Lords Sitting of 28 March 1990

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

The Lord Bishop of Portsmouth
Timothy John, Lord Bishop of Portsmouth Timothy John, Lord Bishop of Portsmouth—Was (in the usual manner) introduced between the Lord Bishop of Southwark and the Lord Bishop of Chelmsford.

EC Agricultural Intervention Stocks
2.43 p.m.
Baroness Strange Baroness Strange asked Her Majesty's Government:
What is the trend in the level of agricultural intervention stocks in the European Community.
The Earl of Strathmore and Kinghorne: My Lords, European Community intervention stocks have fallen considerably in recent years and are now a fraction of what they were at their peak. For example, cereals stocks have fallen by over 50 per cent., beef stocks by over 80 per cent., and butter and skimmed milk stocks by over 90 per cent. The Community has taken a number of measures to make sure that stocks do not build up again to previous levels.
Baroness Strange: My Lords, I thank my noble friend for that remarkable and encouraging Answer. Does he agree that it demonstrates not only the Government's success in reforming the EC agricultural policy but also their ability to remove mountains?
The Earl of Strathmore and Kinghorne: My Lords, I agree with my noble friend. For many years the United Kingdom has been at the forefront of those arguing for action to tackle the expense and wastage of the CAP. I am glad to be able to say that considerable progress has been made, particularly through the package of measures agreed at the February 1988 European Council. Not only have surplus stocks fallen drastically but expenditure is under much tighter control and well within the agreed budgetary ceiling. We are creating a more rational and sustainable CAP to the benefit of UK consumers and producers alike.
Lord Stoddart of Swindon: My Lords, despite all that the Minister has said, is it not a fact that the CAP is costing every family of four in this country an extra £18 per week? Would it not be better if agricultural policy were repatriated to this country and other countries in the EC so that we can import goods at world prices? Does the Minister agree that such action would help his right honourable friend the Chancellor of the Exchequer in his fight against inflation and perhaps get rid of the ridiculous talk about joining the ERM?
The Earl of Strathmore and Kinghorne: My Lords, I am not sure of the figure of £18.—
Lord Mason of Barnsley: Neither is anybody else.
The Earl of Strathmore and Kinghorne: My Lords, I can give examples of measures which were taken during the past decade. In 1984 milk quotas were introduced. In December 1986 there was a 9–5 per cent, cut in milk production over two years with reduced access to intervention. There was also a cut of around 13 per cent, in beef buying-in prices. During the 1987 price fixing, adjustments were made to cereals and the oilseeds regime to reduce overall support levels. There were the 1988 and 1989 price fixings, and in January 1989 the availability of intervention in the beef sector was further reduced as part of the regime review.
Lord Gallacher: My Lords, is the Minister aware that we welcome the present stock position, even though it has been reached at a heavy cost to taxpayers in general? Can he say whether physical checks of intervention stocks are now made in Britain on a regular basis, and with what result? Can the Minister also say whether he expects better results on stock-keeping in general following the decision to establish the intervention board as an executive agency?
The Earl of Strathmore and Kinghorne: My Lords, the Government are well aware of the risk of fraud and physical checks are carried out. The Government do everything they can to safeguard public funds. As regards the noble Lord's second point, there have been problems with the IBAP. However, they are now being dealt with and payment delays are being significantly reduced.
Lord Williams of Elvel: My Lords, in the friendliest possible spirit I ask the noble Earl to raise his voice. A number of noble Lords cannot hear him when he is speaking at the Dispatch Box.
The Earl of Strathmore and Kinghorne: My Lords, I apologise to your Lordships, but I am suffering from a cold.
Lord Mottistone: My Lords, is my noble friend aware that in his Answer he did not mention sugar as one of the products about which he was inclined to boast? Is not a review of the sugar regime well overdue? Can my noble friend comment on that?
The Earl of Strathmore and Kinghorne: My Lords, there is still over-production of sugar in the world. However, if my noble friend requires information I shall write to him.
Baroness Elles: My Lords, does my noble friend agree that as members of the Community we have benefited from the CAP and that over the past 10 years the item that has shown the lowest percentage increase on the RPI has been food?
The Earl of Strathmore and Kinghorne: My Lords, I agree with my noble friend.
Lord Walston: My Lords, I congratulate the Commission and the Government on the welcome reduction in stocks. However, looking at the long-term future, with a rising world population and a rising demand because of poor production in Eastern Europe, the Soviet Union and possibly China, is the Minister satisfied that supplies of food for this country during the next 10 years are adequate?
The Earl of Strathmore and Kinghorne: My Lords, yes, I am satisfied that this country's food supplies for the next 10 years are in order. However, with regard to Eastern Europe, food aid is not necessarily the best way of helping developing countries. In some cases we can meet short-term needs but that damages the vital goal of encouraging indigenous agriculture. It is much better to supply know-how, machinery and seeds.
Lord Stanley of Alderley: My Lords, can my noble friend say why intervention prices for British producers for cereals are 20 per cent, lower than those for the French?
The Earl of Strathmore and Kinghorne: My Lords, my noble friend is bringing me into the area of the green pound.

Educational Visits: Policy
2.50 p.m.
Baroness David Baroness David asked Her Majesty's Government:
Whether they plan to change their policy on charging for educational field trips, theatre visits and other visits in the United Kingdom and abroad.
Baroness Blatch: My Lords, the Department of Education and Science is commissioning a survey of school visits over the past two years. If there is evidence that pupils are being denied valuable educational opportunities because of the way the law is being applied the Government will be ready to consider ways of improving the position.
Baroness David: My Lords, I thank the Minister for that encouraging Answer. However, is she aware that many people in education are most concerned about the effects of the present policy, particularly in relation to modern languages? Evidence from head teachers and modern linguists to the EC sub-committee on the teaching of foreign languages say that there has been a great reduction in activity by w£.y of visits and exchanges. I hope that the monitoring will continue.
Baroness Blatch: My Lords, the noble Baroness is right: there is concern on many fronts about those activities. However, it is important to wait for the results of the survey. It is likely that other factors must be taken into account. For example, many teachers are now concentrating their energies on bedding-in the new policies in the Education Reform Act.
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Sadly, there is also evidence to show that the industrial action where teachers are working to rule is having an effect in that area. Another factor is the press highlighting of particular tragedies making teachers feel understandably vulnerable for the safety of their children. In addition, the pressure on family budgets will also have an effect. However, I assure the noble Baroness that the survey will take into account all those factors and perhaps we can return to the Question later in the year.
Lord Taylor of Blackburn: My Lords, may I draw the Minister's attention to a report already published on this subject by the association of governing bodies? That has reached the conclusion that there is an overwhelming case to be made for the department to change its policy on this because many schools are already suffering because of the present policy?
Baroness Blatch: My Lords, I believe that it is something of an overstatement to reach such a black and white conclusion. There is some evidence of considerable buoyancy for the more cultural and educational activities. There has been a distinct falling off—and I think this relates to the point made by the noble Baroness—in the number of trips abroad. A distinction needs to be made between those which are cultural/educational and those which are purely pleasurable trips. All those points will be taken into account when the study is carried out.
Lord Montagu of Beaulieu: My Lords, is my noble friend aware that those establishments which provide a proper educational service for schools are finding evidence that school visits are not declining but are sometimes improving? Is not the answer to those who complain to improve their services to schools and provide a proper service rather than just jolly outings?
Baroness Blatch: My Lords, I am grateful to my noble friend Lord Montagu of Beaulieu for making that point. There is considerable buoyancy for those providing a quality service and it is for schools to make a judgment about the service being provided. However, I take on board that there is concern on this matter and that is why the study has been put in hand.
There is also concern about those families who cannot afford to make a contribution. There is an obligation on local education authorities to safety net those particular children so that they do not lose out when educational opportunities are offered.
Baroness Blackstone: My Lords, is the Minister aware that the Arts Council has been receiving reports from all round the country of cancellations of school visits to theatres because some parents cannot afford to pay? Is she also aware of the survey by the Royal Opera House which shows that charges are having the worst effect on those schools where there is less parental support for visits to the theatre, the opera and ballet? In those circumstances, does she agree that charges are widening the gap between privileged and less privileged pupils?
Baroness Blatch: My Lords, we are aware of what is said by the Offices of Arts and Libraries on this issue. That will also form part of the survey. However, it is fair to say that, as regards visits to the theatre or ballet, they are very important in educational terms to all children. However, it is only reasonable, when priorities are having to be determined by both schools and education authorities, that, when it is possible for a family to make a contribution, it should do so because if the service was free to all children then the position would be severely limited.
Lord Jenkins of Putney: My Lords, will the noble Baroness be good enough to ensure that the survey is completed as quickly as possible? I sense that she is not unsympathetic to the points which have been made. It is the case that a number of regional theatres which depend heavily on school visits are complaining that they are already feeling the draught. Therefore, from the other side of the picture, as well as the educational side, this is a matter of some urgency.
Baroness Blatch: My Lords, I have given an assurance that this survey is in hand. However, the point of the visits is not to prop up the theatres but for the children themselves to benefit.
Lord Orr-Ewing: My Lords, as regards children who visit the Palace of Westminster—and most of us have shown children round in our time—very few are compelled to write an essay or to take notes on the visit, which makes them concentrate on what is being said and learn from it. It has sometimes become too much of a jolly outing. The children are chatting to each other and are not listening to the lecture which is taking place.
Baroness Blatch: My Lords, as always, my noble friend makes a very pertinent point. However, I have very painful memories of having a pleasurable day out and then having to write an essay on it.
Baroness Seear: My Lords, have we abandoned the procedure that we take a question first on one side of the House and then on the other? This afternoon we have had two noble Lords speaking from one side of the House and then two from the other. It becomes extremely confusing if we do not keep to the rules.
Lord Peston: My Lords, I agree with the noble Baroness on that. Does not the noble Baroness, Lady Blatch, agree with the noble Lord, Lord Orr-Ewing, that we should introduce some discipline into visits to the House of Lords? I am sure that the noble Lord would be the first to be willing to mark the essays.
More seriously, does the noble Baroness recall that during our discussions on the Education Reform Act 1988 we clarified the question of charging and we supported the Government in their endeavour to make it clear that free school education meant free school education? Can the Minister give us any indication of how her right honourable friend the Secretary of State is now thinking about these matters? Is it not possible that we should go back
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from the clarification and reintroduce some obscurity, because things seemed to go quite well when the matter was obscure?
Baroness Blatch: My Lords, I think that some of us would agree with that but unfortunately cases were often referred to the courts in order to resolve a particular problem. However, it is true that schools were imaginative in providing visits for the children.
We all want our young people to benefit educationally from outside visits if possible and for some of that to take place within school time. Some visits will be directly relevant to the curriculum and others, however important, will be outside it but will nevertheless entail a widening of a child's experience.
I shall not comment on the marking of essays except that it is important and perhaps pertinent to say how much we appreciate the work done by the guides in the House, who specialise particularly in the service which they offer to our young children.
Lord Molloy: My Lords, the noble Baroness has said that the views of the local authorities will be taken into consideration by the department. Will the views of the many voluntary organisations concerned with this aspect of education be taken into consideration together with those of representatives of the teachers' associations?
Baroness Blatch: My Lords, I believe that I can give an assurance that all those factors will be taken into account. Voluntary activities on the part of schools, teachers, parents and sometimes even the children form a comprehensive part of that provision for our young people.

Gurkhas and the Community Charge
3 p.m.
Lord Bramall Lord Bramall asked Her Majesty's Government:
Why Nepalese soldiers from the Brigade of Gurkhas will be required to pay the community charge when, on orders from the Ministry of Defence, they are posted to serve in the United Kingdom.
The Parliamentary Under-Secretary of State, Ministry of Defence (The Earl of Arran): My Lords, liability for the personal community charge arises from the test of sole or main residence. Gurkha soldiers posted to Great Britain are solely or mainly resident here. The exemption provisions from the personal charge under the Visiting Forces Act 1952 are not available to Gurkhas as they are members of the armed forces of the United Kingdom.
Lord Bramall: My Lords, I thank the Minister for that reply. Some would say it indicates that taxation without representation is as evident today as it was in 1767 and that the principle of accountability, which I thought was the object of the exercise, can be abandoned on the slightest pretext. Does the Minister not agree that it is manifestly unfair that a Gurkha solider, who has no vote, no right of abode at the end of his service, who makes minimal, if any,

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use of local services provided —the number of books in Hindi in the libraries of north-east Hampshire being strictly limited—and who, unlike his higher paid British counterpart, previously paid no rates either directly or indirectly should now, from scratch, pay the equivalent for a rifleman in Hampshire of nearly one month's pay?
Does the noble Earl not also agree that the image of a Gurkha soldier from one of the poorest countries in Asia subsidising the highways, byways and social services of affluent Hampshire is both bizarre and a glaring example of a non-political anomaly? I hope that that can be put right.
The Earl of Arran: My Lords, your Lordships know of the very long association which the noble and gallant Lord, Lord Bramall, has had with the Gurkhas. Your Lordships are also aware of the great and glorious deeds that the Gurkhas have performed in the past 175 years. They fought—as your Lordshiips well know—in two world wars, in the Malaya campaign and more recently in the Falklands campaign.
However, I must make two points to the noble and gallant Lord. First, liability for the community charge is not dependent on voting rights since other foreign residents are similarly affected. Secondly, the liability for the community charge is not dependent upon the personal use of local facilities but on residence in the local authority area.
Lord Graham of Edmonton: My Lords, is this not another illustration of the nonsense and inconsistency of the poll tax? Does the Minister not understand that there are visiting forces—that is, Americans and their families—who hitherto paid rates and who in the future will not pay the poll tax, yet there are Gurkhas who will pay the poll tax? Does the Minister not understand that the British people will not accept that the gallant Gurkhas, as the Minister quite rightly described them, should be punished and placed at a disadvantage compared with visiting American forces?
The Earl of Arran: My Lords, the situation is different with visiting American forces, in that they make a contribution towards this country when they are here.
Noble Lords: Oh!
The Earl of Arran: My Lords, I also point out to the noble Lord, Lord Graham of Edmonton, that Gurkha soldiers are eligible for the MoD accommodation charge rebate which will ensure that they pay no more than £1 a week more than the average service community charge.
Lord Hailsham of Saint Marylebone: My Lords, cannot my noble friend, who made a good pedantic legal point, realise that this is an anomaly? Will he communicate to his right honourable friend the Secretary of State that the feeling in this House is almost certainly unanimous, except for his brief, unfortunately?
The Earl of Arran: My Lords, I find myself in a similar position to the one I was in during the war widows' campaign. It would be folly and insensitive not the appreciate your Lordships' feelings in this matter. I have made my arguments, but in the light of the feelings in your Lordships' House I will communicate them to my right honourable friend the Secretary of State.
Noble Lords: Hear, hear.
Lord Wyatt of Weeford: My Lords—
Lord Taylor of Gryfe: My Lords—
Baroness White: My Lords, the Minister has already replied. The noble Lord should sit down.
Noble Lords: Lord Wyatt.
Lord Wyatt of Weeford: My Lords, while I support the noble and gallant Lord, Lord Bramall, on the question of the community charge, perhaps I may ask whether the Government will also consider dropping their foolish intention to reduce the number of Gurkhas and consider deploying them to Northern Ireland where they would put the fear of God into the terrorists, whether so-called Loyalists or IRA?
The Earl of Arran: My Lords, the possible use of Gurkhas in Northern Ireland has never before been taken into account and I seriously doubt that it will be considered now. Last May we announced that although it was not possible to be definite, we should plan on a future for the Gurkhas after 1997 based on a viable brigade structure.
Lord Taylor of Gryfe: My Lords—
Noble Lords: Cross-Benches!
The Lord Privy Seal (Lord Belstead): My Lords, the noble Lord, Lord Taylor, has been trying to speak. We have heard one Cross-Bencher. The noble Lord, Lord Taylor, shall speak.
Lord Taylor of Gryfe: My Lords, will the Minister confirm that members of Scottish regiments, including the Black Watch, on being returned to their barracks during the past year have been liable to poll tax? That is one year in advance of any other member of Her Majesty's forces. Is not that another injustice?
The Earl of Arran: My Lords, that is wide of the Question on the Order Paper. The Question specifically relates to Gurkhas and the community charge.
Lord Carver: My Lords, if the noble Earl is unable to persuade his right honourable friend to drop the liability of Gurkhas to pay the community charge, will he ensure that the Ministry of Defence, when fixing their rates of pay, takes their liability to pay into account?
The Earl of Arran: My Lords, I cannot prejudge the outcome of my session with my right honourable friend the Secretary of State for Defence. I should point out to the noble and gallant Lord, Lord Carver, that Gurkhas have their accommodation and food charges waived and they also do not contribute to ERNIC —the earnings related national insurance charge.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that his reference to his vigorous defence of the treatment of war widows —on which the Government subsequently gave way—indicates some grounds of optimism for those of us who hope that a similar reversal will follow his current defence of the indefensible? Is he also aware that many noble Lords find it quite revolting that these gallant men, whose homes are in Nepal, are made to contribute to English local authorities? I say that with particular emphasis as a Hampshire resident.
The Earl of Arran: My Lords, I should point out to my noble friend that in any particular circumstances optimism is always speculative.
Lord Tordoff: My Lords, if the noble Earl is unable to produce any better answers, and if at some time during the darkness of night he hears a swish, will he take care not to nod his head too hard?

Business
Lord Denham: My Lords, with the leave of the House, I should like to say a word about the two Short debates standing in the names of the noble Baroness, Lady Stedman, and the noble Lord, Lord Jenkins of Hillhead. As the mover is allowed 15 minutes and the Minister should rise to reply not less than 20 minutes before the scheduled end of the debate, in the case of the short debate in the name of the noble Baroness, Lady Stedman, this means that all other speeches should be limited to a maximum of six minutes and in that of the noble Lord, Lord Jenkins of Hillhead, 10 minutes. If any noble Lord should speak at greater length, it would be at the expense of subsequent speakers in the debate.

Consolidated Fund (No. 2) Bill
3.9 p.m.
The Paymaster General (The Earl of Caithness): My Lords, I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read a second time. —(The Earl of Caithness.)
On Question, Bill read a second time.
Then, Standing Orders Nos. 37 and 44 having been dispensed with (pursuant to Resolution of 26th March), Committee negatived. Bill read a third time, and passed.

Community Charge
3.10 p.m.
Baroness Stedman Baroness Stedman rose to call attention to the problems currently accompanying the imposition of the community charge as a means of raising local government finance; and to move for Papers.
The noble Baroness said: My Lords, I begin by saying that 1990–91 would have been a very difficult year for local authorities without the poll tax, but the change from rates to community charge is only one small part of the change. For most local authorities it is a year of "all change".
It would in any case have been a bad year because of the extent of disagreement between central government policy and local authority plans. Local authorities of whatever political persuasion are facing and responding to pressures for increased services. That has been more and more the case over recent years; particularly in education with the Education Reform Act and in social services with the care of the elderly and the run-down of major health service institutions in favour of community care.
Overall, the county councils in England and Wales are planning to spend £1–1 billion more than the Government spending assessment. As counties account for about half the total, this implies a national gap of over £2 billion between the standard spending assessments (SSAs) and the budgets. The average gap in England is £48 per adult, or 7–4 per cent.
Disagreement about spending needs has occurred under all systems of local government finance since 1980—perhaps even back to the days of Tony Crosland and his famous "the party is over" speech. However, this year makes the disagreement more visible because all the excess falls on the community charge rather than roughly half of it on the non-domestic ratepayer as was the case in the past. As I said, this is also the year of "all change".
The SSAs are calculated on a new formula which is equally as complex as the old grant related expenditure assessment. Both claim to assess what an individual local authority needs to spend to meet the Government's idea of standards of service. The changes have been extreme, especially at district level and were impossible to predict in advance. For example, Norwich and Ipswich were supposed to need to spend less than their GREAs in cash terms but rural districts in the same areas were supposed to spend one-third more. Both the GREA and the SSA cannot both be right or both wrong, and neither can such major increases or decreases be achieved in one year.
The national non-domestic rate and revaluation is a major administrative change for district councils which affects all councils as ratepayers; for example, Cambridge City has not formerly paid rates on its properties because of an anomaly in a private Act. It now has to pay them. The new capital controls, reasonable in themselves, have meant reconsideration of authorities' planned capital spending and, as is usual, the figures became known much too late in the budgetary process. On top of

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that, the districts have had to cope with new rules for council housing finance and there is the change to local management of schools and colleges which takes time and effort to get under way. Thus, the community charge, with exemptions, safety nets and transitional reliefs, did not become a clean change of system.
In January the Chartered Institute of Public Finance and Accountancy (CIPFA) made a study of the revenue support grant and found that unless local authorities made substantial cuts in the volume of spending they would not reach the DoE quoted average community charge of £278 per adult. It went on to say that the average community charge was likely to be in the range of £330 to £340 per adult, or some 20 per cent, to 25 per cent, above the DoE figure. How right that proved to be!
The spending assumptions by Government underlying the RSG proposals implied that local authorities would be able to meet the cost of government policies, the effects of inflation, and allow 3 per cent, for increased planned spending levels. Local authorities learned long ago that the Government do not live in the real world where retail prices are about 8 per cent, higher than a year ago and pay settlements are getting into double figures.
If the RSG had been set in line with inflation —by, say, 8 per cent, —the total expenditure figure would have been £31 billion. As it is, the difference between what the Government allow and the right figures means an extra £35 per adult on the community charge. If spending rises to meet the cost of implementing the Education Reform Act, each 1 per cent, of extra spending adds £9 per adult to the community charge. Each 1 per cent, of registered adults who do not pay the community charge adds on average another £3 per adult to the charge of those who do pay.
Putting all this together, CIPFA argued that allowing 8 per cent, for inflation, 1–5 per cent, for implementing new policies and assuming only 5 per cent, registered adults failing to pay, the real community charge should be £344 compared with the £278 that the Government have assessed. The Government assessment does not represent an accurate calculation of the cost of actually providing services. It is the Government's "guesstimate" of the amount that they think local authorities should need. They have ignored the fact that every county has a duty to assess the services required in their county, what they cost, what provision should be made for inflation, and then decide those costs against the ability of their chargepayers to pay.
In order to keep down the community charge in my county area—but still £21 above the Government figure—the council cut back its budget by £7–8 million. In doing so it hit the most vulnerable section of the; electorate—the elderly, frail and the handicapped —by taking away free community care, home helps and meals on wheels for the over-85s, by stopping concessionary fares for the elderly and by increasing the price of school meals. The changes to the bus subsidies saved £0–3 million and the changes in community care £0–8 million. I regret both those changes.
In effect, the Government have proved unhelpful by guessing the counties' decisions and then offering uninformed comments on issues which are properly the responsibility of the elected authorities who are answerable to their electorate through the ballot box.
There is concern about the uniform business rate. That concern is not necessarily over the level of the rate but over the results of revaluation. Revaluation was bound to be painful and there should have been a safety net covering the phasing-in period. We should have preferred a rate rebate scheme for retailers who provide services in village shops. We should also have preferred to see a 10 per cent, ceiling in real terms on increases for small businesses and the phasing in of the system over a longer period; say, eight to 10 years.
What the Government have done is to turn the non-domestic rate into a national tax and then replace that part of local government income that used to come from such rates within the central grant. It may be appropriate that non-domestic rates should become a national tax but the Government could have given a higher central grant and the rest could have been raised by local income tax which would have taken account of ability to pay, would be fairer, simpler to understand and easier to administer.
The SSA formulae are gravely defective, being based on information which is two years or more out of date. In fast growing counties like Cambridgeshire and Buckinghamshire they considerably understate the current need to provide services. There is no allowance or adjustment for varying local costs and counties just outside the London area but in the commuter belt have to match private sector pay rates to obtain and keep staff. The SSA system makes a crude adjustment in favour of London and the South-East at the expense of counties like Cambridgeshire.
The Government have used 1989–90 figures which were especially kept low at the behest of Ministers in order to keep down rates and to return the balances to the ratepayer. However, authorities cannot repeat that "take" from balances and the transitional reliefs have given little or no protection.
We have all read and heard of the difficulties and the cost of registration in Scotland where at least 40 per cent, of the 3–9 million entries on the register have been altered in the past year. Strathclyde region has been making 10,000 to 15,000 amendments a week. The Grampian region has made 195,000 changes on a register of 380,000. I checked with my city treasurer in Peterborough. His department has made strenuous efforts to complete the register and it is claiming a success rate of over 98 per cent., but at what cost and effort! The administrative cost, including benefit, will increase by £1–2 million or 151 per cent., compared with the cost of the old rating system. In 1989–90 the preliminary cost was £850,000 of which £157,000 was met by specific government grant.
Three or four members of staff have been fully engaged all this time on registration, exemptions, anonymous registrations and the impact of people movement within the area. Under-rating—except

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for those with benefits and movements within households had no effect at all; it was only the movements of complete households that had an effect. Implementing the new computer software for the new system and for rebates was not helped by late announcements of transitional relief and extra help for pensioners and the disabled.
Staff recruitment was another headache but it has been a success. The department anticipates that well over 111,000 bills will go out to households early in April but only because 20 members of staff worked double shifts and at weekends. At present 28,000 bills will be abated by rebates. The authority believes that another 7,000 to 12,000 people could apply who have not yet done so. Last week's Budget announcement raising the limit of savings, which I welcome, could mean another 20,000 to 30,000 people applying for rebates in my city area.
A large part of the increased cost comes from the higher volume of accounts—that is, 120,000, as against 50,000—and the need to keep the register up-to-date. That has required 42 extra staff and the necessary accommodation, new computer systems, extra equipment to cope with the increased volume of work and initiatives to help the public. Overall it seems that administration costs for the community charge will be two-and-a-half times that for the old rating system.
Many more people can now claim benefit and I welcome that. However, have the Government any idea what will be the ultimate cost in rebates? Have they any idea what this last-minute concession will cost local authorities in yet extra administration and staff costs? Capping has been threatened. What criteria will the Government use? They cannot base capping on the tax levied; they must use the authority's budget What will be the criterion? Will it be the SSA; the increase in the community charge over last year's rates; the percentage change in spending plans from one year to the next, or a combination of all three?
Capping can be a very complicated and time-consuming process. It can only end in anomalies and more ill-feeling. Alan Travis, writing in the Guardian recently, suggested that a graph showing how the capping system could work could resemble a four year-old's early attempt with a spirograph set. When will the Government accept that no two counties, districts or parishes are identical or have the same needs?
Some time ago the Prime Minister spoke of publishing a list showing the figures if rates had been retained compared with the community charge. When will that information be available? What will the Government do next year and the year after, to make the SSA more reasonable? Will they revert to the old rating system; will they introduce a local income tax; will they put billions of pounds back to local authorities in a grant to lessen the future impact; will they take away services like fire and police from local government; will they cap every authority on the same charge; or will they perhaps take the line of least resistance and abolish local government and run it all centrally? As suggested to
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me at the weekend, is Marsham Street in a state of confusion? A description I heard likened Ministers and officials to the crew of a train when the brakes have failed and it knows that the buffers will not absorb the impact. My Lords, I beg to move for Papers.
3.25 p.m.
Lord Colnbrook: My Lords, I begin my remarks by reaffirming my belief that the idea of raising revenue from local people by a community charge is very much better in principle than the system of charging rates that we have at the moment. After all, every single thing that a local authority does is for the benefit of people, whether it is the provision of schools, roads, street lighting, parks, libraries or whatever. All these provisions are for the benefit of people. It seems right that it is the people who should pay for them.
We have been told that in the system we have at the moment, until now only half the people pay for the services. That cannot be right because it means that the other half of the population who have no responsibility for paying at all but who have the vote, can vote into office people with extravagant tastes knowing that the non-payers will not have to foot the bill at all. If democracy means anything to me it does not mean that. The principle of the community charge for this purpose is very much better than anything we have at the moment. I do not suppose that your Lordships can possibly envisage a government starting from scratch coming to this House, and saying that they were going to invent a new system for raising local revenue by reference to the alleged value of somebody's house 17 years ago and that only half the people would pay regardless of whether or not they could afford to. Such an idea would be laughed out of court.
I believe that the new system is very much better. However, there are difficulties and that is natural with any new system. It is bound to have difficulties. I shall refer briefly to three of them. First, as we have been told, until now half the people have not paid anything at all and now they will have to do so. They are not going to like it. I have not met anybody who likes paying any kind of tax. Somebody who, all his life, has paid nothing at all and is now told that he has to, is going to be disgruntled. I do not think that one can do very much about that, but it is a difficulty.
There are two other matters about which the Government can and should do something. The whole system of local government finance is hideously complicated and I do not pretend to understand it. I believe I am right in saying that I am in a majority in the country in that regard and possibly in a majority with the Members of your Lordships' House. Local government finance is hideously complicated. It must be said that the new system is not entirely straightforward, either.
All these factors give rise to the possibility of misunderstanding. That misunderstanding is now very widespread, particularly as to why the charges in some areas are larger than in others. Perhaps I may give a precise example. I live in Berkshire. The community charge in Berkshire, depending on

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precisely where you live, is high. It is well over £400. People do not like that very much and so they ask why. Understandably, the Berkshire County Countil says that it is the Government's fault, and, in terms, the Government say it is the fault of Berkshire County Council.
Recently, I watched the "Panorama" programme. The Secretary of State for the Environment, on being asked about Berkshire, said, "The trouble is Berkshire is spending 25 per cent, more this year than it did last year". At almost exactly the same moment, the Berkshire County Council petitioned the other place. The Petition begins like this:
"The Humble Petition of Berkshire County Council, Sheweth.
"That its budget for 1990–1 of £411 million is 4% less in volume terms than that of 1989–90."
No way can they both be right. I do not know who is right. The truth of the matter is that until the moment, nobody does.
Lord Mcintosh of Haringey: My Lords, since the noble Lord has the Petition in front of him, can he confirm that it is counter-signed by the county treasurer?
Lord Colnbrook: My Lords, so it may be. I have read it out and I am inviting your Lordships to consider the difficulty that we are in. So what happens? Ordinary people, of whom I count myself one in this regard, say, "I don't know whose fault it is. It must be the Government's fault because the Government brought the wretched thing in". I do not know but I am sure that this type of misunderstanding is widespread throughout the country. The Government owe it to us all to give a great deal more time, energy and trouble to explaining the whole thing than they perhaps have been able to do up until now.
My second point was dealt with at some length by the noble Baroness in opening the debate. There is a good deal of argument about the standard spending assessment. Most authorities disagree with what has been decided. It has been decided, as I understand it, in Whitehall. It smacks to me slightly of the old saying that the gentleman in Whitehall knows best. I am not always convinced that the gentleman in Whitehall does know best. I hope that in the coming year the Government will go carefully, deeply and thoroughly into the whole basis of the standard spending assessment, county by county, and do it on the ground and not in an office in Whitehall. They should go to the areas and see for themselves. If those two difficulties can be got out of the way, this new system —which, as I said at the very beginning, I totally support —will have a much easier ride.
3.32 p.m.
Lord Hughes: My Lords, we must be grateful to the noble Baroness, Lady Stedman, for giving us the opportunity to discuss this matter today. I should like to add to that my congratulations on the way in which she presented her case. I agreed with almost everything she said, although I am not so sure about a local income tax.
Today the Secretary of State for the Environment met with local authority officials. He said, according
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to the one o'clock news, that the poll tax would do two things. It would bring about more accountability and it would increase turnout at elections. He will probably be right if past experience is anything to go by. Events in Scotland during the past two years have shown that the electorate hold the Government accountable, so that is where accountability lies in Scottish terms. The accountability of the Government had this effect. They lost 11 of their 21 parliamentary seats in Scotland. In ensuing local authority elections, unfortunate Conservative councillors seeking re-election also felt the stick across their backs. The figures at last week's by-election, where there was an extraordinarily high turnout of approximately 75 per cent., show that the electors also know where accountability lies.
The noble Lord, Lord Colnbrook, was concerned about fairness. In Scotland, a low paid worker in the health service, living in Edinburgh, with a wife at home looking after two young children, will pay exactly the same amount in poll tax as the Secretary of State for Scotland. Perhaps the Secretary of State thinks that fair. Obviously, the electors in Edinburgh did not think that it was fair.
My next point concerns what was said by the Minister of State for Scotland on 30th June 1987. I told the noble Lord, Lord Sanderson, that I would be quoting him. I was going to say that I warned him, but I do not need to say "warned" because I told him that I would not be quoting him in any hostile way. On 30th June 1987, in reply to a supplementary question at Question Time, the noble Lord, Lord Sanderson, said:
"However, if refinements are made to the proposals [for England and Wales] we will of course consider whether any parallel changes need to be made to the Abolition of Domestic Rates Etc. (Scotland) Act".
I believe that it was his first day as Minister of State. However, he was sufficiently confident of his answer to be able to repeat it. He said:
"However, as I have said—and I think I ought to repeat it—if refinements are to be made to the proposals we shall consider them in relation to the Scottish Act if and when that is necessary".—[Official Report, 30/6/87; cols. 119–121.]
We know from our experience in the House of the noble Lord, Lord Sanderson, that he is an honourable Minister. Unlike some of his colleagues on the Government Front Bench, he frequently gives us answers which we understand and which often relate to the question that has been asked. So this was a good quotation to bring to the attention of the House.
In the Budget debate last week the Chancellor of the Exchequer showed that he was ignorant of Government policy as it had been stated by the noble Lord, Lord Sanderson. It must have been Government policy because the noble Lord was neither repudiated nor were his remarks amended in all the time that has passed. In increasing the savings allowance for a couple from £8,000 to £16,000, the Chancellor of the Exchequer either did not know Government policy on this matter or chose to ignore it. In the result, if the Prime Minister could have made anyone else Secretary of State for Scotland we would have had another one. Instead, the Prime Minister had to stand up in the House of Commons and make a U-turn.

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What other lessons can those on this side of the Border learn from the experience of the poll tax in Scotland? I live in the Tayside region of Scotland. It was obviously not possible for me to obtain figures for the whole of Scotland but I thought that Tayside was unlikely to be very different from other areas. I am told that at the beginning of February 26,000 people had either paid nothing or were seriously in arrears. They account for 9 per cent, of those who had registered for the poll tax. Of those 26,000, 15,000 had paid nothing. In other words, six people out of every 100 had paid no poll tax.
I wanted to find out whether a comparison could be made with the previous position under the rating system. In the last year of the rates non-domestic ratepayers who paid their rates directly to Tayside region accounted for 2 per cent, of the number. Tayside could not give me a figure for those in council houses who paid combined rent and rates to the local authority but it is probable that this would account for another 2 per cent. The figure for non-payers or reduced payers was 4 per cent, in the last year of rates. The figure is 9 per cent, in the current year. This must add to the difficulties of local authorities and does not bode well for how much the poll tax will be next year. I suggest that those South of the Border would do well to do what the Government have not done; look to Scotland to see what will happen to you.
3.38 p.m.
Baroness Robson of Kiddington: My Lords, I am grateful to the noble Baroness, Lady Stedman, for introducing the debate. But in view of the limited time we have to speak on this important subject I shall confine myself to one of the most unfair aspects of the poll tax legislation. Noble Lords will not be surprised to know that it deals with the position of student nurses.
When the Bill passed through this House I tried on three occasions to amend it. At Report stage I obtained support from your Lordships' House so that my amendment was passed with a majority of 20. The Bill went to the other place but the amendment was turned down. It came back here with a government amendment to replace my amendment. I was not happy with it so I tried to amend the government amendment. But, unfortunately, I was intimidated by arguments on the constitutional position. I now understand that I could have insisted on my amendment, and I wish I had. As a result, we have to deal with the problem as it now stands.
At present we have 2,000 student nurses training under Project 2000 and therefore they receive an 80 per cent, rebate. However, we have between 58,000 and 68,000 student nurses who receive no rebate. What has added to the feelings of student nurses and to the unfairness with which they feel they are being treated is the recent announcement that some RAF apprentices, and probably in the future various MoD apprentices, have been granted an 80 per cent, rebate. This has been done in the Aylesbury Vale district with RAF trainees from Halton and also with apprentices at Fillingley in the Doncaster area.
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They will only have to pay 20 per cent. These are apprentices who earn between £4,000 and £9,000 a year. No wonder the nurses feel badly done by.
The RCN held its annual conference this week in Brighton. One of the student nurses who comes from Lambeth challenged the Minister, Mrs. Virginia Bottomley, about this anomaly. She pointed out that she would have to pay £580 per year community charge as a student nurse. In The Times on 27th March it was reported that the Minister replied that there was no relevance in the comparison with those in the armed forces because they have a different employer. Since when has it become relevant to one's liability to pay the community charge who one's employer is? In my innocence I thought that it had something to do with one's ability to pay. I believe that the student nurses have a grudge with which the Government should deal.
What can we do? The Government are already nervous about the reduction in the recruitment figures for nursing. The figure was down by 13 per cent, last year and the Government have launched a £5 million advertising campaign to increase the intake. However, it will not help if student nurses are being treated in the way that I have just described. But the anomaly, even at this late stage, could easily be resolved. Under Section 30(1) of the Local Government Finance Act 1988 the Secretary of State for the Environment has the power to define the student category by regulation. He could simply issue a regulation under that power to allow all nursing students to pay 20 per cent, of the poll tax. Moreover, such an action would not be an openended financial commitment as the number of students pursuing the non-Project 2000 courses will be limited and rapidly shrinking in the next few years. Therefore it seems unnecessarily rigid not to treat them the same as students studying under Project 2000.
Therefore if the Government concede—which they do—that all nursing students in the long term will pay just 20 per cent., why penalise now those students whose period of education, through no fault of their own, falls by chance into the phasing-in period of Project 2000? I ask the Minister to use his influence to persuade the Secretary of State to exercise the powers that exist under Section 30 of the Local Government Finance Act and resolve this very unfair discrimination against student nurses.
3.44 p.m.
Lord Monson: My Lords, it is of course highly desirable that the link between representation and taxation should be strengthened at local government level to the degree that already exists at national government level. Therefore, it is right that every adult should pay something towards the cost of local government services and that that something should vary according to the prudence or extravagance, as the case may be, of his or her local authority so as to encourage thrift and value for money. However, the present formula is not right and is widely resented, as those of us who supported Lord Chelwood in principle forecast. It is resented for a good reason.

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The current agitation over the poll tax is not as the Government suppose a nine-days wonder. It is highly anlikely, as Ministers claim, that in a year's time everyone will be wondering what all the fuss was about. The reason that that will not happen is that the nickname given to the community charge —namely, the poll tax —by the public and the press is an accurate one. The so-called charge is by and large a tax and not a charge in the normal sense of the word. No one is compelled to pay for a road fund licence unless he has a car which he uses at least once a year. Similarly, no one is compelled to pay for a television licence unless that person has a television set in working order which is supposedly used, if only spasmodically.
The community charge does not fall within that category. Every citizen benefits from the theoretical 24-hour seven day a week protection afforded by the police and by the fire services. Moreover, every citizen benefits from street lighting, street cleaning, refuse collection, road and pavement maintenance and, arguably, parks and other open spaces. By no means does every citizen benefit from local authority housing, social services, adult education, libraries or sports centres, let alone those projects rumoured to be favoured by loony-left Labour-controlled councils; for example, educational visits to such bastions of democracy as Cuba and Albania, or the legendary lesbian and Rastafarian theatre workshops. Further, not every citizen benefits from expenditure on education. Most bachelors and spinsters and, by definition, all childless couples are incapable of so doing.
Therefore, the community charge is for the most part indeed a poll tax. It is also a direct and not an indirect tax. Direct taxes in this country—and indeed in every other country I can think of—are traditionally broadly proportionate to the taxpayer's income. The current non-progressive nature of the poll tax means that it bears with particular harshness on those just above the rebate limits. Many of these people, incidentally, are skilled blue-collar workers who voted Conservative for the first time in 1979 and may now be regretting that decision. It may well be that the poll tax absorbs 7 or 8 per cent, of their gross income, and possibly even more in some places.
What then is to be done? First, I suggest that we should remove the petty unfairnesses which infuriate everyone. I refer to, for example, the imposition of the poll tax on beach huts and also the unfair treatment of student nurses to which the noble Baroness, Lady Robson of Kiddington, referred. Secondly, I suggest that we should make the funding of education, as opposed to the control of education, a central government responsibility. That could be paid for partly by limiting tax relief on mortgage interest to the standard rate of tax and partly—because in my view there is a case for taxes on property which to a large extent is exempt from taxes and which has every sort of tax break—by restoring stamp duty on property transfers to their previous level but making this payable by the vendor and not by the purchaser. In that way first-time buyers will be greatly assisted and at the same time it will mean that affluent middle-aged couples on the verge of retirement, who are selling large houses
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so as to move into smaller ones, will be able to contribute modestly to the Exchequer.
Can the poll tax, shorn of its responsibility for education, be made more progressive? The answer is: only with the greatest difficulty. It would make a tax which is already complicated, as pointed out by the noble Baroness, Lady Stedman, still more complicated. Local income tax also raises many problems which are too numerous to enumerate on this occasion. Surely the right answer to the non-progressive nature of the poll tax is to make national income tax somewhat more progressive. The present 25 and 40 per cent, tax bands could be abolished, not least because a marginal starting rate of 25 per cent, is already far too high, especially taken in conjunction with national insurance contributions of 9 per cent. Instead three rates should be introduced: say 15, 30 and 45 per cent. This would be considered a fair solution by most people, I suggest. It would greatly help those earning between £5,000 and £10,000 per year and incidentally greatly improve the Government's chances at the next general election.
3.50 p.m.
Lord Taylor of Gryfe: My Lords, this is an anniversary. I am sorry that the late Lord Ross of Marnock is not here to listen to the debate. It is almost three years to the day since this tax was introduced into the House by the noble Lord, Lord Glenarthur. He said at col. 1324 of the Official Report for 17th March 1987:
"The benefits which the new system will bring to these deserving sections of society… as well as the greater degree of fairness … make this Bill one of the most… worthwhile pieces of… legislation",
that has come before this House. The noble Earl, Lord Caithness, supported this when the English tax was introduced by saying at col. 829 of the Official Report for 9th May 1988:
"Now is the time to move to new and fairer arrangements". I emphasise "fairer".
"This Bill will give us that".
Since we have had the experience of the tax in Scotland it may be worth while to check whether this advice has been fulfilled. Strathclyde University has just conducted a survey of the impact of the tax on the Strathclyde region. It revealed that wealthy households in three of the most expensive residential suburbs of Strathclyde are making substantial financial gains under the community charge at the expense of poll tax payers in the remaining 16 parts of the region. That does not suggest that there is any degree of fairness in the tax. If there is one thing wrong with this tax it is that it is taking from the poor and giving to the rich. Basically that is what is wrong with it.
So we continue. The noble Lord, Lord Glenarthur, said on 17th March 1987 that the ratepayers supported the Bill; it was good for democracy; good for local accountability and good for Scotland. One would think that the Scots would all be lining up to pay the tax, but that is not quite the case. They usually recognise a good thing in Scotland but latest figures on payment of the tax in Scotland suggest that to say the least, there is a certain reluctance. I

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checked the figures and published them in The Times and they have not been challenged. The position is that 3.8 million Scots are liable for the tax, which was introduced in April 1989. Of those, 800,000 have paid nothing or are more than three months in arrears. Included in that figure are 375,000 non-payers against whom sheriff warrants have been issued. The banks and the Department of Social Security have indicated that they cannot handle the recovery based on that number of sheriff warrants.
Thus the tax is not welcomed by the Scots. There is reluctance to meet the requirements of the legislation. I do not support the people who say that they should not pay the tax. I believe that if the law is passed people should obey it and try to change it. I have little time for people who choose which laws they will support. However the figures I have just given to the House indicate that there is a large-scale gesture of protest.
The cost of collecting the tax has already been discussed. It costs more than twice as much to collect the same amount of money. No business could justify a policy that costs twice as much to collect the same amount of revenue. One of the problems is that, because of the new demands on local authorities under the new care in the community legislation, local authorities have additional burdens to carry. On top of that, they will only be refunded for the excess in costs of the poll tax collection in Scotland to the extent of 50 per cent. Local authorities are suffering from the fact that people are not paying. There is a considerable cash flow problem for local authorities, which are hard pressed to fulfil their obligations in many social services.
I am glad that the debate has been so well introduced because, while we shall not change the law, under this Government at least, we should emphasise the iniquities of the law that has been passed.
3.55 p.m.
Lord Jenkin of Roding: My Lords, I had not realised that I would follow the noble Lord, Lord Taylor of Gryfe. I informed myself of the exact position in Scotland about the non-payment of the tax. Noble Lords may be interested to have the answer. Contrary to what one has read in certain press reports—some of which have been totally misleading, based on entirely false information —the vast majority of people in Scotland are paying the community charge. I understand that 98 per cent, have now paid in many areas.
Even if one takes the region with the highest rate of arrears—which I think is Strathclyde—and compares the figures with the arrears of rates under the old system, the figures are comparable. I beg the noble Lord, Lord Taylor, not to base his arguments on figures which have appeared in the press but which bear little relation to reality.
A point has to be made about this. I shall come back to Scotland in a minute but the people in Scotland realise that those who do not pay simply oblige everybody else to pay more. There is great resentment in Scotland as it has become known that
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people are trying to argue that they should withhold the poll tax. Some demonstrators are saying, "Can't pay, won't pay". I make that point clear.
My noble friend Lord Colnbrook reasserted the principal arguments for the community charge, indeed for the whole reform of local government finance. I entirely support them, I believe that as the tax beds down so the advantages will become clear.
As regards switching costs from the rich to the poor, the simple fact remains that if we take the totality of local authority spending and ascertain who is covering it, both through the community charge and other forms of payment, the top 10 per cent, of households pay by income something like 15 times as much as the bottom 10 per cent, of households by income. That statistic remains broadly true. It is a larger differential than applied under the old system. It seems to me to be the key point in regard to the rates system. My noble friend made clear that the rates system was wildly unfair and that is why it ceased to be operable and had to come to an end.
What has gone wrong—if I may put it that way—for there to be such an enormous uproar? I now refer to England and Wales. The answer lies in the substantial increase in expenditure which local authorities have chosen to undertake this year. It is a familiar pattern: no county council elections this year, so up goes the county council budget. That has happened in previous years and it is happening this year. I feel sorry for many of the little district councils which are the bodies that issue the community charge demand notice. They add their own charge to that of the county council and they have tended to be picked on in the press.
If we examine the problem, local authority spending is now £3 billion above what the Government estimated needed to be spent. The key point is that if that had happened without a change in taxation there would have been a 30 per cent, increase in the rates. People are comparing their poll tax figures with the sums that they paid last year. However, they should compare them with the sum they would have paid on the same expenditure this year. That would have meant a 30 per cent, increase. It is important to recognise that point. Furthermore, if the former system had been maintained, there would have been a revaluation. My noble friends from Scotland will remember the horrors that that caused some years ago in Scotland. One must make comparisons realistically.
Further, people do not yet know what their rebates will be. They have not yet had any rebate notices. One in four people will be entitled to a rebate. Many people are badly frightened that they will be unable to pay the full amount that they have seen quoted in the press. When they receive their rebate notices, that aspect of the matter will begin to put itself right.
I shall return to the situation in Scotland. Although this is the first year that the community charge has operated in England and Wales, it is the second year for Scotland. In Scotland in the first year of operation there was a substantial increase in spending. As a result, in the first year of operation the community charge was far higher than people had expected. But

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what has happened in the second year in Scotland? Local authorities in Scotland are planning to increase their expenditure by nearly £400 million. That is an overall increase of 9–6 per cent., or under 10 per cent. The Actual increase in expenditure for the previous year was nearly 12–5 per cent. Therefore, there are grounds for saying that the high increase in spending in the first year of the community charge —local authorities thought then, apparently with some justice, that they could blame the Government—is perhaps slackening off in Scotland in the second year of operation.
Now people are beginning to realise, as they make comparisons between the community charges set by different local authorities, that it is the local authorities that spend responsibly and keep their expenditure under review that impose a lower community charge. I advise noble Lords to take heart from that situation. This matter will iron itself out. There may be some anomalies that need to be dealt with, but the second year of the operation of the charge in Scotland is a good deal better than the first year.
Lord Hughes: My Lords, the noble Lord said that there tended to be lower taxes in a year where there are elections. I should say that there will be elections in Scotland in May.
4.2 p.m.
Lord Stallard: My Lords, the noble Lord will not be surprised to hear me say that I shall not follow his line of reasoning. I recognise that the noble Lord claimed authorship of the whole policy when he spoke on the Local Government Finance Bill when it went through your Lordships' Chamber in May 1988. The noble Lord claimed that he had invented the poll tax and had persuaded the Cabinet to adopt it. Therefore, he was bound to come out with some propaganda in favour of it. The noble Lord said that no one yet knows who will be entitled to rebates, or how much they will get. But in the next sentence he said that one in four people will be entitled to rebates. How does the noble Lord know who will be entitled to rebates if no one else knows that? That puts the whole matter into context.
It has already been said that this tax is unfair and is unjust. Furthermore, it is extremely complicated. It is for those reasons and for the reasons given in the ex:ellent opening speech of the noble Baroness, Lady Stedman, on the difficulties that local government have faced, that I have continually opposed the community charge ever since it was first proposed. As I said, it is unjust because the poor will pay more than the rich. We all know that. We all know that the Duke of Westminster, for example, will pay a lot less than many pensioners in inner London. That must be unjust.
I do not have to remind noble Lords of the original poll tax of 1379 and 1381. However, in that poll tax there was some consideration of people's ability to pay. There was some kind of rough justice. The poor paid one groat while the rich paid 50 groats. There were riots because of that tax. What I am about to say has nothing to do with the present situation of the Archbishop of Canterbury; but in former times the Archbishop and the Chancellor were executed
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by the mob who were protesting about the unjust poll tax. To reintroduce a measure that has such a long history of unfairness is typical of some noble Lords opposite. We only have to look at the record to know that. The community charge is also unfair because it imposes on deprived inner London boroughs and other inner city boroughs the payment of subsidies. Those boroughs have to subsidise wealthy Tory boroughs.
Figures have shown—they are not my figures—that deprived inner city boroughs are having to subsidise wealthy Tory boroughs by means of the safety net. Camden, for example, is subsidising Wandsworth to the tune of £75 per head. That does not make sense in anyone's language, except if one's whole policy is based on spite, vindictiveness and personal electoral gain and has nothing to do with accountability or fairness. In that case, the community charge would make sense; but it does not make sense for the inner London boroughs.
It is unjust that the blame is being laid on Labour councils. The whole justification that the Conservative Party uses for the community charge is the profligate spending of Labour councils. However, Government figures themselves show that many Tory councils are levying poll taxes that are just as high as those levied by Labour councils.
The noble Lord, Lord Colnbrook, said that he did not understand the community charge as he did not have much local government experience. However, he then went on to explain it. He obviously did not understand that as many Tory councils are levying high community charges as Labour councils. I came across some figures which showed me that the local councils of—these include the councils of nearly every Cabinet Minister's constituency—the Prime Minister through to the Leader of the House, the Chairman of the Conservative Party, the Defence Secretary, the Chief Whip, the Social Security Secretary, the Chief Secretary to the Treasury and the Agriculture Secretary, are all imposing a higher community charge than the Government's assumed figure. The lowest overshoot is about 8 per cent., while the highest is 38–7 per cent. The highest overshoot occurs in the local council of the Secretary of State for Agriculture.
The local council of the Chancellor of the Exchequer is overshooting by 29 per cent, the Government's figures. Where are all those profligate Labour councils that the Government blame for overspending? If people studied those figures, they would come to the conclusion that I have reached, which is that the community charge is unfair and unjust. It is also unworkable because it is so complicated.
The rebate schemes and the transitional payment schemes have been mentioned with some pride by some Ministers. The noble Lord who spoke before me mentioned the rebate scheme. However, the rebate schemes are not what they should be either, because rebates are not worked out on community charge figures. They are not even worked out on rate figures. Government documents state that the calculation does not necessarily depend on what a person actually paid in rates or what his local community charge is. It depends on assumed rates,

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averaged out by the department and on an assumed personal community charge based on the figure that it would have been had everything been all right and had the council concerned done what it was told and if the Government had agreed that the council was spending properly.
However, the charge payer has to pay any difference. In some cases the difference is as much as £300. A 30 per cent, increase in rates has been referred to. I should say that a lot of people would have been happier with that situation than with the increases that have been imposed on them through the community charge. I know shopkeepers in the inner London boroughs of Camden and Hampstead who would have been delighted with a 30 per cent, increase.
My time is up. I could speak for another hour on the community charge. I shall merely repeat that it is unjust, unfair, complicated and unworkable. The Government will be sorry that they ever introduced it.
4.9 p.m.
Lord Harmar-Nicholls: My Lords, I am sorry that the noble Lord used a particular phrase because I am certain that noble Lords will completely disregard any case which is based upon the premise that a government have been deliberately vindictive. That approach to a problem such as this puts the whole matter out of court regarding our attention. The Motion is a good and fair one. It is the kind of Motion that we should have in mind at the beginning of the imposition of the community charge with the idea of returning to it as the measure progresses. The speech of the noble Baroness in support of the Motion was 90 per cent, acceptable to all sides. However, she could not help herself in speaking with a certain prejudice as regards 10 per cent, of her speech.
Everyone knew that there would be problems when we moved from the old rating system to a new system. The Motion states that, as expected, there are problems. Let us start looking at those problems and see how we can alleviate them for as many people as possible. That was the main burden of the speech of the noble Baroness. There was no vindictiveness there. That was common sense. That is how parliamentarians ought to do their work.
We also have a responsibility beyond debating with one another. We have a platform, and what we say is usually taken up by others. It either makes people outside uncertain and worried or it puts them on the right track. At the end of the day, in the other place in particular, we are given power of attorney to think such matters out on behalf of the electorate.
Where we make a mistake, even in this debate, is in suggesting that it is the community charge alone which covers the cost of local government expenditure on projects which are shared by everyone. We ought not to approach the matter from the point of view of the community charge meeting all local government costs. We owe it to the people who are not in the same position as we are regarding the calculation of the figures, to say exactly what the expenses are and where the money comes from.
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When we talk outside the House on the matter, we ought to ensure that we explain that half of local government expenditure is paid for from government grant in any case and has nothing to do with the individual. If we are to be fair, we ought to point out that one quarter of the remaining half comes from the business charge, which has nothing whatever to do with the individual. It is only the remaining quarter that the individual is called upon to pay. Yet the individual gains almost all of the benefits that arise from local government expenditure. I am sorry that the noble Lord, Lord Hughes, who is usually very fair and sensible, should use the example of a person in the position that he described who pays the same community charge as the Secretary of State for Scotland. Then the noble Lord dragged in the poor old Duke of Westminster.
Noble Lords: Oh!
Lord Harmar-Nicholls: I have not heard one single argument without the Duke of Westminster being brought into it. What does the Duke pay towards the cost of local government expenditure from which everybody benefits? We all have our little machines, so we can work it out. We have access to the Blue Book which will tell us whether or not the formula that we work to is the correct one. I should like to put on record one or two figures which could answer the noble Lord, Lord Hughes, if he is prepared to listen. However, I do not believe that the noble Lord, Lord Stallard, will accept them, whatever I say.
The position is that if someone has an income of £300,000 a year, they pay £105,271 in tax. Of that £105,271, £20,000 goes to local government in the form of the government grant. He is left with the standard charge of £572 for two people in one house. Therefore the total contribution towards local government expenditure made by the £300,000 a year man —and I do not know many of them —is £24,824, which is 25 times as much as the average wage earner with £12,000 a year.
Now I come to a more reasonable figure, which is probably in the area of that for the Secretary of State for Scotland. If someone has an income of £50,000 a year, they will pay £13,471 in tax. Of that, £2,694 is the proportion which goes towards local government expenditure. Add to that the £572 standard charge, making a total of £3,266. That is three times as much as the £12,000 average wage earner.
All of those figures, and other graduations, are to be found in the Blue Book. Noble Lords will see that all the nonsense talked about local government expenditure being paid for not by those who have the money but by ordinary people on low incomes is not true. We owe it to everybody—and we are in a position to work it out for ourselves—to see that people outside understand that when forming their judgments.
Having said that, of course there are problems and there will be problems. The Government made an additional £2 billion available, on top of what they thought would be the cost, in order to answer the points mentioned by the noble Baroness about inflation and the additional responsibilities of local government. The Government made that sum

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available in the belief that it would cover those factors. They still believe that it will cover them if there is not too much extravagance. If it is not enough, we must use our power—as the noble Lord did at Question Time this afternoon—to see that individual problems are sorted out. In the meantime, I do not believe that we ought to frighten people outside by misrepresenting the facts.
4.15 p.m.
Lord John-Mackie: My Lords, many of the arguments which have been put forward today, particularly by the noble Lord, Lord Jenkin of Roding, have been based on estimates. I propose to put forward the actual figures as they affect the 15 people who live on the farm which I occupy in Essex. There are seven houses on the farm. Three of them are let That is because of the increased efficiency in agriculture over the past 30 years or so since I built the houses and because of the reduction in production. If my noble friend Lord Stallard has his way, the other three will also have to be let in a few years' time.
The rent of the houses which are let includes the rates. The total rates for the three houses are £1,418. There are seven adults living in those three houses. Their rents will be reduced by the amount of the community charge because I believe that to be only fair. They will each pay £381 (which is what Epping Forest District Council has fixed as the community charge) making a total of £2,667. They are therefore £1,249 worse off—that is £179 each. They are not people with large incomes; the houses are let to working people.
The houses of our two employees are rate-free to them. If we increase their wages by the amount of the community charge, in the case of the foreman tractor driver that will amount to £656. He will have to pay tax on that of £164 and his share of national insurance and social security. He and his wife will pay poll tax of £762. Therefore they will be approximately £300 worse off.
Much the same applies to our other employee, who is retired stockman. He works half time. His rates are £727. Noble Lords may consider those figures high, but they are very good houses. They are not the kinds of houses which farmworkers are presumed to live in; they have all modem conveniences such as central heating, and so on. His rebate on his rent will cost him tax of £182 —again with increases in national insurance and social security. There is also a difference of £35 between the rates and the community charge. He and his wife,who are both pensioners, will be worse off by £220.
My son, who manages the farm, lives in the other cottage which is rated at £747. He will be only £15 worse off as a result of the poll tax, but he will have £170 more to pay in income tax plus national insurance and social security charges. Therefore he will be more than £200 worse off.
My wife and I live in the farmhouse. Of the 15 people living on the farm, we are the two who are most able to pay our taxes —not too able, I should like to emphasise. Our house is rated at £1,146. So
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we are better off by £384. That does not strike one as being fair. The community tax for the 15 people is £5,715. There is a little over £1,000 difference between that and the rates. There is a Conservative council in the area. I wonder whether the Government think that that is a fairer tax than the rates.
I was intrigued by the plan for taxation of the noble Lord, Lord Monson. I should like to read a little more about it. I notice my noble friends on the Front Bench looking at me. Perhaps I might manage to persuade them that people have ideas other than those of the main gist of the party. Something which has a relation to the local council and what it levies should be added to income tax in the area. I am sure that that would be a better system than this one.
4.20 p.m.
Lord Ellenborough: My Lords, I have always supported the abolition of the discredited rating system. It is over and done with and it is no good harping back any longer on how frightful it might have been under the rates system. The Government now stand and fall—at the moment they are stumbling pretty badly—on their very own community charge or poll tax. That is what people will vote on in the May local elections.
I have always opposed the concept of a flat rate tax. It is unfair and dangerous. I strongly supported the late Lord Chelwood's amendment at the start of the Committee stage of the Local Government Finance Bill two years ago. That in effect asked the Government to think again and to take account of people's ability to pay. I was a teller in the Division which ensued and had the rather depressing task of counting no fewer than 317 of my noble friends through the Government Lobby. I often wonder how many there would be now.
Perhaps the message is getting home. One can read today that a senior Cabinet Minister and former Leader of the other place —Mr. Biffen —has made it clear that he thinks it is time the Government should put aside the flat rate principle and relate the charge to a graduated system.
In the meantime, whether we like it or not, the tax is now the law of the land and those of us in particular who support the Government had best try to make it work. The Government also have a duty to make it work. This Government a Conservative Government should not be in the business of allowing the tax to become a recruiting agency for the Labour Party.
The difficulty is that the tax will never work until and unless the Government recognise that a universal flat rate tax, which is what this tax is over and above the rebate levels, will be politically acceptable and tolerable only if levied at a low rate—not £350, £450 or £550. I disagree with my noble friend Lord Harmar-Nicholls. We cannot expect the tax to finance the same share of local services as the rates. If the burden on local authorities is too high, whatever form of tax is used to raise local government finance, whether it is rates, community charge, or local income tax —I shall not mention the roof tax—people will resist the tax and it will almost

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always be the Government, not the local authorities, who will be blamed.
As it is a flat rate tax and far too high in most places, the list of those who need relief grows longer and longer and the accountability element becomes less and less meaningful. Yet those worst hit by the charge will be the very group of people likely to decide the outcome of elections—the skilled workers who earn too much to qualify for rebates and who live in flats and houses which were relatively low-rated, and who are now coping with sky-high mortgages.
One thing that must surely happen is that the cost of the safety net be borne by the Exchequer, now, in year one. That at present makes a complete fiasco of the so-called accountability of the tax.
Even more important and fundamental, if the tax is to have any chance at all of being politically acceptable, the Government must grasp the nettle and either substantially increase the revenue support grant by £3 billion or £4 billion or transfer a major item of local authority expenditure to the Exchequer. I ask my noble friend the Minister to press hard for a reconsideration of the substantial case for a transfer to the Exchequer of at least the cost of teachers' salaries which are determined at national level but paid for by local authorities.
My noble friend will be well aware of an Early Day Motion in another place which has been signed by some 70 of his honourable friends, including a vice-chairman of the 1922 Committee, and which calls for the transfer of the cost of education. Action on that front would dramatically reduce the burden on local government and completely transform the position.
At any rate, there must be an end to the miserable dribs and drabs of minor concessions wrung out of the Government, each one looked upon as a sign of weakness, never as a sign of strength. The point to grasp is that something fundamental must be done. The Government should take a hard look at the problem, not take too long and then take decisive action. The best decision of all would be to relate the charge properly to an ability to pay which is increasingly recognised as the only and final solution.
4.26 p.m.
Earl Attlee: My Lords, perhaps I may start by apologising to the noble Baroness, Lady Robson of Kiddington, as I started a coughing attack right behind her while she was making her speech and then had quickly to leave. I also apologise to the House for the fact that having left, I did not come back until just before I was due to speak. There is nothing more off-putting than trying to make a speech on an important subject and hearing someone coughing and spluttering behind. Luckily, my wife was here and she suggested that I take a sip of port —unfortunately not vintage port —and breathe it in. That seems to have done the trick. I am not sure how long my voice will hold out, but, if I make a short speech, I am sure that it can only be to the gratification of noble Lords.
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There was a nice little story in The House Magazine about a dear old lady who said, "I don't mind paying the community charge, but I do object to paying the poll tax". That is a typical statement which shows that people are not sure what is what. I wondered to myself why it was called the community charge, not the poll tax. One of the obvious answers is that the last time we had a poll tax in this country was under Queen Elizabeth I and anyone who disagreed with her had his head cut off. In the end, the peasants revolted and the poll tax had to be withdrawn.
I thought that I should check my facts so I went to the Library and consulted the Shorter Oxford English Dictionary. Having done so, I realised why the Government called it the community charge rather than the poll tax. Referring to the word "poll", the dictionary states:
"To plunder by or as by excessive taxation; to pillage, rob or fleece; to despoil a person or place of anything".
I could not have asked for a better quotation.
Everyone, apart from most noble Lords opposite, says that everything about the community charge is wrong. But that is not true. To quote only one instance that I know of, my mother-in-law is a widow and the tax she pays, by whatever name it is known, has been drastically reduced.
What I should like to mention particularly is the uniform business rate. I live in a small community in north Hampshire, in Church Crookham; and when we talk about "our boys" we mean the Gurkhas. We covered that subject fairly well at Question Time; but just down the road is a village shop which is open from fairly early in the morning until fairly late at night. It is very easy to get there. How can that small shop hope to survive with this tax? The owners charge a little more for all their goods but I think that the community charge will kill their business together with a great many other small shops.
It is fine if you are a multinational company because if you have thousands of branches you may pay heavily in one area and possibly pay less in another area. Therefore you can even things out and it is not so bad. If you have a small shop which has an empty flat above it, you then have to pay the tax on that. On the other hand, if you let that flat be used by people who are homeless and do not charge any rent, they will not pay the poll tax because the council will actually pay them for it. There is an anomaly there, and I think we need to think very carefully to see how we can change the tax to make it more equitable to everyone.
I know that the noble Lord who spoke before me mentioned education. It seems to me that it would be a very good idea if the cost of education were to be taken over by central government. A great many people who are paying a large amount of community charge for education have grown-up children and therefore it would be far better if the whole cost of education came from central government, where it could be more equitably spread everywhere. There was a recent case quoted in one of the newspapers—perhaps in many newspapers—where someone who lived on one side of a road under one

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council was paying twice the community charge of another person who was living across the road under another council. That must be very annoying. My Lords, my voice has lasted, and I will now sit down.
4.33 p.m.
Viscount Mountgarret: My Lords, have we changed names, or changed sides? Your Lordships will remember that there was a certain Baron Frankenstein. He was a kindly man who created a monster. As he was a kindly man I am sure it was a kindly monster he was trying to create, but things went wrong and the monster got out of control. Eventually he was engulfed in flames and the creator of the monster was brought down.
I fear that that is what we have in this excellent principle and idea of changing the rating system to the community charge, which is all too often referred to as tile poll tax, which does not sound very good to many people. I urge the Government very strongly to reconsider the administration by which they propose to allow the charge to be inflicted upon people throughout the length and breadth of this country.
I want to direct my remarks at this stage principally to the tied cottage system, in which I must declare a vested interest in that rather like the noble lord. Lord John-Mackie, I have a number of employees, who are in tied cottages. This situation applies not only to agriculture but also to the police, firemen the clergy and a host of other people up and down the country whose jobs necessitate them living in cottages and whose rates are paid by their employers: a fact taken into consideration with their emoluments.
The 1st April falls next week, and those people will find that they have a charge, a personal tax, to pay in contributing to the community charge. This has changed the goalposts for the employer, who engaged his staff on the basis that they would live in cottages that were rent and rates free. I am not sure that this point has been thoroughly thought through by the Government, to see what should be done as regards people in that situation. The recent increase awarded by the Agricultural Wages Board to an average agricultural worker—and by average I mean a married man with two children—means that his basic pay is £120 a week and that will in fact result in him receiving net pay of some £5,760 a year. Out of that, he and his wife might well have to find some £700 a year, leaving just over £5,000 a year in his pocket. Last year the basic wage was £112 a week. Taking tax into consideration, he would take home pay of something like £5,460. That person will be £400 a year worse off.
While being a totally dedicated supporter of the Conservative Party, I am not prepared to accede very readily to something which is very unjust and unfair. Those who are able to pay more ought to pay more and those who are not in a position to pay as much should have great consideration shown to them. For that reason I strongly support what was said by my noble friend Lord Ellenborough on the basis of ability to pay. It is very easy to get confused with rates of income tax, allowances and so on but let us ignore them for the moment. If we could just
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try to administer the charge on the basis of people's earnings, taking into account the benefits they may have, such as the occupancy of tied cottages and so on, that would be fine by me.
My noble friend Lord Jenkin said that we do not know what our rebates will be; but we do know. The pensioners know that they will get an 80 per cent, rebate. I would say, thanks a bundle. Let us take a married couple—pensioners on a meagre income—who have to pay 20 per cent, of an average community charge of something like £370 each. That means £3 a week out of their rather low income and it seems to be a substantial amount of money for people in that kind of situation. In my view there should be a sliding scale. It is not possible within six minutes to go into full details, but let us suppose, for example, that out of an income of £100 a week people were obliged to pay 5 per cent, of the current rate for the area in which they lived; those who pay 25 per cent, income tax had to pay the full rate; those who earn, say, £40,000 to £50,000 a year had to pay 150 per cent; and those who happened to earn £80,000 or £100,000 or more a year pay 200 per cent, of the standard rate. That would be fair and equitable in my view. One final point is that although husbands and wives are currently being assessed for their savings and earnings jointly, as from 5th April this year husbands and wives are being treated separately for income tax and are being separately assessed. Therefore they should be assessed separately for the level at which they, and they alone, pay their community charge, which is an individual tax. I hope very much that the Government will listen sympathetically to what I have said because if they do so they will enhance their reputation and restore their standing in the country very substantially.
4.40 p.m.
Lord Donoughue: I am second time lucky, my Lords! This subject has received some public airing of late and we must be careful not to keep ploughing the whole field. We must also be gentle on the Minister who will be answering. He has been pitched in at the deep end of the Front Bench with the dead weight of the football identity scheme. He was rescued from that, and now has been handed this subject. As a good Northamptonshire man he deserves better.
I am concerned with only two aspects: the fundamentally unfair principle underlying the community charge and the role of local government in setting the charges.
The point of principle cannot be stressed too often because it is the main source of discontent with the tax, stretching across all parties. It is an example of a massively regressive tax bearing little relationship to ability to pay and running contrary to what, until a few years ago, had been the main drift of modern taxation in most civilised countries. Although its impact is mixed, and some examples can be found—and no doubt will be quoted—of poor people who are better off", the broad thrust is most helpful to the most prosperous. I am significantly better off, and I imagine that most noble Lordsopposite are also. That cannot be right and I believe

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that many prosperous people who are beneficiaries, including many supporters of the Conservative Party —among them some of my best friends —share that view. It would be a mistake to assume that the opposition comes only from those who suffer under this tax.
I refer to the local government aspect. I should like to give support to the very authoritative arguments made by the noble Baroness, Lady Stedman, in her excellent opening speech. In particular, what concerns me is the attempt to switch all the blame for the high poll tax charges onto local government. I confess that I find myself in a slightly uncomfortable position defending local authorities on financial matters. For a quarter of a century I lived in Camden and saw at close hand some of the extravagant lunacies that used to characterise some local authorities.
I have sympathy with the Government's attempt to establish a line of accountability between those who spend and those who pay the rates, or this tax. I believe that there was a time when some local authorities were profligate. But the present campaign of denigration is broadly unfair. It seems to be one more attempt by the Prime Minister to switch the blame for her failures onto others.
When considering the poll tax charges and increases, noble Lords should be aware of certain important factors when adding up the numbers. First, the Government insist on comparing the new charges with previous and forecast notional expenditures. The percentage increases will in most cases be less when compared to actual out-turn expenditure for 1989–90 which is not yet completed.
Secondly, a substantial percentage of the increased local authority expenditure has been imposed by central government. That is especially true in the staff area. Roughly three-quarters of local authority expenditure is on wages, and roughly three-quarters of local authority wage increases for the coming year have been imposed on the local authorities by central government negotiations and by external formulae. The teachers, police, and firemen are obvious examples. Again, central government have imposed on local authorities new responsibilities, especially in the various social services, without providing the extra resources to operate them.
The costs of collecting the poll tax are much higher than those of collecting rates. Some examples have been quoted. I have seen a figure of 300 per cent, higher cost in Newcastle and 500 per cent, higher in Oxford. Underlying that is the Government's hopelessly inadequate inflation assumption of 3–8 per cent, when actual inflation is heading for 10 per cent, in the coming months.
The final point relates to local authority balances. I have spoken to friends who are treasurers for Conservative local authorities. They claim that they ran down their balances very loyally in 1987–88 to assist the Government in the general election year by keeping down rates. They expect to run down their balances in 1991–92 to help the Government in the election in that year. It is a little ungrateful to attack them now as profligate. After all, when are
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they expected to build up their balances so that they can run them down again?
I do not say that no local authority has set its community charge higher than it should. It is a fact that historically every reorganisation of local government has been accompanied by a suspiciously large increase in expenditure. But it is quite unfair to blame local authorities for many of those increases which are not their fault. In fact, they have often been imposed by central government.
4.46 p.m.
The Earl of Onslow: My Lords, the row over the poll tax was predictable, is predictable, and has turned out to be even worse than those of us who predicted it said it would be.
I said in my speech in this House on an amendment put forward by my very great friend, Lord Chelwood, that this is one thing that could lose the Conservative Government the next election. There was a general rumble from my noble friends saying, "You don't know what you are talking about". I wish to God that I did not know what I was talking about. It is a deeply unfair tax. I shall give noble Lords three examples of its unfairness.
A tenant of mine, who is a widow, lives in a cottage of mine. Last year, because her husband had saved and she was above the rebate level, she paid £280 a year in rates. It is a nice little cottage, with two bedrooms and central heating, and it is in good condition. It is an attractive house. This year in poll tax she will pay £405 a year. As a Government did we introduce a tax to increase it on widows and the childless?
A hardworking couple have a 19 year-old daughter who works. They live in a council house that they have bought. They paid £280 or thereabouts in rates last year. Their bill will be £1,215 this year for a family of three. Is that fair? I suppose that they could reduce their bill by £405 by booting their daughter out. Is that what the Government or the family wants? Of course it is not. I shall be £1,000 a year better off. Is that what the Government want? I hope that it is. I am seriously open to any fom of bribery they might give. I shall take it. But that is not good government.
On the whole, the Government have been the finest government this century. It is reasonable to say that when the finest government this century make what is in slightly less polite circles called a cock-up, they will make an Olympic gold medal cock-up. I suggest that the poll tax falls into exactly that description.
It is possible to suggest a reasonable alternative. I quite accept the Government's argument on accountability has great validity. I suggest the following. I suggest a little mea culpa on one aspect of their policy. I suggest that they go back to a property tax. If it is called a roof tax, somebody will call the poll tax a head tax, and one is better off without a roof than without one's head. I suggest therefore that the Government give a discount for a house occupied by only one person and a surcharge for a house occupied by more than two people over the age of 18. That would be fair. It would introduce

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an element of accountability, and it would be a property-based tax which is a very rough and ready method of discovering how comfortably off or poor somebody is. After all, if you live in a big house, it is assumed that you can afford to do so. If you live in a small house, you probably do so either because you car not afford or do not want to live in a bigger house.
During Committee I said that the tax had been introduced by the more drunken of Turkish sultans, the mo re incompetent of Mogul emperors and the more effete of Plantagenet kings. I suggest that if my right honourable friend the First Lord of the Treasury follows the taxation policies of Selim the Sot, she will become just as unpopular. Unfortunately she does not have any janizaries to put down any ensuing rebellion. She must do so and my noble friends on the Front Bench must change their minds because it is a blot on an otherwise excellent record of one of the finest governments this century.
4.50 p.m.
Lord Stoddart of Swindon: My Lords, in his admirable speech on the Second Reading of the poll tax Bill, my noble friend Lord Mcintosh of Haringey quoted an item from the Wiltshire and Gloucestershire Standard dated 1st April 1988. Mr. Nicholas Ridley, the then Secretary of State at the Department of the Environment, was there quoted as saying of local taxation:
"Why should a duke pay more than a dustman?".
The Tory Dukes, Earls, Viscounts and Barons had their say when they all trundled in from the backwoods to defeat a very reasonable amendment intended to relate poll tax to the ability to pay as proposed by the late and sadly missed Lord Chelwood.
Now it is the turn of dustmen and millions of other ordinary folk from all walks of life, trades and professions to have their say. Indeed, they are doing so loudly and clearly. They are saying that they hate the poll tax and its progenitors alike. They said it in mid-Staffordshire last Thursday and they will say so again at the local elections in May. They will say so again and again after that until the poll tax is repealed or amended beyond all recognition, or until the Government are defeated at the next general election.
The mind boggles at the sheer incompetence of a government which introduced a tax which would always hit hardest their supporters. It was bound to cause even more bitter antagonism when voters in Tory areas realised that they were being required to pay more in poll tax in order to help Labour areas which, quite wrongly and over a long period, the Government had accused of being profligate spenders.
The whole poll tax system devised by the Government is full of anomalies and unfairnesses. According to my noble friend Lord Stallard, it even militates against heterosexual relationships because the rebate system favours people in a male or female homosexual relationship. Perhaps in reply the Minister can confirm that homosexuals will receive
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better treatment than husbands and wives or common-law partnerships betweeen men and women. He had better speak to his officials in the Box about the matter.
I return to the incompetence of the Government in relation to their supporters. I should like to examine the position in Reading where I live and where I shall pay the poll tax. There are two Reading parliamentary seats which at present are both Tory. In the borough 83 per cent, of households will be worse off by paying poll tax than under the old rating system. As we have already heard, the Berkshire County Council is so incensed by the Government's treatment —and unfortunately there are no Labour MPs in Berkshire—that it had presented for it a petition in the House of Commons. Another example is Oxfordshire which has only one Labour MP, the rest being Tory. There the poll tax has struck like a bolt from the blue. In one district it is more than £450 per person. My eldest son, who lives alone in a small one-bedroomed house, will pay more than two and a half times more in poll tax than he now pays in rates. There is a fat chance of him voting Tory at the next election! Indeed, many people in South Oxfordshire are having to cancel holidays and even having children because of the poll tax.
In addition to the damage caused to poll tax payers, the Government have caused enormous damage to the effectiveness and independence of local government. Not only has poll tax been foisted upon it but the ability of local government to levy local taxation on businesses commensurate with local services provided has been eliminated. Under such circumstances, local government is neither free nor independent. Indeed, the Government may just as well appoint gauleiters or commissars because democratic control and decision making by properly elected local people has been virtually ended by the actions of the Government. One is almost tempted to call upon local councillors up and down the country to resign en masse in protest at the Government's despicable treatment of them.
The tragedy is that it was all so unnecessary. Local rates based on property values were a perfectly respectable tax, easily administered, easily collected and difficult to evade. However, it was necessary to ensure that local rates financed only local services and not national services. That is why the rates system fell down; the local taxation system was expected to finance great national services such as education. Rateable values could be raised in accordance with the cost of living index so that the local taxation system retained some dynamism. They could have been topped up with a small additional tax on, say, petrol.
Even at this late stage, I trust that the Government will listen to us and to their own supporters who this afternoon have, to their credit, raised their voices loudly and clearly against this iniquitous and obnoxious system.
4.57 p.m.
Lord Ross of Newport: My Lords, I must begin by saying that I shall be £400 a year worse off when the poll tax is introduced; my rates are only £200 and my poll tax will be £600. I tremble at the ankles at

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the thought of the unified business rate because I do not know how I shall pay that. I also offer my congratulations to the noble Baroness, Lady Stedman, for her most informative exposition of the true problems facing local authorities, and of the deficiencies of the old rate support grant or the SSSAs, as they are now called. I hope that everyone will read her speech with care because it is the truth.
One of the worst aspects of the past 10 years of this Administration has been the sad deterioration in co-operation between national and local government. The constant attacks, emanating principally from the Prime Minister at Question Time and constantly aped by her Ministers, accusing Labour or Liberal councils and district councils of gross overspending must have brought relationships to an all time low. I suspect that that, more than anything else, led to the recent resignations of Tory councillors in different parts of the country. They know the truth of the matter.
There is only a 3 to 4 per cent, difference between Tory and Labour councils when tables of comparisons are produced. Nevertheless, the accusations continue. I do not believe for one minute that the public are fooled by the accusations, and it is time that they stopped.
The vital and early task for the next incumbent of 10 Downing Street must be to mend fences and do so quickly. In the recent by-election, Staffordshire County Council was constantly portrayed as being the villain of the piece. However, over the past 10 years that council closed or amalgamated no fewer than 130 village and local schools. That is one definite way to save money on the education budget but is certainly not a popular policy to pursue with the general public. The Government have not helped by the introduction of opt-out procedures.
We are now being threatened with charge capping. I beg the Government to be very careful and very certain of their facts before they pursue that line of action. When rate capping was introduced, one Tory authority was included; namely, Portsmouth. Yet I believe that the policies of that council at the time were fully justified and can now be seen to be so. Hit desperately by dockyard closures, it has spent public money to good effect and is now reaping the benefit. Of course, the council could be more generous towards its cathedral appeal particularly on the date that its bishop takes his seat in this House. However, that is another matter.
The stupidity of constantly pretending that it is all the fault of overspenders can be simply illustrated by comparing two adjoining counties: Powys, in Wales, with Shropshire. The current rate in the pound is 233.9 pence in the Radnor district in Powys while it is £231.5 in the South Shropshire district. In other words, it is less in Shropshire than in Powys. However, the poll tax in Powys will be £175 while in Shropshire it will be £307.3. Therefore, if you happen to live in my local market town of Knighton on the wrong side of the River Teme you pay a poll tax nearly double that of your neighbour. In 1974 those people were asked if they wished to transfer from the parish of Stowe into Wales and voted against that. They now regret it.
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I do not believe that even our Prime Minister or the Chairman of the Conservative Party would have the gall to accuse either county council of being overspenders. We are constantly given the example of Wandsworth and Lambeth but what about Havering and Barking? There the Tory council has a higher poll tax than the council in Barking. Of course, the truth on Wales is that Mr. Peter Walker achieved a much better deal from the Treasury than did Mr. Christopher Patten for England. It is certainly not equitable when services are the same.
It is not just the poll tax that should concern us. The unified business rate is going to cause untold harm to small shopkeepers many of whom are already in considerable financial difficulty due to high interest rates. I suspect that your Lordships thought, as I did, that in the first year the increase could not be more than 15 per cent, higher than what was paid last year. That is not the case because the rate of inflation at 7–59 per cent, is added. In my case, the rates on the small shop which I have in Knighton have increased from £789–71 p to £976–87p and finally to over £1,000.
In 1981 when I was a Member of Parliament for the Isle of Wight my constituents wanted to know what I personally was doing about local unemployment which was then running at over 18 per cent. I tried to respond by borrowing a lot of money. I converted an old slaughterhouse into an arcade of small shop units and a bakery. I have only just moved into profit after nine years of operation. My rates are now to increase from £3,000 to £10,000. If they are not substantially reduced it will not be worthwhile carrying on. My advice to all shopkeepers in that position is that they should lodge their appeals straight away because I believe that many assessments are way over the top.
Whose fault is it? Of course, it is the Government's fault because they allowed the terrible property explosion whereby people paid silly rents and premiums in order to obtain properties.
When governments set up learned committees which take evidence, earnestly consider and then advise administrations, it is quite beyond me why their good advice is ignored. A commission set up by the late Tony Crosland studied the problem of the rating system for two or more years and duly pronounced upon its decisions; namely a property tax based on capital values operating between bands using a divisor to reach rateable values coupled with a local income tax. My own party has adopted that policy. We should like to see the old idea of site value rating, now land value taxation, replace the business rate.
I have much to say and unfortunately I have nearly run out of time. I would remind the House that when this matter was debated previously I said to the noble Earl, Lord Caithness, that the Government were about to commit suicide. Unless they take drastic action to relieve the general public of these ever increasing burdens—for example, 13 per cent, on water rates, increases in electricity charges, and so on —then they will soon be out of office. The sooner the better.
5.5 p.m.
Lord Mcintosh of Haringey: My Lords, this has been a fascinating and very well informed debate. The noble Baroness, Lady Stedman, is to be congratulated both for having introduced it and for the way in which she introduced it. It has been particularly fascinating to hear the balance of opinion in the House. If one looks at the party affiliations of those noble Lords who are to speak, one finds that there are six Conservatives, nine from Opposition parties and one from the Cross-Benches. Yet, when I look at the speeches made, of those 17 speeches, 14 have been almost unequivocally antagonistic to the poll tax, one—if the noble Lord, Lord Colnbrook, will forgive me—could best be described as a "don't know", and the noble Lords, Lord Jenkin and Lord Harmar-Nicholls, were the only noble Lords who dared to come out in support of the poll tax. If I have misjudged the conclusion to which the noble Lord, Lord Colnbrook, has come, then I apologise to him. He was certainly expressing substantial doubts in the course of his speech even if he came down on the other side.
Both the noble Lords, Lord Jenkin and Lord Harmar-Nicholls, managed to defend the poll tax with spectacular own-goals. The noble Lord, Lord Jenkin, has claimed fatherhood of the poll tax. I understand from what he is saying that he is not repudiating it. In these circumstances other men would be asking for blood tests and genetic fingerprints; but the noble Lord, Lord Jenkin, goes on despite the evidence in the public polls and in public opinion generally about the maintenance charges which are to be imposed on the fathers and mothers of this iniquitous tax.
I say that the noble Lord, Lord Jenkin, scored a spectacular own goal for several reasons. First, he seemed to blame what is happening now on what he calls "uproar". I commend to him the word "turmoil". That was the word used by the Chinese leadership as a justification for cracking down on the brave attempt by students in Beijing towards democracy when the tanks were ordered into Tiananmen Square. It may come to that.
If the noble Lord, Lord Jenkin, thinks that what we have now is simply turmoil and not a reasoned and heart-felt objection to something which can be seen to be wrong, then his political judgment is less keen than I thought it to be. Also, the prospects of his party remaining in office are less secure than he believes them to be.
His particular own-goal was when he referred to his estimate —and it can be no more than that —that one in four poll tax payers will receive rebates. Notice that that is not one in four of the adult population but is only one in four poll tax payers. After the last election, I carried out an opinion poll in which I asked the following simple question: "Do you pay rates?" That was a question asked of a cross-section of the adult population. Seventy five per cent, said that they paid rates. By that they did not mean that they signed the cheques themselves or took the money into the rating office, but that they recognised that they contributed to the rating
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system—that is, that somebody in the household was paying rates and they were contributing to that through their share of household expenses.
They recognised that their landlord—whether private or council —was paying rates to which they were contributing through their rent payments. In other words, if there is a position where 75 per cent, of the adult population feels that it is accountable under the rating system, and the noble Lord, Lord Jenkin —the father of this scheme —is telling us that 25 per cent, of those on the poll tax list will receive rebates, where is the accountability? What has happened to the basic argument put forward for the change in the local taxation system? The reality which we are now seeing is that accountability is being lessened rather than increased by the poll tax because of the perceived injustice.
The own-goal of the noble Lord, Lord Harmar-Nicholls, was more interesting in some ways. Presumably based on Conservative Party information, he referred to the combination of income tax and poll tax in the total contribution made by dukes and dustmen, to stick to Mr. Ridley's example. He based that on the assumption that the Prime Minister was right when she said to the Conservative Party local government conference in 1988 that only 25 per cent, of local authority expenditure would be levied by the poll tax. That has not proved to be the case.
The standard spending assessment alone, which is the government estimate of what the poll tax should be—£278—will result in poll tax payers paying 30 per cent, of the total local authority expenditure because of the levels of grants and business rates. I remind the noble Lord and the House that the actual poll tax exceeds the standard spending assessment by almost the same amount in Conservative and Labour councils, so it is not Labour overspending that we are discussing. The actual poll tax to be paid will account for 37 per cent, of the total of local authority expenditure. I gladly give way.
Lord Harmar-Nicholls: My Lords, my figures did not come from anybody's headquarters. They came from the Blue Books, which are open to the noble Lord and any other parliamentarian. They were worked out by machines and confirmed by my own accountant. If the noble Lord looks at the figures I think that he will change his mind.
Lord Mcintosh of Haringey: My Lords, I shall be delighted to look at the figures. I was not querying the figures, I was querying the basis on which the noble Lord drew political conclusions from them. They are based on a false presumption both with regard to what the Government intended and, even more, with regard to what is happening on the balance between the poll tax and other sources of local authority expenditure.
The second major fallacy in what the noble Lord says is that the figures are based on an assumption that there is some change in the income tax system to compensate for the fact that the poll tax —as he tacitly admits—is less fair because it is a tax which falls equally upon duke and dustman.

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While the poll tax system has been introduced our taxation system has become less progressive and not more progressive. The noble Lord, Lord Monson, very clearly saw that point and argued that if we were to stick with the poll tax, we should need a more progressive income tax system. That is not what this government have been doing. They decreased differentials in income tax at the same time as they introduced an undifferentiated poll tax in which the dustman pays as much as the duke. Under those circumstances the charge that we made when the Bill was introduced, that it would make the rich richer and the poor poorer, still stands.
The Motion refers to
"problems currently accompanying the imposition of the Community Charge".
As Other noble Lords generously kept to their time I have a few more minutes before the Minister is due to speak, and I should like to refer to some of the points made by other noble Lords in the debate.
There are clear examples of the anomalies coming to light day after day with regard to the poll tax. The noble and gallant Lord, Lord Bramall, in Question Time this afternoon referred to the difference between the Gurkhas and visiting forces from overseas and the way in which the Gurkhas are discriminated against. The noble Baroness, Lady Robson, as she has done on previous occasions made a moving plea for the vast majority of student nurses who are clearly discriminated against compared with trainees—who are receiving considerably more money—and who are now to be very severely squeezed by the poll tax.
The noble Lord, Lord Campbell of Croy, in Question Time yesterday referred to the anomaly of the standard charge being doubly imposed immediately after death. He did not receive a very satisfactory answer. The noble Lord, Lord Monson, referred to a new anomaly concerning beach huts. I had never heard of that before.
The point is that these anomalies are cumulative. There are many more yet to be resolved. If they are to be dealt with, as the noble Lord, Lord Ellenborough, said, by way of a series of minor concessions, then the credibility of the poll tax—if there ever was any—will be drastically reduced. More seriously, every specific concession increases the general unfairness of the poll tax because it increases the level at which the poll tax has to be charged on those who are not eligible for benefit. The noble Lord, Lord Mountgarret, very clearly made that point, as did my noble friend Lord John-Mackie and others, who referred to the case of tied cottages.
Every specific concession increases the general unfairness of the poll tax and takes it further away from its original intention. Every specific concession decreases its accountability. That is the fallacy in the argument of the noble Lord, Lord Jenkin. The poll tax is sinking under the weight of its own complexity. It is revealed to be a taxation system, not only unfair in conception, but unworkable in practice. That is the reality.
In closing I need only refer to one issue to make that absolutely clear and to ask the Government
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what they propose to do about it. I refer to the issue of capping. When the subject of the tax was before the House two years ago a number of noble Lords, who were not antagonistic to the poll tax as such, felt that there was some defect because, having introduced what they must believe is the best possible solution for local authority accountability, the Government still felt it necessary to provide powers for capping.
We understand that decisions concerning capping are to be made this week—they have to be made very soon. Do the Government fully realise the implication of the fact that capping applies to the tax which will be imposed as from next Sunday? That is the difference. Where rate capping applied in the past it applied to the following year and not to the current year. Any efficient local authority which has now declared its poll tax rate will already be printing the demand; many demands will soon be going out. The local authority will have arrived at its budget on that basis. If the local authorities are now capped there will be enormous additional administrative expenditure. Have the Government made an estimate of how much that additional expenditure will be? Do they plan to make additional grants to those local authorities for the additional administrative costs involved?
Will the Government give us the up-to-date figure for the total costs of administration? How do they compare with the cost of collecting the rates? On what will the capping be based? Will it be based on the collection charge? Will it be based on the standard spending assessment, and is that based on a realistic estimate or, as I suspect, on a distorted version of grant distribution? There are many ways in which the capping could be carried out, as the well-informed public administration correspondent of The Times made clear last week. They all produce greater burdens for Labour authorities. But I challenge the Minister to think of any way in which capping will not cause a burden on Kensington and Chelsea in particular.
We are concluding a very serious debate in which the Government have a last opportunity to rectify some of the very serious evils identified by noble Lords on all sides of the House. I look forward to the Government's reply.
5.18 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh): My Lords, we are now just a few days away from the introduction of the community charge in England and Wales. Nearly two years have passed since the passage of the Local Government Finance Act 1988. In those two years government departments and local authorities alike have worked hard to prepare the way for the effective and successful implementation of an almost entirely new system of local government finance, as the noble Baroness, Lady Stedman, pointed out in a somewhat more far-reaching speech than I was expecting but which I am sure the House found extremely informative.
A substantial body of detailed regulations now underpins the charge. Some 25 community charge practice notes have been issued by my department to

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local authorities. Leaflets with a distribution figure counted in its millions have been sent out explaining the new charge and a major information campaign has recently been completed with the object of ensuring that we reach everyone who is entitled to help through benefits and transitional relief.
In many local authority areas bills have already been sent out; in most others billing will very shortly commence. Generally authorities have set about what has been a difficult and demanding task in a highly professional way. They have quite clearly put paid to opposition arguments that it could not be done.
Noble Lords have talked long of what is described in the Motion as the imposition of the community charge; but we should also consider the other side of the coin. Domestic rates have for a long time been regarded as both outdated and discredited. Rental values of people's homes are arbitrary, difficult to understand and poorly related to the people's ability to pay. It is well worth remembering that over 40 per cent. of homes with above average rateable values are occupied by households with below average income. So complicated was the rates system that it was rarely possible for local electors to gain any picture of what levels of spending they were supporting. The fact is that the number of people who paid for local services as a proportion of those who benefited from them produced very little accountability. Furthermore, this Government have taken the bold step of challenging a system which placed the heaviest imposition on businesses which could not vote.
The community charge is fairer because it spreads the burden of paying for local government. In 1990–91 nearly 36 million people in England will pay the community charge compared to 18 million who paid rates. It is fairer because it reflects the fact that most local services are delivered to people rather than to properties. It will increase local accountability because every charge payer will in future be able to see how the charges his authority is levying compare to the Government's figure for the community charge at standard spending.
I am led to believe that the Opposition have an alternative proposition to put to us—though not, I fear, today; but that would be unfair to the noble Lord, Lord Ross of Newport, who stated, in part, his position.
Lord Ross of Newport: My Lords, I thank the noble Lord for allowing me to intervene. What is the standard tax on second homes, if they are not beach huts, if it is not a roof tax?
Lord Hesketh: My Lords, I have made no mention of a roof tax.
Lord Ross of Newport: My Lords, the Minister will come to it.
Lord Hesketh: My Lords, I may well be coming to it, not in reference to this Government—
Lord Mcintosh of Haringey: My Lords, the next government.
Lord Hesketh: —but to what I have read in the popular press on future possibilities, and I humbly suggest that may well result in the country not having a change of government after the next election.
We have given the Opposition plenty of time to come up with their detailed and consistent thoughts. Unfortunately the Labour Party seems to be rather shy of giving us much more than a hint of its deeper reflections, if I may put it that way. I am told there would be a roof tax, but I am afraid I have not been told how there will be a roof tax. Such modesty is most unbecoming, particularly to the noble Lord, Lord Mcintosh.
We will be providing local authorities with £23–1 billion of aggregate external finance, an increase of 8–5 per cent, over the comparable figure for this year. This is made up of £10–4 billion in business rates, £9–5 billion in revenue support grant and £3–2 billion in specific grants. We have allowed for a total standard spending figure of £32–8 billion in 1990–91. This is within the rate of inflation, being a 3–8 per cent, increase but 11 per cent, over what we had allowed for in respect of 1989–90.
Noble Lords will be well aware that many local authorities have chosen to set a charge well above £278. As my right honourable friend the Secretary of State announced last week, the average community charge in England is estimated to be £363. This is not because government support has been slashed but because authorities have chosen to raise 33 per cent, more finance by way of the community charge than they did for domestic rates in 1989–90. This represents an overspend of £3 billion. If the Government had decided to meet that level of spending by putting in extra grant in order to keep the average charge down to £278 it would have put 2p on the basic rate of tax. The noble Lord, Lord Monson, referred to a banded tax system of, I believe, 15 per cent., 30 per cent, and 45 per cent. If we had reacted as some noble Lords suggested, that level of tax would already be 17 per cent., 32 per cent, and 47 per cent.; and there are only three days to 1st April!
This would have been a real imposition. In the local elections to come and in future elections charge payers will be able to exercise their right to say no to high charges and, perhaps for the first time, hold their councils accountable for the spending decisions they have made. The Opposition have made much of Conservative-dominated councils where the charge is somewhat higher than £278, but I invite them to look at the statistics. For example, the average charge in London boroughs controlled by Labour is £452; the comparable figure for Conservative controlled councils is just £285.
Noble Lords have expressed their concern at the ability of people to pay the community charge. The Government have addressed this concern. We have introduced an extensive system of community charge benefit which will give help precisely where it is most needed. In Great Britain some £2 billion in benefit will be given in 1990–91. Community charge benefit will be more generous than the old rate rebates. This year spending on benefit will amount to an increase of over 20 per cent, in real terms on what was paid last year in rent rebates.

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I should make quite clear that benefit is calculated on the basis of the actual charge that an authority sets. We estimate that some 10 million people in great Britain will get relief (around 8 million in England). At this point I turn to the noble Lord, Lord Stallard, who referred to the calculation of benefit. With great respect, I point out to him that he was using the regulations for transitional relief in making his argument rather than the regulations as they exist in regard to benefit itself
Noble Lords will also recall the recent announcement in another place that the level of savings allowed for benefit entitlement has been raised to £16,000 from the previous ceiling of £8,000. This means that there will be 130,000 gainers, including about 50,000 pensioners. The announcement will be particularly welcomed by pensioners who may have accumulated modest savings but are on a low pension and were previously ineligible.
We have also made provision for the changeover in local government finance systems and the new system of standard spending assessments. The scheme for transitional relief which I announced to the House on 11th October last year will over the next three years bring £810 million of help to people whose community charge bills are significantly higher than rates. The scheme also provides a special form of relief to elderly and disabled people who were not former ratepayers or the partner of a former ratepayer.
In the Statement I made to this House on 11th October last year I explained that, provided each local authority spent in line with the Government's assumptions, transitional relief would ensure two things: first, that ratepayers and ratepaying couples need not pay more than £3 a week extra in community charges over their previous rates bills; secondly, that pensioners and disabled people who had not paid rates in 1989–90 need not pay more than £3 a week more in total.
As we made clear from the start, transitional relief is calculated on the basis of the Government's assumed charge for each authority, or, if it is lower, the actual charge that an authority sets. The assumed charge is based on the assumption that local authorities spend in aggregate in line with the settlement figures for next year. In other words, it is designed to give protection against the structural change in systems. It is not designed to protect against losses resulting from councils spending above our assumptions.
Much of the financial loss many people face is the result of council overspending. There are better ways of protecting against such losses, the best of all being to vote in an election.
I know that noble Lords have expressed concern on a number of issues, not least the workings of the standard community charge which we discussed in the House yesterday and to which the noble Lord, Lord Mcintosh, referred. I have to say that I was under the impression that my noble friend Lord Campbell of Croy was satisfied with my answer but, again, perhaps the noble Lord, Lord Mcintosh, was making a Lord Colnbrook type of observation as he did earlier in the debate.
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The standard charge applies where domestic property is not used as a sole or main residence. Charging authorities may make the standard charge by levying a multiplier of between zero and twice the personal community charge. I believe that we tend to rather skid over the fact that there is a range of five options that go from zero, half and then up to twice the charge. Nobody really seems to question the fact that local authorities seem to be proceeding on the basis of always charging double the standard community charge rather than making a value judgment on their own of what they believe is the right—perhaps morally right—thing to do.
However, the different multipliers may be applied for certain prescribed or specified classes of property. We have prescribed that the standard community charge will not be payable for an important number of classes of property. In particular, no charge is payable for up to three months on a property which is unoccupied and unfurnished—for example, a property which is up for sale—and until three months after probate where a property is vacant because of the death of the owner. No charge is payable for up to 12 months where a property is empty because the occupier has moved elsewhere either to care or to be cared for by another person.
The full list of categories prescribed by the Secretary of State is set out in regulations and in a recent Written Answer given by my honourable friend the Minister for local government and inner cities to a parliamentary Question in another place. Local authorities may also set different standard community charges for classes of property which they may specify by reference to one of a number of factors which we have set out in the legislation. That allows them either to extend the periods of relief which we have prescribed or to create new classes which they consider appropriate.
Noble Lords have told me of their concern that people who live in tied cottages or farm buildings, and who own a house elsewhere, are being required to pay the full standard charge. I can assure your Lordships' House that we have given local authorities the power to set a lower charge for such cases. In the next few months we will have a more complete picture of the use that authorities are making of their discretion. That is a discretion that we have given them in response to their argument that they were best placed to determine most classes. We are concerned that authorities may not have made sufficient use of this discretion. We have made it clear that if necessary we will have to consider further prescription by the Secretary of State in 1991–92.
The noble Lord, Lord John-Mackie, and my noble friends Lord Onslow and Lord Mountgarret referred to the position of tied cottages generally and different examples were given. I am very much aware of the concern of people in tied cottages who are facing the personal community charge and whose rates—themselves relatively low—have been paid until now by the landlord. In part, that situation was brought about by agricultural rating in an age when far fewer services were provided by local authorities. I intend to produce further advice on the precise point of tied cottages because there appears to be

913
some confusion. I stress that it is one of the prime aims of the community charge to move away from the notion that local services should be paid for according to a rateable value which might be completely outdated and bear precious little relation to the services which are being offered in a modern community.
As I have said, transitional relief does give protection against the effects of the change in the system. I can reassure the House that in many cases transitional relief will help people in tied cottages to pay their community charge in the first years. My noble friend Lord Montgarret referred to a tractor driver earning £120. I do not have the actual figure because I am not aware of all a tractor driver's circumstances. I point out to my noble friend that the benefit goes to £156. Therefore, there is a reasonable chance that the individual to whom he referred will come within part of that benefit.
My noble friend Lord Colnbrook raised a point concerning Berkshire County Council. The council has claimed that its budget for 1990–91 is about 4 per cent. less in volume terms than it was in 1989–90. I do not know the basis for the calculation, but I know that in 1989–90 Berkshire County Council drew heavily on balances and reserves and from the disposal of assets. It seems that that will not be possible for the next year. That has forced the council to raise that much more by way of the precept and hence the rise in the community charge. We have increased the amount of central government support to Berkshire by 23–5 per cent, in cash terms. We believe that the county has been well treated by the change from rates to the community charge.
The noble Baroness, Lady Stedman, and many other speakers raised the point of how SSAs are achieved. My noble friend Lord Colnbrook raised the inevitable question about the man from Whitehall and whether he knows best. We have never maintained that Marsham Street or the man from Whitehall knew best. I can assure my noble friend that we believe, when we are spending tens of billions of pounds of the taxpayers' money, that standards must be set. And even if they are disagreed with, we set those standards to the best of our ability.
The noble Baroness, Lady Robson of Kiddington, raised the question of nurses. I well remember that the first amendment I lost in your Lordships' House was at the fair hand of the noble Baroness. I draw to her attention the future of the Project 2000 concerning nurses. I am sure she will agree that the situation is satisfactory from all points of view. The noble Baroness said that she felt it was unfair to current student nurses. It is worth reminding your Lordships that, under the current system, student nurses, rather than receiving about £4,700 per annum, are in receipt of an average of £6,000 per annum. That is a considerably higher figure than that to be received by the Project 2000 nurses.
The noble Lord, Lord Stallard, suggested, as I pointed out earlier, that the benefit scheme was badly affected because it had to take into account the level of community charge which effectively can be disallowed. That applies only to transitional relief and not to the benefit scheme. I can assure the noble Lord on that point. The noble Lords, Lord Taylor
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of Gryfe and Lord Hughes, and my noble friend Lord Jenkin of Roding raised the question of community charge payments being made in Scotland. I am the first to admit that they raised the question in different ways.
As my noble friend Lord Jenkin of Roding pointed out, in the Border region payment is running at 98 per cent. I also draw this to your Lordships' attention. If the Lord Provost of Edinburgh refuses to pay the community charge that is not the kind of example that encourages people to keep the law. The noble Lord, Lord Monson, raised the issue of other levels of rates of tax. I explained the situation if we carried through the extra £3 billion of expenditure.
I believe that I can go away from this House and return to the department with a very clear message about the concerns and worries that have been raised about tied cottages. I dealt with that earlier. I am always encouraged when my noble friend Lord Harmar-Nicholls rises to his feet and excites a certain amount of noise from the Benches opposite. It usually indicates that a matter of some interest is going to be drawn to your Lordships' attention. I do not accept the argument put forward by the noble Lords, Lord Donoughue and Lord Hughes, to the effect that the Secretary of State for Scotland pays the same community charge as the dustman.
My noble friend Lord Harmar-Nicholls has always been a keen student of fact. He has researched the matter. He produced an interesting figure. The Secretary of State for Scotland, far from paying a standard community charge or any other community charge, was paying £3,266 towards the cost of local government. The noble Lord, Lord Stoddart, asked whether heterosexuals or homosexuals were better off. I remind him that the community charge is individually payable and thus I believe that we are all in the same boat.
Lord Stoddart of Swindon: My Lords, I was talking about homosexuals living together; married couples living together; and common-law husbands and wives living together. I hope that the Minister will look at that point. Perhaps I can discuss the matter with him after the debate.
Lord Hesketh: My Lords, I shall look at the point and also discuss it with the noble Lord. The noble Earl, Lord Attlee, the noble Baroness, Lady Stedman, and other noble Lords, raised the question of the small village shop. Here we are seeing the reverse side of the coin of what happens if there is not a revaluation in 17 years. The definition of what a village shop is would be impossible to agree. The noble Baroness also berated the Government over the depradations, as she saw them, of the UBR. I remind your Lordships of the key figure to be kept in the back of our minds. Of the rise in rates that will be paid by those businesses where there is an increase, 75 per cent, of the rise is not an adjustment from north to south, but the revaluation itself.
The noble Lord, Lord Mcintosh, asked whether or not my right honourable friend the Secretary of State was going to introduce charge capping. He is currently considering the information which he has about local authorities' budgets. When he has

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completed consideration of the matter he will announce his decisions on capping.
Noble Lords can rest assured that we shall continue to listen and respond to the views expressed by this House. Today's debate marks the long-awaited demise of domestic rates. The community charge is a system which before long will be seen to be better, simpler and more responsive to the service and charge levels that people want. I once again remind your Lordships that we are willing to listen and to respond to the views expressed this afternoon.
5.39 p.m.
Baroness Stedman: My Lords, the attention shown to this debate, and the number of speakers, justify my colleagues and I in choosing this subject for our one and only debate this Session. I am grateful to all those who have taken part in it. I did not derive much joy from the Minister's reply although he covered the points very fully. If the noble Lord will not heed pleas from this side of the House I hope he will accept the concern of his own friends. He said that the Government will continue to look at the matter. I hope that he will do that and that he will urge the Secretary of State and his colleagues in the Cabinet to reconsider before 1991 the whole way in which the poll tax is working. The Government should make the tax relate to ability to pay and, above all, get the SSAs right to begin with. These should be based on up-to-date population statistics and a realistic figure for inflation. We might then not have quite the problems that we have had this time. I hope too that the noble Lord and his colleagues will think of the pensioners, people on low fixed incomes, one-parent families and those who were encouraged by the Government to buy their own houses and who now, in addition to high mortgage rates, face even higher poll tax demands. The Government must remember that when they place duties on local authorities that have to be paid for.
The Deputy Speaker (Lord Elliott of Morpeth): My Lords, the period allotted for debate has now expired. Does the noble Baroness wish to withdraw her Motion?
Baroness Stedman: My Lords, I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Royal Assent
The Deputy Speaker: My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signed her Royal Assent to the following Acts:
Consolidated Fund Act,
Strathclyde Regional Council Order Confirmation Act,
British Film Institute Southbank Act,
Birmingham City Council Act.

House of Fraser Holdings plc: Report
5.41 p.m.
Lord Jenkins of Hillhead Lord Jenkins of Hillhead rose to call attention to the inspectors' report on House of Fraser Holdings plc; and to move for Papers.
The noble Lord said: My Lords, it is three weeks since the DTI inspectors' report on the House of Fraser was published and since the Government, in the person of Mr. Ridley, declined to do anything about it. Since then the Government have presented us with plenty of diversionary events. Mrs. Thatcher, Mr. Rifkind, Mr. Major, Mr. Charles Prior in Mid-Staffordshire, and even Mr. Heseltine and Mr. Lawson, have all done their loyal best to distract our minds on to other things; yet I do not think they have entirely succeeded in putting the report into a quiet grave.
I am entirely neutral in the battle between Lonrho and the Fayeds. Ironically the situation can in my view be summed up by saying that the report is the most devastating by DTI inspectors since one published in 1976—and that was into the affairs of Lonrho. In one important respect, indeed, I am more concerned about Mr. Rowland than I am about the activities of the Fayed brothers. I do not much care who owns Harrods. I get along without the services of that emporium; even if I were to use it, I doubt whether I would find the merchandise contaminated by the moral quality of the proprietors.
I do, however, care much more about the Observer with which I have been fairly closely associated as a contributor for more than 30 years since the early days of Mr. David Astor's notable proprietorship and editorship. I deeply regretted the decision last year of that newspaper to publish a special midweek edition devoted to the dispute with the House of Fraser. That was not appropriate for a great national newspaper. I do not, however, think that it was in any way a corrupt decision by the editor and those close to him. One of the things that Mr. Rowland and the Fayed brothers appear to have in common is a capacity to fill those working close to them with a kind of spontaneous fury of battle. The Observer published a special number, while the House of Fraser's public relations officer behaved like a dancing Dervish in his denunciations of the DTI inspectors.
Mr. Ridley, whatever else he can be accused of, has not behaved like a dancing Dervish. He has been more like a recumbent pasha. But his handling of the issue has not served the nation or the Government well. His main argument for doing nothing appears to be that he should only use his powers of disqualification to protect the shareholders of a particular company, and that if the directors complained of have by their behaviour eliminated all the shareholders other than themselves they have achieved immunity from disqualification for anything they may have done on the way. That is precisely the argument put by Mr. Ridley. It is of course nonsense to suggest that the fitness or otherwise of the Fayed brothers to be directors is a matter of concern only to the shareholders of the House of Fraser. The flip logic

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on which Mr. Ridley based the central part of his argument contains much of the reason why, although a man of high intelligence and disdainful courage, he is sometimes a discreditable Minister.
There has also been an unsatisfactory shuffling around of responsibility, designed to avoid any collective government duty for an overall response and to enable the Prime Minister to distance herself from the whole affair. Prosecution, we are told, is exclusively a matter for the Attorney-General; the right of residence is exclusively one for the Home Secretary; any action against the solicitors involved in the case must be left to the Law Society, which we know will take no action; and there is no action against the merchant bankers to the Bank of England, which is suddenly elevated to a totally independent status wholly at variance with the Government's recent rejection of giving it a status more equivalent to that of the Bundesbank or the Federal Reserve on more important matters. The old game of passing the parcel has been played with a new speed and determination.
Furthermore, the Secretary of State himself has been proclaimed by the Prime Minister to be acting not politically as a member of the Cabinet but quasi-judicially. This, with respect, is constitutional nonsense. I am particularly indebted to the noble and learned Lord, Lord Simon of Glaisdale, for his advice on this matter. Ministers should very rarely take refuge in quasi-judicial status. If judicial decisions are required, it is better to go to the judiciary for them. Ministers are political, answerable to Parliament, and are part of a Cabinet collectivity. The Home Secretary may have a little corner of his responsibilities, particularly relating to the use of the prerogative of mercy, when detached non-political decisions are called for, but this should be carefully circumscribed and indeed has often in the past not been observed at all. I discovered some time ago, to my surprise I must admit, that 75 year; ago the question of the execution of Sir Roger Casement went four times to the Cabinet. The fact that it reached an unwise decision does not invalidate the point that individual quasi-judicial action had been thrown out of the window.
The fact that I believe Mr. Ridley's decision should be seen as political, and not judicial, and part of the policy of the Government as a whole, does not mean that I found convincing theories of a vast conspiracy involving the Prime Minister, Eastern potentates and £5 billion of support for sterling going across the exchanges. It is no part of my case to ask this House to accept such phantasmagoria. However, I think it is the case that a good deal of sleaziness has been uncovered, that the Government —and not merely at ministerial level but also at official and at Office of Fair Trading level —have handled matters badly and have left Mr. Rowland with a certain legitimate grievance that there was a lack of even-handedness in the treatment of his bids for the House of Fraser compared with that given to the bids of the Fayeds. I suspect that he was his own worst enemy and that his accusatory hectoring of honest officials made them too eager to see almost anyone else in control of Harrods.
However, the consequences go much wider. As business becomes more internationalised, as the sums of money involved and the fees paid rise to dizzying heights, as the lines of professional responsibility become increasingly blurred, as amalgamations destroy the pride in probity which goes with a distinct and limited identity, so the preservation of standards in business and in the City of London becomes increasingly difficult. Even the Governor of the Bank of England becomes a little like a schoolmistress hockey referee trying to control a particularly nasty world cup match. Some of those difficulties are inherent, but they are considerably increased if the Government signal, via Mr. Ridley, that they do not much care what people do or how they behave.
The City of London is a major national asset, especially at a time when the invisible balance is not only swamped by the massive visible deficit but is also losing its own buoyancy. Yet the Government, with the appalling touch of death which seems to have overtaken them, are determined to deal it two damaging blows. First, they pursue a foot-dragging general policy which guarantees that Frankfurt and not London will become the official banking capital of Europe. Secondly, they assist a similar migration of private financial transactions by allowing the City to undermine its great remaining asset of high, even austere, integrity and respect for truth and straightforward dealing.
We live in a society which is increasingly awash with money. I grow ever more sceptical of the alleged economic achievements of this Government. Curing inflation was supposed to be the centrepiece, but our exceptionally high rate is now pointed to almost with pride—certainly with awe—by the Prime Minister as a still compelling reason for not entering the ERM. Paying our way in the world is certainly not something to which we can point with pride. Thrift was made the theme of the recent Budget. But if that is the desideratum, the Government have presided over a decade of disaster. Savings have collapsed and have been far more than outweighed by erecting the maximum use of personal indebtedness into a socially compelling way of life. The core of the achievement, such as it is, is that this Government have made some people rich and, as some of them are articulate and grateful, they have elevated this into a national triumph.
But there are dangers as well as indulgences in an excessively money-oriented society. One of the points I noted with dismay in the House of Fraser propaganda is the suggestion that because the Fayeds have made charitable donations their deceits should be regarded as irrelevant. The present state of affairs in which nearly every public institution of worth and note has to spend a large part of its time raising money through private generosity does of course greatly increase the status of those who have money to spare. But if that were to be given the additional twist of saying that it should grant them an immunity for any misdeeds, past or present, it would certainly not be desirable.
The Government's reaction to the report has so far been inadequate and has been widely perceived as such. There are many questions still left unanswered

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and many responses which we need and which have not been given. Those deficiences can still be corrected, but it should be done quickly. I beg to move for Papers.
5.55 p.m.
Lord Diamond: My Lords, it is a very great pleasure for me to follow the noble Lord, Lord Jenkins of Hillhead, once again and I am sure that I am expressing the views of the whole House when I thank him for bringing this important and contentious matter to our attention in the form of the debate which is taking place today. In the short time which is available to me I do not think that I can do more than explain why I find myself in the very unhappy position of not only having to disagree slightly with some of the remarks made by the noble Lord but also having to agree with the Secretary of State in his decision to take no further action in the matter.
In short, the report concerns the buying and selling of shares in the House of Fraser. The first to benefit from those transactions was the Lonrho company which had a large stake in the group and which made £70 million profit. The company then built up a smaller stake which it again sold, thereby making a further £10 million profit. Therefore, the company had made £80 million in pursuing its decision to be a seller—and I repeat the word "seller"—of House of Fraser shares. However, the company seems to have changed its mind and wished that it had been a buyer and had made a bid for the House of Fraser. No one stopped the company; indeed, it could have made a bid and, at one time, it was thought that the company would do so.
It is not open to anyone to walk at one and the same time both due North and due South and thereby make some progress. What the company did as a result of making no progress is what most of us do when we make no progress: we get very cross and see who we can blame for the situation. The company blamed the Fayed brothers on two main scores. First, that they had misrepresented their origins and grossly exaggerated the kind of importance that their families held in some distant parts. I can only say in relation to that fact that there must be many people in the world today who wish that someone would come along and grossly misrepresent his antecedents and present them with a profit of £80 million in cash. That was the first major complaint.
The second major complaint was that the Fayeds claimed that the money was their own personal property, whereas in fact there is some doubt as to whether it belonged to them or whether it belonged to either Dubai or the Sultan of Brunei. As to the second suggestion, there is, if I may say so, no dubiety at all because the Sultan has stated, and written officially to the effect, that it was not his money. My comment on all this is that I really cannot understand why there should be so much fuss on that aspect of the matter. It is never the bidder's own money that is involved when he is making a huge bid of such dimensions; it is money with which the banks have promised to support him, or money from institutions or financial corporations of one
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kind or another. It must have been astonishing—a great surprise —that anybody should allege that they were walking around with two-thirds of a billion pounds in cash, ready to support a bid for shares in a particular company.
The Lonrho Company was the first to benefit. The second to benefit was the general body of shareholders who sold at about 400 pence shares that were quoted at about 250 pence. They sold all their shares. Why? Because Lonrho sold its stake and the shareholders followed the lead, believing that Lonrho ought to know the right thing to do. Lonrho sold its second stake and the body of shareholders followed suit. All in one day the Fayed brothers' brokers were enabled to acquire the necessary 50 per cent, by nightfall. That is, shortly, what happened.
What should the Government have done about all that on receipt of the report? First, they could have decided to tighten the law with regard to relevant and important misrepresentation of the kind alleged. The point made by the noble Lord, Lord Jenkins of Hillhead, is that they certainly could have done that. The story goes further. The Government have done that. The provision has been included in the subsequent Companies Act, so there is nothing further for the Secretary of State to do in that respect.
The Government could have taken criminal proceedings, but a government who do not take the advice of the DPP after he has investigated for 18 months the possibility of bringing criminal proceedings and who do not take the advice of the Serious Fraud Office after it has carried out a similar investigation would act in an unusual and irresponsible fashion. Having regard to the view of both those bodies, based on careful investigation over a long period, that no criminal proceedings were possible, the Secretary of State decided that no further action could be taken in that regard.
The Secretary of State could also have taken proceedings to terminate the directorships of the Fayed brothers on the grounds not of their conduct at the time of the bid but their subsequent conduct in the management of the affairs of the company of which they were directors. Obviously one must take note of that. If people become directors and show by their actions and their words that they are perhaps not suitable, on becoming shareholders and owners of the company, to be directors and managers of it, one has to go further and see what has happened regarding the management of the company.
The report covers those points fully. I agree with it that it was not outside the terms of reference that the inspectors should pursue this point. They have done so and have reported that the management with the Fayed brothers as directors was up to the standard required and expected of directors of large companies. There again I do not think there was much that the Secretary of State could do in that regard.
Unlikely as it seems, he could have gone to the other extreme and condoned the conduct of the Fayed brothers. That he specifically did not do—quite the contrary. Obviously it is in the best interests both of the City and of the economy of the

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country that the standards of individual behaviour should be raised to what they were 50 years ago, but from which alas I believe they have fallen.
Finally, the Government could have decided to go against the previous policy of government-assisted self- regulation of financial bodies and instead they could have loaded the statute book with a new and large series of criminal offences for the policing of which the Government would be responsible. Wisely, they decided that the function of the Government is to provide a general framework, not to be a nanny, finding out what little Willie is up to and telling him not to.
6.5 p.m.
Lord Rees: My Lords, the noble Lord, Lord Jenkins of Hillhead, introduced the debate with a character istically agreeable speech. I find it a little surprising to see him cast himself in the role of Savonarola. There are no doubt many facets to his character.
His speech was far-ranging. I hope he will forgive me if I do not follow him in all the interesting byways through which he took us. I find myself in agreement with him about our adherence to the exchange rate mechanism. However, I feel that it might be slightly out of order if I followed that route tonight.
Like other noble Lords, I am grateful to the noble Lord for initiating this debate. It has compelled us to study the 752 pages of the inspectors' report. It was a thorough, investigative work and I wish to offer them my respectful congratulations. The debate also gives us a chance to express a view on what was an undeniably seamy chapter of a rather long-running saga. As with other noble Lords, over not months but years my breakfast table has been overloaded with missives from both sides in this long contest. My only regret is that the government of the day should have been drawn into what seemed essentially to have become a private vendetta.
I do not wish to follow the noble Lord through the whole sweep of his survey of the morality of the conduct of the City, the economy, and so on. Like the noble Lord, Lord Diamond, whose speech I followed with keen interest and with whose conclusions I find myself very much in agreement, I wish to narrow my gaze to the issues posed by the report. I should declare a modest interest in that until quite recently I possessed a small holding in Lonrho. I hope that the House will not feel that that is in any way unsuitable. Noble Lords can judge that when they have heard my intervention and the conclusions which I reach.
In order to express a view on the case it is necessary to consider two questions which have been posed by the inspectors at page 25 of the report. The first is: were the Fayeds—or should one call them the A1-Fayeds?; I learnt with surprise that "A1" is the Egyptian equivalent of the particule nobiliaire; that is one of the interesting pieces of information which one derives from a study of the report —what they claimed to be by origin?
The second question is: were the funds they used to acquire the House of Fraser their own? The inspectors established to their satisfaction that the Fayeds were not born to the commercial purple
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in some Alexandrian palace but were of modest academic stock, bom in a Cairene back street. In these egalitarian days and in the circles in which they moved or aspired to move that was probably not more than a harmless vanity. However, the inspectors placed some weight on it and said that it was a material consideration in regard to the people who were called on to consider their bid. I suspect that this attributes to the directors of the House of Fraser, for example, who had to consider their bid a naiveté which I doubt they possessed.
As regards their wealth, by many people's standards they were wealthy. A list of their assets, including the Ritz, Place Vendôeme, is not unimpressive. I am ready to concede that they were not wealthy enough, on the basis at least of that list of assets, to have acquired the House of Fraser unaided. Equally, as the noble Lord, Lord Diamond, pointed out, many people on the way up are unable always to acquire the assets on which they wish to form their economic base entirely with their own resources. However, it is always possible to borrow. That fact seems to have been slightly overlooked by the inspectors, and perhaps even by the noble Lord, Lord Jenkins.
It is not suggested that the Al-Fayeds were front men acting for others. That might have been a material consideration. However, it has been suggested that they used or abused a power of attorney that was given to them by an oriental potentate. That potentate has made no complaint of which I am aware. However, perhaps that is not a matter that we need pursue. It may be that the temporary use of funds that were not their own enabled the Al-Fayeds to acquire 100 per cent, of the shares of the House of Fraser for cash, and that this has enabled them in turn to refinance the acquisition by more orthodox loans. They presumably hope to repay those either out of the profits of the House of Fraser or, more realistically, out of the proceeds of disposals of some of the House of Eraser's assets.
One comes therefore to the question of who has been or might have been prejudiced by this operation. It is certainly not the former shareholders because they were paid in cash. Possibly the employees may have been prejudiced in that they may now be working for a less soundly based organisation. However, that can, regrettably, be a consequence of many takeovers. The inspectors have reported no adverse finding on the question of competition. After all, the central issue in most of these cases is competition. There is no suggestion that the House of Fraser, in the hands of the Al-Fayeds, is likely to diminish seriously competition in the retail sector.
Unattractive though the whole episode may appear under the inspectors' microscope, I do not believe that anything of great moment has emerged. Therefore, one comes to the next question which I believe the noble Lord, Lord Diamond, has answered extremely satisfactorily. What action could or should be taken, and by whom? The question of a criminal prosecution must be dismissed for the reason that the noble Lord has advanced. It is not for Ministers of the Crown to go off on their own on some frolic

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in the courts. They must take the advice of those who are best qualified to give them advice in this field.
Therefore we come to the question of whether the A1-Fayeds should be divested of their shares in the House of Fraser. I know of no power which would or could have been invoked in this case to deprive them of their shares. Therefore we ask: should the Al-Fayeds have been debarred from acting as directors of the House of Fraser? The Company Directors Disqualification Act was enacted in 1986, following a variety of takeovers where one or two unattractive facets could be detected. I believe that any Minister who is called upon to act responsibly in this field should have recourse to that Act. It must of course be emphasised that the matter does not rest with the Minister concerned. This is not a question of executive action. The Minister may initiate action, but the ultimate decision, as a judicial decision, is taken by the courts. The circumstances in which the courts can debar a person from acting as a director are fairly precisely defined. I cannot find any particular provision in that Act which I believe could have been invoked in this case against the Al-Fayeds.
Perhaps nimbler minds than mine could give your Lordships different advice. We have not had any from the noble Lord, Lord Jenkins of Hillhead, but perhaps other noble Lords will be able to fill the lacuna in the case which he deployed. However, I doubt myself whether anything turned up by the inspectors' report would provide material for the disqualification of the Al-Fayeds by the courts under the terms of that Act. In any event, what would the practical consequences of disqualification have been? As the Al-Fayeds own 100 per cent, of the ordinary share capital of the House of Fraser, the most that could happen would be that they could put in men of straw to act as directors in their absence who could be easily manipulated by them. I find that a more unattractive situation than the one we face today. It is much better that those who have the responsibility for the conduct of a company's affairs are visible and can take full responsibility in the public eye.
However, it is said that Harrods has a bank and that the Al-Fayeds are not fit to be directors of even the smallest bank. Without wishing to sound patronising, Harrods Bank is not, at any rate in my view, a leviathan in this field. However, I am not certain whether the Al-Fayeds are directors of the bank. If they are, it rests with the Bank of England to consider what action should be taken. The noble Lord, Lord Jenkins, made a telling point about the status of the Bank of England. I believe the Bank of England should have a measure of autonomy, particularly as regards its regulatory role in the City. That is perhaps a little more doubtful as regards input in economic affairs. So far as I can recall, the noble Lord, Lord Jenkins, was possibly a Member of the government who nationalised the Bank of England. However, that may have been before his time. At any rate, that matter opens up an interesting field which perhaps offers opportunities for a debate on another occasion.
Can it really be said that any depositor or client of Harrods Bank is at risk in the present situation?
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I doubt that very much. I see therefore little basis for action under the existing legislation. There is, however, an issue to which I hope we may return on other occasions. It is posed by this and other cases. Has the question of the public interest in relation to monopolies and mergers been adequately defined or redefined? I, like the noble Lord, Lord Diamond, and I believe the noble Lord, Lord Jenkins, suspect that Lonrho may have a legitimate grievance in that its first takeover bid in 1981 was blocked by the Monopolies and Mergers Commission on the grounds of public interest. Subsequently, however, the rules have been refined and the arguments that commended themselves on that occasion to the majority of members of the Monopolies and Mergers Commission would probably not be acceptable now.
The concept of the public interest was originally highly subjective, and it may still be so. I believe that it used to be said in the courts that the application of equity depended on the length of the Chancellor's foot. In this kind of case the public interest used to depend on the prejudices of a majority of the members of the Monopolies and Mergers Commission. I hope therefore that my right honourable friend the Secretary of State may consider whether the definition of the public interest in cases of this kind should be refined still further. That said, I doubt whether the public interest would really require a disqualification or a divestment of the interests of the Al-Fayeds in Harrods.
I am coming now to my conclusion. In a party democracy such as ours, the public often require a Minister to show action and concern, however spurious. This is a case where a measure of cool detachment by the Government is called for, and has been shown. On that basis, I hope that the sentiments of the noble Lord, however agreeably and elegantly expressed, will not commend themselves to the House.
6.18 p.m.
Lord Hatch of Lusby: My Lords, having listened to the noble Lords, Lord Diamond and Lord Rees, one would think that the compilation of this vast document and the extensive work of the inspectors had all been a waste of time. Surely a document of this kind should lead to some action. The inspectors could not have been more forthright in the phrases that they used to describe what happened during the time of the takeover of Fraser Holdings by the Al-Fayed brothers.
I am concerned solely with one issue this afternoon. I have raised it in this House twice before. I am concerned with the nature of the relationship between the Government, the Al-Fayeds and the Sultan of Brunei. When the Statement on this matter was first made on 7th March, the noble Lord, Lord Trefgame —I am sorry he is not in his place at the moment —when I suggested that there was a case to answer regarding the relationship between the Sultan of Brunei, the Government and the takeover of the House of Fraser, had this to say:
"I am quite ready to say that that accusation is quite without foundation".—[Official Report, 7/3/90; col. 1218.]

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That was unequivocal. The following day my honourable friend the Member for Bolsover put a similar question in another place. That was not contradicted although the Deputy Prime Minister had the opportunity to do so.
Since then, on 23rd March, I listed the facts of the case in a Question to the Government. I made no accusations, I asked them, if there is no connection between the visit of the Sultan of Brunei and the Fayeds to Downing Street, the payment of 5 billion dollars into sterling account and the very quick takeover of the House of Fraser immediately afterwards, to state that there is no such connection and explain the strange coincidence. On that occasion my Question was answered by the noble Earl, Lord Caithness. He did not deny that there was a connection. I find that lack of denial, after the noble Lord, Lord Trefgarne, had categorically denied my original suggestion, somewhat suspicious.
I should like to know from the Government tonight whether they say categorically that there was no connection between the visit of the Sultan of Brunei to London, and in particular to Downing Street, in January of 1985, the passing over of 5 billion dollars to prop up sterling in February and the acceptance by the DTI of the bid for Fraser Holdings by the Fayed brothers in March 1985.
I should also like to know why the Office of Fair Trading and the DTI were in such a hurry in March 1985. I believe that it took only 10 days for the bid to be approved. What was the hurry? In particular, why was it that at that time the Fayeds' advisers and bankers, Kleinwort Benson, were refused by the Government time to make further investigations? I am open to correction, but I believe that representatives of Kleinwort Benson asked to be allowed to go to Egypt in order to check the stories that they had been told by the Fayed brothers, which we now know to be totally untrue. The Government refused them the time to do so.
After the publication of the report, nobody can be left in any doubt as to the character of the Fayed brothers. Nor can they be in any doubt as to the great suspicions as to where their money came from. Yet no disqualification of the brothers as directors is apparently contemplated. No reference has been made to their position in the Harrods Bank.
To give a partial answer to the noble Lord, Lord Rees there was a time when the Government apparently took much more seriously the question of disqualification. One member of the Government had this to say:
"The Government confirms its determination to support the disqualification provisions as a major deterrent to unacceptable conduit by a minority of company directors". —[Official Report, Commons, 22/3/90; col. 1264.]
Does the report show unacceptable conduct? Do the Government believe that it shows unacceptable conduct?
Another member of the Government said:
"The Act poses a real deterrent. It demonstrates our commitment to ensure that the public and shareholders are protected against a small minority of directors who are tempted to abuse their position".—[Official Report, Commons, 22/3/90; col. 1264.]
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Does the report show that the Fayed brothers have abused their position? What is the view of the Government? If the Government have changed their mind about how to apply disqualification let them say so. However, I should have thought that if their view remains as firm as those quotations suggest, there could be no clearer evidence than that produced by their own inspectors that improper actions have been taken and that that should lead to disqualification.
I do not know whether any Members of this House attended the Select Committee this morning when the Secretary of State for Trade and Industry gave evidence and was examined. It was a very strange experience. Under questioning no reasons were given for not taking the matter to court. Apparently the Secretary of State believes himself to be the defending counsel, the judge and the jury. Yet he went on to say that the report does not contain facts, they are only allegations; they are not facts because they have not been tested in court. How can they be tested in court if the Government are not prepared to take them to court? The courts could estabish whether those are facts or allegations. That is the byzantine form of argument used by the Secretary of State only this morning.
He went on to say that he did not know whether the Sultan of Brunei would be prepared to give evidence. It is time he found out. If the question was put in court to the Sultan of Brunei there would be a judicial judgment rather than a political judgment such as has been taken so far. All the way through the questioning in both Houses on the issue only one answer has been given by the Government: it would not be in the public interest to pursue the matter to disqualification or to charges in court. What is the public interest? This morning a DTI memo was produced by the Select Committee, much to the surprise I believe of the Secretary of State. That memo pointed out that the public interest included both past and present employees. Are they the concern of the Government?
Finally, I remember the then Chancellor of the Exchequer telling the committee chaired by the noble Lord, Lord Aldington, that we need not worry about the decline in manufacturing industry because it would automatically be replaced by invisibles. We have seen those invisibles become invisible over the past three months. We have seen a deficit on invisibles. If the Government show no more concern about the reputation of the City for financial probity, we shall not see those invisibles either replace manufacturing industry or do anything else to benefit the health of the financial institutions of this country and the economic health of Britain.
6.29 p.m.
Lord Rees-Mogg: My Lord, I should like first to express my thanks to the noble Lord, Lord Jenkins of Hillhead, for having brought this murky business before the House. It is a murky business and it is a business in which there has been great bitterness among the commercial competitors. I should like on that account to take an unusual step and to declare a non-interest. I have never, as far as I know, met Mr. Rowland. I have never met Mr. Fayed. I

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have once talked on the telephone to Mr. Rowland in order to check a fact—a practice which used to be common among journalists. I have never done business with Mr. Rowland and, with one exception, I have never done business with Mr. Fayed. That exception is that in March of last year I bought a Yorkshire terrier from Harrods for my youngest daughter's birthday. I am happy to be able to say that that transaction was a completely satisfactory one. The little dog is remarkably well-behaved which I put down to the fact that she is cared for by an English nanny—a benefit which the report shows that Mr. Fayed did not enjoy.
There seem to me to be two questions which need to be examined. The first is: did the inspectors get it right? I read their long report with great care-it took me 12 hours—and I have not the least doubt that it can be accepted with complete confidence. I should add that I have been sent documents from the House of Fraser this week making allegations against the conduct and integrity of the inspectors which I hope that the Government will reject with the contempt that those allegations deserve.
The central question —I felt that the noble Lords, Lord Diamond and Lord Rees, somewhat misdirected themselves on this—is surely: did the Fayeds obtain a great advantage by lying? That is what the report says. It is no good trying to say that their stories about their Egyptian past were mere fibs. They lied and lied and lied again in order to avoid having their bid for the House of Fraser referred to the Monopolies and Mergers Commission, and those lies succeeded.
When one reads the report, the conduct of Mr. Tebbit, who was then the Secretary of State, is made perfectly clear. He was worried about the allegations that surrounded the whole matter. He took the highly unusual step—perhaps unique for a Secretary of State—of personally telephoning the chairman of Kleinwort Benson, the merchant bank which represented the Fayeds. He received from it an assurance which was based on what the Fayeds had told Kleinwort Benson that, in effect, everything was all right. It was only then that he took the decision not to refer and in his statement he said that, in deciding not to refer, he was relying on the assurances that he had received. So we have an absolutely clear position in which Mr. Tebbit—an active and decisive Minister; in my view, a good Secretary of State—took a decision because he was deceived. That is what the inspectors say and I do not see that anyone who has read their report with' care could reasonably doubt that that was the fact.
We must now ask the question: have the Government been right to take no action on this report? I take the point that action at this stage has become very difficult. I have a certain amount of sympathy with the present Secretary of State. It seems to me that the actions that were left open to him on the legal advice that he had been given were limited and perhaps would have little effect. I think that he treated the whole matter with undue disdain. His answer in another place was very brief and not very convincing. He has a lacksadaisical, laid-back manner, a manner which one would call an
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aristocratic manner, probably better suited to this House than to the other place. I would say, having regard to his conduct in this case, that the sooner he comes here to be an ornament among us, the better it will be for all concerned. But I do not think that he was left in an at all enviable position.
I very much regret the fact, which I am sure is due to some engagement that cannot be broken, that the noble Lord, Lord Young, who was the Secretary of State at the time the report was received, has not come here to intervene in the debate because only he can tell us what we really need to know; namely, why he behaved as he did when the report came to him. First of all, he thought that the report was important and that he should publish it as quickly as he could. That was his first reaction. His second reaction was that it was even more important, serious and grave and that there were prima facie grounds for supposing that serious fraud had occurred. So he referred the matter, quite rightly, to the Serious Fraud Office.
The noble Lord must have done that thinking that something very serious indeed had occurred. He did not do that because he took the light-hearted view that some people seem to take of the character of the report and of what it tended to show. He decided that the risk of having to deal with a major fraud prosecution was so great that he could not publish the report at that time. He took every precaution to ensure that it would be possible to bring such a prosecution to a successful conclusion if such a prosecution proved to be justified. Then he omitted and refused, and refused again, to take the one step which could have done any good; namely, to refer the matter back to the Monopolies and Mergers Commission.
There is a simple principle. If a man obtains a benefit by a trick, by dishonest pretences, that benefit should be taken away from him. In this case, the benefit was a benefit of non-reference to the Monopolies and Mergers Commission. The commission would have been entitled to take into account in judging the suitability of the Fayeds as the owners of Harrods—a matter which it would then have had power to determine—the consistent string of lies which were shown conclusively in the inspectors' report.
For some reason—and perhaps we shall never know the reason unless the Minister in his reply will be so kind as to enlighten us —the Secretary of State at that time—the noble Lord, Lord Young—reached this decision. On the one hand, the situation was so desperately serious that it was a matter of fraud to be investigated by the Serious Fraud Office, a fraud so serious that there should not be the slightest risk that the Fayeds might escape prosecution because of a premature publication of the report. On the other hand, he took a determined stand to see that, even if that proved to be true, even if the fraud were proved and they were charged, arraigned and convicted, they would still be able to retain their ill-gotten gains. That is the question that the Government must answer and a question to which I hope we shall receive an answer tonight.
6.39 p.m.
Lord Donoughue: My Lords, this is long-running and messy saga and we are quite rightly anxious as to the matters of genuine concern. For myself, as for some other noble Lords who have spoken, I do not think it is of any great public concern who owns Harrods. It is a commercial bazaar like any other, and owners from the Middle East are as appropriate as any others, assuming that they do not use it illegally. In addition, there are no victims, so far as I can see, of public injustice here. The shareholders received a fair price. We may have private reservations about either of the main parties in this battle—and, personally, I would have reservations about any of them marrying any of my daughters, though the dowry might come in useful.
However, it is not of public concern whether or not Lonrho was misled or was outmanoeuvred there. I am also open-minded about whether there should be prosecution or disqualification. That is a technical question, and very serious points have been made against taking either of those procedures. What is of public concern is the role of the Department of Trade and Industry during the takeover and in reaction to the inspectors' report. To start with, as has been said, it has never been explained why the DTI was in such a hurry to pass the House of Fraser on to the A1-Fayeds; and perhaps the Minister in his reply will explain in simple terms—a lot of people believe in conspiracy theories, but we just do not know—what was the rush.
In lelation to that rushed procedure, I should also like to ask him about the advice which the Department received from its advisers. In the Secretary of State's statement on the inspectors' report—and, more explicitly, in the Minister's replies to questions in this House at the time—it was implied in a laid-back and lackadaisical way that it was nothing to do with the department. The department was a totally innocent party in approving the Fayed brothers because they were fully investigated and approved after due diligence by the merchant bank advisers. The noble Lord, Lord Rees-Mogg, has referred to the telephone call: but I wonder whether that is the whole truth.
The merchant bank was given very little time. Did they have time to take "due diligence"? Did they warn the department that they had not had time to carry out full investigations and therefore could not and did not give a full stamp of approval? I urge the Minister to answer that question fully and frankly this evening. If Kleinwort Benson expressed reservations owing to lack of time, then the department should honestly and openly admit that. That would mean that the department and the Secretary of State took some of the initiative and took the gamble on the Al-Fayeds, knowing that they had not been fully investigated. In that case the department should not make its brief statement of "nothing to do with us" but should take responsibility. It would be unworthy to try to hide by putting the finger on others.
I hope that the Minister will reply clearly to that question. If he fudges it, we shall suspect that there is something to hide; and I hope that it is not the case. I should make clear, as I did when he made his
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Statement, that although I was once a director of Kleinwort Benson, I was not there at the time of these events.
There is another and more general point relating to the Secretary of State's bland and negative reactions to the report. I hope that the Prime Minister does not too quickly follow the advice of the noble Lord, Lord Rees-Mogg, in sending him here. That bland reaction raises the question of whether the Government are, as they appear, morally neutral on financial matters. Do they care at all about behaviour in the City? This is something different from whether you prosecute or disqualify. This House has commented frequently on the apparent lassitude and inactivity in the field in insider trading. Here we have a report from eminent lawyers, referring to what is frankly appalling behaviour by some of the participants in this sleazy affair. Perjury appears to be one of the sins.
Does the Minister not have a view on that? Is this just a question of whether some subsection of a regulatory handbook has been breached? I think not. This is the unacceptable face of the financial jungle, and the Minister would be most helpful this evening if he would say so. He may have good reasons for not applying disqualification or pursuing prosecution, but does he not have a view on this kind of behaviour? He knows that there are many decent, honest, hardworking and honourable people in the City. They do not like this kind of behaviour and the Government should give them a lead and show which side of the moral fence they are on.
6.46 p.m.
Lord Lyell: My Lords, I, along with many others of your Lordships, rise with considerable diffidence tonight to take part in this debate amid speakers of the calibre of, for example, the noble Lord, Lord Jenkins of Hillhead, Treasury and ex-Treasury Ministers and, if I may say so, following a particularly welcome and distinguished contribution from the noble Lord, Lord Rees-Mogg. I have to begin, rather like my noble friend Lord Rees, by declaring an interest, in that I understand at the last check I had a minute holding in Lonrho. However, I hope your Lordships will not think that anything I might say tonight will be at that company's behest, let alone at the behest of anyone else. The views expressed will be my own, gleaned after extensive study of what I regard as an interesting, illuminating and particularly instructive report. I join those of your Lordships who have congratulated these two inspectors, and particularly my colleague, Mr. Aldous, the chartered accountant half of the inspection team.
In this report we have to stand logic upon its head and start with the conclusions, which I find most interesting, in chapter 2. We start with the problem about the Al-Fayed brothers. It was clear that they had to show that they were, as the City says, good for what they wished to purchase: in other words, the House of Fraser. I do not know whether the regulations would be laid down in the takeover code or what is referred to tactfully later in the report in chapter 25 of the Yellow Book, neither of which I am familiar with. Perhaps we can also learn that it

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was only by a recommended bid that the brothers were likely to succeed in their objective. Together with the interesting details and the discussions upon the personalities, wealth and other more scurrilous information about the brothers, there was a great deal of detail which was researched by both inspectors. Considerable research was done.
One or two of the report's chapters are particularly interesting. If we look at 3.1.4, it is stated quite clearly that the advisers—the merchant bank, Kleinwort Benson, together with Herbert Smith, the firm of solicitors, both of whom uphold the high standards that we have come to expect in the City of London and which have been referred to so clearly by the noble Lord, Lord Donoughue —were willing to believe their clients, the Al-Fayeds. Of course that is the case: that is the only way in which the City of London can work, in which it has worked in the past and in which it ought to work in the future.
However, it is worth glancing at 3.2.29. We ought to take on board what is said in that particular paragraph about the responsibility of the advisers to the lay public—that is to say, Members of your Lordships' House, and those who are not lawyers, accountants or City practitioners.
There is a fascinating paragraph at 3.4.30 which I refer to as the garden path paragraph. In other words, were the advisers, the inspectors, the Office of Fair Trading and Department of Trade and Industry, in some way, passively or impassively, led up the garden path? The Office of Fair Trading and officials from the Department of Trade and Industry, refer to this aspect. A particular merchant bank gave assurances, three separate times. Noble Lords will find reference to that in Chapter 7. It is stated that they must have had considerable confidence in what they were saying. I believe that that is absolutely right. It is the only basis upon which the City can work.
In Chapter 7 we read three times that assurances were given that the money for this bid—a considerable bid, even by City standards—belonged to the purchasers. When such assurances are given by the City of London, I believe all of us would accept that they are well founded. However, one or two doubts entered my mind (even after considering Chapter 7) on reading Chapter 12 of the report. There is reference to the Office of Fair Trading memorandum which was presented by the purchasers to the Office of Fair Trading. It was apparent that they had claimed to have over 1 billion dollars worth of funds available for the purchase. However, in Chapter 12 the inspectors proceed to consider item by item the parts of the memorandum stated by the Fayeds. Such wealth none of us in our wildest dreams would imagine. We see that the trademark of the Ritz Hotel in Paris is said to be worth 300 million dollars. Yet, as paragraph 12.2.18 points out, the cost was only £9 million sterling in 1979. There is a further interesting paragraph about 75 Rockefeller Plaza in New York. That was again said to be worth 200 million dollars. Yet in paragraph 12.3.8 it is apparent that the value is 30 million dollars.
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At the end of the chapter, after very considerable work by both inspectors, the total wealth appears to be in the region of 250 to 300 million dollars. As a student of creative accountancy, I think that that provides a very interesting lesson that we shall be able to pursue. Certainly I shall be able to do so later this evening. It certainly takes my breath away.
Chapter 13 deals with the oil trading of the Fayed brothers, the purchasers. It is very interesting that the assets that they claimed were worth 200 million dollars at the end of 1978 were, they believed and stated, worth 500 million dollars at the end of 1984. The inspectors are quite kind in attempting to find some rational explanation for that.
Those are just two germane chapters of the report. Certainly the most interesting aspects of the report appear in Chapter 25, rightly headed "Lessons from the case". First, we consider the problem of demarcations. The inspectors point out one particular aspect concerning advisers. Quite rightly, the inspectors say that no advisers can carry out what they class as Pinkerton style inquiries. They say that certainly the Office of Fair Trading and officials from the Department of Trade and Industry were left with the clear impression that assurances given by sundry persons in the City were indeed well based and well founded. Yet any study of Chapter 12 of the report gives, I believe, just a little room for doubt.
Also, under "lessons from the case" in Chapter 25, there is a very interesting section classified, "Knowledge of one's client". Reference to my noble friend Lord Rockley appears quite frequently in the report. Paragraph 25.3.1 reports that he said to the inspectors that he was genuinely surprised a problem had arisen since in his considerable experience merchant bankers are accustomed to using their judgment in such matters; and, verification would not be appropriate in the fast moving situation which was apparent in this case. I certainly agree with him on that. That is ripe stuff since the noble Lord, Lord Rockley, 38 years ago, did not give me the benefit of those two attitudes when he, together with others, beat me at school.
In conclusion, Chapter 25 has some useful principles for takeovers. It recommends one or two loopholes in the City code that should be examined so far as concerns corporate and incorporate purchasers. The report is long. It is never boring. It provides very valuable lessons for all of us. I believe that it also provides a valuable lesson for the City of London which each and every one of us wishes to see retain its position, along with that great motto, nil satis nisi optimum. I can tell your Lordships that you cannot buy that for £9 million or a great deal more.
6.57 p.m.
Lord Brocket: My Lords, I do not wish to say much on this rather emotive and complicated subject except to make an overall observation on a rather different aspect.
We are all fully aware and accept that parliamentary privilege has to exist within both Houses of Parliament in order for a full debate to

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be possible and for all the facts to be brought out into the open. To extend parliamentary privilege outside Parliament, in a written form, and for all the world to see, is totally unforgivable and against all democratic values that we hold. Regardless of the facts in this case—and I stress that—to libel other people, to give them no chance to answer the libel, to publish the libel and to be totally immune from court action, is deplorable.
The normal course of action in such a case is for the facts—not hearsay—to be ascertained and, if sufficient grounds exist for a prosecution, for the facts to be put before a court of law and for the Government to act if necessary. We suddenly find that a report is published where a report would never normally be published as no case existed against the subject in question and that the report is based largely on hearsay. It is hearsay that is, coincidentally, inadmissible in a court of law. Furthermore, the Fayeds' response to the allegations in the form of a 500-page report is conveniently ignored.
It leads me to suspect that some skullduggery existed to ensure the publication of the report, since government action was extremely unlikely and uncalled for, and the report would therefore not normally be published. It may well be that in this country we put up with such a position but I seriously doubt whether the European Court would hold the same view if the matter were put before it.
Let us imagine the effect on large companies if this tool, weapon or procedure—call it what one will—was used on a wider scale to affect share prices or takeover bids. It would be a very powerful weapon indeed. As the report states, the Fayeds have not broken any laws and have not committed any offences.
Despite having done a fair hatchet job on the Fayeds the report was obliged to conclude:
"Their relationships with the Stock Exchange, the revenue authori;ies and auditors have been properly and responsibly conducted, and the dealings of this company as regards the substantial borrowings and the renewals of borrowing have all been proper and beyond criticism".
The report further states:
"They find no evidence that the conduct of the Fayeds in any of these matters has fallen short of the conduct to be expected of directors of large and important companies".
It may well be that a rosier picture was painted of their wealth But which one of us has not at some time ciscouraged our bank from believing that our assets are a little greater than they are? It is only a question of degree.
Noble Lords: Oh!
Lord Brocket: My Lords, if the City does not like what the Fayeds have done it has only itself to blame because it was the City's rules by which the Fayeds played. I am a little sad that in Britain a legalised form of personal and corporate libel seems to have popped up that has no form of redress. I am even sadder that the whole business has so damaged the City.
7.1 p.m.
The Earl of Longford: My Lords, the noble Lord, Lord Brocket, will forgive me if I do not follow him along that line. I believe that a lie is a lie, and if you lie for a period of time you are a discredited person. However, I shall leave that topic because I have only a few minutes in which to speak.
I am grateful to the noble Lord, Lord Jenkins, for opening the debate in a characteristically cogent and convincing manner. There have been other notable contributions. I hope that the noble Lord, Lord Rees-Mogg, will not think me impertinent if I say that I hope we shall hear from him more often. His speech was one of his most powerful interventions.
I have disagreed with the noble Lord, Lord Diamond, only seldom, if ever. Today I thought that he was barking up the wrong tree. However, he made an important point, which was followed up by my noble friend Lord Donoughue, in referring to the decline in morals in the City. It is an arguable matter but I shall spend my few minutes discussing the question of the moral climate in the City and the fashionable standards which have made such frightful occurrences possible.
From 1955 to 1963 I was chairman of one of the smaller clearing banks. I believe that I am the only socialist ever to hold such a position. There may have been a few secret sympathisers, but, if so, they kept their opinions to themselves. I remember that during those years a high sense of public responsibility was possessed by the leaders of the banking world who to a greater or lesser extent spread themselves throughout the City.
I found a particular mentor in Mr. Anthony Tuke, who was for many years chairman of Barclays. He was kind enough to take me under his wing as a novice and he taught me many useful things. One of the many comments he made was, "You must remember that high interest rates are always good for bankers. But that does not mean that they are necessarily good for the country". He insisted that I should keep the distinction clear. I learnt from him the various obligations of the banker to the depositors, shareholders and staff. I also learnt the overriding obligation to the community as a whole. The question is whether today such an obligation is felt to anything like the same extent.
During my eight years as chairman there were six Conservative Chancellors of the Exchequer. Time prevents me spelling out their names, but I am glad to be able to say that one of them is still with us, the noble Lord, Lord Thorneycroft. By coincidence, for six of those eight years we were asked to restrain lending and not to go the whole way in the search for maximum profit. We were asked to act according to the interests of the country as interpreted by the government of the day and conveyed to us through the Governor of the Bank of England. We complied as a matter of course. We did so reluctantly and with a certain amount of grumbling but we assumed that our duty was to act in the way in which the public interest was interpreted by the elected government. That was how it was in those days.
We are now told by some people that in these days of market forces, which should be allowed to run

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their course without intervention any kind of credit controls are unworkable. If that is so it is only because of certain assumptions which are made about the present attitude of the leading bankers. They are the people who create the credit. If their attitude was the same as those of my leading colleagues at that time they would be no more unworkable than they were during those eight years of Conservative government when I was chairman of a bank.
Today we are undoubtedly faced with various sordid happenings. I hold no brief for any of the parties, except that I am a devout reader of the Observer. I cannot afford to shop in Harrods; otherwise no doubt I should be its faithful servant. I hold no brief for either party. In spite of what the last speaker said, we all know that the report represents the irresistible truth. There was lying on a large scale and that was allowed to happen because of the decline in standards. I am afraid that that is due to today's emphasis on market values and forgetfulness of the public interest which in those days was stood for by men such as Mr. Anthony Tuke and many others in the City. I can hope only that those days will return.
7.7 p.m.
Lord Ezra: My Lords, in the light of the brief Statement that was made about the voluminous detail of the report of the inspectors I believe that my noble friend Lord Jenkins of Hillhead was totally justified in tabling this Motion for debate. I am convinced that had the Statement been more detailed the raison d'etre for the debate might not have existed. My noble friend rightly said that the report raises many questions which remain unanswered. During the course of today's debate many noble Lords raised those questions and attempts were made to answer them.
I wish to concentrate on four aspects, although there are many others. First, I wish to talk about the inspectors' report. A question was cogently put by the noble Lord, Lord Mishcon, when the Statement was repeated in this House. The report prepared by the inspectors on the House of Eraser was extremely condemnatory. As was pointed out by the noble Lord, Lord Mishcon, if that condemnation was justified it was virtually inevitable that some kind of action should be taken. If action was not taken it would appear to be implied that the condemnation was not justified.
I am slightly worried about the inspectors' report when I compare it with the Select Committee procedures in your Lordships' House. Not only do we show the conclusions reached by the Select Committee but all the evidence is published. It would have been helpful to have in a second volume all the evidence given to the inspectors. In spite of the fact that the first volume is large it would have been helpful to have all the evidence and reached our own conclusions. That would have been more effective than seeing the situation through the eyes of the inspectors alone. Therefore, I raise a query on that very much along the lines of what the noble
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Lord, Lord Mishcon, pointed out, and the noble Lord, Lord Brocket, raised similar questions.
Secondly, there is the role of the advisers to which much attention has been drawn. Should advisers who are employed by a particular party in a takeover acquisition operation be wholly supportive of their cause or do they have a duty to satisfy themselves that what they are told by their client is justified? As yet, that does not seem to me to be very clearly decided.
The report has been referred by the Secretary of State to the Bank of England and the Law Society in respect of the advisers in this case. I suggest that it would be most helpful to us all if, after those eminent institutions have considered the matter, there is a report on what conclusions they reached. I have the feeling that having been referred to them, that is the last we shall hear of it. They will take that material on board in the same way as they take on board much other material which comes their way.
Thirdly, there is the question of the public interest in mergers and takeovers, a point specifically referred to by the noble Lord, Lord Rees. I am rather concerned that the public interest should have been eliminated as a consideration in mergers and takeovers. Most of the references to the Monopolies and Mergers Commission cover very large concerns. Therefore, it is almost inevitable that a degree of public interest is involved. What was particularly disturbing in this long-running saga—as the noble Lord, Lord Rees, pointed out—was that the public interest was taken into account at a certain stage in the proceedings and was then eliminated at another stage. Therefore, the two contestants were being judged by the Secretary of State on two completely different bases. I believe that there is a strong case for taking public interest into account on takeovers and mergers when referred to the Monopolies and Mergers Commission.
Finally—and this is a point referred to by the noble Lord, Lord Lyell—there is the question of whether the City code on mergers and takeovers should be amended in order that the amount of information required from non-corporate offerers is brought into line with that required from corporate offerers. Having been involved in takeovers and mergers in one way or another in recent years on a corporate basis, I know how much detail you have to go into to justify your position vis a vis the people concerned with the City code. However, there seems to be a loophole in the case of non-corporate offerers.
Those are some of the issues which this case raises. I believe that it would be unfortunate in the extreme if this long and, indeed, eminently readable document were allowed just to remain on the shelves without our knowing what was eventually to be done about some of those major issues. I hope that as a result of this debate and as a result of the response which we shall have from the noble Lord, Lord Trefgarne, we may perhaps be reassured that we shall eventually have a document which will tell us exactly what has been done about the lessons learned from this case.
Lord Williams of Elvel: My Lords, the House will be grateful to the noble Lord, Lord Jenkins of

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Hillhead, for introducing this debate. Because this is the only intervention from this Dispatch Box and since we have made up a little time I hope that the House will excuse me if I speak for a little longer than ray ration of 10 minutes. Of course I still intend to allow the noble Lord, Lord Trefgarne, his full 20 minutes. I do not wish to detain the House too long but I :should like to give a considered view on these problems from the Opposition Front Bench.
I start by quoting again to your Lordships the conclusion of the report —and I am reading from our own Official Report at the time the noble Lord repeated the Statement made in another place. It states;
"The Fayeds dishonestly misrepresented their origins, their wealth, their business interests and their resources to the Secretary of State, the OFT, the Press, the HOF Board and HOF shareholders, and their own advisers". —[Official Report, 7/3/90; col. 1216.]
That is our starting point.
The noble Lord, Lord Rees-Mogg, quite rightly raised the question: if that misrepresentation had not taken place, would the Fayeds have succeeded in taking over the House of Fraser? At the time that the noble Lord repeated the Statement made by his right honourable friend in another place, I gave a very clear answer, as I believe did the noble Lord, Lord Rees-Mogg. The answer is no. If it had been known that that misrepresentation had taken place, that transaction would not have gone through.
The second question which we have to ask ourselves is: what happens now? As the noble Lord, Lord Rees, pointed out certain options have been closed out. What can we do and what should the Government do to try to mark their disapproval, if they disapprove, of what has happened as described by the inspectors?
I respond to the noble Lord, Lord Diamond, in one respect. The Government have taken action in legislation to close some of the loopholes revealed by the inspectors in the report. The Companies Act 1989 is an example of that. The takeover code referred to by the noble Lord, Lord Ezra, is being studied at present and, as I understand it, amendments will be brought forward which will respond to the points made by the noble Lord, Lord Ezra.
Obviously there is a loud sound of stable doors clanging after the horse has bolted. Unfortunately, in these circumstances, one cannot help that. We have to make sure that the Government do not sit back and say that nothing else should be done. We must make sure that the Government do not simply sink into a state of spineless inertia. It is to that matter that I wish to address my remarks this evening.
What did the prosecuting authorities do? We heard that there was not enough evidence for a prosecution. Although the noble Lord, Lord Young of Graffham, told us that very serious matters were being studied by the Serious Fraud Office, there was not enough evidence for a prosecution.
In the report the inspectors took a very serious approach to the evidence which they received. I
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should like to quote from paragraph 1.21 of the report to show how serious their attitude was:
"When we considered disputes of fact we always looked for contemporary documentary evidence to help us resolve the dispute, and time and again the truth of the Fayeds' account was exploded by reliable contemporary documents".
In Other words, the inspectors went to a great deal of trouble to support their conclusions. Those conclusions are related at paragraph 2.1.2:
"During the course of our investigations we received evidence from the Fayeds, under solemn affirmation and in written memoranda, which was false and which the Fayeds knew to be false. In addition, the Fayeds produced a set of documents they knew to be false. This false evidence related mainly, but not exclusively to their background, their past business activities and the way in which they came to be in control of enormous funds in the autumn of 1984 and the spring of 1985".
Whatever the evidence or lack of evidence for fraud, there can be no doubt that there is a prima facie case of perjury. Are the prosecuting authorities not prepared to take action on the basis of that very considered evidence which the inspectors are putting forward? If they are not prepared to do so, then I can only say to them—and indeed to the Government through them —that they must say that they do not agree with that and that something is wrong. The inspectors got it wrong.
The Statement made by the Secretary of State earlier this month did not say that the Government rejected the inspectors' conclusions; far from it. It said that anybody can read the report and come to any conclusion they like. If the Government support the evidence brought forward by the inspectors, there must be a case for prosecution. I hope that the noble Lord, Lord Trefgarne, will address himself to that point when he replies.
The next issue concerns the response of the City. A number of noble Lords commented on that and I do not wish to dwell on it. The noble Lord, Lord Rees, made his point and my noble friend Lord Longford made a point about the ethic of business in the City. We hope that these things will be cleared up. I do not believe that the question of Harrods' bank is a material matter. It is a "minnow", as the noble Lord, Lord Rees, said; it is not very important. However, the question of the ethic of business in the City has to be addressed at some stage. I hope the Government will do everything in their power—I will explain what can be done —in order to encourage a return to what my noble friend Lord Longford called a "proper ethic" in banking.
The question remains of what we do now. What do the Government do now? The matter cannot simply be left where it is. I turn to the question of disqualification of directors. The Secretary of State announced that he is not prepared to take action on that front. The Company Directors Disqualifications Act 1986 is quite clear. Section 8 gives the Secretary of State authority to apply to the court for disqualification on grounds of public interest. I should have thought that perjury; deliberately false statements; misleading the competition authorities; misleading creditors and misleading employees certainly justifies a case on grounds of public interest. There is certainly a case on grounds of public interest to ensure that the City is cleaned up.

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Unfortunately under the Act the court must make up its mind on the application on the basis of Schedule 1, which does not include public interest. The Secretary of State therefore can quite reasonably say —as he said to the trade and industry committee of another place this morning—"I could introduce all sorts of public interest grounds, but the court must make up its mind on the basis of Schedule 1". Part I of Schedule 1 confines itself to misfeasance or breach of any fiduciary or other duty by the director in relation to the company. That is the point at which the Secretary of State wriggles off the hook and says, "I will not try because I do not believe I will succeed in the court".
Under Section 9 of the Company Directors Disqualification Act 1986 the Secretary of State has power to modify Schedule 1. If he had made an order saying that public interest should be taken into account by the court, that he is modifying Schedule 1, then he would be able to move an application for disqualification and the court could treat it on the basis of public interest. I say to the noble Lord that if such an order were put forward by the Secretary of State it would not be opposed by us; it would not be prayed against by us. That is a way forward which the noble Lord might like to consider.
Lord Rees: My Lords, perhaps the noble Lord will give way on that point. I am grateful to him for his illuminating address on the question of the Act to which I also referred. Is he suggesting that the Secretary of State could introduce an order with retrospective effect, which would enable him to initiate action before the court—the decision is ultimately that of the court —against the Fayeds on the basis of what happened some years ago?
Lord Williams of Elvel: My Lords, I am speaking of the future. I am saying what we should do now and how we should get round the particular problem with which we are faced. I will respond very directly to the question of the noble Lord. If we consider what happened to the employees and the creditors, bearing in mind the fiduciary duty owed by the directors of a company to employees under Section 309 of the Companies Act 1985 and to creditors generally under various sections of the Companies Act, I suspect there would be a case to put before the court. That is a point I will not dispute because it is a question for the court to answer.
The problem we are left with cannot be allowed to go away. It is not merely a question of whether an application would or would not be successful. The Government must make an effort to show to the world and to the City that we really want to clean up the whole business. As the noble Lord, Lord Jenkins, pointed out, this is the strongest report that certainly I have read—indeed that he has read—since the Lonrho report in 1986. We cannot just let it go and say we will do nothing.
I hope that the lesson of this affair is that the Government will make a very strong statement —perhaps the noble Lord will make a very strong statement today —saying that they will amend
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the company disqualification schedule; that they disapprove of what happened; that they will explain why the prosecuting authorities did not take any action on the basis of what is clear evidence of a criminal offence, if we are to believe the inspectors; or saying that they do not believe the inspectors and that they will embark on an overhaul of the processes of government which led to this extraordinary shambles.
Why did Lord Young not refer the matter to the Monopolies and Mergers Commission in 1988 when he had the report in front of him? Why did Mr. Tebbit wave it through so quickly in 1985? Why was the report not published? Instead we were told it had to be referred to the Serious Fraud Office. Lastly, does he not recognise that to do nothing at all is an affront to people both in the City and in the United Kingdom generally who wish to do business in an honest, sensible and sober manner? It is a matter which cannot go away. The Government are under the microscope on this point. The noble Lord must take this issue seriously and we await to see what the examination reveals.
7.25 p.m.
The Minister of State, Department of Trade and Industry (Lord Trefgarne): My Lords, Your Lordships will be grateful to the noble Lord, Lord Jenkins of Hillhead, for having introduced this debate.
The publication of the inspectors' report on 7th March 1990 allows everybody to judge for themselves what they think of the conduct revealed in the report. It is a sorry tale. It gives rise to a large number of issues, many of which have been raised in this debate. I propose to concentrate on four main areas. These are competition policy; the criminal law; the law relating to disqualification of directors by the court and the powers of Companies Act inspectors.
I turn first to competition policy. The Fayeds' bid for the House of Fraser in 1985 was considered by the Director General of Fair Trading and my right honourable friend the then Secretary of State (Mr. Tebbit) in the light of the merger policy introduced in 1984. Since July 1984, references to the Monopolies and Mergers Commission (MMC) have been made primarily on competition grounds. That remains the Government's policy.
In accordance with the advice of the Director General of Fair Trading on the application of this policy, my right honourable friend Mr. Tebbit announced on 14th March 1985 his decision that there were no grounds for referring this merger to the MMC.
It is open to the Secretary of State as the noble Lord, Lord Williams, recognised, to reconsider a decision not to refer a merger within six months of new information affecting the merger coming to light. Accordingly, my noble friend Lord Young the then Secretary of State, reconsidered the earlier decision of his predecessor in the light of the inspectors' report submitted in July 1988. He announced in November 1988 that, again in accordance with the advice of the Director General

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of Far Trading, he had decided not to refer the merger to the MMC. The inspectors' report raised doubts about the source of the finance for the Fayeds' acquisition of House of Fraser.
The Office of Fair Trading considers the manner of financing a deal as it bears on the competition. In particular, it seeks to establish what competing interests are involved and to assess whether the financing might put the target company at risk of failure with a resultant loss of competition. But in this case, House of Fraser shareholders having been paid in full and in cash the OFT concluded that there were no new competition issues to investigate or other public interest issues of the sort which the MMC could usefully address. The other issues raised were more relevant to the functions and responsibilities of other authorities.
The Government are always seeking to learn from past experience in developing their merger control procedures, and have paid careful attention to the recommendations in the inspectors' report. The Government have now implemented, as the noble Lord, Lord Williams, recognised, a number of changes in their merger control procedures in line with the inspectors' recommendations. Let me summarise the four main points.
First, in their report the inspectors suggested that the Secretary of State's role be confined to decision making. The procedures for the Secretary of State to consider merger reference cases have been adjusted so as to avoid his being involved in the investigative and fact-finding stages. These are rightly matters for the OFT.
Secondly, the inspectors suggested that the Director General of Fair Trading may have been rushed into giving his advice to the Secretary of State in 1985. One or two noble Lords, including the noble Lord, Lord Williams, referred to that this evening. To this I would say that there is always a balance to be struck between having enough time to weigh up the facts and acting quickly to remove uncertainty. In this particular case there was considerable market uncertainty in the period before the Secretary of State's decision was announced. In any case—this is important —the OFT had been considering a merger of the Fayeds with the House of Fraser since November 1984 when the Fayeds acquired Lonrho's 20 per cent.
New procedures under the 1989 Companies Act are to come into force next week under which companies who voluntarily pre-notify mergers can usually expect a decision from the Secretary of State within 20 working days of notification. There are appropriate extension provisions to deal with particularly complex or difficult cases. The department's own procedures also ensure that the Secretary of State has time to consider the Director General of Fair Trading's advice carefully and to reflect before reaching decisions on reference.
Thirdly, the inspectors also recommended, in drawing attention to lessons for the future, that the OFT should issue a code of standards for advisers appearing before them. This is a matter for the Director General of Fair Trading. The OFT publishes and keeps up to date a guide on mergers
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procedures. It has told the department that it has decided not to include in this, or publish separately, a code of standards for advisers. It would be extremely difficult to make such a code exhaustive and it is in any case open to such advisers to note the issues raised in the inspectors' report.
Finally, however, in the 1989 Companies Act (Section 151), the Government have taken action to deter those who seek to deceive the competition authorities in the future by making it a specific criminal offence knowingly or recklessly to mislead the competition authorities. This comes into effect from 1st April this year. It will be for the prosecuting authorities to furnish the evidence needed to secure a conviction in the courts.
I turn now to the decision that there should be no criminal proceedings arising out of the matters dealt with in the inspectors' report. That decision was taken jointly by the Director of Public Prosecutions and the Director of the Serious Fraud Office, both of whom are independent public officers. I propose therefore to preface what I have to say about the decision in this particular case with some more general observations about the manner in which such decisions are taken and how those two independent officers are accountable to Parliament.
I emphasise two important principles. The first is the need for full equality before the law, and secondly the right of every citizen to expect consistency from the prosecuting authorities. It is therefore especially important when cases are controversial, or otherwise have a high profile, that the process of arriving at a decision as to whether or not to bring a prosecution should be no different than in any other case.
The criteria to be applied when considering institution or continuation of criminal proceedings are set out in the code for Crown prosecutors which was issued pursuant to Section 10 of the Prosecution of Offences Act 1985 and laid before Parliament. The very first question to be determined arises from paragraph 4 of that code which stipulates:
"A prosecution should not be started or continued unless the Crown Prosecutor is satisfied that there is admissible, substantial and reliable evidence that a criminal offence known to the law has been committed by an identifiable person. The Crown Prosecution Service does not support the proposition that a bare prima facie case is enough, but rather will apply the test of whether there is a realistic prospect of conviction."
Lord Mishcon: My Lords, perhaps the Minister can assist several Members of the House who have raised this point. He has just quoted paragraph 4 of the code. Is it really suggested that inspectors can make a finding of fact about lying upon oath and deliberately do so without having had prima facie evidence before them? If so, that is a scandal. If not, what does paragraph 4 mean other than that there should be a prosecution?
Lord Trefgarne: My Lords, the decision as to whether there should be a prosecution rests with the prosecuting authorities, as I have already said. There is a difference between what is right and proper in regard to launching a prosecution and what the inspectors say. There is a specific difference which I shall come to in a moment if the noble Lord will allow me.

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The Royal Commission on Criminal Procedure also considered the relationship between the independent prosecuting authorities and Parliament. The Royal Commission endorsed the principles of openness and accountability in prosecution arrangements, and hence both the statutes creating the Crown Prosecution Service and the Serious Fraud Office provide for accountability by placing the two directors under the superintendence of the Attorney-General who answers to Parliament. The Royal Commission also noted the difficulties which might flow from making any Minister answerable for individual prosecution decisions.
What the Royal Commission said is very compelling, and it is for that reason that the invariable practice of the Law Officers is to confine themselves to explaining prosecution decisions in general terms rather than by reference to the details of the sometimes conflicting evidence.
The report of the inspectors was passed to the DPP and the director of the SFO in July 1988 because, at the very least, it disclosed what the then Secretary of State—my noble friend Lord Young—described as evidence of "wrong doing". The report and accompanying evidence were voluminous and required careful consideration. On 24th November 1988 the directors jointly referred the matter to the Metropolitan Police and asked for necessary inquiries to be carried out. In so doing, they were acting no differently than in any other case of its nature.
The investigations which were pursued were based on lines advised by lawyers within the SFO and the CPS and extended to every part of the world in which the inspectors' report had suggested they would be desirable. They were thorough and the fact that those inquiries involved several overseas jurisdictions inevitably made the process a lengthy one. The purpose of the investigation was to secure evidence which would be available and which was, above all, admissible in criminal proceedings in our jurisdiction.
The result of those inquiries was considered by the two directors who had the benefit of advice from senior Treasury counsel experienced in criminal matters. Having satisfied themselves that all lines of inquiry had been pursued, they concluded that the evidence available was insufficient to afford a realistic prospect of conviction for any criminal offence relating to any matter of substance raised in the report.
In taking the decision not to institute criminal proceedings, the two directors had treated this case no differently from any other case referred to them, and my right honourable and learned friend the Attorney-General, has authorised me to say that he is satisfied that the conclusion reached by the two directors was the correct one on the basis of the admissible and available evidence.
Lord Mishcon: My Lords, I promise the Minister that this is my last intervention; but this matter is most serious. Will the Minister please forget the A1
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Fayeds for one moment and imagine that it is an ordinary citizen, Mr. Smith, who is blatantly accused in a report of having committed perjury? The prosecuting authorities take no action, so he cannot defend himself in a criminal court. He cannot bring an action for libel because the inspectors are covered by privilege. Will the Minister kindly indicate what the ordinary citizen does under this regime when he wishes to show that he is not guilty of what people have published officially as being his guilt of a criminal offence?
Lord Trefgarne: My Lords, the noble Lord raises a very important and proper point which I shall come to in a moment. I wish to say a little more about the inspectors' report and the difference between it, the evidence which they take into account and that which the prosecuting authorities also take into account. I shall say something further about these matters in a moment.
As the noble Lord has said, there are those who have expressed surprise that evidence should be sufficient to justify such clear and firm conclusions as those reached by the inspectors, yet be regarded as insufficient to justify the institution of criminal proceedings. But there is no inconsistency here, and for this reason. In their report the inspectors, as they were entitled to do, not only made findings of fact but also drew conclusions from them and expressed views on the conduct of some of the people involved.
Inspectors appointed under the Companies Act 1985, who are independent of my department, are not required to apply a particular standard of proof The standard which they apply in making their findings should be flexible. The more serious the finding or criticism based on it, the higher the burden of proof that they should apply. That burden of proof is not directly comparable to that applied in civil or criminal cases. It is open to the inspectors to take account of the evidence that was hearsay if they think it reliable.
It is therefore both possible and proper—because the standard of proof in criminal cases is different and because they can take account of hearsay evidence—for inspectors to make findings on various matters, but at the same time for there to be insufficient evidence for criminal proceedings to be instituted and for there to be no realistic prospect of conviction in such proceedings.
Lord Brocket: My Lords, I apologise for interrupting the Minister. He says they are findings of fact, but that cannot be so. According to the inspectors, they are findings of fact and they have put them down as facts. However, they cannot be construed as facts until they are proven. The people in question happen to be the Fayeds at the moment, but they could be anyone. The facts cannot be proven until the people concerned have had the opportunity of answering the charges. Then it will be decided whether or not they are facts.
Lord Trefgarne: My Lords, I should explain to my noble friend that there are two opportunities for those criticised in a report in this way to make their views known at least to the authors of the report.

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The first opportunity is, as I understand it, at the point when the report is being prepared. The victims (if that is the right word) are advised of what it is the inspectors have in mind to say about them in general terms. I understand that the Fayeds took advantage of the opportunity on this occasion and made representations to the inspectors as to their views on what was to be said about them. Most certainly the inspectors took those representations into account.
Secondly—and in this case uniquely—as I understand, the persons referred to in the report were given a copy of it in advance of publication. If they thought fit, they were entitled to take action to prevent publication of the report. I do not suggest that that is a total solution to the problem to which the noble Lord, Lord Mishcon, and my noble friend Lord Brocket have referred, but it is at least a partial solution.
Lord Williams of Elvel: My Lords, I apologise to the noble Lord for intervening. Can the Minister say how anyone concerned with this report or shown a copy of it could have prevented publication?
Lord Trefgarne: My Lords, he could have gone to the High Court and taken action to prevent publication.
Lord Mishcon: My Lords, I apologise to the Minister once again, but these are such vital matters for the citizen generally, quite apart from the people concerned in the report. I am sure that the Minister has been advised that the only way in which one can apply to the court for an injunction restraining publication would be either because a criminal charge is being brought, and therefore there would be prejudice, or, in the alternative, the report constituted a libel on which action could be taken. I repeat: the inspectors have qualified privilege and it is quite impossible to take such action. I hope that as a result of this discussion the Minister will consult with his colleagues about the fairness of this whole procedure.
Lord Trefgarne: My Lords, the noble Lord is much more learned in these matters than I. I am informed that, despite the qualified privilege which the noble Lord rightly says is attached to the contents of the report, it was open to the Fayed brothers, had they thought fit, to have taken action to prevent publication. I have taken advice on that point and that is the position.
Lord Mishcon: My Lords, on what grounds?
Lord Trefgarne: My Lords, I do not pretend to be an expert on legal detail on these matters; but I am advised that it was open to the Fayed brothers to take action if they thought fit in order to prevent publication. Evidently, they decided not to do so. The question of whether there were to be criminal charges was, as I have said, a matter for the prosecution authorities. However, it fell to my right honourable friend the present Secretary of State to consider whether he should make application to
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the courts for the disqualification of the Fayeds as directors.
Section 8 of the Company Directors Disqualification Act 1986 provides for the disqualification by the courts of directors in consequence, among other things, of a report made by inspectors under Section 437 of the Companies Act 1985. What is now Section 8 first appeared in the Insolvency Act of that year. The provision implements a recommendation of the Cork Committee on Insolvency Law and Practice which was intended to provide greater possibilities for ensuring that those whose conduct has shown them to be unfitted to manage the affairs of a company with limited liability should, for a specified period, be prevented from doing so. The provision was not intended as a punishment, but as a protection for the public.
Against this background it fell to my right honourable friend to decide under Section 8(1) of the Company Directors Disqualification Act 1986 whether it was expedient in the public interest that he should apply to the court to have a disqualification order made against the Fayeds. I should perhaps stress that he does not have the power to order their disqualification, as I suspect that the noble Lord, Lord Jenkins, may have thought, judging by his earlier remarks; but that is a detail.
Lord Jenkins of Hillhead: My Lords, surely he has power to initiate an application?
Lord Trefgarne: My Lords, the noble Lord is quite right. He has power to initiate an application, but not to order the disqualification himself This power is quite rightly left to the court. In deciding not to make an application, he took into account the fact that the court may make a disqualification order—I emphasise the word "may"—where it is satisfied that the conduct of the director in relation to the company—those are words which the noble Lord, Lord Williams, repeated—makes him unfit to be concerned in the management of the company. In making its decision, the court must have regard in particular to the matters mentioned in Part I of Schedule 1 of the 1986 Act though these are not exhaustive.
My right honourable friend took legal advice and gave very detailed consideration to the report before reaching his decision under Section 8. He also had regard to the nature of the conduct which is criticised by the inspectors, the present beneficial ownership of the House of Fraser Holdings, and the manner in which the Fayeds exercised control over and managed that group.
These were all factors which he took into account when exercising quasi-judicially the jurisdiction conferred on him by the 1986 Act which is intended to provide protection for all those whose interests may be prejudiced if companies are run by individuals who are unfit to manage them. Although the inspectors concluded that the Fayeds lied to the competition authorities at the time of the merger—I have no reason to believe that they were wrong, but it is for individuals to make up their own minds

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once they have read the report —the inspectors did not criticise the Fayeds for the way they were running the House of Fraser which they already owned and which cannot be taken away from them. In these circumstances, my right honourable friend considered that publication of the report, which would allow people to judge for themselves whether they wished to do business with the Fayeds, would be a severe blow to their reputation, as indeed I think it has proved. My right honourable friend is not bound in law to give reasons for his decision, which is of a quasi-judicial nature, and does not intend to do so.
There has been discussion lately about whether inspectors should make criticisms in reports or confine themselves to findings of fact. My right honourable friend gave evidence on this point when he appeared before the House of Commons Select Committee on Trade and Industry on 7th February. On that occasion he said that there were strong arguments both ways and that it is a very fine matter of judgment what the instructions to inspectors should be in relation to criticising the conduct of individuals. My right honourable friend made it clear that he had come to no final view and that he would be interested in the views of the committee, and indeed of Members of your Lordships' House, on this point.
Finally, the inspectors made a number of recommendations for changes in, or clarification of, company law in Chapter 1 of their report. Part III of the Companies Act 1989 introduced a number of changes to the investigation system, including a number recommended by the inspectors; for example, the ability of inspectors to get relevant information from personal bank accounts has been improved; and there has been a widening of the powers under which inspectors can require information and assistance relevant to the investigation. I can tell your Lordships that my right honourable friend the Secretary of State is satisfied that the present state of the law in this area, following the amendments introduced to companies legislation by the 1989 Act, meets the concerns expressed by the inspectors.
The noble Lord, Lord Hatch, referred in his speech to the assurance which I gave on an earlier occasion. I do not have the date in front of me but the noble Lord is aware of the occasion. I am happy to repeat the assurance I gave on that occasion in the terms that I then gave it. It related to the accusation made by the noble Lord, Lord Williams, on an earlier occasion, which the noble Lord repeated. I said then that the accusation was quite without foundation, and I repeat that assurance tonight.
I have dealt with the principal points arising from this complex and unusual investigation. Cases such as this do not occur every day. Indeed, I should be astonished if we were ever to see its like again. Nevertheless, lessons have been learnt and changes in practice and the law have been made. The inspectors' report has been published. Regulatory authorities, to whom copies have been passed, are considering whether any action should be taken by them. Although no prosecution has proved possible
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and my right honourable friend has decided not to seek to disqualify as directors anyone involved in this affair, I think it plain that publication of the report with all its findings has itself served a considerable public interest, allowing people to judge for themselves whether to do business with the Fayeds. That is the best protection the public can have in this case.
7.53 p.m.
Lord Jenkins of Hillhead: My Lords, I shall be brief because I am not a great believer in second speeches. I thank the Minister for his reply, which was courteous and detailed and up to a point comprehensive, although from my point of view he devoted rather too much time to the question of why there was no prosecution —I certainly never thought that the Secretary of State had any alternative but to accept the advice of the two inspectors on this matter—and substantially less time to the other issues, particularly the issue of possible disqualification.
I thank noble Lords who participated in the debate. In some ways the high point of the debate was in the middle when my noble friend Lord Diamond and the noble Lord, Lord Rees, both spoke cogently. The noble Lord, Lord Rees, spoke with great neatness and tautness and moved my mind a little on one or two issues. The noble Lord, Lord Rees-Mogg, spoke with great power and posed the central question: did the Fayeds obtain, by lying, a great advantage which they would not otherwise have obtained? To that central question we have not had a satisfactory answer. Until it has been answered satisfactorily I cannot be wholly satisfied that this issue has been dealt with well by the Government. I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

Council House Rents
7.55 p.m.
Lord Dean of Beswick Lord Dean of Beswick rose to ask Her Majesty's Government what information they have of current levels of council house rents and those proposed for the next financial year in the light of the provisions of the Housing Act 1988 and the Local Government Housing Act 1989.
The noble Lord said: My Lords, over the past couple of hours or so your Lordships have debated an issue which involves people who in financial terms have what one could call a lot. The question that I want to pose to the Minister concerns people who do not have a lot in financial terms and probably will never be lucky enough to be in that situation. I have tabled this Unstarred Question because it is too big a subject to be dealt with in a Starred Question. The Minister will be aware that last week I asked a Question on a similar subject. It would be totally unfair to the House to try to develop a theme during a Starred Question. There is no personal aggravation towards the Minister who replied on that day and my noble friend on the Front Bench who speaks for my party on this subject will, I am sure, take the same view.
Because there is a substantial change in the method of levelling the rents of municipal tenants we are trying to find out what will happen so that the tenants themselves will know what system is being applied to them. We are not too sure—I say this because of the Minister's reply to my Starred Question last week—that the Department of the Environment knows what will happen in regard to the side effects of poll tax and so on, although I do not want to introduce that subject into the debate.
It is a strange phenomenon that the top five authorities for proposing substantial increases in rents are Conservative ones. I accept that the Government are sincere in their desire to curb inflation. They do not have any other objective. That is not to say that I think they have been successful. Things have gone wrong and inflation has not been curbed The rents of ordinary people in council houses may not look high in comparison to rents in the private sector but to these people they are a substantial part of their weekly or monthly budget. I cannot understand why these Conservative authorities have decided to impose increases above the guidelines. The Minister was not able to give me the reason they have done so.
Last autumn, the Department of the Environment published guideline weekly rent increases for all local authorities, giving a figure for each authority of between 95p and £4–50p. The reason for the excessive increases is that the Local Government and Housing Act 1989 imposes certain new requirements on local authorities. It prevents local authorities from continuing the practice of subsidising their housing revenue account from the general rate fund. That means that the cost of managing and maintaining their housing has to be met from the housing revenue account. As your Lordships know, this is now known as ring fencing. It means that the cost of housing benefit will be met by rental income in a rather unfairer system which makes tenants in work pay for the poorest tenants. That particular facet was, I believe, quite forcefully exposed and enunciated by my noble friend on the Front Bench Lord Mcintosh during the passage of the Bill during the last Session of Parliament.
The Local Government and Housing Act 1989 also demolished the system known as "capitalised repairs" whereby local authorities could use their capital receipts from the sale of council houses to repair and maintain the existing stock. Instead, the money, apart from 25 per cent, which can be spent on new building, now has to go immediately towards paying off their debts which in terms of providing additional housing is a nil factor. In my opinion it does not make any contribution whatever. Those and other changes introduced in the legislation, together with the new restrictions on the level of subsidy received by local authorities from central government, mean that local authorities now have less money to spend in proportion on council housing than they had previously. They have to choose between increasing rents or cutting their repairs programme or other services.
I should like to give some comparisons. I do not propose to speak at length because I do not think that this is the occasion to do so. Council house
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tenants are obviously those in the lower income group. Yet, excluding this year, the Government have forced up rents in local authority housing by 212 per cent, since 1979. In contrast, the RPI for the same period has increased by 128 per cent. That shows that local authority tenants have been called upon to meet a far higher proportion of the increase in order to provide themselves with housing than other people.
As regards the Government's calculations or assumptions on the poll tax, the guidelines that they produced have proved to be unreliable because the information I have shows that from 153 local authorities 70 per cent, have been setting rents above the guidelines and only 16 per cent, have been setting rents below. I should now like to give the House some comparisons. I should also like to ask the Minister two questions. However, if he cannot give me detailed answers tonight perhaps he will refer them to the Secretary of State because we may need some recommendations from him.
I have talked about savage increases in rents. Perhaps I may quote some examples. In the City of London the increase is £5–39, which brings the total figure to £35–18; in Harrow the increase is £8–72, which makes the total figure £37–09; and in Merton the increase is £11–14, making the total amount £39–34. Then we come to what is perhaps one of the worst examples. I refer to the outer London borough—I term it as such because I am a Northerner—of Redbridge. There the rent increase has been £15–64, making a total rent of £51–27.
I can remember being heavily involved in a campaign many years ago against a Conservative Government led by Mr. Heath. It almost reached the dimensions of the present poll tax campaign when the suggestion was made under the fair rents Act that an increase of 50 pence a year should be imposed. However, here we have a Conservative-controlled authority which increases the rent by £15–64 in one go thus making the total rent £51–27 for a council house. Finally, I should point out that in Canterbury the increase is £12–29, which represents an increase of 54 per cent.
I have two main points that I wish to put to the Minister. If he does not have the authority to answer tonight I know that he will consider the points and refer them to the Secretary of State to see just what is the position. I should like to know why five Conservative-controlled authorities, knowing the clear guideline issued by the new Minister of Housing and Planning and Mr. Patten, the Secretary of State, chose to exploit the situation out of all proportion. I picked out those five authorities because some authorities have set their rents slightly above and some slightly below. I picked the worst examples in areas where I do not think that the increases were necessary. However, perhaps the Minister can disabuse me of that view.
I cannot believe that what has happened has the backing of Mr. Patten or of the new Minister of Housing and Planning, Mr. Spicer. I do not think for one moment that they were consulted or that they would condone those increases, bearing in mind the fact that they are responsible for trying to run a big spending department in line with the Government's

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belief in keeping down inflation and reducing it where possible.
Can the Minister give one valid reason why these astronomical increases should have been levelled at one bite? My next question is one which I put to him rather unexpectedly last week; indeed, in some respects I had not anticipated it either. In my view these substantial increases, which are in my opinion out of all proportion, may create a substantial surplus in the housing revenue accounts of these authorities. Will the Minister give an undertaking that if these substantial increases create a heavy surplus in the balance on housing revenue accounts this will not be made available for those local authorities to use next year to levy an artificial level of poll tax or community charge rate?
I ask for that undertaking because the legislation about which we were talking, and upon which my noble friend Lord Mcintosh on the Front Bench spent much time, removed the rights of local authorities in areas of need where this situation usually occurs to levy a rate fund charge on their housing revenue account. That is what it did. Of course, some time ago the Government decided that where local authorities' housing revenue accounts were in surplus they could use it in reverse for the benefit of ratepayers and thereby reduce the rates.
All I am asking is that if housing increases provide tremendous surpluses for local authorities, those authorities will not be allowed to siphon them off in order to reduce the poll tax for next year. That is the important question. If they are able to do that and the Government are not prepared to step in and prevent it, speaking for myself, my colleagues and other fair-minded people, I believe that it will be an outrage of the worst kind perpetrated against council house tenants.
Finally, there is a whiff—more than a whiff—that in areas like Redbridge the increases have been forced on tenants because they dared to vote against the opting out scheme. They did not wish, as council house tenants, to move into the private sector. Those questions require answers. If they cannot be given tonight, they should be pursued either in your Lordships' House or another place.
8.10 p.m.
Lord Mcintosh of Haringey: My Lords, the issue which my noble friend Lord Dean has raised this evening is of great importance to a large number of people. It is dispiriting that no other Members of your Lordships' House have felt it appropriate to put their names down to speak on the issue. It is dispiriting but not surprising. One only has to look at the composition of the House to realise that 5 million council tenants—between 15 and 20 per cent, of the population live in council houses—are not proportionately represented in your Lordships' House. There are far more lawyers and judges than council tenants here; far more salmon fishers here. I wish that the noble Lord, Lord Borthwick, had still been present; I believe that there are more chiefs of Scottish clans than there are council tenants in your Lordships' House.
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I recall when we debated the 1986 Education Act the amount of time which your Lordships thought proper to spend on the Salmon Bill which was going through the House at the same time as compared with the Education Bill. I suspect that these are only further nails in the coffin of the House of Lords as at present constituted. It is dispiriting to think that our sense of priorities is so poor that we do not pay adequate attention to the proper needs and concerns of a large part of our population.
As my noble friend said, when we debated the 1989 Local Government and Housing Act and the 1988 Housing Act, we expressed grave concern—or worse than that—about the proposed method of calculating rents and controlling council house rents. I go further than "grave concern"; we thought what was proposed was both absurd—and I shall show that it was absurd—and also deeply divisive and unfair to council tenants.
It was absurd because one of the main considerations to be taken into account in fixing the Government's approved level of council house rents was to be the market value. That would mean that the council house rents, for example, in the South East of England and London in particular would be much higher than in northern parts of the country. However, the difference in income is by no means as marked as the difference in house prices. We thought that the idea of setting market rents for council houses was absurd and deeply unfair to many people in need, particularly in inner and outer London.
The effect of the new policy was that nearly all council house rents would now be controlled in effect by the Government. The abolition of the separate rent rebate subsidy and its incorporation into the total housing subsidy meant that in all housing authorities local councils must follow government guidelines in the way in which they set their housing expenditure. Any expenditure incurred on lower rents must be found from other housing expenditure. That is the effect of ring fencing. Local authorities which want to keep rents down can only do so at the expense of necessary repairs and improvements in the management of their properties.
Even worse than that—and we objected most strongly to this—the ring fencing proposals mean that any arrears in council house rents have to be paid for not by the ratepayers or taxpayers as a whole, but by other council tenants, those who pay their rents on time. That seemed to us a clear and wicked injustice. We still feel strongly about it.
The argument on which the capital valuation system of setting rents is based is itself unsound. There is no such things as a market for council houses. It is not the distribution of relative market demands that Ministers seem to think is the significant consideration. If people find themselves homeless, they have no choice about where they go; they have to apply to the council in whose area they live. That council must do the best it can for them.
The system of council house rents which has been introduced by recent legislation has weakened the power of council tenants, those in most need in our society, to have any choice at all in the housing which they are allocated. It has weakened the ability

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to provide housing of councils themselves and housing, authorities, some of which do not have good records but some of which have excellent records in caring for their tenants. It has weakened their ability to look after their tenants and provide the best for them.
All this has been done in theory on the basis that we should be approaching market rents for council housing. Really it is because the intention is to increase the demand by force for private rented accommodation. Nobody objects to increasing the demand for private rented accommodation, but it should be on the basis of levelling up, not levelling down. What is happening is that the penalties of alternative forms of accommodation for those in need are being increased so that people are forced into private rented accommodation. This is on the quite erroneous theory that somehow it will improve the supply and quality of the private rented accommodation.
All these theories have been debated at considerable length, and as my noble friend said, they are seriously flawed. The thinking behind the recent housing legislation has inevitably led to the problems that council tenants now face.
The situation has become worse. What has happened since the legislation is that the Government have set target figures. As it turns out, these figures are as wildly inaccurate and fantastic as the target figures which we have seen for the poll tax. The Government told us that the average level of poll tax ought to be £278. We now know that it is more of the order of £350. Similarly, the Government told us that the permitted increase in council house rents would be of the order of £4–50 per week. They then cut their allocation of subsidy to housing authorities in order to reflect that increase.
As my noble friend clearly showed from the examples he gave, many of the increases are much more than that, more than the 20 per cent, on average which even the £4–50 would have represented. As with the poll tax, the result has been that many people suffer severely. Those in conservative authorities are being victimised sometimes, I suspect, because they have shown their independence by rejecting the attempts of their councils to get rid of housing responsibilities and give them to the private sector.
My noble friend has properly asked what the Government are going to do about this matter and what they now understand the position to be. When this matter was raised in a Starred Question recently, the Minister sheltered behind two arguments. First, he said that the setting of rents is a matter for local authorities and not for councils. That is strictly true, but the way in which local authorities set their rents is very much determined by the subsidies that they are able to obtain for their housing programmes. The fact that they are losing subsidy up to another 20 per cent, on existing rents must force rents up, just as ring-fencing must mean that councils have to choose between necessary maintenance and affbrdable rents. Therefore, the Minister cannot shelter behind that argument.
The second argument which the Minister repeated time after time in response to the Starred Question
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was that it is all right because the new rents will be liable for rebates. I suppose that might be all right in one sense if one left aside Conservative theory about these matters. But I thought the Conservative Government were working on the principle that we should reduce dependency and that we should get away from the dependency culture; that fewer people should be forced to apply for help from the Government and more people should be encouraged to stand on their own feet.
However, the effect of increasing rents to such an extent that more people have to apply for housing benefit will be a deliberate and direct increase in the dependency culture, and that should be repugnant to the Conservative Government, just as the impoverishment of our council tenants is repugnant to us. Even without that argument of principle, the change in housing benefit two years ago altered the upper level at which housing benefit starts to apply and the tapering of housing benefit as income increases. That still leaves a large number of families who may not be the very poorest but are certainly struggling to live on their income week by week considerably poorer than they would otherwise be.
For those reasons we on these Benches will simply not accept either the argument that the availability of housing benefit absolves the Government from their obligations or the argument that the Government have nothing to do with the setting of council house rents. The Government have in effect imposed the framework in which council house rents have to be set. Those rents are being set on a very unfair basis and it is now inevitable —that will not displease us—that the effects of that will be shown in the local council elections which will take place at the beginning of May.
Lord Hesketh: My Lords, the noble Lord, Lord Mcintosh, was present in your Lordships' House last week when the noble Lord, Lord Dean of Beswick, raised this matter in a Starred Question. Therefore, I fear that the noble Lord, Lord Mcintosh, will be slightly disappointed by some aspects of my reply this evening. I am sure that will not come entirely as a shock to him.
The Government's policies, as embodied in the Local Government and Housing Act 1989, were of course extensively debated in this House during the passage of the Bill. Some of the points raised today were raised in the House only last week, so I do not want to go over too much old ground. There have, however, been some quite unnecessary reports from some quarters about the effects of our policies on council rents. I therefore welcome this opportunity to set out the Government's position. In particular, I shall be pleased to clarify how we intend to improve the way in which the Government help support council housing by direct subsidy.
We have a simple and most desirable aim. It is to encourage a sensible pattern of rents both among authorities and within authorities —a pattern which reflects the value of the accommodation being provided. Rents of course already vary from place to place. But they do so in an arbitrary and unpredictable way. They reflect differences in the historic cost of providing the housing, windfall gains

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from housing capital receipts and, I am afraid, political decisions which have meant ratepayers subsidising the rents. They do not reflect what the housing is actually worth.
It is worth while to remember that the value of the stock on a historic basis is about £20 billion, but on a replacement basis it is some £100 billion.
Lord Mcintosh of Haringey: My Lords, is that not why sensible housing authorities have a varied portfolio of property of different ages, and reflect not the replacement cost of an individual property in their rent policies but rather the replacement cost and the original cost of the entire portfolio? That is possible for local authorities but it is only possible for a very few private landlords.
Lord Hesketh: My Lords, that is true. I was using that illustration for a slightly different example—that will not come as a surprise to the noble Lord, Lord McIntosh—to show that there is a provision for a hidden and generous subsidy in the way this accounting is carried out.
Lord Dean of Beswick: My Lords, I thank the Minister for giving way as I spoke at some length at the beginning of the debate. However, the Minister must be aware that historically local authorities that dealt with council housing over a long period based most of their rents not on historical costs or replacement costs but on the historical cost of their own housing stock. In effect, as debt charges started to decline, they reduced the necessity to finance properties. Every tenant benefited by that and the Government were not involved. Why have the Government moved away from that position?
Lord Hesketh: My Lords, I produced the figures to show what is behind the facts and figures rather than to try to antagonise the noble Lord, Lord Dean, on this issue.
It is also important to remember that the former system distorted councils' accountability to tenants and ratepayers alike. It locked tenants into dependency on one landlord at the expense of choice and mobility. That is why we brought in the Local Government and Housing Act 1989 which introduces the ring fence around the housing revenue account and the new unified housing revenue account subsidy.
Let me turn briefly to our method of distributing that subsidy. The Government need to make assumptions about how much rental income an authority can be expected to raise. At present, we make a single assumption which applies across the board to all authorities. It would have been £2.08 next year. This makes little sense as it takes no account of individual circumstances. It would simply perpetuate the inequities of the existing pattern of rents.
By contrast, under the new arrangements we assume that different authorities put up their rents by different amounts. In general our assumptions result in higher guideline increases where the value
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of the local authority housing is higher and where rents are below average. The result is that 156 authorities will receive the minimum guideline of 95p; elsewhere the guidelines are higher but nowhere exceed £4.50 a week. It is for individual authorities to set the actual rent levels. But we believe that every authority should be able to stay within our guidelines if they so wish.
I now turn to the points raised by the noble Lords, Lord Mcintosh and Lord Dean. I heard the argument tonight which I have heard before and which I am becoming more familiar with each passing month. It is the suggestion that tenants effectively pay for the rebates of other tenants. We do not believe there is any question of authorities raising rents in order to pay for the cost of rebates. We have announced our method of calculating the guideline rents. We want to see rents that are related more closely to the value of the accommodation so there is a more sensible pattern of rents around the country.
Lord Mcintosh of Haringey: My Lords, I am grateful to the Minister for giving way again. However, I did not suggest that council tenants were paying for rebates. We have said that they were paying for other council tenants who were in arrears. That was the particular point that we have made.
Lord Hesketh: My Lords, I am sorry if I misunderstood the noble Lord, Lord Mcintosh. I believe he raised that point last week. I suggested to him then, as I do now, that at the end of the day it will always be the taxpayer who has to square the account as regards rent arrears. I believe that to be true.
I believe that the noble Lord, Lord Dean, suggested that, as regards allowances for the management of property, there was an inadequacy in the figure that had been reached in terms of the overall picture. I believe I have interpreted that correctly as the noble Lord, Lord Dean, is nodding his head. The reality is that allowances are based on councils' own actual spending over three recent years, uprated. We thought a three-year average was preferable as a single year's figure can be unrepresentative. We did not take the current year into account because the books for the year are still open.
For low-spending authorities there are two safety nets. The notional allowance from the old subsidy system will apply where that is higher than actual spending, and the 10 per cent, of authorities which would otherwise receive the lowest allowances will receive a specified minimum allowance.
Ideally we should have liked to target allowances in the first year of the new system. After consulting the local authority associations we accepted that more research was required. However, we are determined to move to a targeted approach as soon as possible.
Both the noble Lord, Lord Mcintosh, and the noble Lord, Lord Dean, drew your Lordships' attention to the rent rises. The noble Lord, Lord Mcintosh, suggested that I was hiding behind what he called "strictly the truth". I thought that quite a good thing to hide behind. One could stand proudly behind the battlements of "strictly the truth".

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This is the part of my answer which I know the noble Lord, Lord Mcintosh, will not find satisfactory. It is up to the local authorities to set rents. It is also important to remember that the average rent increase has been just 3 per cent, above the guidelines. It is even more interesting that in London they have been only 0–8 per cent, above the guidelines. As I mentioned last week, in other areas increases have been below the guidelines, and, in the case of Tyneside, zero.
Lord Dean of Beswick: My Lords, I apologise for intervening again, but my colleague on the Front Bench, Lord Mcintosh, and I mentioned five outer London authorities. We can see no reason for their rent increases being so high. The Minister made the point that it was in the inner London authorities that substantial increases might be needed to cater for deprivation and need. However, cities such as Manchester and Leeds, which have immense problems, have kept close to the guidelines. We want to know why the authorities just outside London have applied high increases when we believe that there in no justification for them.
Lord Hesketh: My Lords, I am not sure whether the authority was mentioned by the noble Lord, Lord Dean, but the other day I was in Bromley. There a major programme is being carried out to make council blocks far more secure. I do not know whether it is so because I do not speak for them, but it is possible that the authorities may have decided to spend heavily on maintenance to improve the environment in which their tenants live. It may be that their tenants would prefer to pay more rent in return for receiving a better service.
Perhaps I may return to the point of the noble Lord, Lord Mcintosh, that the Government are extending the dependency culture. The object of the exercise is to introduce more reality. If that has at the same time an additional cost, which is what I believe the noble Lord was suggesting in terms of extending the dependency culture, I suspect that that is a cost that will have to be borne in the short term.
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The noble Lord, Lord Dean of Beswick, asked a specific question with regard to any surplus in the housing revenue account. In virtually every case a surplus in the housing revenue account can only be used in the housing revenue account for maintenance or to add to balances, for example. Only in a very few special cases will it be permitted to transfer the surplus to the general fund. That arises when, and only when, the local authority is out of subsidy and has a rent income (on our guidelines) greater than all notional outgoings. That was always a feature of the policy and was accepted by Parliament in the Act.
I now return to the Government's general policies towards the council sector. Noble Lords opposite have tried—quite rightly from their point of view—to show that there is some cunning scheme to force up council rents under the 1989 Act so that council tenants are induced to exercise tenants' choice or the right to buy. That is not the case. The fact is that we expect to spend over £3 billion in the coming year on subsidies which will keep council rents far below rent levels in any other sector and well within the reach of ordinary tenants.
At the same time, we are concerned that councils should play their role in the wider housing market. That is why we do not want rents to cause distortions which create the dependency which we discussed earlier and remove people's freedom and choice. The new ring-fenced housing account will help that process. It is the natural complement to our determination to direct subsidy where it is most needed. Tenants will see what they are paying for and be able to judge what they need. I would hope that your Lordships would agree that informed decision-making provides genuine choice.
The Government's policies enable councils to set rents well within the reach of ordinary tenants. We are committed to that continuing to be so.
House adjourned at twenty-five minutes before nine o'clock.