities as it has on the commercial activities and thus protect the consumer?
Finally, I have not the slightest doubt that had there been a nationalisation measure which selected certain parts of the industry for nationalisation and excluded others, every single noble Lord on the other side of the House would be up in arms claiming that it was a hybrid matter which ought to be discussed in the appropriate way in order to protect those individuals who were not being treated on a par with everybody else in the country, as the law required. Does not the same consideration apply when we are in the reverse situation?
Lord Sanderson of Bowden: My Lords, I cannot elaborate beyond what was said by my noble friend the Leader of the House on this issue. At Second reading of the Electricity Bill the noble Lord was very voluble as to how he saw the future of the Bill. So far as my noble friend and I understand it, there is to be no change to the Electricity Act, as it now stands.
On prices, consumers must expect to pay their share of increased costs as and when they arise, as in the case of other sources of generation. However,
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we have powers under the Electricity Act 1989 —of which the noble Lord, Lord Diamond, is well aware —to avoid undue distortion arising from unanticipated back-end costs and increases. As to the true costs of nuclear power, scrutiny of the figures necessitated by privatisation has revealed that previous estimates of cost were too low and that further scrutiny was necessary. But, as our decision has made clear, some uncertainties remain. I believe that I should address the noble Lord with regard to the Scottish consumer. It is clearly stated that my right honourable friend the Secretary of State for Scotland realises that Scottish consumers must be protected and that tariffs will be so set.
Lord Stoddart of Swindon: My Lords, can the noble Lord clear up one matter? It arose from an answer to my noble friend. He appeared to suggest that the only reason why the Scottish nuclear industry was being hived off into a separate publicly-owned company was because the English nuclear power industry was being hived off. He appeared to be saying that it was all right in Scotland —they were making a profit there and everything was hunky-dory —and that the only reason for hiving off the industry in Scotland was because it had to be done in England.
Is the noble Lord saying that the nuclear industry in Scotland is so much more efficient than that in England that it would be highly profitable for the industry to be floated in Scotland and that people would buy the shares? If that is not what he is saying, what guarantee do we have from now on that this new publicly-owned company will not so arrange the information (if I may put it as kindly as that) as to give a false picture of viability and profitablity in comparison with coal? What guarantee do we have that such information will be more correct than it was under the previous publicly-owned boards?
Lord Sanderson of Bowden: My Lords, I thank the noble Lord, Lord Stoddart, for his questions. Obviously he knows a great deal about the matter. I believe that he was around at the time when his own administration not only consented to the construction of Torness but also to preliminary work.
The noble Lord asks whether the only reason that we are not going down the route of total privatisation of nuclear north of the Border is the fact that the City would not accept it because south of the Border it has been decided that it should not take place. The answer is no. There is no question that the uncertainty surrounding nuclear costs —in particular, decommissioning costs and so on —applies north of the Border just as it does south of the Border. I would only say to the noble Lord that at Torness we may be seeing a quite satisfactory situation with regard to the production of nuclear power. Therefore, considerations may be at a different level than when considering the situation south of the Border. I hope that I have made my point very clear.
On the arrangement of information to be disclosed, as it will be a public sector company Parliament will hold it wholly responsible.
Lord Mackie of Benshie: My Lords, during the course of the Bill and the preparations for it, the Minister and his right honourable colleagues were congratulated on the fact that they managed to hold the units together in Scotland —in the north of Scotland it was the hydro board, and in the south the electricity board —for privatisation, thereby causing the least possible disturbance to industry. While we did not agree with what they were doing it seemed an extremely good point.
A major portion is now being hived off. Will this make a difference and disturb the more or less happy relationship that we had, and the continuity that was ensured, by keeping these two units together?
5.30 p.m.
Lord Sanderson of Bowden: My Lords, no. I firmly believe that the two privatised companies, which one must recognise cover not only a fair proportion of the generation, as I have shown by the figures, but also the transmission and distribution of electricity in Scotland, will be sizeable companies in their own right even in United Kingdom terms. We believe that, far from changing the plans which I remember the noble Lord, Lord Mackie of Benshie, welcomed particularly in relation to the Hydro Electric Board, we have viable companies for privatisation. I am happy to say that not only has the chairman of the SSEB been most co-operative under these difficult circumstances but so has the chairman of the Hydro Electric Board. Today he has issued a statement welcoming the decision.
I point to the words of the noble Lord, Lord Taylor of Gryfe, who is not present but who spoke on Second Reading. He said:
"I believe that it would be sad for us, the owners of this great industry, to see our assets transferred to private ownership at inadequate values". —[Official Report, 25/4/89; col. 1192.]
I believe that the present arrangements will ensure that that does not happen.
Lord Peston: My Lords, I know that it is getting late and I for one cannot wait to return to the intellectual excitements of the Companies Bill. However, I have one further question. We know little about the new Company, Scottish Nuclear Limited. It has been invented by the Government, as it were, to help solve the problem which confronts them. We know nothing about the economic or financial regime under which it will operate. In order that we and people in Scotland may be enlightened as to what we shall have in the public sector will the Minister come back to your Lordships' House with a fuller statement explaining how the company will operate, its objectives, the way in which it will be constrained and so forth? I do not expect an answer tonight but I should like reassurance that we shall have an answer in due course.
Lord Sanderson of Bowden: My Lords, I shall pass on the noble Lord's comments to my right honourable friend. It is early days for Scottish Nuclear Limited. However, much of the groundwork has been done because the set-up of the company has taken place. The only difference will be the
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shareholding. The noble Lord is right to point out, as did my right honourable friend in his Statement, that it has a major bearing on the interconnector, the relationship with England and the economics which flow from that. Taking the spirit of the noble Lord's comments, I hope that I shall be able to give him further information. I shall be discussing the matter with my right honourable friend.
Lord Hatch of Lusby: My Lords, the Minister has repeated the misleading impression already given by the noble Lord the Leader of the House that only after scrutiny of the costs since the passing of the Bill have the Government discovered what they are. That is not the case. Throughout the passage of the Electricity Bill the Government were consistently given an approximation of the costs of nuclear energy; they constantly refuted them. A series of questions was asked in this House about the real costs of nuclear energy.
I draw the Minister's attention to the fact that, as recently as 10th October his noble friend Lord Trefgarne, who is sitting next but one to him, told the House specifically in answer to a Question of mine that AGRs were to be included in privatisation. That was a specific statement. What happened between 10th October and 8th November?
I return to the point which was made by the noble Lord, Lord Diamond, and which I made earlier. This is an issue in which apparently the Government interpret "privatisation" as meaning that you will sell off the profitable side of the industry and the taxpayer must bear the costs, which the Government do not know even now. The taxpayer will pay for the costs of decommissioning plus the production of nuclear energy, thus subsidising the privatisation. Is that what the Government mean when they talk about privatisation? I believe that we are due for an answer.
I should like to know specifically why it is that on 10th October one Minister tells me that AGRs will be included in the privatisation flotation and then on 8th November another Minister tells the House that they will be included in a new government-owned company?
Lord Sanderson of Bowden: My Lords, I was present on that occasion and I know that my noble friend sitting next to me told the noble Lord in no uncertain terms that negotiations and discussions were and have been taking place as recently as a few days ago. What is important, and what seems to have been recognised by all sides of the House, is that if the Government's attention is drawn to information showing that the situation is not what they once believed, they are entitled to come to this House with a decision which must be followed through.
The views held by the noble Lord on nuclear power are extremely well known. We heard about them ad infinitum during the course of the Bill through your Lordships' House. However, the Government believe that we should have a nuclear capacity within the range of what is available in generating electricity and many Members opposite agree with that view.
Lord Hatch of Lusby: My Lords, will the Minister answer my specific question about the statement made to me by the noble Lord, Lord Trefgarne on 10th October?
Lord Sanderson of Bowden: My Lords, I honestly believe that the noble Lord is splitting hairs because he is inferring that on 10th October the Government were responsible for a cover up. That is not so. What is relevant is that information has come to light as the procedure has carried on and this decision has been taken. I do not think that I can go further.

Companies Bill [H.L.]
5.37 p.m.

COMMONS AMENDMENT
156 After Clause 104, under the heading 'Company records and related matters', insert—
Delivery of documents to the registrar
.—(1) For section 706 of the Companies Act 1985 (size, durability, &c. of documents delivered to the registrar) substitute —
"Delivery to the registrar of documents in legible form
706. —(1) This section applies to the delivery to the registrar under any provision of the Companies Acts of documents in legible form.
(2) The document must —

(a) state in a prominent position the registered number of the company to which it relates,

(b) satisfy any requirements prescribed by regulations for the purposes of this section, and

(c) conform to such requirements as the registrar may specify for the purpose of enabling him to copy the document.

(3) If a document is delivered to the registrar which does not comply with the requirements of this section, he may serve on the person by whom the document was delivered (or, if there are two or more such persons, on any of them) a notice indicating the respect in which the document does not comply.
(4) Where the registrar serves such a notice, then, unless a replacement document

(a) is delivered to him within 14 days after the service of the notice, and

(b) complies with the requirements of this section (or section 707) or is not rejected by him for failure to comply with those requirements,

the original document shall be deemed not to have been delivered to him.
But for the purposes of any enactment imposing a penalty for failure to deliver, so far as it imposes a penalty for continued contravention, no account shall be taken of the period between the delivery of the original document and the end of the period of 14 days after service of the registrar's notice.
(5) Regulations made for the purposes of this section may make different provision with respect to different descriptions of document."
(2) For section 707 of the Companies Act 1985 (power of registrar to accept information on microfilm, &c.) substitute—
"Delivery to the registrar of documents otherwise than in legible form
707. —(1) This section applies to the delivery to the registrar under any provision of the Companies Acts of documents otherwise than in legible form.
(2) Any requirement to deliver a document to the registrar, or to deliver a document in the prescribed form, is satisfied by the communication to the registrar of the requisite information in any non-legible form prescribed for the purposes of this section by regulations or approved by the registrar.
(3) Where the document is required to be signed or sealed, it shall instead be authenticated in such manner as may be prescribed by regulations or approved by the registrar.
(4) The document must—

(a) contain in a prominent position the registered number of the company to which it relates,

(b) satisfy any requirements prescribed by regulations for the purposes of this section, and

(c) be furnished in such manner, and conform to such requirements, as the registrar may specify for the purpose of enabling him to read and copy the document.

(5) If a document is delivered to the registrar which does not comply with the requirements of this section, he may serve on the person by whom the document was delivered (or, if there are two or more such persons, on any of them) a notice indicating the respect in which the document does not comply.
(6) Where the registrar serves such a notice, then, unless a replacement document —

(a) is delivered to him within 14 days after the service of the notice, and

(b) complies with the requirements of this section (or section 706) or is not rejected by him for failure to comply with those requirements,

the original document shall be deemed not to have been delivered to him.
But for the purposes of any enactment imposing a penalty for failure to deliver, so far as it imposes a penalty for continued contravention, no account shall be taken of the period between the delivery of the original document and the end of the period of 14 days after service of the registrar's notice.
(7) The Secretary of State may by regulations make further provision with respect to the application of this section in relation to instantaneous forms of communication.
(8) Regulations made for the purposes of this section may make different provision with respect to different descriptions of document and different forms of communication, and as respects delivery to the registrar for England and Wales and delivery to the registrar for Scotland.".
Keeping and inspection of company records.
. —(1) In Part XXIV of the Companies Act 1985 (the registrar of companies, his functions and offices), after the sections inserted by section (Delivery of documents to the registrar) above, insert —
"The keeping of company records by the registrar.
707A. —(1) The information contained in a document delivered to the registrar under the Companies Acts may be recorded and kept by him in any form he thinks fit, provided it is possible to inspect the information and to produce a copy of it in legible form.
This is sufficient compliance with any duty of his to keep, file or register the document.
(2) The originals of documents delivered to the registrar in legible form shall be kept by him for ten years, after which they may be destroyed.
(3) Where a company has been dissolved, the registrar may, at any time after the expiration of two years from the date of the dissolution, direct that any records in his custody relating to the company may be removed to the Public Record Office; and records in respect of which such a direction is given shall be disposed of in accordance with the enactments relating to that Office and the rules made under them.
This subsection does not extend to Scotland.
(4) In subsection (3) "company" includes a company provisionally or completely registered under the Joint Stock Companies Act 1844.".
(2) For sections 709 and 710 of the Companies Act 1985 (inspection of documents kept by the registrar) substitute —
"Inspection, &c. of records kept by the registrar.
709. —(1) Any person may inspect any records kept by the registrar for the purposes of the Companies Acts and may require —

(a) a copy, in such form as the registrar considers appropriate, of any information contained in those records, or

(b) a certified copy of, or extract from, any such record.

(2) The right of inspection extends to the originals of documents delivered to the registrar in legible form only where the record kept by the registrar of the contents of the document is illegible or unavailable.
(3) A copy of or extract from a record kept at any of the offices for the registration of companies in England and Wales or Scotland, certified in writing by the registrar (whose official position it is unnecessary to prove) to be an accurate record of the contents of any document delivered to him under the Companies Acts, is in all legal proceedings admissible in evidence as of equal validity with the original document and as evidence of any fact stated therein of which direct oral evidence would be admissible.
In England and Wales this is subject to compliance with any applicable rules of court under section 5 of the Civil Evidence Act 1968 or section 69(2) of the Police and Criminal Evidence Act 1984 (which relate to evidence from computer records).
(4) Copies of or extracts from records furnished by the registrar may, instead of being certified by him in writing to be an accurate record, be sealed with his official seal.
(5) No process for compelling the production of a record kept by the registrar shall issue from any court except with the leave of the court; and any such process shall bear on it a statement that it is issued with the leave of the court.
Certificate of incorporation.
710. Any person may require a cerficate of the incorporation of a company, signed by the registrar or authenticated by his official seal.
Provision and authentication by registrar of documents in non-legible form.
710A. —(1) Any requirement of the Companies Acts as to the supply by the registrar of a document may, if the registrar thinks fit, be satisfied by the communication by the registrar of the requisite information in any non-legible form prescribed for the purposes of this section by regulations or approved by him.
(2) Where the document is required to be signed by him or sealed with his official seal, it shall instead be authenticated in such manner as may be prescribed by regulations or approved by the registrar.".
Supplementary provisions as to company records and related matters.
. —(1) In Part XXIV of the Companies Act 1985 (the registrar of companies, his functions and offices), after section 715 insert—
"Interpretation
715A. —(1) In this Part —
"document" includes information recorded in any form; and
"legible", in the context of documents in legible or non-legible form, means capable of being read with the naked eye.
(2) References in this Part to delivering a document include sending, forwarding, producing or (in the case of a notice) giving it.".
(2) In section 708(1) of the Companies Act 1985 (fees)—

(a) in paragraph (a) for the words from "any notice or other document" to the end substitute "any document
990
which under those Acts is required to be delivered to him", and

(b) in paragraph (b) omit "or other material".

(3) Omit sections 712 and 715 of the Companies Act 1985 (removal and destruction of old records).
(4) In section 713(1) (enforcement of duty to make returns, &c.), for the words from "file with" to "or other document" substitute "deliver a document to the registrar of companies".
(5) In section 735A(2) of the Companies Act 1985 (provisions applying to Insolvency Act 1936 and Company Directors Disqualification Act 1986 as to the Companies Acts)—

(a) after "707(1)," insert "707A(1),",

(b) after "708(1)(a) and (4)," insert "709(1) and (3),", and

(c) for "710(5)" substitute "710A".

(6) After section 735A of the Companies Act 1985 insert—
"Relationship of this Act to Parts IV and V ofthe Financial Services Act 1986
735B. In sections 704(5), 706(1), 707(1), 707A(1), 708(1)(a) and (4), 709(1) and (3), 710A and 713(1) references to the Companies Acts include Parts IV and V of the Financial Services Act 1986.".
(7) In Schedule 22 to the Companies Act 1985 (unregistered companies), in the entry for Part XXIV for "sections 706, 708 to 710, 712 and 713" substitute "sections 706 to 710A, 713 and 7I5A".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 156.
The amendment makes important changes to the provisions in the 1985 Act on the delivery of documents to the registrar, the storage by him of such documents and their retrieval for the purposes of public inspection. Above all, the new sections inserted into the 1985 Act pave the way for long-term improvements in the efficiency and effectiveness of Companies House by removing legal obstacles to the greater use of new technology for the delivery, storage and retrieval of documents. I hope that these proposals will commend themselves to your Lordships.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, in general we agree with the Commons amendment. However, I should like to ask the Minister a few questions. First, under new Section 706(2)(c) the registrar may specify his requirements for the purpose of enabling him to copy the document. Can he explain precisely what is meant by that? Is the registrar able to specify in any form and in what form can he copy? How will the provision work?
Secondly, subsection (3) of new Section 706 states:
"If a document is delivered to the registrar which does not comply with the requirements of this section, he may serve on the person by whom the document was delivered (or, if there are two or more such persons, on any of them) a notice indicating the respect in which the document does not comply".
I am not certain how that procedure will operate. Presumably he will have specified some requirements. The document in question does not meet those requirements and somehow he has to serve some sort of notice. I should be grateful if the noble Lord could help me on that.
Lord Lloyd of Kilgerran: My Lords, we accept the amendments produced under this Amendment No. 156 to the Companies Act 1985. Like the noble Lord, Lord Williams, I should like to bring two minor points to the notice of the Minister.
It seems that the intention of the amendment is to change the wording of the sections of the Companies Act 1985 which are concerned with the delivery to the registrar of documents in legible form —and that is what is said in the margin of Amendment No. 156 —and the delivery of documents to the registrar otherwise than in legible form.
The original Section 707 in the Companies Act 1985 appeared to me to go rather further than that. In the margin of that Companies Act —perhaps I may say that it is rather an occupational hazard to have the heavy Act of 1985 without a table in front of me and I hope I shall be excused, not having the advantage of a table which noble Lords on the Front Bench of the Government and the Opposition have —it refers to the,
"Power of the registrar to accept information on microfilm".
I assume that there is some wording which would allow microfilm to be used.
However, I go even further. The wording of Section 707 of the 1985 Act —I say this with some apprehension in the presence of the noble and learned Lord on the Cross-Benches —states:
"The registrar of companies may, if he thinks fit, accept under any provision of the Companies Acts, requiring a document to be delivered to him any material other than a document which contains the information in question and is of a kind approved by him".
I hope that that is the position because I remind your Lordships that during the passage of the Local Government and Housing Bill an amendment in the name of the noble Baroness, Lady Blatch, and myself purported to allow certain documents under the land charges Acts to be produced in electronic form. That amendment was supported very strongly by the Law Society as it would save a lot of time and trouble. Therefore, I wonder whether the Government have considered the method of putting documents on any material and therefore in any form, even electronic form and certainly microfilm, which is specifically referred to in the 1985 Act.
There is a smaller point to which I would like to draw the attention of the Minister. That arises out of the new Section 707. Subsection (3) states:
"Where the document is required to be signed or sealed, it shall instead be authenticated in such manner as may be prescribed by regulations or approved by the registrar".
From my study of the new clauses and comparing them with the Companies Act 1985, and bearing in mind what I said earlier this afternoon, some hours ago when we started these proceedings on the Companies Bill, I pointed out that there was a change in the wording of the new Bill to the wording in the 1985 Act. The Government are saying that those words, although changed, are in law the same as the original words. That is a theme which I do not quite understand but at this stage of the Bill we must accept that that is the position.
In this case from my researches I cannot see that in the sections of the Companies Act 1985 there was
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any reference to the powers which may be prescribed by regulations. Therefore, that is a new matter which arises. I can see that help is coming to the Minister on these minor points that I have raised. I may be wrong, and perhaps I overlooked the fact that regulations could be prescribed earlier; but certainly they are prescribed now.
5.45 p.m.
Lord Trefgarne: My Lords, I want to emphasise that the purpose of these provisions is to make the facilities at Companies House more user-friendly, if I may describe them in that way. They are not really for the benefit of the registrar but for the benefit of those who go to Companies House to inquire into the affairs of different companies. That is the short answer to all the questions which have been put to me.
Lord Lloyd of Kilgerran: My Lords, the object of any intervention I make is to try to ensure that members of the public—professional, academic or otherwise —can understand what is put in the Bill.
Lord Trefgarne: My Lords, I am obliged to the noble Lord. I was emphasising that these provisions are for the benefit of the users of the facilities of Companies House. Section 706(2)(c), about which the noble Lord, Lord Williams, specifically asked me, would enable the registrar to receive documents which have sufficient contrast in them to be copied by modern copying equipment. I hope the noble Lord will agree that that is a good idea.
As regards Section 706(3), the notice will be served on the person delivering the document. If it is delivered by more than one person the notice will be delivered to the appropriate person. The registrar will develop his practice in accordance with experience and the views of those who deliver the documents.
To answer the noble Lord, Lord Lloyd of Kilgerran, the Bill goes wider than microfilm to allow for new technologies, particularly of an electronic kind, for which Section 707 specifically provides. Both microfilm and electronic means of delivery are potentially covered by the new Section 707. I agree that the new formulation is more general, but that is to allow for yet further technologies which may emerge in the not too distant future.
Lord Lloyd of Kilgerran: My Lords, can the noble Lord give me the precise wording?
On Question, Motion agreed to.

COMMONS AMENDMENT
157 After Clause 105, insert the following new clause:
'Membership of holding company.
. —(1) In Chapter I of the Companies Act 1985 (company formation), for section 23 (membership of holding company) substitute —
23. —(1) Except as mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary is void.
(2) The prohibition does not apply where the subsidiary is concerned only as personal representative or trustee unless, in the latter case, the holding company or a subsidiary of it is beneficially interested under the trust.
For the purpose of ascertaining whether the holding company or a subsidiary is so interested, there shall be disregarded—

(a) any interest held only by way of security for the purposes of a transaction entered into by the holding company or subsidiary in the ordinary course of a business which includes the lending of money;

(b) any such interest as is mentioned in Part I of Schedule 2.

(3) The prohibition does not apply where the subsidiary is concerned only as a market maker.
For this purpose a person is a market maker if—

(a) he holds himself out at all normal times in compliance with the rules of a recognised investment exchange other than an overseas investment exchange (within the meaning of the Financial Services Act 1986) as willing to buy and sell securities at prices specified by him, and

(b) he is recognised as so doing by that investment exchange.

(4) Where a body corporate became a holder of shares in a company —

(a) before 1st July 1948, or

(b) on or after that date and before the commencement of section (Membership of holding company) of the Companies Act 1989, in circumstances in which this section as it then had effect did not apply.

but at any time after the commencement of that section falls within the prohibition in subsection (1) above in respect of those shares, it may continue to be a member of that company; but for so long as that prohibition would apply, apart from this subsection, it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(5) Where a body corporate becomes a holder of shares in a company after the commencement of that section in circumstances in which the prohibition in subsection (1) does not apply, but subsequently falls within that prohibition in respect of those shares, it may continue to be a member of that company; but for so long as that prohibition would apply, apart from this subsection, it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(6) Where a body corporate is permitted to continue as a member of a company by virtue of subsection (4) or (5), an allotment to it of fully paid shares in the company may be validly made by way of capitalisation of reserves of the company; but for so long as the prohibition in subsection (1) would apply, apart from subsection (4) or (5), it has no right to vote in respect of those shares at meetings of the company or of any class of its members.
(7) The provisions of this section apply to a nominee acting on behalf of a subsidiary as to the subsidiary itself.
(8) In relation to a company other than a company limited by shares, the references in this section to shares shall be construed as references to the interest of its members as such, whatever the form of that interest.".
(2) In Schedule 2 to the Companies Act 1985 (interpretation of references to "beneficial interest"), in paragraphs 1(1), 3(1) and 4(2) for "as respects section 23(4)" substitute "as this paragraph applies for the purposes of section 23(2)".'.
The Lord Advocate (Lord Fraser of Carmyllie): My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 157. The amendment makes two distinct changes to Section 23 of the 1985 Act; that is, the section of the Act which prevents unauthorised reductions in a company's capital by prohibiting the holding of shares by a subsidiary company in its holding company. The changes relate to the exceptions to this general rule.
First, the amendment clarifies the position where a company becomes the subsidiary of another
994
company in which it has a pre-existing shareholding. It does so by permitting a subsidiary which was a member of its holding company before it became a subsidiary to continue to be a member, but provides in that event that the subsidiary has no right to vote in respect of such shares.
We have looked at the point afresh since the Bill was first introduced in the light of outside comment and have concluded that we should make the changes recommended over 25 years ago by the Jenkins Committee. The amendments were introduced and discussed in Commons Standing Committee.
The second change clarifies the effect of Section 23 where a market maker makes a market in the shares of its holding company. New Section 23(3) makes clear that it is permissible for such a subsidiary to hold shares in its holding company for the purposes of making a market in those shares on a recognised investment exchange. Some doubt had been expressed on this point, which has clearly assumed some importance since the securities industry was restructured in 1986.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
Lord Williams of Elvel: My Lords, I have only two relatively small points, apart from welcoming the noble and learned Lord the Lord Advocate to our discussions on Commons amendments. The first point concerns the new Section 23. Am I right in thinking that under French corporate law a subsidiary may hold shares in its parent and that that is also true under German and Italian company law? This is my recollection of the position when I dealt with practical business in these matters. If so, is there anything the noble and learned Lord can tell us about the consolidation of company law arrangements within the Community which may lead to a modification of this arrangement in the future? Is it going as it were, our way or their way?
Secondly, the definition of what is a market maker is fraught with problems, as I am sure the noble and learned Lord will be aware. If I were to be cynical I could suggest that in order to get around the restrictions imposed under new Section 23 it would be open to a holding company to form a subsidiary which became a market maker—recognised as a market maker by the appropriate supervisory body, the investment exchange, and indeed making markets in shares—but whose primary function could be to hold shares in its parent company, trade them and, indeed, vote them. That is obviously an impossible assumption in the case of large companies. But in the case of small companies, which have a market capitalisation of, say, £5 million to £6 million and are listed on the Stock Exchange, that is not inconceivable as a gateway. Is the noble and learned Lord satisfied that that will not occur under this Bill if the Commons amendment as drafted is accepted by this House?
Lord Fraser of Carmyllie: My Lords, as regards the latter point made by the noble Lord, the exemption will apply only to the extent that the subsidiary concerned is a market maker in a recognised

995
exchange. The exemption will not be available if the purchases are made for other purposes. Moreover, such market makers are already strictly regulated and I hope I can be confident that the relevant regulatory bodies will be in a position to prevent the sort of abuse that is hinted at as being there at least potentially. The noble Lord turns down the corner of his mouth, but I hope I can be confident that that is covered.
Finally, it will be well known to the noble Lord that market manipulation is in any event a serious criminal offence under Section 47 of the Financial Services Act. If a company were set up with the primary purpose of holding its parent's shares it would not get the benefit of Section 23(3).
On the European question, I cannot give the noble Lord an answer. It is a very wide-ranging question.
On Question, Motion agreed to

COMMONS AMENDMENT
158 Leave out Clause 106 and insert —
`Company contracts and execution of documents by companies.
. —(1) In Chapter III of Part I of the Companies Act 1985 (a company's capacity; the formalities of carrying on business), for section 36 (form of company contracts) substitute —
"Company contracts: England and Wales
36. Under the law of England and Wales a contract may be made —

(a) by a company, by writing under its common seal, or

(b) on behalf of a company, by any person acting under its authority, express or implied;

and any formalities required by law in the case of a contract made by an individual also apply, unless a contrary intention appears, to a contract made by or on behalf of a company.".
(2) After that section insert—
"Execution of documents: England and Wales
36A. —(1) Under the law of England and Wales the following provisions have effect with respect to the execution of documents by a company.
(2) A document is executed by a company by the affixing of its common seal.
(3) A company need not have a common seal, however, and the following subsections apply whether it does or not.
(4) A document signed by a director and the secretary of a company, or by two directors of a company, and expressed (in whatever form of words) to be executed by the company has the same effect as if executed under the common seal of the company.
(5) A document executed by a company which makes it clear on its face that it is intended by the person or persons making it to be a deed has effect, upon delivery, as a deed; and it shall be presumed, unless a contrary intention is proved, to be delivered upon its being so executed.
(6) In favour of a purchaser a document shall be deemed to have been duly executed by a company if it purports to be signed by a director and the secretary of the company, or by two directors of the company, and, where it makes it clear on its face that it is intended by the person or persons making it to be a deed, to have been delivered upon its being executed.
A "purchaser" means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property.".
(3) After the section inserted by subsection (2) insert —
"Execution of documents: Scotland.
36B. —(1) Under the law of Scotland the following provisions have effect with respect to the execution of documents by a company.
(2) A document—

(a) is signed by a company if it is signed on its behalf by a director, or by the secretary, of the company or by a person authorised to sign the document on its behalf, and

(b) is subscribed by a company if it is subscribed on its behalf by being signed in accordance with the provisions of paragraph (a) at the end of the last page.

(3) A document shall be presumed, unless the contrary is shown, to have been subscribed by a company in accordance with subsection (2) if —

(a) it bears to have been subscribed on behalf of the company by a director, or by the secretary, of the company or by a person bearing to have been authorised to subscribe the document on its behalf; and

(b) it bears —

(i) to have been signed by a person as a witness of the subscription of the director, secretary or other person subscribing on behalf of the company; or

(ii) (if the subscription is not so witnessed) to have been sealed with the common seal of the company.

(4) A presumption under subsection (3) as to subscription of a document does not include a presumption

(a) that a person bearing to subscribe the document as a director or the secretary of the company was such director or secretary; or

(b) that a person subscribing the document on behalf-of the company bearing to have been authorised to do so was authorised to do so.

(5) Notwithstanding subsection (3)(b)(ii), a company need not have a common seal.
(6) Any reference in any enactment (including an enactment contained in a subordinate instrument) to a probative document shall, in relation to a document executed by a company after the commencement of section (Company contracts and execution of documents by companies) of the Companies Act 1989, be construed as a reference to a document which is presumed under subsection (3) above to be subscribed by the company.
(7) Subsections (1) to (4) above do not apply where an enactment (including an enactment contained in a subordinate instrument) provides otherwise.".
(4) After the section inserted by subsection (3) insert —
"Pre-incorporation contracts, deeds and obligations
36C. —(1) A contract which purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.
(2) Subsection (I) applies —

(a) to the making of a deed under the law of England and Wales, and

(b) to the undertaking of an obligation under the law of Scotland,

as it applies to the making of a contract".
(5) In Schedule 22 of the Companies Act 1985 (provisions applying to unregistered companies), at the appropriate place insert—

"Section 36

Company contracts

Subject to section 718(3).

Sections 36A and 36B

Execution of documents.

Subject to section 718(3).

Section 36C

Pre-incorporation contracts, deeds and obligations.

Subject to section 718(3).".

(6) The Secretary of State may make provision by regulations applying sections 36 to 36C of the Companies Act 1985 (company contracts' execution of documents; pre-incorporation contracts, deeds and obligations) to companies incorporated outside Great Britain, subject to such exceptions, adaptations or modifications as may be specified in the regulations.
Regulations under this subsection shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(7) Schedule (Company contracts, seals, &c: further provisions) contains further minor and consequential amendments relating to company contracts, the execution of documents by companies and related matters.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 158. I speak also to the new schedule contained in Amendment No. 453. The new clause and new schedule replace and revise the provisions in the present Clause 106 dealing with the execution of documents by companies.
The present clause permits companies to dispense with the requirement to have a company seal and makes alternative provision for executing documents. The revised provisions incorporate, first, reforms proposed by the Scottish Law Commission on the execution of documents by companies under Scottish law. Secondly the provisions incorporate proposals made in this House that to execute documents other than by sealing, two directors or a director and the secretary should be permitted to sign instead of just a director and the secretary as at first proposed. Thirdly, the provisions incorporate amendments aimed at clarifying and improving the proposals in the present Clause 106 in respect of companies executing documents in England and Wales; and, fourthly, they incorporate provisions with respect to the execution of documents by companies incorporated outside Great Britain.
In all these changes we are grateful to the comments of several professional bodies in both Scotland and England. I should add that in respect of Scotland it had originally been intended that the provisions would be included in a separate Private Member's Bill which originally emanated from the work of the Scottish Law Commission on requirements of writings. Unfortunately, that Bill failed to gain a Second Reading—as is often the case with such Bills—and it is in that context that we now pick up those provisions affecting companies.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 158
158A Line 25, after second (`company") insert ("or by a director and an authorised person").
Lord Lloyd of Kilgerran: My Lords, I beg to move Amendment No. 158A. This is an amendment to the new section 36A(4) which relates to the methods of execution of documents in England and Wales. As it stands at present subsection (4) reads:
"A document signed by a director and the secretary of a company, or by two directors of a company".
That would be the way of executing the document.
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There was much discussion on the signing of documents in the earlier stages of this Bill before it went to the other place. I have been asked to put forward the amendment that after the second `company" —that is, as well as the director and secretary of a company or two directors of a company—a director and an authorised person should be accepted for the signing of certain documents.
I have been asked to present this amendment to your Lordships by the CBI which states that in certain large organisations it is desirable, due to the frequent unavailability of board members, to have authorised persons execute documents on behalf of the company. The CBI instructs me that such an amendment removes what would otherwise be an unnecessary fetter on the normal operation of business. I therefore ask the Government to accept this small amendment.
Moved, That Amendment No. 158A, as an amendment to Commons Amendment No. 158, be agreed to. —(Lord Lloyd of Kilgerran.)
Lord Mottistone: My Lords, I support this amendment for the reasons given by the noble Lord, Lord Lloyd of Kilgerran. I too am advised by the CBI. It appears to be plain common sense for a big company. I fail to understand why the amendment cannot easily be accepted.
Lord Fraser of Carmyllie: My Lords, I respond briefly to the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Mottistone. The proposal is that not only a director and secretary but also an authorised signatory should be able to execute documents in place of the two directors, director and secretary.
While I can immediately see the attraction of this alternative for a large company I have to say that it would create some problems. One difficulty is that while the directors and the secretary are defined officers of the company and can be verified by other parties, any authorised signatory could not be so verified. There would be particular difficulties for bodies such as the Land Registry which has to verify the validity of certain executed documents.
The amendments the Commons have made will give companies the greater flexibility that they have sought and indeed need. With that brief explanation to the two noble Lords I hope they will appreciate that the question of verification is such that I could not agree to the amendment.
Lord Lloyd of Kilgerran: My Lords, I am obliged to the noble and learned Lord for his. explanation. I beg leave to withdraw the amendment.
Amendment No. 158A, as an amendment to Amendment No. 158, by leave, withdrawn.
On Question, Amendment No. 158 agreed to.

COMMONS AMENDMENT
159 After Clause 106, insert the following new clause:
Members' rights to damages.
'.—(1) In Part IV of the Companies Act 1985 (allotment of shares and debentures), before section 112 and after

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the heading "Other matters arising out of allotment, &c", insert—
"Right to damages, &c. not affected.
111A. A person is not debarred from obtaining damages or other compensation from a company by reason only of his holding or having held shares in the company, or any right to apply or subscribe for shares or to be included in the company's register in respect of shares.".
(2) In section 116 of the Companies act 1985 (extended operation of certain provisions applying to public companies) for "and 110 to 115" substitute ", 110, 111 and 112 to 115".'.
6 P.m.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 159 which will have the effect of completing the reversal of the rule established in the 1880 case of Houldsworth v. City of Glasgow Bank to the effect that a person cannot recover damages from a company while he is still a member of it. This amendment discharges a commitment given at the Committee stage.
Your Lordships will already be aware that the victims of a misrepresentation can already recover from those responsible for it, who may include directors, intermediaries, or experts and any other person responsible for it. What is involved here is the removal of a barrier —the rule in Houldsworth —to allow a person to recover from the company while remaining a member of it. As it is the discharge of a commitment, I hope that the amendment can be welcomed.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENT
163 After Clause 107, insert the following new clause:
'Issue of redeemable shares.
.—(1) In Part V of the Companies Act 1985 (share capital, its increase, maintenance and reduction), Chapter III (redeemable shares, purchase by a company of its own shares) is amended as follows.
(2) After section 159 (power to issue redeemable shares) insert —
"Terms and manner of redemption.
159A. —(1) Redeemable shares may not be issued unless the following conditions are satisfied as regards the terms and manner of redemption.
(2) The date on or by which, or dates between which, the shares are to be or may be redeemed must be specified in the company's articles or, if the articles so provide, fixed by the directors, and in the latter case the date or dates must be fixed before the shares are issued.
(3) Any other circumstances in which the shares are to be or may be redeemed must be specified in the company's articles.
(4) The amount payable on redemption must be specified in, or determined in accordance with, the company's articles, and in the latter case the articles must not provide for the amount to be determined by reference to any person's descretion or opinion.
(5) Any other terms and conditions of redemption shall be specified in the company's articles.
(6) Nothing in this section shall be construed as requiring a company to provide in its articles for any matter for which provision is made by this Act.".
(3) In section 160 (financing, &c. of redemption)—

(a) omit subsection (3) (which is superseded by the new section 159A), and

(b) in subsection (4) (cancellation of shares on redemption) for "redeemed under this section" substitute "redeemed under this Chapter".

(4) In section 162 (power of company to purchase own shares), for subsection (2) (application of provisions relating to redeemable shares) substitute —
"(2) Sections 159, 160 and 161 apply to the purchase by a company under this section of its own shares as they apply to the redemption of redeemable shares".
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 163.
The amendment would allow a measure of discretion for the directors of a company to fix the terms and conditions of the redemption of redeemable shares as near as possible to the point where they allot them and would clarify that the redemption price may be set in terms of a formula. A number of companies and their advisers involved with such matters on a day-to-day basis have argued the case for this amendment with my department. The Government were sympathetic to the idea that the law in this area should be made clearer and accepted the amendment on that basis.
We accept that it is odd that the power to redeem shares should be so much more restrictively framed than the power to make market purchases of shares. We also accept that the interests of shareholders and creditors are protected against possible abuse through other company law provisions. However, sympathy for the intention is one thing; acceptance of a particular form of words is another. Company law provisions need to work in a technical sense alongside the rest of the law. They also need to take account of the relevant constraints. In the present case we need to be careful to keep within the terms of the second company law directive.
Moving from technical to policy considerations, we need to be sure that those who may stand to lose from a proposal have an opportunity to express their views as well as those who stand to gain. But because the matter was only raised with my department relatively late in the day, we have not had time to carry out these processes as thoroughly as we would ideally wish.
We take the view that the new clause works technically. I have no doubt that it meets the requirements of the second directive. The only remaining areas of possible doubt are whether it might have any side effects which in the enthusiasm for the motive behind it we may have overlooked, and whether there may be any dissenting voices that we have not had the opportunity to hear.
I believe that those possibilities are remote, and it is for that reason that I advise the House to agree the new clause. But I think it would provide a worthwhile extra safeguard if I were to say that we would not intend to commence the new clause if some unforeseen problem were to come to our attention in the near future which has not yet been discussed in Parliament.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
Lord Williams of Elvel: My Lords, I am grateful to the noble and learned Lord for his explanation of this amendment. However, it is rather odd that at this stage of the Bill when your Lordships are considering Commons amendments we have a new clause about which the Government express a certain amount of doubt. I am not saying that the Government are unjustified in expressing such doubt because the area of redeemable shares is a very difficult one. I accept that there may be unforeseen side effects. It is odd that we are considering this matter when the Bill is at the eleventh hour and fifty-ninth minute of its passage through both Houses of Parliament.
From what the noble and learned Lord has said, do I understand that, in the clause dealing with the commencement order to the various sections of the Bill, there will be some provision that the commencement order can be delayed as regards this new clause? Is that right?
Lord Fraser of Carmyllie: My Lords, yes. I hope the noble Lord appreciates that we are in a difficult area with a new matter of this kind. We are not dealing in some cavalier fashion with a proposal that we intend to introduce immediately without the most careful consideration. I sought to indicate to the noble Lord that we have discussed the matter as widely as possible, and we have every reason to believe that there are no problems. I signal to him and the whole House that if there were to be any difficulties as regards commencement it is not a question of having a special provision in the commencement order to deal with the problem. I believe I am giving the noble Lord the assurance that he wants.
On Question, Motion agreed to.

COMMONS AMENDMENT
164 After Clause 108, insert the following new clause:
`Orders imposing restrictions on shares
. —(1) The Secretary of State may by regulations made by statutory instrument make such amendments of the provisions of the Companies Act 1985 relating to orders imposing restrictions on shares as appear to him necessary or expedient —

(a) for enabling orders to be made in a form protecting the rights of third parties;

(b) with respect to the circumstances in which restrictions may be relaxed or removed;

(c) with respect to the making of interim orders by a court.

(2) The provisions referred to in subsection (1) are section 210(5), section 216(1) and (2), section 445 and Part XV of the Companies Act 1985.
(3) The regulations may make different provision for different cases and may contain such transitional and other supplementary and incidental provisions as appear to the Secretary of State to be appropriate.
(4) Regulations under this section shall not be made unless a draft of the regulations has been laid before Parliament and approved by Resolution of each House of Parliament.'.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
164A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 164.
Lord Williams of Elvel: My Lords, I beg to move the Motion standing in my name. I have tabled this Motion not necessarily because I wish to divide your Lordships' House on the issue but because it merits a certain amount of discussion. The new clause which is the object of Amendment No. 164 gives the Secretary of State power to make by regulation through statutory instrument,
"such amendments of the provisions of the Companies Act 1985 relating to orders imposing restrictions on shares as appear to him necessary or expedient",
for certain purposes. In other words, the law can be rewritten as regards the restriction on shares.
As the noble Lord, Lord Lloyd or Kilgerran, has pointed out on a number of occasions, it is not only very important that your Lordships should comprehend what the Government have in mind in making this legislation but that the professional operators in the market and others should also comprehend what they intend. I have no idea what is the intention of the Government and what the Secretary of State in the future might, by regulation, impose as restrictions on shares protecting the rights of third parties and others. I wonder whether when the Minister is replying he can give some idea what this matter is about. It appears to be a very sweeping power for the Secretary of State and I wish to know in what manner it is to be applied.
Moved, That the House do disagree with the Commons in the said amendment. —(Lord Williams of Elvel.)
Lord Lloyd of Kilgerran: My Lords, as the noble Lord, Lord Williams of Elvel, has pointed out, we on these Benches always become suspicious and proceed with some caution when we see that there are powers for the Secretary of State to make regulations without indicating the objective of those regulations. However, I am a little consoled concerning this amendment and the powers of the Secretary of State because of subsection (4) of the Commons amendment, which states:
"Regulations under this section shall not be made unless a draft of the regulations has been laid before Parliament and approved by Resolution of each House of Parliament".
It is perhaps an esoteric question whether the matter can be debated and rejected. That question cannot be answered. I simply wish to add my doubts as regards the amendment and to support the noble Lord, Lord Williams, in what he said.
Lord Trefgarne: My Lords, I shall first answer the question raised by the noble Lord, Lord Lloyd of Kilgerran. Yes, of course regulations laid in draft which are subject to the affirmative resolution procedure can be rejected by either House where the relevant Act so provides.
I recognise that the granting of new powers to the Secretary of State in this area of the law is a sensitive matter. But I hope that noble Lords will agree that the powers in Amendment No. 164 concern an objective that we all share. The amendment deals with the important subject of the disclosure of interests in shares. I think there is agreement that there should be proper disclosure of interests in shares and that, indeed, the existing provisions of the Companies Act

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1985 should be strengthened. There may be some differences of opinion as to how far we should go, but the general principle is not at issue.
The objective of Amendment No. 164 is to support that principle. Following the recent judgment of Mr. Justice Gibson in the case of Re Lonrho plc, there is a real danger that the courts might become reluctant to make orders under Section 216 of the 1985 Act restricting the rights attached to shares in circumstances where innocent third parties have interests in the shares concerned. Freezing orders are an essential sanction to ensure compliance with investigations by companies under Section 212 of the 1985 Act into interests in their shares. Any diminution in the use of freezing orders would undermine the ability of companies to use Section 212 to discover the beneficial owners of shares held by nominees. I do not imagine that that is an outcome that noble Lords would wish to see.
In the case of Re Lonrho, the company was applying for an order to be made under Section 216 of the Companies Act restricting the rights attached to shares in the company. The reason for the application for a freezing order was that there had been a failure to comply with notices issued by Lonrho under Section 212 of the Act inquiring into the ownership of its shares.
The application was subsequently withdrawn. But before this was done, Mr. Justice Gibson was asked to rule on the question of whether the court making an order under Section 216 had the discretion to qualify the order so that only some of the restrictions in Part XV of the Act would apply or so that specified persons would be excluded from the effect of the restrictions. Two banks had taken some of the shares as security for loans. All parties, including Lonrho, agreed that the banks should be excluded from the effect of any order. They were innocent third parties who had not been responsible for any failure to comply with Section 212 notices. If the restrictions of Part XV had been applied without qualification, the banks would have been unable to sell their shares to realise their security in the event of any default on the loans. The court ruled that it was unable, under the terms of the 1985 Act, to qualify any order that it made. It had the choice between making an order that applied all the restrictions to all persons including innocent parties, or making no order at all, thus letting off any person who failed to comply with a Section 212 notice.
The effect of this judgment could be extremely damaging in cases where innocent third parties have interests in shares that are subject to an application for a freezing order. If the courts continue to make orders in these circumstances, innocent parties will suffer. Of even greater concern, perhaps, is that the courts may well decide in the future not to make freezing orders that affect innocent parties. These orders are a vital sanction to support the Section 212 procedure, which is itself an essential tool for the disclosure of interests in shares. If freezing orders were not to be made in certain circumstances, the Section 212 procedure might be seriously undermined, to the detriment of companies and transparency in the market.
Lord Lloyd of Kilgerran: My Lords, I am grateful to the Minister for giving way. Can he give me references for the Lonrho case? That might save us a great deal of research. Does he have at hand the references to the case and the judgment of Mr. Justice Gibson?
6.15 p.m.
Lord Trefgarne: My Lords, I do not have the detailed references which the noble Lord seeks, but I shall certainly ensure that he receives them. The precise amendments to be made will, however, need careful consideration to ensure that no loopholes for the guilty are created when exempting third parties. For this reason, Amendment No. 164 is an enabling power. It would allow the Secretary of State to carry out the necessary consideration and to consult those affected.
The amendment would allow the Secretary of State directly to address the effect of the Lonrho judgment. At present, the court is faced with the choice of either making an order that applies all restrictions to all persons with interests in the shares, including innocent parties, or making no order at all, thereby letting off the possibly far from innocent beneficial owner. Subsection (1)(a) would allow the Secretary of State to amend the 1985 Act so that freezing orders may be made in a form protecting third parties. For example, those acting in good faith could be excluded from the effect of a freezing order. Subsection (1)(b) would allow the Secretary of State to relax the conditions that must currently be met —even by third parties —if restrictions that have already been made are to be lifted. Subsection (1)(c) addresses another important point by allowing the Secretary of State to give statutory authority to interim orders made by the courts. It is essential that freezing orders can be made quickly —sometimes on an ex parte basis —before the full hearing of an application so that the beneficial owner does not have time to transfer the shares.
It is important to note that that is all the amendment allows the Secretary of State to do. It does not give him wide powers to amend the relevant provisions of the 1985 Act. He may change them only to carry out the three specific purposes that would, if the amendment is agreed to, have been set out by Parliament. Moreover, the power is a power to amend only. Unlike the powers already in the related Clause 108, it does not extend to a power to replace or repeal.
The Government would certainly have preferred, if it had been possible, to bring forward substantive amendments to implement the objectives of the amendment in the primary legislation. But the judgment in the Lonrho case is a recent one —28th June —and there has simply not been time to consider all the implications. I do not think, however, that it is unreasonable to leave the detailed implementation to regulations made by the Secretary of State. The important point is that it would be Parliament through the primary legislation that would be approving the policy objective. We should not miss this opportunity to take action now. Otherwise we run the risk of an important part of

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the system of disclosure being undermined with no opportunity for some years to put it right.
There is wide support outside Parliament for the amendment. The British Bankers' Association, the CBI and the Law Society support it. Perhaps more important, there are indications that the judiciary is concerned about the present state of the law and the possible effect that it might have on the courts' willingness to make freezing orders. Indeed, Mr. Justice Gibson himself said that he reached his decision on the effect of the existing law with reluctance and that he would very much have liked to have been able to rule that the courts could qualify orders to exclude innocent parties.
The amendment furthers a principle that is accepted, I believe, by most noble Lords. It gives the Secretary of State only narrowly constrained powers to carry out the express wishes of Parliament. And it addresses concerns of the judiciary and of distinguished bodies outside Parliament. I hope, therefore, that noble Lords will be able to agree with the Commons in their amendment.
Lord Williams of Elvel: My Lords, I am most grateful for the noble Lord's explanation of Amendment No. 164. On these Benches we agree with the objective. I now understand why, although the Government might have wished to do so, they were unable to bring forward substantive legislation in primary form, which we could have discussed as such. That is what I would have preferred. Having said that, I understand that the appopriate judgment was made in late June and that its implications have to be considered by the Government. In this case, given the noble Lord's assurances to the House today about what exactly is intended, I am happy with Amendment No. 164. I therefore beg leave to withdraw my Motion.
Motion, by leave, withdrawn.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 164.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
160 Clause 108, page 107, line 38, at end insert—
'The order bringing the above amendment into force may make such provision as appears to the Secretary of State appropriate as to the obligations of a person whose interest in a company's shares becomes notifiable by virtue of the amendment coming into force.'.
Lord Trefgarne: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 160. I wish to speak at the same time to Amendment No. 161. These amendments make two technical changes to Clause 108 which deals with the disclosure of interests in shares.
Subsection (2) of Clause 108 lowers the threshold for disclosure of interests in shares. The Law Society
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has expressed some doubt as to whether those persons holding between 3 per cent. and 5 per cent. when the provision is commenced will have to disclose at that time. Amendment No. 160 gives the Secretary of State the ability to make provision for such persons in the commencement order. It is the intention to require them to disclose subject to appropriate transitional arrangements.
Amendment No. 161 will require disclosure when an option to purchase shares is exercised. At present only the initial purchase of the option is notifiable. The Stock Exchange and the Law Society have suggested —and we agree —that the exercise of an option is an important matter which should be disclosed to the company.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
162 Clause 108, page 108, line 8, at end, insert 'and
(e) the provisions as to company investigations (section 212);'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 162.
The amendment enables the Secretary of State to amend the provisions of Section 212 of the Companies Act 1985 by regulations subject to affirmative procedure. Section 212 permits companies to issue notices inquiring into the ownership of their shares. Failure to comply with such a notice is a criminal offence under Section 216 of the 1985 Act. The company may also apply under that section for an order freezing the shares.
As the noble Lords will recall from the Committee and Report stages, the Government do not at present see any need to amend Section 212. But we accept the argument that in the light of the importance of the section we should not have to wait until the next Companies Bill to correct any inadequacies that may become apparent (perhaps from a court decision). There was a consensus in favour of this argument and the amendment moved by a Back-Bench government supporter in another place.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
165 After Clause 108, insert the following new clause —
'A company's registered office.
. For section 287 of the Companies Act 1985 (registered office) substitute—
"Registered office.
287. —(1) A company shall at all times have a registered office to which all communications and notices may be addressed.
(2) On incorporation the situation of the company's registered office is that specified in the statement sent to the registrar under section 10.
(3) The company may change the situation of its registered office from time to time by giving notice in the prescribed form to the registrar.
(4) The change takes effect upon the notice being registered by the registrar, but until the end of the period of 14 days beginning with the date on which it is registered a person may validly serve any document on the company at its previous registered office.
(5) For the purposes of any duty of a company —

(a) to keep at its registered office, or make available for public inspection there, any register, index or other document, or

(b) to mention the address of its registered office in any document.

a company which has given notice to the registrar of a change in the situation of its registered office may act on the change as from such date, not more than 14 days after the notice is given, as it may determine.
(6) Where a company unavoidably ceases to perform at its registered office any such duty as is mentioned in subsection (5)(a) in circumstances in which it was not practicable to give prior notice to the registrar of a change in the situation of its registered office, but —

(a) resumes performance of that duty at other premises as soon as practicable, and

(b) gives notice accordingly to the registrar of a change in the situation of its registered office within 14 days of doing so.

it shall not be treated as having failed to comply with that duty.
(7) In proceedings for an offence of failing to comply with any such duty as is mentioned in subsection (5), it is for the person charged to show that by reason of the matters referred to in that subsection or subsection (6) no offence was committed.".'
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 165. This amendment inserts a new clause in place of existing provisions on registered offices which are not working satisfactorily. In particular there is uncertainty as to the point in time at which a change of registered office takes effect.
The proposed new clause makes it plain in re-enacting the fundamental requirement that every company must at all times have a registered office that a change in registered office takes effect on registration by the Registrar of Companies —that is, when the due notice delivered to the registrar is entered onto the register. This is important since the basic rule is that a document may be properly served on a company by sending it to that company's registered office. Moreover, a company is required to keep various registers at its registered office and a failure to do so is a criminal offence. I hope that your Lordships will agree with the merit of these proposals.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
166 After Clause 108, insert the following new clause —
'Effecting of insurance for officers and auditors of company
.—(l) In section 310 of the Companies Act 1985 (provisions exempting officers and auditors from liability), for subsection (3) (permitted provisions) substitute —
"(3) This section does not prevent a company —

(a) from purchasing and maintaining for any such
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officer or auditor insurance against any such liability, or

(b) from indemnifying any such officer or auditor against any liability incurred by him —

(i) in defending any proceedings (whether civil or criminal) in which judgment is given in his favour or he is aquitted, or

(ii) in connection with any application under section 144(3) or (4) (acquisition of shares by innocent nominee) or section 727 (general power to grant relief in case of honest and reasonble conduct) in which relief is granted to him by the court".

(2) In Part I of Schedule 7 to the Companies Act 1985 (general matters to be dealt with in directors' report), after paragraph 5 insert—
"Insurance effected for officers or auditors
5A. Where in the financial year the company has purchased or maintained any such insurance as is mentioned in section 310(3)(a) (insurance of officers or auditors against liabilities in relation to the company), that fact shall be stated in the report.".'.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
166A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 166.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 166A standing in my name on the Marshalled List. It is a Motion that this House do disagree with the Commons in their Amendment No. 166.
Section 310 has caused a great deal of difficulty since it became enacted. Although in principle we are sympathetic to the reformulation that companies ought to be allowed to pay insurance premiums for directors—otherwise we would never have any directors —we are worried because the formulation includes the possibility of companies purchasing and maintaining for their officers insurance against any liability for breach of trust. Mention was made of "breach of trust" in the original Section 310 of the Companies Act 1985.
So far as concerns negligence, default or even breach of duty, I think that we may be prepared to go along with the Government and say, "Yes, a company may purchase insurance so that its officers and directors may be indemnified against any liability". However, when it comes to a breach of trust of which a director or officer is guilty in relation to the company, I think that we must take issue with the Government. I should be most grateful if the noble and learned Lord could explain exactly why the Government take that rather extreme view.
Moved, That the House do disagree with the Commons in their Amendment No. 166.—(Lord Williams of Elvel.)
Lord Fraser of Carmyllie: My Lords, as the noble Lord indicated, the present effect of Section 310 is subject to the exception contained in subsection (3) to render void any provision, whether contained in a company's articles or in any contract with the company or otherwise, or exempting any officer of the company or any person employed by the company as an auditor from, or indemnifying him against, any liability which by any rule of law would

1009
otherwise attach to him in respect of any negligence, default or —and this was a particular concern of the noble Lord —breach of trust of which he may be guilty in relation to the company.
The first of the Government's amendments, Amendment No. 166, would make it clear that companies may take out insurance against those liabilities on behalf of their officers and auditors without that insurance being void. It also requires the existence of such insurance to be disclosed in the directors' report. The remainder of the amendment simply tidies up the drafting.
Amendment No. 317 is the second government amendment in this grouping. It is a consequential amendment to the Building Societies Act 1986 and will enable the provision in that Act which is analogous to Section 310 to be amended.
Perhaps I may say to the noble Lord that any insurance policy which sought to cover any deliberate criminal breach of trust would continue to be void. The measure ensures that the company would receive compensation in such a case. I should have thought that many noble Lords would have welcomed the amendment, which is intended to take account of the growing concern among company directors about the potentially large sums for which they may become liable in respect of matters set out in Section 310 and the resultant possibility that they may become reluctant to take on directorships. It should be especially beneficial to non-executive directors, particularly those in small companies who are paid only relatively small sums for their services but who are, nonetheless, potentially liable in law with their executive colleagues for substantial sums.
I hope that the reassurance I have given that deliberate breaches of trust which amount to criminal activity will not be covered will satisfy the noble Lord and that he will agree with the amendment that we have put forward.
Lord Mottistone: My Lords, the CBI advises me that it sees this amendment as allowing companies to insure officers and auditors against liability for breaches of duty. The confederation has campaigned vehemently for this modification of Section 310 of the Companies Act 1985 and is most pleased to support the Government in introducing the amendment, which clarifies the law in this area. I trust therefore that noble Lords opposite will understand and appreciate what is proposed.
Lord Williams of Elvel: My Lords, I am grateful to the noble and learned Lord the Lord Advocate for explaining, if I may say so, what I thought I knew about the Commons amendment. It does indeed do exactly what he said. However, the point upon which I focused was that concerning breach of trust. I totally accept what the noble Lord, Lord Mottistone, said. I have no quarrel at all with the generality of the provisions.
My suspicion is that my problem will be solved by what are known as market forces, because I do not believe that anyone would insure against a breach of trust of a non-criminal nature. I am probably
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saved by the fact that the insurance market does not work in that way. Nevertheless, it is sad to write into statute something which fundamentally should not be there. Resting my hopes, as I do in the market, I hope that the market will solve that problem. I therefore reluctantly beg leave to withdraw the Motion.
Motion, by leave, withdrawn.
6.30 p.m.
Lord Fraser of Carmyllie: My Lords, I beg to move tht the House do agree with the Commons in their Amendment No. 166.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie).
On Question, Motion agreed to.

COMMONS AMENDMENT
167 Insert the following new clause—
Increase of limits on certain exemptions.
. Part X of the Companies Act 1985 (enforcement of fair dealing by directors) is amended as follows —

(a) in section 332(1)(b) (short-term quasi-loans) for "£1,000" substitute "£5,000";

(b) in section 334 (loans of small amounts) for "£2,500" substitute "£5,000";

(c) in section 338 (4) and (6) (loans or quasi-loans by money-lending company) for "£50,000" substitute "100,000".'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 167.
The amendment would have the effect of raising certain limits (calculated on an aggregated basis) on the loans and quasi-loans that may be made by a company either to one of its own directors or to one of the directors of its holding company. It would also have the effect of raising the limit (on an aggregated basis) for loans or quasi-loans that can be made by a money-lending company to one of its directors as well as raising the limit on the guarantees which can be given by such companies to their directors in respect of such loans or quasi-loans.
The present limits on the transactions that are dealt with in this amendment have not been changed since 1980. As a consequence, some updating is required to compensate for the effects of inflation and, in carrying out that revision, we have taken the opportunity to go a little beyond what is immediately necessary in order to ensure that they do not have to be changed again in the foreseeable future. I hope that those sensible provisions commend themselves to your Lordships.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Monson: My Lords, I do not have the Companies Act 1985 in front of me. Will the Minister say whether the omission of the pound sterling sign in front of the figure of 100,000 in the last line of the amendment is deliberate or accidental?
Lord Trefgarne: My Lords, everything we do is deliberate.
On Question, Motion agreed to.

COMMONS AMENDMENTS
168 Clause 109, line 40, leave out 'company's' and insert 'type of company it is and its'.
169 Page 110, line 22, at end insert—
'(1A) The information as to the company's type shall be given by reference to the classification scheme prescribed for the purposes of this section.'.
170 Page 110, line 45, leave out from first 'of to 'and' in line 46 and insert 'issued shares of the company at the date to which the return is made up'.
171 Page 111, line 5, leave out from beginning to end of line 7 and insert 'issued shares of that class at the date to which the return is made up.'.
172 Page 111, line 8, leave out from beginning to end of line 28 and insert—
'(4) The return shall contain a list of the names and addreses of every person who—

(a) is a member of the company on the date to which the return is made up, or

(b) has ceased to be a member of the company since the date to which the last return was made up (or, in the case of the first return, since the incorporation of the company);

and if the names are not arranged in alphabetical order the return shall have annexed to it an index sufficient to enable the name of any person in the list to be easily found.
(5) The return shall also state —

(a) the number of shares of each class held by each member of the company at the date to which the return is made up, and

(b) the number of shares of each class transferred since the date to which the last return was made up (or, in the case of the first return, since the incorporation of the company) by each member or person who has ceased to be a member, and the dates of registration of the transfers.'.

173 Page 112, leave out line 20, and insert—
"(f) section 363 (duty of company to make annual returns);".'.
174 Page 112, line 20, at end insert—
'(5) In section 565(6) of the Income and Corporation Taxes Act 1988 (conditions for exemption from provisions relating to sub-contractors in construction industry: compliance with requirements of Companies Act 1985), in paragraph (d) for "sections 363, 364 and 365" substitute "sections 363 to 365".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 168 to 174.
The amendments make minor changes to the content of the annual return that companies are required to file at Companies House. I have a great deal of detail which I can give your Lordships if that is required.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
175 Page 112, line 21, leave out Clause 110.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 175.
The amendment has already been spoken to.
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Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
176 Clause 112, page 115, line 20, leave out from 'time' to `but' in line 21.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 176.
I believe that I should speak at the same time to Amendment No. 177, to which of course the noble Lord, Lord Williams of Elvel, has tabled an amendment. Accordingly, I shall wait for the noble Lord to move his amendment.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
177 Page 115, line 31, leave out from beginning to 'do' and insert—
'(4) An application may be made under section 651(5) of the Companies Act 1985 as inserted by subsection (3) above (proceedings for damages for personal injury, &c.) in relation to a company dissolved before the commencement of this section notwithstanding that the time within which the dissolution might formerly have been declared void under that section had expired before commencement.
But no such application shall be made in relation to a company dissolved more than twenty years before the commencement of this section.
(5) Except as provided by subsection (4), the amendments made by this section'.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
177A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 177.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 177A standing in my name on the Marshalled List. We do not disagree with the basic thrust of what is proposed by the Commons, but it is, I am afraid, a necessary procedure when dealing with Commons amendments to move Motions so as to have a debate and to have a chance to respond to the Minister's reply to the substance of what we have to say. It is for those reasons that I have moved the Motion, not to indicate disapproval of the basic intent of what Amendment No. 177 seeks to do.
There are, however, two possible problems with Amendment No. 177. The first is the 20-year old problem. If a company was dissolved 20 years previously, it is not inconceivable that the documents of that company will not have been kept and will not be available and therefore that there cannot be any proceedings for damages. That may be a rather long period for dissolved companies' documents to be kept hanging around somewhere in limbo in a sort of life-after-death situation.
The second problem is that the provisions start to smack of a bit of retrospective legislation. I should like to have some comfort from the Minister that

1013
that is in order and that the sums involved are not substantial. Those are the two points that I wish to raise, and I look forward to hearing the Government's reply.
Moved, That the House do disagree with the Commons in their Amendment No. 177.—(Lord Williams of Elvel.)
Lord Jenkin of Roding: My Lords, I take a rather more critical view of the amendments than did the noble Lord, Lord Williams of Elvel. Just before he sat down he said that Amendment No. 177 smacked of retrospection. It is an absolute slap in the face so far as retrospection goes. It is clear that the effect of that amendment is to reopen a potential liability on the part of an insurance company which, under the existing law as it has always been believed to be —which was upheld in the case of Bradley v. Eagle Star Insurance—would have known that once the period had expired (it was then two years) that was the end of the opportunity to declare the dissolution void. Consequently, a claim against a company, which might then result in a claim against its insurers, would no longer lie.
I may be out of order in talking to Amendment No. 176. One can perhaps quarrel with the extension of two years to 20 years, although I can understand the reason for it. I believe that I can equally understand the indignation of some of the insurance companies. It seems to me that the House should look with extreme care at Amendment No. 177. When I saw the Motion tabled by the noble Lord, Lord Williams, on the Marshalled List, I though that he was perhaps going to undertake the Opposition's traditional and proper role of challenging governments when they introduce retrospective legislation. I was appalled to hear him say that he agreed with the amendment although there might be some minor obstacles.
We should be under no illusion whatever as to the effect of Amendment No. 177. It reopens the possibility of a litigant challenging the dissolution of a company and getting a court to declare, where that right has not previously existed, that the dissolution at any time up to 20 years previously is void. It is reviving a right which the previous law declared dead.
I have defended from the Dispatch Box in another place, and I have supported from the Back Benches, retrospective legislation to restore the law to what everybody always thought it was. A case may be decided in the courts which effectively defeats what had always widely been regarded as the intention of Parliament. However, I shall always challenge, and I hope I shall have some support in challenging, legislation which seeks to reverse the effect of a court case which in fact revives a potential obligation which did not hitherto exist. Previously one could go back two years; now one can go back 20 years and do so retroactively.
It seems to me that however much sympathy one may have with the plaintiff who has suffered injury or disease, if his right was exhausted under the existing law it should not lie within the powers of this Parliament —although of course Parliament can
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do anything —but it is not consistent with the rule of law that Parliament should legislate to revive that, to the detriment of the other parties. The fact that it happens to be an insurance company seems to me to show that we are beginning to adopt the attitude of the American courts. The first question that the judge asks is whether or not the liability in the case is insured. If it is, one is pretty certain that the American court will hold that the plaintiff wins.
I earnestly beg your Lordships to look most carefully at this provision. What will its effect be? Companies which have been dissolved for two years or more and their insurers will be affected. What will happen to the records which might be necessary in order to defend a claim which is brought by a plaintiff in that case? It was thought that the matter was dead and under the existing law it was dead. Something may have happened 10 years ago. The company may have been dissolved 10 years ago. The whole matter has finished and passed into history. As I read the clause, there will be a revival of that dead right. The courts will be allowed to declare the dissolution of a company void and allow the action to proceed, notwithstanding that every record in the case has long since been consigned to the dustbin.
I cannot believe that it is right that we should do this. Certainly, it is a matter which seems to have slipped by with remarkably little attention given to it by the lawyers who are normally very quick to seize on retrospective legislation and to challenge it. However, I have to say that I remain profoundly unhappy.
Since the noble Lord has put down an amendment that we should not agree with Commons Amendment No. 177, the only one that is retrospective—one may not like Amendment No. 176, but it is not retrospective —I am inclined to ask your Lordships to refuse customary leave for the noble Lord to withdraw his amendment. I ask noble Lords to seek to take the opinion of the House on the matter. I do not think that we should accept this kind of retrospective legislation.
6.45 p.m.
Lord Templeman: My Lords, while I share to the full the dislike of retrospective legislation, this is a special case. It is not directed against insurance companies. It is directed to a bargain and a bargain should be carried out. What happens is that the insurance company enters into a bargain. It takes a premium and agrees to pay if there is an injury within the policy. Years go by. The fact that the risk matures is not known to anybody because it is one of those diseases which does not reveal itself until later, after the injury has been caused. When the injury is caused there is a cause of action: the insurance company has to pay.
Suddenly it is said, "Oh, but if the company which employed the injured person has been dissolved, then although the insurance company has taken the premium and entered into a bargain, it is free from that bargain". I failed to persuade my four colleagues in the Appellate Committee that as a matter of law the dissolution of the company is irrelevant. However, I am entitled to, and I do, say that the

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majority of the Appellate Committee reached that conclusion with reluctance, only on the basis of the present law.
The argument against retrospectivity is this. The company having retrospectively had the premium, the company having retrospectively assumed the risk, it is right that the company should pay, notwithstanding the perfectly irrelevant dissolution of the employer. That is why the amendment has been brought in.
The other point which has been raised is about the absence of documents. Of course documents can be absent, whether the employer company has gone into dissolution or not. But more than that, it will be for the plaintiff, the injured person, to seek the documents because it will lie upon the plaintiff, if necessary some 20 years after the event has occurred, to prove to the court that it was the employer who caused the injury. Asbestosis is a typical case in point. If the documents are missing, it will be the plaintiff who fails. If the documents are there, why should not the plaintiff be able to come to court? Why should not the insurance company have to pay?
In this particular instance I commend to your Lordships the amendments made in another place and I support the Government in their view on the matter.
Lord Trefgarne: My Lords, I have listened with very great care to the words uttered by your Lordships this evening. Before amendment, Clause 112, which amends Section 651 of the Companies Act 1985, would have enabled the court to reverse the dissolution of a company on a relevant application made within 20 years of the date of dissolution, rather than within two years as at present. This increases the opportunities for recovering compensation for personal injuries by an employee whose company has gone into liquidation and been dissolved where the company had relevant insurance cover. After debate in the other place the Government accepted that as some diseases may take much longer than 20 years to become apparent then there should be no future time limit within which personal injury applicants must act, although they would, as under the unamended clause, fail if clearly barred by the Statute of Limitations.
The provisions of subsection (4) of the clause as it left this House restricted the restoration to those companies which were dissolved no more than two years before the commencement of the section. It is, of course, not in general acceptable to legislate in a manner which retroactively alters rights or obligations. However, Members from all sides in the other place argued forcefully that the two-year restriction would cause hardship and was unjust to personal injury claimants, for example, who have contracted an industrial respiratory disease and who, because of their employer's subsequent liquidation and dissolution, could not pursue their remedy against the company and hence its insurers. There may also be an element of misfortune in that the claimant just happens to have a claim against a company which is subsequently dissolved and cannot be restored after two years.
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I have said that retroaction is not normally acceptable. However, the Government accept that hardship has been suffered and that this injustice should be remedied in this particular instance. This of course has the full support of many leading members of the legal profession. Your Lordships will have heard the remarks of the noble and learned Lord, Lord Templeman, this evening. The Limitation Act 1963 is a precedent for retroactive legislation in this area. If the noble Lord's amendment were eventually accepted, it would reinstate the original limit of two years and the injustice and hardship to which I have referred would continue. I am sure that your Lordships will be happy to endorse the Commons amendments and I hope that the noble Lord, Lord Williams, will therefore agree to withdraw his Motion. Judging by what he has said, I feel certain that he will.
I now turn to the remarks of my noble friend Lord Jenkin. I accept that due account must be taken of the position of insurers. Insurance premiums are calculated by reference to the insurer's past experience of similar claims. The reserves of the insurance company are determined on a similar basis and therefore do not include provision to any greater extent than the insurer can expect in the light of its previous record of such claims.
When the Government first considered amending Section 651, they were concerned about the principle of retroaction, but those concerns have been allayed by the number of lawyers who support retroaction in this instance and by the feelings expressed in another place with Opposition and Government Members united. Hardship has been suffered and I believe the view of this House is that we should agree with the views of the legal profession and those expressed in another place and exceptionally remedy that injustice.
This is a question of balancing the position of the insurance industry on the one hand against that of those persons suffering unjust hardship on the other. Having listened to the arguments put forward, I feel that the right balance has been struck. The noble Lord, Lord Williams, specifically asked me about the retention of papers for the 20-year period. We are justified in choosing that period to allow actions where the papers of the company are still in existence. As the noble and learned Lord, Lord Templeman, said in the course of his remarks, there will no doubt be cases where the papers do not exist and that will often prevent an action going ahead. I believe that the amendment proposed by another place is the right one and I hope that the noble Lord, Lord Williams, will not seek to press his Motion.
Lord Dormand of Easington: My Lords, before the noble Lord sits down, I hope he can answer a query I have. I should say immediately that I have no legal knowledge. In view of what the noble Lord, Lord Jenkin, said, and what has been said from the Cross-Benches, will the noble Lord say what is special or magic about 20 years? I hear that two years is normally the period which appears in legislation. There is quite a difference between two years, if that is the situation, and the proposal of 20 years in the

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amendment. I feel that noble Lords are entitled to an explanation on that point.
Lord Templeman: My Lords, with the leave of the House, I shall venture to answer that point. The two-year period applied right across the board. It had nothing to do with personal injuries. It is quite inappropriate to a disease such as asbestosis where a man is employed and thinks he is well but years later it is discovered that he has the disease. A two-year period for such a disease is useless. All the experience of asbestosis and other such industrial diseases shows that a 20-year period is required. It is arguable that there may be a case for 30 years. However, the Government have chosen 20 years. In nearly every case the disease will have manifested itself within 20 years, but it will not do so within two years. That is why one has to go from two years to 20 years. The amendment is carefully drawn so that it only applies to those kinds of injury where, through no fault of the injured person, he wakes up years later to discover he has contracted this disease while working for his employer.
Lord Williams of Elvel: My Lords, I am most grateful to noble Lords who have taken part in this short debate. I am particularly grateful to the noble and learned Lord, Lord Templeman, who has set my mind at rest on one aspect, the retrospection aspect. The noble and learned Lord quite rightly pointed out —the Minister quite rightly picked him up on that —that if records are not preserved it is the plaintiff who will suffer rather than the insurance company. I am reassured by the remarks of the noble and learned Lord.
As regards the 20-year period, I accept entirely what the noble and learned Lord said. I believe the Government have to decide on a period. One can argue endlessly whether that period should be 20 years, 25 years, 30 years or 50 years; but 20 years seems perfectly reasonable. I am still worried, as we all are, about retrospective legislation. But I think that in this case, in spite of what has been said by various noble Lords, I am comforted by the position as explained by the noble and learned Lord and by the Government. I beg leave to withdraw the Motion.
Motion, by leave, withdrawn.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 177.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
178 Clause 113, page 116, line 1, at end insert —

(a) section 416 of this Act (under which a person taking a charge over a company's property is deemed to have notice of matters disclosed on the companies charges register), or

(b)'

Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their
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Amendment No. 178. In moving this amendment, I wish to speak also to Amendments Nos. 451, 452 and 466. Although Amendment No. 178 is to Clause 113, this group of amendments is concerned with the subject matter of Part IV of the Bill —the registration of company charges. The amendments are largely consequential on the new clauses in Part IV that we discussed when considering Amendment No. 129.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
179 Clause 113, page 116, line 7, at end insert—
'(2) In Schedule 22 to the Companies Act 1985 (unregistered companies), in the entry for Part XXIV at the appropriate place insert—

Section 711A

Aboltion of doctrine of deemed notice.

Subject to section 718(3).'.

180 Clause 114, page 116, line 30, at end insert —
'(4A) Regulations under this section may make different provision for different classes of case.'.
181 Page 117, line 44, at end insert—
'(11) In Schedule 22 to the Companies Act 1985 (provisions applying to unregistered companies), in the entry relating to Part XXV at the appropriate place insert —

Section 723A

Rights of inspection and related matters.

To apply only so far as this provision has effect in relation to provisions applying by virtue of the foregoing provisions of this Schedule.'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 179 to 181. These amendments make minor changes to new Section 723A of the 1985 Act and Schedule 22 to the Act. I do not believe that I need to say anything more at this moment.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
182 Clause 115, page 118, line 14, leave out from beginning to end of line 27 on page 119.
183 Page 119, line 34, at end, insert—
'Provisions supplementing s. 736.
736A.—(1) The provisions of this section explain expressions used in section 736 and otherwise supplement that section.
(2) In section 736(1)(a) and (c) the references to the voting rights in a company are to the rights conferred on shareholders in respect of their shares or, in the case of a company not having a share capital, on members, to vote at general meetings of the company on all, or substantially all, matters.
(3) In section 736(1)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on

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all, or substantially all, matters; and for the purposes of that provision —

(a) a company shall be treated as having the right to appoint to a directorship if —

(i) a person's appointment to it follows necessarily from his appointment as director of the company, or

(ii) the directorship is held by the company itself; and

(b) a right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship.

(4) Rights which are exercisable only in certain circumstances shall be taken into account only —

(a) when the circumstances have arisen, and for so long as they continue to obtain, or

(b) when the circumstances are within the control of the person having the rights;

and rights which are normally exercisable but are temporarily incapable of exercise shall continue to be taken into account.
(5) Rights held by a person in a fiduciary capacity shall be treated as not held by him.
(6) Rights held by a person as nominee for another shall be treated as held by the other; and rights shall be regarded as held as nominee for another if they are exercisable only on his instructions or with his consent or concurrence.
(7) Rights attached to shares held by way of security shall be treated as held by the person providing the security —

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with his instructions;

(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in his interests.

(8) Rights shall be treated as held by a company if they are held by any of its subsidiaries; and nothing in subsection (6) or (7) shall be construed as requiring rights held by a company to be treated as held by any of its subsidiaries.
(9) For the purposes of subsection (7) rights shall be treated as being exercisable in accordance with the instructions or in the interests of a company if they are exercisable in accordance with the instructions of or, as the case may be, in the interests of —

(a) any subsidiary of holding company of that company, Or

(b) any subsidiary of a holding company of that company.

(10) The voting rights in a company shall be reduced by any rights by the company itself.
(11) References in any provision of subsections (5) to (10) to rights held by a person include rights falling to be treated as held by him by virtue of any other provision of those subsections but not rights which by virtue of any such provision are to be treated as not held by him.
(12) In this section "company" includes any body corporate.'.
184 Page 119, line 47, leave out 'section 736' and insert `sections 736 and 736A'.
185 Page 120, line 8, leave out 'of section 736' and insert `made'.
186 Page 120, line 11, at end insert—
'(5) So much of section 23(3) of the Interpretation Act 1978 as applies section 17(2)(a) of that Act (effect of repeal and re-enactment) to deeds, instruments and documents other than enactments shall not apply in relation to any
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repeal and re-enactment effected by regulations made under this section.'.
187 Page 120, line 18, at end insert—
'(6) So much of section 23(3) of the Interpretation Act 1978 as applies section 17(2)(a) of that Act (presumption as to meaning of references to enactments repealed and re-enacted) to deeds or other instruments or documents does not apply in relation to the repeal and re-enactment by this section of section 736 of the Companies Act 1985.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 182 to 187. In moving these amendments, I wish to speak also to Amendments Nos. 201 to 203 and 454. Amendments Nos. 182 to 185 make parallel changes, in relation to the definition of a subsidiary, to those we have already discussed in relation to the definition of a subsidiary undertaking. The two terms, which have different purposes under the Bill, overlap to a considerable degree. It is obviously important that where they overlap they do so perfectly. These amendments ensure that.
Amendment No. 187 ensures that the Bill does not unwittingly create a presumption that this new definition of a subsidiary is automatically substituted for the existing definition for the purposes of interpreting pre-existing private instruments which incorporate by reference to the Companies Act definition. Amendment No. 186 makes similar provision in relation to subsequent changes to the definition made by statutory instrument under new Section 736B. The other amendments are consequential.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Fraser of Carmyllie.)
Lord Williams of Elvel: My Lords, I understand that some of the provisions in new Section 736A are a restatement of existing law. But, as I understand it, there are some variants to existing law designed to bring the new Bill into line with the definitions of subsidiaries which we have discussed. My concern is relatively minor. It refers to the rights of shareholders. New Section 736A(4) states:
"rights which are normally exercisable but are temporarily incapable of exercise shall continue to be taken into account".
What exactly does that mean? I do not understand the phrase about a shareholder who has normally exercisable rights which are then temporarily incapable of exercise. I cannot understand under what circumstances that may occur, but no doubt that will be explained. It seems that those rights will continue to be taken into account. I should think that if they are incapable of exercise, they should not be taken into account. I have no doubt the noble and learned Lord will be able to clear up my worry on that, but it is rather curious.
My next problem concerns subsection (6):
"Rights held by a person as nominee for another shall be treated as held by the other".
That may be fine but it creates some rather odd problems because the nominee is the person whose name is on the share certificate. Did the noble and learned Lord wish to intervene?
Lord Fraser of Carmyllie: My Lords, perhaps I may ask the noble Lord to which amendment he is referring?
Lord Williams of Elvel: My Lords, I referred to Amendment No. 183. Subsection (6) of new Section 736A, which is on page 73 of the Commons amendment, reads:
"Rights held by a person as nominee for another shall be treated as held by the other".
It is the nominee whose name appears on the share certificate. It is a rather odd concept that one should treat someone whose name is on the share certificate as not holding rights. Obviously it is up to the nominee to decide whether he has an obligation to consult his beneficiary as to what he should do with the voting rights.
My final concern relates to new subsection (10), which is over the page on page 74. It reads:
"The voting rights in a company shall be reduced by any rights held by the company itself".
I find that phraseology rather odd. It is not the voting rights in a company that shall be reduced by any rights held by the company itself because the company itself cannot vote shares which it holds in itself. If it were expressed like that it would be much clearer. It is not that the rights themselves lapse. The rights still exist but they cannot be exercised by the company which holds shares in itself. I hope that the noble and learned Lord can help me with my relatively minor problem.
Lord Fraser of Carmyllie: My Lords, the tailpiece to the new section (4) reflects a point which was put to the Government by the Law Society, which took the view that the present text is unclear as to how rights are to be treated when they are temporarily incapable of being exercised. There was optimism on this side of the House that the change would make it clear that such rights are to continue to be counted. Perhaps I may give as an example a freezing order made under Part XV of the 1985 Act. If the provision did not exist, a subsidiary might no longer be regarded as such upon an order being made.
The next provision which concerned the noble Lord was that contained in section 736A(6). I apologise for interrupting him but I was not quite clear which amendment he had moved on to. We are aiming at control here rather than questions of ownership. It is necessary to cover cases where shares are held by a nominee on behalf of another; otherwise there would be a loophole. It is for that reason that the provision is covered in that way.
Turning to subsection (10), the "rights" refer back to voting rights. It is a matter of drafting. It is believed that we have got it right, but I understand the point that the noble Lord made. However, I do not believe that there is the difficulty which he suggested.
On Question, Motion agreed to.
Lord Trefgarne: My Lords, I beg to move that further consideration of Commons amendments be adjourned until five past eight.
Moved accordingly, and on Question, Motion agreed to.

National Health Service (General Medical and Pharmaceutical Services) Amendment (No. 2) Regulations 1989
7.5 p.m.
Lord Ennals Lord Ennals rose to move, That an humble Address be presented to Her Majesty praying that the regulations (S.I. 1989 No. 1897) be annulled.
The noble Lord said: My Lords, before moving the Motion standing in my name on the Order Paper, perhaps I may say that I have been informed that there are some errors in the drafting of the regulations. Perhaps the noble Baroness can tell me whether it is the intention to bring the regulations forward in an amended form or in what way the errors will be dealt with.
Baroness Hooper: My Lords, I confess that the noble Lord has taken me somewhat by surprise. Perhaps I may come back to him on that point, or is an answer a prerequisite for starting our discussion?
Lord Ennals: My Lords, I gave notice to the Minister's office that I intended to ask the question because I was anxious that we should know whether or not we were to have a further debate on the issue. Not to worry. I shall not go in detail at this stage into the errors that have been drawn to my attention.
It is hardly necessary for me to tell the House that it is not my intention to divide the House on the Motion. However, I and my noble friends on whose behalf I speak felt that it would be wrong to allow the regulations to go through your Lordships' House without critical comment on the Government's handling of the nation's general practitioners. Those criticisms are on four grounds.
First, we have some major criticisms of the new contract which has in a quite unprecedented way for the first time in history been imposed on general practitioners against their will. Secondly, it has been done crudely by the Secretary of State, who seems to me to gain pleasure from insulting the medical profession gratuitously, indicating an extraordinary degree of personal ignorance about the way in which general practitioners go about their work.
Thirdly, on these Benches we take great exception to the way in which the Secretary of State is using public money to justify his side of the argument with the doctors. I had hoped to produce the advertisement I have with me for the benefit of all those noble Lords who would be on the government side of the House —but there are none apart from the Minister. It is quite scandalous that public money which should be used for the purposes of the National Health Service should be used by the Secretary of State for full-page advertisements justifying his arguments. He may say that the BMA has used its own advertisements. It has indeed. Those advertisements have been paid for from money raised by doctors who believe in the cause that they argue. If the Secretary of State needs to involve himself in costly advertisements, they should be paid for by the Conservative Party and not by the Government. I hope that this is not the last that we have heard of the issue because I believe it to be a scandalous misuse of public money.

1023
Fourthly, I and my noble friends are concerned at the way in which the Secretary of State has dealt with the issue. We are concerned because we fear that it may be a precursor of what may be the Government's plans to impose an unwanted reorganisation on the National Health Service and on a public who time and time again have told the Government that they are convinced that their proposals will provide a worse service to patients.
Dr. Michael Wilson, chairman of the BMA's General Medical Services Committee, has said that the package which is contained in the regulations:
"includes features that are unethical, misguided, ill-conceived, premature and wasteful".
I suppose that one could find other terms, but that is a pretty strong condemnation of the action taken by the Secretary of State against the general practitioners.
Let us face it, opinion polls show upward of 70 per cent. of the general public giving the thumbs down to the White Paper proposals. As concerns the GP contract, in an 82 per cent. poll of general practitioners conducted on the basis of a secret ballot, the contract was rejected by 76 per cent. to 24 per cent. An 82 per cent. poll is a substantial indication of the views held by general practitioners about the way in which they should conduct their own life within their own profession.
The Secretary of State recently suggested that, because the doctors decided against industrial action and mass resignation, they were somehow coming round to accepting the contract that was being enforced upon them. I have no evidence to suggest that that is true or that there has been any change in the views of general practitioners concerning the contract. There should be no criticism of doctors who decide that their duty dictates to them not to take industrial action and not to resign. It is because of their dedication to their services that they have not done so, but do not let the Government imagine for one moment that that somehow or other lessens the strength of feeling against what has been imposed upon them.
If the Secretary of State believed his own claim that general practitioners were changing their view he would proceed to secure the agreement of the BMA rather than acting by edict. He appears to think that they are coming round to his point of view and that if he gives it a little time he will perhaps be able to negotiate a settlement. I do not believe that he believes his own claim. I think that he enjoys the sound and smell of battle. I believe —I say this from my own experience —that this is no way to run a national health service.
Perhaps I may come back to the objections to the contract itself. The main objection is that by increasing the capitation element in the pay formula from 46 per cent. to 60 per cent. the Government are encouraging general practitioners to increase the number of patients on their lists. I am sure that that is a fundamentally wrong decision. When I was Secretary of State from 1976 to 1979 the objective was to bring down the number of patients on GP practice lists. That objective was worked out with the profession because GPs knew that they could
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give a better service to their patients —give more time to individual patients —if they could have shorter patient lists. We were working in that direction.
The present Government accepted that objective and succeeded to the extent that average list sizes were down from 2,229 in 1979 to 1,928 in 1989. I hope that they will not be embarrassed if I say that that is a good achievement in the right direction. Of course it has been achieved by an increase in the number of general practitioners, but the new contract gives financial inducement to GPs to increase their lists, thus inevitably reducing the time that a GP has to give to his patients. That is an inevitable result.
A recent study by Wilkin & Metcalfe discovered that as patient lists lengthen from 2,000 to 3,000 patients the average contact time per patient for a general practitioner falls from 30 minutes to 20 minutes a year. There are already 3,000 practices with more than 2,500 patients per GP. I hope that the Minister will give us an assurance that there is no intention to go back on the process of shortening GP lists. Perhaps she will explain how the new contract will do anything other than lengthen them.
It is encouraging and sensible that an increasing number of women GPs are restricting themselves to lists which are 35 per cent. below the average length. Women GPs are particularly strong in their opposition to the principles of the new contract. In my view that is no wonder; it conflicts with the principle of not having excessively long lists.
I wish to turn now to the gross misrepresentation by the Secretary of State of the performance of general practitioners. It is true that there are good and bad performers. There are in any profession and in any section of a profession. My impression is that general practitioners want to encourage the good performers and to raise the standards of the profession by using such inducements as will persuade the lazy minority to come up to the standards of the best. On balance, this country is very fortunate to have a high percentage of dedicated doctors in general practice. I do not believe that any country in the world has a better standard of general practice than we have in Britain and I do not want to see it lost.
Doctors are incensed —rightly in my view —by what the Secretary of State has said about them. He complains that the doctors have been critical of his proposals both in the contract forced upon them and on a wider front in the NHS White Paper. But I believe that he has brought it upon himself. He behaves as if he always knows best. He is arrogant and often insulting in the language that he uses in discussion and negotiation with and about general practitioners. In my view, his information is often gravely at fault. I want to give five examples.
First, the Secretary of State said:
"The averge GP works an average of 38 hours per week in general practice".
The fact is that GPs spend an average of 73 hours a week on duty, during which time 38 hours spread over the week are spent providing general medical services for patients and a further five hours are devoted to other health-related activities. If the

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Secretary of State believes that that is wrong, let him bring the evidence to set up against the assessment already made.
Secondly, the Secretary of State said:
"Doctors will be more available at times convenient to patients —for at least 26 hours a week … Some doctors are very shocked by our suggestion that they should work five days a week and 26 hours a week".
In fact the vast majority of GPs work at least five days a week and spend, as I said, 73 hours on duty. Doctors are rightly concerned that the rigidity which the new contract will impose upon their working pattern will mean that many doctors will be forced to work for an unbroken period of 12 days when they are on call for the two days intervening at the weekend.
Thirdly, the Secretary of State said:
"There will be more professional staff in the surgery such as practice nurses, chiropodists, counsellors and physiotherapists".
But the money available for employing practice staff is to be cash-limited from 1st April 1990. There will be more professional staff in the surgery only if the cash limit is set high enough to pay for them. We shall no doubt come to the issue of cash-limiting general practioners when we come to the Bill, if we are offered a Bill in the Queen's Speech.
Fourthly, the Secretary of State said:
"the average GP receives £65,000 a year".
That is a very unfair statement. It is wrong. This year GPs will earn on average £31,105. The rest of the money that they receive will remiburse them for the expenses that they incur in running a practice. I am thinking of staff salaries, medical supplies, telephone, postage, stationery, professional literature, subscriptions, accountancy expenses, premises, car and depreciation of equipment. Those are all professional responsibilities which enable a GP to do the job required of him. Therefore, to say that the average GP receives £65,000 a year as though he is now in the ranks of the higher paid in industry is grossly unfair. More than half of the money he receives inevitably goes on practice costs.
The fifth and final example that the Secretary of State gave was,
"We will, and must, change bureaucracy".
He has had a good deal to say about bureaucracy. In fact the new contract will not reduce bureaucracy. It will indeed add to the paperwork done by health authorities and GPs. Many of the new regulations will require numerous returns to be made.
I echo the words of Dr. Curtis speaking for the British Paediatric Association. He said that,
"the proposals have been ill-thought out, not properly worked through and I am appalled at the rate at which they are instituted".
But, of course, Mr. Clarke always knows best. I do not know the views of the Secretary of State on the principal issues that so deeply divide the Cabinet, and this is no occasion on which to speculate upon them. So far as I know the Secretary of State is a loyal Minister. I am not certain whether he is still as ambitious as he was. But his pattern of behaviour in handling the medical profession, and this particular issue that I raise tonight, suggest that he
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believes that in everything he knows best. He blips the critical doctors as his boss blips all her critics with her handbag. He does not believe in genuine negotiation which, after all, always means a degree of compromise.
It seems at present that he is planning to impose, with the massive majority that exists in another place, a new health package, which is not only rejected by the profession but by the public too. Therefore, I believe that the GPs' contract, and the way in which the Secretary of State has handled it, could well be a precursor of the way in which the Secretary of State will handle the problems relating to the health service.
It was my view that these concerns should be expressed —even though there were few on the Government Benches to hear them —before the Government proceed along their route of conducting policy in relation to the health service regardless of the attitude of the professions and regardless of the attitude of the public.
Moved, That an Humble Address be presented to Her Majesty praying that the regulations (S.I. 1989 No. 1897) be annulled.—(Lord Ennals.)
7.23 p.m.
Baroness Robson of Kiddington: My Lords, I rise to support the noble Lord, Lord Ennals, in his prayer to annul. All of us, I believe, agree that the one thing we are terribly proud of in our National Health Service is our general practitioner and family doctor service. It exists in hardly any country in the world to the extent that it exists here, and it is the envy of many countries. I can speak with some feeling having been born and brought up in Sweden, which is well known for its good medical practice. The one thing Sweden no longer has is a family doctor service. They managed to kill it off after the war. There is nothing they have regretted as much. We have a wonderful service. It is only 7 per cent. of the health service budget, and we want to preserve it.
I agree with the noble Lord, Lord Ennals, that the new contract endangers the position. I am concerned, as he is, that the move is away from a practice allowance to a capitation fee. I believe that the Government have done this because of their obsession with competition. It is like going back to the bad old days at the beginning of the National Health Service when pay was wholly by way of capitation. It was decided long ago that such a system of remuneration destroyed co-operation between GPs. They hardly spoke to one another. The feeling was, "If I let him go to see my patient I am likely to lose the patient and he will get the capitation fee".
The practice allowance was brought in to improve the position. The contract now proposes that the capitation fee should be raised from 45 per cent. of remuneration to 60 per cent. How do we know that it will not be raised again to 70, 80, 90 or 100 per cent., and we are back where we were without co-operation between general practitioners?
This change has two further worrying implications. First, as the noble Lord, Lord Ennals, said, it will inevitably be a move towards increased list sizes so as to maximise the doctors' income.

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Doctors are human beings. They have all the natural desires to improve their standard of living. During the last 20 years, with the support of the profession and of governments, a reduction of the average list size, as has been stated, has been achieved. We all agree that the ideal list is something like 1,500. That reduction has been wholly beneficial but it will not continue. The increased emphasis on capitation fees will provide an incentive to keep list sizes high and mitigate against taking on new partners.
Despite the reduction in list sizes, people —and many general practitioners —still complain that GPs are too pushed to give adequate time to each individual patient. However, the new contract will also increase the range of services that GPs will be required to provide for their patients. Most of these services are highly desirable. But how are they to be achieved? By cutting further the time available for an individual patient.
Secondly, and this concerns me particularly, there is the impact on the position of women GPs, which will be highly detrimental. As a woman I am delighted that today 22 per cent. of all GPs are women. The ideal we should work towards is that each group practice should have at least one woman partner. Many women GPs work part time in the service because of family commitments, and the new contract has inbuilt disincentives for part-time and flexible working arrangements.
At present for a 20-hour week, plus one night a week on call and every third or fourth weekend on call, the practice allowance is roughly £15,000 a year. Let us assume that the practice pays the female GP £18,000 a year for her contribution. The cost to the practice is £3,000 a year. Under the new arrangements a part-time female GP will bring allowances of only £6,000 a year or less. Under the new arrangements it is not difficult to see that the opportunities for part-time employment are going to contract.
I have a personal interest in this subject. My youngest daughter is a general practitioner. She achieved her part-time partnership a couple of years ago, and she is a partner in a practice. I doubt whether she would have been offered the post if she could not have started until after 1st April 1990, and she is already being pressurised by her partners to take on a full-time commitment. She has three small children. She is a first-class GP, but she cannot at this time commit herself full time. This is yet another incentive for existing partners to increase their lists instead of taking on a female part-time general practitioner.
Finally, I should like to refer to the problems created in the contract by the new system of bonuses for vaccinations and cervical smears. It introduces lower bonuses for 70 per cent. vaccination and 50 per cent. smears and higher bonuses for 90 per cent. vaccination and 80 per cent. smears. This will inevitably favour those GPs who practice in an area of more socially conscious and better educated populations against those practices in socially deprived areas. Yet these are exactly the people who need the sevice most.
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Another problem faced by this innovation is how one defines a target population, particularly in areas where there is a great movement of people such as the inner cities. In my county of Oxfordshire, which is not a deprived area, the targets set by the Government were shown to be unrealistic. A review by Dr. Martin Lawrence on the prevention rates in 45 practices found that only one achieved the 90 per cent. target for immunisations. In inner cities, according to Polnay and Horn, only 5 per cent. of children attending child health clinics had completed a full course on schedule.
The Government will no doubt argue —and I would agree —that these figures show the need to take urgent action. However, it will not be done by putting the onus solely on the doctors. There are many good provisions in the new contract —for example, the need to give a proper medical examination to all new patients and the need to visit elderly patients regularly. Those are marvellous things. However, it will not work under the existing conditions. I therefore have great pleasure in supporting the Prayer.
7.31 p.m.
Lord Kilmarnock: My Lords, in one sense it seems superfluous to be debating these regulations this evening after the Secretary of State has declared his intention to impose them, and the decision of the family doctors' professional bodies not to leave the NHS or to go slow as a result. I assume that the noble Lord, Lord Ennals, in accordance with the usual practice of the House is not going to push his prayer to a vote. If I am right, what the noble Lord has given us —and we must thank him for this —is the opportunity for a few reflections on this less than happy episode in the Government's relations with general practice.
As the noble Lord, said, the Government have taken expensive space in the national press to acclaim the benefits that patients will derive from the new contract. Some of the innovations will be good news for the general public; others which are not mentioned, such as the retirement age of 70, will command wide support. But the government advertisement says nothing of the background issues that led to such bitter conflict with the profession. All that is swept under the carpet.
I was not in favour of the scare tactics adopted by the BMA, but there are a few points which cause legitimate concern. First there is the question of population targets for preventive measures. Although rewards for these have been set within two bands, in my view it remains unfair to link doctors' remuneration to invasive procedures which may go against the wishes and convictions of some of their patients, to say nothing of the widely differing demographic characteristics of different practice populations which can make the targets very difficult to achieve.
There can be little dissent from the value of immunising children or checking on the over 75s. Many doctors will want to move in those directions in any event. However, making payment dependent on the success rate raises both practical and ethical

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problems. Patients acquire patient status on a voluntary basis and it is very important that this principle should not be contravened. It is reasonable for GPs to seek to persuade, but their remuneration should not depend on it.
Indicative budgets for drugs aroused comparatively little opposition, and I have always supported the extension of generic prescribing wherever it is sensible with well-tried products. However, it would be quite possible for an efficient general practice to be successful in detecting moderate to severe hypertension in its adult population and to control raised blood pressures, for example, almost entirely with older generic and therefore relatively cheap drugs. But the toll in side effects compared with what might have been expected from more modern and more expensive medication could be considerable and could be hidden from view until possibly revealed by medical audit.
It is worth pointing out to the Government that medical audit may not always go the way they would like in regard to reducing costs but may suggest the need for more, not less, expenditure on one or other aspect of the service under review.
The question of raising the capitation proportion of remuneration to 60 per cent., to which the noble Lord, Lord Ennals, and the noble Baroness, Lady Robson, referred, is not included either in the government advertisement. I am not as opposed to it as some critics —and that would include the noble Lord, Lord Ennals, and the noble Baroness, Lady Robson. There is little doubt that the large, efficient practices will be able to cope partly by laying off part of the workload on an expanding support staff. There are many procedures which can be very well carried out by practice and community nurses, and I for one would like to see an increase in their numbers. In the long run there is no reason why patients should receive less time, given that the total number of doctors and the total number of patients are not going to vary greatly.
There is a very real concern that the smaller practice, with a list of 4,000 to 5,000 patients and with one or two part-time partners who may be women —and I am bound to say that I agree with the noble Baroness, Lady Robson —will suffer and be forced to amalgamate or go out of business. I should like to ask the noble Baroness what cushioning, if any, the Government are proposing to provide for them. Smaller practices will often be in deprived or rural areas. Can she spell out what will be done to prevent their going to the wall? Will the contract be modified if this seems to be happening? It is very doubtful, in my view, that a single, inflexible contract on these lines can accommodate the very wide range of different types of practice that we have in this country. I should be grateful to hear something about that matter from the noble Baroness.
Despite these and other anxieties, it is likely that GPs, through their own professional good conscience, will ensure that the contract works as well as possible. That does not mean that it is the
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right or the best contract. Apart from the details, there are two major criticisms of it. The first is that its origins lie not in the recent White Paper Working for Patients but in an earlier paper Promoting Better Health which was published in 1987. It is therefore backward-looking and tinkers with the existing arrangements, quite damagingly in some respects, without addressing the radical proposals of Working for Patients which will presumably be embodied in the legislation that we believe we are due to see shortly.
Perhaps even more importantly the proposed contract has had a thoroughly disorienting effect on family doctors and their morale and has distracted their attention and that of their professional bodies and the media from the very interesting possibilities of the budget-holding idea. I am opposed to the Government's proposal for self-governing hospitals for technical reasons which I will not go into here. We shall have plenty of time for that when we get the Bill. On the other hand, the budget-holding proposals seem to imply interesting possibilities for a quite significant shift of emphasis from secondary to primary care, leading possibly to the revival of community hospitals for minor surgery, strokes, convalescence and care of the geriatric and dying—all of which I support. Family doctors in future could have much more control over these kinds of intermediate services on a more human scale for their patients than can be provided in acute hospitals. Those could be very interesting and beneficial developments.
Therefore, particularly on those grounds, I regret that the red herring of the contract has been imposed on this much more important debate, particularly as I believe that it is going to require revision in the light of experience.
There are parts of the regulations that we can all welcome. The noble Baroness, Lady Robson, has referred to some. However, it would have been better to have left the contentious parts unchanged for the time being in order to get professional support for an expanded primary care and preventive role and to give time for doctors to settle into the system. The Government have rather clumsily elected not to do so, and to fight the profession on two fronts. That is a bad tactic, to say the least. Ultimately the Government have to depend on the profession to implement the reforms in the interests of patients. They simply cannot get round that aspect.
I very much hope to hear from the noble Baroness this evening that the Government do not regard these arrangements as set in concrete for all time. If I hear that from her lips, I for one shall come to the debates on the Bill in a very much better frame of mind.
7.41 p.m.
Lord Butterfield: My Lords, I came prepared to speak in the debate about the support that I should like to offer for many of the matters in the document which is the subject of this Prayer. I should like the noble Lord, Lord Ennals, to know that I was very proud to serve under him when he was Secretary of State; I was always very well received by him. I had

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not realised that this debate would be more on what I shall call the party political side of general practice than on the principles that lie in the regulations. Noble Lords must therefore forgive me if I concern myself with the principles that are incorporated in the regulations and offer praise where I think it is due.
In order to give the Minister a little succour, I ought to record that one can find quite a lot of general practitioners who are not so distressed about the proposals and the new contract as might be supposed from reading Hansard. Since the White Paper has been mentioned, I ought to put forward my views on it. The health service has changed in two respects since 1948. We must therefore not be surprised that more management is coming in. I understand the point of the noble Lord, Lord Ennals, about the Secretary of State's performance in the cockpit of politics, and with the BMA. As I am sure he must have found when he was Secretary of State, we now have two factors that did not exist in the past. No longer do we use British pharmacopoeia remedies; no longer do doctors send their apothecaries to the physic garden. The health service has an enormous international pharmaceutical industry with which it has to deal through a price regulating scheme. So far as I can make out, the scheme is working. However, it will undoubtedly need a good deal of scrupulous surveillance through close management.
We have to admit that the medical profession and the other professions involved in the health service have become better organised, more unionised, than in 1948. I sense that, if we wish to obtain more money from the hard-headed men in the Treasury, it may be wise to make it clear that there has been a period of careful scrutiny, better management and the clearing away of wasteful practices such as the use of expensive medicines or procedures which may not be so good as the users might like to think.
Having said that, I agree with the noble Baroness, Lady Robson, that we are very fortunate with our general practitioner force in this country. I shall not speak for much longer because I shall be followed by the noble Lord, Lord Rea, who is a general practitioner. Noble Lords may ask why I, as a hospital professor, should be involved with such a document. My excuse is that at Guy's I became very interested in trying to organise an integration of community service and general practitioner service arrangements in the new town of Thamesmead. The noble Lord, Lord Kilmarnock, will be pleased to know that there we were very keen to use the ancillary people as best we could. Professor Peter Higgins, who ran the show, has told me that he is in favour of the kind of developments that are looming up for general practice. He thinks that they will present an opportunity for better organisation of general practice in the future. We can only hope that all the noble intentions in this document will succeed.
I wish to make a few remarks about the regulations. I find many people who are very cross about the contract have not read the schedules very carefully. In Schedule 1, paragraph 5, it states;
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"the services which a doctor is required by sub-paragraph (1) to render shall include the following:—
(a) giving advice, where appropriate, to a patient in connection with the patient's general health, and in particular about the significance of diet, exercise, the use of tobacco, the consumption of alcohol and the misuse of drugs and solvents".
It is good to see the idea of health promotion and health education enshrined in this document. I am very interested in health promotion through the work of the Health Promotion Research Trust, on which I serve. The health promotion field will undoubtedly expand very rapidly as a source of interest and research. Some of our young research workers in Scotland have come up with pretty firm evidence, despite what people may have been reading, that a pregnant woman is highly unlikely to cause any harm to the foetus that she is bearing if she keeps herself down to one standard drink a day. That is information which those general practitioners giving advice to their patients will need. More work is going on to show the tolerance limits about which the population can be advised.
I thought that the recommendations about the elderly were very good. The noble Baroness, Lady Robson, also liked that part of the regulations. The possibility that general practitioners would make a domiciliary visit, would be concerned about the sensory functions and mobility and preventing accidents in the home were logical and splendid steps forward. I know that many general practitioners do so, but that this is now becoming part of the standard arrangements in general practice appeals to me immensely.
I was also intrigued by Schedule 5 to the regulations. It concerns minor surgery procedures, such as intra-articular and periarticular injections, the treatment of varicose veins and so on. I am very pleased that it is included because people abroad have often thought that our general practitioners were primarily concerned with psychosomatic medicine. It is nice to see that the other part of the medical school curriculum is coming through in this way.
I merely give these observations as a general practitioner watcher. I am relieved to know that the noble Lord, Lord Ennals, will not push this to a vote. I hope that the Government will receive credit for bringing to the forefront matters such as those I have picked out from the document. I hope that they will not be lost in the party political conflagration that appears to be going on in this field at the moment.
7.50 p.m.
Lord Rea: My Lords, in supporting my noble friend's Motion, I feel that I can claim to represent both general practitioners and their patients. Everyone is a patient at some time. The subject therefore concerns everyone. I ask first whether these regulations will improve the well-being of patients; and, secondly, whether they will help the professions which are involved in working towards that end. Although the changes are intended to benefit patients, the overall package may prove to be very unpopular.

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Last month Which? magazine showed that adequate time with their GP is what consumers value most of all. I am afraid that these regulations and the proposed changes to the basic practice allowance and capitation element will have the opposite effect. Doctors are to be encouraged to look after more patients and more of their efforts are to be diverted to checking and screening. That may be to the detriment of good clinical care which is the time-consuming part of medicine. If carried out properly it may lead to rational prescribing and rational referral practices using the hospital service.
At present people in large numbers seek alternative medicine because they do not have sufficient time with their GP who perforce must have his mind on the clock. Private medicine is popular largely because people can buy professional time. I am afraid that the proposals will give patients less time to talk to their GP about problems which really worry them.
As a GP I can only echo the deep disquiet with which the regulations are viewed by my colleagues. That is not so much about some of the new services which are to be encouraged but about the way in which consultation with the profession was handled and the unnecessarily directive, bureaucratic and possibly unworkable nature of the regulations.
Almost every week the medical press contains well-thought-out descriptions of the difficulties that will occur if the Government press ahead with the new contract on the present timetable. I am aware that every National Health Service GP originally agreed to provide services according to the terms of service for the time being in force. They have changed from time to time but changes are supposed to be preceded by consultation, with advice from the professions' representatives.
The noble and leaned Lord, Lord Denning, recently expressed a view in a letter to a GP, Dr. John Cormack of Essex. He stated that the new terms may be so different from the existing contract as to constitute a completely new contract which each and every GP should sign individually. I understand that a legal challenge to the new contract is being considered, despite the BMA's original advice that they must accept the contract as it was imposed upon them.
The major change in the new contract is the diminution of the basic practice allowance, the abolition of seniority payments and group practice allowances and the augmentation of the capitation element. I know of no medical voice which has welcomed that. It goes totally against the trend which my noble friend Lord Ennals and the noble Baroness, Lady Robson, have mentioned; namely, the trend to encourage small, manageable lists of just under 2,000.
Formerly when changes have been made to the terms of service to further government policy, additional payments have been offered. In this contract, income is first taken away. New services must then be provided in order for the GP to break even. Some doctors, giving good service (but not in rural or deprived areas thus attracting an extra payment) with lists of about 1,500 —which we
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believe to be the optimum size —will lose up to £.10,000 of income per year if they do not provide minor surgery, health promotion and child health surveillance and achieve targets in cervical screening and childhood immunisation.
I do not suggest that such things are bad. I suggest that it is unfair to require a doctor possibly approaching retirement, probably well liked by his patients, giving good and caring service, suddenly to have to alter his mode of practice which was until then perfectly acceptable in order not to lose income and to comply with the new regulations. Surely new procedures should attract new money. The basic practice allowance should not be reduced so drastically, possibly never, but certainly not initially.
I make a plea to the Minister that if the changes in pay structure are to be introduced this should be done in stages; that the carrot rather than the stick should be used. Many of the doctors who will lose do not deserve to be penalised.
I should like to raise a few points of detail. As the noble Baroness, Lady Robson, mentioned, there is much concern about the inaccuracy of doctors' lists in inner cities. Therefore, the achievement of targets will be difficult. The population is so mobile that it is difficult to keep track of individual patients. Perhaps the Minister is aware of a recent study carried out by a team at St. Mary's Hospital into cervical screening in north Kensington. It found that in 52 per cent. Of the records of patients on GPs' lists the addresses were inaccurate. It has been said that it is the responsibility of GPs to update their records but that is almost impossible without much additional expense. Can the Minister say how that problem will be addressed?
Many GPs believe that the regulations are too detailed and venture into areas which should be left to professional discretion. How many noble Lords and noble Baronesses over the age of 75 will welcome annual inquiries into their powers of urinary continence? How will each family practitioner committee monitor whether each GP records the 13 items of clinical information required for each new registration before receipt of payment?
All this adds weight to my suggestion to phase the programme slowly and drop items which are unworkable. I suggest that if that is done the profession is much more likely to assist.
7.56 p.m.
Baroness Masham of Ilton: My Lords, perhaps I should declare an interest on three counts. First, I have the honour to be an honourary fellow of the Royal College of General Practitioners. Secondly, like many people throughout the country, I have a chronic, long-term disability and I am dependent on the National Health Service. Thirdly, I live in a rural area.
I should like to bring to your Lordships' notice some of the concerns and wishes of patients. It is a great pity that more diplomacy was not used when introducing the contract to doctors. On the whole, people are suspicious of change and if the Government had discussed their aims with the Royal College of General Practitioners and the Royal

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College of Physicians perhaps there would not have been so much fury. It has not helped the general practitioners, the Government or the patients. Many patients feel frustrated and worried.
As in all professions and groups of people, a percentage will be laggards. Perhaps the Government set out to try to call the lagging doctors to order and get them to fulfil their obligations. But I have heard that the contract may not achieve that aim. It has infuriated many of the good and hard-working doctors, who feel that good practice has not been appreciated.
In October 1989 Which? magazine carried out a survey into patients' wishes. Among the top five in the "What I want from my family doctor" list are: "More time explaining about my illness"; "More time explaining about the drugs"; and "More time listening to me". More than eight out of 10 people said that it was important to them to have more information about the specialist to whom their GP was referring them. More than seven out of 10 people said that it was important to have a choice of hospitals to attend.
Shorter waiting lists at the surgery and more helpful receptionists were rated as important possible changes by eight out of 10 people. A nicer waiting area was only considered important by just over half. I should like to ask the Minister whether she can explain how doctors will be able to spend adequate time with their patients if they are being encouraged by the new contract to have more patients on their lists and to spend more time checking well patients when ill patients may be neglected.
Can the Minister give an assurance that patients with long-term disabilities such as kidney disease, diabetes, paralysis, cystic fibrosis, epilepsy and all the other disabling conditions will be well looked after and receive the drugs which they need to maintain a good quality of life? There is concern that no serious thought seems to have been given to those patients who feel that they may become the unpopular unwanted patients when trying to get on a doctor's list.
I give your Lordships an example of how difficult it can be for a disabled person to get on a doctor's list. One afternoon I telephoned the general practitioners committee here in the Riverside Health District to see how many practices were available for a disabled person who uses a wheelchair. The list I was given included several practices which I was told had accessible facilities. That turned out to be untrue when I telephoned. Most of the practices had steps and the ones with access said that they could not take any more patients on their lists. I am sure that they were the popular practices.
With more pressure put on the practices to take more patients, what are disabled people to do if they have no safeguards? I ask for an assurance from the Minister that the money will follow the patient and not the patient follow the money when the patient goes to hospital.
I live in a rural area when in Yorkshire. Many of the GP practices will not be budget holders. Will the general practitioners still have total freedom to refer
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a patient to the consultant or hospital which the doctor and patient choose? There is fear that if districts take block bookings of beds the family doctor may lose that vital choice. If a doctor has to send the patient to a consultant chosen by the district and that consultant is not considered the most suitable for the patient, all trust among patient, doctor and district will break down. If the Minister can make a statement about that this evening she will help many doctors and patients who have genuine concern about that matter.
In rural areas it is vital that there should be no curtailing of cross-boundary flows. The doctor knows which consultants do good work and sees the good and the bad results when the patients return from hospital. There is very great fear that the districts will hold the purse strings and may dictate where the patients are sent. That would be a passport for the bad family practitioners to sit back and let that happen while the good GPs would become more and more frustrated.
It would be quite unfair if a financial or any other type of penalty were imposed upon practices which opt not to be budget holders. Some GPs have over-prescribed tranquillisers with dreadful results and that should be corrected. However, no GP should be penalised in any way for exceeding indicative drug budgets so long as treatment is being given in a responsible and reasonable manner.
I hope that the Government will reconsider the contract for women GPs to make it more flexible. Women GPs can be of great value in a practice when women patients may desire to see a woman doctor.
I thank the noble Lord, Lord Ennals, for giving us the chance to bring to your Lordships a few points of concern this evening. It would be a serious state of affairs if the conflict between general practitioners and the Government continues. For the sake of patients, I hope that there will be a happy ending and that all people involved will swallow their pride and put the real needs of patients first.
8.5 p.m.
Lord Pitt of Hampstead: My Lords, I must apologise for coming in at this stage. However, earlier this week I went to the Chief Whip's Office to put my name down for this debate and was told that there was not a list. That is why I am not on the list this evening.
I speak this evening in sorrow rather than anger because I believe that the Secretary of State missed an opportunity. He is like a general who was in a way in a position to win a battle and proceeded to take the necessary steps to lose it.
If the White Paper suggests that we shall have certain changes in the National Health Service, those changes are predicated on the co-operation of general medical practitioners. I cannot see how the Minister can start by placing practitioners in the position where they are utterly opposed to him, not only on the new arrangements but on the basic arrangements. Therefore, I am sorry not only about that but I am sorry that we shall not divide the House this evening. The Minister should be made to go back and negotiate and try to improve the situation.

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I say that because as the debate within the profession has crystallised it is apparent that there are about three issues on which the profession is very much up in arms. The first is the increased capitation fee and the fear that there will be large lists and less time. There was a suggestion by the negotiators that the Minister should reduce the upper limit, which is now 3,500, to 2,500. He may not wish to be as drastic as that. However, after the profession had voted against the contract, the Minister should have seen the negotiators again and tried to see in what way the Government could meet the profession. My view is that a reduction in the upper limit would have been a gesture suggesting that the Government are as concerned as the profession about large list sizes and are prepared to see that that does not happen. I think the Minister missed an opportunity.
We know something about large list sizes. I started in practice in 1950. In 1961 when I went on the LCC I had 3,500 patients and I was specialising in midwifery. When I could not actively serve on the LCC doing that, I gave up the midwifery and I gradually reduced the practice to 2,000. When I first reduced the practice I had financial difficulties until there was the charter. The charter, which gave me seniority allowances and matters like that, made life much more tolerable for people like me. I believe that 2,000 patients is a good list. You can handle that number.
I am quite amazed at all this talk about the days and hours that doctors work. I worked six days a week from 1950 until 1983 but I gave up working on Saturdays in 1983 because my wife had been badgering me to do so. I did that when I was 70 years old. I confess that I was sorry I did not give up Mondays instead of Saturdays because Saturday was my best practice day from the point of view of the patients. This idea of suggesting the number of hours that doctors give patients is nonsense. Doctors give full time to their practices and the Government should react accordingly.
The other way the Minister shot himself in the foot is on the question of targets. Targeting is sensible, but it is clear from all the information that there will be areas where targeting will be very difficult. The Minister ought to have kept the item of service fee at a lower level than it is now and have the target as a bonus. What will happen as a consequence of merely paying the bonus is that the best will be made the enemy of the good.
If you are in an inner city practice and you know, because of the changes, that you are never going to reach your target, there is no incentive to go out of your way to carry out immunisations, and so on. On the other hand, if there was an item of service payment there would be some incentive to go out of your way to add to your practice income.
These are two ways, therefore, that the Minister could have met the profession and where, as a result of discussions, the negotiators could have said, "We have had concessions from the Minister which improve the contract. We suggest that our first proposal should be signed. We have improved it
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even more than before. Will you now agree to it?" The Minister would probably have carried the profession if he had taken that attitude. Therefore, I should like to hear the Minister say that she will inform her right honourable friend that it will be wiser for him to try to meet the profession half-way. Unless he does that we are going to have more problems than we need.
I give another example. The suggestion in the White Paper is that we should have family practitioner committees with only one doctor on them. The FPCs on this contract are given many powers. It reduces opposition from the profession if doctors are well represented on the FPCs. The Government ought to be thinking along those lines in a positive and not a negative way.
There is a large government majority in the Commons and it is easy to impose the will of the Secretary of State by using that majority, but that is not sensible. I know the Minister cannot make such promises this evening, but I hope she can agree to inform her right honourable friend that he should, so to speak, step back a little and give more thought to how to bridge the gap that at present exists between the Government and the profession.
8.14 p.m.
Earl Russell: My Lords, listening to this debate I am increasingly being drawn to the suspicion that the Secretary of State has brought on himself a great deal more obloquy than he needed. It is not only my noble friend Lady Robson, with whom I agree entirely, who believes this contract contains some good points. That view is quite widely held around the House, but it has not produced a good reaction.
Listening to the Secretary of State talking about doctors I am led to reflect, first, that there may be worse things than to have the Parliamentary Under-Secretary of State for Education and Science in charge. Secondly, this Government rave not been very fortunate in their relations with the professions. Indeed, when they complain about their experience with the professions or with public service workers it sometimes reminds me of King Henry VIII in a state of hurt bewilderment lamenting h is misfortune in meeting with such ill-conditioned wives. Henry genuinely wanted to know the answer to that question. It was a rather risky thing answering King Henry's questions. I hope our situation is a little safer than that.
The problem we are suffering from here is one of philosophy. The Secretary of State in his speech to the Tory Reform Group avowed that he had a philosophy and that it was the same as this Government were bringing to all the public service professions. A philosophy in politics is a little like hypertension. We can mostly live with it, but it needs controlling by a daily dosage of real life. It is this controlling by the daily dosage on which the Minister is possibly getting a little short.
I have been re-reading the Minister's speech to the Tory Reform Group. He insists on three points regarding this philosophy, all of which are relevant to why he has got into so much trouble tonight. First, he insists on shifting power from producers to

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consumers. The Liberal Democrats are all in favour of consumers, but if a noble Lord who, for the sake of argument, runs a bank were to hear an academic at present on this side of the House coming to the Dispatch Box and insisting that banks should be rearranged to increase the power of pupils against tutors, he might feel a certain amount of bewilderment. You cannot transfer models from one place to another like that. Circumstances vary.
Secondly, the Secretary of State insists on competition. Again, on these Benches we have nothing against competition, but the Secretary of State was once described —I think it was in the Sunday Times—as a person whose instinct, faced with a problem, was to throw competition at it. That is the problem. In the thinking of the Secretary of State, so far as I can follow, the increase in the element of capitation fees represents the element of competition. GPs are being encouraged to compete with each other in order to increase their list sizes. The object of competition, as the Secretary of State understands it, is to increase what he understands by efficiency.
I have attempted previously to draw attention in this House to the inadequacy of this Government's understanding of the word "efficiency". It would be an exaggeration to say that they use it simply as synonymous with "cheapness", but it would be rather less of an exaggeration than I would wish to see. In this philosophy there seems to be a real conflict with professional standards. It is where these two languages meet that there appears to be a misunderstanding between the Government and the professions because this leaves out two professional standards. One —the concern with quality —gives many professionals a definition of efficiency entirely the opposite of the Government's definition. The other is a concern with standards of service.
Where there is such a conflict of language there has to be give and take; there has to be dialogue. The language of professionals has in some cases perhaps been too indifferent to the issue of cost. Some correction is taking place in that regard, and I believe that it is needed.
However, adjustment has to take place on both sides if dialogue is to come in. The capitation fee seems to have been the overwhelming centre of criticism today. It is the area of competition which encourages the building up of bigger lists and gives bigger rewards to those who do so. It has been pointed out many times that it will encourage GPs to spend less time with patients. That is the opposite of what we mean by efficiency. It sounds a little like James Bond's recipe for running a whorehouse. You need a quick through-put like a casino.
I shall mention a few cases where I believe this situation will be liable to cause particular trouble, one of which has not been mentioned so far tonight. That is the case of academic medicine, which is of considerable concern to a number of my colleagues. I know that there is provision in regulations for those doctors who also have a teaching commitment. I must declare an interest because my own doctor is one of them. But there is an adamant insistence that they must be available in their surgeries four days a
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week. People who try to do two jobs know that there is a constant struggle for adjustment. One cannot absolutely guarantee that there will not be an emergency at the other end of the line and that one will not have to reorganise because, for example, a colleague is ill.
There is not enough flexibility in the arrangements for GPs who are also engaged in teaching. That is a pity. Speaking from experience, I believe that it adds something to a GP's ability to understand and communicate with his patients. I agree with everything that my noble friend Lady Robson said concerning women doctors, and that is the only reason I am not going to say it all again. I do not think I could say it better.
Like the noble Baroness, Lady Masham, I am concerned about rural practices. I know that negotiation is still continuing on that matter. I hope that negotiation will be conducted with a little less philosophy. I also agree with what the noble Lord, Lord Rea, said about records. I once had the experience of canvassing in an area close to the one he has described on a brand new electoral register which was already 20 per cent. out of date. You cannot do any better than that.
What is going to happen when the pressure to increase list sizes has been in operation for some time? Are we to get a great number of bigger lists and therefore fewer doctors? Is this in fact a covert drive for saving by reducing the number of doctors? I think that is probably not the case. On the other hand, if it is not that, then it is a procedure for the weakest to go to the wall in order to encourage those who can build up big lists and drive out those who cannot.
The Secretary of State believes that this will be competition inducing the success of the best. What many of us wonder is whether it may be competition leading to the success—as we would see it —of the worst.
8.23 p.m.
Baroness Hooper: My Lords, I begin by thanking noble Lords on all sides of the House for their contributions, many of which have been made with the benefit of practical experience. I say to the noble Lord, Lord Ennals, that the preliminary point he raised with me as regards errors in drafting took me by surprise. I certainly have not received notice of his question and I am not aware of any such errors. However, I shall look into the matter.
In the course of our debate this evening we have ranged widely over the field and perhaps in one or two cases, outside it. However, the debate has been both interesting and instructive: interesting because we have had a useful examination of those parts of the new contract which have proved controversial; and instructive because I now appreciate more than ever the extent to which there is a continuing misunderstanding and misrepresentation of many of the Government's objectives.
In launching the public information campaign about changes in the family doctor service, my right honourable friend the Secretary of State made clear his support for the general practitioners' service. In

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these GP contracts we are setting a framework to take the service into the 1990s. With these changes we want to see a family doctor service where all GPs reach the standards of the best and provide a wider range of quality services to patients. I believe that we are all united in that aim.
After the most thorough review of primary health care involving three years of consultation and debate with the public and the profession, we are finally moving towards improved services on the ground. Informing the public is an important part of that process. It is no good changing the GPs' contract to introduce more and improved services and greater patient choice unless the public knows about it. For that reason the Govenment produced a public information leaflet setting out the main changes that we are introducing backed up by advertisements in national and local newspapers.
We have started the campaign now because we want the public to have as much notice as possible of what to look for from their family doctor. Some practices already provide all the new services, but unfortunately not all of them. General practitioners in the latter category will be reviewing their position in the light of the new contract. It will do no harm if their patients are better informed and bring a little pressure to bear to encourage an improvement in services.
The noble Lord, Lord Ennals, criticised the way in which my right honourable friend the Secretary of State has conducted consultations concerning the new contract. The noble Lord said that it would worsen services to patients. And he expressed regret that the contract is being "imposed", as he put it. The new contract will improve services to patients. It will do so by raising the quality and increasing the range of services available; for example, by introducing new payments for child health surveillance and minor surgery. The contract would also help patients by increasing the information available about the services that general practitioners provide and by making it easier to change doctor if the patient is dissatisfied.
We on these Benches regret that it has been impossible to reach agreement on the new contract. It is not for want of trying by the Secretary of State. Since the White Paper promoting better health was published in November 1987, there have been over 100 hours of face-to-face discussions with the profession's representatives. Indeed, agreement was reached with those representatives on 4th May. In those circumstances my right honourable friend had no choice but to proceed with implemention. I was relieved to hear from the noble Lord, Lord Butterfield, that many GPs support the contract. That has also been my experience.
It is interesting to note that the contract agreed with the GPs' leaders is now being refuted. The same leaders are the ones who were re-elected after the rejection or refuting of the contract. The Government are convinced that this is the best deal for both patients and GPs. We believe that they will come to recognise the benefits once the new contract is in operation.
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We do not believe that an increase in capitation will lead to an increase in the average list size. With a static population an increase in GP numbers of over 400 every year and with plenty of applicants for practice vacancies, the average list size must continue to decline. Some GPs may wish to build up larger lists to increase their income, but patients will not join or remain on the list of a GP who takes on so many patients that he or she can no longer provide good quality services. That is our interpretation of competition.
Perhaps it is only fair to quote that the last survey of GPs' workload which took place in 1985–86 showed that the average family doctor worked 38 hours a week in general practice, including the calls answered while on call. The average doctor was on call for a further 31 hours but not actually called out. Nearly a quarter worked fewer than 30 hours a week in general practice. A Kent University study showed that only part of the extra time released by falling lists is spent on patients. The rest is spent on increased leisure. The number of practice staff, nurses and receptionists has increased by more than 70 per cent. since 1977.
Taking all these factors together, it is difficult to see how the new contract will add to the individual GP's workload. Indeed most of the new duties required by the new contract can be carried out by professional practice staff, such as nurses. In this connection one of the major features of the new contract is the removal of restrictions on the recruitment of practice staff and the increased investment in this resource. All the trends which I have described illustrate how we now have an important opportunity to improve general practice. The resources are there. There are more doctors and more practice staff. The contract provides the impetus.
In areas of high mobility, GP's lists and family practitioner committees' records do not perhaps match as well as in other areas. The noble Lord, Lord Rea, suggested that records were inaccurate. The computerisation of FPCs is already improving matters. The new contract will be an added impetus to get and keep records up to date. In the case of the new target payments which rely on good records, there will be time for the information that is needed to be made available to both GPs and family practitioner committees.
It was suggested that some GPs will lose money no matter how hard they work. The new contract will provide opportunities for all GPs to generate income from providing new services such as minor surgery and health promotion clinics. The great majority of GPs who provide the services that patients need will not lose from this contract. Indeed those who already provide these services will be financially better off under the new contract without increasing their workload. There are a few who in spite of providing comprehensive services could experience a drop in income.
To give these GPs time to adjust, we shall introduce a transitional payments scheme to help bridge the gap between old and new income for a period of two years. This will allow time for two

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things to happen; first, for the rural practice payments scheme to be revised to target the money better at the truly rural practices, some of which have small lists which they cannot increase; and, secondly, for the GPs in question to develop other health care activities such as hospital work which provide additional income. Perhaps the academic GPs might also come into this category. It must be remembered that small list GPs —those with a list size of 1,000 to 1,300 —are not working full time; yet under the present scheme they earn the same amount of basic practice allowance, group practice allowance and seniority payment as GPs with a full list of 2,000 or more.
Only the fund for practice staff and premises improvements is to be cash limited. The Government have undertaken to increase investment in these areas. There will be more money and it will be better targeted. Under present arrangements, FPCs have little control over where the money goes. The Government want to improve services in areas of greatest need such as inner cities. The new arrangements will enable that to happen.
On the subject of inner cities, I was grateful to the noble Baroness, Lady Robson, for drawing to my attention the studies about coverage rates for childhood immunisation. She admitted, however, that these studies must be used with caution. I know of one study by the Public Health Laboratory Service which showed that high coverage levels can be reached in areas of deprivation. It may be helpful if I make clear that we have introduced a lower target coverage level of 70 per cent. for childhood immunisation. This, we believe, is within the reach of all GPs, because national uptake rates for the childhood vaccines are all currently above that level. We are, however, aware of the difficulties faced by doctors in deprived areas. That is why we are introducing a deprived areas allowance specifically to recognise those difficulties.
I turn now from inner cities to rural areas. Clearly, practice in truly rural areas has features which should be recognised in the remuneration system. We and the professions' leaders agree on the need for support for such practices. This support should be better targeted than at present. That is why we will ask the Central Advisory Committee on Rural Practice Payments to revise the present system. In the meantime the current scheme will continue.
A number of noble Lords referred to women doctors. I am happy to confirm our strong belief that women doctors are an asset to partnerships. A number of patients prefer to see women doctors. In fact the number of women doctors in practice has increased by more than 75 per cent. since 1977. Women now form more than 40 per cent. of all trainee GPs. The trend is clearly towards more women doctors. The new contract will support and encourage that trend; first, by making it easier for women doctors to take up part-time contracts; and secondly, by making it easier for them to employ a locum when on maternity leave. I find hard to understand the suggestion that women doctors will be worse off as a result of the new contract.
We must acknowledge a limit to what the Government can do for women doctors. After all,
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GPs are independent contractors. Women doctors must continue to fight their corner for satisfactory partnership agreements. It is not for the Government to interfere in such matters but we believe that we have made it easier for women doctors to play a greater part in general practice.
I listened carefully to the point made by the noble Baroness, Lady Masham, about budget holders and the worries of patients in rural areas. The regulations do not address the question of practice budgets. They are in fact outside the provisions of this statutory instrument. Perhaps I may write to her on the matter shortly. However, in relation to her question about services for the disabled, I can say that all the changes to the GPs' contract will benefit disabled patients. In particular we are making easy access for wheelchairs a requirement in practice premises in future. In addition, there will be annual check-ups for elderly patients who want them, but these may take place in their own homes.
It was suggested that the contract would introduce increased bureaucracy. I must point out that more than £1 billion is spent on the family doctor service. That is taxpayers' money and the doctors must be accountable for how it is spent. That accountability will be achieved in a number of ways, none of which is particularly burdensome. In the first place, GPs must agree their surgery hours with the FPC. By that means we shall ensure that surgery hours are convenient to patients rather than to the doctor. Secondly, FPCs are to receive annual reports from the doctors about their lists. That will enable FPCs to judge how well services are provided and to identify areas where improvements are needed. Lastly, there is the doctors' remuneration.
No one can object to a system whereby the FPC satisfies itself as to the services provided before payments are made. That means that GPs must make claims for certain payments. The bureaucracy involved is the minimum consistent with the proper stewardship of expenditure. I can assure noble Lords who fear that the contract is set in concrete that this is not so. We shall of course monitor its effectiveness in delivering more health promotion and disease prevention. If further improvements are necessary we shall, of course, be happy to introduce them.
Perhaps before finishing my response I should refer to the Which? report which was mentioned by several speakers in the debate. The report suggested that patients want more time with their GPs. The new contract will achieve that aim. As I said before, there will be more practice nurses and counsellors and this will enable the whole practice to extend its listening time. Indeed, many of the problems which patients brińg to their doctor may well be better dealt with by a nurse or a counsellor. Moreover, as the family doctor service becomes more competitive, so doctors will recognise the importance of ensuring that their practices have the time to listen to patients—otherwise patients will vote with their feet because it will now be easier to change one's doctor.
Perhaps I should reiterate that consultation has been going on for 18 months with well over 100 hours of discussion taking place, including meetings with Ministers. All aspects of the revision to the GPs'

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terms of service have been the subject of detailed correspondence with the GMSC.
The noble Lord, Lord Ennals, suggested that the legality of these changes brought the regulations into question. I should say that this is an observation which does not apply to the relationship between general practitioners and the National Health Service. That relationship is a statutory arrangement resulting in the main from the application of the National Health Service Act 1977 and the National Health Service (General and Pharmaceutical Services) Regulations 1974, as amended. Therefore the relationship is not governed by the private law of contract and the Government are quite satisfied that the form of the amended arrangements is perfectly lawful.
I have taken some time to go through the many interesting points which were raised in order to remove, I hope, many of the misunderstandings about our proposals. Once people understand what the new contract would mean for them, and what it would mean for doctors in that they will be able to provide an up-to-date efficient service to their patients, many of the reactions which were initially based on misleading propaganda will, I believe, disappear.
It is no exaggeration to say that the new contract represents the most significant change in the family doctors' services since the National Health Service was set up. I believe that it will benefit patients and doctors alike. I therefore urge the House to support the regulations before us.
8.42 p.m.
Lord Ennals: My Lords, in conclusion perhaps I may thank all noble Lords who have taken part in the debate. I should also like to express my thanks to the noble Baroness for her reply. I shall make but three brief comments. First, it is noticeable that except for the noble and loyal Baroness, Lady Elliot, there has been no presence on the Back Benches to support the Minister. That is a sad situation. She must have felt very lonely. And it is, perhaps, a precursor of the debates which will follow in the next few months. However, I know and understand that the noble Baroness feels happy with her Front Bench support.
I should like to make a further point to the Minister. She said that what is proposed will improve general practice and that once people understand it they will realise that the Government were right. Of course GPs do understand this; indeed, they probably understand it better than the Minister or myself or anyone else in this House, except for the two GPs who have spoken in the debate.
Can the Minister explain why, having analysed the matter and having been involved with the representatives in negotiation, there is still a three-to-one ratio of GPs who reject what is proposed at the end of the day? In my view the question as to whether their judgment is right is worth further thought.
The noble Lord, Lord Butterfield, referred to a party political commitment. This is only a party
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political issue because the Secretary of State, in my view, decided that he was not seeking consensus. If he had been able to achieve agreement, the issue would not have arisen in the way that it has. I must stress that the criticisms which I mentioned this evening have all been pressed upon me by general practitioners. In no sense have I accepted a party brief in speaking this evening. The Minister and her right honourable friend the Secretary of State should consider whether they are right in assuming that after all these months of negotiation they have it right and that everyone else has got it wrong.
As I said at the beginning of the debate, it is not my intention to press the matter to a Division. Therefore, I beg leave to withdraw the Motion.
Motion, by leave, withdrawn.

Companies Bill [H.L.]
8.45 p.m.
Further consideration of Commons amendments resumed.

COMMONS AMENDMENT
188 Clause 117, page 120, line 40, leave out 'section' and insert `sections 75B(4A) and'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 188.
With the leave of the House, I should like to speak also to Amendments Nos. 189, 190, 191, 193, 194 and 197. Perhaps I may also respond to Amendment No. 190A, tabled in the name of the noble Lord, Lord Peston, which is an amendment to Amendment No. 190.
The key amendment in this grouping is Amendment No. 189, which limits to two the number of extensions that may be made to the initial 20-day period for considering a merger prenotification: the first an extension of 10 working days, and the second of 15 working days. All the remaining amendments in the group stem from this change.
At present, the Bill provides for an unlimited number of 10-day extensions to the period for considering prenotifications. The purpose of this provision was, of course, to provide adequate time for the Director General of Fair Trading to consider the most complicated or difficult cases. Our firm intention was that, in practice, the vast majority of cases would be considered within the initial 20-day period. However, the noble Lord, Lord Williams of Elvel, asked us to reconsider this because of the indefinite timescale it would present to the companies concerned. My noble friend the then Secretary of State agreed to look again at this point, and further comments from practitioners have convinced the Government that the technical possibility of unlimited extensions would create unnecessary uncertainty for business.
The other amendments in the group, which are consequential upon limiting the number of extensions, may be briefly described. Your Lordships may have noted that the second extension

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is to be five days longer than the first. That is because limiting the number of extensions creates the theoretical possibility that the Director General of Fair Trading will not be able to advise the Secretary of State on a merger in time for the Secretary of State to refer it to the Monopolies and Mergers Commission before the end of the prenotification period. To cover this possibility, Amendment No. 193 provides that the Secretary of State may, during the last five days of the second extension, refer the merger even in the absence of the director general's advice. This extra five days is built in to the 15-day second extension to give the Secretary of State time to reach a decision. We think that he could probably do this anyway, but the amendment puts the point beyond doubt.
Now that there is to be a maximum limit on extensions, negotiation of divestment undertakings under the new provisions in Clause 118 could go beyond the time limit for considering a prenotified merger. In such circumstances, we would need to retain the power to refer the merger because the negotiations fail, and this will also provide an incentive for bidders to give undertakings.
Amendments Nos. 188 and 190 therefore preserve the power to make a reference while undertakings are still being sought. However, if a bidder formally declines to give undertakings, the clock starts again and a reference must then be made within 10 days or the power to refer will lapse.
Finally, Amendments Nos. 191 and 197 deal with the giving and receiving of notices for that purpose; and Amendment No. 194 provides that the periods concerned are to be measured in working days (leaving out weekends, and so forth) just as for the prenotification period.
I now turn to Amendment No. 190A, tabled by the noble Lord, Lord Peston. It appears to propose that cases where the Secretary of State is seeking undertakings, in lieu of making a merger reference to the MMC, the Director General of Fair Trading should be able to make a reference if the parties decline to give suitable undertakings and if the European Commission is investigating the merger under the competition provisions of the EC treaty.
I suspect that that is not the effect intended by the noble Lord, but it is in any event an unnecessary amendment. It is not the place of the director to make merger references. His role is to provide advice on the matter for the Secretary of State. Nor would it be necessary to reserve to the Secretary of State the power described in the amendment. We do not consider it likely or desirable that the decision to make a reference should be affected by the knowledge that a merger was also being investigated by the European Commission under Articles 85 and 86 of the treaty as they are currently applied.
There will be nothing to be gained from keeping open in that way the option of making a merger reference some time after the prenotification period had expired. If a reference is warranted, it should be made straight away. Any conflict with the European Commission's conclusions can be resolved after the MMC has reported; otherwise the Secretary of State
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should announce his decision not to make a reference.
I hope that I have clearly expressed the Government's view on that matter, including our reaction to the amendment tabled by the noble Lord, Lord Peston.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Peston: My Lords, I am a trifle lost on the procedure but I shall talk until someone tells me that I am out of order. I am doubly lost because I wanted to talk about the Government's amendments. I take it that I am still in order when I say how much I approve of them. They represent an important step forward. That is stage one.
I am rather puzzled that the Government have decided to reply to my amendment before I have moved or argued it. I am disappointed that it has been rejected before I have argued it. That implies that even my brilliant powers of persuasion will not persuade the Government. It may well be that we are all a bit tired. Having said that, let me say what my amendment is about. Essentially what lies behind my amendment —I was advised that this was an acceptable way to do it —is that I wish to raise the European dimension and remind your Lordships of it when considering not merely the present but the future state of mergers.
I should like to make two or three points. First, I remind your Lordships that, separate from the current debates on the European dimension on competition policy, I strongly believe that he Commission has a great many powers under Articles 85 and 86 and that it has been wrongly persuaded that it cannot use them in competition policy. I have expressed that view before, as have other noble Lords. I want it to go on the record.
Having read, mostly in the newspapers, about what is happening with regard to the European dimension, I am worried about the way in which the Commission may interfere with our approach to competition. The logical point, which I have made before —and having made it, that will be enough for me this evening —is that if any kind of competition or merger problem is dealt with at the European level and is regarded as unacceptable there, that is the end of the matter so far as I am concerned. The problem which worries me, and which the amendment seeks to address, arises when a merger is regarded as acceptable at the European level. It seems to me that the director or the Secretary of State should still remain able to say that it may be acceptable at the European level but it is not acceptable at the British level. That is the other way round, as it were.
I do not remotely believe that at this stage the Government will say that they agree with that. I am merely pointing out that it is a serious problem that will affect company law in the future. I tabled the amendment to remind us of that matter. The noble Lord, Lord Lloyd of Kilgerran, may wish to say a few words, and I shall say no more until he has spoken.
Lord Lloyd of Kilgerran: My Lords, I should like to make it clear that we on these Benches accept the general theme of the amendment tabled by the noble Lord, Lord Peston, to Government Amendment No. 190.
I tried my best at the earlier stages of the Bill to obtain some references to Articles 85 and 86. I have been involved with them since the middle 1960s in a professional way and in other capacities. I am always disappointed when we receive a somewhat technical answer from Ministers about the value of considering the principles of those articles in relation to merger questions. Beyond saying that I want to have that point on the record, I strongly support the amendment tabled by the noble Lord, Lord Peston, and the direction in which he is proceeding in his speech. That is all I wish to say.
Lord Airedale: My Lords, this is the second day running that an amendment tabled by a noble Lord who is not a member of the Government has been spoken to in advance by a Minister in the course of moving one of his earlier amendments. It caused confusion yesterday and it has caused a little confusion today. Surely it is also undesirable that a noble Lord's amendment should be anticipated before he has had a chance to move it. I hope we can establish a firm rule that Ministers will not speak in advance of amendments tabled by other noble Lords before those noble Lords have had a chance to move their amendments.
9 p.m.
Lord Trefgarne: My Lords, I ask your Lordships' permission to make a further intervention on this matter because I owe it to the noble Lord, Lord Peston, to respond to him. I wish to respond also to the point made by the noble Lord, Lord Airedale.
Articles 85 and 86 have been used by the European Commission from time to time, although there are some doubts about the occasions when it can intervene, and we believe that the Commission should be thinking of a wider, more comprehensive arrangement. We have reserved our position on whether we shall agree to what is proposed until we see in detail what is proposed. We shall be looking for improvement in the present situation. Until we see that, we are maintaining a reservation on the principle of regulation, but if it represents a measurable improvement on the present situation we shall want to be in favour of it.
As I understand it, the present draft allows member states to prohibit certain mergers, intervening on grounds of legitimate interest. As currently drafted, those include public security, media diversity and prudential rules. Other non-competition interests may be permissible so long as they are consistent with the member states' Community obligations. Those for the moment are all matters for discussion and no new regime has yet been agreed.
Lord Lloyd of Kilgerran: My Lords, before the noble Lord sits down, I apologise, but could he give an indication what directive he is referring to? He
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has the most charming habit of referring generally to many matters. Perhaps he could particularise.
Lord Peston: My Lords, I believe that it is the competition directive. I do not know what number it is and I do not think it is difficult to specify which directive I am talking about, but I assume that it is the same one as the one which the Minister mentioned.
Subject to that, perhaps I may thank the Minister for his reply, which I found most encouraging. I accept that these are early days and hope that when the time comes your Lordships will have a chance to become more involved in what happens next at the European level. We are broadly in agreement on the lines on which we ought to go and therefore I shall not move the amendment.
On Question, Motion agreed to.

COMMONS AMENDMENT
189 Clause 117, page 121, line 16, leave out from 'notice' to end of line 19 and insert—

'(a) extend the period mentioned in subsection (2) of this section by a further ten days, and

(b) extend that period as extended under paragraph (a) of this subsection by a further fifteen days.'

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 189.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
190 Clause 117, page 121, line 23, at end insert —
'(4A) If the Director gives to the person who gave the merger notice (in this subsection referred ':o as "the relevant person") a notice stating that the Secretary of State is seeking undertakings under section 75G of this Act, section 75A(3) of this Act does not prevent a reference being made to the Commission unless —

(a) after the Director has given that notice, the relevant person has given a notice to the Director stating that he does not intend to give such undertakings, and

(b) the period of ten days beginning with the first day after the notice under paragraph (a) of this subsection was received by the Director has expired.'

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 190.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
[Amendment No. 190A, as an amendment to Amendment No. 190, not moved.]
On Question, Motion agreed to.

COMMONS AMENDMENT
191 Clause 117, page 121, line 24, leave out under subsection (3) or (4)' and insert `by the Director under subsection (3), (4) or (4A)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 191.

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Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
192 Clause 192, page 121, line 37, after 'notice', insert 'or any connected person'.
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 192. With leave, I shall also speak to Amendments Nos. 195, 196 and 198 to 200. I may incur the wrath of the noble Lord, Lord Airedale, but I intend to refer to Amendment No. 195A tabled in the name of the noble Lord, Lord Peston, which would leave out Amendment No. 195.
These amendments put the connected persons of a prenotifier under a similar duty to provide true and accurate information but remove any obligation to give information which they could not have known. The provisions of Clause 117 introduce a new procedure under which a properly prenotified merger cannot be referred to the Monopolies and Mergers Commission once the allowed period for consideration has elapsed. This system requires safeguards against the provision of false or late information.
Amendments Nos. 192 and 196 improve these safeguards by extending the director general's powers to reject a prenotification and the Secretary of State's power to refer a merger although the allowed period has elapsed to cover in both situations cases where the "connected person" of a prenotifier has given false or misleading information. Where a connected person is involved in a merger or gives information about it, that needs to be covered by these provisions; otherwise they could be avoided, for example, by channelling false information on a prenotification through a subsidiary.
Amendment No. 195 on the other hand prevents a prenotified merger from being referred after the period for consideration has expired if the reason for the late reference was the late discovery of material information but that could not have been known to the prenotifier and connected persons. This is because it would be unfair if new information which emerged afterwards and could not have been known by the notifier were to throw a merger open to reference.
Amendment No. 195A, tabled by the noble Lord, Lord Peston, would remove this provision, so that if any information material to the merger is not disclosed the merger may still be referred to the Monopolies and Mergers Commission, even if that information could not have been known to those involved. If I understand the noble Lord correctly, he is concerned that we should retain the power to make a reference where there is new material information of any kind.
We believe that there is a balance to be achieved here between, on the one hand, proper consideration of mergers which may affect the public interest and, on the other hand, allowing companies to go about their business unhindered. We consider that
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Amendment No. 195A shifts this balance too far in one direction. A prenotifier who provides all the information available to him at the time in good faith should not then have a completed and successful merger reopened for scrutiny because of facts he could not have known and which another party has failed to disclose. We consider that this would create undue uncertainty for the businesses involved. In practice these provisions will allow proper consideration of the ramifications of a proposed merger at the time. If new material facts which could not have been known at the time can at some future date lead to an investigation, the whole basis of the system for prior clearance of mergers could be undermined.
Amendment No. 198 provides a definition of a connected person for these purposes as an associated person or a subsidiary. Amendment No. 200 provides that the definition of "subsidiary" is that given in Section 75(4K) of the Act as introduced by Clause 120. This definition covers ownership by an individual as well as by a company.
Moved, That the House do agree with the Commons in the said amendment. —(Viscount Ullswater.)
Baroness Seear: My Lords, before the noble Lord, Lord Peston, replies, I would ask whether we may have some comment on the remarks made by my noble friend Lord Airedale. They concerned noble Lords on the government Front Bench speaking to amendments which are to be moved but which have not been moved from these Benches. The noble Viscount, Lord Ullswater, said that he hoped that he understood the noble Lord, Lord Peston, correctly. I suggest that he would have a better chance of understanding the noble Lord correctly if he waited to hear what he had to say.
I do not know what the strict procedural position is, but I think that the intervention of the noble Lord, Lord Airedale, calls for some comment. Perhaps the position could be clarified.
Lord Trefgarne: My Lords, perhaps I may reply because it is a sensible point, if I may say so. I recognise the difficulty in which the noble Lord, Lord Airedale, and the noble Baroness find themselves. The problem has been that the amendments were agreed in groups. Then at a late stage amendments to particular amendments within the groups have been tabled. It has proved difficult to disentangle the groups because of the late tabling of amendments.
Having said that, I have done my best to reply specifically to the points raised. I think the position is different when an amendment seeking to change a Commons amendment is tabled, as compared with an amendment simply to delete a Commons amendment. That is the same as seeking to negative the agreement to the amendment that may be proposed from this Dispatch Box. I recognise the difficulty and I think it arises out of the arrangements that I have referred to. However, I certainly think it is right for Ministers to seek the permission of the House to reply to a particular amendment within the grouping, when that is appropriate.
Baroness Seear: My Lords, I thank the noble Lord for that explanation. I do not wish to prolong the discussion at this time of night. However, I think the noble Lord will be aware that, what with the nature of some of the amendments which have come back from the Commons in vast numbers and the late placing of government amendments, we feel that the position of the Opposition is now being made almost impossible by the way the Government are conducting their business.
Lord Peston: My Lords, one day I shall learn how to do these things. However, I shall do the best I can now. Let me again say that it is not my desire nor that of my noble friend Lord Williams of Elvel to undermine what the Government are doing in this set of amendments. What the Government are doing seems to me to make perfectly good sense. However,
I am in a slightly difficult position because I thought that the noble Viscount, Lord Ullswater, expressed my points better than I had prepared them myself before he rebutted them. That puts me at an even bigger disadvantage than would otherwise be the case.
I have two simple points to make. One concerns where we disagree. We disagree at a fundamental level. My view of all mergers is that they should be demonstrated to be in the public interest before they go ahead, rather than that they should be not against the public interest. In other words, I think the balance is all wrong on the merger question. However, we have argued that point and we shall continue to argue it until we are sitting on those Benches and can do something about it. We hope that will be sooner rather than later, but who knows? That disagreement underlies our position here.
That leads to the point that there ought to be a predisposition to provide all the information that is required to make a judgment at any of the stages. Using the device that my noble friend Lord Williams of Elvel used earlier, I oppose Amendment No. 195 simply in order to argue not that Amendment No. 195 per se is wrong but that one needs a stronger merger policy in the first place.
I accept the point of the noble Viscount about balance. Information here is of such enormous importance in order to get the matter right that, in considering the balance, I would lean rather more the other way in order to make absolutely sure that those who are concerned with these matters, in trying to express the public interest, can always obtain the appropriate information. I accept that the noble Viscount does not take that view, as he has already argued his case before I got a chance to argue mine. However, I thought your Lordships would at least like to have on the record the view of our side in connection with information, and how that stems from our view of the criterion for judging mergers in the first place. Having said that, I do not intend to delay the House.
On Question, Motion agreed to.

COMMONS AMENDMENTS
193 Page 121, line 45, at end insert —
'(6A) If—
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(a) under subsection (3)(b) of this section the period for considering a merger notice has been extended by a further fifteen days, but

(b) the Director has not made any recommendation to the Secretary of State under section 76(b) of this Act as to whether or not it would in the Director's opinion be expedient for the Secretary of State to make a reference to the Commission with respect to the notified arrangements,

then, during the last five of those fifteen days, the power of the Secretary of State to make a reference to the Commission with respect to the notified arrangements is not affected by the absence of any such recommendation.'
194 Page 121, line 47, leave out 'and 3' and insert ',(3) and (4A)'.
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 193 and 194.
Moved, That the House do agree with the Commons in the said amendments. —(Viscount Ullswater.)
On Question, Motion agreed to.

COMMONS AMENDMENT
195 Page 122, line 11, leave out from 'information' to `is' in line 13 and insert —
'(whether prescribed information or not) that —

(i) is, or ought to be, known to the person who gave the merger notice or any connected person, and

(ii) is material to the notified arrangements,'.

[Amendment No. 195A, as an amendment to Amendment No. 195, not moved.]
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 195.
Moved, That the House do agree with the Commons in the said amendment. —(Viscount Ullswater.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
196 Page 122, line 30, after 'notice', insert 'or any connected person'.
197 Page 123, line 27, at end insert —
`(dd) provide for the time at which any notice under section 75B(4A)(a) of this Act is to be treated as received,'.
198 Page 123, line 43, at end insert —
"'connected person", in relation to the person who gave a merger notice, means —

(a) any person who, for the purposes of section 77 of this Act, is associated with him, or

(b) any subsidiary of the person who gave the merger notice or of any person so associated with him,'.

199 Page 124, line 4, leave out 'and'
200 Page 124, line 6, at end insert 'and
"subsidiary" has the meaning by section 75(4K) of this Act,'.
201 Clause 120, page 130, line 8, leave out 'also applies' and insert `and section 736A of that Act also apply'.
202 Page 130, line 10, leave out 'it applies' and insert 'they apply'.
203 Page 130, line 12, leave out 'subsection (5) of that section' and insert 'subsections (8) and (9) of section 736A'.
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 196 to 203.
Moved, That the House do agree with the Commons in the said amendments. —(Viscount Ullswater.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
204 Page 130, line 29, at end insert —
'(2) This section does not apply in relation to any merger reference made before the passing of this Act.'.
205 Clause 121, page 131, line 28, at end insert —
'(2) This section does not apply to any merger reference made before the passing of this Act.'.
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 204 and 205. In moving this amendment, I wish to speak also to Amendments Nos. 470, 475 to 477 and 479 to 483. These amendments are necessary to make transitional arrangements for the commencement of certain of the provisions of Part VI on Royal Assent, which is proposed in Amendment No. 319. They clarify where necessary whether the new provisions in the Bill will relate to cases which are already being dealt with under the provisions of the existing law. This is necessary to avoid any possibility of a different set of rules applying half-way through action on a reference or report.
Moved, That the House do agree with the Commons in the said amendments. —(Viscount Ullswater.)
On Question, Motion agreed to.

COMMONS AMENDMENT
206 Clause 123, page 133, line 19, leave out from beginning to end of line 20 and insert 'A statutory instrument containing regulations under this section shall be subject to annulment in pursuance of a resolution of either'.
9.15 p.m.
Viscount Ullswater: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 206, which would make the regulations detailing the system of fees provided for in Clause 123 subject to negative rather than affirmative resolution.
It may be helpful if I explain that the amendment had its inspiration in this House in the form of a similar amendment put down by the Opposition. The noble Lord, Lord Williams of Elvel, suggested at that time that the details of fees were a matter which could be dealt with adequately by the negative resolution procedure. The then Secretary of State agreed to consider that point. In the event we put the amendment down in another place because a financial matter was involved.
Moved, That the House do agree with the Commons in the said amendment. —(Viscount Ullswater.)
On Question, Motion agreed to.

COMMONS AMENDMENT
207 Clause 125, page 133, line 41, leave out 'to 141' and insert `to 136, (Powers of Secretary of State to give directions),
(Application to determine whether default proceedings to be taken), 138 to 140, (Certain money market institutions) and (Settlement arrangements provided by the Bank of England)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 207. In speaking to the amendment, which makes a consequential change to cross-references in Clause 125, I shall speak also to Amendments Nos. 210 to 212 and 237 to 241. The amendments make mainly minor or clarifying changes relating to the functions of the Secretary of State or the Securities and Investments Board and to the application or modification of provisions of the Financial Services Act for the purposes of Part VII.
The new clauses which Amendment No. 237 substitutes for Clause 137 modify and clarify the provisions relating to powers to give directions and applications by office-holders to determine whether default proceedings are to be taken. Those are currently treated together in Clause 137. The new clauses treat the two matters separately and thus more clearly.
The other amendments are generally in the nature of drafting or tidying up amendments but I should mention in particular Amendment No. 241, which provides for a modification to the competition test set out in Section 119 of the Financial Services Act. We think it most unlikely in practice that a recognised investment exchange or recognised clearing house would need to have for the purposes of Part VII a rule which would not fall within the scope of the existing competition test. However, although we think it unlikely in practice, it is theoretically conceivable that such a rule might be necessary.
With that in mind, we believe it is necessary to cater for the possibility that the existing competition test might prove inadequate for the purpose of Part VII. However, in keeping with our view that rules which cannot meet the existing test should not in practice be necessary, we do not propose to commence the provision for the time being. We would only consider commencing it if it became clear at some stage that the purposes of Part VII could only be achieved by means of one or more rules which could not satisfy the existing competition test.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, perhaps I may address myself to Amendment No. 237, which, as the noble Lord said when introducing Amendment No. 207, is a substantive amendment. It is a new clause and I have two questions about it. First, do I take it from what the noble Lord said, and as I understand the Financial Services Act, that the powers in the new Clause 137, if that is what it is to be, can be delegated to the Securities and Investments Board? In other words, the Secretary of State would have the principal power but that is part of the delegation order. I imagine that that is so.

1057
Secondly, if that is so, subsection (2)(b) states that the Securities and Investments Board, if that is possible, or the Secretary of State may direct an exchange or clearing house not to take certain action, if it decides to do so, after consultation. Is that what the Government intend —to stop exchange or clearing houses taking action which they deem to be appropriate? I understood that the idea was to encourage people to take action. To stop regulatory bodies from taking action seems to go beyond the Financial Services Act as I have known it. I should be grateful if the noble Lord could clarify whether that is the intention.
Lord Trefgarne: My Lords, as I understand it, the answer is yes in relation to both exchanges.
On Question, Motion agreed to.

COMMONS AMENDMENT
208 Clause 125, page 134, line 3, leave out '146' and insert '(Application of margin not affected by certain other interests), (Priority of floating market charge over subsequent charges) and 147'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 208.
This paving amendment makes changes to cross references in Clause 125 to take account of the new clauses inserted by Amendment No. 261. I understand that the noble Lord, Lord Williams, would like to debate the substantive issue when we reach Amendment No. 261, so I shall say no more at this stage.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
209 Clause 126, page 134, line 15, leave out sub-paragraphs (ii) and (iii).
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 209. In moving this amendment, I shall speak also to Amendments Nos. 273 and 275 to 294.
These amendments mainly concern definitions used in the part and are mostly minor or consequential. There are three points that I wish to highlight. First, Amendment No. 209 drops from the Bill two sub-paragraphs whose purpose was to ensure that the so-called back-to-back contracts relating to business on the futures exchanges are within the scope of the part. We have been persuaded that the wording is too wide as it stands and that it would be better to deal with the question of back-to-back contracts as necessary in regulations.
Secondly, the new clause inserted by Amendment No. 273 deals with a potential anomaly by allowing provision to be made for circumstances in which a person enters into contracts in more than one capacity.
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Thirdly, Amendment No. 282 inserts a definition of notice for the purposes of the part. As I have already said, the other amendments are minor or consequential.
Lord Williams of Elvel: My Lords, we agree with the Commons amendments in principle. As we now have the benefit of the noble and learned Lord at the Dispatch Box, perhaps I may ask him about Amendment No. 276. What, in Scotland, is a "judicial factor"?
Lord Fraser of Carmyllie: My Lords, a judicial factor is someone appointed by the court to operate as a trustee. It may occur in a number of different circumstances. For example, a judicial factor might be appointed where a trust has got into difficulty. It might be in relation to a company or partnership. It is essentially a person appointed by the court to take over the running of the organisation, estate or whatever.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
210 Clause 127, page 135, line 7, leave out 'Part' and insert `section'.
211 Page 135, line 11, leave out 'The Secretary of State' and insert 'Where the Secretary of State gives such a notice, he'.
212 Page 135, line 19, leave out 'notice is given under subsection (3)' and insert 'the notice was given.'
Lord Trefgarne: My Lords, I beg to move the House do agree with the Commons in their Amendments Nos. 210 to 212.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
213 Clause 129, page 135, line 36 at end insert —'
'(1A) So far as those provisions relate to insolvency proceedings in respect of a person other than a defaulter, they apply in relation to—

(a) proceedings in respect of a member or designated non-member of a recognised investment exchange or a member of a recognised clearing house, and

(b) proceedings in respect of a party to a market contract begun after a recognised investment exchange or recognised clearing house has taken action under its default rules in relation to a person party to the contract as principal,

but not in relation to any other insolvency proceedings, notwithstanding that rights or liabilities arising from market contracts fall to be dealt with in the proceedings.
(1B) The reference in subsection (1A)(b) to the beginning of insolvency proceedings is to —

(a) the presentation of a bankruptcy petition for sequestration of a person's estate, or

(b) the presentation of a petition for an administration order or a winding-up petition or the passing of a resolution for voluntary winding-up, or

(c) the appointment of an administrative receiver.'.

214 Clause 130, page 136, line 12, leave out from '1986' to 'shall' in line 13 and insert 'or the Bankruptcy (Scotland) Act 1985'.
215 Page 136, leave out lines 20 to 22 and insert —
'This does not prevent a relevant office-holder from afterwards seeking to recover any amount under section 134(4) or 135(3) or prevent the court from afterwards making any such order or decree as is mentioned in section 136(1) or (2) (but subject to subsections (3) and (4) of that section).'.
216 Clause 132, page 137, line 36, after 'defaulter', insert 'or, in Scotland, a permanent trustee on the sequestrated estate of the defaulter'.
217 Page 137, line 45, leave out 'or have been pending' and insert 'pending or could be taken', or have been or could have been taken.'.
218 Page 138 line 1, after '130', insert, '185'.
219 Page 138, line 3, leave out 'the Bankruptcy (Scotland) Act 1985' and insert 'any rule of law in Scotland to the like effect as the said section 285, in the Bankruptcy (Scotland) Act 1985 or in the Debtors (Scotland) Act 1987 as to the effect of sequestration,'.
220 Clause 134, page 138, line 31, leave out from 'upon' to 'to' and insert 'proceedings under its default rules duly completed in accordance with this Part,'.
221 Page 138, line 44, leave out '129' and insert '247'.
222 Page 139, line 4, leave out 'compensation or'.
223 Page 139, line 8, after 'winding up', insert '(within the meaning of section 129 of the Insolvency Act 1986)'.
224 Page 139, line 9, leave out subsection (4) and insert —
'(4) However, where (or to the extent that) a sum is taken into account by virtue of subsection (2)(b) or (3)(b) which arises from a contract entered into at a time when the creditor had notice —

(a) that a bankruptcy petition or, in Scotland, a petition for sequestration was pending, or

(b) that a meeting of creditors has been summoned under section 98 of the Insolvency Act 1986 or that a winding-up petition was pending.

the value of any profit to him arising from the sum being so taken into account (or being so taken into account to that extent) is recoverable from him by the relevant office-holder unless the court directs otherwise.
(4A) Subsection (4) does not apply in relation to a sum arising from a contract effected under the default rules or a recognised investment exchange or recognised clearing house.'.
225 Page 139, line 24, after 'preferential', insert 'or, in Scotland, preferred'.
226 Clause 135, page 139, line 33, leave out 'and 315' and insert 315 and 345'.
227 Page 139, line 34, at end insert —
'(1A) In Scotland, a permanent trustee on the sequestrated estate of a defaulter or a liquidator is bound by any market contract to which that defaulter is a party and by any contract as is mentioned in subsection (1)(b) above notwithstanding section 42 of the Bankruptcy (Scotland) Act 1985 or any rule of law to the like effect applying in liquidations.'.
228 Page 139, line 37, after 'petition)' insert 'and section 32(8) of the Bankruptcy (Scotland) Act 1985 (effect of dealing with debtor relating to estate vested in permanent trustee),'.
229 Page 140, line 1, leave out subsection (3) and insert —
'(3) However, where —

(a) a market contract is entered into by a person who has notice that a petition has been presented for the winding up or bankruptcy or sequestration of the estate of the other party to the contract, or

(b) margin in relation to a market contract is accepted by a person who has notice that such a petition has been presented in relation to the person by whom or on whose behalf the margin is provided,

the value of any profit to him arising from the contract or, as the case may be, the amount or value of the margin is recoverable from him by the relevant office-holder unless the court directs otherwise.
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(3A) Subsection (3)(a) does not apply where the person entering into the contract is a recognised investment exchange or recognised clearing house acting in accordance with its rules, or where the contract is effected under the default rules of such an exchange or clearing house; but subsection (3)(b) applies in relation to the provision of margin in relation to such a contract.'.
230 Page 140, line 8, after 'preferential', insert 'or, in Scotland, preferred'.
231 Clause 136, page 140, line 9, leave out 'market contract' and insert transaction to which this section applies'.
232 Page 140, leave out lines 15 to 18.
233 Page 140, line 19, leave out 'a market contract' and insert `any such transaction'.
234 Page 140, line 24, at end, insert 'on grounds of gratuitous alienations or fraudulent preferences'.
235 Page 140, leave out lines 25 to 27.
236 Page 140, line 28, leave out subsection (3) and insert—
'(3) This section applies to —

(a) a market contract to which a recognised investment exchange or recognised clearing house is a party or which is entered into under its default rules, and

(b) a disposition of property in pursuance of such a market contract.

(4) Where margin is provided in relation to a market contract and (by virtue of subsection (3)(a) or otherwise) no such order or decree as is mentioned in subsection (1) or (2) has been, or could be, made in relation to that contract, this section applies to—

(a) the provision of the margin,

(b) any contract effected by the exchange or clearing house in question for the purpose of realising the property provided as margin, and

(c) any disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin.'.

Lord Fraser of Carmyllie: My Lords, I beg to move
that the House do agree with the Commons in their Amendments Nos. 213 to 236. I shall speak also to Amendments Nos. 269 and 270.
These are fairly minor amendments to tidy up or clarify certain insolvency law provisions of the past and to add some further references to relevant Scottish proceedings.
Moved, That the House do agree with the Commons in the said amendments. — (Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
237 Leave out Clause 137 and insert —
'Powers of Secretary of State to give directions.
. —(1) The powers conferred by this section are exercisable in relation to a recognised UK investment exchange or recognised UK clearing house.
(2) Where in any case an exchange or clearing house has not taken action under its default rules —

(a) if it appears to the Secretary of State that it could take action, he may direct it to do so, and

(b) if it appears to the Secretary of State that it is proposing to take or may take action, he may direct it not to do so.

(3) Before giving such a direction the Secretary of State shall consult the exchange or clearing house in question; and he shall not give a direction unless he is satisfied, in the light of that consultation —

(a) in the case of a direction to take action, that failure to take action would involve undue risk to investors or other participants in the market, or

1061

(b) in the case of a direction not to take action, that the taking of action would be premature or otherwise undesirable in the interests of investors or other participants in the market.

(4) A direction shall specify the grounds on which it is given.
(5) A direction not to take action may be expressed to have effect until the giving of a further direction (which may be a direction to take action or simply revoking the earlier direction).
(6) No direction shall be given not to take action if, in relation to the person in question —

(a) a bankruptcy order or an award of sequestration of his estate has been made, or an interim receiver or interim trustee has been appointed, or

(b) a winding up order has been made, a resolution for voluntary winding up has been passed or an administrator, administrative receiver or provisional liquidator has been appointed;

and any previous direction not to take action shall cease to have effect on the making or passing of any such order, award or appointment.
(7) Where an exchange or clearing house has taken or been directed to take action under its default rules, the Secretary of State may direct it to do or not do such things (being things which it has power to do under its default rules) as are specified in the direction.
The Secretary of State shall not give such a direction unless he is satisfied that it will not impede or frustrate the proper and efficient conduct of the default proceedings.
(8) A direction under this section is enforceable, on the application of the Secretary of State, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988; and where an exchange or clearing house has not complied with a direction, the court may make such order as it thinks fit for restoring the position to what it would have been if the direction had been complied with.
Application to determine whether default proceedings to be taken.
. —(1) Where there has been made or passed in relation to a member or designated non-member of a recognised investment exchange or a member of a recognised clearing house —

(a) a bankruptcy order or an award of sequestration of his estate, or an order appointing an interim receiver of his property, or

(b) an administration or winding up order, a resolution for voluntary winding up or an order appointing a provisional liquidator,

and the exchange or clearing house has not taken action under its default rules in consequence of the order, award or resolution or the matters giving rise to it, a relevant office-holder appointed by, or in consequence of or in connection with, the order, award or resolution may apply to the Secretary of State.
(2) The application shall specify the exchange or clearing house concerned and the grounds on which it is made.
(3) On receipt of the application the Secretary of State shall notify the exchange or clearing house, and unless within three business days after the day on which the notice is received the exchange or clearing house —

(a) takes action under its default rules, or

(b) notifies the Secretary of State that it proposes to do so forthwith,

then, subject as follows, the provisions of sections 129 to 136 above do not apply in relation to market contracts to which the member or designated non-member in question is a party or to anything done by the exchange or clearing house for the purposes of, or in connection with, the settlement of any such contract.
For this purpose a "business day" means any day which is not a Saturday or Sunday, Christmas Day, Good Friday or a bank holiday in any part of the United Kingdom under the Banking and Financial Dealings Act 1971.
(4) The provisions of sections 129 to 136 are not disapplied if before the end of the period mentioned in subsection (3) the Secretary of State gives the exchange or clearing house a direction under section (Powers of Secretary of State to give directions)(2)(a) (direction to take action under default rules).
No such direction may be given after the end of that period.
(5) If the exchange or clearing house notifies the Secretary of State that it proposes to take action under its default rules forthwith, it shall do so; and that duty is enforceable, on the application of the Secretary of State, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.'.
238 Clause 138, page 141, line 34, leave out 'Part' and insert 'section'.
239 Page 141, line 40, leave out 'Part' and insert 'section'.
240 Page 141, line 42, at end insert—
(3) The Secretary of State may —

(a) in the circumstances mentioned in subsection (3), (4) or (5) of section 115 of the Financial Services Act 1986, or

(b) if it appears to him that a designated agency is unable or unwilling to discharge all or any of the functions under this Part which have been transferred to it,

make an order under that section resuming all functions under this Part which have been transferred to the agency.
This does not affect his power to make an order under subsection (1) or (2) of that section with respect to such functions.'.
241 Clause 139, page 142, line 17, at end insert—
'(4) The references in sections 119 and 121 of the Financial Services Act 1986 (competition) to what is necessary for the protection of investors shall be construed as including references to what is necessary for the purposes of this Part.
(5) Section 204 of the Financial Services Act 1986 (service of notices) applies in relation to a notice, direction or other document required or authorised by or under this Part to be given to or served on any person other than the Secretary of State.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 237 to 241. These amendments have already been spoken to.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
242 Clause 140, page 142, line 22, leave out from beginning to 'in' in line 24 and insert 'is approved by him'.
243 Page 142, line 29, leave out subsections (2) and (3) and insert
'(2) The Secretary of State shall not approve an overseas investment exchange or clearing house unless he is satisfied

(a) that the rules and practices of the body, together with the law of the country in which the body's head office is situated, provide adequate procedures for dealing with the default of persons pary to contracts connected with the body, and

(b) that it is otherwise appropriate to approve the body.

(3) The reference in subsection (2)(a) to default is to a person being unable to meet his obligations.'.
244 Page 142, line 42, leave out 'regulations may' and insert `Secretary of State may make regulations which'.
245 Page 142, line 47, at end insert; and different provision may be made with respect to different bodies or descriptions of body.
246 Page 142, line 47, at end insert—
'(6) Where the regulations apply any provisions of the Financial Services Act 1986, they may provide that those provisions apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.'.
247 Leave out Clause 141 and insert—
'Certain money market institutions.
—(1) The Secretary of State may by regulations provide that this Part applies to contracts of any specified description in relation to which settlement arrangements are provided by a person for the time being included in a list maintained by the Bank of England for the purposes of this section, as it applies to contracts connected with a recognised investment exchange or recognised clearing house.
(2) The Secretary of State shall not make any such regulations unless he is satisfied, having regard to the extent to which the contracts in question —

(a) involve, or are likely to involve, investments falling within paragraph 2 of Schedule 5 to the Financial Services Act 1986 (money market investments), or

(b) are otherwise of a kind dealt in by persons supervised by the Bank of England,

that it is appropriate that the arrangements should be subject to the supervision of the Bank of England.
(3) The approval of the Treasury is required for —

(a) the conditions imposed by the Bank of England for admission to the list maintained by it for the purposes of this section, and

(b) the arrangements for a person's admission to and removal from the list;

and any regulations made under this section shall cease to have effect if the approval of the Treasury is withdrawn, but without prejudice to their having effect again if approval is given for fresh conditions or arrangements.
(4) The Bank of England shall publish the list as for the time being in force and provide a certified copy of it at the request of any person wishing to refer to it in legal proceedings.
A certified copy shall be evidence (in Scotland, sufficient evidence) of the contents of the list; and a copy purporting to be certified by or on behalf of the Bank shall be deemed to have been duly certified unless the contrary is shown.
(5) Regulations under this section may, in relation to a person included in the list —

(a) apply, with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient, such of the provisions of the Financial Services Act 1986 as he considers appropriate, and

(b) provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.

(6) Before making any regulations under this section, the Secretary of State shall consult the Treasury and the Bank of England.
(7) In section 84(1) of the Banking Act 1987 (disclosure of information obtained under that Act), in the Table showing the authorities to which, and functions for the purposes of which, disclosure may be made, at the end add—

"A person included in the list maintained by the Bank for the purposes of section (Certain money market institutions) of the Companies Act 1989.

Functions under settlement arrangements to which regulations under that section relate.".

Settlement arrangements provided by the Bank of England.
. —(1) The Secretary of State may by regulations provide that this Part applies to contracts of any specified description in relation to which settlement arrangements are provided by the Bank of England, as it applies to
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contracts connected with a recognised investment exchange or recognised clearing house.
(2) Regulations under this section may provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.
(3) Before making any regulations under this section, the Secretary of State shall consult the Treasury and the Bank of England.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 242 to 247.
These amendments make modifications to the power to extend the market contracts provisions of the part to contracts connected with certain bodies other than recognised investment exchanges or recognised clearing houses. There are two main effects. First, the scope of Clause 140 is modified so that regulations may be made to apply the part, if that is thought appropriate, to contracts connected with any overseas exchange or clearing house which has adequate default procedures. It will no longer be a requirement that the body in question must participate in links of a certain kind with a recognised UK body. Secondly, criteria are added to inform the power to apply the part in relation to systems for the money markets operated by a person supervised by the Bank of England. The noble Lord, Lord Williams, may recall that my noble friend Lord Strathclyde indicated at an earlier stage that we were considering an amendment of this kind. The restructuring of Clause 141 into two new clauses is consequential.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, I indeed remember the remarks made by the noble Lord, Lord Strathclyde, on these matters. I have three questions on these amendments. On Amendment No. 243 would the noble Lord kindly give me some indication of what the Secretary of State or the Government consider to be adequate procedures? Secondly, under subsection (2)(b)—always on Amendment No. 243 —what is the substantive meaning of the expression:
"that it is otherwise appropriate to approve the body"?
What other criteria are hidden behind all that?
Thirdly, in Amendment No. 247, I should be grateful if the noble Lord could let me know how the Bank of England proposes to choose people who are on the list. The list has to be published, as is specified in subsection (4), but there seem to be no prescriptions on the Bank of England on how they choose people to be on their list even if it is published. I should be grateful if the noble Lord could give me some indication of what the Government have in mind.
Lord Trefgarne: My Lords, I have the answers to a range of questions in front of me but not, I fear, the ones that the noble Lord has asked. I undertake to write to him as soon as possible.
On Question, Motion agreed to.

COMMONS AMENDMENTS
248 Clause 142, page 143, leave out line 31 and insert 'in this Part "market charge" means a charge'.
249 Page 143, leave out line 44.
250 Page 144, line 2, leave out from `purposes' to end of line 4 and insert `it is a "market charge" so far as it has effect for the specified purposes.'.
251 Page 144, line 14, leave out 'sections 143 and 144' and insert 'this Part'.
252 Page 144, line 15, at end insert —
'(4A) The regulations may provide that a charge shall or shall not be treated as a market charge if or to the extent that it secures obligations of a specified description, is a charge over property of a specified description or contains provisions of a specified description.'.
253 Page 144, line 16, leave out subsection (5) and insert —'(5)
'(5) Before making regulations under this section in relation to charges granted in favour of a person within subsection (1)(c), the Secretary of State shall consult the Treasury and the Bank of England.'.
254 Clause 143, page 144, line 35, leave out subsection (5) and insert—
'(5) Before making regulations under this section in relation to charges granted in favour of a person within section 142 (1)(c), the Secretary of State shall consult the Treasury and the Bank of England.'.
255 Clause 144, page 144, line 39, leave out subsections (1) to (3) and insert —
'(1) The following provisions of the Insolvency Act 1986 (which relate to administration orders and administrators) do not apply in relation to a market charge—

(a) sections 10(1)(b) and 11(3)(b) (restrictions on enforcement of security while petition for administration order pending or order in force), and

(b) section 15(1) and (2) (power of administrator to deal with charged property);

and section 11(2) of that Act (receiver to vacate office when so required by administrator) does not apply to a receiver appointed under a market charge.
(2) However, where a market charge falls to be enforced after an administration order has been made or a petition for an administration order has been presented, and there exists another charge over some or all of the same property ranking in priority to or pari passu with the market charge, the court may order that there shall be taken after enforcement of the market charge such steps as the court may direct for the purpose of ensuring that the chargee under the other charge is not prejudiced by the enforcement of the market charge.
(3) The following provisions of the Insolvency Act 1986 (which relate to the powers of receivers) do not apply in relation to a market charge —

(a) section 43 (power of administrative receiver to dispose of charged property), and

(b) section 61 (power of receiver in Scotland to dispose of an interest in property).'.

256 Page 145, line 1, leave out subsections (4) and (5) and insert—
'(4) Sections 127 and 284 of the Insolvency Act 1986 (avoidance of property dispositions effected after commencement of winding up or presentation of bankruptcy petition), and section 32(8) of the Bankruptcy (Scotland) Act 1985 (effect of dealing with debtor relating to estate vested in permanent trustee), do not apply to a disposition of property as a result of which the property becomes subject to a market charge or any transaction pursuant to which that disposition is made.
(5) However, if a person (other than the chargee under the market charge) who is party to a disposition mentioned in subsection (4) has notice at the time of the disposition that a petition has been presented for the winding up or bankruptcy or sequestration of the estate of the party making the disposition, the value of any profit to him arising from the disposition is recoverable from him by the relevant office-holder unless the court directs otherwise.'.
257 Page 145, line 17, after 'preferential', insert 'or, in Scotland, preferred'.
258 Page 145, line 17, at end insert —'
'(7) In a case falling within both subsection (4) above (as a disposition of property as a result of which the property becomes subject to a market charge) and section 135(2) (as the provision of margin in relation to a market contract), section 135(3) applies with respect to the recovery of the amount or value of the margin and subsection (5) above does not apply.'.
259 Clause 145, page 145, line 23, leave out subsection (2) and insert —
'(2) The regulations may specify any description of charge granted in favour of—

(a) a body approved under section 140 (certain overseas exchanges and clearing houses),

(b) a person included in the list maintained by the Bank of England for the purposes of section (Certain money market institutions) (certain money market institutions),

(c) the Bank of England,

(d) an authorised person within the meaning of the Financial Services Act 1986, or

(e) an international securities self-regulating organisation within the meaning of that Act,

for the purpose of securing debts or liabilities arising in connection with or as a result of the settlement of contracts or the transfer of assets, rights or interests on a financial market.
(2A) The regulations may specify any description of charge granted for that purpose in favour of any other person in connection with exchange facilities or clearing services provided by a recognised investment exchange or recognised clearing house or by any such body, person, authority or organisation as is mentioned: n subsection (2).
(2B) Where a charge is granted partly for the purpose specified in subsection (2) and partly for other purposes, the power conferred by this section is exercisable in relation to the charge so far as it has effect for that purpose.'.
260 Page 145, line 43, leave out subsections (4) and (5) and insert—
'(4) Before making regulations under this section relating to a description of charges defined by reference to their being granted —

(a) in favour of a person included in the list maintained by the Bank of England for the purposes of section (Certain money market institutions), Or in connection with exchange facilities or clearing services provided by a person included in that list, or

(b) in favour of the Bank of England, or in connection

wih settlement arrangements provided by the Bank, the Secretary of State shall consult the Treasury and the Bank of England.
(5) Regulations under this section may provide that they apply or do not apply to a charge if or to the extent that it secures obligations of a specified description, is a charge over property of a specified description or contains provisions of a specified description.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 248 to 260. These amendments are mainly concerned with tidying up the provisions on the market charges, in particular the working of the regulation-making power in Clause 142 which will be used to specify in detail the extent to which a charge is to be regarded as a market charge for the purposes of this part. Provision is also made to permit the interests of a prior chargee to be safeguarded in the event that the market charge is enforced during an administration.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Fraser of Carmyllie.)
Lord Williams of Elvel: My Lords, I have no objection to the wording of the Commons amendments. I just wish to place on the record yet again that we do not believe in the concept of market charges. We do not believe that it will work. Our advisers do not believe that it will work, and we believe that this is a false concept in insolvency law.
On Question, Motion agreed to.

COMMONS AMENDMENT
261 Clause 146, leave out Clause 146 and insert —
'Application of margin not affected by certain other interests
'. —(1) The following provisions have effect with respect to the application by a recognised investment exchange or recognised clearing house of property (other than land) held by the exchange or clearing house as margin in relation to a market contract.
(2) So far as necessary to enable the property to be applied in accordance with the rules of the exchange or clearing house, it may be so applied notwithstanding any prior equitable interest or right, or any right or remedy arising from a breach of fiduciary duty, unless the exchange or clearing house had notice of the interest, right or breach of duty at the time the property was provided as margin.
(3) No right or remedy arising subsequently to the property being provided as margin may be enforced so as to prevent or interfere with the application of the property by the exchange or clearing house in accordance with its rules.
(4) Where an exchange or clearing house has power by virtue of the above provisions to apply property notwithstanding an interest, right or remedy, a person to whom the exchange or clearing house disposes of the property in accordance with its rules takes free from that interest, right or remedy.'.
Priority of floating market charge over subsequent charges
. —(1) The Secretary of State may by regulations provide that a market charge which is a floating charge has priority over a charge subsequently created or arising, including a fixed charge.
(2) The regulations may make different provision for cases defined, as regards the market charge or the subsequent charge, by reference to the description of charge, its terms, the circumstances in which it is created or arises, the nature of the charge, the person in favour of whom it is granted or arises or any other relevant factor.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 261. I am anxious to avoid the difficulty that we got into earlier. Therefore may I just move the amendment and sit down, and perhaps the noble Lord would then like to move his amendment.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
261A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 261.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 261A standing in my name. It is a Motion to disagree. Amendment No. 261 raises a number of problems with which we have to take issue. The original draft, which appeared during the summer, was the subject of correspondence, as I know, between the Insolvency Practitioners'
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Association and the Government. The problem is that it should be the responsibility of the recipient cover for margin to satisfy himself or herself that the property provided is in the beneficial ownership of the provider. That should be the responsibility of the recipient. In our view it cannot be right for the beneficial interests of third parties in trust property to be alienated by statute to cover debts of the market. The proposal as it stands seems to us to be wrong. Therefore we wish to oppose it.
Moved, That the House do disagree with the Commons in their Amendment No. 261.—(Lord Williams of Elvel.)
9.30 p.m.
Lord Trefgarne: My Lords, the first new clause inserted by Amendment No. 261 deals with the narrow set of circumstances relating to specialised financial markets, essentially the futures and options markets which operate a margin system. The clause reproduces, with minor modifications, the effect of Clause 146 and adds a further provision to protect the application by an exchange or clearing house of property subject to certain prior interests in a case where such property is provided as margin in relation to market contracts and the exchange or clearing house does not have notice of the prior interest at the time that the property is provided. This is to ensure that the guarantee of performance in connection with which the margin is taken is not compromised by attempts to pursue possible competing claims.
Perhaps I may explain why the ability to apply margin taken in good faith is so vital. The clearing house provides the guarantee of performance on all the contracts registered with it, typically in excess of 150,000 contacts a day in the case of the London clearing house which clears the main futures and options markets. It is not uncommon for the total daily margin call made by the clearing house to exceed £100 million, and at any one time the clearing house may hold £500 million or more in margin.
It will readily be seen that the exposure is enormous and that there could be very grave consequences if the application of the margin could be prevented or delayed in the event of a default. In a matter of such importance the clearing house will naturally arrange its procedures in relation to margins so as to ensure as far as possible that the margin which it takes is free from any prior right or interest. However, some uncertanties remain; for example, the position in a case in which the firm was unknown to the clearing house, using clients' money to margin its house account. It may be that as matters stand the clearing house holds that money on terms which allow it to be applied in accordance with its rules, notwithstanding that the money should not have been provided to margin those contracts. Even if that were not the case, we think it quite likely that in those circumstances the clearing house's right to apply the property taken in good faith would be upheld over any claim to a prior interest. The clearing house would be in a position analogous to that of a purchaser in good faith for value without notice.

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This is a legally uncertain area, and because the ability to use margin is a crucial feature of the clearing system on which the integrity of the margin markets depends uncertainty here must be just as damaging as in the case of the insolvency law uncertainties with which the rest of Part VII deals. For that reason we have been persuaded that it is right to make provision as to the application of margin in the narrow set of circumstances covered by this clause.
I have explained at a little length the background to this clause and why we believe it is necessary. I hope that in the light of that explanation the noble Lord will feel able to withdraw his Motion and that your Lordships will in due course agree to the amendment proposed by the other place.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, but he has in very clear terms explained the problem. Other people's money can be pledged unknowingly in margin for contract. The other people will therefore and thereby be deprived if the margin is called. The sums involved could be £1 million, £100 million or £1,000 million. It seems to me to be wrong that if someone owns property beneficially and finds his property pledged in margin for a contract, if that contract were called he could lose his money without knowing about it at all. It is a very odd situation. It is up to the recipient of the cover for margin to satisfy himself that the property provided is in the beneficial ownership of the provider. That must be a very basic principle, whatever the sums involved. I recognise what the noble Lord said about the market and how important it is. However, I still believe that it is a fundamental principle of law that somebody's money cannot be pledged on the margin of contracts or anything else without his agreement. Unfortunately that is what the Government have written in. I have no doubt that the noble Lord will wish to speak further to that point when he moves his amendment, if I withdraw my amendment. In that hope, I beg leave to withdraw my amendment.
Amendment No. 261A, as an amendment to Amendment No. 261, by leave, withdrawn.
On Question, Amendment No. 261 agreed to.

COMMONS AMENDMENTS
262 Clause 148, page 146, line 19, leave out from 'property' to 'margin' and insert '(other than land) is held by a recognised investment exchange or recognised clearing house as'.
263 Clause 149, page 146, line 42, leave out from beginning to third 'to' in line 3 on page 147 and insert—

'(a) section 140, (Certain money market institutions) or (Settlement arrangements provided by the Bank of England) (power to extend provisions relating to market contracts), or

(b) section 145 (power to extend provisions relating to market charges),

includes power to apply sections (Application of margin not affected by certain other interests), (Priority of floating market charge over subsequent charges), 147 and 148.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 262 and 263.
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Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
264 Clause 150, page 147, line 17, leave out 'Part' and insert `section'.
265 Page 147, line 31, leave out from 'Scotland' to 'the' in line 36.
266 Page 147, line 43, leave out 'Part' and insert 'section'.
267 Page 148, line 4, leave out 'this Part specified below' and insert 'Schedule (Financial markets and insolvency; provisions applying to pre-commencement cases)'.
268 Page 148, line 6, leave out subsection (5) and insert —
'(5) The provisions of that Schedule ("the relevant provisions") reproduce the effect of certain provisions of this Part as they appeared in the Bill for this Act as introduced into the House of Lords and published on that date.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 264 to 268.
In speaking to these amendments, I speak also to Amendment No. 493. These amendments relate to the provisions in Clause 150 to deal with precommencement cases. Some of the amendments which we have discussed make substantive changes to certain of the provisions listed in Clause 155.
For the purposes of Clause 150 it is necessary to preserve the effect of those provisions in the form in which they appeared in the Bill as first published. The simplest and most straightforward way of doing this is to reproduce the effect of the relevant original provisions in a schedule. That is what these amendments do.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
269 Clause 151, page 149, line 19, leave out from beginning to 'by' in line 20 and insert 'insofar as the making of the order or the doing of the act would be prohibited in the case of a court in the United Kingdom or a relevant office-holder'.
270 Page 149, line 20, at end insert—
'(3) Subsection (2) does not affect the recognition or enforcement of a judgment required to be recognised or enforced under or by virtue of the Civil jurisdiction and Judgments Act 1982.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 269 and 270.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENT
271 Clause 152, page 149, line 35, after 'servant' insert 'or member of the governing body'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 271.
This amendment adds a reference to the members of the governing body of a recognised investment exchange of a recognised clearing house to the list of persons in Clause 152(3) to whom the immunity confirmed by the subsection applies. This simply brings the provisions into line with analogous provisions in Section 187 of the Financial Services Act in Clause 46(1) of the Bill.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENT
272 After Clause 152, insert the following new clause—
'Power to make further provisions by regulations.
. —(1) The Secretary of State may by regulations make such further provision as appears to him necesssary or expedient for the purposes of this Part.
(2) Provision may, in particular, be made —

(a) for integrating the provisions of this Part with the general law of insolvency, and

(b) for adapting the provisions of this Part in their application to overseas investment exchanges and clearing houses.

(3) Regulations under this section may add to, amend or repeal any of the provisions of this Part or provide that those provisions have effect subject to such additions, exceptions or adaptions as are specified in the regulations.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 272.
While I am on my feet perhaps I may apologise to the noble Lord because I did not fully explain the purpose of the last amendment. If he examines the words that I used at the outset of my speech —which I edited slightly to take account of the concerns of the noble Lord that I thought I was meeting—he may find that I did so.
On Amendment No. 272, we have debated the principles of regulation-making powers many times in the course of our debates. I dare say that we shall hear about them again. However, while I recognise that these amendments provide the same power, they represent the implementation of the Government's view on this matter.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
272A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 272.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 272A. The noble Lord, Lord Trefgarne, said quite rightly that we had debated the powers granted by Parliament to the Secretary of State to alter enactments and anything else in any way that he feels fit. Here we have a particularly
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flagrant example. I should like to give the House a quotation from the new clause. It states:
"The Secretary of State may by regulations make such further provision as appears to him necessary or expedient for the purposes of this Part".
That deals with insolvency. The new clause continues:
"Provision may, in particular, be made … for integrating the provisions of this Part with the general law of insolvency … and for adapting the provisions of this Part in their application to overseas investment exchanges and clearing houses".
In other words, the Secretary of State can simply junk all that we have before us in Part VII and say, "I have decided on something rather different. I have decided to integrate it with the general law of insolvency because Part VII violates the general law of insolvency of pari passu"., He can say, "I am now going back to pari passu". He can make regulations which change the primary legislation simply by fiat that to which we object.
I should have thought that by now, having gone through all the procedures and having had all the consultations, the Government would come with a clear statement about what they want in changes in insolvency legislation. They came and said, "We want to violate the pari passu principle. We want to do that particularly in respect of market contracts and market charges". Fair enough. We have argued that in Committee, on Report and in another place. It has been decided.
Now we go back and say that the Secretary of State may cancel all that. I believe that the House should think most carefully before accepting the provision.
Moved, That the House do disagree with the Commons in the Amendment No. 272. —(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, I apologise if I moved Amendment No. 272 in a slightly inarticulate fashion. I now respond to Amendment No. 272A. I recognise the strong feelings which the noble Lord, Lord Williams, and other noble Lords hold about the matter. Nevertheless, I hope that at this stage of the Bill we can avoid a further debate on the principle. I shall explain why we believe that it is necessary to take the powers conferred by the new clause and inserted by Amendment No. 272.
As I am sure your Lordships will agree, Part VII of the Bill deals with complex matters. Insolvency law is complex, as are market procedures. The part must cater for a variety of different markets with different procedures. The markets are constantly developing and changing to meet the requirements of their users and new competitive challenges. The subject with which we aredealing— that is, default —is one where thankfully there is little practical experience to draw upon.
In the circumstances, it is essential that we provide a good deal of flexibility within the legislation to cope with different cases and future developments. Thus, we have from the outset had a number of powers to make regulations in the part. I believe that the noble Lord, Lord Williams, recognised at an earlier stage that some flexibility was needed in provisions of this kind.

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In the course of our consultations on the part it has become clear that there are further matters not covered by the existing powers where modification or adaptation may be needed to deal either with particular cases or future developments. Two examples are given in the new clause but others may occur. For example, Schedule 16 sets out quite detailed requirements in relation to default rules for recognised investment exchanges and clearing houses. The provisions are structured in the light of the market systems as we know them today.
We have concluded that it would be unwise not to leave scope for modification to accommodate new structures which might be more appropriate to the needs of the markets in a few years' time. The terms of the power follow the approach with the powers to modify insolvency law in Clauses 129 and 143 which have been in the part from the outset. The main difference is that the power may be exercised in relation to any of the provisions in the part as opposed to just the insolvency law provisions.
I hope that with that explanation the noble Lord will not press his objection.
The noble Lord asked in particular about the breadth of the power which we propose. I respond particularly to that matter. The power is expressed as one to make what further provision appears necessary or expedient for the purposes of the part. Those are set out in Clause 125 and relate to safeguarding the operating of certain financial markets. I believe that that makes clear enough the limited parameters within which this power may be exercised. I hope that the noble Lord will not press his objections.
Lord Williams of Elvel: My Lords, I am most grateful to the noble Lord for his response. He has not persuaded me but has reiterated the arguments in favour of a regulation-making power for the Secretary of State for the purposes of this part. At this late stage of the Bill, I cannot do very much about that other than divide the House, which would be rather pointless. Therefore, I have to accept that if the Government want to give any future Secretary of State wide powers to regulate this part of the Companies Bill, which deals with insolvency, and simply change the whole enactment, then they can do that. I am very reluctant to abandon this matter and I propose to press my amendment.
9.46 p.m.
On Question, Whether this House do disagree with the Commons in their Amendment No. 272?
Their Lordships divided:

DIVISION NO. 1

CONTENTS

Airedale, L.

Pitt of Hampstead, L.

Carter, L. [Teller]

Russell, E.

Hacking, L.

Seear, B.

Ogmore, L. [Teller]

Williams of Elvel, L.

NOT-CONTENTS

Ampthill, L.

Hooper, B.

Arran, E.

Lindsey and Abingdon, E

Belstead, L.

Long, V. [Teller]

Caithness, E.

Morris, L.

Denham, L. [Teller]

Polwarth, L.

Elliot of Harwood, B.

Reay, L.

Elton, L.

Trefgarne, L.

Fraser of Carmyllie, L.

Trumpington, B.

Henley, L.

Ullswater, V.

Hives, L.

9.54 p.m.
The Deputy Speaker (Lord Ampthill): My Lords, there have voted: Contents, 8; Not-Contents, 19. As it appears that fewer than 30 Lords have voted, in accordance with Standing Order No. 55 I declare the Question is not decided, and further proceedings on the Bill stand adjourned.

Employment Bill
Returned from the Commons with the amendments agreed to.

Local Government and Housing Bill
Returned from the Commons with certain amendments disagreed to with reasons for such disagreement; with certain amendments agreed to with amendments and with consequential amendments to the Bill; with certain other amendments disagreed to but with amendments proposed in lieu thereof and with consequential amendments to the Bill; and with the remaining amendments agreed to; the Commons amendments and reasons ordered to be printed.
House adjourned at five minutes before ten o'clock.