Lords Sitting of 3 June 1991

Preamble
Reassembling after the Spring Bank Holiday Recess, the House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Chester.

Rented Housing in Rural Areas
Lord Dean of Beswick Lord Dean of Beswick asked Her Majesty's Government:
Whether they have any further proposals to deal with the acute shortage of low-cost rented housing in rural areas.
The Minister of State, Department of the Environment (Baroness Blatch): My Lords, the Government have taken a variety of measures to boost the supply of low-cost housing in rural areas. We have increased public resources through the Housing Corporation, including a new special rural programme, and allocated extra credit approvals to rural local authorities this year. We have also amended planning guidance to permit development of low-cost housing for local needs on small sites not otherwise designated for housing.
Lord Dean of Beswick: My Lords, I am grateful to the Minister for that reply. However, is she aware that although the measures the Government are taking are welcome, the people in this difficult position do not accept that they adequately meet the present need? Is the Minister also aware that in some rural communities the opportunity for young couples to rent low-cost housing has disappeared completely? The situation is so bad that the clergy in those areas are saying there is a danger of communities breaking up if accommodation is not found quickly. Although the Minister's reply appears to be sympathetic, it is not of an innovative nature. Therefore, will she again look at the problem?
Baroness Blatch: My Lords, I can assure the House that the Government will continue to look at what is an area of concern. However, there are a number of measures in addition to those I have mentioned in my first Answer; for example, £50 million has been allocated to local authorities this year for low-cost housing. There is also a special rural programme where the number of houses available in villages with a population of below 1,000 is set to rise to 2,250 a year. A number of measures are therefore being taken, but I do not wish my answers to seem as though we are detracting from the seriousness of the issue.
Baroness Gardner of Parkes: My Lords, can my noble friend comment on the statement reported in the press that the Government are considering giving guidance to local authorities to enable low-cost housing—I do not know whether for rent or for sale —to be built in places where otherwise normal planning permission might not be given?
Baroness Blatch: My Lords, my noble friend is right to draw attention to that particular measure. In rural areas where land is not normally designated for housing that measure enables local authorities, under the exceptions policy, to designate areas for housing; thereby depressing the price of the housing and bringing low-cost housing to people who live in the country.
Lord John-Mackie: My Lords, does not the Minister agree that to stop selling council houses would help the situation? Many of these council house sales are not genuine sales. I cite a typical case where a family bought a council house in anticipation of the decease of the parents and the house was then dolled up and sold. Quite a lot of that goes on and it should be stopped.
Baroness Blatch: My Lords, the Government are not at all apologetic for the right-to-buy policy. I understand the noble Lords opposite also approve of that policy—or perhaps they have had a change of mind. Many people who have now bought their council homes would not normally have been able to buy on the open market. The Government believe that increasing home ownership to 69 per cent. of the home owning population is a very good thing.
Lord John-Mackie: My Lords, if the Minister will not agree to that, will she not agree to allow councils to use the money obtained from council house sales to build further houses?
Baroness Blatch: My Lords, local authorities are spending 25 per cent. of their receipts on new build. In addition, the other three-quarters of that money is being used to reduce down debt, which frees up revenue. Also—I notice at least one eminent Back-Bencher on the other Benches nodding her head —allocations are made to local authorities where the needs are greatest.
Lord McIntosh of Haringey: My Lords, will the Minister reconsider her last answer? She rightly says that 25 per cent. of the receipts from council house sales are available for new build housing programmes. However, she then added that the remainder frees up money for revenue. It does not free money for expenditure on housing; that is controlled by the capital controls of government.
Baroness Blatch: My Lords, the noble Lord misunderstood me. Where debt is reduced by the application of the other 75 per cent. it inevitably releases revenue because it reduces down debt, which reduces the need to service the debt. The Government allocate the equivalent of the other three-quarters to those areas in the greatest need.
Lord Molloy: My Lords, will the Minister explain a little further? Are those people who have bought their council houses people who probably could not have bought them on the open market? These people still cannot buy houses on the open market and there are now very few council houses left, even to rent.
Baroness Blatch: My Lords, the point that the noble Lord makes, though interesting, is not an argument against the right-to-buy policy.
Lord Dean of Beswick: My Lords, is the Minister not aware that what noble Lords on this side are saying is that there should have been a building programme running at the same time over the past 11 years to replace the houses being sold. Why has it taken the Government so long to heed the warnings they have been given, instead of ignoring them?
Baroness Blatch: My Lords, the noble Lord is comparing local authority built houses with houses that are provided from a variety of sources. Whether it is housing corporations through the housing associations, the private sector, or local authorities, the house building programme has been buoyant throughout the past 11 years.
Lord Dean of Beswick: My Lords, what advice would the Minister give to a young couple living in a rural area with their parents where there were no houses to let and they cannot afford to buy?
Baroness Blatch: My Lords, I accept that it is not easy for young people to get into the house buying market. However, it may be helpful if I set out some of the initiatives which the Government have put in place in order specifically to help people at the lower end of the income scale. Funding to the Housing Corporation will rise from £1.1 billion to more than £2 billion by 1993. The Rural Development Commission has a further £337,000 which is specifically to help people start to buy their own homes. An extra £50 million has been made available to local authorities specifically for housing in rural areas. There is also the special rural programme for villages with populations below 1,000. A considerable number of measures are in place specifically to help people at the lower end of the income scale to own homes or at least to have homes to rent.

Retail Prices Index: Food Component
2.43 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
How the retail prices index for foodstuffs is calculated and what is its statistical accuracy.
The Parliamentary Under- Secretary of State, Department of Social Security (Lord Henley): My Lords, the food component of the retail prices index is calculated as the average change in price for the full range of available foodstuffs. It is based on 45,000 prices obtained from retailers throughout the country and is therefore soundly based and robust. It is not possible to state its accuracy in conventional statistical terms.
Lord Molloy: My Lords, I thank the noble Lord for that Answer. Can he give a little more detail on what types of food are taken into consideration and in how many towns across the country? Is it not fair to say that these types must vary from place to place? Is it
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not the case that, regardless of whether one is dealing with poor areas or better off areas, the cost of food is going up and up?
Lord Henley: Yes, my Lords, the cost of food is going up. In the most recent figures for April, the food component went up by some 6 per cent., whereas the all-items index went up by some 6.4 per cent. The survey looks at food prices in some 180 different areas throughout the country and at some 175 different components. As I said in my original Answer, 45,000 different prices are looked at.
Lord Bruce of Donington: My Lords, is the noble Lord aware that this whole question was under review by the Public Accounts Committee in another place? Its report revealed, at paragraphs 20 to 29, that the whole system of taking prices was a complete farce and that in point of fact 80 per cent. of the prices were taken on a part-time basis by employees of the Department of Employment, that the samples taken were minute and that the results were not monitored in any way even by the RPI central office? Will he give some indication as to whether the Government will take steps to ensure that a reliable sample is taken over a wide area in order that the existing position can be changed? Everyone knows that the price of food is going up not by 6 per cent. per annum but by nearer 15 per cent.
Lord Henley: My Lords, I do not accept what the noble Lord is saying. I said that some 45,000 different items are looked at. That strikes me as quite a big sample. Obviously some prices rise faster than others. I do not know what specific foodstuffs the noble Lord himself buys in the shops. He will know, for example, that tea, cake, fish, sugar and preserves have all risen in price by more than the all-items retail prices index or even the food component, whereas coffee, vegetables, butter, beef and lamb have gone up by considerably less than the all-items retail prices index or the food component.
Lord Stallard: My Lords, will the noble Lord give me the name and address of his grocer, because where I go to shop all the prices have gone up irrespective of the stated rate of inflation? I should like the names and addresses of the places mentioned. Is he satisfied that the weighting given to the price of foodstuffs in the retail prices index adequately reflects the hardships being faced by pensioners and others on low and fixed incomes? Can he do something about that?
Lord Henley: My Lords, I do not think it would serve any purpose to tell the noble Lord where I buy my own food. The retail prices index covers a great many areas and a great many prices. As I said earlier in answer to the noble Lord, Lord Bruce, some prices rise faster than others. The weighting of food in the retail prices index is some 15 per cent. Twenty years ago or so the weighting was 25 per cent. As a result of surveys conducted every year by the family expenditure survey, the weighting is adjusted to reflect the average expenditure on food by the average family.
Lord Gibson-Watt: My Lords, does my noble friend agree that Welsh lamb is a particularly good buy at the present time?
Lord Henley: My Lords, I have the figure somewhere for the increase in the price of lamb. I understand that in April home killed lamb came down by 3 per cent.
Baroness Blackstone: My Lords, I accept that where the Minister buys his food, including Welsh lamb, is immaterial. However, is he aware that there has been some controversy over the best way to measure inflation? The controversy relates to questions of statistical validity as well as of accuracy. Is he further aware that the Governor of the Bank of England has argued recently that it would be helpful to make more use of a measure which reflects what is happening now? In the light of that, will he confirm that, by using the underlying rate of inflation or those measures that reflect what is happening now, the rate of inflation rose last month?
Lord Henley: No, my Lords, we are talking purely about the food component in the retail prices index. The year on year figure for April was 0.6 per cent. I admit that in the previous year it was 5.7 per cent. The underlying trend for the food component is still down. It came down from 6.9 per cent. last November, to 6.6 per cent. in December and to 6 per cent. this month.
Lord Jenkins of Hillhead: My Lords, in his original Answer the noble Lord used what struck me as an interesting and resonant phrase. He said that the statistic was "soundly based and robust". I have since been contemplating that. Can he tell us exactly what "robust" means in relation to a statistic?
Lord Henley: My Lords, I was trying to get over the point that no index will ever precisely reflect the spending of every individual. The noble Lord may go to a different grocer from the noble Lord, Lord Bruce. That grocer might charge different prices. The noble Lord might also buy more expensive food or more expensive wine, the prices of which might again increase faster than the all-items index. For that reason the index we have could be described as robust.
Lord Williams of Elvel: My Lords, the Minister has been kind enough to say that the foodstuffs index has no statistical accuracy. While accepting the fact that the Family Expenditure Survey gives a proper indication of weighting, will he not admit, as the testing of prices of foodstuffs in the shops as a result of that survey and of the CSO techniques has no statistical accuracy, that that is a false basis upon which to incorporate anything into the retail prices index?
Lord Henley: My Lords, I believe that the noble Lord misunderstood what I said. I did not say that it had no statistical accuracy; I said that it was not possible to state its accuracy in conventional statistical terms.
Lord Williams of Elvel: My Lords, what is the difference between the two statements?
Lord Henley: My Lords, I should have thought that that was perfectly clear.
Lord Bruce of Donington: My Lords, will the Minister correct himself? He said that the price increase over the past month was 0.6 per cent. whereas later, according to his own figures, he said that it was 6 per cent. Further, will he answer the question I put to him: are the Government acting on the recommendations of the Public Accounts Committee in another place?
Lord Henley: My Lords, I am delighted to correct myself; of course, it should have been 6 per cent. rather than 0.6 per cent. Moreover, I can tell the noble Lord that we have made improvements to price collection during the past year. There has been an increase of about 20 per cent. in the number of locally collected prices. There has also been greater training, supervision and quality control as regards those collecting prices.
Lord Molloy: My Lords, will the Minister address himself to the vital question? The Public Accounts Committee is highly dissatisfied with, and highly critical of, the present system. The RPI is of interest to many people, organisations, industries and trades. When the committee makes such a statement, would it not at least be reasonable for the Government to consider the question of whether there ought to be a thorough examination as to how the RPI works and how it is collated?
Lord Henley: My Lords, I believe I answered that point when responding to the noble Lord, Lord Bruce of Donington. I said that improvements had been made to price collection. Moreover, as I said earlier, the index will never reflect every individual's personal experience. It is a robust figure, but one which will represent the average for all people.

Wild Birds and the Pet Trade
2.55 p.m.
Baroness Nicol Baroness Nicol asked Her Majesty's Government:
Whether they will take action to prevent the import of captive wild birds for the pet trade.
Baroness Blatch: My Lords, the Government recognise the growing concern about trade in birds and other wildlife species. We have therefore asked our scientific advisers to review the evidence as to whether the trade in wild-taken plants and animals is compatible with maintaining species at satisfactory levels. The results will assist us in considering whether any changes in existing controls are required.
Baroness Nicol: My Lords, I am encouraged by the Minister's Answer. However, can she please explain who the official advisers will be? For example, will it be the concern of the Joint Nature Conservation Committee? If so, who will foot the bill? As I understand it, the JNCC's allocations for the present year have already been made and are thought to be inadequate. Therefore, are the Government making

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extra money available? Given the fact that for every live bird imported into this country at least three die after capture, there is an urgency about the matter.
Baroness Blatch: My Lords, the statistic just quoted by the noble Baroness requires scientific evidence to support it. We know that 13 per cent.—that is 13 in every 100 and not three in every four (75 in every 100) —is in fact the case, as stated by MAFF. If there is scientific evidence to support the noble Baroness's statistic, we should be most pleased to see it.
The Government have commissioned an independent study which is to be carried out jointly by Kew Gardens and the Joint Nature Conservation Committee. I understand that the commission has been accepted. However, I shall have to write to the noble Baroness as to the specific funding arrangements.
Lord Norrie: My Lords, can the Minister say whether the Government will consider increasing the level of training given to Customs and Excise officials so as to help them in identifying species of wild birds being illegally imported?
Baroness Blatch: My Lords, we have no reason to believe that there is a particular problem in this respect. However, if there is, we hope that it will be revealed during the course of the study.
Lord Tordoff: My Lords, in the light of the Minister's reply to an earlier question in which she mentioned the need for scientific study of the problem, will she accept that an increase in the quarantine period from, say, 35 days to 60 days might assist? I say that because that is the time during which the shock of the importation procedure causes the greatest number of deaths.
Baroness Blatch: My Lords, it is important for me to repeat that we are most concerned about proper implementation of the convention on the import of wild birds. Therefore, if that is a problem, we hope that that fact will also be revealed during the course of the study.
Baroness David: My Lords, is the Minister aware that although the European Community has prohibited the trapping trade and the export of native wild birds to supply the pet trade, it allows the importation of large numbers of wild-caught birds from outside the EC? Is she also aware that the Community is the world's largest market in this respect? It imports more than 1.5 million birds each year. Therefore, is it right that the UK should be involved as an importer, and also as a middle man, for birds passing through to other countries?
Baroness Blatch: My Lords, as I said, it is most important to have scientific evidence to support some of the statements which have been made. Last year, 180,000 birds were imported, of which 13 per cent. either died in transit or during the quarantine period. Clearly, the situation needs to be looked at and such numbers reduced. However, the European Community is now considering whether to produce a
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regulation which would enable member states to restrict imports of species which do not travel well or which are unlikely to survive in captivity. The Government are considering which species should he covered by such a regulation.

Test Ban Treaty Conference: UK Position
3 p.m.
Lord Jenkins of Putney Lord Jenkins of Putney asked Her Majesty's Government:
Who were the delegates from the United Kingdom present at the meeting held in New York in January 1991 at which a comprehensive test ban treaty was discussed; and why these delegates voted with the United States delegation against further attempts to achieve such a treaty.
The Minister of State, Foreign and Commonwealth Office (The Earl of Caithness): My Lords, the UK delegation to the Partial Test Ban Treaty Amendment Conference consisted of the deputy head and one member of the UK delegation to the Conference on Disarmament in Geneva and two members of the UK mission to the United Nations in New York. The delegation made clear that in our view the Conference on Disarmament provides the most appropriate forum for discussion on nuclear testing issues and therefore we were unable to support moves to resume the work of the PTBTAC.
Lord Jenkins of Putney: My Lords, I am grateful to the Minister for the informative aspect of his Answer. However, as regards policy, is it not rather absurd for the Government to continue to take the position that they are in theory in favour of a test ban treaty while, at the same time, appearing not to be prepared to take steps actually to discuss the matter? They are getting themselves into the position where 75 countries vote in favour and only two against. Ought not the Government to try to avoid that position?
The Earl of Caithness: No, my Lords. As I said in my original Answer, we believe that the conference on disarmament is the best forum for discussions on the issue. Our view remains that a comprehensive test ban is a long-term goal of the Government.
Lord Mayhew: My Lords, does the noble Earl agree that rather than make objections on procedural grounds, the British Government would do better to say that they need to retain the option to test in order to test the new Trident warheads?
The Earl of Caithness: My Lords, we have never hidden from anyone the fact that UK security will depend partly on some kind of deterrence; that is, the possession of nuclear weapons.
Lord Cledwyn of Penrhos: My Lords, does the noble Earl agree that the announcement by President Mitterrand today, that France is to sign the nuclear non-proliferation treaty, is extremely encouraging? Does that not stimulate Her Majesty's Government and other governments who are not parties to the comprehensive test ban treaty to consider what steps

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they should take? Is it now the case that China is the only country which has not signed the nuclear non-proliferation treaty? If so, what steps will Her Majesty's Government and their allies take to ensure that China becomes a signatory as well?
The Earl of Caithness: My Lords, the noble Lord the Leader of the Opposition raises a most important point. We give a wholehearted welcome to the news from France today. It goes to prove the point that the Question phrased by the noble Lord, Lord Jenkins, is not accurate, because when France and China are not signatories to the partial test ban treaty, it is not a comprehensive measure. Of course we welcome the proposed signature by France of the non-proliferation treaty. I shall have more to say on that during the debate on the noble Lord's Motion on Wednesday.
Lord Kennet: My Lords, does the noble Earl agree that his first two answers to the Question would have been appropriate if, at the meeting in New York, the question under discussion had been where a complete test ban should be negotiated—that is, in what organ of the world's system it should be negotiated? Does he also agree that that was not what the vote concerned? It was not about where the ban should be negotiated but whether it should be pursued. Surely, it was not a matter of 75 countries being in favour of negotiating the ban in New York and the United States and the United Kingdom alone in favour of negotiating it in Geneva. Rather, there were 75 countries in favour of negotiating it and the US and UK alone were against negotiating it.
The Earl of Caithness: My Lords, the noble Lord's statement is absolutely right. I am not sure that I see the point of the question.
Lord Jenkins of Putney: My Lords, is the noble Earl aware that my noble friend has put his finger on the point? The United States and the United Kingdom give the impression that for procedural reasons—under the cloak of procedure—they conceal unwillingness. Would it not be better for them to say, "We shall want to make a caveat in respect of our own needs but nevertheless we are prepared to go forward with discussions on the principle"? At present, continual avoidance by procedural methods brings both the UK and the US Governments into disrepute.
The Earl of Caithness: No, my Lords, I entirely disagree with the noble Lord. I do not believe that it brings either the United States or the United Kingdom into disrepute. As I said in my original Answer, which I am sure the noble Lord will read again carefully in the Official Report, we believe that the conference on disarmament provides the best forum in which to discuss these matters.

Business
3.4 p.m.
Lord Hesketh: My Lords, at a convenient moment after the debate on the Second Reading of the British Technology Group Bill, my noble friend Lord Henley
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will, with the leave of the House, repeat a Statement that is to be made in another place on the Staffordshire Children's Home Report.

Oversea Superannuation Bill
Read a third time, and passed.

British Technology Group Bill
3.5 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay): My Lords, I beg to move that the Bill be now read a second time.
The British Technology Group Bill is an enabling Bill which will permit the British Technology Group to take its place in the private sector where we think it belongs. BTG was formed in 1981 by the amalgamation of the National Research Development Corporation, founded in 1947, and the National Enterprise Board, which was established in 1975. It was charged with the primary task of translating new research ideas into commercial products. To this end, the technology transfer activities of the NRDC were developed and the role of the NEB was restricted to disposing of its existing portfolio of investments. At present the NEB is, in effect, a defunct shell (with one solitary, possibly undisposable, remaining investment) and technology transfer has become the predominant business of BTG.
Technology transfer is the movement of research ideas to an environment where they can be commercially exploited. BTG achieves this by seeking out innovations from a broad range of inventors, assisting with development, patenting where appropriate, and licensing the resulting intellectual property to industry worldwide. BTG does this with a staff of 210 worldwide and generates a turnover of around £30 million a year.
BTG is a profit-making, commercial organisation, which has been self-financing for 20 years. No element of public subsidy figures in the books. Indeed, BTG has paid dividends totalling over £30 million to the Exchequer since its formation and made tax payments during the same period of approximately £36 million. Nor has the Exchequer been the only beneficiary. Revenues generated by licensing are shared by agreement with inventors on a 50/50 basis. In 1990 BTG returned £13.1 million to the academic sector by way of revenue sharing and other moneys.
Until 1985 BTG enjoyed the right of first refusal of all publicly funded inventions when this monopoly was ended. Since then universities have been able to choose the route by which their research could be exploited. However, the ending of this monopoly did not result in the flow of technology to BTG drying up. On the contrary, it has increased since that time. In 1986 BTG registered 355 inventions; and by 1990 that figure had risen to 524.
This increase, however, has been accounted for largely by the private sector. In 1985, 9 per cent. of BTG's business came from inventions in the private sector and 66 per cent. from the academic world. By

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1990 this had shifted to 42 per cent. from the private sector and 46 per cent. from universities and polytechnics. Some of the technologies taken on by BTG have enjoyed spectacular success. Pyrethrin pesticides have generated revenues of £94 million, the cephalosporin antibiotics a further £152 million and, more recently, exploitation of magnetic resonance imaging (MRI) has produced £27 million, with more to come.
However, although BTG is a successful business, its activities are small when viewed in the context of the total volume of research and development in the United Kingdom. In 1990 BTG put £11 million into R&D compared with a total for the economy as a whole of £11.4 billion (made up of £4.5 billion by the Government and £6.9 billion by industry). BTG thus accounts for around 0.096 per cent., or less than one-tenth of 1 per cent., of national R&D efforts. Turnover of £30 million in 1990 compares with turnover of £21 million in 1979.
BTG's profitability has come from a commercial approach when dealing with both the innovative suppliers of technology and the industrial licensees. It is business criteria, not public interest considerations, which are taken into account when deciding which inventions to take on and which licensing arrangements to enter into.
It can be seen from what I have said that BTG has been operating more and more like any of the other technology transfer businesses that have grown up in the private sector. It has therefore become more and more unnatural to burden it with limitations which derive from its position as a public sector body. For as a public sector organisation it is obliged to operate within severely restrictive constraints. All investments above — ¼ million have to be approved by Ministers. Indeed, one of my first ministerial acts was to consider whether or not to give approval to one such investment by BTG. The salaries of board members and of senior management are set by the DTI. In addition the organisation is saddled with the extremely low external borrowing limit—even with ministerial approval—of £250,000. The rigidity imposed by these restrictions is bound to be a severe impediment in the way of the development and growth of such a business in today's markets.
It is also the case that BTG wants to develop as an international business. Some 70 per cent. of BTG's revenue now comes from overseas, with roughly 40 per cent. coming from the USA and 20 per cent. from Japan. But here again BTG's status as a public sector organisation has been found to be an obstacle to the development of the business. It has cast a shadow over prospective deals in France, Spain and the USA.
Some have said that the rules should be changed. But BTG is a public body which has to be accountable in the normal way for a body in the public sector. We cannot have one rule for BTG and another rule for the rest. In short BTG will be able to take up more opportunities, more quickly, both here and abroad, and provide better services to both suppliers and buyers of technology once it has been placed in the private sector.
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Let me turn to the clauses of the Bill. Clause 1 is the key clause in the Bill. It vests all the property, rights and liabilities of the National Research Development Corporation and the National Enterprise Board into a Companies Act company, which is referred to throughout the Bill as the successor company. All the shares in the successor company will be owned by the Government. My right honourable friend the Secretary of State will then be in a position, with Treasury consent, to privatise BTG by selling the government shares in the successor company. Clause 2 extinguishes the corporation's statutory reserve and the board's public dividend capital to be replaced by the government's shareholding. Clause 3 provides for the creation of this initial Government shareholding in the successor company.
Clauses 4 to 6 deal with the subsequent treatment of this government shareholding and its sale. Clause 4 is essentially a contingent provision which allows the Government, with the consent of the Treasury, to obtain further securities in the successor company, if this should prove necessary; and Clause 5 empowers the Government to appoint nominees to hold its securities. Clause 6 will limit the government shareholding, as a proportion of all the ordinary voting rights, to the level at which it stands after privatisation. Clause 7 provides for the creation of a statutory reserve, and thus for the establishment of an appropriate mix of securities and reserves, and also for continuity of accounts.
Clause 8 provides for loans to be made by the Government to the successor company, should the need arise, in the period between vesting and privatisation. If this power were used, such loans would have to be repaid before privatisation. But I should add that at present BTG has no outstanding loans from government of any kind; nor does the Bill in any way involve subsidies or the writing off of debts. Clause 9 is another contingent provision, which empowers the Government to restrict the successor company's borrowing in the national interest by means of a provision in the articles of association of the successor company. Clause 10 provides for both the corporation and the board to continue, if necessary, for some time after the successor company is established. This could be necessary in order for them to assist with the transfer of all their assets to the successor company.
Clause 11 deals with tax matters and Clauses 12 to 17 make further supplementary provisions of a technical nature, which I will not delay your Lordships by describing. However, for those who are interested, my department has made available in the Printed Paper Office detailed Notes on Clauses explaining the provisions of the Bill.
Turning to the schedules to the Bill, Schedule 1 provides for the corporation and the board to do anything necessary to assist in the vesting of their property, rights and liabilities in the successor company. It also, most importantly, makes it clear that all existing agreements and contracts, including those affecting employees and their pensions, will continue in force after vesting, and that the only effect of the Bill on such agreements and contracts will be to

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substitute the name of the successor company for that of the corporation and board. Continuity in the business and employment affairs of BTG is an important issue, and Schedule 1 is designed to deal with it. Schedule 2 provides for the repeal of all legislation which currently regulates or refers to the corporation or the board, and Schedule 3 makes various transitional provisions.
I should now like to leave the provisions of the Bill which will pave the way for the privatisation of BTG, and turn to the question of how that privatisation is to be achieved. Noble Lords will be aware that my honourable friend the Minister for Corporate Affairs announced in another place on 12th February that the Government had appointed Price Waterhouse to provide the Government with financial advice on the options for sale open to the Government.
Price Waterhouse has now delivered its report on the options for privatising BTG, and that report is being studied by my right honourable friend the Secretary of State. No sale option has been ruled out at this stage. The Government share the concerns of those who want to see BTG's activities continued after privatisation. At the same time the Government see it as their duty to maximise the return to the taxpayer. Accordingly Her Majesty's Government will endeavour to maximise the net return to the taxpayer, consistent with a good prospect of the continuation of BTG's technology transfer activities. How best to ensure this continuation whether it should be by way of the articles of association or in the contract of sale or by some other means—will to a large extent depend on the nature and identity of the purchaser. Whether the Government should retain a special or golden share to safeguard certain provisions in the articles of association of the successor company for a limited period is likewise a matter which the Government are presently considering. In doing so we will need to bear in mind our position in European Community discussions on unequal voting structures under the proposed fifth company law directive. As far as the timing of the privatisation is concerned, this will take place as soon as practicable after the Bill becomes law.
It has been alleged in some quarters that the Government's wish to privatise BTG demonstrates a desire on the part of the Government to wash their hands of any future involvement in British technology. Nothing could be further from the truth. The Government place great emphasis on the need for innovation. My right honourable friend the Secretary of State gave an important speech on this topic on 21st May at Warwick University. In it my right honourable friend identified competition as being the main motive force behind innovation. He also singled out as a particular British weakness our failure to exploit commercially the huge investment in the public sector science base. The Government have given priority to this field, seeking where they can to create the right environment for innovation and its commercial exploitation. The Government spend some £3 billion a year on civil R&D, and of this the DTI expects to have spent more than £300 million to encourage industrial R&D and technology transfer in 1990–91.
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In fact, far from this Government having neglected technology, UK government funded R&D as a percentage of GDP is on the same level as that of Germany and the USA, and at twice the level of Japan. What has tended to be low by international standards has been British industry's investment in R&D. In 1983 this stood at 0.9 per cent. of GDP compared to 1.3 per cent. of GDP in the USA. But this is something that has been rising fast. Between 1983 and 1989 British industry's own funding of R&D grew by 50 per cent. in real terms. This is a development this Government will continue to encourage.
In conclusion, there was once no doubt a need for BTG to be in the public sector. There is no longer such a need. The universities and other public sector organisations have now many other ways of exploiting their inventions. Many have successfully set up their own companies or have created joint ventures or reached other agreements with industry. As I hope I have shown, privatisation will give BTG a chance to burst out of the shackles which have held it back. BTG is on course to provide a modest but not insignificant addition to the long and proud trail of companies, now approaching 50 strong, whose progress from the public to the private sector has formed one of the success stories of the past decade. I beg to move.
Moved, That the Bill be now read a second time. —(Lord Reay.)
3.20 p.m.
Lord Williams of Elvel: My Lords, my first duty is to congratulate the noble Lord, Lord Reay, on his first appearance at the Dispatch Box as the Parliamentary Under-Secretary of State at the Department of Trade and Industry. I congratulate him most sincerely and I wish him every reasonable success in his endeavours. I hope the House will not think me churlish if I inform the noble Lord that he is the fifth Minister from the DTI that I have had the honour to address across the Table since I commenced my responsibilities as the Opposition spokesman for trade and industry in 1986. Your Lordships will be quick to work out that the average tenure of office for a Minister on the Benches opposite within the Department of Trade and Industry is one year. Arithmetically, therefore, the noble Lord's term of office will end in June 1992. That may be an interesting date for all of us.
I am sorry that the Minister had to introduce a Bill in such defensive terms. It is a Bill which in itself is difficult to justify. I shall come later to why it is difficult to justify. The noble Lord devoted a great deal of his speech to defending the Government's record on research and development. Indeed, it was not the Government's record but industry's record. He said that everything was getting better. As numbers of reports flowing from your Lordships' Select Committee have not failed to point out, over the past several years the Government have had a very poor record on this issue. It is sad that at this particular time the Government should introduce this Bill which will make that record worse.
I agree with the Minister that over the years the British Technology Group has performed what I regard as an essential service. It is a technology

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transfer service for the British research community —for academic research and publicly-funded research. Everyone would agree that it has done so extremely well, without any direct charge to the Exchequer. A patent is registered. The return is 50 per cent. to BTG and 50 per cent. to the inventor. The funds for the development of the invention are put in by BTG on the back of successful patents which BTG holds.
Large companies obviously have their own facilities for doing that. One of their inventors in a laboratory creates a new product. Nobody knows at that point whether or not it is a commercially viable product. However, large companies have facilities for drafting patent applications and for the development of ideas to the point where they are commercially saleable. They have money and the lawyers to enforce the licences which are given to industry under those patents. Therefore, in the case of large companies I agree with the noble Lord that BTG has no particular function.
However, in the case of individuals, whether in universities, government laboratories, polytechnics or involved in research funded by research councils, no such facilities exist automatically. In his speech the Minister said that a number of companies have grown up. There have been joint ventures between universities and private enterprise and a certain number of patent agencies have become expert in this business. However, to my knowledge none of those companies offers as comprehensive a facility as BTG.
There is encouragement for the research community not only to continue with research but to feel that they can enjoy the financial fruits of their research and receive a proper reward. At the same time there is no cost to the Exchequer. Indeed, BTG has built up substantial financial reserves which will be useful in the exploitation of future patents. Some 8,200 patents have been accumulated by BTG since its foundation under the noble Earl, Lord Halsbury, in 1949.
What happens elsewhere? In the EC, on the whole those services are provided by state-owned or state-subsidised entities. France has a state-owned enterprise called ANVAR which provides technology transfer in the same way as BTG. Germany has the Frauershofer Gesellschaft, which is heavily subsidised by the government. Denmark has a public body which does the same thing. Even Japan has formed a body on the lines of our old NRDC. The question that your Lordships have to ask yourselves is why it is proposed to privatise in the first place.
In previous privatisation Bills it has been argued that there will be increased competition. However, as the Minister himself pointed out, since 1985 there has already been increased competition and anyone has the right to set up in competition with BTG. Therefore, that cannot be a serious argument for this proposal.
Will there be greater access to funds for the development of scientific inventions? That is not needed. BTG has plenty of reserves and a good cash flow from existing successful patents. Will there be a substantial return to the Treasury? By any reasonable
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estimate the Treasury will cash in £35 million to £40 million on the sale of this enterprise, which in the context of the public accounts is nothing more than peanuts.
So why are the Government pressing this? Perhaps the answer to that question came in Standing Committee in the other place when it was admitted by the government spokesman that it was the management of BTG which was pressing for it. The noble Lord went some way towards acknowledging that when he said that it would be free from the shackles of government control and all the usual things that we hear in relation to privatisations.
We have in front of us a Bill which enables the Government to sell off an asset which is reasonably valuable in financial terms but which is immensely valuable in terms of research in the academic community. The Government propose to do so without having consulted the inventors who have patents with BTG, without having consulted the staff, without having consulted the Committee of Vice-Chancellors and Principals and knowing now that 75 per cent. of BTG staff oppose privatisation.
The Government have to put forward some serious arguments in favour of privatisation. I assume that the serious arguments were contained in a report which was commissioned from Coopers and Lybrand in 1988. I am told that that report was submitted to the Government some time ago. I have asked a Question for Written Answer as to whether that report will be published. I am told that it contains commercially sensitive information. I should like to ask the Minister today whether he will publish that report before we reach Committee stage, omitting the commercially sensitive information and publishing only the conclusions. I believe that the conclusions will tell against the Government.
If the Government are determined to privatise and to go ahead on whatever basis may be convenient for them, let us look at the Bill before us. It is, after all, only an enabling Bill. It simply provides for vesting. Certain ministerial assurances were given in another place. I am bound to say that some of those assurances were pretty odd. Mr. Leigh said:
"It will be for the new owners to decide exactly how to go about running the business".—[Official Report, Commons. 16/4/91; col. 196.]
Mr. Leigh said that there will be a short interval between vesting and sale. He said that there can be no undertaking about what will happen in five years' time.
Before the noble Lord goes further with this Bill, I should like to put it to him that your Lordships will require certain categorical assurances before vesting. The only assurances that are categorical are those which are on the face of the Bill. Once vesting has taken place, as the Government say and as the noble Lord repeated, the interval between vesting and sale will be short. We shall want to be sure that the independence and integrity of the business remains. The only way to ensure that is to have some residual role for the Secretary of State. ,
We shall want to be sure that' there can be no question of asset stripping and patents being sold off without any consultation with the inventors, solely for

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the purpose of short-term profits. We shall want to make sure that there is no trade sale. We shall want to make sure that the articles of association of the company in which the organisation is to be vested are published before the Bill leaves your Lordships' House .
Finally, we shall want to make sure that the protection of the staff, to which the Minister referred, will be properly enshrined in the Bill because they are the real asset of the BTG. It is not enough just to talk about employees' pension rights and entitlements. All that must happen before vesting because once vesting has taken place Parliament will cease to have any control over what the Government do. If we pass the Bill in its present form, we shall pass a blank prospectus.
The Minister devoted part of his speech to the form of privatisation. I tried to take notes while he was speaking, but I did not get the impression from my notes—I remain to be corrected by the noble Lord when he winds up—that the Government's thinking had moved forward since the Third Reading of the Bill in another place. He told us that they would ensure that there was a good prospect that the new, privatised organisation would carry on the business of BTG as it exists at the moment. He told us that there was a good prospect—not a very good prospect, not an excellent prospect, not a sure prospect, but a good prospect. He told us that the Government were committed to innovation. I have read the speech made by the Secretary of State at Warwick and confess that I did not find in it anything particularly novel or interesting.
We have heard talk of the Committee of Vice-Chancellors and Principals having a small stake in the new enterprise. We have heard talk of a trust and of a financial institution taking over the whole thing. I do not know where we are at the moment, but I hope that the Minister it is his difficult task—will be able: to reassure your Lordships before the Bill leaves our House that the Government's thoughts on those matters are much clearer than they appear to be at the moment.
Nothing that I have said should be taken to imply that we are in any sense in favour of the Bill. For a Government who profess an interest in technological advance, research and development, pushing forward the leading edge of technology and knowledge, this is fundamentally a retrograde measure. Their record on the subject is bad enough without now introducing a new element of uncertainty into the area of university academic development and its commercial application.
The problem is that the proposal is ill-thought out and, as such, extremely damaging. My advice to the Minister as regards this, his first Bill—I am trying to be sympathetic to his role—is therefore to consider precisely what amendments to the Bill he is prepared to accept so that your Lordships may know exactly what vie are approving when the Bill leaves this House. However, unless and until he can give us that reassurance and can tell us fully, cleanly and clearly exactly what the Government intend to do by way of
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sale, my second piece of advice to him is to drop the Bill entirely and come back to us when he is properly prepared.
3.34 p.m.
Lord Meston: My Lords, we too thank the Minister for his explanation of the Bill. This is a Bill in respect of which we must listen carefully to what the Government tell us of their intentions because the Bill itself tells us so little. It deals merely with the mechanics of the transfer of the group's assets and liabilities to the successor company. Reading the Bill, one learns nothing about the future of the group, save that it is obscure. Even now, having heard the Minister and read the debates in another place, we know little about the shape, functions or objectives of the new company. No model is put before us and I strongly suspect that no model will be put before us.
It is common ground that the work done by the group is of considerable value to the research community, that the group is both profitable and successful in what it does and that it has been truly competitive since 1985. I do not propose to argue the pros and cons of privatisation. Opinions are apparently divided even within the group itself, although I doubt whether much positive good can come of it in this case. I join with the noble Lord, Lord Williams of Elvel, in asking why the Government are so coy about giving us even edited highlights of the Coopers and Lybrand report. Putting aside partisan and dogmatic arguments, it behoves us to listen to and ventilate the concerns of those who know best the work of the group and the true value of its experience, expertise and organisational strengths. Those who know best are those most directly affected by what is proposed: the universities and other research bodies and the staff of the BTG.
We shall not persuade the Government not to privatise. My own profession tried to argue that, "If it ain't bust, don't fix it". Reading the calls surrounding the Bill to respect the integrity, impartiality and independence of the group, I was inescapably reminded of the calls of the legal profession when faced with recent reforms not seen to be for the better. That led me on to wonder whether, as with the legal profession, the best of the old could be ensured by a variant of the cab rank rule so that the successor company was obliged to support the kind of work which the BTG now does well and which the successor company might otherwise shed or allow to wither.
The concern that has been expressed is not about what the Bill says but about the great deal that it does not say. That concern does not appear to have been allayed by the generalities expressed in another place. It is a concern produced by entirely reasonable fear of the unknown. Under the Bill this valuable organisation will, on an unknown day, become the property of an unknown company or of unknown nominees. There is to be merely consultation with the existing board and corporation, the process of which might be cursory and the result of which will not be binding. It is perfectly natural for fear of the unknown to he fear of the worst—the worst being sale to a ruthless asset-stripping monopoly. Furthermore, the whole

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procedure under the Bill will depend on a series of ministerial orders and directions. The sense of uncertainty cannot be good for the business of the group or the morale of its staff who must be quite dismayed to find themselves in the political arena.
I do not propose to take time on Second Reading with the detail of the Bill, but I ask the Minister why it is necessary to have in Clause 1(5) provision for an order to revoke or vary the appointed day or nomination of a company for the purposes of the Bill. Is it envisaged that the day will be appointed or a company nominated and then, before the decision is put into effect, the Government will have second thoughts and will want to revoke or vary the order? What on earth is envisaged by that provision?
If it is common ground that the group's work is of value and in the public interest, we should not allow the group to be sold unconditionally to the highest bidder. I therefore suggest that the more important decisions to be made under the Bill should be brought to Parliament under the affirmative resolution procedure for the Government to explain their thinking and the merits of any specific transactions then proposed.
I join with the noble Lord, Lord Williams, in urging a number of safeguards. There should be long-term safeguards for the future to ensure that the breadth, quantity and quality of the group's work is preserved. The Government and anyone who has read about the proposals will know the anxiety to have some formal preservation of the role of the universities and similar bodies in whatever future organisation comes into being.
The Government will also know of the considerable anxiety to protect and encourage speculative and innovatory research which may not be specific to the needs or interests of the commercial backer or may not be short term enough for such a backer. Surely we must protect such research, which may not require considerable funding. It is research which indeed quite often requires comparatively modest funding in its early stages but funding which is not available elsewhere.
When one asks what guarantees there will be, one can see nothing on the face of the Bill and find little reassurance from the generalities expressed by the Government. If there are no guarantees and safeguards, there should be; and they should be on the face of the Bill. Surely the time is fast coming, if it has not already arrived, when it is not enough for the Government to say that they have an open mind and have ruled out no options. That was the refrain in another place and it appears to have been taken up by the noble Lord the Minister in this House.
The time has come when the Government must crystallise their thinking and allow assurances to be in enforceable form on the face of the Bill. This is a piece of the family silver which is useful as well as valuable.
3.41 p.m.
The Earl of Halsbury: My Lords, in addressing your Lordships' House on the subject of this Bill, which I welcome, it might be helpful if I indulge in a
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little narrative about the climate into which the National Research Development Corporation was born. It was born in the aftermath of the groundnut fiasco. None of your Lordships under the age of 60 has probably any political recollection of that fiasco. It was an over-ambitious scheme sponsored by the government of the day to grow monkey-nuts in Tanganyika. No pilot study was ever undertaken. The scheme was launched prematurely and failed dismally at considerable cost to the public purse.
In the aftermath of the atmosphere of distrust of government interference in industrial matters, it became the responsibility of the then President of the Board of Trade, Mr. Harold Wilson, now the noble Lord, Lord Wilson of Rievaulx, whom I was glad to see in his place at Question Time. No doubt he will read this debate tomorrow, since he is not present at the moment. Because of that general atmosphere of distrust, the Government made concessions concerning the form of the Development of Inventions Act, which proved very embarrassing later on, and there was an amending Act which made my life a lot easier.
The usual protocol when setting up a quango is for the Minister and his advisers to approach a potential chairman to secure his willingness to act. The chairman and the ministry then proceed to choose a board and the board appoints a managing director from among its number. That normal protocol failed in the case of the Development of Inventions Act because no one thought suitable to be a chairman was willing to take on the job in the prevailing atmosphere of distrust. However, it was agreed that I might be a suitable person to act as managing director and I was therefore given the unusual position of managing director designate and adviser to the Board of Trade on matters connected with the formation of the National Research Development Corporation.
That was very acceptable to me. With the President of the Board of Trade I was able to pick a team with which I thought I would work well and which would work well with me. We held our first board meeting on 28th June and on 30th June I flew to America to license IBM on the Manchester University computer patents. All the early IBM machines were made under licence from the National Research and Development Corporation under an agreement which I negotiated.
One of the embarrassments was that the amendment accepted by the President of the Board of Trade was that development should be entrusted to a firm engaged in the industry concerned. Nobody foresaw that there might be no "industry concerned". There was no computer industry into which I could, as it were, feed our computer patents. Three computers were under construction: one at Manchester University, one at Cambridge University and a small one at Birkbeck College. The last mentioned left no descendants; the other two did.
There being no firm engaged in the industry concerned, what was I to do? I stretched my terms of reference to the utmost. I shall deal with that point later, but I was rapped over the knuckles on various occasions. The relationship between the Government and the NRDC was never a love relationship. Each was somewhat of an embarrassment to the other. A

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divorce is now proposed. The Government want it, the directors of BTG want it and I, too, bless it. In the event of the divorce I can only say: BTG is dead, long live BTG plc! The question is not so much one of a divorce but of a remarriage. We must arrange the remarriage in such a way that NRDC, renamed BTG for all practical purposes, will continue.
I have received notice of a very constructive suggestion by the Committee of Vice-Chancellors and Principals, to the effect that the future shareholding in NRDC should be a consortium of academic entities. I hope that the Government will seriously consider that creative suggestion and respond in favourable terms to my plea that it should be taken seriously.
A little while ago BTG was given a directive which has been met completely. I shall not offer too many figures to your Lordships. I take these from the last published annual report. The products made under licence from NRDC-BTG now reach an annual turnover of £1.5 billion. The revenues accruing to BTG are £29.5 million. Profits were £9.5 million, after recirculating £13.5 million to the sources of their inventions either as development contracts for the future or as royalties earned by the inventors under agreements in which royalties are split between them. I was a party to the very first model agreement on those lines. The dividend to the Government last year was approximately £4 million. It is therefore a going concern.
On 16th April last, the Minister in charge of the Bill made the point, which was reiterated by the noble Lord, Lord Williams of Elvel, that:
"It will he for the new owners to decide exactly how to go about running the business and what areas to expand into". [Official Report, Commons, 16/4/91; col. 196.]
That is utter rubbish. Shareholders do not tell directcrs how to manage a business. They cannot; they are a continually labile population. They appoint the directors to run the business in their interests. Can one imagine the shareholders in the Ford Motor Company telling the management of the company what the next model of the Ford Escort ought to be like? They would never come to any agreement at all. The statement is complete rubbish.
With regard to the second marriage, on the due date the Government will use their powers to become a shareholder. To do that they must write the articles of association. One cannot have a public limited company without a memorandum and articles of association. So in due course the Government must do that. About what then are we anxious? We are anxious that the Government will in fact themselves choose the next marriage behind the scenes, back stage, and will then concert the memorandum and articles of association with the future spouse. Parliament will then be landed with a fait accompli that nothing can shift. That is not good enough. The staff are anxious on all these counts. Anxiety is not good for morale. Lowered morale is not good for heightened performance. For all those reasons, while I bless the Bill, I must put the Minister on notice that I may have amend-rents to propose in Committee.
I now turn to another matter on which I have to declare an interest. I am a pensioner of the old NRDC. It pays me a pension of approximately £4,000 a year.
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I have the status of a retired public servant. Every other pensioner has that same status. That means that whatever provision is made to counter inflation for retired public servants NRDC can follow suit. When I refer to NRDC, it is habit. BTG is a merger of the NRDC and the NEB. As the noble Lord, Lord Reay, pointed out, NRDC has proved the dominant factor in that merger.
I wish to continue to be treated as a retired public servant. I served that body for 10 years. I left on my tenth year because I did not seem to have an option between staying on for 25 years or redeploying myself aged 50. One cannot redeploy oneself as one's age increases. It seemed to me that it was not in the public interest for anyone to occupy the position of chief executive for a quarter of a century. One is bound to end up in a condition of complacency. I did not think that it was fair to me to bind myself to continue when I could not have a chance of redeploying myself until after 50. I told everyone that I would leave after 10 years. No one believed me. They were all taken by surprise when I handed in my notice.
I speak not only as probably the senior pensioner of NRDC but on behalf of all other pensioners. They want a guarantee from the Government that their status will be preserved.
The pension fund—an independent trust—is in good health. The actuarial evaluation of its liabilities is considerably overpassed by the value of its assets. There is no particular danger of the trustees not being able to meet their obligations. What is at stake is this: what are those obligations? Do we continue as retired public servants with the benefit of whatever other public servants receive as funded by their pension fund; or do we not? In speaking in these terms, I have declared my interest in the matter. I wish to continue as a retired public servant. Why should I not? I have been a public servant for very much longer than those years because I have done many voluntary jobs for many years and have enjoyed them.
I am afraid that I have spoken one minute over the 10 minutes that I allow myself on these occasions. I hope that what I have said will inform the debate and enable your Lordships to form a just judgment of the merits and demerits of what is now before us.
3.53 p.m.
Lord Beloff: My Lords, I too am unable to speak against the principle of privatisation, as was the noble Lord, Lord Williams of Elvel, but more particularly since I attach, as he knows, more importance than he does to getting rid wherever possible of the dead hand of the Treasury from innovation. However, that does not mean that I am without reservations on the Bill which are not dissimilar to those which have been voiced by noble Lords who have spoken.
The Government have either not made up their mind what they wish to do in the future, or they have made up their mind but do not wish to reveal it. One of those alternatives must be the case, otherwise we would have before us a detailed account of what the successor company is likely to be, its obligations to government and society at large, and the safeguards in its articles of association.

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Why should these details be kept secret? Are the Government torn between their fidelity, expressed by the Secretary of State, to the idea that Britain ought to do more and be better in the field of industrial technological innovation and the hope—again the Treasury's ugly head rears itself —that they might receive a little more money from some buyer who was prepared to be an asset stripper on a large scale? That might be a buyer with no allegiance to this country or its future since we are not even assured that foreign bidders would be out of the running.
I believe that this is an important matter. I have studied with care the debates in another place, both in Committee and on the Floor of the House. I have rarely read a Minister's replies which were so unsatisfactory in reference to the core issue. I congratulate the Minister on his first appearance, however uncomfortable it may be. It would be well if he were to take this point on board. Whether or not the presentation of the noble Earl, Lord Halsbury, of the position of the Committee of Vice-Chancellors and Principals is acceptable, or whether there is some other way in which the university interest can be maintained, the Government at present run the risk of being thought an enemy of universities and of research.
As noble Lords echoed in a debate just before the Recess, and has been said in other debates in your Lordships' House, there has been a rundown in the allocation for research. Burdens have been put upon universities in other ways which cramp their activities. I do not know why this Government should be hostile to universities. Most of their Ministers are the product of universities. Perhaps they all had a bad time! However, they certainly give the impression of being hostile to universities.
I take a particular example in the defence of the Bill. It is said that it is no longer important that BTG should exist as a way of enabling universities and other such institutions to cash in on their discoveries because other methods are open to them. It is true that a university can employ an expensive firm of patent agents or it can enter into a partnership with a private sector company. All those avenues are perfectly possible. But they are less desirable because they involve the universities expending already limited funds on undertaking activities for which adequate machinery already exists. The staff of BTG has been referred to by other noble Lords. BTG has expertise in this difficult and competitive field both in this country and, perhaps even more importantly, overseas which could not be at the command of a single university unless it were to employ at the level of BTG. That would hardly be an appropriate use of university funds.
I cannot understand why there is no wish by Government to say, "We shall privatise it. There are arguments for putting this area in the private sector; but at the same time we shall ensure that this invaluable service to universities and other research institutions is guaranteed". Whether it is guaranteed by the setting up of a trust which would have a controlling shareholding or by the interposition of the
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Government through a golden share are technical matters on which other noble Lords are better qualified than me to advise Her Majesty's Government. I can only say that it is no use the Minister saying, as his colleague said in another place, that "all this will be revealed in due time". That is how the South Sea Bubble was launched. The due time is when a Bill is before your Lordships' House. We are entitled to know the purpose of the Bill. That can be done only if we are told about the conditions that are to be imposed on the purchaser of the new group. If we are not told, the Minister will find that the opposition to the further progress of the Bill will by no means come only from Opposition Benches.
4 p.m.
Baroness Hollis of Heigham: My Lords, it is with hesitation that I rise to speak, not because I am not a scientist but because I am genuinely baffled by the Bill. I do not know why it has been introduced nor why it is being pressed. It has been described as being "quite unnecessary" by one vice-chancellor; "As it is not broken don't mend it", said another vice-chancellor; "Deplorable", said a plant geneticist; "Utterly perverse", said an eminent mathematical physicist; "Wrong", said the inventor of pyrethrine; "I fear for the consequences", said the inventor of M RI.
Then who wants the Bill? Certainly it is not the academic community, the research councils or the hospitals, all of whose intellectual property BTG patents and promotes. Certainly the inventors do not want it, because if they wanted a different type of technology transfer company they would not have gone to BTG in the first place. Nor do 75 per cent. of the staff want it; nor does any siren voice in the City, whether financial consultants such as Coopers & Lybrand and Price Waterhouse. Who, then, wants the Bill, apart from perhaps a handful of senior staff members?
If not who, my second question is why? As my noble friend Lord Williams has asked, is it that the company is producing such profits that its sale is a significant source of privatisation revenues to the Government? Hardly; the company is valued at between £30 million and £55 million within a margin of error of most departmental budgets. Is the company instead making considerable losses subsidised by the taxpayer which could instead be turned around by the private sector? Hardly; BTG makes a tidy and increasing profit, half of which, net, goes to the Treasury. It is clear that the taxpayer gains more from the current flow of revenues than is likely to be received from any proceeds of sale. Is the company perhaps a complacent monopoly, uncompetitive, its clogged arteries impeding the transfer of technology to our industry? Hardly; since 1985 it has operated commercially, competitively and in entrepreneurial fashion. It has become the biggest and best technology transfer company in the world, emulated in France, Germany and Japan.
Then perhaps the company's customers, the inventors and the owners of our intellectual property are unhappy and are seeking a different structure. Hardly; since 1985 universities have had a choice of

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where to go. One or two universities, such as Imperial College, have set up their own companies, but 50 universities, 17 polytechnics and eight medical schools have made BTG their preferred choice. As the University of Kent said:
"After several years doing our own patenting and licensing we, at the University of Kent, have become absolutely convinced that this is not a cost effective way for a university to proced… The BTG route is much to be preferred".
Or, as was said by the vice-chancellor of the University of East Anglia, BTG:
"are responsive, efficient and prepared to take a risk, and in addition are profitable. They have our confidence: so why change it?"
That vice-chancellor, Professor Burke, should know; he helped to invent and develop Interferon. Do their views count for so little?
Perhaps wisely the Government have not advanced, or have not been able to advance, any of those arguments for the privatisation of BTG. In another place they offered only two arguments. The first was that civil servants are unable to pick winners; only businessmen can do that. The second argument was repeated by the Minister this afternoon: that BTG is hampered by restraints placed on public sector bodies. I doubt whether either of those arguments need detain the House for long this afternoon.
As regards the first argument, that civil servants cannot pick winners, I must point out that we are not talking about different people running BTG after privatisation. Indeed, the scientific community fear that different decisions made after privatisation will be worse and not better because they will be influenced by commercial short-termism. As regards the second argument, that BTG is hampered by restraints which are inevitable in the public sector, I draw attention to the fact that the managing director of BTG, Mr. Ian Harvey, has produced a shopping list of constraints that fall on the company.
Perhaps I may remind your Lordships of some of them. The Government have refused to allow BTG to participate in Link or in Alvey. The Government have refused to allow BTG to handle high-temperature super-conductors. The Government have refused to allow BTG to take over another technology transfer company on the ground of that being backdoor nationalisation. The Government have refused to promote BTG in their literature.
It will strike your Lordships that all those limitations are Government made and not God given. They have everything to do with the Government's attitude to the public sector and nothing to do with the public sector body as such. Your Lordships may think that the answer is that the Government should change their perceptions rather than change the company.
The second argument that the managing director of BTG advanced was that within the public sector BTG must ask Government permission to borrow more than £ 250,000. That figure was set in 1967 and is equivalent to £2 million at today's value. At a stroke the Government could raise that figure, and we all know that. However, we have been led to believe that that is not a real issue because BTG already has sufficient revenue flows and its main constraint is good inventions rather than a capital constraint. A further
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argument has been advanced that as a public sector body the Government fix salaries but that senior management will wish to be free to fix its own. Your Lordships will give that consideration the weight that it deserves.
Finally, BTG management points to two, possibly three, potential contracts that got away. The first, in Spain, was dropped because the Spanish Cabinet would have needed to discuss the matter. The second was in France where the Quai d'Orsay raised an eyebrow. Such significant contracts were lost. They were apparently not so significant that the DTI felt impelled, required nor propelled to intervene on behalf of BTG to pursue the matter further.
Against the two contracts that may have got away —and it is not clear that the public status of BTG was the reason for their loss—must be set, first, the 140 successful overseas licensing agreements that BTG has negotiated; secondly, the access that BTG has to overseas universities, government laboratories and national agencies which favour public status bodies; and, thirdly, the additional clout that a national agency can carry over and against a small private company when it comes to enforcing patent rights. Most academics doubt whether a privatised BTG would successfully have defended its Hovercraft patents against the Pentagon.
As the University of Manchester's Institute of Science and Technology has argued:
"With a few notable exceptions which can easily be resolved by the Government, BTG has every freedom to operate nationally and internationally for the exploitation of its intellectual property base".
Quite so.
If the arguments for privatisation are so improbable and so perverse, I suggest to your Lordships that the arguments against privatisation of the company are a much more substantial and serious matter. First, we are talking about intellectual property, 75 per cent. of which has been produced by universities and research councils and 100 per cent. of which has been funded by public money. Why do the Government believe that the inventors of MRI and pyrethrine and the holder of an Interferon patent should go to and stay with BTG? Is it inertia, indifference, their ignorance, their absentmindedness, their folly or their shortsightedness? Those people who possess the intellectual property for our benefit have chosen BTG over its competitors precisely because BTG combines genuine entrepreneurial competence with a perceivable commitment to the public good. It is able to brigade the personal and private interests of the inventor, his concern for confidentiality and the proper exploitation of his products, with a wider sense of social responsibility and the anxiety that the first beneficiary should be British industry.
The scientific community is committed to the ethic of public service as well as public research. I find it quite extraordinary that the Government should value and jettison that commitment so lightly. As Lancaster University has said, several inventors have gone to BTG in the past to ensure that their ideas were licensed non-exclusively for wide benefit. In other

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words, BTG is the organisation which those inventors would have created had they needed to. If it goes, that may need to be done again.
The scientific community has more hard-headed reasons for supporting the present structure of BTG. The Government may suggest that a private sector BTG responsible to shareholders may be even more successful. That is what the scientific community fears. Shareholders, in their quest for safe and speedy profits, will reduce the risk taking and the speculative investments with uncertain pay-offs which BTG now provides. Many patents, especially of pharmaceuticals, take 10, 15, 17 or 20 years to develop fully. MRI —body scanning—required development funding for 17 years. Few private companies will wait that long. Indeed, one need only look at British Telecom's research programme at Martlesham. Since privatisation it has become notorious in the academic world that BT now pursues only those projects which have a two-year pay-off.
BTG can also offer critical mass: 190 scientists, engineers, lawyers, patent officers and financial experts who together possess an unequalled expertise which commands academic confidence. If BTG is privatised, the academic and scientific community has real fears about its ownership, some of them having already been expressed. A trade sale could mean inventions being suppressed. An overseas sale might mean that piranha properties—Taiwan—will milk existing licences without funding research and development. If change there must be, then a trust would be preferable to other privatised options. However, it means that universities are being asked to buy rights to develop the intellectual property they already own and to buy what they cannot afford, given their straitened financial circumstances. However, if they fail to buy, their own intellectual property will be at risk.
Perhaps the Government will finance the universities to buy out BTG so that the financial proceeds may return back again to government. If that is so, why do they not invest in them now and make clear that they are vesting in them a golden share for a nominal consideration?
If BTG is privatised it will lose those features which make it so attractive to many academics and universities. If BTG loses their confidence, they will go elsewhere and the privatised company will wither and not grow. The UEA states:
"If BTG were now to be privatised and enter the private sector with no distinction in its role from that of any other short term finance venture capital company, we shall certainly reconsider our position here at UEA, since there would be no advantage in staying with BTG".
Lancaster University makes a similar comment. It states:
"there are many private sector companies doing a similar job … why create another?"
The distinctiveness of BTG is that it is a national agency, commercially run, which brigades the private and public interest. That distinctiveness is not its liability, as the Minister suggested, but is its asset and the reason that it commands the confidence of the
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scientific community. In its present form, it adds to the plurality of outlets and opportunities. It is properly competitive and offers choice.
The universities and the scientific community do not want this change. Only 20 per cent. of universities support the Bill. The rest either want no change or the least change possible; that is, a trust. They want to know from the Minister what assurances can be given that BTG will not be divided, dismembered, disbanded and lost to the nation.
Finally, in the words of the University of Kent:
"From the point of view of the nation as a whole, it is vital that full advantage should be obtained from inventions made in this country; and a genuinely independent, comprehensive and commercially experienced service such as BTG now provides is the best, probably the only way, to prevent fruitful inventions from being lost or suppressed".
From the point of view of the nation as a whole, we ask the Minister to think again.
The Earl of Halsbury: My Lords, before the noble Baroness sits down, may I ask, does she accept that her reference to inventions being bought up and suppressed is pure illusion from a legal point of view, because any invention patented and not being worked can be the subject of an application to the controller of the Patent Office for a licence of right?
4.15 p.m.
Lord Birdwood: My Lords, I shall not take up more than a few moments of your Lordships' time this afternoon. I am afraid that I have nought for my noble friend's comfort this afternoon in his maiden voyage in the Department of Trade and Industry beyond a logically founded belief that it is right for BTG to seek privatisation, but the unity of voices raised this afternoon on the absolute necessity for certain key reservations to be built into the Bill is a unity which I share.
I always find it extremely difficult to disagree with the points of view put forward by the noble Lord, Lord Williams of Elvel. Sometimes I find his lucidity dismaying when I genuinely disagree about the political platform from which he speaks. However, in this instance the way he picked up Mr. Leigh's comments in another place—and I have read those —rang all sorts of bells with me. My noble friend Lord Beloff also commented on the curious evasions in this thin and less than incisive Bill. I am no parliamentary draftsman. Perhaps of necessity an enabling Bill of this sort is as lacking in detail as is this Bill confronting us this afternoon.
For a while I thought I was to be the only voice from these Benches speaking on this Second Reading. I find that extremely distressing and possibly an insight into the views of my government friends about the importance of science and technology, again subjects touched upon my noble friend Lord Beloff. However, the Bill has my personal support and I hope that its passage into law will be smooth, although from the debate this afternoon I believe that that is a forlorn hope.
Before continuing I should declare a sort of interest. I have personal links with a profit-making scientific organisation, the founder of which is on the council of BTG.

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Going back into the history of BTG and how it was fused out of NRDC and NEB, which the noble Earl, Lord Halsbury, touched upon, I must admire the skill with which the original architects left an entity to get on with its own business. I shall not repeat the figures because they are well laid out for anybody to read, but today we have an exceptionally sturdy, flexible, profitable and attractive organisation; a hybrid which could easily have been stifled by the politics which surrounded its formation.
Today BTG is a credit to its executives and it reflects credit on the foresightedness of the people who brought it into being. However, a philosophy from which will not swerve is that all organisations must evolve. We heard from the opposite Benches a series of persuasive reasons why no change should take place. But BTG is no exception to the rule that organisations must evolve or they die. BTG is now ready to migrate from state-ownership.
Anyone who knows me will have heard me often say that I have a personal distaste for ideologies, left or right. This afternoon we are in the front line of an ideological issue —I am surprised it has not been mentioned because Second Reading is surely the time to do so—as to whether a successful enterprise should be state owned. On the whole, ideologies tell us how the people who frame them think other people should behave. I prefer to watch and encourage what actually works rather than what people believe other people ought to work at. Change works and commercial freedom works. None of the events over the past two years allow for any denial of that. The rigour of profit works and BTG must be excepted from any colour of criticism—its profit record has been outstanding. The time is appropriate for the organisation to go through a thres iold of evolution, and I am glad to give my support to it today.
A subject touched upon this afternoon, but not given sufficient emphasis, is intellectual property—what it is, what it is in law and how it can help the nation. On the whole, we use BTG's terminology which is "technology transfer". In a commercial climate in which there is a decline of manufacturing, whether politically driven or simply a cycle in a society, the management of intellectual property—I make that distinction as vehemently as I can; I am not speaking of intellectual property as an entity in itself but the management of intellectual property—is a difficult skill for a society and for a company. However, it is absolutely essential in Britain today. The management of intellectual property as represented by BTG is too important to be left to the state. It is a key enabling skill. It is a key enabling activity.
The management of intellectual property is world wide. We have seen that in the track record of BTG with its increasing dependence on global rather than domestic issues. But it is still fragmented. It is an immature commercial activity. BTG owns around 3 per cent. or 4 per cent.—possibly less—of the world revenue in the management of intellectual property. That makes it twice as big as the next organisation in the word in that field. Voices were raised with regard to whether capital would be found during the privatisation process. I suggest that with those ratios
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in front of us capital will be the least of our problems. Once BTG is released from its cage or its present hot house there is no realistic limit to what it can be. Even if it obtained 6 per cent. of the world revenue in this area, it would double its size.
I was puzzled by the pronouncements of the vice-chancellor of the committee, which I consider to be a little paranoid. I do not see why the universities' output should suddenly be blocked by BTG changing its status; quite the contrary. I suggest that its increasing flexibility and the faster speed of response which will be possible in a private environment will enhance its attraction to university intellectual output.
It is a tribute to BTG that it is often perceived as a private organisation. Material which it pointed out to us listed a few cases in which its relationship with the state and its hybrid nature prejudiced possible exploitation contracts. I prefer to regard myself as an inventor in this country. How would I feel about giving the management of intellectual property embedded in my invention into an organisation owned by, for example—I do not want to sound xenophobic —the French Government? I would be happy to give it to a French company if that company showed me that its track record and intellectual ability to resonate with what I was producing was the best possible policy. Contrary to what some noble Lords opposite said, I would feel more comfortable—I know that this opinion is shared by many people responsible for innovation—passing innovation over at an early stage to a private organisation with appropriate safeguards rather than to a state-owned organisation.
Before I sit down it may interest your Lordships to learn that today's issue of Fortune International is almost entirely dedicated to the importance of intellectual property. On the front cover it is referred to as, "America's Most Valuable Asset". As I touched on earlier, it is also an exceptionally valuable asset for this country. The opening paragraph of the key article states,
"Brain power has always been an essential asset. It is, after all, why Homo sapiens rules the roost. But it has never before been so important for business. Every company depends increasingly on knowledge—patents, processes, management skills, technologies, information about customers and suppliers, and old-fashioned experience. Added together, this knowledge is intellectual capital … Such collective knowledge is hard to identify and harder still to deploy effectively. But once you find it and exploit it, you win".
BTG, as a private entity with the safeguards built into it —I wish the Government had seen fit to spell out some of those safeguards —is in a position to win for all of us. Somebody much wiser than I said that the future that is with us now is not going to draw a distinction between the haves and the have nots, but between the knows and the know nots.
4.30 p.m.
Lord Clinton-Davis: My Lords, I should like to start by echoing what my noble friend Lord Williams of Elvel said in welcoming the Minister to the Front Bench in his new role. We think it is a deserved promotion, albeit in a dying Government, but on his baptism he can draw scant comfort from any support that he may have had so far as concerns the Bill. Even those who welcomed the Bill, like the noble Earl, Lord

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Halsbury, and the noble Lord, Lord Birdwood, were critical and they raised a number of highly pertinent questions which I hope the Minister will be able to answer rather more fully than the Parliamentary Under-Secretary in another place. The noble Lord, Lord Birdwood, said that the Bill was lacking in detail and contained no safeguards. Those views have been expressed by virtually everybody who has spoken in this debate. The Minister also had to witness a most paralysing indictment of the Bill by his noble friend Lord Beloff and by my noble friends Lady Hollis and Lord Williams of Elvel.
This has been a very interesting short debate. The noble Lord, Lord Beloff, in his powerful indictment indicated that the Government have not made up their minds about what they want to do in the future or, alternatively, having made up their minds, they do not want to reveal their intentions. I think that that just about summarises the Government's position today. The noble Lord went on to pose the question: why did the Government care to be seen as the enemy of research and of the universities? He added that after all most of the Government Ministers are the product of universities. Perhaps in moments of introspection that may be why they are hostile to universities at the present time, having regard to the record of those self-same Ministers.
The Bill has no connection with the national interest. It is by no means inconceivable that the new entity, whatever it is, will cease to promote British interests. It has no connection with the employment interests of the BTG staff and no connection with long-term planning in order to ensure the interests of BTG's clients and the scientific community as a whole, because by its very nature it will have to become far more preoccupied with short-term considerations, as my noble friend Lady Hollis said. Coupled with that —and this was reiterated on all sides of the House —is the danger of asset stripping, which would unquestionably destroy the integrated service on which public sector research so strongly relies.
The Bill has no connection with the recommendations of the Coopers & Lybrand report. My noble friend Lord Williams and the noble Lord, Lord Meston, both asked why the Government were so coy about that report. The explanations that have been proffered in another place simply will not do. Indeed, one might well ask the question: what would have been the Government's reaction had the Coopers & Lybrand report been favourable to the Government in its conclusions? I suspect that we would then have heard no argument about confidentiality or giving undue help to those wishing to negotiate a purchase, which are pretty lame excuses for non-publication. In those circumstances everything would have been out in the open.
The Bill has no connection with the experience in Europe. Again, as my noble friend Lord Williams observed, in France, Germany and Denmark all similar companies have been able to operate perfectly well, unencumbered of course by the ideological baggage of the kind that still dominates what poses as the thinking of this Government. There is no
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connection with the Government's own experience when they misguidedly set up defence technology enterprises—a "whizz" idea in the mid-1980s of Mr. Heseltine's. That of course was a sad precedent but it is also an unhappy augury for what they now have in mind.
Least of all does the Bill have any connection with the Government's proffered rationale for privatisation in this instance. They say that BTG has held back because it is a public sector organisation, because there are bureaucratic restraints and because in the private sector it could offer a more comprehensive service and take up rather more opportunities. This rationale, which was stated over and over again by the junior Minister in another place, is exploded by the fact that any such holding back as has occurred has been accomplished as an act of deliberate policy by this Government over the past 12 years. Despite the fact that that has happened, BTG has continued to make profits and pay dividends and has on occasion, on demand, even given extra cash to the Government.
The Bill certainly has no connection with usual legal practice. The Government have steadfastly resisted publication of the memorandum and articles of association—a point very strongly made by the noble Lord, Lord Beloff, and the noble Earl, Lord Halsbury—on the strange and spurious grounds that they should wait and see who are to be the prospective purchasers before determining what should go into the memorandum and articles of association. To say the least, it is unusual to depart from the practice that the memorandum and articles of association should be prepared on the instructions of the promoters of a company. I have never heard of a situation in the real world where the memorandum and articles of association are prepared in consultation with or as a result of identifying the potential purchasers of the company.
The real reason for this privatisation—and the cat was well and truly let out of the bag by the Parliamentary Under-Secretary of State in another place—is of course to maximise the receipts to the Treasury and also, as part of the continuing remnants of Thatcherite ideology, to privatise for the sake of privatisation. That is why they have failed or refused to consult the Committee of Vice-Chancellors and Principals before embarking on this hard-boiled and half-baked idea. It is true that Mr. Leigh, under great pressure, saw the committee later and then all he could say was, and I quote:
"the Government would give careful consideration to the universities' favourite opinion."
Equally, as we have heard again today from the Minister, the Government have refused to rule out other options and the likelihood is that it would be the other options that would prevail. It is clear that the Government have not convinced the universities, their staffs and others that the future of their intellectual property—and the universities are the most significant single source of BTG's intellectual property—will be safeguarded and will be effectively exploited to the continuing benefit of those who, after all, are the originators of the intellectual property.

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The Government, in their purblind state, fail to recognise the extraordinary contradiction in what they are currently bent on. That is to say, at one turn they urge the universities to maximise the commercial exploitation of their intellectual property and to procure financial support from sources other than the Government and, on the other hand, they have to maximise the returns to the Treasury. This conflict of course would be most marked if a successful bidder for BTG wanted to engage in asset stripping—that is something which has concerned a number of your Lordships this afternoon—and also for commercial reasons sought to suppress or slow down the exploitation of BTG's intellectual property. Over and over again the Government have refused to offer safeguards against any such possibilities; or even to acknowledge that they exist. Therefore, the Opposition will continue to attack what we believe to be a misconceived concept of privatisation. Assuming that the Government refuse to back down, which I believe is the rational course for them to take, we shall seek to mitigate the mischief of the Bill by seeking to introduce appropriate safeguards at Committee stage and subsequently on Report. First, we shall seek to insist on the publication of the Coopers & Lybrand report, or at the very least on a resume which excludes highly confidential information—if there is such highly confidential information. We insist on the Government being much more open than they have about t hat. For example, does the Minister agree that the Coopers & Lybrand report recommended a course completely contrary to that which the Government have now taken?
Secondly, we shall seek to insist on the publication of a satisfactory form of memorandum and articles of association to prevent any potential purchaser—not just the immediate purchaser from engaging in asset stripping. We are not prepared to give the Government a blank cheque in this regard, which is what they are asking for. Thirdly, we shall urge the retention of a special share by the Government to ensure that changes are not made to the fundamental business of BTG without the consent of the Government and, more particularly, of Parliament. This point was made most specifically by my noble friend Lady Hollis. Fourthly, we shall seek to avoid, by inserting suitable provisions in the memorandum and articles of association which ought to be before this House, deterring or instigating others in similar technical sectors from using BTG because of its possible, sale to a commercial or manufacturing undertaking. Such a trade sale or break-up sale would be inimical to its independence, impartiality and integrity so far as concerns inventors and a wide range of different companies.
Those three i's—independence, impartiality and integrity —are crucially important to inventors and a wide range of people who are deeply concerned about the Bill. We shall also seek to ensure—and this point was made by several noble Lords this afternoon—that the locus of universities in the managerial structure of any new enterprise will be properly regarded and taken account of.
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We do not like this Bill. My noble friend Lord Williams and I have made that abundantly plain. There are very good reasons for not liking the Bill. We feel reassured by the number of noble Lords on both sides of the House who have expressed the strongest misgivings, not from the point of view of any ideological instincts but because they believe that this Bill ought not to have been brought before Parliament. It is not too late for the Bill to be rejected.
4.43 p.m.
Lord Reay: My Lords, I should like to start by thanking most sincerely the noble Lord, Lord Williams, for his very gracious opening personal words in which he was joined later by the noble Lord, Lord Clinton-Davis; though I do not want to enter into his teasing speculations as to the length of time I am likely to be here.
We have had a short but lively debate with some very interesting contributions from all sides and some most useful markers put down for the Committee stage. I can give an assurance that I shall study carefully all the different concerns and, in some cases, warnings that have been expressed from different quarters of the House. I shall do all I can to meet what reasonable concerns there are.
The noble Lord, Lord Williams, wondered what was the real reason for privatisation, as did the noble Lord, Lord Clinton-Davis. I explained this very fully in my opening remarks. While self-financing and profitable, BTG is severely constrained by the obligations which rest on a public sector company and which prevent it from developing in the way it could to the advantage of customers and inventors—and perhaps even the Exchequer. As I explained, a public sector BTG has to seek permission for its principal investments from Ministers whose judgment is not necessarily the most informed or appropriate, and which only delays matters. The department must approve the salaries of senior personnel according to public sector criteria; and again that may not be the most suitable yardstick for a company operating in the free market.
The company may not in any circumstances incur external borrowings over £250,000—a fairly paltry sum for the international business BTG has a chance of becoming. Moreover, as I attempted to show, BTG has developed the habits of a commercial company. All in all, we believe these are quite sufficient reasons to justify the privatisation of BTG. BTG is successful, but we believe it could be much more successful in the private sector. It is emphatically not a question, as the noble Lord, Lord Clinton-Davis, charged, of it being privatisation for privatisation's sake.
In regard to the need for BTG to preserve its three i's, as the noble Lord, Lord Clinton-Davis, put it—its independence, impartiality and integrity—the Government are looking at what conditions it may be necessary to impose on the sale in order to try to meet some of the anxieties that have been expressed. As I said, no sale option has been ruled out. We are looking at measures which might be included in the sale contract or articles of association. Subject to EC law, we have not ruled out the retention of a "golden"

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share to safeguard any provisions for a limited period. Decisions on these matters can only really be taken once the identity of the buyer is known. What protective measures are necessary will to a large extent depend on who the buyer is. Contrary to what the noble Lord, Lord Williams, argued we do not believe it would be sensible to try to write such measures into the Bill. For one thing, we do not see how such abstract concepts as independence, impartiality and integrity could be written into the Bill in any meaningful way. It would provide insuperable problems of interpretation. It might also prejudice the whole process of privatisation which would, in our view, be in nobody's interest. Let me repeat: we will try to maximise the net return to the taxpayer consistent with there being a good prospect for the continuation of BTG's technology transfer business. How that can best be done will very much depend on who the buyer is.
Lord Clinton-Davis: My Lords, on the question of the memorandum of articles of association, does the Minister not recognise that the practice he has now recommended, if applied to the private sector generally, would make nonsense of the way in which companies carry on their business?
Lord Reay: My Lords, I was coming on to say something about the articles of association about which the noble Lord, Lord Williams, asked a specific question. As I said, we are taking that issue into account. Work has already begun on drafting the possible articles of association for the successor company. My department has recently appointed a leading firm of City lawyers to act as external legal advisers on all aspects of the sale process and it is looking closely at that particular aspect.
Noble Lords will appreciate that it is necessary to take pains to get these matters right. If these draft articles of association are ready while the Bill is before the House we shall certainly table them. I can assure noble Lords that I shall make every effort to ensure that that is done.
Lord Williams of Elvel: My Lords, I am sorry to press the Minister as I know that he has gone very far on this matter. However, will he please give the House an assurance—because an assurance is what the House requires—that the articles of association will be before your Lordships before the Bill leaves this place?
Lord Reay: My Lords, I cannot go beyond the assurance that I have given. If the articles of association are ready while the Bill is still before the House we shall certainly table them; and I shall do my best to ensure that they are ready.
It has been argued, in particular by the noble Lord, Lord Williams, that the Government have ignored or overridden the interests and opinions of the universities, of the inventors and of the staff. It is not correct to suggest that the Committee of Vice-Chancellors and Principals has not been consulted. My honourable friend met the CVCP on 15th April. The CVCP expressed the desire to see BTG as a lively commercial concern in the private sector and also
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expressed a wish to own a small but not negligible share in the privatised company. The Government will give most careful consideration to any proposals that it may make.
So far as concerns inventors, the Bill ensures continuity of all existing contracts and agreements. In future inventors may use the BTG, as they have done in the past, or any other exploitation mechanism if they so choose. It is indeed the case that one leading inventor has expressed his concerns on the Bill to us. We have met him. Although BTG holds a portfolio of around 8,500 patents, we have met or had representations from a total of only three inventors. There is a notion that some inventors, driven by altruism, have assigned their ideas to BTG principally because it is in the public sector. But to my knowledge inventors have very rarely refused revenue-sharing arrangements.
It is natural that the staff should have anxieties when a major step that is bound to affect them all intimately is about to take place. We have discussed the matter with the employees' representatives, my right honourable friend the Secretary of State having met the union representatives earlier this year to hear their views. Their views have been noted by the Government. I repeat that the Bill will not affect existing pension and redundancy arrangements. Schedule 1 to the Bill makes this quite clear. As with management, employee participation in the sale has not been ruled out.
I was asked some other specific questions. I was asked about the excising of the commercially sensitive parts of the Coopers & Lybrand report, a question also put recently in written form by the noble Lord, Lord Williams. As we made plain to him in our reply, the contents of the report are very largely commercially sensitive or confidential. For that reason we believe that partial publication of the report or its conclusions would be pointless.
The noble Lord, Lord Clinton-Davis, asked whether the report recommended against privatisation. Examination of the principle of privatisation was not within the remit of that study. The report analysed BTG's business and looked at the feasibility of various privatisation mechanisms.
The noble Baroness, Lady Hollis of Heigham, referred to universities being reliant on BTG. As my noble friend Lord Birdwood pointed out, we do not believe that there is any reason why BTG could not continue to provide services to those universities which wished to use it in the private sector. The Government are currently considering what alternative arrangements would be needed for those which chose not to do so and which currently have no alternative arrangements. However, whatever noble Lords may have been told, only two universities have expressed concerns to us.
The noble Baroness asked about the raising of borrowing limits. We do not believe that we could raise such limits. There must be control of a public sector body. She also asked about contracts which had been lost because of BTG being within the public sector. I must make it plain that BTG has had problems in gaining overseas contracts. The noble

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Baroness asked why the Department of Trade and Industry had therefore not done more to help it get these contracts. In two of the cases, the Government were not asked by BTG to help because BTG took the view that representations by the Government would be counterproductive in terms of helping it to try to obtain the contract. However, we have been asked to intervene in a recent case that has arisen in the United States. We arc doing so.
I am grateful to the noble Earl, Lord Halsbury, for his welcome for the general principle of the Bill. He was for 10 years the managing director of the NRDC and knows this matter intimately. He asked about the status of retired public servants and whether they would be affected by privatisation. The BTG privatisation would not affect retrospectively the status of its retired officials. The pension arrangements covered by the NRDC pension trust deed are vested in the successor company by Clause 1 of and Schedule 1 to the Bill.
I conclude by reverting to the principle behind the Bill, which is the issue of privatisation. We see BTG as an eminently suitable candidate for privatisation. It already operates along commercial lines. Yet it is restrained from making advances by rules which have become inappropriate but which necessarily apply to public sector bodies. On this side of the House we believe that privatisation can bring great benefits—and mo,;t of the rest of the world evidently agrees with us. I do not believe that this case will prove any exception. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Staffordshire Children's Homes: Report
4.56 p.m.
Lord Henley: My Lords, with the leave of the House, I shall now repeat a Statement which is being made in another place by my honourable friend the Minister for Health on the report on Staffordshire children's homes. The Statement is as follows:
"With permission, Mr. Speaker, I should like to make a Statement about the report on residential care for children published during the Recess by the Staffordshire County Council. Copies are available in the Vote Office.
"The House will know that after a thorough inquiry Allan Levy QC and Mrs. Barbara Kahan have reported on the so-called "Pindown" approach to the residential care of children that had been practised in some Staffordshire residential homes. They say that this was,
'in all its manifestations intrinsically unethical, unprofessional and unacceptable:'.
"They also conclude that the children who were in Pindown,
'suffered in varying degrees the despair and the potentially damaging, effects of isolation, the humiliation of having to wear nightclothes during the day, … and of having all their personal possessions removed; and the intense frustration and boredom from the lack of communication, companionship with others and recreation'.
"Their report says:
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'It has been suggested that "Pindown" by any other name probably exists the length and breadth of the country, and is probably more prevalent than anyone would officially care to admit. We received no such admissions in evidence. The practice of Pindown has ceased in Staffordshire. If it exists under any other name elsewhere it should be summarily terminated'.
"The report covers a number of other related issues. It examines in detail allegations that known adult sexual offenders were on occasion permitted contact with children in a home: and that county council officers arranged for a young person for whom they had responsibility to obtain accommodation in a house owned by a convicted sexual offender.
"Their findings on these points are drafted with scrupulous care. They found inadequate vetting and notification in the cases they examined and made recommendations of general importance.
"The Government will respond with the greatest seriousness to these.
"The report also criticises Staffordshire's supervision of arrangements known as 'Fundwell'. Under these, from the mid-1970s until 1987 a council officer set up and developed a network of voluntary organisations and private companies which in some instances contracted their services directly back to the social services department. The district auditor is undertaking a further investigation into financial aspects of these arrangements.
"When honourable Members read this comprehensive report in full, they will recognise the lucidity, balance, compassion and firmness of purpose of its authors. Looking after the often extremely difficult and disturbed children and adolescents in residential care has become increasingly challenging for those responsible. But Parliament has laid a statutory duty on local authorities to,
`give first consideration to the need to safeguard and promote the welfare of the child … and so far as practicable, to ascertain the wishes and feelings of the child'.
"The House, like the Government, must deplore the position revealed in Staffordshire up to 1989.
"The report was commissioned by Staffordshire County Council in June last year after consultation with the Department of Health. It examines the Staffordshire issues in the wider context of national policies. It makes valuable recommendations for social services departments about the objectives, management and control of children's homes and the recruitment and training of their staff. Many of these reflect existing good practice around the country.
"As the House knows, the Children Act 1989 is to be implemented in full on 14th October this year. By common consent it is the most important reforming measure in the children's field that we have had in this country in this century. The Government, after consultation, have already issued four substantial volumes of regulations and statutory guidance on its implementation.
"The volume which covers residential care and secure accommodation was issued for consultation in September of last year. It will be published in

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amended form this month. Many of the recommendations in the Levy Report are already addressed in this document. These binding regulations and statutory guidance will require scrutiny of residential care for children throughout the country and its reform where necessary.
"The Government are not content to rest on the significant work already in progress. We are today issuing a statutory guidance circular charging all social services authorities to check immediately that their residential care practices are wholly free of the abuses found in Staffordshire; and that they conform with the statutory provisions and regulations governing these matters made by successive Secretaries of State. We are also urgently requiring them to ensure that a statutory complaints procedure is in place and readily understood by all children in residential care.
"The House will already be aware that my right honourable friend the Secretary of State has instructed Sir William Utting, the Chief Social Services Inspector, to undertake a special review of residential child care concentrating particularly on questions of monitoring, control and implementation in the light of this important report. Sir William will consult independent experts outside government. We will publish his report and promptly address its conclusions."
My Lords, that concludes the Statement.
5.2 p.m.
Lord Ennals: My Lords, perhaps I may first thank the noble Lord, Lord Henley, for reading the Statement made by his honourable friend in another place. From these Benches I also express our thanks to Mr. Allan Levy and to Barbara Kahan for what is a very remarkable, though sad, report. In my view they brought the best of their skills to the task. Those of us who have known Barbara Kahan for many years are grateful to her for the wisdom and experience contained in the report.
I have a modest interest to declare in that about 18 months ago some young people from NAYPIC (the National Association of Young People in Care) with which I have had contact over many years, came to see me with much of the evidence which was presented to the inquiry. They were deeply concerned because they could not get anyone to express an interest in the situation or to undertake an inquiry. Therefore, on their behalf, I wrote to the county council and to the social services department urging that there should be an inquiry into the matter. I was then asked whether I would care to give evidence. However, I had no direct evidence and therefore I did not avail myself of the opportunity. Nevertheless, I took an interest in the matter from that time onwards.
This is an unusual case in that the inquiry did not follow the death of a child. I suppose that it is worse in the sense that the inquiry was into a regime called Pindown which had existed since 1984 and which was imposed by a fully qualified social worker over a period of roughly five or six years.
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The report tells a terrible story. Pindown was not a clandestine policy. The routines of punishment and control were recorded in council records. However, the social services inspectorate officers who visited three of the homes in 1977 failed to detect the dangers of Pindown; though the circumstances which existed at the time in those homes must have been drawn to their attention. Similarly, the local authority's supervisory visits did not identify the problems. I believe that we must ask why it was that the social services department did not realise the extent to which they were not only in breach of practice but also in breach of the law. We must also ask how it was that the SSI officers did not report the existing circumstances to the Secretary of State or even to the local authority.
Only yesterday the Minister, Mrs. Virginia Bottomley, accused Staffordshire social services department of having,
"singularly failed to discharge its responsibilities".
She said it was unsatisfactory that unqualified youngsters in their first job should be trying to care for disturbed children. I entirely agree with that statement. However, she went on to say:
"We need our streetwise grannies back in the children's homes".
I wonder how that aim is to be achieved and whether the Government will say what further funding will be made available. Further, will the strategy of training recommended in the report be implemented? That seems to me to be one of the most disturbing aspects of this and, indeed, other cases. Staffordshire County Council, in a statement on the issue of staffing resources, said that,
"only central government can resolve the constraints upon Staffordshire and other local authorities trying to deliver good quality residential care for children".
I agree with that. However, it is not good enough that the buck should be passed back and forth between local authority social services departments and the Department of Health. Both of them must share the responsibility for what has happened. They must also share responsibility for putting the matter right. I hope that this excellent report will lead to positive action. I also hope that it will lead to a complete overhaul of the way that we treat children and young people who do not fit in with society.
From these Benches we call, first, for an independent national inquiry into the complete range of children's homes, including resource levels and complaints procedures. I believe that what has been done thus far is just not good enough. Two days before the Levy Report was published the Government commissioned an inquiry into the state of children's homes which is to be headed by Sir William Utting, the Chief Social Services Inspector. It is said that the report is expected to be published within seven weeks; that is, before Sir William retires on 19th July.
Having known Sir William Utting for many years, I must stress that I have the greatest possible respect for him and for his abilities. However, I do not believe .it is proper that the inquiry should be conducted by the head of the inspectorate who quite patently did not discover the circumstances which gave rise to the

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report. I believe that there needs to be an independent inquiry which must be able to draw on a wider range of information than will be possible in the seven weeks available to Sir William Utting. He says that he will have completed the report by the time he retires on 19th .July. It is difficult to see how adequate research and analysis can be brought to his attention in that time.
Secondly, we hope that there will be a more positive attitude on the part of the Government towards funding, staffing and inspection. Staffing levels are dangerously low. Social services are failing to attract people with relevant training and experience. Indeed, social services directors were reported only yesterday in the Observer as having difficulty in recruiting suitable staff. It is said that new recruits often leave after only a few weeks. Moreover, there are currently 2,000 vacancies for residential social workers with a starting salary of £8,000. I hope that we shall hear a little more about what the Government intend to do as regards training.
I quote from paragraph 17.22 on page 154 of the report:
"Recruitment policies and practice clearly indicated that filling gaps was more important than obtaining the services of qualified and experienced staff. Some of the holders of unqualified social work posts had, in our opinion, inappropriate experience and education for such work and should not have been expected to carry it out".
It is important that the Government should recognise the fact that the training of residential social workers is crucial to finding a solution to the problem.
In conclusion, perhaps I may make two points. I do so without in any way retreating from the condemnation in the report, which I entirely accept, of appalling practices. First, it should be pointed out how incredibly difficult many of these young people are properly to discipline, control and help. They represent a quarter of those in care. The other three-quarters of those in care are fostered. Those in residential care are probably the most difficult of children. The girls are as bad as the boys. Many people with experience know that to be true. Secondly, I wish to say how difficult is the social workers',.task. My heart goes out to them. Every time there is an inquiry it is into something that has gone wrong. No one has an inquiry into something that has gone right. It is a thankless but crucial professional task. At the same time as handing out criticism, we should give credit to the many dedicated and highly efficient social workers who perform a remarkable service.
Lord Meston: My Lords, we too wish to thank the Minister for repeating the Statement. I pay tribute to the painstaking work done by Mr. Allan Levy QC, who has been known to me for a number of years, and to his colleague Mrs. Kahan. There is the inevitable sound of the stable door being belatedly shut when one reads such a report and hears the governmental response to it. That is not a criticism but a fact.
In this case, as the noble Lord, Lord Ennals, has just observed, we are not dealing with one incident or episode but with a regime which had amazingly been in place for a number of years. Children in children's homes are almost certainly already vulnerable and damaged. It is also hard in retrospect to imagine how
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such wretched practices could have been encouraged by the supposed carers of such children. It is also hard to imagine how they can have gone on for so long unchecked. One reason was that Pindown was practised behind closed doors. In that respect, I welcome the proposed review to be undertaken by the Social Services Inspectorate. Is it intended to encourage truly unannounced inspections of children's homes? They would seem to be a necessary feature of the future work of the inspectorate. Will the review to be undertaken by Sir William Utting be published sooner rather than later?
It is opportune that the guidance and regulations which are still in draft under the Children Act 1989 will provide an opportunity to close the gap between good practice and what has apparently been happening on the ground. Another more worrying reason why these matters went unchecked was the acquiescence by the officers and middle management of the social services department concerned; combined, it appears, by the admitted cover-up by the chairman of the social services committee who tried to justify Pindown by attempting to minimise it as an isolated occurrence.
In that context, I wish to pay tribute to the persistence of Mrs. Christina Jebb, the local Liberal Democrat councillor, who tried to expose a cover-up. Your Lordships may have read the disturbing report contained in the Sunday Times yesterday which claimed that an injunction banning the Pindown method in council homes was kept hidden from members of the social services committee for six months even though the council had lost a High Court case in which details of the procedure had come to light. The report claims that requests for meetings and information about Pindown were postponed repeatedly, and delays were an attempt to prevent damaging disclosures in the run up to a by-election. That is a worrying aspect of the matter. It is astonishing that the matters were suppressed for so long and that the chairman of the social services committee then tried to explain it as merely an isolated incident.
Surely the Government should address the problem of installing mechanisms to ensure that such matters cannot be kept from the social services committee in such a way. I hope that the Minister will give us some insight into the Government's response to what was reported in the Sunday Times.
I echo what the noble Lord, Lord Ennals, said about training and the many dedicated social workers who get things right. We must remind ourselves that we hear only about things when they go wrong. It is important that social workers should not have a siege mentality if effective social workers are to be recruited and retained.
Lord Henley: My Lords, I join both noble Lords in offering my further praise for the authors of this excellent report. I also join them in yet again condemning the bad practices that existed in Staffordshire until 1989. I shall deal with some points raised by them. First, and predictably, the noble Lord, Lord Ennals, asked for a national inquiry into the matter. We see no point in setting up such a large-scale inquiry. The key moment will be the implementation

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of the Children Act on 14th October. The inquiry suggested by the noble Lord would take one and possibly two years. The major changes in progress are reflected in regulations and guidance to be issued later this month. We already have a comprehensive report. It is the one that we are discussing. It has made valuable recommendations.
In the Statement I mentioned the guidance that has been issued today to all social services authorities. That guidance will bring to the attention of those social services authorities the report and the recommendations contained in it. Again, as I said in the Statement, we have already commissioned Sir William Utting to undertake a quick, special report to ensure that we cover all the issues involved in the implementation of the Children Act. We shall obviously consult outside independent experts. The noble Lord, Lord Meston, asked whether unannounced visits could be considered. That is an issue that will be covered by Sir William in his report.
The noble Lord, Lord Ennals, asked why the SSI had missed the Staffordshire problem. One should read the report on that point with some care. It contains no criticism of the SSI which was never told of Pindown when it visited the two Staffordshire homes in the course of its wider investigation of residential care management arrangements. In particular, one should look carefully at the finding that those Staffordshire homes were not residential homes but had become secure accommodation, and that at no stage did Staffordshire take legal advice on their status. Had it done so it would have discovered that due to the amount of secure accommodation it would have had to seek my right honourable friend's approval under the secure accommodation regulations which have been in force since 1972. Such approval is never given without a full SSI inspection directed wholly at the care regime in the individual facility. It would never have obtained the necessary approval in this case.
Where approval is given, regular and detailed subsequent inspection of the facility by the SSI is automatic. We are confident that such inspections of the Staffordshire homes would have uncovered the problem and led to a remedy or have prevented the problem occurring in the first place. It is misguided and unreasonable to confuse the two visits to homes in the context of the wider exercise undertaken for a different purpose with the targeted, more detailed SSI inspection that there would have been had Staffordshire realised the true nature of its homes.
Again predictably, the noble Lord complained of under-funding and blamed the Government. I agree that the report shows that the lack of resources in residential child care in Staffordshire was due largely to poor priority setting by the county council over a number of years. It may be worth quoting from the report the remarks of Mark Fisher, one of the MPs for the area who is a member of the noble Lord's own party. He said at paragraph 3.28:
"historically we have been negligent both in expenditure and in policy … not just in social services. It is traditional … I think they are probably right in saying that the money is not there because they have always set very low budgets".
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I accept, however, that Staffordshire's net expenditure on personal social services has risen from £18.4 million in 1979–80 to £57.2 million in 1990–91. That is an increase in real terms of 43.7 per cent. However, Staffordshire spent 4.5 per cent. less in 1988–89 than its grant-related expenditure figure for that year. Thus we must blame Staffordshire County Council and its social services committee for the lack of resources. It spent less than other comparable authorities on these services.
The noble Lord mentioned staffing and training. It is not the Department of Health that employs those working in personal social services. The provision of adequate staff and any analysis of the workforce and planning are for local authorities to determine, depending on the policies and priorities they decide on locally for the client groups for which they have responsibility. It is for those authorities to give enhanced grading to residential child care posts, to ensure that staff can obtain qualifications and are given proper training and to provide to residential care staff, proper management, supervision and support from appropriate senior levels in the social services department.
There is nothing intrinsically wrong with unqualified people carrying out certain tasks in these homes as long as there is adequate supervision and management from the department. That must be a matter for the social services department and the social services committee of Staffordshire County Council. It is to them that we should look and they should consider their position. They decided on the level of resources.
The noble Lord asked what support the Government give to training. The training support programme has been continued and extended. The central grant was increased from £19.4 million to £24.8 million in 1991–92. The local authorities have been urged specifically to target the training needs of the residential child care staff.
The noble Lord, Lord Meston, asked about requests for meetings with the social services committee which were not met. He said that the Government should put in mechanisms to deal with them. We feel that it must be a matter for the local authority and its electors, the people of Staffordshire.
I hope that I have dealt with most of the points made by the two noble Lords in their remarks. I welcome their support for the report and for the skill and expertise that went into it from Mr. Levy and Mrs. Kahan. I hope that noble Lords agree with me that the Government's response, particularly in issuing guidance today to local authorities, has been both swift and effective.
5.25 p.m.
Lord Boyd-Carpenter: My Lords, in the light of my noble friend's rejection of a general inquiry, can he assure the House that the Government are confident that no establishments run on the Pindown principle in other parts of the country and that no other local authority operates such a system? Are the Government confident of that?
Further, in the light of what can happen, as this case has shown, is there not a great deal to be said for

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ensuring that the continued detention of children in such establishments should be subject to an order of a competent court?
Lord Henley: My Lords, on whether Pindown exists in any other part of the country, I can only say that we do not believe that it does. In the guidance which I mentioned and which we issued today to social services departments, we brought to their attention the remarks in the report that if the practice exists elsewhere under any other name, it should be summarily terminated. The report also said that the authors received no admissions in evidence that the practice was continuing. If my noble friend has evidence that it is continuing, we shall be pleased to receive it. We shall try to ensure that it ceases.
My noble friend also asked whether children kept under restraint should be subject to a court order. My understanding is that it is and will be the case under the Children Act that a court order will be necessary in future if a child is to be locked up. As I said in response to the noble Lord, Lord Ennals, if a local authority operated a home as secure accommodation, it woulc need the permission of my right honourable friend the Secretary of State for Health.
Lord Campbell of Alloway: My Lords, does the Minister agree that the one thing we cannot do is, as he said over and over again, to leave this to the local authorities? In the wake of the cases in the Orkneys and Cleveland and this affair, there must now be a form of;uperimposed control. This would be not only supervision but training standards. My noble friend said that it did not matter whether the staff were qualified, but surely it is asking too much of these well intentioned young people to do their best without adequate training. Training costs money. Staff should have a kind of pupillage, as we do at the Bar, perhaps for three or more years, to acquaint themselves, as they do in other countries, with the nature of their duties ard how to deal with such people. There should be standards of excellence and qualifications for people when they have learnt their profession. They should be paid according to their merits or the degree they have taken.
We cannot just let this go, sweep it under the carpet and say that it is all a matter for the local authorities. There must be a sound regime, with adequate supervision and reasonable working hours. Do your Lordships realise that some of these young social workers work so hard over long hours that probably many have never had a chance to read the Cleveland report? It is no use blaming the social workers. One blames the colonel of the regiment. That is the only thing to do. The Government must be responsible. There is no other way in which we shall ever come to grips with the problem.
I am not criticising the Government, because the problem was not apparent on this scale until the facts were revealed. It is not a criticism, but I suggest that now the situation has been revealed, it is idle to say, "Oh, it's a matter for the local authorities". Yes, in part it is; but the responsibility must lie with the Government of any political party.
Lord Henley: My Lords, I accept that the Government have a responsibility. However, it is important to accept that the elected local authority in the area has a responsibility. Failure in one part of the service does not mean that there is no need for services or that the local authority is not capable of performing those services. In the main, local authorities perform the services very well and properly. We believe that it is right that they should have the responsibility for this area. As I said earlier, I do not believe that the Government are sweeping this matter under the carpet. As I have made quite clear, we have issued guidance rapidly today to all social services departments bringing their attention to the Levy Report. We hope they will take note of that.
I wish to pick up a point which my noble friend made. He implied that I had said that it does not matter whether staff are unqualified. I was trying to say that in certain situations it does not matter whether staff are unqualified provided they are adequately supervised and managed. That management should have been in place in Staffordshire, but obviously it was lacking. However, it is misguided to say that the policy we are discussing was instigated by untrained staff. The policy originated with Mr. Tony Latham who I believe had obtained a qualification in social work from Ruskin College. Therefore he was distinctly qualified in these matters. The fact was that he came to the wrong conclusions.
Lord Campbell of Alloway: My Lords, I was not suggesting that the people we are discussing are unqualified. I never said that.
Lord Henley: My Lords, I apologise. I thought my noble friend was picking me up on a point I had made and was suggesting that I had said it was perfectly permissible for unqualified people to carry out such work. I repeat that I said it is perfectly proper for unqualified people to carry out certain work if they are adequately supervised. What was lacking in Staffordshire was adequate supervision and management of such staff. That must be a matter for Staffordshire County Council and the social services committees in Staffordshire to discuss. I hope that the local electorate will bear those matters in mind.
Baroness Phillips: My Lords, the Government send directives to local authorities on other matters. Will they therefore send a directive to local authorities that all members of social services committees should visit the homes for which they are responsible? Most of us have served on such committees as unpaid members. We regarded it as an obligation to make unannounced visits to children's homes, old people's homes and schools so that these kinds of incidents did not occur. The Government are failing in their duty if they do not at least suggest to local authorities that the members of social services committees have obligations which they cannot opt out of. The Government are good at sending suggestions to local authorities about money and the community charge, so why cannot they send a directive on this vital matter?
Lord Henley: My Lords, the noble Baroness started by asking the Government to issue a directive.

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Normally noble Lords opposite do not like the Government to issue directives to local authorities. As I have said, we have issued guidance on this matter. As regards the substantive point the noble Baroness made, I agree with her that it must be good practice for members of social services committees to make unannounced visits to homes in their areas. I certainly did so when I served on a social services committee in my local county council. I am sure that most social services committees follow that practice. However, I do not agree that that is necessarily a matter for Government. Local authorities must decide their own priorities. However, I agree with the noble Baroness that all members of social services committees should make visits, preferably unannounced, to local authority homes under their jurisdiction within their areas.
Baroness Faithfull: My Lords, as regards the final point my noble friend made, it is laid down under regulations that members of social services committees should visit children's homes. As regards my own local authority—the noble Baroness, Lady Young, will know this is the case—the social services committee has to report at every committee meeting on visits made to local authority homes. It is essential that those regulations are fulfilled.
I understand that we should not use the occasion of a Statement to indulge in a long debate. The report contains 39 recommendations and none of us has had time to read the report fully. I suggest to the House that we might consider through the usual channels holding a debate on the report at some stage.
I have two comments to make on the report. The first comment concerns training. Many other noble Lords have referred to this. Recommendation No. 23.45 of the report states:
"We recommend that a strategy of training for the next five years is developed as a matter of urgency with a particular aim being to increase the numbers of trained and qualified staff in residential care without delay".
Although it is the business of the local authority concerned to ensure that it engages qualified staff, and although Her Majesty's Government have provided more money for training, the money has only just been provided and the training for residential staff in this country is totally inadequate. A number of training courses have been closed down. When I worked in Oxford I recommended strongly to the then central training council that the polytechnic should instigate a training course for people aged 35 and upwards. That course was most successful and a number of married women whose children had grown up completed it, as did a number of retired army and navy personnel. Those people became qualified and they made splendid social workers. The course was, alas, closed down. The whole issue of training for residential and field social workers needs to be considered.
I repeat what I said in this House some time ago. Is it right that the Treasury should dictate social policy in this country? The poor resources that are available for training are not the fault of local authorities. They are the fault of the Treasury. At one stage we recommended a three year training course for social
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workers. However, the Treasury turned down that suggestion. We must look closely at the position in France, Germany, the United States and Italy, all of which offer training courses lasting three to four years for both residential and field social workers.
That brings me to my second point which concerns the philosophy of residential social work with children. The Minister has said that the person who is most involved in the incident we are discussing was a trained and qualified social worker. That is true, but I maintain that the philosophy of our residential work has gone awry. I believe it diminishes every child and young person to make excuses for wrong doing. Such young people have done wrong and have committed misdemeanours. But having accepted that fact, we need to adopt a therapeutic attitude and to offer therapeutic training for those young people. I refer to the Caldecott community in Kent where there are 60 deeply disturbed children. Most of the girls have been abused. That community offers therapeutic treatment for those children. The chairman of the committee of the institution is Lord Brabourne. Pepper-Harrow also offers therapeutic treatment for its inmates. Its president is Lord Justice Butler-Sloss. Those institutions have instigated a training course at Reading University that is run on therapeutic lines. Many homes run by the National Children's Home, Barnardo's and the Church of England Children's Society are splendid institutions. Nevertheless we need to consider the matter of training. The various ministries have taken little interest in institutions such as the Caldecott community and Pepper-Harrow. We need guidance from the top as regards training, the way homes are run and the philosophies behind their administration.
Lord Henley: My Lords, I thank my noble friend for her remarks. Should there be a debate on the report, many of those points could be addressed. No doubt that is a matter than can be taken up through the usual channels. I wish to respond to a couple of points that my noble friend made. I thank her for her remarks about unannounced visits. The policy on this matter varies between different local authorities. My noble friend said that in her own local authority committee members produced a report that was presented at the next meeting of the social services committee. That is certainly not the case in all local authorities and it was not my experience with my own local authority. However, it appears to be a sound practice and it is something that I believe all local authorities might be advised to consider.
My noble friend then went on to make the rather extraordinary remark that the Treasury was dictating social policy. That is not so. However, obviously the Treasury has the interests of the taxpayer at heart and it must be a matter for those raising taxes to decide how money is spent. There is no bottomless pit from which money can come for whatever policy my noble friend wishes to pursue. In this particular case in Staffordshire spending was 4.5 per cent. below the GRE level. It is therefore a matter for the electors of Staffordshire and the Staffordshire social services committee and county council to consider where they should be putting their resources.

European Agreements: ECC Report
5.40 p.m.
Lord Aldington Lord Aldington rose to move that this House takes note of the report of the European Communities Committee on European Agreements with Poland, Hungary and the Czech and Slovak Federal Republic (8th Report, HL Paper 35).
The noble Lord said: My Lords, the report resulted from an inquiry by Sub-Committee A, which was well assisted by the specialist adviser, Mr. Jim Rollo of the Royal Institute of International Affairs. Once again I want to pay tribute to all my colleagues on the committee whose experience and wisdom, as well as their tolerance of and kindness to their chairman, has been remarkable. And, once again, I wish to pay tribute to the clerks. This time we had two clerks, with a handover taking place in the middle of the inquiry. What more can any of us say about them? We did not suffer as a result; the clerks may have.
We were particularly aware that the inquiry was focused on the social, political and economic future of three countries which were until very recently part of the Eastern bloc. We greatly welcomed, therefore, the help which we received from the Foreign Minister of Poland, from the Hungarian Ambassador in London and from the Director-General of the Hungarian Ministry for International Economic Relations. We visited Prague, where we met members of the Czech and Slovak governments as well as of the federal government and also representatives of the House of the People and the House of Nations. To all of them this House owes special thanks, as we do to all who gave evidence.
All the evidence that we received led us to conclude that the rebuilding of the three economies of Poland, Hungary and Czechoslovakia and the full conversion of those countries to free democracies will be an enormous and daunting task. The European Community has a real interest in their success, in the same way as we believe that the three countries have a real interest in the successful development of the Community, which is not only the closest large market for their exports but also a major source of the capital which they so badly need for their economic growth.
The agreements on which the report is based are currently being negotiated between the Community and each of the three countries separately. Those agreements rightly provide, among other important matters, for the opening of the Community market to their exports over the next few years.
The initial speed of the economic development in the three countries, however, depends in large part on the amount of aid, loans and investment from the Western world, particularly from the Community and its member states. It also depends on the ability of each of the three countries to absorb the help which they are offered. However, we consider that the Community and the other countries of the Group of 24 will be wise not to overstrain the donor economies by too fast or too large subventions and loans or investment. Nor will the donor countries help the recipient countries by failing to co-ordinate and
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monitor what is being done and to regulate their help accordingly. However, I repeat that trade will be the key to rebuilding their economies.
Events reported in the press before, during and after our inquiry all lead to the conclusion that, if economic factors point to a steady pace of advance, political factors call urgently for the fastest possible pace of progress. Political stability will be put under strain as economic transition produces recently unknown levels of unemployment and offers little immediate improvement for the consumer. A growing degree of foreign private domination in commerce and industry may produce further political strain. The shorter that transition the less will be the political strain.
What are the objectives of the agreements? Their purpose is to create a climate of confidence and stability in order to encourage the reform process. The agreements seek to enable each country to play, and feel it is playing, a part in the wider process of political change in Europe. They seek to facilitate the transition to market economies and to encourage trade and investment. The committee supports all those objectives, as I am sure your Lordships will, too.
How many years will the process of reform and conversion take? We are clear that the economies of each of the three countries are likely to develop at different speeds. We hope that all three will be ready to complete a free trade relationship with the Community within 10 years, but we warn that that target may be too ambitious.
Much can be done, and is being done, apart from the relationships of the three countries with the Community. The Council of Europe is encouraging political reform. The committee hopes that the three countries will all soon become parties to the European Convention on Human Rights and will accept the right of individual petition to the European Commission of Human Rights and the compulsory jurisdiction of the European Court of Human Rights. We point also to the importance of encouraging political and trading links between those three countries and the former Comecon countries. We welcome reports of meetings between the three heads of government.
I shall now pass for a few moments to some of the specific points that we thought important in relation to the agreements and their background. First, we stated as our firm opinion that the preamble to each agreement should indicate the wish both of the Community and of the country concerned that each country should accede to the Community when the political and economic situation allows. We were told that that is controversial in some places, but I hope that the Minister will agree with us.
Secondly, we were concerned about the threat of large scale and perhaps mass migration east to west. We were quite clear that it would not be in the interests of any of the three countries for a substantial number of their workforce to emigrate to the Community; nor would it be in the interests of any of the member states of the Community if they did. The Community should therefore act with caution in allowing full, free movement of people, despite whatever may be the

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political pressures. One of the purposes of aid provided by the Community should be to help create such a climate that few people wish to leave.
We have a number of points to make about financial help. We are quite clear that financial support is essential now, and will remain so until at least the end of the century. There will be the need for continuing support for each country's infrastructure, certainly beyond 1992. Many of those infrastructure projects are unlikely to attract private sector support, at least in the early years. The modernisation of that infrastructure is essential if the economies of these three countries are to be competitive with the West. Indeed, the extent of modernisation necessary after the years of command economies may be difficult for many of your Lordships to comprehend. We stress that the help given towards modernisation in that way must be co-ordinated and monitored.
The next point relates to the change in attitudes and methods in these three countries following their conversion from command economies. We believe that that is at least as important as an improvement in or a renewal of infrastructure and plant. I spoke earlier of the importance of the ability of each country that is in receipt of financial support to make full use of it. This puts a spotlight on the training and know-how projects, both in the Community's PHARE programme and in the programmes of member states. Some of your Lordships may not know how PHARE is spelt. "P" stands for Poland and "H" for Hungary. We were impressed with all that we heard about the British know-how projects. There is a strong case for extending know-how projects which give good value for money and make the best use of the private sector in Britain in assisting those countries and the future of our private sector with them.
We have no doubt that there is a good potential for British commerce and industry in those three markets. We were impressed both with the facilities and advice which the East European Trade Council offers British traders and investors and with the enthusiastic support of Her Majesty's embassies in those three countries. However, Britain is not at present doing as well in trade or investment as some other countries.
The point was made to us that, although the ECGD's short-term credit facilities are in general satisfactory, the extended credit facilities of other member states are better and put our industry at a disadvantage. It seemed to us important that our export credit facilities should in general match those of our competitors. Poland is a difficult case, but if Britain is right about not wishing to add to that country's indebtedness at present, then other countries should surely be persuaded to take the same view, or there should be some agreement between all trading countries to scale their credits to what is practicable. That point may be thought to be tangential to our report, but the Select Committee has always been keen to ensure that Britain is as able as others to take advantage of Community-created opportunities.
I have left until this moment the question of private investment in each of these three countries which is
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most urgently needed by all three. The climate there must be right for that: the legal climate—their laws; the economic climate—their economic practices; and the political climate. Investment will not happen at once to the degree needed. When it does happen, it will bring with it not only foreign exchange but also skills, training and know-how generally. The opportunities for investment are long-term, not short-term.
It is rightly thought that the indebtedness of the three countries, particularly of two of them, is relevant to future investment and lending. Public sector indebtedness is now handled by the Paris club and there is hope that the debtor countries will not be left with an intolerable debt burden to governments and public institutions. However, we note the importance in that difficult situation, stressed by Hungary, of creditworthiness which is vital for securing new investment, and the will to pay old debts is not irrelevant to creditworthiness. Private sector debt—so far I have dealt with public sector debt—is in our view a matter for the creditor and debtor to arrange.
Before I come to the end of my remarks, I wish to stress once more that the committee agrees with the Commission and the Council that trade is as important as aid in the short term and in the long term, and that in the long term it is the only way in which these three countries can develop their economies in a competitive way. It is therefore right that the Community should open its market earlier than the full opening by the three of their markets. That will raise some sensitive issues for some member states and special arrangements may have to be made while the state aids in Poland, Hungary and Czechoslovakia are run down and their pricing arrangements are put on to a market economy basis. However, we must understand that in those command economy countries currencies do not operate and prices are not worked out in the same way as that to which we are accustomed. Agriculture also raises special problems in some areas and has a special importance for the earning of foreign exchange. A solution to all those special problems must be found.
Before I sit down I must say that I am sure that your Lordships will have other issues to raise in the debate and I look forward to hearing your comments. There are wider issues which will be in your minds. This is the second debate that we have had in recent times about the association of the Community with European countries that are not at present members of the Community. The proposal for the European economic area with EFTA was the first. There are fears among some people, including some of your Lordships, that by going at too fast a pace towards closer union in the Community, new aspirants to membership will find the difficulties of joining too great for them. There is no sign that that is so. Those who are not yet members are as aware as we are of the history of the Community and how it has developed, and of the step-by-step approach taken by the Community to strengthen its ability to be a world force for economic strength and peace. As I see it, it must be a comfort to these three countries with which the debate is concerned that the Community's economic strength is able to offer them help in their

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daunting task. It should be a comfort to all that the vision of the founders of the Community—the Six who signed the Treaty of Rome—should now lead to a new set of agreements with Eastern European countries to prepare them for eventual membership, however many years that may take. It is your committee's belief that the successful conclusion of those agreements will help each of the three countries to solve their undoubted, indeed daunting, problems, and offer new long-term opportunities too to the existing member states of the Community, including—very much so—Britain itself. I commend the report to your Lordships and beg to move the Motion.
Moved, That this House takes note of the report of the European Communities Committee on European Agreements with Poland, Hungary and the Czech and Slovak Federal Republic (8th Report, HL Paper 35)—(Lord Aldington.)
6 p.m.
Lord Bridges: My Lords, I was not a member of the sub-committee which prepared the report, but I venture to offer the House some reflections on this important subject, as I seem to have spent some years of my life thinking about the problems of central and Eastern Europe. In 1953 I was on the staff of our Mission in Bonn when the population of East Berlin rose in anger against the tyranny of the Socialist Unity Party. That was a cruel day in the post-war history of Europe. The terse, questioning telegrams that we received in Bonn from London, written in Churchill's unmistakable style, left no doubt that the Prime Minister of the day understood the terrible significance of what was taking place. June 17th became a red -letter day in the German political calendar as the Day of German Unity. I hope that it will be long so remembered.
Just a year later I found myself living in West Berlin as one of a small group of British officials studying the communisation of East Germany, the very process which is now being reversed with such pain. I shall never forget the talks which I had then with the many refugees of all kinds from the Soviet zone—farmers, engineers, priests, professional men—all people who had left their homes for the West in revulsion at what was happening. That human tragedy left an indelible impression on me. After that I spent four years in the Foreign Office dealing with the affairs of the Soviet Union and Eastern Europe. The saddest moment of those years was the crushing of the Hungarian uprising in 1956.
Those experiences gave me some idea of the attitudes, resentments and ambitions of the countries of Eastern Europe which are the subject of this report. The attitude of the Soviet Government and of the Russians themselves I was able to study more closely later when at the embassy in Moscow in 1969 and 1970. That was not perhaps the ideal time to live in Moscow. It was at the very height of the Brezhnev years of stagnation and soon after the Soviet military intervention in Czechoslovakia in 1968, an act on which the British Government had stated their view with an exemplary clarity and firmness not employed by many others. The result of our own official reaction
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to the Soviet intervention in Czechoslovakia was the relegation of our embassy by the Soviet authorities to the very outer periphery of the diplomatic circle—a doghouse shared only with the Chinese. Even so, I learned a good deal at that time about the Soviet attitude to Eastern Europe.
I judge the report to be an admirable survey of the issues that it considers. It is thorough, balanced and dispassionate. I have no critical remarks to make on its content but, given the personal experiences that I have just described, perhaps I may be forgiven for feeling that if the report has a fault it is that it is perhaps a shade too dispassionate.
On what it says I have two main observations. I wish to emphasise that this is a central and vital issue. How the Europeans will fare in the next century will depend in part on the way in which we respond to the challenge and our success in making these three countries (and I believe their neighbours to the East in due course) once again full members of the European family of nations. Secondly, there is the enormous problem of matching their aspirations with our possibilities. The report covers very fully the individual problems. But we should make no mistake about the very high and urgent expectations that exist in the three countries. Nor should we mistake the size of the contribution that will be required of us.
More precisely, I mention the following areas. There is the quantity of financial resources needed to transform the economies of just those three countries. The PHARE programme only scratches the surface and we must remember the heavy burden of existing debt, mentioned by the noble Lord, Lord Aldington, which must also be dealt with. Then there are the sacrifices that will be involved in this country and the other member states of the Community if we are to open our markets to imports of consumer goods in sensitive sectors such as shoes and textiles which have already suffered much in the cause of freer international trade. Will public opinion here accept the burden for that cause?
What of the dangers of mass migration? If pessimists are to be believed, an outflow of refugees on the scale of 1945 may be in the offing. How can humanitarian governments in the West balance their obligations to their own citizens and to suffering refugees in extreme need? There are already rumbles of dissatisfaction about our stringent visa requirements for Polish nationals who wish to travel to this country. I suggest that some clearer statements by the European Community as a whole in the context of the European agreements are required so that all may understand both what we are seeking to avoid and what we can hope to offer.
I ask whether we have fully understood the major transformation that is necessary in these three countries. After all, they seek to expunge 40 years of enforced collectivisation. New habits of thought and action must be engendered. It is an enormous and daunting task. We may expect progress to be patchy, uneven and often disappointing. Personally I do not anticipate a central European Wirtschaftswunder of the kind that was overseen by Chancellor Erhard in the Federal Republic of Germany.

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Those seem to me to be some of the most difficult and central problems treated in the report. Their dimensions and difficulties need to be clear to us all.
There are some other broad issues that are not examined in detail in the report, understandably as they fall outside the range of the Community policies under examination, which I should also like to mention. There is the effect of those Community policies on the long-term structure of the European Community itself. If we assume, as I think we must, that the 12 existing member states reach agreement at the intergovernmental conferences now in progress, beyond that core of 12 full members we can see two wider circles.
First, there is the group of EFTA countries in the new European economic space—a free trade area with close institutional links with the Community. I assume that these negotiations will in the end succeed. Secondly, beyond that circle there is a further circle of those countries covered by the European agreements mentioned in this report—initially Poland, the Czech and Slovak Federal Republic and Hungary, but later perhaps extending to others. Again, beyond those two circles are the Community's existing associates—Turkey, the Mahgreb, the ACP nations covered by the Lomé agreements and so on. To make matters more complicated, we know that some but not all the EFTA countries are looking to the Community for full membership, as are some of the outer group of associates.
To my eye the structure looks unwieldy: difficult to manage and, above all, difficult to understand. There is, I suggest, some danger in having too many antechambers, each with conflicting and competing claims on the Community's generosity and resources and with uncertain ambitions for ultimate membership. I greatly hope that the inter-governmental conferences can pay attention to this wide and important problem. The architects of the structure should reflect carefully about its appearance, which should be as simple as possible and easy to comprehend from within and without. We do not want to create a series of confusing interconnecting dungeons, somewhat like the Barbican.
Above all, we need to be clear about who is responsible for the Community's external policies. It needs to be firmly established and understood by all that such responsibility rests with full members alone and is not shared with those in the two surrounding circles. That question is apparently already arising in the negotiations with the EFTA countries, and we need to be firm about the distinction. Of course the consultative arrangements envisaged in the European agreements can be useful in explaining Community policies and how we expect them to develop, but responsibility should remain with the full members. I underline that point because I suspect that there may be a natural tendency to blur the distinction in the negotiations, and that needs to be avoided.
Finally, there is what in shorthand I may call the vacuum problem. This arises because of the removal of barriers between East and West and the collapse of the Warsaw Pact. Poland, the Czech and Slovak
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Federal Republic and Hungary have regained their political sovereignty but lack a wider framework of collaboration in the field of political security, other than the CSCE. The CSCE has played an essential role in encouraging peaceful change and the respect of human rights. It was indeed the essential catalyst in the process that we have seen. But it is not exactly an instrument of day-to-day co-operation between states with strong common security interests. Its virtue is rather in the breadth of its membership, which is a different function.
We cannot yet judge whether the absence of any security umbrella will present problems in future years. But we need to recognise that this is a novel situation. We can now see a belt of East European countries which have severed their close military ties with Moscow and which would be hard put to protect their independence on their own. We can all recall what that meant in the terrible years of 1938-1939.
The reverse of the coin is the need to understand the feelings of the Russians. From their viewpoint, the Soviet state, under its present leadership, has written off the investment of many billions of roubles, and much else, spent in Eastern Europe over a generation. That was a painful decision for it, and those who took it had the courage to admit a catastrophic failure of policy. In no nation in the world are such decisions easy. Nor should we overlook the special sentiments which the Russians have for their Slav brothers and cousins in Eastern Europe, a dimension that we may ourselves overlook. Presumably the present leaders of the USSR expect their former East European allies to adopt more independent and more neutral policies. However, it remains to be seen whether they could countenance any form of multilateral association or other arrangements which the East Europeans might themselves wish to create in the interests of their own security.
The purpose of these remarks is not to suggest that there is any gap in the report but rather to supplement what I view as an admirable document by indicating what may be an area of policy in which some further careful work may need to be done. I should also explain that I do not see any current dangers, but I am mindful of the past and suspect that temptations may present themselves again to some in due course. For our part, the action may or may not fall to the European Community; and whatever it is that we undertake, we must remember that any imprudent or thoughtless action could be dangerous at a time when the political evolution of the Soviet Union is so uncertain.
I join with the noble Lord, Lord Aldington, in commending the report to the House. I hope that the European agreements will fulfil the expectations placed on them. As the committee recommends, they deserve our full support and their purpose should be fully and carefully explained to the public in this country.
6.16 p.m.
Lord Boardman: My Lords, as I am sure were other noble Lords, I was fascinated by the speech of the noble Lord, Lord Bridges. He was able to set the

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report against the background of his own considerable experience. I shall not attempt to comment on points that he raised except one. The noble Lord referred to the high expectations in the countries about which we are debating. I believe it is a very real danger that they may be expecting and hoping for far more to be provided and achieved than may be practical under present circumstances.
I was a member of the committee which prepared the report. We had the advantage, to which I pay tribute, of the wise and experienced chairmanship of my noble friend Lord Aldington. He led us wisely through the depth of the problems facing those countries. The report is of considerable value. It affects the lives of many scores of millions of people on either side of the old Iron Curtain. Their future must depend on how Europe and other Western countries treat tl-e economic and political problems that lie ahead.
In a brilliant exposition my noble friend Lord Aldington touched on many of the main areas of the report. I propose to confine myself to three. Those are: the problems of these countries earning the currencies that they need in the short term; the problems of dealing with external debts; and the know-how fund.
Perhaps I may first refer to the external debts. My noble friend Lord Aldington touched upon that and the other matters which I wish to raise. External debts produce a number of contrasts between Czechoslovakia, Hungary and Poland. The debts of Poland and Hungary are substantial. Poland has defaulted upon many of those debts and wishes to secure debt forgiveness. In contrast, Hungary has honoured its debts and has serviced them. From the evidence at the inquiry there was a difference of view on those two countries. Some witnesses believed that Hungary was mistaken in trying to service its debts. Others, including the London Chamber of Commerce, believed that it was right and in the interests of those countries to continue to do so. It pointed out—it is a point on which I agree—that such defaults could undermine a country's credibility and its chances of raising t le capital that it so badly needs in the future.
The debts of Czechoslovakia are relatively small. Again, its position is different. My noble friend pointed out that one of the matters that should be considered is the way in which the Paris Club—the international debt controllers —may be prepared to forgive or postpone payment of some of those national debts. That poses a problem. If debt forgiveness is applied by the Paris Club in the case of Poland, how will Czechoslovakia (which has no debts of any significance) feel on the subject? Will it not feel that it 11.s been badly treated? What about Hungary, which believes that it should honour its debts?
Different circumstances apply to each country. I had hoped to see some rescheduling of the debts and not debt forgiveness. Rescheduling would make it possible for the countries to balance their books within their immediate resources. It would then leave them with a long-term credit rating enabling them to raise the capital that they need for fresh investment.
I now turn to the export potential of these countries. Each has a real need to earn hard currency.
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Their former markets tended to be Russia or East Germany. For obvious reasons they are no longer the same markets. Where can these countries turn? They can turn to the Community. What can they sell? Their potential exports are the goods that are the most sensitive within the Community—agricultural products, textiles and footwear. We know from existing problems within the CAP that additional agricultural imports into the Community will present further problems. Yet the only short-term potential for those countries to earn hard currencies lies in exporting those, or similar, commodities. The problem relating to agriculture, footwear and textiles is extremely difficult, as was mentioned by the noble Lord, Lord Bridges. The issue is potentially divisive between the Community and these countries, and we hope that the Western world and the Community will be able to act. I hope that it will be possible to resolve the issue while avoiding the potential dangers that lie ahead.
I wish to comment about the know-how fund. My noble friend Lord Aldington referred to the value of the fund. The United Kingdom was the first country to operate the know-how fund in these countries. We first provided such a fund to Poland and that has been extended to Hungary and Czechoslovakia. The total amounts have not been large. In 1991 the amount was £15 million, which in national terms is fairly insignificant. The amount will be increased in the future. The funds are directed largely to areas where they can best be spent; into improving the management skills in those countries. They already possess considerable skills by way of craftsmen and so forth. However, after years of living in a command society they have lost the management skills, the accountancy ability, the legal systems and skills that are essential if they are to compete with the Western world. The know-how fund is now attempting to fill some of those gaps and to provide accountancy training and management consultants to try to pull the businesses together. It endeavours to use the skills already within the countries in order to produce competitive products for sale to the rest of the world. It seeks to help the transition from a command economy to a market economy. The funds provide a valuable role which, in a variety of ways, can reinforce the training in the English language and in management skills which is severely lacking at present.
In order to create an effective private sector those countries need such skills. There is no doubt that there are craftsmen, and so forth, whose skills should properly be harnessed with management ability to make effective economic units. However, a tremendous amount remains to be done. It is not only for their benefit but for ours that the change should be made as rapidly as possible. I hope that one of the objectives will be that those countries and the United Kingdom will obtain their fair share of the benefits to come.
6.25 p.m.
Lord Greenhill of Harrow: My Lords, during the war crimes debate I noticed that one of the criticisms made of this House by the media was a claim that

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speeches of Members were almost always self-congratulatory. It is perhaps true that congratulations are sometimes spread a little widely but in the case of this report they are fully justified. I must apologise for being unable to stay until the end of the debate. I have an engagement out of town and if my speech appears a little sketchy it is because I am racing against a railway timetable.
The introductory speech of the noble Lord, Lord Aldington, and the report deserve to be carefully studied, and I am sure that they will be both here and in Europe. We have good reason to thank the noble Lord and his qualified sub-committee for their rapid dispatch of such complicated business. In particular we were fortunate to hear the noble Lord, Lord Bridges, speak early in the debate. We were able to draw on his unique experience of the subject and to look into the future with some of the statesmanship that those who knew his father were accustomed to hearing.
I have little difficulty in sharing the opinions of the Aldington Report set out in paragraphs 100 to 115. I wish to comment briefly on one or two of them. The committee stated that the rebuilding of the economies of these three countries will be an enormous and daunting task. No one can dispute that. The task requires not only the efforts of friendly Community governments. More important and more difficult is the need for sustained efforts by the three countries themselves. They were unprepared for the suddenness of the success of their revolutions and were ill-equipped and ill-trained for the consequences. They were influential members of their societies which resisted and still do so. No outsider can easily solve their internal difficulties.
I do not know whether many noble Lords heard Dr. Klaus, the Finance Minister of Czechoslovakia, speak in London in March last year. I know that my noble friend Lord Roll did so. The Minister described frankly and vividly the extent of the changes required in his country. He insisted that there must be no half measures, no fudges, no compromises but only deep and radical changes. He concluded his speech by saying:
"We appreciate all kinds of support from our European neighbours but it is predominantly our task to create a free and efficient Czechoslovakia".
That is indeed true; it is also true in respect of Poland and Hungary. Throughout the generations the three countries have produced people of talent and character. Therefore we can hope that with help those countries will have the necessary spirit and stamina to succeed. It is asking a great deal of them but there must be a risk that they will tire and lose heart if there is slowness of progress and they will seek scapegoats for failure. There are latent political problems within them which failure will bring to the surface. They will watch with anxiety the progress of the Community of 12. They will be alarmed if they see it plunging ahead and making it more difficult for them to join what may become an exclusive and envied club. There must be no reason for Eastern Europeans to doubt the Community's good will towards them and sincerity in
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due time to accept them as new members. However, they should not expect priority over, for example, the Scandinavians.
There appears to be still some overt and covert opposition within the 12, and certainly in the European Parliament, to expansion. The report of the noble Lord, Lord Aldington, rightly refers to the need of the three countries to retain their talented nationals and to deter them from impatiently seeking their fortunes in the West. Much will depend not only on the trade policies of the 12 but, in great measure, on the recovery of the failing Soviet economy. The USSR should be a natural market for those Eastern European countries and their goods. The report refers to that.
In his speech to which I referred, Dr. Klaus reminded his audience that one of the slogans of the Czech election of 1990 was, "Let's get back to Europe". He said that he preferred a variation: "Let's get back not just to Europe but to the rest of the world". Of course he is right; for example, the log jam in the GATT talks is one impediment to the recovery of Eastern Europe as it is to the rest of the world. The Community cannot be expected to shoulder the whole burden. It is a much wider responsibility to be shared with others.
Of course we wish to be satisfied that the United Kingdom is playing an appropriate part. The committee and the noble Lord, Lord Aldington, seem to think that it is not doing too badly but points to some areas in which we may do better. Such contacts as I have suggest that that is correct.
I should like to draw special attention to the work of the Voluntary Service Overseas organisation in training teachers of English and converting teachers of Russian into teachers of English. A rather surprising statistic is that there are 20,000 redundant teachers of Russian in Czechoslovakia who are ready for conversion. That work is to our mutual advantage and we wish it all success.
Perhaps I may digress from the subject under immediate discussion for a few moments. It is the present situation rather than the future, to which the noble Lord, Lord Bridges, referred, which worries me. My digression may be considered premature, but if it is I apologise. There is no doubt that the publication of this report is important. However, the revival of Eastern Europe is only one of the many problems facing this country and is not the most urgent.
This debate is a disturbing reminder of the formidable international agenda which faces our country in the immediate future. Are we not in danger of being manoeuvred into unwelcome and premature decisions? The next six months may well be crucial. Are we perhaps underestimating the problems within the IGCs? I do not know whether the latest news from Dresden helps or hinders. There have been some reassuring reports from some quarters but they have been qualified by impatient and somewhat ambitious observations from the Commission which from time to time assumes for itself in the IGCs the status of a national government. There are other developments which must be carefully looked at.

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A recent comment in the Financial Times took my eye and is very pertinent. It referred to "protectionist policies" which are developing and reviving. There is talk again of "fortress Europe" in the form of some industries. The Financial Times remarked:
"If tie fortress looks like becoming a reality, the new French Prime Minister will be there with her cement mixer".
It will be not much more than six months before important differences may emerge in the IGCs which will demand resolution. I am perhaps over-anxious. Are the political parties here prepared for those choices which may have to be made rapidly and with far-reaching results? How far are our parties here agreed on what is acceptable? Our negotiators would be greatly strengthened in the eyes of our Community partner; if they were recognised as having very wide domestic backing. We have seen that the Commission and others are not above exploiting our domestic politics.
One controversial area on the agenda ahead is the future of our defence policy. We are to debate that on 12th June and I must not anticipate the occasion. However, defence matters will be argued in the IGCs before the end of this year. With the role of NATO and WEU and the rival assessment of global threats, it would be reassuring to see a greater measure of consensus reached among us in spite of the approaching election.
Superimposed on the puzzle of the future of the Community and Europe are the massive and growing problems of the Middle East, Africa, the Far East and the world economy. With such an international agenda, one cannot but be worried. I hope that in his winding up speech the noble Earl will put our minds more at rest.
6.37 p.m.
The Earl of Bessborough: My Lords, although I was not a member of his committee—and perhaps because I was not a member—I must congratulate my noble friend Lord Aldington and his colleagues on their excellent report on these agreements. The Foreign Affairs Council chose the right countries with whom the European Community should first have closer relations. All three have decided to change their political systems from communist states to democracies and, as my noble friend said, their economic systems from command economies to market economies. Certainly we have a duty to help them with aid and access to our markets.
Generally speaking I endorse the Commission's paper proposing political dialogue, progressive movement towards free trade and the approximation of laws as well as economic, cultural and financial co-operation on to enable those countries to benefit from the single market, although I must admit that the amalgamation of laws will certainly prove to be a major problem.
I support, too, the Commission's concept of the three bodies which would comprise the institutional framework for the agreements. In my view that would help to establish the right conditions in which the rebuilding of the three economies can best be achieved and help create a climate of confidence and stability.
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The terrible damage inflicted on those countries by totalitarian regimes over the past 50 years cannot be overestimated. The challenge of sustaining and developing the fragile beginnings of democracy is huge.
Having visited all three countries both before and since the Second World War—Hungary quite recently —and having been reminded by the noble Lord, Lord Bridges, of that fateful year, 1956, when I presided in the Albert Hall over a massive all-party protest over the invasion of that country, I agree that, as the noble Lord, Lord Boardman, said, in different degrees they all lack people with experience of democracy and management skills in finance, commerce and industry in open markets. The danger of their most skilled people migrating to the West can be averted only through a commitment to help them raise their standard of living.
I agree also that the provision of financial and technical support is essential and likely to remain so at least until the end of the century, and that the various Western aid programmes need to be co-ordinated and monitored. It would be unwise to overstrain the donor economies by too fast or too large loans or investments. We should certainly draw on the experience of the PHARE operation—the Poland and Hungary Assistance for Economic Restructuring programme—as well as our own Government's know-how fund, which has been particularly successful. I agree with the committee's conclusion that a central clearing house for providing and monitoring aid to these countries should be established.
It is right that the committee should emphasise what was emphasised by my noble friend: that there are good potential markets for British exports to those countries but that some other countries seem to be benefiting from more favourable export credit guarantees. I endorse the committee's view that failure to harmonise export credit guarantees distorts the market as well as adding to the countries' indebtedness. I join the committee in welcoming the discussion on government and public sector debt by the Paris club and hope that agreement will be reached soon. I agree also that the need for those countries to attract private investment and the management skills and technology it brings is an urgent priority. Their financial, banking and accountancy systems all need to change if they are successfully to face the challenge of competitive free markets.
I recognise the leading role of the Community and the Council of Europe in helping to create the prerequisite conditions for the successful conduct of business. I am glad to say that as president of the European Atlantic Group I shall soon be presiding over a meeting to discuss the enlargement of the Council of Europe. As we know, Hungary and Czechoslovakia are already full members and Poland has applied to join. As I said recently in a speech in America, I fervently hope that an enlarged democratic Europe will become united. I believe that these agreements are the right framework for paving the way for the eventual accession of Poland, Hungary and Czechoslovakia to the European Community.

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Moreover, as I have said in speeches on both sides of the Atlantic, I believe that those Eastern European states which have reasonably strong Christian democratic movements and perhaps liberal and social democratic parties as well as trades unions such as Solidarity, should be welcomed in an enlarged EC. Although I am not a Roman Catholic, yet certainly an Anglo-Catholic, I greatly welcome the Pope's present visit to Poland and the moral torch now shining in that country.
Finally, I should like to add that last Thursday, with my noble friend Lord Aldington, I attended the all day highly comprehensive conference on European monetary union. I agreed with my right honourable friend the Chancellor of the Exchequer—and indeed other speakers at the same conference—that convergence must come before the single currency. But I was a little disappointed in his slightly negative remarks on progress towards the latter, especially in view of the recommendations made by the committee of my noble friend Lord Aldington on European monetary union debated last November.
I was glad to hear from my right honourable friend the Chancellor of the Exchequer of his concern with the economic problems of Eastern Europe, especially regarding the dumping of agricultural products on a large scale. My noble friend Lord Caithness will surely endorse that view.
We must certainly not forget that through these agreements the EC may eventually be enlarged. Indeed, in ending his speech last Thursday my right honourable friend the Chancellor of the Exchequer said that opening our markets is the best way we can help the newly emerging democracies of Eastern Europe. He emphasised the need for competition in key industries in order to help ensure that newly liberalised price mechanisms are working correctly —two important stepping stones on the path to a market-oriented economy—thus allowing those countries to become full members of the international economic system and one day, I think we all hope, of an outward-looking European Community.
I thought that the views of my right honourable friend the Chancellor of the Exchequer on this matter were of great interest. All in all it is a most useful report and again I congratulate my noble friends, noble Lords opposite and those on the Cross Benches for the valuable work that they have put into it.
6.48 p.m.
Lord Roll of Ipsden: My Lords, I must begin by declaring an interest. The investment bank with which I am connected is currently advising the Polish Government on a number of economic and financial problems, some of which are covered in the report before us.
Despite what my noble friend Lord Greenhill said, I hope I may be forgiven if I say that we have once again been given an opportunity to express our admiration to the noble Lord, Lord Aldington, for an excellent report on an extremely important European issue, and to thank him for initiating this debate. On this occasion, as I had the privilege of being a member
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of the sub-committee, I had first-hand experience of the combination of wisdom and gentle firmness with which he conducted his work.
The report makes abundantly clear what a formidable task the three central European countries concerned are facing in the political and economic reconstruction on which they are at present engaged. It was, I suppose, understandable and perhaps inevitable that in the immediate wake of the tremendous revolution which freed these countries from the previous authoritarian political regimes and which broke the shackles of the command economy some rather exaggerated expectations had been entertained both in the West and in the countries themselves, and—at least to my mind—perhaps some rather unwise things were said at the time. One of them, for example, was that, now that those great historic cities Warsaw, Budapest and Prague are going to become a part of the great European family and tradition, it would be very unwise for the Community to push its further development too fast.
I do not think this is the occasion to debate the current preoccupations of the Community. The noble Lord, Lord Greenhill, has referred to the IGC, and the noble Earl, Lord Bessborough, has referred to some of the problems arising at present within the Community. I happen to have views on this subject which I have expressed on previous occasions and I will not go into them now; but if there is one thing which is clear from the report and which has been emphasised by the noble Lord, Lord Aldington, it is that a strong and developing Community can only be of advantage to the progress of the three countries concerned, and perhaps, eventually, also to other countries of central and Eastern Europe. Exactly what that means in particular terms I will leave for another time.
In some quarters it was felt that an avowed commitment to certain ideological principles of the free market and free economics would be sufficient to lift these countries out of the mire in which the command economy had left them, and that a kind of ritual repetition, provided it was loud and made often enough, of a few selected quotations from Adam Smith would, as it were, at one bound bring them into a—I use deliberately an academic rather than a political model —sort of Hayekian paradise. Well, we have learned that things do not happen quite so quickly or as simply as that.
What the report brings out extremely clearly is that there is still a long and difficult road to travel before these countries can be seen to have really become members of a democratic and free market economy. I became particularly aware of this last week when I was briefly in Budapest, and perhaps even more so during a slightly longer visit last week in Vienna. Vienna was called, rather aptly I think, by a pre-war statesman "the balcony of Europe", and you can certainly observe a great deal from that city. Somehow or other one had the feeling that, certainly in cultural and economic matters, they were hard at work wiping out 75 years —practically three-quarters of a century—since the disappearance of the old monarchy.

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Certainly almost everyone one speaks to there—and I can tell you that people there in the three countries and in other countries in eastern and central Europe talk about this all the time, some more optimistically than others—emphasises the enormous difficulties that still lie ahead. While on the subject of Austria, perhaps I may say one word which is perhaps slightly peripheral to the theme we are debating tonight. It seems to me that there is a particularly good argument in favour of accelerating the accession of Austria to the Community in the fact that it would provide a particularly useful bridge to these three countries which are at present in the antechamber and trying to achieve association agreements with the Community.
The report we are debating covers the whole ground so admirably and so fully that I shall confine myself to only one general point and to two particular ones. The report stresses, rightly I think, that the rebuildhig of these three countries requires if not simultaneous at least carefully integrated progress on both the political and economic fronts. As always, it is very difficult in such a chicken-and-egg situation to say exactly where the primary emphasis and the first priority lie. I happen to agree very much with the report and with the points so strongly emphasised by the noble Lord, Lord Aldington, in his press statement, that there is an urgent need for the most rapid possible progress on the political front. Not only does any lesson that we care to derive from our own historic development of, say, 300-400 years ago in the complexity between political progress, democratic rights, legal developments and the development of markets and the economy, support this particular view, but it is quite clear not only that the progress of the domestic economy and the profound change of mental attitudes it requires are dependent on the indispensable emergence of the appropriate political, legal and administrative infrastructure but, as the report rightly points out, the ability to absorb the financial and other assistance coming from abroad depends very much on the same factors.
May I add just a few remarks on two particular matters? The first refers to agriculture, which was mentioned by the noble Lord, Lord Aldington, and more
particularly by the noble Lord, Lord Boardman. For at least two of the countries concerned—Poland and Hungary—the ability to export increasingly their agricultural produce to other markets, including those in the Community, is absolutely crucial. Both the noble Lord, Lord Aldington, and the noble Lord, Lord Boardman, have rightly stressed that trade is at least as important as aid and perhaps, in the long term, even more important. I can think of no single aspect of external trade of these countries which would as quickly and effectively help them in their external payments situation and so on as an increase in their agricultural exports. We are all aware what a sensitive political subject that is; but it has to be faced, and if in the process it leads to a loosening and perhaps even a reform of the common agricultural policy, I think that many of your Lordships would regard that as a very desirable by-product.
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The second point is investment. Privatisation—that very fashionable word—has of course a part to play and the import of foreign capital through investment in privatised industries and enterprises by means of joint ventures or otherwise is extremely important. But this is a very difficult process, if only because the valuation of these enterprises, on the sort of terms that we are used to in western economies, is an almost impossible task. If I am correctly informed, I understand that the firm which was advising Skoda —probably the biggest single industrial enterprise in Czechoslovakia—ended up by producing a value of nil. That may even have been an over-estimate. It was probably what I believe was mistakenly called "onerous property". I understand also that the arrangements recently made between Skoda and Volkswagen were in fact made without any valuation at all.
This simply illustrates the extremely difficult task of creating the very basics, the elements, of the market economy and the capital structure. However, while obviously the import of capital in one way or another —investment, the purchase of privatised companies and all the rest of it —is extremely important, it is also absolutely vital to create a domestic capital market if domestic capital formation is really to take off; and this is a very difficult task indeed because these countries are beginning not even from scratch but from a negative situation.
In this connection I should like to draw attention to the so-called "free" privatisation process with which Poland is at the moment experimenting. I regard this as a highly interesting experiment, whatever may come of it. It may appear paradoxical to encourage privatisation, that is to say private enterprise, by the means of a free distribution of shares—probably in the major part of the larger companies—to every single citizen. But it is very difficult to think of any other way which would as effectively and quickly produce private ownership of securities, and with it the possibility of creating a market and a capital market. It is a very big experiment indeed in turning the country towards a market economy. Perhaps it is the biggest experiment that can possibly be envisaged. A somewhat similar scheme is proposed in Czechoslovakia although I understand it will involve a small payment on the part of the recipients of the securities, rather than a totally free distribution.
These and similar experiments may, ideologically, appear somewhat peculiar, not to say unorthodox. Nevertheless they deserve a good deal of attention and, I would hope in the end, support from western countries, no less than a willingness to assist by the restructuring of debt and a provision of further financial aid.
7.1 p.m.
Baroness Young: My Lords, I should like to start by thanking my noble friend Lord Aldington and his committee for presenting a most important report. The relationship between the countries of the European Community and these new developing democracies in Eastern Europe must be one of the most important issues confronting Europe today.

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It still seems almost unbelievable that Poland, Czechoslovakia and Hungary should now be free democratic countries. It must surely be very much in the interest of the west that they should remain so with all the difficulties which confront them. I read the report with great interest and, like other speakers, find myself in agreement with the summary of conclusions. I should like to comment on one or two of the conclusions further on in my remarks this evening.
The most important point which comes out is the first conclusion in paragraph 100, which refers to the incredibly daunting problem that these countries face in trying to cope with a new and fragile democracy while at the same time moving from a command to a free enterprise economy. Indeed, when one considers the problems which western democracies face when trying to cope with economic and political problems one can appreciate their problem the more. As other speakers have already said, there can be few, if any, people in these three countries who have had any practical experience of working in a democracy, or indeed of working in a free enterprise organisation. It may be argued that Hungary went as far as possible in its economy under a Communist government to try to find some small outlets for private enterprise. But for the other countries that was not the case. As other speakers have indicated, the problems are therefore immense.
The last time that I visited any of these three countries was in October 1989 when I was in Budapest. I arrived when the Communist party was meeting to decide its own future in Hungary, let alone what the whole political future might be for Hungary. The atmosphere was electric. Everyone to whom one spoke was excited and it was an extraordinarily interesting time to be in Hungary. However, I was concerned that there was a kind of feeling that achieving political freedom would somehow equal achieving riches; and that without any real understanding of how democratic institutions were going to work, let alone how the economies were going to be improved. All the right words were used, but the gap between using the words and really understanding what they meant was very great.
I therefore looked with great interest at this report, which goes on to analyse a great many of these problems in some detail. I should like to comment on one or two of the conclusions. The first and most important point is the rather obvious one that time does not stand still. It is very important that we should be constructive and positive in accepting the conclusions of the report and to do so as quickly as we can. If we look at the political problems—and this is the first point that is raised in the issue of the association agreement—a number of suggestions are made about how we can help these democracies. For example, in paragraph 74 the committee suggests that we could help by arranging parliamentary exchanges. I should be interested to know if my noble friend the Minister has any comment to make on that.
What actually has happened and what is proposed? I believe that one of the most valuable experiences is to be able to discuss with other parliamentarians the
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practical problems of the practice of democracy. For those in Poland, Hungary and Czechoslovakia, the practical problems of an official opposition seem to me to be quite considerable, particularly when that official opposition could quite well consist very largely of Communists or former members of the Communist Party. They are, after all, the losers in this part of the world in eastern Europe. Nevertheless, it is a powerful group and one that has been used to exercising power and influence.
The new democracies need all the support we can give them, particularly in view of the terrible economic difficulties which all three countries are currently experiencing and will continue to experience—not least a vast increase in unemployment. Coupling that with trying to make democratic institutions work will be very difficult.
There is one point that occurred to me which the committee did not touch upon, but as it is outside the terms of the proposed agreement I can understand why. There is a further problem for these countries in their democratic arrangements, particularly in Czechoslovakia—the ethnic minorities. If what I read in the newspapers is correct there are difficulties between the Czechs and the Slovaks. To add the kind of problems now being faced in Yugoslavia to both the political and economic problems produces yet another dimension. Perhaps my noble friend could comment on that as I should be very interested to know the Government's view. It is an aspect that must be of concern.
I was very interested to read the proposals about the Council of Europe. When I was in the Foreign Office I attended the meetings of the Council of Europe regularly. I am very pleased that the council now has a somewhat higher profile. I am particularly pleased that Hungary and Czechoslovakia have joined and that Poland is to do so shortly. It was the Council of Europe that paved the way for political thinking in Europe after the Second World War, coming long before the European Community was established. It could be very helpful in supporting these newly emergent democracies.
I was particularly pleased to see in paragraph 73 that the new countries are encouraged to become parties to the European Convention on Human Rights and to accept the European Court of Human Rights. That is fundamental to establishing and maintaining a democracy. The fact that they are linked into the Council of Europe, adding this greater opportunity to discuss with other western democracies, should be very helpful. On the political front, Community membership must remain a long term objective. However, the more one reads the report, especially some of the interesting tables of statistics, the more one realises the problems that exist on that front.
I turn to the economic problems. We have only to consider the difficulties that West Germany has had with East Germany to understand the magnitude of the problem confronting the economies of Poland, Hungary and Czechoslovakia. They are concerned that they may not get as much help as they would like either from the European Community or individually

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from Western countries. Almost every speaker has emphasised the importance of trade. I very much hope that the pressures from the developing economies in Eastern Europe will help to counterbalance those elements within the European Community which would like to see a kind of fortress Europe. That is not in the interests of the European Community, Eastern Europe or the world at large. It is something that we in this country, who have always looked to a large, open and free market in Europe, can encourage. I hope that we shall be able to use our expertise in those areas which the committee pointed out in paragraph 88. I refer in particular to banking, accounting and legal structures. I hope too that our experience of privatisation may be of value.
Finally, I was struck by the part of the report which discussed the whole area of training. As I said at the beginning of my remarks, one of the great problems is that n o one has had any experience of private enterprise. The most difficult task is to change attitudes. It is difficult enough to change attitudes here at home, as so many people have had to change, but to make this enormous change and to face up to a completely different lifestyle and new methods of though is an immense and daunting task. Perhaps some of the know-how funds or other funds can be used on training.
As a subsidiary but very important part of that, I hope that we can use our expertise in teaching English so that those countries will have what has become not only the lingua franca of Europe but of the world. That will be of immense help to people in both their democratic systems and in their economies. We have had a great deal of experience of teaching English as a foreign language. When I was in the Foreign Office I was always struck by the work of the British Council and by how much it was appreciated. We should get on with that immediately because it would be of positive help.
I greatly welcome the report. Like other noble Lords I want to see Hungary, Czechoslovakia and Poland remain free democratic countries in the sense that we understand that term. I want them to have flourishing economies. They share with us a common European heritage. We have seen a grossly artificial division across Europe over the past 45 years. These countries deserve our help but it will take time. It is always difficult for democracies to understand how long is required before such labours come to fruition. The committee has made a number of useful and positive recommendations which I hope will be acted upon.
7.15 p.m.
Lord Thurlow: My Lords, I warmly endorse the remarks of the noble Baroness in the latter part of her speech about the fundamental significance of mental attitudes and the great importance of this area being acknowledged and recognised as one in which positive steps must be taken. The noble Lord, Lord Aldington, referred in his introduction to the PHARE and know-how programmes. In my remarks I shall confine myself mainly to that field. Before returning to it I should like to say, not as a ritual but with very great
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sincerity, how much as a member of the subcommittee I appreciated the noble Lord's leadership, guidance, firmness, wisdom and indeed—what underlies the whole of the report—his enormous hard work. I should also like to endorse his tribute to our two extremely able clerks.
As the noble Baroness said in the part of her speech on political matters, there has been a gap between the original expectations in all of these three countries and the realities of the prospect of their problems being solved quickly. That certainly is the case in the area of training, attitudes and mental skills. A Japanese team recently went to Moscow to have a friendly interchange with top executives and managers in the Soviet Union to try to help them to understand something of Japanese business methods. They reported that the result was not initially one of appreciation and understanding but simply one of shock. The Russian executives could not understand what the Japanese were driving at. That is reflected throughout the command economy of Eastern Europe. They just do not know how far they have to go in changing their mental attitudes and taking on board new skills. One problem, as the noble Lord, Lord Boardman, and others have pointed out, is the total absence of most of the institutions and agencies in which their mental attitudes have to work. I refer to accountancy, banking, legal frameworks, costing and pricing, a credit system, contract law and professional standards. In those areas there is a vacuum which has to be filled. There is no quick route.
However, in my remarks I should like to suggest that there is a possibility for tackling the problem to which the noble Baroness referred. I suggest that this country can give a lead here, as we have done in the general field of know-how. The scale of the problem was summed up to the committee by a distinguished Polish economist. He stated that for every pound invested in the project, £2 must by spent on the training. When one considers the enormous amount of resources that each of the countries hopes to receive from Western sources, it is daunting, to say the least, to take this distinguished authority's advice that twice that sum will be needed for training. What a problem of absorptive capacity it is.
The area of management and professional training, technical assistance, technological and service skills comprises the whole universe of know-how. It is a different level of difficulty from that presented by the modernisation of plant and buildings. The individual must be matched to the training and the training to the future working and social environment. The first prerequisite is a new cast of mind; that is, new attitudes to free enterprise.
The Community has already devoted quite a considerable amount of effort and resources to the training field, as has been said by several noble Lords. For example, for Poland 14 million ecu has been earmarked for a four-year programme; for Hungary 5 million ecu has been set aside for a similar period; and, for Czechoslovakia, about the same kind of sum has been planned. That is an important, necessary and useful start. However, we must see these efforts in proportion. After all, the East European PHARE

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programme budgets for 500 million ecus; and, as the noble Lord, Lord Boardman, pointed out, the total training budget is of the order of 15 million ecus. But the budget for the Lomé countries—the ACP countries—is 14 billion ecus spread over a period of several years.
We can congratulate ourselves on a useful start; but we must not kid ourselves that we are yet doing anything like that which must be done. Indeed, it is small scale in relation to the huge requirements for creating new mind sets. At that pace we cannot reasonably expect the three countries to qualify for Community membership in anything like the period for which they hope. Moreover, every year that passes increases the risks, to which noble Lord have referred, of political reactions which may make the whole prospect recede.
Is there then any means of shortening the process in relation to the general problem of mind sets; that is, attitudes? That seems to me to be a key question. In other words, can a springboard be created to give the required new mental attitudes upon which any specialised and specific qualifications—namely, professional, technological or whatever—must be based?
I should like to suggest that there is a constructive possibility in the new techniques of accelerated learning. They are a British innovation and are being researched and applied in various contexts. This is being done primarily by the London Business School, which, as noble Lords will know, is acknowledged as being the best and most effective business training establishment in this country. It is also being applied by the universities of Glasgow and St. Andrews and, in a quite different possible application, a very massive programme is under consideration for Africa.
If those accelerated learning methods can be harnessed to the East European task, a core of trainers can rapidly be trained in the new mental attitudes in courses lasting about a month. They can then go back to train others, thus setting in motion a yeast-like process of cell proliferation in each of the countries to implant new mind sets.
The London Business School could, with earmarked funding on not a very large scale, quickly launch a programme. It has excellent credentials for such a role. Not only is the school acknowledged as the leader in the business management and training sphere, but it has also been involved in helping Eastern Europe for five years. For example, in Hungary it was recently selected by the know-how fund for a special linkage with the best university in that country. Moreover, in Poland it is collaborating with the French in programmes for training managers. In the Soviet Union the school has for some years been giving short courses; and countries and governments in Eastern Europe use the consultancy and research services of the LBS.
Therefore, we have here a vehicle. The LBS has developed its own so-called "Learning Centre" which applies these new methods. The strategy can easily be adapted for Eastern European needs in order to train cadres of trainers rapidly, thus giving them new enterprising attitudes and methods. They must
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underlie the whole Eastern European transformation. By virtue of learning centres set up on this model throughout Eastern Europe, there can be crash training of trainers to set in train a large expansion movement.
I mentioned that possibility in specific terms because it seems to me that only by such an innovative approach can minds frozen by the command economy for so long be thawed out fast enough to meet the political needs. It is not meant to replace normal academic courses and business attachments where there is time and opportunity for them; it is meant to supplement them.
In Eastern Europe there is enthusiasm, high aspiration and the desire to change. The Community has its own agreed policy under the PHARE and know-how programmes for aid. There is a potential match of need and resources. I hope that this country will be able to give a lead in establishing an accelerated learning project that could, by rapidly transforming mental attitudes over a wide field, make a very important and significant contribution to the metamorphosis to which we all look forward.
7.30 p.m.
The Earl of Buckinghamshire: My Lords, as a member of your Lordships' committee, I too should like to thank my noble friend Lord Aldington for his chairmanship of the committee and for making it great fun. I hope that the expert witnesses found the same situation. My noble friend has fully summarised the report, the committee's opinions and its views. I should like to draw your Lordships' attention to the six headings of the agreements. Six headings may be thought to be not many, but when we consider that they start with "Political dialogue" and run swiftly through "Free trade", "Co-mingling of laws", and "Economic, cultural and financial co-operation", one then has a feeling for the enormity of the task facing the Community and the three countries the committee considered. If one then adds the problems caused by the debt that has been run up, especially in Poland, and adds 40 to 45 years of communism and retrogressive economic systems, those difficulties can be further multiplied. The committee reported, made recommendations and expressed opinions upon those six headings.
I should like to concentrate upon one issue: Community membership. I do so for two reasons. The first—I had not realised that my noble friend would be saying this—is a controversial opinion. The second may be more cowardly on my part, but I recognise that other noble Lords with greater expertise than I have covered subjects such as trade, economic issues and training. I have mentioned that the issue is controversial. All three of the countries that the committee considered see full membership of the Community as their goal.
Interestingly enough, the Commission was reluctant, in these agreements at any rate, to make a formal commitment to that extent. Those of your Lordships who have read or will read our opinion will see that the committee suggested that the preamble to the agreements should state that the Community and the

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three countries concerned should state that they could join, if they so wished, when their political and economic situation allowed.
I had no difficulty with that statement. It is a general statement and has no time limit on it. Whether general or not, and whether it is a long time in the future, it is something that we should consider and explore carefully before we take it to its conclusion. In addition, we should consider whether the agreements form part of the stepping stones towards full membership. My view is close to the comments made in evidence by the MEP, Mr. James Elles. He said —I agree with the view—that no one within the Community had yet given serious thought to how a Community of 20 states would work. Discussion is continuing as to whether the Community should consider its widening before having completed what has been described as a deepening of the level of integration, or perhaps, vice versa, consider its deepening of the level of integration before its widening.
The process of deepening the Community has to proceed towards a greater level of completion before the membership is widened. As we have already heard tonight and in previous debates, membership of the Comm unity is widening with the Scandinavian countries in advance of Poland, Hungary and Czechcslovakia. Whether or not there is a discussion on the deepening question as against the widening one, the committee's view in a previous report was that the deepening of the Community was important. Mr. Leith Walesa of Poland said that they do not wish to see a slowing down of the integration of the Community. Mr. Antal of Hungary echoed that view. The noble Lord, Lord Roll, made the point strongly that the three countries welcome the thought of a stronger Community because, far from being a bar to them joining—a point which has been raised—they see it as an advantage to them, especially in terms of trade.
It goes almost without saying that the three countries have experienced great change in the past three years. That change has not been without pain or without causing stress within their communities. It is difficult for us to understand the extent of those changes and what they mean in those countries. One needs only to look at Poland which, since 1989, has sufferec a 40 per cent. reduction in real wages and a 30 per cent. reduction in industrial output (leading automatically to an unemployment rate of 30 per cent.) to grasp the potential for great stress and instability in those countries. If we link that to the fact that expectations have to be diminished—no one likes that —it all adds up to greater stress and instability.
Those countries face many difficulties. We in the West have to be positive in our assistance, not necessarily by writing-off off debt, by giving injudicious loans, but by enabling those countries to take advantage of the help we can give, to allow self help to become a reality. Those are easy words to say. It is mt.ch more difficult to resolve. My noble friend Lord Boardman has referred to the sensitivities of trade. The noble Lord, Lord Bridges, asked rhetorically whether we in the West are prepared to make sacrifices to promote future stability. We can see
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those sacrifices being made in Germany as West Germany assists with the modernisation of East Germany. If we take that further, we have no alternative but to continue to support the economies of the three countries as they strive to make the advances that we in the West have made since the last war. The agreements form part of that process.
I return to a point I made earlier. They are a stepping stone towards assisting those countries. The EC and the United States must ensure that the graffiti seen on the wall in Poland in 1981:
"The winter is yours—the spring will be ours",
come to fruition in Eastern Europe. I hope that I have so covered the subject at least to give an indication of the concerns that we in the Community must face when talking about full Community membership. In closing, I commend the report to the House.
7.40 p.m.
Lord Wade of Chorlton: My Lords, following the trip that the Minister of Agriculture, Mr. Gummer, made to Hungary about 12 months ago, a company of which I am chairman—Marlow Wade—was invited to make a presentation to a seminar by the rector of Gödöllo University in Budapest on the marketing of food. It was explained that there was no money, but many people in the food industry were interested. They wished to know a great deal more about how to market food products. As a result, we asked the know-how fund to provide money for them and, as many noble Lords said, their people were extremely helpful. We were able to raise sufficient money to help Gödöllo University to invite 300 people, of whom 250 turned up, from a whole range of food industries throughout Hungary to listen to us speaking on how to market goods. I was able to take eight people from various countries in Western Europe who I knew were experts in the marketing of various varieties of food. We then held a three day seminar.
Following that first trip we received a tremendous response from many of the people there and I received letters from people in Hungary asking whether we could take the matter further. They wanted us to find people who would invest in businesses or form closer co-operation and turn our advice into practical effect. As a result, I went again to Budapest for a week in March. I met our ambassador and various ministers and was able to organise a further trip, again with the help of the know-how fund.
During the Recess I spent a week in Hungary with six businessmen from the UK—they were not all from the food trade—who were prepared to form business relationships with companies in Hungary. I shall restrict my remarks to my experiences in Hungary over the three visits and how we might learn about what is likely to happen in the future.
On the first trip many young people were present who were starting businesses and were involved in state organisations. As many noble Lords said, it was quite clear that they had no knowledge of business structures. Most of the questions were, for example, "What is a share?"—not PHARE. "What is a limited company?" "How do we get rid of a bureaucrat?" I

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was asked that question many times and I replied that we had been looking for an answer but had not yet found one.
The questions were simple and basic and it amazed us how ignorant people were. The managing director, chairman or general manager of the largest state farm had no knowledge at all of his profitability, of the income of his various enterprises or what his total wages bill was. He was running an organisation that farmed 20,000 acres, with many thousands of cattle, with pig units and so on. They had no record of what they did.
On my second trip, the most interesting man whom I met had recently been appointed to sell all the food industry businesses. I spent some time with him and asked him questions such as, "How many businesses have you to sell?" He replied, "I have no idea". I asked what kind of businesses they were and he had no idea. I asked, "Who owns them? How do you sell them?" He said, "We've not decided that yet. But this I can tell you: if somebody comes along and tells me what he wants we shall sell it to him". That is the view they all now have.
When I returned last week and met people in a whole range of companies, the dramatic change that had taken place even in the past six months was noticeable. They have now made a clear decision in government that they want to privatise everything. They are anxious that privatisations should take place with the use of Western money. The British are far behind any other country in Europe in regard to the potential and what is now happening in Hungary. There is a tendency for the British people who have gone there to get a deal rather than looking at the long-term prospects. There is a tendency to be approached by somebody who says, "I have a lot of pork or meat to sell". Last week we were approached by three people from a little village near Lake Balaton. One was the leader or mayor of the village, another two ladies were prominent in the running of the activities. They had 4,000 acres in the village and were desperate to find a buyer for their surplus products. Producers are being ripped off by the main wholesale, retail and transport trades in Hungary and all have surplus products to sell.
When one sees them, one realises that they have no idea what the marketplace is in the West as we know it, and that there is competition in choice among customers. They will not sell anything in the West unless it is of high quality, well packed and well presented. They have no concept of that; they expect that a wagon will collect a load of cucumbers, none of which is fit to eat. They are proud of their jams —some noble Lords may have eaten Hungarian jams. They said to me, "Isn't this wonderful jam?" One cannot tell the difference between one variety and another. They all look the same, taste the same and are packaged the same. For people who do not speak Hungarian, the names sound the same. People expect us to buy the products and they ask why we do not sell them in our supermarkets. There is a long way to go.
My noble friend Lord Boardman, and the noble Lords, Lord Bridges and Lord Roll, emphasised the
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role of agriculture. I cannot see how the Hungarian economy can grow at all unless the Hungarians find markets for their agricultural products. It is the key to the whole economic development of Hungary and other countries as well. For them to have any wealth creating activity they must buy in the basic raw materials from other countries but they do not have the hard currency for it. All they have is wonderful land which will grow an enormous quantity of food. Hungary and all similar countries are already net exporters of food. We cannot imagine how we can help them unless we resolve our own CAP problems, as the noble Lord, Lord Bridges, aptly pointed out.
What is happening at the moment is that prices of foodstuffs are falling rapidly. In addition, the Government are having to take strong steps to stop production. We talk about quota restrictions on milk in the UK but only two months ago they were told that they must drop their production by 15 per cent. To deal with the problem, the milk is not collected by the dairies. For two or three weeks, the farmer is left with it and has to pour it away. The same is happening with other products; prices are falling fast.
On the other hand, one could describe Hungary as the Klondike of the 1990s. The opportunity to create wealth by reducing the cost of existing levels of production is enormous. There is not a factory or enterprise where one could not reduce the labour force by 50 per cent. I have never seen so many so-called employed people who do nothing. There is a famous cake shop which some noble Lords may have visited in the middle of Budapest. It is the only shop that I have ever been in where there are always twice as many waitresses as there are customers. That does not mean that any of the waitresses are working; most of them stand around and watch the odd one who does work. That applies to every possible enterprise. I visited a dairy that makes approximately four tonnes of cheese a day. Such an enterprise here would employ about 10 to 12 people; it employed 90. But the interesting point is that it was making a slight profit, as the difference between the buying-in price of the products and the price the goods were sold at in the Hungarian market was such as to give them a much higher margin than enterprises in the West would expect to receive. If we in the West will pour products into Hungary and reduce prices, the dairies will go bankrupt, or else the price of milk in Hungary will have to come tumbling down. The only other alternative is that Hungary must find much more efficient methods of manufacture.
There are great opportunities in Hungary, particularly for young, active people who are flocking back there after years of absence. However, on the other hand, the vast number of people who work on the land and perform more menial tasks will lose their jobs or their wages will fall. There is a great danger of a two-tier society developing in Hungary that will be more akin to the societies that exist in South America than to those in Western Europe.
There is the matter of making funds available to those who will form the new privatised companies. I gained the impression that many people who now work in the state bureaucracy or in the state-owned

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businesses are looking for an opportunity to obtain a share in newly privatised businesses at very little cost with the aid of Western money. Those people will do well and will make a lot of money, but many others will lose out.
I agree with all those who have said that we must support Hungary. However, we must ensure that the money we provide helps in the production of goods. We must use the money to show manufacturers how to add value to their products. It is only through adding value to their products that they can market those products worldwide. We must be careful to promote those businessmen and entrepreneurs who want to make an impact in Hungary and to add value to their agricultural products.
There is considerable concern among many people in Hungary that the leadership of the country has not changed. Exactly the same people now run the country who ran it when it was a communist state. Those people have built up contacts and looked after their contacts. Many people in Hungary consider that that situation has not changed a great deal. The average Hungarian still feels ruled by a relatively small clique. Although there is now a democratic system in Hungary, there is no indication yet that new leaders who are motivated to create a truly democratic society have emerged. Hungary is still dominated by people who rather liked the former system but who feel that, at least on the surface, they must show signs of initiating a change.
I hope the Minister can comment on my next point. We need to invite more people from Hungary, Czechoslovakia and Poland to Britain so that they can understand what a market economy consists of. We must make funds available to invite to Britain the potential managers and the people who will become the leaders of those countries. I do not mean that we should invite the people who are now in charge of those countries but those whom we can identify as potential leaders. Let us open our doors to them and teach them what a market economy involves in terms of cho ce and opportunity.
Every time that I have been to Hungary I have found it an emotional experience. By nature I am rather an emotional person and Hungarians are also rather emotional. By the time we have drunk a few glasses of the excellent palinka that is produced there we become very emotional. We all cry and laugh together and agree that it must be right for us to draw closer:ogether. The Hungarians look to the British particularly for help in this matter. The Hungarians have a great sense of history and culture. I hope that we can provide the services and help that are needed to bring that country into Europe. I thank the noble Lord, Lord Aldington, and his committee for producing this excellent report, which I fully endorse.
7.55 p.m.
Lord Whaddon: My Lords, I trust that your Lordships' House will pardon the late insertion of my name on the Speakers' List. It was due to my delayed arrival back in the country. I must begin by declaring an interest, as for some 30 years I have been involved in trade between the UK and the three countries we
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are discussing. I have been involved particularly with Poland and I shall address most of my remarks to the situation there.
I add my welcome to the report. It is a workmanlike document and a most valuable aid in understanding the situation. I also welcome that wonderful event—the application of these three countries of Central Europe to become associates of the Common Market. That is a dramatic revolutionary turn in European history and something that future generations will look back on in wonder. The collapse of communism has, I hope, removed some terrible dangers which overhung the whole of Europe. However, ironically, the collapse of the system has also released certain dangers which were previously suppressed such as narrow nationalisms, ethnic differences and religious antagonisms. Those phenomena had been suppressed but are now coming to the fore. If the countries of central Europe are left floating loose, pursuing their own narrow nationalistic ends, that situation will be dangerous for the whole of Europe.
The conclusion of a successful series of agreements with the three countries in question is very much in the interests of Britain and of the whole of Europe. Polish ministers have been calling for a firm declaration from the Common Market that Poland will be accepted as a member when certain specified targets are achieved. It seems doubtful whether the Common Market can do that legally, but at the very least Her Majesty's Government and the governments of all the member states of the Common Market should make it clear that they welcome the approach that has been made and look forward to the full membership of those countries in the Common Market in due course. We must leave no doubt in the minds of those governments that we welcome their applications.
The report states that progress towards membership will depend on the continuing democratisation of the countries of Eastern Europe. That is understandable, but we must not forget that the converse is also true and that progress towards democratisation in Eastern Europe depends also on the development of a stable economy and the success of the applications of Eastern European countries to join the Common Market.
It was Bismarck who said that the big questions are settled relatively easily but the devil lies in the detail. There are plenty of devils to be found in the details we have to settle. One of the biggest is the Polish debt of 44 billion dollars. The decision of the Paris Club to recommend halving the debt is extremely welcome. Indeed we must face the fact that it is utterly impossible for the debt of 44 billion dollars to be repaid. The Polish economy is probably capable of servicing 8 billion or 10 billion dollars of debt. That is the limit. Therefore if we are to see any chance of success in negotiations the debt must be drastically reduced. The Paris Club has made a dramatic start in this matter but further measures must be taken.
We should remember that there are certain precedents. At the end of the last war America made a most generous and dramatic gesture to Europe in the form of the Marshall Plan. In particular, Germany was treated differently from the way it had been

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treated at the end of the First World War. What a great success that was. Seventy per cent. of Germany's pre-war debts were remitted. If we translate the amount of Marshall aid that was given to Germany into today's prices it comes to some 70 billion dollars. So Germany received a great deal of aid, and it was well worth it. European stability today is a great credit to the generosity of the Americans at that time. It is time that we adopted the same generous, long-sighted attitude to the countries of central Europe. The prizes will be as great.
The Poles are also looking at unorthodox methods that may be of use in reducing their debt, and in particular the exchange of industrial equity in return for debt. That was suggested in the British economic press about a year ago and was rather cold-shouldered by the Polish Government of Mr. Mazowiecki. The present Polish Government, however, takes a more hopeful view. I recommend to Her Majesty's Government that they take serious note of that possibility. It may be of use in reducing the debt to manageable proportions. It will also give our companies something for the money. It is also a means of introducing a considerable amount of know-how into Eastern Europe, as has been pointed out by many speakers.
In relation to UK direct aid a number of noble Lords have referred to the know-how fund. I must congratulate the Government on their wisdom and generosity in introducing that fund. It has been a great success and is money well spent. The scheme should be expanded. Apart from bringing Poles to Britain to study, we should also take the opportunity to send many British experts to work on short-term contracts in Poland. That is another great way of spreading our expertise and increasing Poland's know-how.
I suggest that non-governmental organisations have a part to play. I was surprised that I could not see in the report any mention of the role of NGOs. It may be there but I did not see it. The associations of engineers, accountants, bankers and other professionals and trade unions have a part to play. While it is tremendously important, government is only a small part of our society. The majority of our society ticks along very happily keeping as far away from government as possible. That is how the countries of central Europe will have to work in the future. Let us use the resources of our own non-governmental organisations as well as the facilities of government.
Turning to the trade pattern, the collapse of Comecon is exceedingly dangerous for the three applicant countries, and in particular for Poland because many of its factories worked solely on exports for the Soviet Union. That market has now disappeared. It was suggested recently in the European Parliament that it might be sensible to make an ecu credit available to the Soviet Union specifically for purchases from the countries of central Europe to tide them over this dangerous period. The Commission brushed the suggestion aside. I think that it was a little too hasty. Perhaps Her Majesty's Government would like to give a little more thought to that suggestion of the European Parliament.
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It is a time of a certain amount of danger but also of tremendous opportunity. It is a time for high statesmanship and a time to reach out in generosity to welcome those countries of central Europe into association with the Common Market.
8.4 p.m.
Lord Thomson of Monifieth: My Lords, on behalf of these Benches I join with everyone else who has spoken in congratulating the noble Lord, Lord Aldington, and his committee on their report. My noble friend Lord Bonham-Carter was a member of the committee and would have spoken this evening but, sadly, at present he is unwell.
Over the years, from the very beginning of British membership of the Community, the reports from your Lordships' Select Committee on European matters have earned a high reputation as guides to the complexities of United Kingdom membership of the European Community. Through their detached and authoritative approach they have made a significant contribution to creating an informed climate of opinion in the country on issues which have often been divisive and emotional.
The subject matter of this report—the Community's agreements with Poland, Hungary and Czechoslovakia—is not itself divisive on the domestic front, but it is of immense importance, as all those who have spoken have emphasised, to our hopes for a stable and prosperous Europe. The historic collapse of the economic and political system of the Soviet bloc raised high hopes of progress to mixed economies and political liberty at the time when the revolutions took place but equally it has produced huge problems.
The noble Lord, Lord Wade of Chorlton, has just given us a racy, vivid and down-to-earth account of the situation on the ground in the Hungarian economy. I cannot begin to match him. I ought perhaps to make a declaration of an interest of a kind as a former director of ICI. My experience of Eastern Europe is through ICI. I was therefore rather struck by the written evidence from Mr. John Mitchell, ICI's specialist in the region. He described how, even in East Germany, which was generally regarded in the past as the most efficient and modern of the communist economies, the chemical industry is being largely wiped out in the switch to a market economy. Over two-thirds of the GDR's chemical industry is expected to disappear and what is left will become subsidiaries of major Western companies.
If that is the position in East Germany, with West Germany in a position to bail out its Eastern citizens, how much more difficult will the process be in Poland, Hungary and Czechoslovakia? Mr. Mitchell points out that the only production sector in which those countries have a real competitive advantage is food and agriculture. There they come up against the most protectionist aspect of the European Community, the common agricultural policy. The noble Lord, Lord Aldington, said in his opening remarks that trade will be the key to tackling those problems. My only mild criticism of the committee's report is that it is a pity that the committee was not a little more forthright. The report contains the rather anodyne sentence that:

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"Some provision for imports of agricultural products from the throe countries needs to be considered within the proposed reform of the CAP".
I agree with the noble Lord, Lord Roll, that anything that promotes the reform of the CAP would be of great benefit to those of us who believe in the importance of building an effective European Community.
On the political front and the creation of multi-party democracies in those countries, as many noble Lords have pointed out, the problems are gigantic. Even before 45 years of communism in Poland and Hungary there was not a strong parliamentary tradition. In Czechoslovakia there are deep problems between the Czech and Slovak republics. Indeed, as I found out when I took part in a British-Hungarian round table a while ago, in all three countries the minorities which were once contained arid suppressed by either the Habsburg empire or successive Russian empires are now vociferous and stirring. The noble Baroness, Lady Young, drew attention to that. It is a difficult dimension of the emerging problem.
The report rightly emphasises the gap between, on the one hand, national liberation movements, such as the trade union, Church-based Solidarity in Poland and President Havel's revolt of the intellectuals and, on the other hand, the creation of a multi-party system. There is a large gap between those two stages. After all, the parliamentary democracies of the West carried through the painful changes of their agricultural and industrial revolutions over a pretty long period of time and, for much of it, on the basis of a pretty limited parliamentary franchise. The committee pointed out that the shorter the economic transit on, the less will be the political strain. We all say "Amen" to that, but I suspect that, however well and wisely the West gives its assistance to East and Central Europe and to the Soviet Union, both the economic and political processes will take a good deal longer than we wish and will be fraught with many dangers.
As many noble Lords said, the report makes wise, realistic and above all practical comments on how the Community's European agreements can most effectively be implemented. As the noble Lords, Lord Wade and Lord Boardman, said, from the point of view of the United Kingdom national interest we should like to see British enterprise earn a significant share cif the opportunities for trade and investment. The know-how funds are of great importance and the Government have been praised by a number of participants in the debate for pioneering the know-how fund in Poland and extending such funds to other countries. I was about to say that we might be able to earn some international dividends out of our own domestic traumas over privatisation by offering some expert advice on this matter until I heard the noble Lord, Lord Roll, explain the difficulties of putting a price on Skoda. Nevertheless, we have a good that of experience in this country that could be highly relevant to the problems of transition in those countries and know-how funds are important in that respect
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One particularly important point that has been emphasised by a number of your Lordships, including the noble Lord, Lord Boardman, and the noble Baroness, Lady Young, is the tremendous asset that we have in the United Kingdom in the fact that English is in effect the world business language. The noble Lord, Lord Greenhill, mentioned the useful role of Voluntary Service Overseas volunteers in Hungary. As a trustee of the foundation set up by the late Roy Thomson to train journalists in developing countries, I might perhaps mention the good work that the know-how fund has done by introducing East European journalists to the workings of a free and independent press. The British Council and the various specialist business language schools in some of our universities and colleges have an invaluable role to play in teaching English, provided that they are given adequate resources to do so by the Government.
The language advantage should help to compensate a little for the historically dominant position of West Germany in the trade of East and Central Europe. The figures in the report are striking. In Czechoslovakia, the United Kingdom's 5.9 per cent. share compares with West Germany's 40 per cent. share; in Poland, our 5.2 per cent. share compares with West Germany's 38 per cent. share; and in Hungary our 4 per cent. share compares with West Germany's 41 per cent. share. Perhaps more worrying is the fact that Italy and France have also done a good deal better than the United Kingdom. The Government must address themselves seriously to the reasons for that situation.
I content myself by making a rather different remark; namely, that the economic domination of West Germany in East-West trade makes it all the more important that Germany, now united, should be so committed to progress with the economic and political integration of the European Community. That raises the question of Community membership for those countries in Eastern Europe on which a number of your Lordships commented. In my judgment, the report recommends a realistic time-scale of at least 10 years for the three countries with which we are dealing in this debate to become ready to complete a free trade relationship with the Community, which is a considerable way short of full membership. The three countries dealt with in the report, still less countries such as Romania and Bulgaria, will simply not be ready for full Community membership for a long time yet. The report makes the useful and ingenious suggestion that the preamble to the agreements—the noble Earl, Lord Buckinghamshire, mentioned this point a few moments ago—should include a statement of intent about ultimate accession to the Community. That seems a useful thing to do, but in the meantime I agree with the noble Baroness, Lady Young, that the Council of Europe seems the more appropriate, wider and looser framework for encouraging political reform and progress in human rights in those countries. We welcome the fact that they are to become members of the Council of Europe.
As regards East Europe, I agree with the noble Earl, Lord Buckinghamshire, who appeared to argue —I put words into his mouth; these are my words, not

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his—that the so called dilemma between deepening or widening the Community seems unreal in relation to Hungary, Czechoslovakia and Poland. The noble Lord, Lord Roll, said that there was no evidence that the countries concerned wished the Community to halt its progress in order to make it easier for them to become members. In one of his wisest remarks towards the end of his speech the noble Lord, Lord Aldington, emphasised that it was a major interest of Poland, Czechoslovakia and Hungary to see the European Economic Community succeed.
In conclusion, our view from these Benches is that the countries of the EC will best equip themselves to promote prosperity and stability in Central and East Europe if they keep on course with their present plans to strengthen the economic and political cohesion of the Community.
8.17 p.m.
Lord Richard: My Lords, I start by congratulating the noble Lord, Lord Aldington, and his subcommittee on producing this report. I am also delighted to see my noble friend Lady Serota in her place because it is perhaps time that greater public recognition was given not only to this sub-committee's reports but to the reports which come from the select committee as a whole. I can only say that during my period in Brussels they were studied in the Commission which, in a sense, is where they are meant to be studied. What was said in the reports was read, marked, learned, inwardly digested and occasionally even acted upon. I gather that the position is still the same. Perhaps I may also congratulate the noble Lord, Lord Aldington, on this report which is timely, important, and encapsulates the issues with skill and a great deal of thoroughness. I read it with interest and found myself in agreement with a great deal—indeed, almost all—of its conclusions.
As a result of the fundamental political changes in Eastern Europe, it was inevitable that the countries in the region turned to the European Community for financial and technical aid to assist in their huge task of development and reconstruction. Following the series of trade and co-operation agreements already implemented, the association agreements now being discussed are rightly viewed as the second stage of a process which could eventually lead to full Community membership for Poland, Hungary and Czechoslovakia and, I suppose, for other countries of Eastern Europe when they reach comparable stages of appropriate development.
The noble Earl, Lord Buckinghamshire, made an interesting speech about membership of the Community for these three countries. When I consider that question I find myself faced with two perhaps conflicting opinions. When they are ready, clearly they should become members and there is not a great deal of harm in putting it in the preamble of the agreements that that would be our eventual intention. On the other hand, I should be very reluctant indeed to see a situation in which the Community in its present form went on with its political and economic development
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to such an extent that it created barriers for the newly emergent countries of Eastern Europe to becoming more closely associated with the Community itself.
If we end up with another divided Europe in which the division is perhaps different but which is nevertheless economically and perhaps politically real, I should regard that as a betrayal of the ideals which animated the founding fathers of the Community and the drafters of the Treaty of Rome itself. I accept, therefore, that we have to approach this matter with caution. On the other hand, the institutions are made for Europe and Europe is not necessarily easily adapted to the institutions.
When the Commission was authorised to begin exploratory discussions with these three countries it produced its own proposals identifying a number of areas for association agreements. They are formidable: political dialogue, free trade, the approximation of laws, economic co-operation building on the areas already covered by the trade and co-operation agreements, cultural co-operation and financial co-operation to facilitate structural reform.
The association agreements—or European agreements as they are now called—based on Article 238 of the treaty will have to be negotiated individually with each country. It is important to make that point. It seems to me quite impossible not to take full account of the level of political and economic reform which has been achieved in each country separately. This again is one of the major problems in the whole diplomatic exercise. The levels of reform reached in the three countries are by no means identical. Once again one is faced with the difficult problem of managing change in an orderly way. But here one is faced with the problem of managing change in an orderly way against a background which is indeed still distinctly uncertain.
It cannot be denied that the three countries are now in the process of fundamental transition. They are formerly communist states with command economies which are now attempting to develop democratic political structures and free market economies. As the noble Lord, Lord Aldington, said when he introduced this debate, it is a daunting task, particularly given the depths of the socio-economic and environmental problems facing each country. It is a daunting task too, as the noble Lord, Lord Wade of Chorlton, said, given the degree of perception in those three countries —he spoke only of Hungary but it is true certainly of Poland and probably parts of Czechoslovakia as well —of how to run a market economy and indeed how to understand even the most basic concepts involved. In my view, therefore, they require massive foreign aid and assistance to help facilitate the transition to free market economies and to the concomitant development of stable democratic political systems.
The countries differ, as I said earlier, so perhaps I might briefly examine how they differ and suggest what our approach should therefore be. Poland is the first European country to cast off communism and implement political and economic reforms. The Polish government's moves toward a free market economy have taken place against a background of severe and successive economic crises. Its efforts to control inflation have resulted in rising unemployment, lower

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output and lower living standards. It is hardly an advertisement for the free market system and the delights of our western democratic systems at this stage so far as the Polish people are concerned. What they seem to have seen is a diminution in their standard of living compared with that which they enjoyed under a command economy. It seems to be proving a traumatic experience for the Polish people. President Walesa has come under increasing pressure as a direct result of the reform programme. On top of that, Poland has to try to implement it with a huge external debt of around 45 billion dollars. The burden, if not in fact insupportable, is indeed extremely heavy.
Hungary, on the other hand, one of the leaders among former Warsaw Pact members, is attempting to reform its socio-economic and political systems. On the political side, parliamentary elections were held in May 1990 and a stable coalition government with a mandate for reform was returned. According to reports, the reforms have made modest progress. However, it is expected that the economic fall-out of the Gulf war, the move to hard currency pricing in CMEA trade and the escalating debt crises—per capita the debt seems larger than the debt of Poland —are all bound to retard further progress. Indeed, it is novi being predicted that unless the Hungarian Government undertake urgent deflationary steps, the economic situation will deteriorate rapidly.
However, on the positive side Hungary is a longstanding member of GATT, the World Bank and the IMF. It signed a co-operation agreement with EFTA in June 1990 and it has joined the Cairns agricu tural group. We shall have to see what that says for its agricultural relations with the CAP but the Cairns Group does not view the common agricultural policy with a degree of warmth. Significantly, however, some foreign investment has at last begun to flow into the country. General Electric has bought a controlling interest in the Tungsram light bulb company and General Motors has signed an agreement with the Raba truck company.
The Financial Times of 21st May carried an interesting article—very much along the lines of what the noble Lord, Lord Wade, had to say—about the difficulties of privatisation. It said that:
"Hungary, which has gone farthest in dismantling state control of industry, is therefore finding out first that the transformation is easier said than done. Transactions have to pass through the confusing legal, financial and administrative tangle left by 40 years of communist state control.
One temptation is to cut straight through the knot, by distributing property for free, and without discrimination, to the entire population or to former owners. But Hungary…has opted for the deliberate way: genuinely selling state property rather than just spreading it around".
The article then says that the decision has its costs.
It the quotes that are interesting. The article adds:
Mr. Karoly Szabo, deputy managing director of the State Property Agency, the privatisation agency which bears the brunt of people's impatience [says] 'The process is far more complicated than we ever thought"".
The article quotes Mr. Lajos Bokros the president of the Budapest Stock Exchange and board member of the SPA as saying, again somewhat despairingly:
"'People think that privatisation is just a matter of making an advert: this is for sale"".
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The article states:
"In fact, every state company needs extensive legal, financial and organisational restructuring to prepare it for sale, Mr. Bokros says. 'Very few people know what is involved"".
So the problems of transition from a state controlled economy to a market economy even in a country as westernised in its history, traditions and outlook as is Hungary are frankly immense.
Czechoslovakia, which I suppose is the country with the most advanced industrial sector in comparison with the other central European countries, has a low foreign debt of 6.9 billion dollars and a per capita debt of 431 dollars—nearly a quarter that of Hungary and less than half that of Poland.
Perhaps I may say that one figure that I heard tonight gave me considerable pleasure; namely, that there are now 20,000 redundant Russian teachers in Czechoslovakia. I am sorry for anyone who is made redundant. When I visited the country the Russians were still there. One could not help occasionally feeling sympathy for them as an occupying force, an alien intrusion, into a country which fundamentally did not want them. One heard the story of the little boy who came home from school one day. His father asked, "What did you do at school today, my boy?" He answered, "I came top in Latin, father." The father said, "Well done, my son. And what else?" The boy replied, "I came second in maths." The father said, "Well done my son. What else?" The son said, "I came second in music." The father said, "Well done, my son". "And, father" said the boy, "I came bottom in Russian". "Well done, my son!". A country with a fundamentally western orientation appears to have been distorted away from that basic orientation over 40 years.
If that is so, we have to ask ourselves what we can do in relation to these three countries. The report asks pertinent questions and answers them comprehensively. The PHARE programme—which is desirable, having been established to facilitate reform and to develop the private sector—now extends to Bulgaria and Yugoslavia. Its total budget was only 498.I million ecu last year. I believe that that may be increased a little this year. The draft Community budget for 1991 provided for 820 million ecu in direct aid. It would be instructive if the Minister will tell the House the Government's approach to the PHARE programme. Do they propose to put more money into it? Do they approve of an increase in the Community budget to that effect? Indeed, what contribution will Her Majesty's Government make to it?
I believe that the United Kingdom is entitled to credit for being the first country to establish the know-how fund to provide bilateral aid in this way. However, the amount of money involved is extraordinarily small. In 1989–90 £2.3 million was spent on know-how aid to Poland. About £15 million was spent on Poland, Hungary and Czechoslovakia in 1990–91. I am sure that the Minister will have anticipated from the course of the debate that he will be asked what Her Majesty's Government's attitude will be towards an increase in the money being devoted to the know-how fund. I am encouraged to

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believe by the smile on the Minister's face that he is looking forward to announcing a major increase in resources available.
On these Benches we welcome closer co-operation and relations with the countries of Eastern Europe. We accept that reconstruction and development in Eastern Europe requires massive aid from the West. We are committed to ensuring that Britain plays a full and effective role in the process of helping those countries to develop stable democracies and free market economies.
There are many issues in the report to which one could refer. The noble Lord, Lord Thomson of Monifieth, referred to the disturbing pattern of British trade with the three countries named in the Motion. I ask one question. The report highlighted the fact that ECGD cover so far as concerns Britain was not wholly comparable with that provided by our major trading competitors. The ECGD is to be privatised in this country. Even with all our experience of privatisation in this country—it is greater than that in Hungary, Poland and Czechoslovakia—can the Minister assure us that privatisation of ECGD will not be to the detriment of British exporters to the three countries named in the Motion?
Changes in Eastern Europe over the past few years have been phenomenal in pace and scope. It is perhaps the greatest shake-up in Europe since Versailles. Some would say that it is perhaps the greatest since the Congress of Vienna. Therefore, we should approach what is happening in Eastern Europe with sympathy and encouragement, recognising the extraordinary efforts that have yet to be made. But the prize of a free and democratic Europe extending from the Atlantic to the Polish border with the Soviet Union is so great that our policy, and that of our allies and partners, should be generous, co-ordinated and open-hearted. This may be one of those seminal moments in history which, if rightly handled, could bring a degree of peace and stability which our old and somewhat battered continent has rarely known. However, it demands a response which is positive and encouraging. Festina lente may be a good motto. I would only say: do not forget the festina when one is concentrating on the lente.
8.35 p.m.
The Earl of Caithness: My Lords, I, too, like all noble Lords, am grateful to my noble friend Lord Aldington for giving the House the opportunity to debate the European Community's relations with Poland, Hungary and Czechoslovakia. I pay tribute to the Select Committee on the European Communities for its sustained effort to produce once again such an authoritative and comprehensive review of a subject.
The committee's report is noteworthy for covering the wide scope of developments in the whole of Eastern Europe since 1989. I shall also range more widely than the three countries named in the Motion. We have come a long way in the past two years. Since then all East European countries have rejected the Communist model and are now implementing democratic and market based reforms. The Warsaw
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Pact is an empty shell, and COMECON has held its last meeting. Czechoslovakia and Hungary are both members of the Council of Europe and all Eastern European countries except Albania have joined the IMF.
The success of the European Community was, in large part, the stimulus for these changes, and the Community has led the West's response. There have been three stages in the development of Community relations with the countries of Central and Eastern Europe. First, we negotiated trade and co-operation agreements with all East European countries except Albania. These agreements seek to improve trade relations and facilitate the exchange of economic expertise.
Secondly, we developed the Community's aid programme. The centrepiece is the PHARE programme of project aid in the key areas of agriculture, environment, energy and economic and industrial restructuring. However, there is one other important area that my noble friend Lady Young and the noble Lord, Lord Thurlow, mentioned; namely, training, which is also covered by the PHARE programme. We share with them the importance that they placed on this subject. Some £350 million were committed in 1990. That is expected to grow to some £600 million in 1991 and over £700 million in 1992.
In addition, the Community has provided extensive food aid to Poland, Romania and Bulgaria and financial assistance to support economic restructuring and currency reform in Poland, Hungary, Bulgaria. Czechoslovakia and Romania.
The third strand of Community relations with Eastern Europe is the association, or European agreements as they are now called, which the United Kingdom first proposed in November 1989. The committee rightly described the objective of these agreements as,
"The creation of a climate of confidence and stability, the encouragement of political and economic reform, the transition to market economies, and the encouragement of trade and investment".
Those aims are explicitly political as well as economic. Poland, Hungary and Czechoslovakia see membership of the Community as their long-term goal, and association agreements are indeed a milestone along that road.
The association agreements build directly on the provisions of the earlier trade and co-operation Agreements. In trade terms, the earlier agreements provided for the elimination of quantitative restrictions on those countries' exports. In association agreements we have the ultimate goal of free trade. I shall return to that important area later.
The areas of economic co-operation outlined in association agreements are extensive and provide for the transfer of expertise in areas such as industrial co-operation, industrial standards, agricultural cooperation, energy, environment, health and safety at work, tourism and customs co-operation.
The noble Lord, Lord Richard, mentioned the third most important element of the association agreements which is the help that the Community can give in bringing Polish, Hungarian and Czechoslovak laws into line with those in the Community. I reassure the

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committee that there is no compulsion for the three countries to approximate their laws to those of the Community. But as new laws are put into place it clearly makes sense for them to be based as closely as possible on Community laws if these countries want a closer relationship with the Community.
Finally, the agreements will provide for a political dialogue. I reassure my noble friend Lady Young that we take parliamentary exchanges as seriously as she does. We have organised, sponsored or paid for a wide range of visits to this country by Eastern European parliamentarians and visits by British parliamentary officials. I share my noble friend's concern that nationalist rivalry and economic austerity are dangerous bedfellows. That is why we attach such importance to the protection of minorities to be discussed at the CSCE ministerial meeting in Berlin on 17th and 18th June.
The committee notes in its report that for association agreements to be successful political reform and democracy are essential preconditions. That is absolutely right. That conditionality has underpinned the Community's approach to Eastern Europe. If democracy and free market economies are successfully established in these three countries, as we fully expect, the results of association agreements will be an important contribution to the new Europe. Poland, Hungary and Czechoslovakia have made clear I hat membership is their long-term objective. The British Government share that objective and look forward to the day when these countries can sustain all the obligations of membership. That point was stressed by my noble friend Lord Buckinghamshire.
I reassure my noble friend Lord Aldington that the objective will be acknowledged in the preamble to the association agreements. Thus, as the committee rightly identified, it will provide additional encouragement to the three countries to pursue their reforms. But the Community cannot prejudge what Poland, Hungary and Czechoslovakia may decide in their best interests at a further date. It will be for them to decide whether and when to make a formal application. But as the noble Lord, Lord Richard, said, our attitude is equally crucial. It would be quite wrong for any country in the Community to slam the door on them now.
The European Community's association agreements are only one means of assisting Poland, Hungary and Czechoslovakia to reach their objective of full integration into the European mainstream. One of the new tools at our disposal is the Group of 24. The G24 exercise was launched following the request made:o the Commission by the Paris Economic Summit in July 1989 to co-ordinate the West's help to Poland and Hungary. This effort has now been extended to cover Czechoslovakia, Romania, Bulgaria and Yugoslavia. I am pleased to say that the UK plays a very full role in discussions in Brussels and has taken part in fact finding visits made by G24 missions to Eastern Europe.
My noble friends Lord Bessborough and Lord Aldington reminded the House that the donor's role is but on' side of the coin. Increasingly the recipient governments are able to co-ordinate the various offers
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of aid. Thus, like my noble friends, we welcome the appointment of aid co-ordinators in Poland, Czechoslovakia and Hungary. It is right that as new governments in these countries grow in stature the focus for co-ordination will shift further towards the recipient countries. I am glad that my noble friend Lord Boardman, with his experience, raised the question of debt and some of the difficulties which each country has as a result of the different debt structures.
I noted that in paragraph 89 the committee welcomed the discussion at the Paris Club of the debt owed by the Eastern European countries. I am happy to report to your Lordships that the Paris Club has agreed to reduce the value of Poland's debt owed to bilateral official creditors by 50 per cent. This agreement reflects not only Poland's heavy indebtedness but is in recognition of its radical reform efforts.
My noble friend Lord Aldington picked up the point that the committee made in paragraph 91. It identified trade as an important element in improving economic activity. Improvements to these countries' trade access provide a more lasting and more effective source of support and growth in their economies than aid. Improved trade access is a vital component of the proposed association agreement and is particularly urgent now that trade within COMECON is contracting so sharply. The example of Poland's exports in 1990 is a case in point. Exports to the COMECON countries fell by 10 per cent. but that was offset by a rapid rise in hard currency exports. Polish and Hungarian firms are quickly developing the capacity to compete fairly in Western markets. In 1990 Polish and Hungarian exports to the Community grew by about 40 per cent. and 30 per cent. respectively. The British Government regard that as an opportunity rather than as a threat. The level of East European exports to the United Kingdom is still very low and totalled only £460 million last year.
There are areas in which East European exports are more competitive and could displace other exporters or even British producers. The noble Lord, Lord Roll of Ipsden, was not alone in mentioning one sensitive area; that of agriculture. He said that the ability to export in this field was crucial. My noble friend Lord Wade of Chorlton gave an example of some of the basic difficulties that first need to be overcome. We agree that the Community should be open to third country exports. But the Government will ensure that the opening of Community markets is done in a way which shares the burden equally between all member states.
As the report underlines, overall British interests are best served by Poland, Hungary and Czechoslovakia growing in economic strength and becoming bigger markets for UK exports. They can develop that strength only by trading in areas where they enjoy comparative advantage. We hope that the association agreements will achieve the delicate balance between allowing greater trade and providing the safeguards to avoid any one industry or member state suffering disproportionately.
In that connection several noble Lords mentioned the ECGD cover. As a result of those comments it

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sounded as though the ECGD requests were considerably in excess of the money available. That is not so. The demand for medium-term cover in Czechoslovakia and Hungary is low and well within the cover currently available. The availability of ECGD cover should not therefore be a reason for lack of success by British exporters. I shall return to that subject later in order to answer the point made by the noble Lord, Lord Thomson of Monifieth. No ECGD cover has been made available for Poland because it has been unable to service its existing debts.
It is probably true to say, however, that ECGD terms for medium-term cover are more restrictive than some other export credit agencies. It may be that other governments are not as prudent with taxpayers' money as we are. However, steps are being taken by ECGD and the Government to encourage other governments to ensure that risks are properly assessed, premium is charged at a realistic rate and interest subsidies are minimised. I am sure that all noble Lords agree that it is in no one's interest to repeat the mistakes of the 1980s and allow another unsustainable build-up of debt.
The committee referred to the help given by the East European Trade Council and British embassies to British exports overseas. I accept with gratitude the compliments paid to British embassies worldwide. However, it is true that those in Eastern Europe have witnessed the biggest changes in the past two years. More generally, the diplomatic service has moved quickly to re-order its priorities and to direct more staff resources towards Eastern Europe. In the period since 1989, 49 UK based members of staff have been redirected to work on Eastern European and Soviet matters.
So far I have concentrated on the help that governments and governmental organisations can provide for Eastern Europe. However, investment is a matter for the private sector. The committee was right to recognise that responsibility for attracting private investment falls to the governments in question. The key lies in their strength of purpose and determined implementation of reforms in face of economic difficulties. We hope that the recently established London-based European Bank for Reconstruction and Development with its private sector focus will be able to play an important role in creating the confidence required.
My noble friend Lord Wade of Chorlton was right to point out that there is more to it than making funds available. British investors must persevere like many of our competitors and look beyond just doing a deal. That is true for all markets throughout the world. Therefore, it did not surprise me that the noble Lord, Lord Thomson of Monifieth, asked what the Government are going to do. Surely with his experience in ICI a more pertinent question is: what is industry going to do? In its widest sense industry must respond to that challenge worldwide.
I was surprised that not even the noble Lord, Lord Richard, raised the matter of human rights, which is mentioned in the report. As no noble Lord did that, I shall do it. The British Government welcome the
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recent accession of Hungary and Czechoslovakia to the Council of Europe and their signature to the European Convention on Human Rights. Poland is expected to sign the convention later this year when it becomes eligible to join the Council of Europe after its general election. As regards accepting the jurisdiction of the European Court of Human Rights, we hope that all three countries will agree to be bound by the court's rulings, as we are in the United Kingdom.
Lord Aldington: My Lords, my noble friend said that nobody had mentioned human rights. He has largely repeated the words which I used. Perhaps he lost me in the middle of my speech. If he reads Hansard he will see that he and I agree 100 per cent., as does the committee.
The Earl of Caithness: My Lords, I apologise to my noble friend. Perhaps I was writing down an answer to one of his questions at the time. I know that my noble friend raised a point as regards ethnic minorities which I answered earlier.
I am grateful that the noble Lord, Lord Whaddon, welcomed the fact, as did the Select Committee, that the British Government have already made a significant contribution through the know-how fund. That now covers Poland, Hungary, Czechoslovakia, Bulgaria and Romania. The fund has now been running for almost two years and over 200 projects have been financed to date. The fund fully spent its allocation of £15 million in the past financial year and I am pleased to inform the noble Lord, Lord Richard, and the House, that the budget has been doubled to £30 million for this financial year.
The fund places particular emphasis on the financial services sector, management training—which will please my noble friend Lady Young—the development of small businesses and advice for dealing with unemployment. I was pleased to hear that my noble friend Lord Boardman agrees that those are the important objectives for the know-how fund.
The noble Lord, Lord Roll of Ipsden, drew attention to how the fund had provided critical help in the important process of privatisation in central and eastern Europe. The noble Lord, Lord Thomson of Monifieth, will be pleased to know that we have put our expertise to good use. The know-how fund financed the restructuring of the first four enterprises to be privatised in Poland, and advice is now being provided to the Polish Government on their mass privatisation programme. Advice is also being given to Czechoslovakian authorities on their proposed privatisation programme.
Finally, the committee referred to the importance of proper evaluation of assistance projects agreed under the EC PHARE programme. I am happy to tell your Lordships that as a result of consistent pressure by the United Kingdom the European Commission has agreed to include provisions for full and independent monitoring of all future PHARE projects and to earmark part of the budget for that purpose.
In conclusion, I thank all your Lordships who have taken part in this very important debate. It will provide a stimulus for the Government in the coming months and years as we continue to work for an open,

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democratic and free market based Europe. As all your Lordships have stressed in this debate, it is not an easy road, but the report is an important marker on the way.
8.54 p m.
Lord Aldington: My Lords, at the end of this fascinating debate, I thank the Minister for a carefully reasoned speech carrying his authority and showing the care with which he studied the report and with which he has listened to the debate. We are used to that from him. Perhaps I may say on behalf of the Select Committee that his speech to us was a reward for the report which we have commended to the House and we thank him for that.
Also, I thank all noble Lords who have studied the report and who have given the House the benefit of their views. I said that I was looking forward to the debate and to learning much from it. Indeed, that has been so right from the start when the noble Lord, Lord Bridges, gave us the benefit of his experience which, happily, some of us are able to obtain also outside this House. He put the report in context against its proper background.
I am obliged to all your Lordships. The two former commissioners who preceded the Minister made pungent speeches. I accept the chastisement of the noble Lord, Lord Thomson of Monifieth, with whom I work very closely outside the House, that the report used words about agriculture which appeared to him to be too anodyne. I remind the noble Lord and the House that Select Committee reports are only as good as they are and only have the authority which they have if they remain based on evidence and not on the passions of the moment. With those wise words, I repeat my thanks.
On Question, Motion agreed to.
8.56 p. m

Road Traffic (Temporary Restrictions) Bill
Lord Brougham and Vaux: My Lords, I beg to move that this Bill be now read a second time. It is with some sense of deja vu that I rise to move the Second Reading on this Bill, since a little less than one year ago—1,4th June 1990—I was speaking to a very similar measure which had been introduced in another place by the Member for Nottingham South, Mr. Brandon-Bravo. I must therefore explain to your Lordships' House that that Bill, which was subsequently considered by your Lordships' House in Committee to meet anxieties expressed by the ramblers, and received a Third Reading on 2nd July last, failed to make it onto the statute book, having encountered procedural difficulties on its return to the other place. Happily, the Member for Stafford, Mr. William Cash, was successful in the ballot this Session, and adopted the Bill which is before us today.
The Bill is substantially the same measure as the one which I was privileged to move last Session. Its main provisions are designed to enhance highway authori ties' powers in the area of temporary traffic
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regulation; to relax existing consent requirements on local authorities; and to secure uniformity of approach among all authorities in Great Britain.
The Bill reflects provisions which have emerged from discussions between the local authorities, the Department of Transport and representative bodies. It is uncontroversial. In view of its history and the late hour, I hope I may be permitted to concentrate my remarks this evening on the main changes in the Bill this Session.
First, the Bill has been amended to take account of provisions enacted in the Environmental Protection Act 1990. That Act contains provisions enabling local authorities to apply, as appropriate, to the highway authority—or in Scotland, the roads authority—for that authority to exercise its powers under Section 14 of the Road Traffic Regulation Act 1984 to prohibit or restrict traffic temporarily for the purposes of litter clearing and street cleaning. The new Section 14—set out in Schedule 1 to this Bill—has therefore been redrafted to subsume appropriate references. A consequential appeal has been added to Schedule 2 to this Bill.
Secondly, the Bill has been modified to take account of the Government's New Roads and Street Works Bill. Your Lordships are already well aware of the provisions of the Government's Bill, which has been fully considered in this House and by another place. We are now waiting to consider amendments made by another place. I remind your Lordships that, where it is necessary to restrict or prohibit road traffic on account of temporary road works, local authorities rely on the powers in Sections 14 to 16 of the Road Traffic Regulation Act 1984. Those are the powers which this Bill seeks to strengthen and improve. So it is all the more apt, now that the Government have brought forward their proposals for reforming the street works code, that this particular Bill should be proceeded with. It will help to streamline administrative procedures and enable local authorities to take more effective action.
The main change as a result of the Government's New Roads and Street Works Bill is to introduce into the Bill the expression "traffic authority" in Clause 2(5). This is because Schedule 8 to the New Roads and Street Works Bill itself introduces that expression throughout the 1984 Act. This is merely a drafting convenience; it does not convey any change of substance. It is simply shorthand for the previous references to highway authorities (in England and Wales) and roads authorities (in Scotland). Once again, there are consequential repeals in Schedule 2. It is expected that the New Roads and Street Works Bill will receive Royal Assent and come into force before this Bill. The repeals will simply remove references which will be redundant once this Bill is enacted.
Thirdly, my Lords, the Bill omits a provision which was included in its predecessor; namely, that breach of a temporary speed restriction imposed under Section 14 of the 1984 Act should be liable to obligatory endorsement and discretionary disqualification. The omission does not come about by reason of any change of mind about the merits of such a provision. It arises simply because the matter has already been

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taken care of in Schedule 2 to the Government's Road Traffic Bill which is currently before your Lordships' House. So it has been omitted from this Bill.
I think I need not say a great deal more. The Minister for Roads and Traffic, in speaking to the Bill on Third Reading in the other place, commented on the continuing growth of vehicle traffic and the pressures that that brings on road space. This makes it all the more necessary to ensure that obstructions to traffic flow are kept to a minimum. When there is a legitimate need to restrict traffic—whether in the interests of safety, to prevent damage, or to avoid conflict with works in the road—it is important that the traffic authority should be able to act swiftly and efficiently. The Bill seeks to provide for that, while at the same time maintaining adequate safeguards so that access to premises is maintained, appropriate traffic signing erected, and suitable provision made so as to bring the arrangements to the attention of the public.
With those few remarks, I commend the Bill to your Lordships.
Moved, That the Bill be now read a second time. —(Lord Brougham and Vaux.)
9.3 p.m.
Lord Clinton-Davis: My Lords, the House is indebted to the noble Lord, Lord Brougham and Vaux, and also to Mr. William Cash in another place for introducing the Bill, albeit technical. We certainly welcome it.
I have only one question to put to the Minister. I find it rather surprising that we have had two comprehensive Bills —the Road Traffic Bill and the New Roads and Street Works Bill—before the House, and the issues set out in this measure were not picked up in those specific pieces of legislation. I do not wish to carp about the matter; the House is indebted to those who sponsored the Bill privately. Private Members' Bills, particularly those the Government want, is a dangerous route because they may be subject to capricious activities, particularly in another place, over which governments frequently have no control. It is therefore a risky business. Having said that, I welcome the Bill.
9.5 p.m.
The Minister of State, Department of Transport (Lord Brabazon of Tara): My Lords, I am pleased to be able to express the Government's full support for this Bill. I am particularly pleased that my noble friend Lord Brougham and Vaux has undertaken to carry it through this House for a second time. We understand it is no reflection at all on him that the Bill failed to reach the statute book last year. Indeed, the Bill was actually improved, under his pilotage, during its passage through Committee in your Lordships' House and was in a form which met with widespread approval when it returned to the other place last July. As my noble friend explained, its downfall was due to procedural difficulties rather than any objections of substance. The passage of time since then has necessitated a number of minor and consequential
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amendments, which my noble friend helpfully explained. Otherwise, as he says, the Bill is unchanged from the measure which the House has seen and agreed before.
The Government welcome the reappearance of the Bill this Session. It is a small and admittedly rather technical measure. Its main benefits lie in the improved powers and greater flexibility which it offers traffic authorities in managing traffic for temporary periods. All who have an interest in minimising congestion and disruption to road users will particularly welcome its provisions.
In our debates on the measure last year, several of your Lordships regretted the fact that the Government had not—at that stage—been able to bring forward measures to reform the Public Utilities Street Works code. Happily, a year later, we have now done so, in the form of the New Roads and Street Works Bill, which will shortly be returning to this House after completing its stages in the other place. We believe that the provisions in that Bill will go a long way to improving the present arrangements.
Action is already being taken in advance of those changes. For example, the Department of Transport recently published the new Chapter 8 of the Traffic Signs Manual, entitled "Traffic Safety Measures and Signs for Road Works and Temporary Situations". That provides a national standard of good practice for the signing and marking of obstructions, as well as for temporary traffic control. A booklet is also available offering advice to road workers and supervisors to ensure safe practice at road works on all-purpose roads. The New Roads and Street Works Bill will require public utilities and others to guard, light and sign their street works in accordance with the new standards.
The Road Traffic (Temporary Restrictions) Bill has a complementary role to play. It will help to ensure that traffic authorities can respond quickly and effectively to short-term needs for traffic restriction. As my noble friend has said, the Bill will play a small but significant part in providing a streamlined and more effective code of powers for use when authorities need to restrict traffic temporarily on roads or other highways. It will greatly reduce the number of occasions when authorities have to seek consent for temporary traffic orders. It will enhance the powers to introduce temporary regulation on alternative roads where traffic is diverted; and it will remove unnecessary bureaucracy, for example by allowing a single comprehensive order to be made when both local roads and trunk roads are affected.
The noble Lord, Lord Clinton-Davis, asked why it was not possible to have incorporated these provisions in Government Bills during this Session. I am sure the noble Lord will appreciate that there is always more demand for legislative space than there is ever capacity to meet it. Decisions have to be taken about priorities, and inevitably there are constraints on what can be included. In bringing forward both the Road Traffic Bill and the New Roads and Street Works Bill, the Government took the view that both Bills should be restricted to the specific and substantive measures with which they were respectively concerned. I must say

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that it is a refreshing change to hear from the Benches opposite a call for longer rather than shorter Government Bills.
This short Bill, having already been passed through most of its stages last year, was available for adoption by Members successful in the Private Members' ballot and was accordingly taken up by my honourable friend the Member for Stafford. As your Lordships may be aware, it has enjoyed a very swift passage through the other place and there is no reason, if your Lordships' House agrees, why it should not proceed speedily through its stages in this Chamber as well. I commend the Bill to your Lordships.
Lord Brougham and Vaux: My Lords, I should like to thank the noble Lord, Lord Clinton-Davis, for his welcome for this small technical measure. I think that my noble friend has dealt with the reasons why it was not incorporated in one of the other Bills, and so I will not gc into that at this hour of the night. I should also like to thank my noble friend and all his colleagues in the department for their help, which has been most valuable. I would once again thank all noble Lords for the su sport that they have given. I trust that we shall not be having a Committee stage or Report stage. With those few words, I beg to move that the Bill be now read a second time.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Pathological Services
9.10 p m.
Lord Hunter of Newington Lord Hunter of Newington rose to ask Her Majesty's Government whether, in the light of the recommendations of the Audit Commission concerning the pathological services, they are in favour of the transfer of pathological testing from hospital laboratories to general practice.
The noble Lord said: My Lords, I rise to put the Question standing in my name on the Order Paper. I think that everyone would accept this philosophy as their objective in relation to the National Health Service, that working for patients and minimising costs while maintaining standards is a key to this situation. It is also true that more testing and diagnosing accurately near the patient is a major objective rather than just sending them to hospital. One s perhaps disturbed somewhat by the Government's plan, whereby the basic assumption seems to be that for many things patients will continue to go to the hospital and doctors will make financial arrangements with these hospitals.
However, there are a number of revolutions going on which are of the greatest importance. The most import ant factor, as I have said, is the trend towards more testing and investigation near the patients. This, and population screening, is likely to revolutionise the whole situation within a decade. I believe that a paper about this is being published tomorrow.
Of the many factors, dry chemistry is undoubtedly the leading change and the one with the greatest potential. Under many conditions it can provide all that is required quickly, conveniently, inexpensively
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and accurately. There are sometimes problems with pathological investigations which are carried on outside hospitals. There is a worry that clinicians and nurses taking over near-patient testing have insufficient knowledge, and local testing is carried out without a proper strategy or policy. The hospital laboratory must surely assume an important advisory and supervisory role in this situation, and the National Health Service organisation must facilitate this.
The technological key to stick testing is dry chemistry. This typically comprises thin pads or films containing all the reagents required for performing an assay. The number of substances of clinical importance that can be measured by dry chemistry technology, in blood as well as in urine, has grown enormously and continues to do so. Tests available in stick format are biochemical, microbiological and hematological. Even allergy testing is possible with a sensitivity and specificity comparable to that of traditional methods.
The greatest fillip to the expansion of stick tests for use with blood outside the laboratory was the introduction of the Reflotron blood analysis system. This enables a variety of the most commonly requested tests, such as urea, creatinine, uric acid and cholesterol to be measured on a whole blood sample collected from a single finger prick. The tests can be performed within three minutes by a person with minimal training, yet provide an accuracy and precision comparable with that obtainable in a quality controlled laboratory. More recently, multiple tests for blood analogues have become capable of giving liver, cardiac or kidney profiles. There is no limit to the number of conditions for which stick tests can be developed. They are already used for detecting toxins in foods and water and they have important applications in veterinary medicine.
We come now to the question of cost and patient convenience. Many of the single stick tests are competitive with similar tests performed in a central laboratory and have the added advantage of timeliness and convenience. Vitally important, however, is the maintenance of analytical standards, because despite their apparent simplicity stick tests are sophisticated systems and need efficient quality control.
Is it not urgent that studies be done to find out the most convenient way of providing these facilities in large group practices and to determine their relationship with central pathology laboratories? Many can be carried out by trained practice nurses. If this proves to be true then an enormous step forward has been taken in the diagnosis of diseases and the results of an accuracy which is undoubtedly greater than that of clinical judgment.
However, do these proposals clash in any way with the basic assumption in the Government's new plan recently introduced that patients should be referred to hospital and doctors will make financial arrangements with these hospitals? The audit report suggests something else; a further development —the introduction of consortia where existing laboratories pool their resources and effectively operate as one

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inter-hospital service. Staff could work for the consortium and not for individual hospitals. The Audit Commission draws an interesting parallel between the growth of patient testing and the introduction of desk-top computers. In many organisations central computer departments try to limit and control the use of micro-computers in order to maintain their position. As a result, many are reduced to running the payroll while the computing services in their organisations evolve in a haphazard and uncoordinated way. Others have taken a more positive line, maintaining an advisory service helping with the purchase of equipment and software. It would seem that pathologists too should carefully note this experience and be actively discussing user needs directly with the users and advising them on cheaper and better methods.
In December 1990 the Secretary of State announced the first 56 trusts. He said:
"1 believe that the scale of the response to the trust initiative shows the very real enthusiasm from those working in the National Health Service to take advantage of the benefits of trust status".
He went on to say:
"Over time I expect to see trust status becoming the natural model for all units providing patient care".
Will the Minister please explain what has been achieved so far and whether the Government's view remains that all units involved in patient care in the future should have trust status?
9.18 p.m.
Lord Rea: My Lords, I apologise for not having my name on the list of speakers and for intervening briefly in this manner. I am a practitioner of medicine in general practice within the National Health Service and I thought it appropriate that I should say a few words. I did not realise at first that it would be possible for me to be here tonight. I thought I would be away.
I have read the Audit Commission's report and it is quite properly very much based on the advice of the Royal College of Pathologists. The report and the college are concerned to preserve and extend quality as well as to provide good value for money. Very useful suggestions are made towards that end and some examples are given where good practice already occurs. This is particularly so when near patient testing is discussed. I should have liked the report to have discussed that a little more. I entirely agree with the line of thinking of the noble Lord, Lord Hunter of Newington, who has taken this a little further than the report. I also share his concern now that budget holding practices may be encouraged to do their own testing and so save the cost to them of purchasing the pathology service provided by the district or trust pathology laboratory.
I am particularly fortunate in that my non-budget holding group practice is able to obtain a very efficient and helpful service from the pathology department of UCH Middlesex. We have the added convenience of a twice daily pick-up service to transport samples to the laboratory and a computer link with the laboratory so that we get results as soon as they are ready. We have very few complaints, although there are occasional
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hiccups. I can see, however, that there are many advantages to be gained from the new methods which the noble Lord described—the stick or dry chemistry results. This will be particularly so for smaller GP units or those which are some distance away from a laboratory.
I agree with the noble Lord that if there is to be more on-site or near-patient testing it should be monitored and carefully supervised, with a continued link with the local pathology laboratory. This is particularly so as a result of the development to which the noble Lord referred of the increasingly reliable screening tests and analyses which are available on these simple dry chemistry strips.
Therefore I fully support the noble Lord's call for an organisational framework which will allow the continued link of practices with laboratories to be maintained so that standards can be kept up and the service to patients improved.
9.21 p.m.
Baroness Robson of Kiddington: My Lords, I do not know how many times in the past 18 months we have debated the National Health Service—I have lost count—but on no occasion can I remember us discussing the pathology services in the health service. We are therefore grateful to the noble Lord, Lord Hunter, for bringing to our notice the review by the Audit Commission of the pathology services.
The Audit Commission's report on pathology services makes interesting reading. It is a clear analysis of the problems facing the service, but in many ways it raises more questions than it answers. I am particularly interested in the financial aspects of the pathology services. I was therefore more than interested in reading the comments in the report. On the question of costs, the report points out that for years pathology has relied on incremental budgeting, with very small adjustments for additional activities or improved efficiency. That was also true for years for a large part of the National Health Service, but it has obviously carried on in the pathology services. As a result, any increase in efficiency leads to resources being taken away from that department.
There has also been poor financial control of budgets. Present accounting procedures are designed to control the cost of inputs such as staff, reagents, telephone calls—all the costs that go with running a pathology laboratory—but not to control the cost of activities. The problem is not improved by the allocation of resources to at least three separate budget holders: to capital, to medical pay, to non-medical pay, consumables and overheads. There may also be additional funding from universities for teaching and research and some capital equipment may be funded from research grants. This can on occasion—it says so in the report—result in staff salaried by the pathology laboratory service working in a university building on NHS work using equipment funded by research grants. That does not make for good accountancy and good control.
Secondly, pathology, in common with other branches of medicine, has also become divided into a large number of specialties, all of which, on the whole,

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are covered in most hospital laboratories. Moreover, productivity varies considerably between sections. Therefore, I should like to ask whether it would be possible for laboratories to become specialist laboratories, providing services for a number of hospitals on a cross-boundary basis. That should be more than possible at present as we have created within the health service the principle of provider and purchaser.
If such a system were to be introduced, it would necessitate the complete mobility of students between various units for the purpose of adequate teaching. It seems to me that there is merit in concentrating some services in certain laboratories. I say that because in many laboratories some tests are carried out so rarely that the. of expertise does not remain as high as it would be if the throughput were higher.
The noble Lords, Lord Hunter of Newington and Lord Rea, dealt at length with developments in what I am told is called—although I may be using the wrong term, as I am not a pathologist—"dry-stick testing". They mentioned the problems that this may create for the pathological services. There is no doubt in my mind that, from the patient's point of view, to be able to have a test carried out in the doctor's surgery and receive the answer in minutes—or at the most, perhaps, within an hour—is preferable to having to wait for three to five days for the results to be received from the hospital laboratory.
The noble Lord, Lord Rea, pointed out that he has a wonderful back-and-forth service with University College Hospital, Middlesex. However, that does not apply to all practices, and certainly it does not apply if you ate living in a slightly rural area. Incidentally, in such cases, near patient testing in the doctor's surgery would Jso save a lot of money in transport costs. Above all, I believe that it is in the interests of the patient to be able to obtain the result quickly.
However, the overriding problem which has to be addressed is the question of quality control and the training of staff in near patient testing. I believe that the noble Lords, Lord Rea and Lord Hunter, said that such control would have to be exercised by pathology consultants working in the community. They would also have to be consulted on the purchase of equipment and be required to give advice on its use and its maintenance.
It seems to me that the report opens the way for us to think seriously whether we should move towards an increase in the use of stick testing in the doctor's surgery and concentrate the expertise in specialist laboratories. By doing so, I believe that we would probably save money, make the patient happier and, perhaps, in the end create greater expertise.
9.28 p.m.
Lord Ennals: My Lords, I should like to thank the noble Lord, Lord Hunter of Newington, not only for introducing us to the subject but also for persuading us to read the report. Indeed, it is perfectly possible that I would not have read it if he had not tabled this Question. It is a fascinating document. It shows the changes which are taking place in modern pathology.
The report states that the pathologists and
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pathology laboratory services carry out a wide range of investigations. They include: the examination of cervical smears; biopsies for cancer; blood group tests and cross-matching for transfusions; the investigation of patients infected with bacteria such as listeria and salmonella; the identification of viruses such as HIV; and biochemical tests for the diagnosis of a host of different conditions.
As the report says:
"The service is at the heart of the development of modern scientific medicine".
It also points out that the practice of pathology has become steadily more diverse and complex over the years. The range of investigations available and the number of requests for them have grown steadily. The technology available has been increasing in sophistication and cost, with significant advantages in automation, mainly in clinical chemistry and hematology, with the introduction of test kits for many investigations.
There has been a report of the steady increase in the requests for laboratory investigations. Page 16 states:
"The number of requests from doctors has been growing in all branches of pathology in recent years".
Exhibit 6 shows that in 1987–88 and 1988–89 there was a modest fall down to the levels of 1982 and 1983. I could not understand from the report why that was so and why there had been a fall. It was not clear whether there was a different method of accounting. As I understand it, changes in the method of calculation in histopathology do not explain the fall.
There are many other interesting aspects in connection with the report that one could raise, but I must turn to the essentials of the Question asked by the noble Lord, Lord Hunter. The noble Baroness, Lady Robson, referred to the attractions of on-site or near patient testing. I understand the attraction. My reading of the report is that the arguments against GPs taking on the responsibility from the laboratories is overwhelming. In paragraph 43 on page 31 we see some of the arguments set out against the process. On quality, it says:
"There is a growing worry, both in the laboratory and among users, that clinicians and nurses are taking over near-patient testing with insufficient knowledge about the equipment to buy, its use and maintenance, the provision of adequate quality control, and how to interpret results".
The commission considered safety, and it states:
"There is concern about the safety of staff working without correct training with samples which could be potentially hazardous".
On economics, it says:
"There is concern that near-patient testing is more expensive and duplicates work being done in the laboratory".
On strategy:
"Local testing is carried out on a piecemeal basis with no coherent strategy or policy to minimise costs and ensure quality".
It continues:
"Near-patient testing could affect the pattern of work requested from laboratories…Near-patient testing could equally lead to increases in workload, with abnormal results being referred to the laboratory".
I could not match the arguments against with the arguments in favour. I shall look with great interest at what the Minister says. As I understood it, the report did not argue the case for such a significant change, attractive though the prospect may be.

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I shall now mention an anxiety about an issue raised in paragraph 7 on page 13;
"The NHS and Community Care Act (1990) will alter the environment within which pathology services operate in a number of important respects, making it even more necessary to ensure that the service is effectively managed. In future there will be a range of purchasers of services who will contract with providers".
The district health authorities will contract for patient services for their resident populations from directly managed units and/or NHS trusts. There will also be references from GP fund holders and other agencies; for example, the private sector. But what about the GPs who are not budget holders? That was an issue that I thought my noble friend Lord Rea might have raised.
Paragraph 8 is a little confusing in that respect. It states:
"The Department of Health has advised that DHA contracts are not likely to specify levels for laboratory services, except in relation to direct access for GPs who are not fund holders".
In practice, in recent weeks we have seen many examples of the development of a two-tier NHS as a result of the Act. I should like an assurance that this part of the report will not be another example of a two-tier service because of preference being given to the budget holders as opposed to the non-budget holders.
I thank the noble Lord for raising the issue and look forward with interest to the reply from the Minister.
9.35 p.m.
Lord Cavendish of Furness: My Lords, I too wish to thank the noble Lord, Lord Hunter of Newington, for introducing the debate and other noble Lords for taking part and for reading the document which has well informed the discussion.
I wish to begin my response by looking back at the Question of the noble Lord, Lord Hunter. He asks whether, in the light of the recommendations of the Audit Commission, we are in favour of the transfer of pathological testing from hospital laboratories to general practice. This is not, as will be appreciated, a reference to any lock, stock and barrel shift in the way pathology services are provided. But it is a recognition that there have been, and continue to be, technological developments in testing. Those developments enable some tests in some pathology specialties to be done outside the laboratory—for example, at the patient's bedside or in the general practitioner's surgery. Differing terms are used to describe this activity; for example, near patient testing or extra laboratory testing, in the sense of "outside the lab". Stick testing is one form of near patient testing. It was well described by the noble Lord, Lord Hunter, sometimes at a technical level slightly beyond my comprehension.
The noble Lord's Question refers to the Audit Commission's recommendations. We welcome the commission's report entitled The Pathology Services —A Management Review. We are in broad agreement with it, as the noble Lord has already been told by my noble friend Lady Hooper. Noble Lords will recall that the Government widened the remit of the Audit
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Commission to cover the NHS. It is charged with reviewing value for money provided by the health service.
Pathology was one of the first NHS areas to be studied by the commission, which took the starting point that the significant resources available to pathology—over £460 million in 1989–90—should be used to best effect. The report made constructive suggestions on the organisation, staffing and management of pathology services and on quality of service. It looked at the demand for services, and it considered the question of near patient testing. But it did not recommend a lessening of pathology workload by a shift towards testing outside the laboratory. In fact, it pointed to potential problems with near patient testing. I shall focus on three particularly: quality, safety and economics.
First of all quality: I mentioned that near patient testing was a developing area. The Audit Commission report points to the fact that at this stage users may not have enough knowledge about what equipment to buy, how to use and maintain it, how to ensure adequate quality control and how to interpret results.
Secondly, safety: some patient samples could pose a risk to those carrying out the tests, and others handling specimens. Adequate training is needed in aspects of health and safety of all staff involved in those activities.
Thirdly, economics: near patient testing may in fact be more expensive than tests carried out in the laboratory, when the total costs are considered. It may be cheaper to perform tests in large numbers, as is done in laboratories at present. Often the test needs to be repeated later in a laboratory.
Having identified problems, the report suggests ways of addressing them. It envisages that pathology departments could, by virtue of their expertise, provide centralised oversight and advice. In this way, pathology departments would be supporting near patient testing by ensuring that it was used to provide accurate and correctly interpreted results. But a key factor for our debate is that the Audit Commission acknowledges that such support for near patient testing in general practice would present considerably more problems. For near patient tests within the hospital the pathology department could identify the extent of activity, register equipment, advise on purchase and maintenance of equipment, advise on staff training in safety and interpretation of results, monitor the quality of results and identify costs to ensure that the near patient testing that is carried out is cost-effective.
To sum up so far, therefore, the Audit Commission report highlights problems relating to near patient testing and acknowledges that its recommendations for addressing those problems are difficult to apply to general practice. All those points were raised by noble Lords and especially by the noble Lord, Lord Ennals.
Noble Lords may be glad to know that this is not the end of the story however. Near patient testing in general practice is not being neglected. The Royal College of General Practitioners set up a working party last autumn. It will oversee the growing use of near patient tests and it plans to issue a series of papers

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advising GPs on the appropriateness of various types of tests, how quality of results can be ensured and how to act on those results. The Department of Health is also funding several projects on near patient testing, including a study by St. George's Hospital and Warwick University on the impact of new technology on investigations in general practice.
My broad statement in response to the noble Lord's question about increasing levels of testing in general practice has to be that at this stage we must sound a note of caution. Some forms of near patient testing could be candidates for providing fast results cheaply. If that were so, it could be beneficial to patients. Patients and GPs are sometimes critical of the delay between sending a sample on a patient and receiving a report. Near patient testing means that a result may be available almost immediately and this is one of the major advantages promoted by supporters of near patient testing. That was mentioned by the noble Baroness. It is hoped that with the introduction of medical audit and laboratory accreditation this problem will be addressed and it may well be that with the advent of near patient testing there will be additional encouragement to laboratories to produce results more swiftly. However, if we are thinking in terms of diagnosing a patient's illness, then the terms "fast results" and "cheaply" need closer attention.
I am advised that as current technology stands, it would not be reasonable to accept a diagnosis solely on the results of a near patient test such as a stick test. The results would need confirmation by conventional testing in the laboratory. That detracts both from speed and cost-effectiveness. I am strongly advised that there is some way to go before near patient testing equipment could be used as a reliable, safe and economical total substitute for full diagnostic testing. It is also likely to be the case, as noble Lords will appreciate, that even with advances in technology it is unlikely that near patient testing will ever be appropriate to some fields of pathology. I am thinking, for example, of histopathology, which involves the examination of tissue.
Near patient testing in general practice does, however, have a role in some circumstances. I understand that near patient testing can prove useful in monitoring the progress of disease in people whose disorder has already been diagnosed and is being treated.
The noble Lord, Lord Hunter, asked what has been achieved so far in this field under the new trusts. That is a little wide of the matter we are discussing, but I know of nothing that is inconsistent with the pathology services. I believe the noble Lord, Lord Rea, expressed anxiety about fund-holding GPs who might skimp on pathology tests. Like other GPs, fund-holding GPs are concerned to provide the best possible service for their patients. They have a responsibility to ensure that appropriate diagnostic testing is available for their patients. Regulations require that fund holders produce monthly reports on their activities which are monitored by the family health services authorities and regional health authorities. If the regional health authorities consider
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that activity patterns are changing without adequate clinical grounds, they are entitled to question the practice and, if necessary, remove fund-holding status.
Lord Rea: My Lords, I am sorry to intervene at this late hour and I thank the noble Lord for allowing me to make this intervention. What I said in relation to fund-holding practices was not that they would skimp on the total number of tests but that they would be likely to do more of them as a stick or near patient test and that that may have certain implications. It would be difficult for a laboratory to monitor what was going on if special arrangements were not made. That was the implication of my question and the question of the noble Lord, Lord Hunter. What arrangements would cover that point?
Lord Cavendish of Furness: My Lords, I am sorry if I misunderstood the emphasis of the question. At the moment there is no hard and fast arrangement. What I have said indicates that the situation is evolving. I am speaking against the background of a very strong note of caution on the whole subject of near patient testing.
The noble Baroness, Lady Robson, asked how testing which was done by GPs would be supervised. The Royal College of General Practitioners has set up a working party which will oversee the use of near patient tests and advise GPs on the appropriateness of various types of tests, how quality of results can be ensured and how to act on those results. Additionally, GPs could participate in quality assessment schemes and seek advice from local pathology laboratories. As in the case of all medical professionals of course, GPs are subject to the overall regulations of the General Medical Council.
The noble Baroness also asked whether it would be possible for some collaborators to become specialists and provide a service to several hospitals on a cross-boundary basis. I agree that the NHS reforms and the separation of purchaser and provider functions should make it easier for that very sensible suggestion from the Audit Commission to come about, but it may be necessary for some pathology functions to remain on each hospital site to deal with urgent "hot tests", as they are known.
The noble Lord, Lord Ennals, asked why there was an apparent fall in tests in 1987–88. As explained in the caption to the table, the measurement system for counting the number of tests changed at that time. Therefore, it is merely a technical movement.
The noble Lord asked how GPs will compare with fund holders and whether there will be a two-tier system. GPs will continue as they are at the moment and so far as I know that is proving satisfactory.
To conclude, let us now consider the current position. The Audit Commission made some constructive recommendations for the management of pathology services, but not because it saw pathology as a notable problem area. Although it acknowledged the heavy demands on pathology services, it did not point to fundamental inadequacies. Its tone was rather of strengthening what we already have.
General practitioners have direct access to pathology laboratories. Health authorities are asked to consider GPs' wishes when placing contracts for

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services. Technological developments in near patient testing have not yet come to full maturity. Checking those preliminary results with the pathology laboratory tends to duplicate effort and cost. Cost-effectiveness is in the interests of all patients, who are entitled to expect the highest quality of service. Near patient testing is a developing art and we should
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continue to be sensitive to its implications for the care of patients. Those are largely implications for the future. The noble Lord, Lord Hunter, has constructively instigated debate on the subject tonight, for which the House will be grateful.
House adjourned at eleven minutes before ten o'clock.