Lords Sitting of 9 July 1993

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Norwich.

Museum of Mankind: Future
Lord St. John of Fawsley Lord St. John of Fawsley asked Her Majesty's Government:
What is their policy for the future of the Museum of Mankind.
Viscount Astor: My Lords, the future of the Museum of Mankind is a matter for the trustees of the British Museum. The museum submitted proposals to my department for the relocation of the ethnography collection to Bloomsbury when the British Library moves to St. Pancras. We are considering that proposal.
Lord St. John of Fawsley: My Lords, does my noble friend realise that the trustees of the British Museum are champing at the bit to divest themselves of the need for 6 Burlington Gardens? The Royal Academy and the Architectural Foundation, backed by the Royal Fine Art Commission, are equally keen to see set up an architectural centre, similar to the Pavillon d'Arsenal in Paris, where architectural projects, lectures and seminars can be held. Does my noble friend realise that the whole project could go ahead if it received the blessing of Her Majesty's Government?
Viscount Astor: My Lords, the British Museum submitted a proposal to the department for the relocation of the collection to Bloomsbury as part of the option for the utilisation of space vacated by the British Library. The British Library is not scheduled to vacate Bloomsbury until 1996. The Secretary of State for National Heritage met with representatives of the Architectural Foundation. We support the principle of an architectural centre for London and I am sure that the Government will study any proposals carefully.
Lord Morris of Castle Morris: My Lords, is the Minister aware that the building to be vacated— sooner or later—by the Museum of Mankind has been seriously proposed as a home for the important and large Khalili collection of Islamic art, which is currently on offer as a free loan to the nation? Can the Minister confirm that that offer also is receiving serious and urgent attention so that the nation does not lose the Khalili collection as it lost the Thyssen-Bornemisza collection?
Viscount Astor: My Lords, a number of parties are interested in Burlington Gardens, including the Royal Academy. We have had a number of proposals from other national museums in addition to the proposal
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from Dr. Khalili. Any decision on the future of the property is for the Secretary of State. who will consider all proposals carefully.
Lord St. John of Fawsley: My Lords, I thank my noble friend for his encouraging reply Will he hear in mind that the natural geographical and cultural link is between the Royal Academy and the present Museum of Mankind, rather than with some potential collection of Islamic art?
Viscount Astor: My Lords, my noble friend makes an observation which adds to the debate. I am sure that the Secretary of State will consider carefully what has been said in your Lordships' House.

Political Parties: Donations
11.10 a.m.
Lord Holme of Cheltenham Lord Holme of Cheltenham asked Her Majesty's Government:
Whether they still see no reason for political parties to say from where their donations have come.
Viscount Astor: My Lords, where individuals make donations for political purposes, they are entitled to the right of privacy if that is their wish.
Lord Holme of Cheltenham: My Lords, I thank the noble Viscount for that Answer. It is on the same lines as what I received on 15th November 1990 from his noble friend Lord Ferrers. However, in view of intervening events, the Government may want to weigh the right of privacy for individual donors—I accept that on its merits for the moment—against the greater public interest of informing people who is donating finance to the party which provides the government of this country. If the noble Viscount finds it difficult to accept that comment from the Opposition, will he listen to the voices of his own party? I refer to the Charter Movement for democracy within the Conservative Party, and to the noble Lords, Lord McAlpine and Lord Parkinson. all of them voices speaking out for the declaration of donations.
Viscount Astor: My Lords, we believe, as do the Liberal and Labour parties, that it is wrong to comment on past individual donations. If people want to make public their donations to any political party or charity, it is entirely up to them.
Lord McIntosh of Haringey: My Lords, does not the Minister agree that he could have defused part of the coming attack if he had said that future political donations would be made public? is he willing to say that now? Can he name any other body concerned in public life which is not required to publish its accounts on an annual basis?
Viscount Astor: My Lords, it would be an unreasonable intrusion into the privacy of an individual. We believe in voluntary parties in this country which receive voluntary contributions from people who wish to support them. Seventy per cent. of all Conservative Party income is raised in the constituencies.
Lord Elton: My Lords, does my noble friend not agree that all the charities in this land respect the wish of a donor's anonymity?
Viscount Astor: My Lords, my noble friend Lord Elton makes an important point. It is entirely for the donor of any money to any political party to decide whether or not he or she wishes to make that fact public. If a company gives money to a political party, that fact must be included in the annual audited accounts.
Lord Bonham-Carter: My Lords, since when was the Conservative Party a charity?
Viscount Astor: My Lords, it is not, but often it looks as if the Liberal Party might be.
Lord Annan: My Lords, is it not a fact that some time ago the Conservative Government altered the rules about trade union donations so that trade unionists now have to opt in to the political levy? Why are not shareholders given a similar privilege? Why should Members on these Benches have to contribute, whether they like it or not, through companies in which they hold shares to the miserable party opposite? Is not this refusal to face the desire, which has been put many times by many people, that donations to political parties should be made public vindictive to their opponents, devious towards the public and contemptible to any fair-minded man?
Viscount Astor: My Lords, any company has the right to give money to any political party that it so wishes. if the sum is more than £200 that has to appear in the annual accounts. In the Labour Party the trade unions fund nearly two-thirds of the income which buys them 70 per cent. of the block vote at the conference which decides party policy, 40 per cent. of the votes in the Labour leadership election and 40 per cent. of the vote in selecting Labour candidates.
Baroness Gardner of Parkes: My Lords, in the position just referred to by the noble Lord, Lord Annan, where shareholders might have the right to opt in, would it not be even worse if public support was demanded and taxpayers had no say about supporting all political parties whether they wished to or not? I know that that is one of the suggestions put forward.
Viscount Astor: My Lords, I agree with my noble friend. There are much better and more important things to do than spend taxpayers' money on funding political party antics.
Lord Holme of Cheltenham: My Lords, we understand why the noble Viscount is bound to be rather defensive in his answers. However, does he not feel that it is rather unfair to the constituency parties and the ordinary members of the Conservative Party, who, we understand, make jam and run wine and cheese parties, and who raise 70 per cent. of the funds, that they should be implicated with these shady international financiers who seem to provide the other 30 per cent.?
Viscount Astor: My Lords, they are not in any way implicated. What is more, when this evening I go to a Conservative Party fund raising event the people I shall meet there will be proud that the money that they raise by selling jam is being used in a worthwhile cause.
Lord Mackie of Benshie: My Lords, has the Minister analysed the motives of the donors wanting privacy? Is it because of modesty or because of shame?
Viscount Astor: Modesty, my Lords. I do not think that the Liberal Party publicises the amount that it receives from individual donations and the names of the donors unless those donors wish their names to be publicised.
Lord Bruce of Donington: My Lords, will the noble Viscount be a little careful when mentioning the sale of jam? He may fall foul of the European Commission.
Viscount Astor: My Lords, the noble Lord always shows to your Lordships that there is no Question in this House on which he is not able to bring in the European element.
Lord McIntosh of Haringey: My Lords, will the Minister be good enough to answer my quite clear earlier question? Can he name any other body in public life which does not publish its accounts on a yearly basis?
Viscount Astor: My Lords, that is an entirely different question from the Question on the Order Paper. I am saying that it is up to individuals who give money to political parties, whatever that political party may be, to decide whether they wish to publicise their donations. We feel that in this country people have a right of privacy if they wish to give money to any cause, whether it be the Labour Party, the Conservative Party or indeed any charity.
Lord Campbell of Alloway: My Lords, is my noble friend aware that there are few of us at all events on these Back Benches who agree with what he has said?
Viscount Astor: My Lords, I am very grateful for my noble friend's support.
Lord Eatwell: My Lords, does the Minister accept that he has demeaned political life in this country by describing political parties as indulging in antics? Is he including Her Majesty's Government's activities in the definition of "antics"? Does he also accept that there is a qualitative difference between giving to charities and giving to political parties which exercise power? It is therefore a corruption of public life in this country if those who exercise power are not willing to publish accounts showing from where they receive their funds.
Viscount Astor: My Lords, of course there is a difference between charities and political parties, but I think it perfectly proper that any person should have the freedom to decide how he wishes to spend his money.

UK Planning Decisions: EC Impact
11.18 a.m.
Lord Boyd-Carpenter Lord Boyd-Carpenter asked Her Majesty's Government:
Whether and, if so, in what circumstances the European Commission has power to interfere with planning decisions in regard to property in the United Kingdom.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde): My Lords, the Commission has no rights to interfere directly with planning decisions in the United Kingdom, but certain Community directives have implications for the operation of the planning system.
Lord Boyd-Carpenter: My Lords, is my noble friend aware, as I have no doubt he is, that the latter part of his Answer is very far from clear—and is probably not intended to be clear? Does it mean, or does it not mean, that the Commission can say in respect of a particular planning decision, "This shall be stopped"?
Lord Strathclyde: My Lords, this is a complicated area, and I certainly have no desire to create any more confusion. The point is that the Commission does not have any direct role of interference in planning decisions but there are some Community directives—for instance, on environmental impact assessments, on the birds directive and on the habitats directive—where the Commission has a role to play in terms of deciding what should and should not be developed.
Lord Bruce of Donington: My Lords, does the noble Lord agree that, whatever powers the Commission has in this particular field, it can have them only on the basis of approval by the Council of Ministers? Is the Minister aware that the Commission makes a number of proposals for submission to the Council and they are filtered through the Committee of Permanent Representatives on which the Commission is represented? Is he further aware that the Committee of Permanent Representatives passes such measures as it believes merits the attention of, the Council of Ministers, but in practice gets a number through on the nod, including many of those which are effective in this field? Further, if restrictions are placed on this country and others, does the Minister agree that they are placed there because of the docility and imbecility of the Council of Ministers?
Lord Strathclyde: My Lords, I cannot think of any directives which are passed on the nod and not without a great deal of discussion between member states on the merits of a particular case.
The Earl of Lauderdale: My Lords, does my noble friend agree that the question asked by the noble Lord, Lord Bruce of Donington, could have been put more succinctly by asking whether it is true that the Commission proposes and the Council disposes, and that is that?
Lord Strathclyde: My Lords, that would have been very appropriate. I know that the noble Lord, Lord
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Bruce of Donington, always likes to make an important point when dealing with matters of this kind.
Lord Tordoff: My Lords, is it not the case that in certain instances the European Commission occasionally has a wiser head than this country, and does not the case of Oxleas Wood bear that out?
Lord Strathclyde: No, my Lords. I cannot think of any occasion when the European Commission has been wiser than the British Government. Certainly, the decision on Oxleas Wood had nothing to do with the European Community and everything to do with the wisdom of my right honourable friend the Secretary of State for Transport.
Lord Williams of Elvel: My Lords, if that is really the case—and I rather doubt it—can the noble Lord explain why infraction proceedings were instigated by the European Commission under the environmental impact assessment directive on the subject of Oxleas Wood and why they are still outstanding? Perhaps the Minister can explain why the Government are continuing to oppose those infraction proceedings and why taxpayers' money is being spent on that? Will the noble Lord further assure my noble friend Lord Bruce of Donington that the environmental impact assessment directive received a great deal of discussion before it was unanimously agreed?
Lord Strathclyde: My Lords, I agree with the latter part of the noble Lord's question. As regards the first part, it is up to the Commission to decide whether Or not to make a case against the United Kingdom. We do not believe that there has been an infraction of the directive and we shall continue to oppose very vigorously what the Commission has said about us.
Lord Clinton-Davis: My Lords, on the point raised by my noble friend Lord Bruce of Donington in relation to the environmental impact assessment. directive, is it not clear that there were major debates on it in the Council? Will the noble Lord accept that. I participated in those debates and that it is quite untrue to say that this matter was cut and dried as regards the COREPER debates?
Lord Strathclyde: My Lords, I accept the point that the noble Lord made. It is true that directives are not passed on the nod, but greatly discussed. I fear that we are getting far away from the original Question on the Order Paper.
Lord Bruce of Donington: My Lords, in view of the questions and answers which have been given, does the noble Lord agree that it would be very good if the proceedings of the Council of Ministers were made public?
Lord Strathclyde: My Lords, that is a decision for the Council of Ministers.
Lord Boyd-Carpenter: My Lords, returning to my noble friend's original Answer, can he confirm that, in the view of Her Majesty's Government, planning decisions affecting solely matters concerning this country are solely matters for the British authorities?
Lord Strathclyde: Yes, my Lords.

"News at Ten": Scheduling
11.24 a.m.
Lord Thomson of Monifieth Lord Thomson of Monifieth asked Her Majesty's Government:
What correspondence they have had with the Independent Television Commission or the chairman of Independent Television News about the proposed move of "News at Ten" to an early evening transmission time.
Viscount Astor: My Lords, my right honourable friend the Prime Minister wrote to the chairman of the Independent Television Commission on 29th June, sending a copy of his letter to the chairman of ITN. The letter stressed the importance of ITV continuing to provide a high quality news service, competing effectively with the BBC.
Lord Thomson of Monifieth: My Lords, while thanking the Minister for that important Answer, is he aware that the "News at Ten" situation is only one of a number of instances, including questions of ownership and takeovers, where a number of ITV companies, in the pursuit of profit, are seeking to get out of the public service obligations laid on them under the Broadcasting Act which has been working for only about six months? Would it not be wise for the Government to resist these pressures, to encourage a period of stability, and then to review the workings of what is undoubtedly a deeply flawed Act with a view to making any changes in step with the renewal of the BBC's charter in 1996?
Viscount Astor: My Lords, I believe that it is premature to reach conclusions as to the quality of ITV services. The new arrangements came into effect only on 1st January this year. Monitoring the output of ITV is the responsibility of the ITC and not the Government. The ITC's assessment will he included in its annual report to Parliament. We have had a debate in your Lordships' House about the moratorium which was intended to provide a short period of stability at the start of the new licence period, not to offer long-term protection against the normal discipline of takeovers. Following the debate in your Lordships' House, that is one of the issues which we are considering.
Lord Barnett: My Lords, in declaring an interest in these matters as vice-chairman of the BBC, can the Minister explain, because I am somewhat puzzled, why the Government should have been surprised that commercial companies put profit first? Is that not what lay behind the Broadcasting Act? As to the main issue of "News at Ten" and its possible move, the Minister will be aware that the commercial companies have made it clear that they may have lost a battle but not the war and that they intend to return to the issue. If they do —or rather, when they do—will the Minister say whether the Government believe that they have appropriate powers to prevent moving "News at Ten" and, if so, what are those powers?
Viscount Astor: My Lords, ITV companies have always been profit-making entities. That has been the case since the ITV system came into being in this country. I understand that the ITC and the ITV companies will discuss the question at a meeting next week. It would be unwise to prejudge its outcome. The Government do not seek to intervene in programme content and the editorial judgment of broadcasters. But the Prime Minister thought that the ITC should be aware of the widespread concern as regards the proposal to move "News at Ten" to an earlier slot. It is for the ITC to enforce licence conditions under the provisions of the Act.
Lord Sharp of Grimsdyke: My Lords, does my noble friend the Minister agree that the timing of television news programmes should be decided by the preferences of TV viewers rather than by politicians?
Viscount Astor: My Lords, my noble friend makes an important point. It is for the ITV companies to agree their scheduling and "News at Ten" has to be shown during a peak period. It also has to be broadcast simultaneously by all the ITV companies.
Lord Bonham-Carter: My Lords, does the noble Lord agree that under the present dispensation—
Baroness Birk: My Lords,—
Noble Lords: Order!
Baroness Birk: Is it not true that what we are experiencing now as regards "News at Ten" is the tip of an ugly iceberg which I, and my friends on these Benches, warned the Government would appear resulting from the combination of the priority of profit over programme quality and the enormous payment to the Treasury resulting from the horrendous auction? That leaves one with a certain amount of sympathy for the companies because of the sums of money they have to pay out. Although the Minister, in reply, I believe, to the noble Lord, Lord Thomson of Monifieth, said that it was premature to make a decision now to investigate the situation again, is it not the case that the strong reaction of the Government and the Opposition at the highest level, plus the damning report, recently published, of the all-party National Heritage Committee, show the need for a review either of this deeply flawed Act, as has been said, or of broadcasting generally, together with ITV and the BBC? In the meantime will the Government consider introducing legislation to oblige ITV companies to show a half-hour news bulletin starting at 10 o'clock'?
Viscount Astor: My Lords, I am sure that the ITV companies have taken note of the concern expressed not only by the Prime Minister and the Leader of the Opposition in another place, but also by the Select Committee on National Heritage and, of course, by your Lordships' House. I must advise the noble Baroness that the ownership rules were extensively debated in your Lordships' House during the passage of the legislation. Many of the provisions have only just come into force and a very good case would have to be made for making changes at this stage. My right

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honourable friend the Secretary of State had a helpful meeting with the ITV companies on 14th June and is considering the views put to him at that meeting.

Appropriation (No, 2) (Northern Ireland) Order 1993
11.30 a.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (The Earl of Arran)The Parliamentary Under-Secretary of State, Northern Ireland Office (The Earl of Arran) rose to move, That the draft order laid before the House on 7th June be approved.
The noble Earl said: My Lords, the draft order authorises expenditure of £3,116 million for Northern Ireland departments in the current financial year. That is additional to the sum voted on account in February, and brings total estimates provision for Northern Ireland departments to £5,492 million. That is an increase of 9.6 per cent. on 1992–93 provisional outturn.
Before turning to the details of the Estimates, I should like to set them in the context of the recent performance of the Northern Ireland economy. The local economy has been remarkably resilient despite the severe recession which has affected the United Kingdom. Indeed, there is general recognition that Northern Ireland has fared better than most other regions of the United Kingdom. Industrial output levels have remained relatively stable and employment has fallen by less than in the rest of the United Kingdom. Recent trends in unemployment have been encouraging, with seasonally adjusted unemployment falling by 2,900 in the past three months. Recent surveys of the local business community point to a marked upturn in business confidence, improved export market performance and high levels of planned investment, but we cannot, of course, be complacent. Unemployment is still too high and the single market will present challenges as well as opportunities. However, Northern Ireland is well placed to take advantage of the recovery in the national economy now under way.
I now turn, to the main items of expenditure covered by the order, and detailed in the Estimates booklet, starting with the Department of Agriculture. Total net provision in the two agriculture Votes amounts to some £151 million. In Vote I, £29 million is for EC and national agriculture and fishery support measures. That covers the various market support schemes under the reformed common agricultural policy and introduces support measures for the local potato sector; £9 million is to assist structural improvements and £18 million is for support for farming in less favoured areas.
In Vote 2, some £122 million is for regional agriculture, fisheries, forestry and support measures. That includes £53 million for agricultural, scientific and veterinary services. It covers a wide range of professional and technical services, including animal health and disease control; £28 million is for watercourse management, fisheries and forestry and £11 million for the agricultural development operational programme.
In the Department of Economic Development's Vote 1, £148 million is for the Industrial Development Board. This will enable it to carry out its role of strengthening Northern Ireland's industrial base and to meet its existing commitments, primarily in the area of selective assistance to industry. The board also aims to attract internationally competitive inward investors. Together with the development of existing companies, this provides a sound base for growth in durable employment.
In Vote 2, £37 million is for the Local Enterprise Development Unit. Total employment in firms assisted by the unit is now almost 28,000; £9.8 million is for the Industrial Research and Technology Unit, to assist in the creation of a strong industrial base in Northern Ireland.
Finally in Vote 2, £11.9 million is for the Northern Ireland Tourist Board to assist the further development of tourism in Northern Ireland. For the fourth successive year, a record number of visitors—I.25 million—came to Northern Ireland last year.
In Vote 3, £193 million is for the Training and Employment Agency. This includes £47 million for the youth training programme; £52 million for the "Action for Community Employment" programme; and £21 million for the job training programme.
I now turn to the Estimates for the Department of the Environment. In Vote 1,£176 million is for roads, transport and ports. This includes £144 million for the roads service, where emphasis is being placed on the maintenance of Northern Ireland's well-developed road system.
DoE Vote 2 covers the important area of housing. Some £193 million is to provide assistance to the Northern Ireland Housing Executive and to the voluntary housing movement. When net borrowing and the housing executive's rents and capital receipts are taken into account, the total resources available for housing will be some £552 million.
In Vote 3, gross expenditure on the water and sewerage services in 1993–94 is estimated a t £174 million. That is an increase of some £27 million over 1992–93 outturn; £77 million is for capital expenditure and £97 million for operational and maintenance purposes.
In DoE Vote 4, £135 million is for environmental services. Increased resources are being devoted to monitoring and controlling pollution and the number of water quality sampling stations has been increased; £37 million is for urban regeneration measures. It will be targeted at areas of social, economic and environmental need.
The Estimates for the Department of Education seek a total of £1,253 million, an increase of 2.5 per cent. over last year. Vote 1 includes £772 million for recurrent expenditure by education arid library boards. That includes £407 million for school teachers' salaries and £250 million for other expenditure on schools and on further education services; £115 million is for libraries, youth, transport and administration; £129 million is for voluntary schools and £8 million for integrated schools. I know that your Lordships continue to take a keen interest in the development of integrated education in Northern

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Ireland. There are now 18 integrated schools in operation, with over 3,300 pupils in attendance. I think that your Lordships will agree that that is encouraging news.
Vote 2 includes £94 million for universities and £128 million for student support; £15 million is for arts and museums and £3 million for community relations activities funded by the Department of Education.
For the Department of Health and Social Services, total net provision is £1,209 million. This will maintain and improve the standard of the Province's health and personal social services. It is an increase of £74 million over estimated outturn for 1992–93.Spending on the family health services will be £250 million, while £929 million is for the health and social services boards; £38 million is for capital expenditure, to maintain a substantial programme of works.
In Vote 4, £1,127 million is for a range of social security benefits, an increase of more than 6 per cent. on last year. In Vote 5, £482 million is to cover expenditure on the Independent Living Funds, housing benefit, the Social Fund and payments to the National Insurance Fund.
Finally, I turn to the Department of Finance and Personnel. In Vote 3, over £4 million is for the community relations programme. It brings total spending on the programme to £7 million, reflecting the importance the Government attach to improving community relations.
I hope that your Lordships have found this short summary of the main components of the Estimates helpful. I commend the order to your Lordships. I beg to move.
Moved, That the draft order laid before the House on 7th June be approved.—(The Earl of Arran.)
Lord Blease: My Lords, the usual procedure is for the appropriation order to be debated first in another place. Normally, I like to read what the elected representatives for Northern Ireland have to say on business matters and take some solace or leadership from them. However, on this occasion, if they wish to do so, they will be able to read the comments made in this House.
First, I should like to draw attention to the total sums mentioned by the Minister. The essence of appropriation orders is that they act as blood transfusions to the body politic in Northern Ireland. They are transfusions by which the economic and social life of the province can keep the heart of the community working in a purposeful way.
In the context of the UK Government's fiscal commitments the sums we are invited to consider demand a reasoned approach to the policies, support, accountability and effective and efficient use of the available resources. In that connection, I wish to compliment the Northern Ireland Audit Office on its work and the clear concise form of its published reports.
I turn to the order. I am not sure that I can deal in detail with the sums mentioned. I shall try to point out the Votes to which I shall refer. In the Vote for the Department of Health and Social Services (page 10) I
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wish to draw attention to the establishment of the Voluntary Activity Unit. That new unit was noted in our appropriation order debate on 25th February 1993. It was formally established on 16th June 1993 when an Assistant Secretary was appointed to the Department of Health and Social Services as head of the unit. I understand that a major part of the funding of that interdepartmental unit will be derived from the EC's structural funds. I see no amount relating to that unit in the Vote in the Northern Ireland 1993–93 estimates.
I have noted the Voluntary Activity Unit's strategy paper Support for the Voluntary Sector and for Community Development in Northern Ireland. In the light of that report which has just been issued, I welcome that initiative. I understand that the unit will play a lead role in co-ordinating voluntary activity and community service development. It will also provide the appropriate machinery for active interdepartmental participation. I note also that the unit's aim will be to ensure the effective and efficient development and delivery of appropriate community services. That is a worthy, laudable and timely aim. It is worthy of the support of this House and the community in Northern Ireland.
Will the Minister tell us the initial sum granted for that unit; and how and when the Department of Finance and Personnel proposes to carry out the consultations with interested bodies in the voluntary sector about the EC's structural funds plan? That department is separate from the department in which the unit has been set up. Wide-ranging co-ordination is required in that respect. Will the Voluntary Activity Unit publish an annual report?
I turn now to the Northern Ireland Economic Council which is referred to on two pages of the Estimates. It comes under the Department of Finance and Personnel which I note has had a decrease of £1,000 in the total funds granted to it. In June of this year the Northern Ireland Economic Council in its Report 102 entitled Business Confidence Surveys in Northern Ireland states:
"The aim of this discussion paper is to assess the results of business confidence surveys published on a regular basis in Northern Ireland. These surveys attract a good deal of media attention when published and, therefore, it is of interest to evaluate their accuracy and the degree of confidence that can be put on their results. In principle, a business survey should provide a guide to the state of business sentiment prevailing among participating firms and thus to their intentions concerning future business decisions. The surveys are, therefore, a key source of information on local economic trends".
The proliferation of such reports, surveys and analyses published in Northern Ireland sometimes gives rise to considerable confusion. We must pursue a path that is in the best interests of all sections of the community. I realise that it is difficult for the Government and the Northern Ireland Office to react to those reports when it is considered necessary and desirable to do so. Some of those reports are reviewed in the Northern Ireland Department of Finance and Personnel monthly economic report. They are useful but may not receive the coverage necessary.
I wish to draw the Minister's attention to the press reports of the Northern Ireland Economic Research

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Centre. It is an independent research institution which I understand has links with Queen's University, Belfast and Ulster University and with industrial bodies. According to the press report, the NIERC suggests that the long-term unemployed should be offered semi-permanent jobs. It continues by suggesting that the current levels of unemployment of 100,000, or 14 per cent., of the working population, were likely to continue at that level for the next 10 years.
The press report states that a spokesman for the Department of Economic Development welcomed the NIERC's views on the economy as they were in line with the Government's own views on the economy. Will the Minister undertake to inquire into the NIERC statement and the DED's comments? Will he tell us whether the Government have policies for the long-term unemployed as mentioned by the NIERC? Incidentally, there are no copies of the NIERC publication in the Library of the House of Lords.
The third point arising from the order is referred to in two reports: one from the Department of Finance and Personnel and the other from the Department of Economic Development. One report is entitled Research and Development Activity in Northern Ireland and the other relates to the Industrial Research and Technology Unit. On 7th May 1993, the Northern Ireland Economic Council published a press release on Report 101 on research and development. The press release states:
"The main findings of the Report is that Northern Ireland suffers from a low level of industrially financed R&D. Only 17 per cent. of private sector firms, accounting for 36 per cent. of employment, spent £49 million on R&D in 1991 in Northern Ireland. Industrially financed R&D in Northern Ireland amounted to just 0.4 per cent. of GDP, compared with 1.1 per cent. in the UK. 0.6 per cent. in the Republic of Ireland, 2.2 per cent. in Japan, 1.8 per cent. in Germany and 1.4 per cent. in the US".
The press release continues:
"It is the Council's view that R&D policy in Northern Ireland has, in the past, lacked a sense of direction which is unfortunate given its importance to economic growth. In order to ensure that R&D plays its full part in increasing the competitiveness of the local economy the Council makes a series of policy recornmendations".
The report then lists a series of recommendations. The Industrial Research and Technology Unit was established within the provisions of the Department for Economic Development. The IRTU's board, chairman and chief executive were appointed recently by the Secretary of State. The unit issued its corporate plan a few days ago. I consider that that plan should be warmly welcomed and supported. I understand that the role of the unit is to act as a focus, catalyst and facilitator. Will the Minister indicate how the corporate plan is to be pursued? We know that the unit has a board and a chief executive. How will it incorporate the sectoral approaches to the economy in Northern Ireland? How is its ongoing role to be evaluated and monitored? Will that be the function of the board or the department? Will a report be published annually? If the role of the IRTU is to be enhanced, why was the vote reduced by more than £1 million, according to page 51 of the Northern Ireland Estimates for 1993–94?
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The decision to review the Northern Ireland education reforms has been widely welcomed by teachers' organisations and parents. It is important. that the Ministers in Northern Ireland have an opportunity to review certain decisions in the light of discussions with organisations. The Training and Employment Agency's corporate and national plans have been published within the past few days. They have aroused considerable public interest. The agency's work is vital to the promotion of skills and employment and is to be warmly 'welcomed and supported. The announcement on 6th July of the creation of 600 jobs in the clothing industry in the north west of the Province is also to be warmly welcomed.
I wish to comment on the Health and Personal Social Services Order 1993. I know that the Minister has arranged for consultations with representatives of organisations in Northern Ireland which. are directly concerned with the order. However, I have been pressed to indicate the serious anxiety about the brief and difficult period allocated for consultations. I shall not go into detail about the time and so forth. This is an important and controversial piece of legislation and I believe that there are a number of valid reasons why the term should be extended. With those remarks I support the order.
11.53 a.m.
Lord Hylton: My Lords, I wish to raise a few technical matters of which I have given the Minister notice. The first concerns crime prevention. Will the Minister say whether the Government's conclusions on that matter have yet been published and if not when it is expected that they will be? The Minister will be well aware that ordinary crime, theft arid vandalism. impose considerable burdens on the whole community in Northern Ireland. Prevention will require real co-operation between numerous government departments and voluntary bodies. However, Northern Ireland has a population which is small enough to make possible an overall experiment in this field. which will be worthwhile. I hope that 25 years of research in the United States on the positive value of pre-school education and nurture will be taken into account.
I turn to fine default and defaulters. Will the Minister say what progress has been made on measures to reduce that, in particular to reduce the number of defaulters committed to prison, usually for very brief periods? If we can have progress on that matter it will have an important bearing on the future of the Crumlin Road prison, to which I shall refer in a moment. Can the Minister say when legislation on unit fines in Northern Ireland will be ready? Will the not altogether satisfactory experience in England and Wales be taken into account when it comes to legislating for Northern Ireland? Will the Minister also say when the Government expect to come forward with non-custodial penalties for fine defaulters? That is another important way of reducing the amount of imprisonment?
I turn to the Crumlin Road prison, which, as everyone knows, is an extremely old building. Will the

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Minister give us some hope that refurbishment of the cells will begin sooner than in late 1994, which is a previously forecast date? I am well aware that the matter depends on certain preliminary work being carried out but, obviously, the sooner improvements can be made to the cells the better. Perhaps I may observe in passing that it cannot be right that remand prisoners should be kept in conditions which are appreciably worse than those in the other two major men's prisons where people are serving long-term sentences.
Finally, I turn to the Northern Ireland prison rules. I understand that work is in progress on a revision of those rules. Will the Minister say what consultation is being undertaken with outside bodies as regards the revision? When will at least draft new rules be ready and available?
11.56 a.m.
Lord Cooke of Islandreagh: My Lords, I welcome the order and thank the Minister for the manner in which he introduced it. It brings home to us in Northern Ireland just how much it costs to run Northern Ireland. We are aware of that in particular because of the high costs associated with terrorism. We hope that that can be removed as quickly as possible. I do not wish to go into the accounts in detail because I intend to comment further on the next order. However, perhaps I may ask questions in respect of three straightforward matters.
Consultation is now in hand for the post-1993 European Community structural funds. That is important because the funds are sizeable. They are particularly important in Northern Ireland because of the substantial sums which are expected across the border in the Republic of Ireland. The Department of Finance and Personnel has issued an excellent consultation paper which is now being discussed. I hope that the standard of consultation and discussion will continue as the plans take shape.
In the past, European funds for grants such as this have been subject to additionality. That means that if any funds come from the EC, the Treasury will withdraw equivalent amounts which were to be spent on that project. That is disheartening and blunts the planning process. Is the noble Earl able to advise us that the rules of additionality no longer apply?
Sadly, bomb damage on a massive scale continues. Thousands of householders, shopkeepers and so forth, are having to repair bomb damage. The way in which compensation has been paid has taken into account betterment. That means that if a shopkeeper replaces a roof which has been blown off he will not receive compensation because the new roof is said to be better than the old one. That may well be, but all the poor sufferer of the bomb damage wants is to get his roof replaced. It seems unfair not to pay full compensation because of so-called betterment.
As regards road surfaces, we are fortunate in Northern Ireland to have an excellent road system which permits fast and reasonably safe movement from one place to another. One of the most dangerous roads at present is the road from Antrim to
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Ballymena. The first stage of the dual carriage-way was completed some three years ago and it was intended to commence the second stage immediately afterwards, but that appears to have been put back for some years. It is an important road. Perhaps the Minister will be able to give some better news as to when the second stage of the dual carriage-way will be commenced. I support the order.
Lord Fitt: My Lords, I wish to raise one important subject which I have already discussed with the Minister. It is in relation to the Royal Victoria Hospital in Belfast. The Government have given guarantees that the future of the hospital is secure, that there is no intention to run it down, and that all rumours to the contrary are malicious. That is the Government's view but that is not the view of the people who live in West Belfast.
The hospital has been in existence for 150 years. Its patients come from both the loyalist and republican communities. It is the one thing on which those two communities agree: they do not wish to see the run-down or closure of the Royal Victoria Hospital. At present in that area of Belfast there are two constituency doctors who are campaigning in that regard—Dr. Des Hall and Dr. Joe Hendron, who is also the Member of Parliament for the area. I take a great interest in this matter because I was formerly the elected representative for West Belfast. I speak in the debate knowing that the Minister who is to reply is in charge of hospital services in the City of Belfast.
One hears varying accounts of what is to happen and what is rumoured to happen. The general public in Northern Ireland believe that the ENT departments in the hospital are to be closed down completely and that a whole lot of electro-surgery departments are to be closed down completely and transferred to another hospital outside the constituency.
I know that the Government will approach the matter from the point of view of cutting costs but when dealing with hospitals in Belfast there is much more at stake than the pure cost of the hospitals. As has been said by Dr. Des Hall, who is a great campaigner on this issue, the Royal Victoria Hospital in Belfast is an institution which has held together the social fabric of the people in that area. There has never been any dispute among the various communities, whatever their religious and political ideals, about that hospital. It is extremely important that the hospital should be kept open, irrespective of what decisions have been arrived at by the Government. Six thousand people in West Belfast are employed in that hospital and it is quite obvious that, if it is run down to the extent that has been advocated, many of those 6,000 people will lose their jobs, as will those who work in the small shops which depend for their income on the people who work there. The economic consequences of the closure of the hospital would be absolutely chaotic for that area.
I know that the Minister has received many deputations from all sections of the community in West Belfast. There have been demonstrations and assurances have been given. I should the like the Minister to give an assurance in this House that the

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future of the Royal Victoria Hospital is secure and that it will not be closed down or run down merely on a cost-effective basis.
12.4 p.m.
Lord Holme of Cheltenham: My Lords, those of us who follow closely the affairs of Northern Ireland and who meet on Friday mornings and late at night derive a great deal of encouragement from the quality of our debates, even though there are not many noble Lords here. I thank the noble Earl for the way in which he introduced the order and I thank those noble Lords who have spoken so far. I certainly support the noble Lord, Lord Fitt, in his plea for the Royal Victoria Hospital.
Lord Blease: Hear, hear!
Lord Holme of Cheltenham: My Lords, I also pay tribute to the noble Lord, Lord Blease, whose experience of the affairs of Northern Ireland was reflected in the very comprehensive set of questions that he asked the noble Earl.
It is right to put the order in some perspective. Although there is exceptionally bad news politically in Northern Ireland, which we shall no doubt come to in our discussions on the next order, not all is bad economically. As we know, there has been a terrible recession in the United Kingdom as a whole, but Northern Ireland has proved relatively resilient to that recession. For example, unemployment is now only 6.7 per cent. higher than it was in April 1990, the previous trough; whereas in the rest of the United Kingdom the rise has been nearly 90 per cent. over that period. Since February, when seasonally adjusted unemployment in Northern Ireland peaked at 170,400, it has fallen to 104,500. That is still a great many people unemployed but the tide is moving in the right direction. There has been a fall from 14.3 per cent. to 13.9 per cent. and the number of unemployed fell by over 1,000 from April to May.
In the most recent CBI survey of business confidence in Northern Ireland, 31 per cent. of industrialists expect capital investment to increase whereas only 10 per cent. expect it to fall; 25 per cent. expect general investment to increase and only 10 per cent. expect it to fall. Therefore, there is a mild breeze of economic recovery in Northern Ireland.
We all know that, economically, that has a great deal to do with government support because 40 per cent. of all jobs in Northern Ireland are, in one way or another, government funded. Harland and Wolff, a major employer. still relies heavily on government defence contracts. Therefore, this appropriation order continues to be the bedrock on which the Northern Ireland economy rests.
From the point of view of taxpayers in mainland Britain, it is quite a heavy burden. It comes to about £100 per household. From these Benches we believe that that is a burden which must be taken up. It is a responsibility that we cannot avoid. However, we must make sure that the large sums of money spent—and I know that this is one of the preoccupations of the Government—are spent as wisely and as prudently as possible.
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I have one or two specific points to raise which I have mentioned to the Minister in comparing this appropriation order with the previous one. Why has the sum granted to the Department of Economic Development gone down, especially that part assigned to the local enterprise development unit? That is down from £53.5 million in last year's order to approximately £48 million. The noble Earl will know that that department is responsible for expenditure on local enterprise, labour mark et services and energy efficiency. I should have thought that all those are crucial to an economy which is struggling to recover from a recession. For example, I wonder whether energy efficiency would be improved were the electricity inter-connections with the South to be restored.
My second question about the order is: why has the: sum granted to the Department of Finance and Personnel gone down, especially that portion assigned to community relations, cultural tradition and the Northern Ireland Community Relations Council? That figure is down from £2.9 million in 1992 to just under £2.5 million this year.
I raise that in particular because community relations are more important in Northern Ireland than anywhere else in the UK. The Government must be extremely careful not to make false economies in that area. There have been very shaky events in Northern Ireland. One of the priorities in the Government's mind should be that community relations and cultural traditions are worth every penny of the funding which they inspire. Having asked those questions of the Minister, he can take it that the order has the general support of these Benches.
12.10 p.m.
Lord Prys-Davies: My Lords, I, too, should like to thank the Minister for the care and the clarity with which he explained the main provisions of the order to the House. I look forward with great interest to hearing his response to the range of questions that have been asked this morning.
At about this time of the year, when seeking the approval of Parliament to the supply of money, it has become the practice of Ministers to offer an optimistic review of the performance of the Northern Ireland economy. That seems to me to be the recurring theme of speeches. Indeed, this morning the Minister referred to the economy being remarkably resilient. If I may say so, those are precisely the words that were used by the noble Earl a year ago. Of course, it is important that the Government should be making that point whenever possible as the economy, in terms of the Government's priorities, is second only to the maintenance of law and order, and rightly so.
Therefore, while I believe that it is fair to say that the economy is in a better shape than we would have expected two years ago, it is premature at this stage to speak confidently about the recovery. Indeed, that is the message from the April assessment of the Economic Council.
As has been mentioned, the total funding authorised by the order is, once again, very substantial. I fully agree with the noble Lord, Lord

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Holme, that that is fully justified. The reasons for it are well known. But, given the fact that Northern Ireland is so heavily dependent upon public expenditure, any significant cutbacks in public spending which apply across the board will be more threatening in Northern Ireland than in the rest of the United Kingdom. It follows that we are concerned at the cuts that may be applied in the autumn, and their consequences.
I am in no position to say anything about the merits of the allocation between the departments, but I assume—and I hope that the Minister can assure us —that that aspect is being constantly reviewed by Ministers. It needs to be constantly and closely examined. Again, that point was made in the report of the Economic Council.
Bearing all that in mind, I wish to draw attention to one or two of the programmes in which I happen to have an interest in order to seek information and clarification. I shall begin with the Department of Health and Social Services as it is the Minister's special field of responsibility. For many years, the NHS in Northern Ireland has had more health service staff per head employed in the service than any health authority in England and Wales. I am not quite sure about the position in Scotland. Yet, Northern Ireland has the largest proportion of patients—that is, one in five —waiting for more than a year for treatment. What is the explanation for that long waiting time? One wonders whether there is a mismatch of resources locally. Are the operating theatre sessions badly organised? Further, is there a failure of management at board level or within the hospitals? That has been suggested by some of the consultants at the Royal Victoria Hospital. Perhaps the Minister can assure the House that the matter is at least being studied.
The morbidity statistics show that Northern Ireland has the highest male death rate from heart disease of any region in the United Kingdom. Is that significant statistic being inquired into by the medical school or by a university department? Alternatively, has an outside body been commissioned to consider it? Further, is the Health Promotion Agency addressing the issue in any helpful way? The situation seems to point to a need for greater emphasis to be placed on preventive care.
I must tell the Minister that I very much appreciate his willingness to meet a deputation later on this month to discuss the widespread concerns among social workers arising out of the possible legislation which will enable community trusts to manage the children's service of Northern Ireland. The Minister will know that there is a very strong conviction among professionals in Northern Ireland that the envisaged legislation will produce the wrong model of care. I also trust that the Minister will look carefully at the case of the Royal Victoria Hospital. I am absolutely sure that my noble friend Lord Fitt was right to raise the issue in your Lordships' House.
Before I leave the Minister's special responsibilities, can he tell the House what steps the Northern Ireland Social Security Agency is taking to recover
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overpayments of income support benefit and mortgage interest, which was the subject of the 39th report from the Public Accounts Committee?
Northern Ireland has the youngest population of any region in the United Kingdom. Given the high birthrate, why is it that provision for nursery education is so woefully inadequate? The education departments in England and Wales have a very poor reputation in that regard, as was vigorously demonstrated during the passage through the House of the Education Bill. But Northern Ireland has an even worse record. It has the lowest level of publicly-funded childcare in the whole of the UK, having only five places available in day nurseries for every 1,000 children. Surely Northern Ireland should be doing far better than that? More day places would bring so many beneficial results and possibly the noble Lord, Lord Hylton, had that in mind. It will even help to make it possible for more women to continue in employment, which is an important issue being addressed by the Equal Opportunities Commission. In the longer term, it might be a small part of the solution to the chronic problem of under-achievement in the secondary schools, which is one of the features of the education system. Can the Minister offer any words of reassurance?
I turn now to the Vote on economic development. I should like briefly to mention two points. The department is at the core of the job creation programme in Northern Ireland. We are all aware that the PAC has looked critically at the number of jobs actually created by LEDU and the cost of the jobs created. It published its report in May. I must say that I was not entirely surprised at the line pursued by the PAC as I had already picked up some of the concerns two or three years ago. When does the department expect to be in a position to reply to the report?
One item that surprises me in the detailed breakdown of the Estimates, notwithstanding what was said by the Minister about the tourist industry in Northern Ireland and its potential, is that in Vote 2 the expenditure on tourist development is slightly down. I believe that the main reduction will be on promotion and marketing. I had understood that the Government—and, indeed, the Government of the Republic—fully recognise that tourism is a growth industry capable of contributing substantially to economic prosperity in many parts of the island of Ireland. That is particularly so at a time when agriculture is shedding so much labour. Perhaps the Minister can explain the proposed curtailment.
Within Northern Ireland reconciliation is essential to the work of the Government. I agree very much with the remarks made by the noble Lord, Lord Holme. Therefore, special encouragement has to be given at all times to cross-community projects and to encouraging cross-community co-operation. I can assure the noble Earl that we on these Benches will never be critical of expenditure on those programmes. The programme of community relations work is also inevitably part of the responsibility of the Department of Education. Its youth service programmes have a cross-community dimension.

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I should like to ask whether there is more that the Department of Education can do in support of the integrated schools movement. I am pleased to see that an increased allocation is sought for in those schools in the department's Vote 1. However, I am not sure how to interpret the quite substantial decrease in the amount sought for 100 per cent. grants on the provision of premises and equipment.
I believe that there may be some unease about the future. Yet there is evidence, referred to in last year's annual report of the Standing Advisory Committee on Human Rights, that there is a high level of support for the concept of integrated schooling. Parents are asking that more information should be made available on integrated education. I gladly acknowledge that the Government have given positive support for integrated education. However, perhaps I may suggest that continued commitment on the part of the Ministers and of the department is required in order to ensure that development continues in the future.
That is my main approach to the order. Public expenditure in Northern Ireland is heavy, but justifiably so. Nevertheless, we have a duty to ensure that the money is being spent wisely and efficiently, not only on the provision of existing services but also on the building up of those services which are being demanded by the requirements of a better society in the future.
12.20 p.m.
The Earl of Arran: My Lords, I thank noble Lords for their particular contributions to this debate this morning. When discussing Northern Ireland there is almost inevitably a tendency to focus on the problems and the difficulties. I do not seek to underestimate them but there is also a positive side which can easily be overlooked. Much has been achieved in Northern Ireland in recent years on the security, economic and social fronts. The local economy has survived the recession remarkably well and is well placed to take advantage of the recovery now under way, while new opportunities are opening up in Europe and beyond. That point was mentioned by the noble Lord, Lord Holme of Cheltenham.
Northern Ireland also enjoys a high standard of education and a first-rate health service, while significant improvements have been made in housing. I recognise that there is much more to do but let us acknowledge what has been achieved, often in difficult circumstances.
I shall now try to answer some of your Lordships' questions. I am of course always extremely mindful of the help and courtesy that your Lordships have displayed in giving me notice of many of the questions that have been raised this morning.
The noble Lord, Lord Blease, asked about voluntary activity units. The Voluntary Activity Unit has assumed lead responsibility on community development and will provide structures necessary for interdepartmental consideration of key issues in this field. In establishing the appropriate interdepartmental liaison machinery, Northern Ireland departments will have regard to the need to enhance the effectiveness and efficiency of departments' existing
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commitments to community development, and ensure as far as possible that there is coherence between existing programmes which have a community development dimension. I am grateful for the helpful comments of the noble Lord, Lord Blease, and I undertake to write to him on the funding point and on the annual report. The initial task of the Voluntary Activity Unit will be to prepare a draft strategy statement on the unit's precise aims and role and, as promised in the Strategy for the Support of the Voluntary Sector and for Community Development in Northern Ireland, the voluntary and community sector will be consulted on this. Work on drafting a strategy statement is presently under way.
The noble Lord, Lord Blease, also asked how the new Structural Fund regulations will work. These have not yet been agreed but it is likely that in Northern Ireland they will work in a broadly similar way to last time. A plan and operational programmes will be submitted to the Commission which will respond with a community support framework. This will set out the areas to be funded.
The noble Lord, Lord Blease, also referred to a number of recent reports on the Northern Ireland economy. Business confidence surveys act as an important source of information on local economic trends and attract a good deal of media attention. The aim of the Northern Ireland Economic Council discussion paper was to assess the accuracy and reliability of the results of the two surveys published in Northern Ireland on a regular basis. These are the PA Consulting Group Quarterly Survey of Business Prospects and the CBI Business Confidence Survey. The council concluded that, suitably interpreted, surveys of business opinion are useful as economic indicators in the short run and provide greater understanding of business psychology. They can therefore assist in assessing the state of the local economy and act as a guide to possible future economic trends.
The noble Lord also asked about the Government's policy for increasing employment. Achieving higher levels of employment in Northern Ireland depends on increasing economic growth and on Northern Ireland industry becoming more internationally competitive. The Government's strategy to achieve this includes helping companies to identify and remove obstacles of growth; encouraging inward investment; building up management and workforce skills; developing an enterprise culture; supporting innovation and research and development; and targeting programmes, where necessary, on areas of social and economic deprivation and on the needs of the long-term unemployed. The NI EC's suggestion that Government should become an employer of last resort is very radical and will clearly require further study by officials.
The noble Lord also referred to the recent Northern Ireland Economic Council report on the Industrial Research and Technology Unit (IRTU). Let me say that we very much welcome this report, with which IRTU co-operated. The NIEC's conclusions reflect very closely those outlined in IRTU's strategy document Innovation 2000, in particular, the need to

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raise both the level and quality of R&D activity in Northern Ireland. IRTU's recently published corporate plan for 1993–95 will address many of the NIEC's concerns; for example, the need for close collaboration with universities and others involved in industrial R&D and in promoting awareness campaigns. The unit's funding is slightly lower this year but this is due to the fact that additional resources were given last year. However, I will write to the noble Lord, Lord Blease, in answer to his points on monitoring.
As regards the extension of time for consultation on the health and personal social services order, new legislation on health and social services trusts was published for consultation on 17th June. The period of consultation is due to end on 6th August. I will, however, take into account the noble Lord's concern about the timing proposed.
The noble Lord, Lord Hylton, asked about the Government's response to the recent public consultation exercise on the discussion document Crime and the Community. Your Lordships will recall that this document articulates a coherent set of criminal justice policies and initiatives for Northern Ireland, including a proposed community safety strategy. The document was published in March and comments were sought by 30th June. A number of interesting, constructive and useful responses have been received. Others are still awaited. The Government will give careful consideration to these responses before taking decisions on the way forward. The noble Lord also emphasised that effective crime prevention requires good co-ordination between government departments. The Government agree strongly with that. That is why one of the elements in our proposed community safety strategy is to improve arrangements for co-ordination within central Government. Our aim is to link any new arrangements, where appropriate, into existing inter-departmental co-ordinating arrangements. The noble Lord's point is therefore a valid and constructive one.
The noble Lord, Lord Hylton, also asked about the refurbishment programme for Belfast Prison. This will begin later this year. Present plans provide for the completion of extensive preliminary work to improve the services and up-grade the security of the prison before the refurbishment of cells can begin in the summer of 1995.
On the segregation and integration of prisoners, there has been no change in the policy re-iterated by my noble friend Lord Belstead in this House on 4th March 1992 in responding to the report by my noble friend Lord Colville on the management of prisoners from opposing factions in Belfast Prison. Segregation of prisoners acts against security, the best interest of prisoners and staff and the efficient management of the prison service.
The noble Lord, Lord Hylton, also asked about the revision of prison rules. I hope that the extensive review of the 1982 prison rules, which will involve consultation with a wide range of interests inside and outside the prison service, will be completed by the end of 1994. He also asked about fine defaulters. The
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apprehension and imprisonment of fine defaulters often incurs costs—to the RUC and prison service in particular—out of all proportion to the sums owed. Accordingly, we are reviewing current enforcement measures and examining cost-effective alternatives to imprisonment. The noble Lord asked when the relevant legislation on unit fines will be ready. In March the Government published the discussion paper Crime and the Community in which we sought comment on a range of criminal law issues in Northern Ireland, including unit fines. The closing date for comments was 30th June. In conjunction with the publication of the paper, officials had been working on legislation to introduce unit fines in Northern Ireland.
However, as the noble Lord will know, the Government announced on 13th May their proposal to abolish unit fines for England and Wales. In the circumstances, the proposal for a draft Criminal Justice (Northern Ireland) Order published on 8th June does not include provisions for unit fines. The analysis of the responses to Crime and the Community will help inform my right honourable friend the Secretary of State for Northern Ireland as to how he might best ensure that fines imposed in Northern Ireland take sufficient account of offenders' means.
The noble Lord, Lord Cooke of Islandreagh, raised a number of interesting points. First, in relation to structural funds, I can assure the noble Lord that the Government will fully accept the additionality requirement in the new EC regulations, just as they accept the existing requirement. All receipts, including those for Northern Ireland, will continue to be handled in a way which fully satisfies the additionality criterion.
In relation to compensation, the principle behind compensation for criminal damage to property in Northern Ireland is that the claimant is restored to his former situation, so far as money can achieve that. Deductions to take account of betterment are fully compatible with the principle that the claimant should not be enriched. I may add that the Compensation Agency is aware of the difficulties which betterment deductions may cause applicants and is therefore careful to minimise its effects by carefully examining each individual case.
Finally, the noble Lord, Lord Cooke of Islandreagh, asked about the starting date of the second phase of the dual carriageway between Antrim and Ballymena. Under current plans this is due to commence in the latter part of 1996–97, but I can assure the noble Lord that the matter is kept under continual review.
The noble Lord, Lord Fitt, asked about the future of the Royal Group of Hospitals. I was very concerned by the stories which have been circulating about the Royal Victoria Hospital. I want to say again that there is no question of the hospital closing, as has already been said by my right honourable friend the Secretary of State. Nor is there any conspiracy to reduce it to a second-rate hospital. The Royal is a great hospital and it is this Government's wish that it should remain so. In the past five years alone £13 million have been spent on major schemes, to say

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nothing of spending on minor ones. There are already further schemes on site and in the pipeline amounting to £18 million. Those figures speak for themselves.
The reforms in the National Health Service have brought changes to the majority of hospitals and the Royal cannot expect to be immune from the effects of the reforms, particularly those arising from the introduction of the internal market. The reforms are designed to improve standards of healthcare and I am sure that the Royal Victoria Hospital will continue to provide a range of first-class services.
The noble Lord, Lord Holme of Cheltenham, asked why the funding for the Department of Finance has been reduced. The reasons are largely technical. The main decrease is in the running costs of the Valuation and Lands Agency which was launched in April 1993. Vote 2 reflects an overall decrease in superannuation payments. In Vote 3 the sums available for community relations have been increased by some £100,000.
The noble Lord, Lord Holme of Cheltenham, also asked a similar question about the Department of Economic Development votes. The reduction in the sum granted to the Department of Economic Development is largely attributable to the privatisations of Harland and Wolff and Shorts, and the effects of the new industrial development strategy, which aims to make more effective use of resources to improve the competitiveness of Northern Ireland companies. These changes in provision do not reflect any reduction in Government commitment to industrial development, which remains the second public expenditure priority after law and order.
The noble Lord also referred to housing conditions. The Government's record on housing in Northern Ireland is one of great success. By 1987 unfitness levels had been reduced by 35 per cent., and the 1991 survey showed that, in comparable terms, there had been a further reduction of 20 per cent. The number of dwellings lacking basic amenities, such as a bath or internal lavatory, fell from 120,000 in 1974 to 19,000 —or 3 per cent. of the housing stock—in 1991. Certainly we recognise that there are still problems in the private sector and in rural dwellings. The Government have increased by £7 million the funding allocated this year to tackle those problems.
The noble Lord, Lord Prys-Davies, raised a number of points in relation to the health service, for which, as he rightly pointed out, I have Ministerial responsibility.
The noble Lord asked about the proportion of patients in Northern Ireland waiting for treatment for more than one year. Traditionally, admissions to hospital in Northern Ireland have tended to be greater per head of population than in England. What the noble Lord said about the proportion of patients in Northern Ireland waiting for treatment for more than one year is therefore true. However, in the past two years considerable resources (£2.2 million) have been provided to reduce the length of time people have to wait for treatment in Northern Ireland. In March 1991 there were 8,640 waiting longer than one year for treatment, namely 32 per cent. of the total number waiting, whereas in March this year the number waiting more than one year had been reduced to 18 per
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cent. I should add that I have secured further resources of almost £10 million over the next three years to provide additional operations. mainly in cardiac surgery but covering other specialties where patients are also having to wait unduly.
The noble Lord asked about the high level of deaths among men from coronary heart disease. Because of Government concern at the high level of heart disease the Northern Ireland Change of Heart Coronary Prevention Programme was launched in 1986. Since then death rates from coronary heart disease in men have fallen by about 25 per cent. Despite that improvement, heart disease remains a major health problem in Northern Ireland. The Health Promotion Agency, which manages the Change of Heart programme, will therefore continue to give a high priority in its work to tackling the major risk factors associated with heart disease. As the noble Lord would expect, these include smoking, faulty nutrition and lack of exercise.
The noble Lord, Lord Prys-Davies, also asked about the response of the Social Security Agency to the PAC report on over-payment of income support and mortgage interest. The Comptroller and Auditor General's report found the major cause of financial error in 1991–92 to be related to mortgage interest payments. Those cases are now being reviewed, over-payments identified and repayments sought where appropriate. The new system of paying mortgage interest direct to lenders and recovery of over-payments from lenders should ensure that a similar situation should not recur. The Social Security Agency, in conjunction with the Benefits Agency. is reviewing and seeking to improve its arrangements for checking the accuracy of payments.
The department ceased collecting details of the total amount of debt outstanding in respect of social security payments because the information being collected was not very accurate. Following the agency's review of its debt management arrangements, it was decided to develop a computerised over-payment recording system which would provide accurate details of total debt. That system is nearing completion and is due to be piloted in July with implementation in all offices before the end of the year.
The noble Lord, Lord Prys-Davies, asked about the level of publicly funded child care in Northern Ireland. The Government consider that it is important to encourage a mixed economy of public, private and voluntary child care provision and there has been continuing improvement in the overall level of day care in Northern Ireland in recent years. As a result of a number of social and policy developments, Ministers in Northern Ireland established an inter-departmental review of policy on early years provision, and a report is expected to be published in the near future. That report will form the basis for the future development of services.
The noble Lord, Lord Prys-Davies, also asked about the resources available for tourism in Northern Ireland. The provision for the Northern Ireland

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Tourist Board for 1992–93 of £10.7 million includes an extra £1 million which was provided to meet specific and inescapable pressures.
The noble Lord also asked about the PAC report on LEDU performance. The report is a very positive one and the Department of Economic Development is currently considering the points which have been raised. The noble Lord will appreciate that it is not normal practice to comment on a report until a memorandum of reply has been laid before your Lordships' House.
Finally, the noble Lord, Lord Prys-Davies, suggested that more information should be made available about integrated schools. Information services are provided to parents and schools by the Northern Ireland Council for Integrated Education, which works closely with the Department of Education and receives grant aid from the Government. The publicity arrangements over the coming months include, for example, road shows, public seminars, stands at public events and television programmes. A measure of the success which has been achieved is the significant growth in the number of new integrated schools since the Education Reform Order 1989 brought in new provisions to encourage and facilitate integrated education. There are now 18 integrated schools spread throughout Northern Ireland, and proposals have been published to open another three new integrated schools this coming September. A further three new groups of parents are also considering proposals for next year.
I conclude by thanking your Lordships for participating in the debate. Noble Lords have shown their customary interest in and profound knowledge of matters affecting Northern Ireland. The significant sums sought in this order will enable us to build on the progress which has already been made in the economic and social fields in Northern Ireland. I commend the order to the House.
On Question, Motion agreed to.

Northern Ireland Act 1974 (Interim Period Extension) Order 1993
12.40 p.m.
The Earl of Arran The Earl of Arran rose to move, That the draft order laid before the House on 26th May be approved [32nd Report from the Joint Committee].
The noble Earl said: My Lords, this draft order renews the temporary provisions of the Northern Ireland Act 1974, by which government by direct rule continues in Northern Ireland. As it has become customary over the years I would like, again, to give your Lordships an account of the Government's stewardship in Northern Ireland over the previous year.
Regrettably, as your Lordships will remember from the recent debate on security, the use of violence for political ends continues to threaten the lives of the men and women of Northern Ireland. Your Lordships will, I am sure, remember many of the 75 brutal murders by terrorists in Northern Ireland last year,
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and many of the 37 that have been perpetrated since the beginning of this year. Neither can or will the number of bomb attacks in towns acrossNorthern Ireland be forgotten—Belvoir Park, Bangor, Portadown, Magherafelt, Newry, Strabane, Newtownards and, of course, Belfast.
It remains our first priority to bring this terrorism to an end from whichever organisation it comes and I take this opportunity to pay tribute to the RUC and the security forces that support them. Their steadfastness is matched by that of the ordinary men and women of Northern Ireland who continue to go about their daily lives with stoicism and determination. The Government for their part will continue to look for further measures which will assist, by being effective and proportionate, in the defeat of terrorism. Such measures must also take into account the importance of developing the highest level of community confidence in, and support for, the security forces in carrying out their arduous task. The support of all sections of the community for the security forces is essential in the fight against terrorist violence. The Government will also continue to provide the police and Armed Forces with all necessary resources and, as an integral part of this, the Army will support the police for as long as is required.
The police and Armed Forces are having significant successes against terrorists. Last year, 405 people were charged with terrorist related offences, including 101 with murder and attempted murder and 354 people were convicted of terrorist offences. This year, as at 27th June, 182 people have been charged with such offences. Furthermore, important finds of firearms, rocket and mortar launchers, ammunition, explosives and other terrorist equipment continue. For example, on Tuesday 6th July, two vehicle borne bombs containing 1,600 kilogrammes of explosives were intercepted by the police as a result of a vehicle checkpoint. In addition, the security forces, through their sheer hard work, have prevented and deterred numerous attacks. They will continue to do so.
I particularly stress to your Lordships that both the numerical level and the equipment of the security forces are kept under careful review. The adequacy of the criminal law, by which those guilty of terrorist offences may be brought to justice and judicially punished, is similarly subject to regular examination. I can therefore assure your Lordships that the Government remain determined and unrelenting in their commitment to the defeat of the terrorists.
On the economic front your Lordships may take heart. Northern Ireland has held up well under adverse national and world-wide economic conditions. Unemployment is down. The total at 104,500, or 13.9 per cent. of the workforce, is of course higher than we would wish but it has come a long way from the 1986 peak of 17.6 per cent. Output levels in Northern Ireland have risen by 3 per cent. to 4 per cent. over the past year, which compares favourably with figures for the United Kingdom as a whole of around 1 per cent. Those figures show the resilience of the economy in Northern Ireland and of those who

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work to create its wealth and employment. The Government will continue to work in partnership with business to reinforce the progress already made.
This strategy is well demonstrated by the successful year of the Industrial Development Board which has attracted 10 new projects and around 2,000 jobs by way of inward investment. Equally encouraging is the high level of demand for the IDB's export services which have yielded export orders of £120 million.
The joint initiatives between the IDB and its counterpart the Irish Trade Board continue to bear fruit. The successful exhibition mounted by the Irish Trade Board and IDB in Chicago earlier this month, in which 25 Northern Ireland companies participated, is an excellent example. I was there and can bear witness to the strength and determination by all exhibitors to promote trade on behalf of the island of Ireland.
LEDU is also responsible for impressive achievements on the small business front, including a record number of 1,429 new business start-ups and a 4 per cent. net rise since last year in employment among LEDU's companies (approximately 1,000 jobs).
Neither should we forget the important contribution made to the Northern Ireland economy by tourism. Almost 1.3 million visitors came to Northern Ireland in 1992 compared with 1.186 million in 1991, and the Government will continue to encourage the growth of the tourism sector. In addition to our own support for the tourism infrastructure the European Regional Development Fund has provided over £35 million in the period 1990–1993, which generated investments worth £51 million.
I am also able to report the successful completion of the privatisation of the electricity supply industry in Northern Ireland. Northern Ireland Electricity plc, the transmission, distribution and supply business, was floated on the Stock Exchange on Monday 21st June.
One of the department's aims in privatising NIE was to broaden and deepen share ownership and the flotation of NIE proved very popular. Some 40 per cent. of the shares available to the general public have been allocated to Northern Ireland citizens and almost 50 per cent. of NIE employees applied for and have received shares. Such support for the future of the company is very encouraging.
Along with constitutional politicians of every party, the Government are in the business of encouraging job creation and preservation. On the community relations front, we have gone on tackling adverse conditions in those areas characterised by disproportionate disadvantage and inequality in Northern Ireland. The Making Belfast Work initiative continues to be at the heart of this campaign with a further £24 million made available for this year. High priority is also given to the Targeting Social Need initiative, through which government policies and programmes are targeted more sharply at the areas and people in great need.
A short time ago I paid tribute to the security forces but I also wish to pay tribute to the individuals and organisations whose efforts at local level have encouraged better community relations. The work
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continues and shows a growing desire within the community for positive change in the relationship between the two traditions.
I should now like to turn to developments on the political front. When I addressed your Lordships last year there had been, during the preceding weeks, intensive discussions between the British Government and the four main Northern Ireland parties on what has come to be known as strand 1; that is, discussions on the relationships between the people of Northern Ireland, including the relationship between any new institutions and the Westminster Parliament. In addition, all the participants had recently agreed to the Irish Government joining the discussions to consider issues in strand 2; the relationships among the people of the island of Ireland. That took place on 6th July and subsequently, on 28th July, the two Governments held the opening meeting on the third strand, dealing with future relationships between them.
The talks continued until the summer holiday and resumed in the autumn. They closed on 10th November. The following day I repeated to your Lordships a Statement made by my right honourable friend the Secretary of State for Northern Ireland about the political talks. This indicated that we had not as yet succeeded in our ambitious task of securing an overall settlement; that is to say, "a new beginning for relationships and between the peoples of these islands".
I will not repeat that Statement except to say that the talks had witnessed a substantive and detailed engagement between responsible and representative political leaders on issues of the first importance. That was a considerable achievement. Much was done to identify common ground between the participants and to enlarge it, and also to increase their respective understanding of, and respect for, others' positions.
Although those talks came to a close, the independent chairman, Sir Ninian Stephen, expressed the view that their objectives remained valid and achievable. The two Governments also agreed that further dialogue was both necessary and desirable. The four Northern Ireland parties agreed with that, and undertook to "enter into informal consultations with a view to seeking a way forward".
My right honourable friend the Secretary of State has also indicated in another place that he remains very keen to assist on the re-opening of dialogue. to establish how we might build on the advances of the past two years. At Downing Street on. 16th June, the Prime Minister and the Taoiseach reaffirmed the desire of the two Governments for further talks. That position was reaffirmed by the two Governments again yesterday, at an IGC meeting in London. The Secretary of State has been in contact with the four main Northern Ireland parties and there are issues which require further and private consideration, but the Government's overall aim is to continue to develop the common ground and to work towards the kind of settlement which can be widely agreed and which provides the best chance of achieving a less antagonistic way of living in a divided community. We

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firmly believe that the people of Northern Ireland hope for and expect no less, and they certainly deserve no less.
To achieve that will hasten the day when conditions in Northern Ireland are such that direct rule can be brought to an end. The Government wish to increase the opportunities for democratically sustained political responsibility in Northern Ireland and we very much hope that that can be realised in the context of a widely agreed foundation for reform.
However, it is regrettable that more progress needs to be made before direct rule will no longer be needed in the interests of all the people of Northern Ireland. It is therefore necessary to make provision for the renewal of direct rule by means of the order, a draft of which we are at present considering. I beg to move.
Moved, That the draft order laid before the House on 26th May be approved [32nd Report from the Joint Committee].—(The Earl of Arran.)
12.51 p.m.
Lord Fitt: My Lords, in our earlier debate this morning we heard the estimate of £3.1 billion for the upkeep of Northern Ireland for one year. I say it slowly—an estimate of £3,116 million. Without these massive subventions for the upkeep of Northern Ireland, the Province could not exist as an economic or political entity. However, the same conditions apply to the Republic of Ireland, which depends on massive subventions from the European Community. One only has to read the newspapers over the past week or fortnight to see the tenacious fight that the Irish Government put up within the Community for many billions of pounds. I believe that they achieved an agreement which means that for every day for the next seven years £3 million will be given to support the economy of the island of Ireland.
Given those massive financial public contributions, one only has to see what would happen if they were not available. I know that it hurts some people for me to say this, but both parts of Ireland have a dependency culture. They depend to a great extent on Northern Ireland being part of the United Kingdom; they believe that it is an entitlement that they should depend on massive subventions from this Parliament.
In his remarks on the order, the noble Lord, Lord Holme, mentioned the massive sums. He went on to say that politically Northern Ireland had suffered great pitfalls within recent weeks. As someone who lived in Northern Ireland and as a public representative there for years, I have to say that at present in Northern Ireland dangerous tensions are coming to the fore. The reason for that is well known to anyone with any experience of Northern Ireland: we are in July, the time of year when the Orange Order commemorates the Battle of the Boyne. Sometimes it is done as a show of triumphalism, that it is the majority party in Northern Ireland. However, in recent years, particularly this year, the marches and demonstrations will take place in an atmosphere of defiance because the Orange Order and the Protestant community in Northern Ireland at the moment feel a dreadful sense of insecurity. It is because of that
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dreadful sense of insecurity that we have the loyalist murderers, thugs and gunmen emerging from their community. It is because of the constitutional uncertainty that we have had such an escalation in tension throughout Northern Ireland.
What are the tensions? Let us go over them. It has been a very bad month indeed. We have had a whole series of attacks on the security forces. When I spoke here on 24th June, I illustrated that the IRA took great pleasure in killing Catholic RUC men. The very next day, a former member of the RUC—a young Catholic called Murphy—was murdered in brutal circumstances in a hotel in Belfast. We had that. Then we had the bombs, as has already been mentioned by the noble Earl. There were bombs in Newry, Portadown, Magherafelt and Newtownards, and one was defused this morning in the City of Belfast. All of those activities by the IRA create fear and tension not only within the unionist community but in the law-abiding Catholic and nationalist community in Northern Ireland.
Some people have attached a good deal more importance to another event than it probably merits, but the President of Ireland and the leader of one of the major political parties from Northern Ireland, John Hume, met Gerry Adams. Some people may think that that has no importance, but in the Protestant psychology, those two people met as spokesmen for the IRA who carried out all the bombings and murders of many of their blood relations. That did nothing to ease the tension in Northern Ireland.
Worst of all, was the document that was leaked by Kevin McNamara which set out how he saw the political future of Northern Ireland progressing. When I read that document I was absolutely amazed that such a document could have emerged from a person who is a member of the British Labour Party. I sit where I do because it is the Opposition Bench in this House, the Labour Bench in the House. But I hesitate to think what would have happened if there had been a Labour Government after the last election and that type of idea was floating around. It would undoubtedly have led to massive bloodshed in Northern Ireland. That again is one of the reasons that the Unionist Party and the Protestants feel so insecure.
On top of that, the Taoiseach, the Prime Minister of the Irish Republic, told a meeting of Lobby journalists in Ireland that, if the British Government did not get together with them to solve the Northern Ireland problem, he would call in President Clinton. I think that was a cheek and an impertinence. What would President Clinton do in relation to Northern Ireland? Would he send in American troops, as he sent them in to murder innocent civilians in Somalia? Or would he stand back wringing his hands, saying "No, no, I can't send them into Northern Ireland because I refuse to send them into Bosnia"? Can one imagine the fears that were aroused by the alleged threat? I suggest that the Prime Minister of the Republic should go to President Clinton and let President Clinton bear

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some of the responsibility for the financing and upkeep of both the Republic of Ireland and Northern Ireland.
Then we find that yesterday there was another meeting of the Anglo-Irish conference. Four days before 12th July, when tensions are mounting in Northern Ireland, the Irish Foreign Minister, Dick Spring, yesterday gave an interview to the Guardian which he repeated yesterday evening on television. As I see it, I have or I had good relations with the labour and trade union movement in the Republic and this country. I was very hopeful when the new coalition government were elected in the south, when Dick Spring became Foreign Minister with responsibility for Northern Ireland. I believed that he came into the situation without any civil war baggage like Fine Gael and Fianna Fail. However, it appears that I was sadly misled, if we are to believe what was said yesterday by the Foreign Minister of the Republic.
What is the reason for the insecurity? I repeat—though I may not receive much support in this House —that the reason that there is such insecurity now is the 1985 Anglo-Irish Agreement. That agreement was organised behind the backs of all the political parties in Northern Ireland, particularly the Unionist Party, which was excluded. What put us in that position? I am sure I shall find support from some of my noble friends in the House. There are 17 Members of Parliament representing Northern Ireland constituencies. During the course of debates they frequently complain about the inadequacy of the way in which Northern Ireland business is conducted in the House of Commons. They complain that they are allowed only 90 minutes for a debate and that the debates take place at night. In this House, we have registered those complaints on many occasions. The British Government then take note of those complaints and say, "Well, if all these MPs are complaining about inadequacy, we should set up a Select Committee".
Personally, I believe that there should be a Select Committee to handle Northern Ireland business in the absence of a Stormont. The ideal solution would be for there to be a Stormont but in its absence there should be a Select Committee. But what happens when the British Government put forward that idea? Four of those MPs, the members of the SDLP, go to Dublin and say to Dublin, "No, no, you must object. You have the right to object under the Anglo-Irish Agreement. Tell them that you are not going to have a Select Committee because that is taking people down the integration path." So democracy is denied because of the authority given to the Irish Government under the aegis of the 1985 Anglo-Irish Agreement. It would appear to me that, although the SDLP complains about the unfortunate way that government business is conducted, it is prepared to put up with it rather than have a Select Committee that would be able to deal with the affairs of Northern Ireland.
So what should the Government do? I would advocate that the Government, irrespective of objection from Dublin or the minority party (the SDLP) in Northern Ireland, set up a Select Committee in the absence of a Stormont. I should love to see a
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Stormont brought back again. I happen to have been one of the members of the Executive that was there in 1974. I know from personal experience that the Executive could have continued to govern Northern Ireland had it not been for the Council of Ireland proposals. The people in Northern Ireland, unionist and nationalist alike, at that time would have accepted, albeit reluctantly, the power sharing Executive. The Council of Ireland proposals led to the general strike and killed it.
The present talks were begun by Peter Brooke. They were much too ambitious. Who thought up the notion of strands 1, 2 and 3 and that nothing is agreed until everything is agreed? That threw on people in this House and outside it the responsibility for trying to end in those talks the conflict that has existed in Ireland for 400 or 500 years. The talks were much too ambitious and were not guaranteed success.
I believe that the noble Lord, Lord Holme, who has many contacts in Northern Ireland, will agree that: it would have been relatively easy in strand 1 of those talks to find agreement. In fact, the talks were 80 per cent. of the way down the road towards finding agreement between the unionists and nationalists in Northern Ireland in relation to the governance of Northern Ireland. Then the SDLP said, "No, you cannot have total agreement there until you have got into strand 2." That was the Council of Ireland, brought back from 1974. The unionists said, "We don't want that; we rejected it in 1974." Someone then said, "Ah, we cannot agree to strand 1 unless you agree with us on strand 2." That means that there is no hope of any progress in the talks.
I believe that every effort must be concentrated on bringing about a devolved government in Northern Ireland. After such a power sharing, executive has existed for a period of time, one can then start to talk about stage two and stage three. We must riot try to deal with them all at once; otherwise the whole object is defeated.
In that period the Protestant community in Northern Ireland will need reassurance. It is a frightened community: it needs to be reassured. Giving reassurance to that community will perhaps take their gunmen out of existence. In the vacuum of uncertainty and insecurity the thugs and murderers are emerging from under the stones in Northern Ireland. There is a very dangerous situation. There are two communities—a unionist community and a nationalist community. At the moment there is an air of triumphalism in the nationalist community. The SDLP, supported by the Irish Government, believe that, with the authority of the 1985 Anglo-Irish Agreement, they can push the unionist community in Northern Ireland into a corner, as has happened with the Moslems in Sarejevo.
I hope that sufficient consideration will be given to the very dangerous situation that exists. I advocate that, if the Government believe that it is right in the interests of bringing reconciliation to the communities of Northern Ireland, they should set up a Select Committee in defiance of any objections they may receive from the Government of Ireland.
1.6 p.m.
Lord Cooke of Islandreagh: My Lords, it is a long time since I listened to a speech with every single word of which I agreed. The noble Lord, Lord Fitt, pointed to the immediate dangers in Northern Ireland. In my view he is absolutely correct. He gave us the background to that situation and drew attention to the agreement of 1985. In my view, that agreement has been responsible for nearly all the evils that have come about since. We have probably been set back by about 15 years as a result. I wrote to the Prime Minister, Mrs. Thatcher, three months before the agreement was signed, imploring her not to pursue what was purported to be the intended agreement. My reason was that none of the things that she expected from the agreement—increased security or anything else—would come. I also advised her that the number of people murdered in Northern Ireland would increase from then on. That, indeed, has been the case.
That is now water under the bridge. As the noble Lord said, there is now a sense of triumphalism, which is quite beyond all bounds, in the SDLP and in Dublin. Unless our Government make the situation clear and tell Dublin to get out of the way, we are in for serious trouble. I had not intended to refer to security today because I spoke at some length on the subject only three weeks ago. The noble Earl the Minister then described my view as grim. Unfortunately, in the few weeks since then, nothing has happened to make me wish to withdraw one word of what I said. I believe that the situation can be contained and improved but very firm action is required by the Government to remove the notion in Dublin and in the SDLP that they are winning and can push the unionists, Protestants, or whoever, almost into the sea.
I must come back to the Northern Ireland Act, which is today's business. I confirm, as the noble Lord, Lord Fitt, said, that the great majority of people in Northern Ireland wish for devolution. He is right to say that they must get rid of stages two and three and settle the immediate problem of Northern Ireland—devolution. We know that the Secretary of State is doing his utmost to work in that direction. But we also know that it will take a long time to make progress. The leader of the SDLP has declared that he is not interested in devolution. Therefore we must continue with direct rule. I support the Motion that is before us. I am pleased to be able to advise the House that opinion polls have consistently shown that the continuation of direct rule is regarded as the least unpopular option with the majority of people in both sections of the community.
I wish to acknowledge the signal service to Northern Ireland which has been performed by successive Secretaries of State and their teams of Ministers. They have had to grapple with many problems of which they may not have had previous knowledge. Very often Minsters have had two departments to look after, as has the noble Earl, Lord Arran. They also have the Whips of this House and another place summoning them at inconvenient times. They have suffered considerable disruption to family life and we are indebted to them for their efforts. If
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they have not achieved as much as they would have wished, it has not always been their fault. There are and have been political advisers, briefers and minders resident in the Northern Ireland Office and I would not wish to speak of them in the same terms. It is only right to express thanks to those Ministers who have come over to Northern Ireland and done their best for us before I attempt to mention some of the defects in direct rule and make some suggestions for improvements which I hope will be constructive. Some Ministers are better than others but that does not detract from my remarks.
The basic problem in Northern Ireland is that we only have fragments of democracy. We have 17 Members of Parliament elected to another place. However, the legislation for Northern Ireland continues to be dealt with by Order in Council, as was explained by the noble Lord, Lord Fitt. That means that Northern Ireland Members of Parliament have more influence on what goes on in Didcot than in Ballymena. That is a continuing disgrace which should be corrected without delay. We have had 20 years of direct rule but nothing has been done about the glaring defect in democracy.
At the other end of the spectrum we have our district councils where councillors have responsibility for clearing rubbish and library boards and have a small input into planning. Between the district councillors and our MPs we have no democratically elected input into government. Everything else is the responsibility of the departments in Belfast, which are themselves responsible to the Ministers who assist the Secretary of State. But it is difficult for Ministers, who change quite often, to get a grip on their departments. That is not surprising as sometimes departments are reluctant to be gripped.
It is not surprising that Northern Ireland has become a bureaucratic state and that bureaucracy continues to draw funds and power to itself. There is no effective way of calling civil servants to account for their actions and decisions apart from the parliamentary Public Accounts Committee. There has grown up a proliferation of agencies and quangos over which the public and local politicians in particular have no influence. The members appointed to agencies and quangos are appointed by the Minister of the department concerned. That means that they are chosen by civil servants. It is more than a passing thought that many of those members are chosen for their ability to accept the status quo and not to rock the boat.
On the economic front, industry faces a bewildering array of bodies and regulators—IEB, LEDU, IRTU, FEC, EOC, T&EA, the Northern Ireland Economic Council. I doubt that if I gave your Lordships the full names of those bodies, your Lordships would be any the wiser.
In the past week I have made soundings quite widely and must advise the House that there are strong feelings within the business community that bureaucracy does not hear what it is being told. Departments go through the consultation process as they are required to do. Consultative papers are issued with bewildering speed and do not provide time for

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carefully thought-out responses. That can make it easier for departments to ignore replies because they may not be as detailed as the original proposals and in their view the arguments are not well set out.
The effectiveness of direct rule would be greatly improved if there was a genuine partnership between the departments, industry and business. There should be much more informal discussion before departmental views are set in concrete. There should be a follow-up to written responses with further discussion. That must be a two-way process with departments prepared to accept that they do not know all the answers and business and industry must put their best foot forward to assist. That will take some time and will not be easy. In 20 years we have lost almost a generation of people who would otherwise be involved. We need to pull forward younger people who are capable and able but who, under existing circumstances, do not consider it worth their while to talk to departments. We can have a new beginning and a great deal can flow from it.
I wish to include the trade unions, whose opinions are important and valuable. In Northern Ireland we have been fortunate over the past 25 years; our trade unions have worked unceasingly to keep sectarian conflict from the shop floor. Their success has been almost 100 per cent. and employers feel a strong sense of partnership with the trade unions in many matters.
There is no need for any new agencies, quangos or any formal procedures. If there was a serious effort on behalf of government departments, the situation economically and with the business community could be much improved. I know that it can work. It used to work in the past when I was active in these matters. Before direct rule informal discussions between civil servants, politicians and people from industry or business were common—often one to one, sometimes in informal groups of two or three or half a dozen. They were frank, open discussions based on mutual respect. If decisions were taken against one's point of view, at least one understood the reasons for it.
Important to industry and the economy in Northern Ireland are the two development agencies, the IDB (Industrial Development Board) and the LEDU (the Local Enterprise Development Unit). They have achieved much over the past 20 years to strengthen the industrial base in Northern Ireland. However, around three years ago the strategy for the IDB was reset. It was reset at a time when government policy was as dry as dry can be. The new strategy sounds fine in theory. It is basically to improve the competitiveness of companies. But the problem is one of implementation. How does one define "competitiveness"? How do we link steps which companies can take to increase competitiveness?
Equally, translating textbook concepts of market failure to the infinite complexities of the real world poses great difficulties. I have quoted almost verbatim from the report of the Northern Ireland Economic Council, Economic Strategy in Northern Ireland. The words ring true to me and to everyone I talk with in the industry. The present strategy is just not practicable. I believe that steps are being taken to work out some indices of competitiveness but that will
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only make the complexity worse. I can do no more than urge that the IDB be authorised to consult closely with the Northern Ireland Economic Council, which can be relied upon to give sensible and practical advice. It should also consult the other representative organisations.
I wish to turn to three matters of great importance to industry in Northern Ireland. Problems have arisen as a direct result of the communication gap about which I have been speaking. Northern Ireland Electricity has just been privatised; the sale was described as successful. It produced £700 million for the Treasury. However, industry remains in a state of shock at the new electricity tariffs which came into effect on 1st April. Those were introduced without notice or explanation. There are around 30 large users in Northern Ireland who take more than one megawatt. Their businesses are extremely important to Northern Ireland for the wealth that they generate as well as the number in direct employment. They are required to pay increases varying from 22 per cent. to 58 per cent. higher than prior to 1st April. Industrial users below the one megawatt level are required to pay an increase of 15 per cent. Increases of that order are serious to any business. But some will have to decide whether or not they can afford to continue to manufacture in Northern Ireland.
In recent weeks many of us have spent a great deal of time trying to discover how these large increases could have come about. We may be naive but it had been put about that the object of privatisation was to provide competition, improve efficiency and bring benefits to the consumer. The present structure and arrangements for transferring costs within the electricity power system are extremely complicated, and this is not the place to go into them, but it seems extraordinary that such a small regional electricity system should be quite so complicated.
The Government have devised a number of complicated formulae which will control the charges and transfer of charges. The regulator has been handed these formulae and has been charged with ensuring their compliance. Major users have met the regulator who has endeavoured to explain his terms of reference. The regulator has engaged international consultants, Putnam, Hayes and Bartlett, requesting them to recommend ways in which competition and efficiency might lead to lower charges for electricity. At present all the facts are not available. The Government have released no information on the terms of sale of the generating stations, but from the information available it is clear that the Government did not just sell the assets of the generating stations; they sold guaranteed cash streams to the new owners sufficient to fund borrowed money and generate profits based on the costs of operating the stations pre-privatisation and whether or not they actually dispatch power. All they have to do is to make capacity available. All costs are fixed for the expected life of the generating units except for fuel used. Since the sale of these stations the new owners have reduced labour costs; they have improved maintenance and appear very happy with their purchases. It does not

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seem that any cost reductions will pass through to the user for the life of these contracts, some of which extend as far as 2020.
The rules for the transmission and distribution business of NIE permit NIE to pass through all fixed costs from the generators plus its own costs, and 75 per cent. of those will be permitted an annual increase of 3.5 per cent. above the retail prices index. The high proportion of fixed costs means that if the total load should fall unit prices will increase.
How much are these new rates above the average in Great Britain? Last week an analysis was made of the load patterns of 24 large users in Northern Ireland above the 1 megawatt level. These load patterns were repriced on the tariff of one of the more expensive regions in Great Britain —the south west region—whose tariffs on the whole are about 5 per cent. above the average on this side of the water. It transpires that these 24 large users will pay on average 33 per cent. more for their electricity in Northern Ireland than they would in Devon or Cornwall. That is the reason for the state of shock. I have with me a copy of this analysis.
All manner of reasons have been given for this difference. The system is small; it is dependent on oil fuel; it has got to find money to pay for interconnectors, and lots more. But 30 per cent. and more above GB rates is quite outrageous and no reason has yet been given which can justify the difference. From the information available one can only conclude that the overriding objective of government in selling off the Northern Ireland electricity system has been to provide cash for the Treasury without regard to the economy of Northern Ireland or the interests of customers there. I invite the Government to present information to show that that is not the case.
I must acknowledge that the Secretary of State has set out a trust fund of approximately £12 million which will be used to cap the increases that I have mentioned to 9 per cent. this year. I understand that it is the intention to assist with two-thirds of this sum in the second year and one-third in the third year. I ask the Minister: is the amount of the trust fund sufficient to make such payments?
The news is widely welcomed that a 250 megawatt intercorinector with Scottish Power is expected to be in place in 1997, but it does not appear that there will be any benefit to the user arising from competition or lower prices from Scottish Power via the interconnector until at least the year 2012. I wonder whether that is correct and why contracts should have been set up with so little regard to the users. Already there are rumours of large companies planning to relocate outside Northern Ireland. These new charges are a very serious threat to continuing development of the manufacturing industry and they also cast doubt on the ethics of government decisions today. I have only touched on the fringe of this very complex subject but it seems that industry is trapped to remain at a substantial disadvantage in Northern Ireland.
There are two other privatisation proposals pending which are causing widespread concern,
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particularly after the privatisation that I have just mentioned. Belfast Harbour is a trust port administered by the Belfast Harbour Commissioners under Deed of Trust for the benefit of importers and exporters in the city of Belfast and Northern Ireland generally. It has been consistently profitable; all profits have each year been reinvested in new development. This year development costing between £40 million and £50 million is in hand. Years ago, when I was a commissioner, auditors from the audit office who visit trust ports each year told me that they regarded Belfast as the best run port in the UK. No one has ever described Belfast port as inefficient. However, enabling legislation is now in place which allows the commissioners two years in which to express a view about privatisation, at the end of which the Government may decide to privatise Belfast Harbour with the authority of a negative resolution. This legislation is similar to that in place for trust ports in Great Britain except that the decision to privatise must be made by affirmative resolution for GB ports. I suggest that it is quite disgraceful to discriminate against this single port in Northern Ireland by making it subject to a negative resolution.
It has now been announced that if the port is privatised 100 per cent. of the proceeds will go to the Treasury. The assets of Belfast Port which have been built up over 100 years are, according to the original trust Act, in trust for the rate payers of Belfast, and certainly are not the property of government. Belfast Port, like other ports, has benefited greatly by European regional development funds. This has been above the 50 per cent. level but EC grants to private companies, which Belfast Port would be if it were privatised, are limited to 50 per cent. However, the other two trust ports in Northern Ireland, Londonderry and Warrenpoint, are below the size limit for privatisation and they will remain eligible for higher grants.
It is of interest that the Republic of Ireland has recently decided to reorganise ports under state ownership which will entitle all ports in the Republic of Ireland to the highest rate of grant aid from the EC. Belfast Harbour is at present run by a balanced Board of Commissioners appointed by the Minister of the Department of Economic Development. What sense does it make to privatise it and put it at a disadvantage compared with all other major ports in Ireland and thus handicap industry and commerce throughout Northern Ireland? The Government presently have power to do that by negative resolution.
I now turn to Belfast International Airport. The Northern Ireland Office has proposed that Northern Ireland Airports Limited, which runs Belfast International Airport, should be privatised by trade sale. Belfast International Airport is of strategic importance to business and industrial life in the Province, and all interested bodies—the CBI, the Northern Ireland Chamber of Commerce and so on —are alarmed at the prospect of a trade sale which means that ownership and direction will pass outside Northern Ireland.
There are additional complicating factors. Northern Ireland Airports shares the main runways

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and flight control with the MoD at Aldergrove, which remains the principal military air facility in Northern Ireland. It is vital therefore for security and other reasons that Northern Ireland Airports remains in co-operative and friendly hands. I can claim some knowledge of the security problem at Aldergrove having served 16 years on the board in the early stages of development of the airport.
I understand the reasons for opting for a trade sale following reports made by the consultants Hambros and Touche Ross sometime ago. It appeared that the consultants were not confident that the profits then being generated would support a public flotation. Since then there have been management changes, profits have much improved and management is determined to maintain and improve the present level of profits. I am confident that investigation will show that it is now practicable to privatise the airport by means of public offer within Northern Ireland, subject to the necessary legal constraints in connection with security and the MoD operation. Incidentally, guidelines issued to the Treasury on privatisation urged them not to make up their minds too soon because situations can change.
I have spoken on these three matters of very great importance to all who live and work in Northern Ireland, but it seems that the interests of the Northern Ireland economy have not been of high priority. That is one of the weaknesses of direct rule. Schemes such as these may be approved by Ministers who are not in possession of all the facts. These schemes or plots will have been thought up and implemented by the permanent residents of the Northern Ireland Office and other departments. That such things can and do happen emphasises the importance of the open discussion and partnership of which I spoke earlier.
Many have taken heart from what the Prime Minister said last Thursday. He was speaking in connection with an extraordinary proposal for joint sovereignty in Northern Ireland made by Mr. McNamara. The Prime Minister said that the Union is vital for all parts of the United Kingdom and has the democratic approval of the people of Northern Ireland. He also said that the Conservative and Unionist Party stand four square behind the union. The way in which the privatisation of NIE has been arranged and the plans for the other two privatisations do not line up with the Prime Minister's statement.
I am sorry to have taken up so much time, but in the view of business people in Northern Ireland, these affairs, which noble Lords might consider to be the nuts and bolts of the economy, are considered to be of very great importance. In the past seven days I have made soundings among leading people in business and industry and I have been overwhelmed by the strong feelings—nearly all to do with the lack of communication. I was showered with papers and briefings on all kinds of subjects with which there is not time to deal today.
In conclusion, I have been affected, as have all others, by the recent bombing and the efforts of the security forces in finding bombs. I know of the courage and disregard for personal safety of the police
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in clearing people out of the way when there have been quite inadequate bomb warnings. It has been quite remarkable. The work of the bomb disposal teams, who are on duty 24 hours a day—and have been for 25 years—is also remarkable. I believe that they have managed to make safe 3.000 to 4,000 bombs of all sorts and sizes. Their courage is indeed remarkable and we owe a lot to them. I wish to support the Motion.
1.35 p.m.
Lord Blease: My Lords, I was especially interested in the concise, informative and practical introduction of this order by the Minister. He dealt with a number of issues which I feel are deserving of some attention. I have also listened with considerable interest to the speeches of my noble friend Lord Fitt and the noble Lord, Lord Cooke of Islandreagh. The noble Lord, Lord Cooke, raised a number of challenging issues which I am sure will continue for some time to have the attention of this House.
In passing, I shall refer to one matter mentioned by both my noble friend Lord Fitt and the noble Lord, Lord Cooke—that is to say, the proposed devolved Northern Ireland Assembly. I was surprised to hear my noble friend saying that he would like to see it set up immediately. From memory, I believe that he was a member of two assemblies. There were more attempts to set up assemblies. I agree that an opportunity should be given to the people of Northern Ireland to deal with those matters which require action. That can be read in more detail in another submission I made that opinion is not available at the present time to bring about that assembly in any democratic fashion. My noble friend and I can have a discussion about that outside the House.
After a debate on this order lasting two and a half hours in another place on 24th June, the renewal of this order was made without a Division. Therefore, my remarks will be brief. Since the legislation was debated 12 months ago, we have had publication of the Opsahl Commission report on Northern Ireland. It is entitled A Citizen's Inquiry. A copy of the report has been placed in the Library by the Commission.
My submission to the Commission was among about 554 written submissions made by about 3,000 people. I feel that it is relevant to this debate that I outline five of the points which I expressed to the Commission. I believe that they are particularly relevant to what has already been debated in this House.
The first is that the hopes for the Anglo-Irish Agreement of 1985 have clearly not been fulfilled. Secondly, the major reason for the failure and the lack of complete success for the subsequent talks was the total rejection of the agreement by the unionists. In my view, that was due in part to the exclusion of the unionist Members of Parliament from the Anglo-Irish preparation talks. No responsible or self-respecting Welshman, Scotsman or Englishman would have allowed those talks to take place without being involved in them. It was a disgrace. However, that happened and we are trying to rectify the position as it exists today.

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There was also the failure of the Government effectively to deal with the disputed claims of the republic over Northern Ireland and Articles 2 and 3 of the Irish constitution. The third point that I made to the Commission was that there must be a commitment from all the Northern Ireland constitutional parties that they will participate fully in any agreed settlement. It cannot be done piecemeal.
My fourth point was that I believe that Northern Ireland's immediate future can best be served by a continuation and democratic reform of direct rule. In my submission, I also included my belief that there should be a resumption of the "talks" on agreed principles, and that Articles 2 and 3 should be at the top of the agenda. They should be given a priority place, together with a major reform of the provisions of the Anglo-Irish Agreement. An international agreement is in place and any future discussions must be firmly based on change and on the agreement being made more generally acceptable.
My fifth point was that future talks should include provision for a three-year strategic programme for Northern Ireland for good government, covering security, economic development, social need and a Bill of Rights. I am concerned and depressed because all the talks are about international affairs and all the definitions relate to international law which is beyond the understanding of the ordinary people in Northern Ireland. I feel that that is completely wrong. We should be discussing the bringing together of people. Even if the border were removed tomorrow, it is the people of Ireland both North and South —and particularly the people of Northern Ireland—who must learn to live together. That can be achieved only by friendship and agreement.
I make this speech following the discussion that has already taken place on this order and with a view to clearing the decks for a new round of talks. I invite the Minister to consider the verbal exchanges that took place in another place on 1st July, as reported at col. 1090 of Hansard. Perhaps I may paraphrase a question that was raised during Northern Ireland Questions. It was said that the first paragraph of the Anglo-Irish Agreement does not spell out that Northern Ireland is an integral part of the United Kingdom, and that as long as the South of Ireland insists on its legal claims over Northern Ireland, there will be a question over Northern Ireland's constitutional position. Those points were put to Sir Patrick Mayhew. I shall now quote from his reply. The Secretary of State said:
"The first part of the hon. Gentleman's question is correct. One of the reasons why I believe that it would be helpful to have a successor to the Anglo-Irish Agreement is that it would provide an opportunity to express, by agreement, an unambiguous statement of Northern Ireland as part of the United Kingdom. I have said previously that I consider that those two articles in the Irish Constitution are unhelpful to the process in which all participants in the talks last year were engaged".—[Official Report, Commons, 1/7/93; col. 1090.]
I hang the rest of my remarks on that logical and reasoned reply. I invite the Minister to consider drawing to the attention of the Secretary of State the views expressed in this debate and the support for his efforts to establish a suitable framework for a new
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round of talks. The framework should include the following: first, a suitable redefinition and clarification of the 1985 Anglo-Irish Agreement; and secondly, the provision of a British-Northern Ireland-Republic Committee, appointed from the elected parliamentary representatives of Britain, Northern Ireland and the Republic, to consult and deliberate on economic, social and cross-border matters of mutual interest and for the common good. Finally, the fiscal implications of all proposed provisions and measures should be fully explored and publicly presented before legislative changes are undertaken. I believe that this is the bottom line of all the ideological, philosophical and academic aspects to the statements (both public and private) that have been floating around. With those remarks, I support the order.
1.44 p.m.
Viscount Brookeborough: My Lords, this is an "interim period extension" order and those words describe, in a nutshell, all that is worst about the system of government in Northern Ireland. First, an interim period extension after 19 long years is rather a contradiction in terms. The dictionary definition of "interim" includes "for the time being", "temporary" and "provisional". However, that system must provide for the most uncertain government in the world—an ideal breeding ground for subversion.
Secondly, enough has been said in another place about the unsatisfactory nature of this largely undemocratic system of government. All parties in your Lordships' House and in another place are, I believe, uncomfortable with these frequent Orders in Council.
It is not necessary to dwell on the order for too long. After all, it comes before us every year. But it is worthwhile looking forward to see whether it is reasonable to believe that the system of government could be changed. Accepting the inadequacy of what we have, only two options are left. The first is devolution to an assembly or whatever; the second is fuller integration with the remainder of the United Kingdom. Devolution must be the favoured option and, indeed, the Government would seem to prefer that. However, it can come about only with the participation of the SDLP and Unionist parties and then by the assembly, or whatever, showing that in practical terms it would be responsible enough to have serious powers devolved to it. Those two areas are where we have had serious problems over the past 20 years.
The participation of all parties in a system of government in Northern Ireland is just not possible at present, in my view, regardless of how optimistically one views "the talks". I do not believe that John Hume and the SDLP have any intention, regardless of the formula, of taking part in devolved power sharing in Northern Ireland. There are two reasons. First, John Hume wishes to see a united Ireland, and he is permitted that wish. He says that that should come about only through the democratic wishes of the majority. As we all know, if that is ever to happen (which is doubtful), it is a long way down the road.

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However, he feels that between now and then he can achieve a united Ireland through other means. Why else would he be talking to Sinn Fein which has an Armalite in one hand and the ballot box in the other? It is a view held by many people, including commentators in the Irish press in Dublin, that Mr. Hume does not wish to see power sharing within the Province alone.
The second reason is the Anglo-Irish Agreement. John Hume's closeness to the Irish Government leads him to believe that he holds more power through them than he would have by contributing to a locally elected forum. In addition, he believes that he is closer to a united Ireland than ever.
I believe that Mr. Reynolds should disillusion him and should tell him the truth about what is possible. He should stop kidding him. The South does not want the North in its present state, with horrific terrorism, racketeering and immense cost to its rather shaky economy. The message must be clear, "Stop fooling around and pretending that you are some great statesman, Mr. Hume. If you are, go back to your community and sort things out with your fellow countrymen. You cannot do it from the outside".
The second stumbling block is that a successful democracy is bound to be a healthy one. Indeed, that is the key to a community operating as a well ordered and soundly structured society. It is like a pyramid, similar in structure to a traditional village community, with the working people at the base, then the business and professional people, and further up, the controllers and representatives of higher authority. In Northern Ireland, that system has broken down, and the longer it goes on, the more irretrievable it is.
The people at the base, especially those in Belfast and Londonderry, would do anything to change what is going on. I refer, for example, to the peace people and all those involved in cross-community groups. But where are the middle strata? They have largely opted out of politics arid security. They cannot be found supporting the peace people, yet they are the educated ones—doctors. teachers, accountants, business managers and prosperous farmers. They have the education, the man-management skills, the large resources, and homes outside the worst trouble spots. They should be influential. They can lead by example and influence those whom they manage and whose welfare is largely their responsibility. That middle stratum is vital in supporting and producing representatives—in our case MPs—and in influencing them in the requirements of society at grass roots, business and every other level.
Sadly, such people seem to take very little part in this vital role outside their own professions. Like many others, I have admiration for their determination, which has kept businesses going over the past 23 years of the troubles. However, as they are dependent upon the community for their success and prosperity, do they not have a larger responsibility to lead and support it? Non-involvement has led to an unhealthy, fractured society. The representatives in public life can react only to the emotion and referenda that we seem to have daily in the local press. They have little or no
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power, even at council level, and that is said to be the reason for the lack of talented people becoming involved.
The Secretary of State, in a speech to the Institute of Irish Studies at the University of Liverpool on 23rd April talked about giving authority and accountability to the people. He said:
"This in itself would have the benign effect of encouraging citizens of calibre to come forward into public life in greater numbers than at present and from quarters, such as the business world, inadequately represented at the moment".
But which comes first—more power, or more responsible people? Is it the chicken or the egg? But if the chicken is dead or impractical, there can be no egg.
I see the problem, for much of which the Government, in retaining this form of direct rule, are responsible. However, it is no good that section of the population sitting back doing very little. It has been said, "For evil to prevail, it is only necessary for good men to do nothing." The question has to be asked: how can a responsible Westminster Government devolve significant powers to a community which does not seem to have the social responsibility to manage those powers? If the answer is that they cannot, as it may be, can my noble friend the Minister explain what the Government intend to do to encourage those people to take part? In addition, if the answer is no to devolution, that leaves full or closer integration and a stable base for a number of years, not just one at a time. The most important change must be to accountability and responsibility. For a start we should have a Commons Select Committee and Bills instead of Orders in Council.
The benefits of a stable base for, say, a period of five to 10 years before review, would be increased responsibility and encouragement of the middle stratum to take part. Also, the SDLP might take part in normal politics rather than run to Dublin the whole time. The Unionists would be less frightened of possible betrayal and of the SDLP achieving its aim by undemocratic means. The most important point is that the terrorists would find that they had nothing, on either side, to fight to achieve or to defend in the short term.
No doubt my noble friend the Minister will wish to say that that solution does not have universal support. That reply is largely redundant: nothing will have total support. However, the Government use that argument only when it suits them. They did not use it for the Anglo-Irish Agreement or for the privatisation of many industries.
I support the Motion for the time being only. In the meantime, the Government must make a move towards providing a stable, no-nonsense base from which to work for the future and for devolving power to the Province.
1.55 p.m.
Lord Monson: My Lords, perhaps I may preface my remarks by congratulating the noble Lord, Lord Fitt, on his magnificent contribution. It was all the more telling because he has never been a unionist of any kind. Secondly, I assure the Minister, whom outside the Chamber I would call my noble friend. that nothing I am about to say should be taken as a

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criticism of him or of the present Secretary of State, who is doing no more than follow the path marked out over the decades by successive British governments.
It has been some time since I have spoken in one of these debates. I was only provoked into doing so by a remark from the Government Front Bench on 29th June. I was supporting an amendment to what we know informally as the Maastricht Bill. It was an amendment moved by the noble Earl, Lord Onslow, which sought to identify how much of our cohesion money would go to countries which made territorial claims upon the United Kingdom, its colonies or other possessions. In doing so, I expressed astonishment that a treaty which (among other things) sought to encourage friendship and co-operation among the different nations and peoples of the community, did nothing to discourage such inherently unfriendly claims. Later, I intervened to point out that (in the case of Ireland, even though not yet in the case of Spain) such claims could only encourage the terrorists to maintain and even, perhaps, intensify their efforts.
In reply, the Minister (I acknowledge he was merely speaking to his brief) said that the new clause, if implemented would highlight unnecessarily and in an unwanted and unhelpful manner certain problems. What an extraordinary reaction, if one looks at it objectively, and yet how typical of the British establishment's attitude towards the Republic of Ireland.
Any British government would have criticised Chancellor Kohl sharply had he not abandoned Germany's claim to the western provinces of Poland. The British Government have no hesitation in condemning Spain's claims to Gibraltar and the Argentine's claim to the Falklands. In the latter case, a recent dignified and impressive statement by the eight Falkland Islands councillors, rejecting the Argentine's offer of friendship until such time as it renounced its territorial claim, is worth quoting. The eight councillors wrote to the Argentine Foreign Minister, Dr. di Tella, on 28th April 1993. Among other things they said:
"these assurances offer little comfort while your country's claim to our home and our homeland remains outstanding … It is Argentina's continuing territorial claim which contaminates"—
that is a good word—
"what should be a normal and natural relationship between neighbours".
To that I would add only, hear, hear!
Yet the British Government's praiseworthy resolution, and adherence to principles of normal, civilised intercourse between nations, evaporates as soon as Ireland is mentioned. One is forced to conclude that if many of Northern Ireland's problems are the fault of successive governments in the Republic for demanding constantly that the goalposts be moved to the disadvantage of the unionist majority, even more at fault are successive British governments for encouraging those demands by failing to resist them and acquiescing in almost everything and criticising practically nothing that emanates from the Republic. That has had consequences both farcical and disastrous. First of all, farcical. In 1982, an order was
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rushed through Parliament liberalising the law relating to homosexual behaviour between consenting adult males in Northern Ireland. The then Minister, the noble Earl, Lord Gowrie, warned the House that unless the change was implemented speedily the United Kingdom would be a pariah among nations, and pilloried at the bar of world opinion for being the last nation in Europe to make such conduct not criminal in a part of the Kingdom.
Yet, over 10½ years later, only just the other day did we read that the Republic has at last liberalised its own laws. Did the United Kingdom ever criticise the Republic in public or in private over its failure to abandon what the noble Earl, Lord Gowrie, had effectively described as illiberal, reactionary outmoded laws? Your Lordships can be certain that they did not.
Next, the disastrous consequences. It is accurate to say—the noble Lord, Lord Fitt, more or less confirmed it in his remarks—that the Sunningdale Agreement, providing for the setting up of a power-sharing executive, was going extremely well until Irish Government representatives asked for a Council of Ireland, essentially as a bargaining counter, not expecting for one moment that the request would be granted. However, the British Government, desperately anxious to please as always, immediately granted the request, producing the inevitably disastrous reaction among unionists which destroyed the experiment.
If negotiator A constantly bends over backwards to placate negotiator B, that is bound in time to provoke two reactions in negotiator B. The first is a certain contempt, even if it is well concealed. The second is a suspicion, perhaps well-founded, that he is being patronised by negotiator A. After all, if one party to negotiations always defers to the other party, there are only four possible reasons for him doing so.
The first is when the other party is militarily powerful and aggressive, such as Communist China vis-à-vis Hong Kong. We can rule that one out. The second reason is when other parties are unpredictable people from strange and exotic civilisations, such as 19th century explorers, missionaries and traders might have encountered in their travels. But the Irish form part of our common European civilisation, so we can rule that one out too. The third reason is when you suspect that the other party is mentally unbalanced. Despite saloon-bar clichés about mad Irishmen, we can rule that one out as well. Finally, we have the situation where nervous parents are dealing with an aggressive and bloody-minded adolescent. Terrified of a violent outburst they tiptoe around deferring to his or her every whim. This, I fear, is much nearer the mark.
Ever since 1918 the British Establishment has subconsciously imagined that the Irish are going through a difficult adolescent phase which will not last indefinitely, and that provided they are treated with kid gloves and given hand-outs from time to time they will eventually relent and return gratefully to the fold. If that analysis were ever true, which I doubt, it certainly has not been true for 30 years or more. The Irish are fully grown men and women and they have no intention ever of returning to the British fold.

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Therefore, constantly to make allowances for them, and constantly to lean over backwards to avoid any possibility of giving offence, is not an act of kindness but an insult, in that it implies that they are immature. Mature men and women are not worried about being spoken to courteously but frankly and are more than capable of accepting criticism where it is due.
On my rare visits to the South of Ireland on holiday I always find that most people I meet are friendly, helpful and generous, with the rare gift of being able to enjoy themselves hugely in a relaxed and unmenacing fashion. We could do with more of that over here. If they have a particular vice—and most nations and peoples do; certainly the Welsh, English and Scots—it is a tendency, not universal but widespread, to lapse from time to time into a self-pitying sentimentality. The excessively emollient British Establishment attitude does nothing to help them to cure themselves of that vice. Unfortunately, it reinforces it.
That self-pitying sentimentality is particularly unfortunate and inappropriate where Articles 2 and 3 of the Irish constitution are concerned, since every visit to the South confirms my strong impression, and that of many others, that the Irish grow more and more different from the British—not better or worse, just different—every year that goes by, in particular since they joined the EC. In practice as opposed to theory they would never be prepared to alter their laws, habits, lifestyles, loyalties, culture and general preferences to the extent necessary to accommodate one million unionists. The result of the EC referendum in Northern Ireland, where despite what was effectively the promise of massive bribes to vote "yes", confirms that. Thirty-one per cent. of the electorate were prepared to put their traditional way of life above mere financial gain and they must be greatly admired for so doing.
So the refusal to abandon territorial claims without wholly unacceptable strings attached is not only inherently unfriendly and inconsistent with the objective of increasing friendship between peoples of different countries of the EC, but it also bears no relationship to what the great mass of people in the South now want in their heart of hearts. The noble Viscount, Lord Brookeborough reminded us of that.
The British should try to abandon their habits of generations and start treating the Irish as adults—as, for example, they treat the Danes or the Norwegians; people who numerically are each about equal to the Irish—instead of subconsciously treating them as difficult and aggressive adolescents to be constantly humoured and pandered to. In turn, the Irish should not wait for this change in attitude, which may take some time, but should of their own free will unilaterally and unreservedly renounce their territorial claim, thereby demonstrating their maturity and that their protestations of good will towards all the peoples of the United Kingdom are sincere and wholehearted.
2.5 p.m.
Lord Holme of Cheltenham: My Lords, this has been a notable debate on a depressing subject. I agree with the noble Viscount, Lord Brookeborough, that the Northern Ireland Act 1974 (Interim Period Extension) Order 1993 is a sad point in the parliamentary calendar of Northern Ireland business, as we contemplate a temporary measure which has persisted for a generation. We all know that it is no way for Northern Ireland. to be governed. Northern Ireland should be governed by its people and that is what we should address our minds to, as we are today.
I thank and congratulate noble Lords who have spoken. I thank in particular the noble Lord, Lord Fitt, and the noble Viscount, Lord Brookeborough, who in their own ways made most impressive contributions. I agreed with a great deal of what they said. I listened with interest to the noble Lord, Lord Monson, but disagreed with a great deal.
I believe that in Northern Ireland three strong and dangerously incompatible sets of forces are operating simultaneously. First, the political parties which represent the two communities are so stuck in their history, traditions and sectarian positions that they believe even now that it is better to play to the gallery of fear and prejudice than to take the risks which are essential for peace and progress. That tendency is exacerbated by the second set of forces, which are the increasingly deadly activities of terrorists of both persuasions. They are now terrifying the civilian population with their reckless escalation of tit-for-tat violence. It must be apparent to anyone who spends time in Northern Ireland—and some noble Lords live there—that in recent months the climate of fear has intensified. Many ordinary people who display exactly the stoicism referred to by the Minister in his eloquent introduction are now seriously rattled by the continuing and growing level of bombing and shooting.
In the twisted logic of the terrorist it has become a capital offence simply to worship at a different church or to be a member of a different community. It is no longer that one has taken part actively in leadership or terrorist activities. It is not simply a matter of terrorism and counter-terrorism; the war is spreading to totally innocent members of the community. believe that we should all remember that the loyalist paramilitaries are now every bit as menacing as the Provisional IRA.
I have noticed how in Italy over the years, with the Mafia, one sees political terrorism and economic terrorism intermingling. I should like to say how much we have supported the Government's efforts to try to stop the encroachment of terrorism into the economic sphere.
The first force is the political parties. The second is the paramilitaries. Finally, and most hopefully in my view, are the ordinary people of the Province. They have a strong and overwhelming wish—over 80 per cent. in a Gallup poll last week—for peace and for some movement forward. It is heartening that the ordinary people of Northern Ireland are beginning to find a voice. I agree with the noble Viscount, Lord Brookeborough, that too many people have relapsed

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into private lives and have not felt that they could, in that terrible atmosphere, grapple with public responsibility. That is a true observation. Nevertheless, it is true also that there is a growing popular sentiment which says that talks must be resumed and that progress has to be made. The 500 plus submissions to the Opsahl Commission to which the noble Lord, Lord Blease, referred are a promising measurement of that.
The situation is that the terrorists are increasingly threatening on both sides. The leaderships of sectarian political parties are too stuck in their own stereotypes to make any break with the past and the general population seems to be yearning for leadership, yet it is becoming increasingly insecure about the level of violence. As the noble Lord, Lord Fitt, said, there is a spreading crisis of confidence.
In that situation it is for the British Government to be firm and creative. I wish that the British Government would call together for talks the four constitutional parties and put proposals directly to those talks. I hope that they will do that, not jointly with the Irish Government but in consultation with them. I say in parenthesis that I hope that we do not decide to be too beastly to the leadership of the Republic of Ireland. I believe that in Mr. Spring as Foreign Minister and in Mary Robinson as President we now have rational post-civil war leadership of the Republic of a quality and openness that we have not been fortunate to see for a long time. Whatever errors they may have made in their press relations, we are fortunate to be dealing with people of the highest calibre who can make a contribution. It is worth reminding ourselves that Mr. Spring said that Articles 2 and 3 of the Irish Constitution—and they are a major problem and a great source of insecurity—are not cast in bronze. The issue about Articles 2 and 3 must be soluble.
If it is known—and it is known—that in certain circumstances the Irish Government are prepared to resile from those articles and to cast them as a long-term aspiration rather than an immediate territorial claim, and if it is known that it is very important for the security of the unionist population to know that that will happen, it cannot be beyond the ingenuity of the British Government under their creative chairmanship to make quite certain that rather than becoming a precondition of resumed talks they become an implicit condition. That is a soluble problem and in many ways it is for the British Government to solve it.
The view from these Benches corresponds rather closely with those put forward by other noble Lords in the debate. We believe that the future of Northern Ireland depends essentially on not thinking of sovereignty as a matter which rests primarily with the United Kingdom or primarily with the Republic of Ireland. We should think of it as sovereignty resting primarily with the people of Northern Ireland responsible for governing themselves within the United Kingdom. Therefore, we are looking for devolution and for power sharing.
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There are some other rather urgent areas for the Government's attention that I hope they will address. It was not helpful for the former Minister of the armed forces, Mr. Archie Hamilton, to talk about 25 per cent. troop reductions in Northern Ireland. That cannot be a helpful contribution at this time of great insecurity. Of course, he is now a Back-Bencher and he can say what he wants, but I hope that in winding up the debate the noble Earl will address himself specifically to that possibility—a fear that was started by someone with Mr. Hamilton's seniority.
Secondly, and related to that, I hope that the Government will address what seems to be a real problem in the co-ordination of intelligence in Northern Ireland. That applies to the mainland as well as Northern Ireland itself.
The right honourable Sir Edward Heath referred to the inadequacy of intelligence co-ordination. If we are to have policemen and soldiers of the calibre that we have in Northern Ireland they can only be effective if there is integrated and consistently good intelligence coming forward to them. There is much evidence of a lack of co-ordination, of cross-agency competition and of a lack of clarity about who is in charge of giving them the vital information upon which they depend.
Thirdly, I believe that the Government would be well advised to take seriously the results of the recent survey concerning the social and economic conditions of the Catholic nationalists and minority community. I concede that the Government and others, including many voluntary agencies, have made great efforts to raise the standard of living and the life chances of the Catholic community. However, it is still lagging seriously behind that of the majority community.
As other speakers have urged, I hope that the Government will address themselves directly to the deep and genuine insecurity of the unionists. For that reason, with the greatest of respect to the noble Lord, Lord Prys-Davies, with whom I work very closely on such matters, I must say that I do not believe that Mr. NcNamara's proposal for joint sovereignty was in any way helpful at the present juncture; indeed, I think that it has contributed to the insecurity which is the greatest problem in the Province.
In conclusion, what we are looking for from these Benches is rapid progress towards the people of Northern Ireland governing themselves in the context of genuine power sharing and genuine devolution with the introduction of a Bill of Rights to back that up and protect the rights of individuals in the minority community. In short, what we need in Northern Ireland—and this bears on the wise remarks made by the noble Viscount, Lord Brookeborough—is involvement instead of indifference; we need responsibility instead of rhetoric; and we need a greater degree of participation instead of the passive opting out of which we have seen too much.
2.16 p.m.
Lord Prys-Davies: My Lords, your Lordships will be pleased to he assured that I shall be brief. Sadly, we agree that the 1974 Act which imposed the machinery of direct rule upon Northern Ireland must be renewed for another 12 months. When we debated the identical

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order 12 months ago, there were grounds for believing that we could begin to contemplate the coming of the day when the Northern Ireland Act 1974 would no longer have to be renewed. Of course, I accept that my noble friends Lord Blease and Lord Fitt did not fully share that optimism. Both of them have a thorough understanding of the mood in Northern Ireland.
But by today the spirit of optimism of the past few years has drained away and been replaced by a degree of pessimism. I cannot go back to the passing of the 1974 Act, but I can recall the mood since about 1987. I believe that the pessimism about the political prospects is greater today than it has been for many a year.
My bleak assessment is based on the following evidence. First, the fact that the Government have been unable to persuade the political parties within Northern Ireland to reopen talks. That suggests very clearly to me that the present leaders of the parties may be prisoners of their past. There is no evidence that I can see of any significant political movement towards the centre. Indeed, the Community Relations Council in the July issue of its magazine refers to the "political stagnation" in Northern Ireland.
Secondly, the local government elections last May —with a turnout across the Province of about 55 per cent.—showed that ordinary people were solid in their allegiance to the republican and the unionist cause and indeed that they had hardened in their loyalties to their faith. Sinn Fein and Dr. Paisley's Unionist Party, reversed their electoral decline. Obviously both camps are firmly opposed to compromise. They have been opposed to the kind of political compromise which London and Dublin have been seeking for some years past.
Thirdly, there is the significant finding of the Opsahl Commission—it is based on evidence which it collected from about 3,000 people—that one must establish parity of esteem in what it called "the legal sense" between the two communities. Unfortunately the commission did not offer a model as regards the structures for achieving that. I believe that that concept requires a leap of imagination on behalf of politicians and policy makers which may be absent.
On top of all that, as we have heard this morning, the level of terrorism and its dreadful consequences is not declining. As the Minister has said, the security forces have achieved some significant successes during the year. The Minister picked out one or two of those for special comment. He rightly paid tribute to the courage and skills of members of the security forces. We on these Benches wish to be associated with his tribute. But there is nevertheless a widespread perception that campaigns of violence are becoming a permanent feature of the Northern Ireland landscape.
The Minister's speech was rather thin on the current political background. I do not say that as a criticism of the Minister, as I believe that that is bound to be the case. If my assessment of the position is fundamentally flawed, the Minister will no doubt quickly correct me when he replies to the debate. Indeed I would he delighted if he could be more positive about the political developments which the Government believe are possible and are durable.
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We do not want to maintain direct rule for one day longer than is absolutely necessary. Northern Ireland is a highly literate society. It is a remarkable paradox that a society which equipped itself with an education system and a university has to live under legislation which can be produced, amended and cancelled by a stroke of the Minister's pen and without arty proper parliamentary scrutiny.
To sum up, I would say that, while we support the renewal for 12 months of direct rule. I deeply regret that the political momentum towards a settlement which had slowly been building up since about 1983 appears to have been halted. However, I pray and hope that it has not been reversed.
2.22 p.m.
The Earl of Arran: My Lords, once again I am grateful to your Lordships for the valuable contributions made to the debate today. I shall reply to as many points as possible within what I hope I may refer to as the sensitivity of time. The noble Lord, Lord Fitt, is not in the Chamber at present but I wish to comment on his remarks because similar points were made by other speakers, too.
The noble Lord, Lord Fitt, made a number of illuminating observations about insecurity in the Protestant community. I am sure all noble Lords will have reflected carefully on what he said. The noble Lord made a particular point that was also mentioned by the noble Lord, Lord Holme of Cheltenham, and upon which I wish to comment. The noble Lord indicated that constitutional uncertainty fed fears in the community and helped to explain the levels of violence. However, as recently as last week my right honourable friend the Secretary of State stated in another place that an overriding objective of the Government in the talks is to secure unambiguous agreement on the constitutional status of Northern Ireland. I hope the noble Lord will be reassured by that and will accept that it is a substantial reason for developing political dialogue.
The noble Lord, Lord Fitt, also suggested that three-stranded talks were over-ambitious. I can appreciate why he may feel that way but at the same time it has been recognised by both governments and the Northern Ireland parties that if a comprehensive settlement is to be achieved, it must recognise all the relevant relationships —hence the structure for talks that was agreed in the previous Secretary of State's Statement of 26th March, 1991.
The noble Lord, Lord Cooke, made a number of adverse comments about the administration of government under direct rule, and referred to the democratic deficit which currently exists. We certainly recognise that the structures of government may not be regarded as ideal. It is very much an objective of ours to return greater authority and responsibility to Northern Ireland's own elected representatives. To achieve that we believe the way forward lies through the political talks, which hold out the prospect of devising new arrangements which would command support throughout the community.
The noble Lord, Lord Cooke, then raised the question of the trust fund to limit tariff increases this

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year. I have nothing to add to the statement made in another place on 8th July this year by my right honourable friend the Secretary of State.
As regards the Scottish interconnector, NIE took a commercial decision to proceed with the interconnector, which it considered to be the best available option for meeting the capacity shortfall around the middle of the decade. The advantages which NIE recognised that the interconnector offered include the ending of the isolation of the Northern Ireland electricity system, improved fuel diversity and additional capacity to meet peak demands. As regards price levels, the life of the interconnector is likely to be more than 30 years and, assuming that a pool can be established to allow full supply competition, it will be for the regulator to determine prices.
The noble Lord, Lord Cooke, also raised the question of the enabling legislation for the privatisation of the Belfast Harbour Commissioners. I would explain that Northern Ireland Orders in Council are made under the Northern Ireland Act 1974, which Act enables Parliament to deal, by Order in Council, with those legislative matters in the transferred field which in circumstances other than direct rule would be dealt with by a devolved administration in Northern Ireland. The ports order is classed as primary legislation in the transferred category. Such legislation is still drafted in terms of Northern Ireland assembly procedure rather than parliamentary procedure. That assembly-based legislation is, in effect, stepped down by the 1974 Act.
The noble Lord, Lord Cooke, also asked about the decision to privatise Belfast Airport by trade sale. I can advise him that the consultation period for legislation introducing the privatisation of Belfast Airport has been extended by a short period and comments are still being submitted to the DoE for discussion. It would therefore be inappropriate for me to comment on the arguments for a trade sale or public flotation until all comments on the draft order have had the Environment Minister's serious consideration. Of course the noble Lord, Lord Cooke, will be aware that the issue of the method of sale was raised in another place last week when an undertaking was given by the Minister that there would be a thorough examination of both options before a final decision was reached.
The noble Lord, Lord Blease, reported the comments of my right honourable friend the Secretary of State in another place last week. I shall not add to what he said. However I take note of the issues which he believes the talks should address. One of the advantages of the talks process is that it allows the participants to raise issues affecting all the key relationships—within Northern Ireland, between Northern Ireland and the Republic and between the two governments.
My noble friend Lord Brookeborough made some interesting comments about the difficulties of returning greater responsibility to Northern Ireland's elected representatives. If my noble friend will allow, I should like to reflect on what he said. However, I am aware that my right honourable friend is strongly of
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the view that there is much potential talent at political level in Northern Ireland and that were greater powers to be returned, that talent would respond accordingly.
The noble Lord, Lord Cooke of Cheltenham, made some interesting points during his speech. As regards force levels, I believe that he knows that they are kept under continual review.
Lord Holme of Cheltenham: My Lords, I thank the noble Earl for giving way. He is covering an enormous amount of ground and I would not want to rub his nose in it, but he conflated the names of two noble Lords—myself and the noble Lord, Lord Cooke.
The Earl of Arran: My Lords, I apologise.
Lord Donaldson of Kingsbridge: My Lords, I believe that the result was an honour to both noble Lords.
The Earl of Arran: My Lords, I hope that we can return to total sanity on this matter.
I know that the noble Lord, Lord Holme of Cheltenham, was concerned about force levels. Of course we keep these under review all the time. That also applies to the importance of intelligence which is handled with coherence and great care again at all times.
The noble Lord, Lord Holme of Cheltenham, suggested that the Government should put ideas to the Northern Ireland parties. I can confirm for him that the Government are currently developing a scheme, or sketch map, to give directions and focus to new talks. The Government are happy to discuss their ideas for a scheme with all the participants before it is finalised. However, as the noble Lord suggested, it will be a British paper.
I understand that the noble Lord, Lord PrysDavies, had to leave; he gave me notice of that. However, I say to him, and to the noble Lord, Lord Holme of Cheltenham, that naturally we should all feel happier if, following the conclusion of the talks last November, the various parties had by now found their way back to the negotiating table. But I do not believe that noble Lords would be right to be pessimistic. Both the British and Irish Governments continue to believe that the objectives of the process remain valid and achievable and at the intergovernmental conference restated their determination to continue to make every effort to achieve those objectives through direct discussions with and negotiations between all parties concerned. As noble Lords are aware, the British Government are in contact with the participants from the previous talks and intend through further private consultation to go on developing common ground, thus making progress towards further dialogue. We are firmly of the view that that is what the overwhelming majority of people in Northern Ireland would wish and both Governments will continue to use their best endeavours to bring further dialogue about.
In conclusion, I can only echo the hope expressed by many today that it will not be much longer before the present temporary arrangements for handling Northern Ireland affairs can be put to an end. The Government believe that the best chance of achieving new arrangements lies in dialogues between the main

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constitutional parties in Northern Ireland and the Governments of the United Kingdom and the Republic of Ireland.
Your Lordships may be assured that we are working with steady determination to promote further talks to establish a new beginning in respect of the three key relationships within Northern Ireland, within the island of Ireland and between the two Governments. I commend the order.
On Question, Motion agreed to.

Army, Air Force and Naval Discipline Acts (Continuation) Order 1993
2.31 p.m.
The Parliamentary Under-Secretary of State, Ministry of Defence (Viscount Cranborne)The Parliamentary Under-Secretary of State, Ministry of Defence (Viscount Cranborne) rose to move, That the draft order laid before the House on 26th May be approved [32nd Report from the Joint Committee].
The noble Viscount said: My Lords, the purpose of the order is to continue in force for a further year the Army Act 1955 and Air Force Act 1955 and the Naval Discipline Act 1957, which together provide the basis for the disciplinary arrangements of the three services. The concept of annual parliamentary approval of the special legal position of the service personnel, subject as they are to the constraints of military discipline as well as to the rule of civil law, is a long-established one in British constitutional practice. As your Lordships also know, every five years the service disciplinary system is reviewed in depth, and an Armed Forces Act is passed making such amendments to those systems as are considered necessary. The last time such an Act was passed was in July 1991. As your Lordships will recall, the Select Committee in another place which considered the Armed Forces Bill made a number of recommendations in its report published in April 1991. With your Lordships' permission, I should like to refer to a couple of those recommendations and to report progress.
The Select Committee made two recommendations in particular about the employment of young people in the armed forces. The first recommendation was that the Ministry of Defence should examine the terms of enlistment for under 18 year-olds to make it easier for them to leave, if they wished to do so. There is no evidence to show that there is widespread dissatisfaction among under 18 year-olds either about their terms of service or the advice they receive on their rights to claim discharge. I should emphasise that any extension of a minor's rights to leave would cause unacceptable manning difficulties for the services. Nevertheless, in the light of the committee's views, the services have reviewed their position.
The Navy already had provision to allow discretion to discharge under-18 year-olds who find they are unable to settle to service life. The other two services have now adopted a similar provision. These arrangements are in addition to the statutory rights of discharge. I can assure your Lordships that the recruiting staff are meticulous in ensuring that recruits and their parents or guardians fully understand the
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commitment being entered into; and, of course, recruits under the age of 18 require their parents' or guardians' written consent to enlist, and all receive a "Notice Paper" which states their terms of enlistment and the earliest date at which they can leave. In addition to this, there is a leaflet given to all new recruits, entitled Your Rights and Responsibilities, which has now been amended to include a note on the right to claim discharge; this leaflet was re-issued last autumn.
The second matter to which the Committee referred was ethnic monitoring. We announced in May 1992 in another place the decision to introduce in-service ethnic monitoring. I know that a number of your Lordships have, over the years, expressed an interest in the subject. That will involve the distribution of ethnic monitoring questionnaires to all serving personnel and the analysis of these questionnaires will follow.
We intend to begin the ethnic origin survey later this year. It is disappointing that, despite the efforts made to encourage their recruitment, the ethnic minorities still only represent about 1 per cent. of all recruits. I think it is important to emphasise that the services remain fully committed to the idea of increasing recruitment from the ethnic minorities. However, it is equally true that it is likely to take many years of sustained effort before we see any significant increase.
The services have a range of measures in place to achieve this aim, including: increased use of recruiters from ethnic minorities; better representation of ethnic minority service personnel in recruiting literature; special training for recruiters; procluction of bro-chures in ethnic minority languages to target parents; and development of contacts with the appropriate communities.
We can do a great deal in this area, but nevertheless there is probably no substitute for example. The best proof of the good intentions of the services that a full career with satisfying promotion opportunities is available will be when we see more and more senior officers coming from the ethnic minorities as a result of careers recruitment.
I remind your Lordships that the services are fully integrated organisations and that we do not tolerate: discrimination. In view of complaints from your Lordships in this area, I emphasise that all Ministers and all senior officers and officials are wholly committed to the idea that any complaint of racial abuse or discrimination will be thoroughly investigated. If it is substantiated, appropriate action will be taken against the perpetrators.
There is another matter to which I should address myself, although we discussed it at the same time last year during the debate on the order. That is homosexuality. Your Lordships will recall that the Select Committee acknowledged that the Armed Forces should not be required to accept homosexuals, but recommended that homosexual activity of a kind that is legal in civilian law should no longer constitute an offence under service law. I told your Lordships last year that that recommendation had been accepted. This change in the law means that a serviceman who

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engages in a homosexual act that is legal in civilian law will not be prosecuted under service law, but will nevertheless be administratively discharged, as the phrase goes. However, I should emphasise that that change will not prevent the prosecution under service law of a serviceman who has committed an otherwise legal homosexual act where the grounds for prosecution were, for example, that the act was to the prejudice of good order and discipline or military efficiency.
I further informed your Lordships last year that action would be taken to amend that part of the Sexual Offences Act 1967 which relates to the armed forces. Unfortunately, a suitable legislative opportunity to make the appropriate amendment to the law has not yet presented itself. I stress that it is a situation that we intend to remedy as soon as the legislative programme allows. Such a lacuna is unsatisfactory. It is a piece of tidying up which I am sure your Lordships would encourage the Government to pursue as soon as possible. Nevertheless, any delay in amending the legislation does not affect agreement to the Select Committee's recommendations. Indeed, the services have taken action to follow the recommendations administratively until such time as the law is changed.
The Select Committee also recommended that service courts should ensure that sentencing is equitable between the sexes. That gives me an opportunity to tell your Lordships that sentencing guidance has indeed been amended in the wake of the Select Committee's recommendations and that other relevant regulations are being amended where appropriate.
There may be a number of other matters which noble Lords may wish to raise during the course of this short debate and, with your Lordships' permission, if given the opportunity to reply, I shall endeavour to address myself to them. In the first instance, that is all I want to say at this stage except for one matter. It is perhaps a truism in this House to pay tribute to the professionalism and dedication of the men and women who serve in our armed forces. Nevertheless, I believe it is important that all in this House should take the opportunity to do so.
It is all too easy to forget those people, particularly in Northern Ireland, and the risks that they run, for which they sometimes receive very little thanks or appreciation. I have no doubt that their very considerable professionalism and personal effectiveness is enhanced by the fair and equitable system of disciple that operates in the Navy, the Army and the Air Force. Morale is considerably heightened by that sense of equity and fairness in the administration of discipline. As your Lordships will know, that system is founded upon the three service discipline Acts. Therefore I feel that it is entirely appropriate that I should ask your Lordships' approval for the draft order laid before the House on 26th May. I beg to move.
Moved, That the draft order laid before the House on 26th May be approved [32nd Report from the Joint Committee].—(Viscount Cranborne.)
2.44 p.m.
Lord Mayhew: My Lords, the subjects raised on these annual debates are extraordinarily unvarying and familiar. That is a reflection of the failure of the Government to respond quickly and adequately to the recommendations made in Parliament. There is, for example, the noble Viscount's statement that there has been no time for a very short, simple and popular measure to remove the disparity between civil and military law on the matter of homosexuality.
I cannot see why there has been no time for such a measure. I can think of other Bills presented to Parliament which have taken a lot longer and which have been much less desirable and far less popular. I recall the time we spent on the War Crimes Bill and the time that we are now spending on the Railways Bill.
It may be that the Government are not seeking popularity. There is much evidence for that. If they are not seeking popularity, they are being extraordinarily successful at the present time, so much so I gather that the vote of support for my party is now well in excess of the vote of support for the noble Viscount's party.
It is time we had a simple Bill on the question of homosexual law. It is a difficult subject. Though I have personal opinions I am tentative about them in that they are coloured by my active service both as a commissioned officer and in the ranks over 50 years ago. Nevertheless, it is my view that in relation to recruitment and keeping people in the Army, the test should be conduct and not orientation. Both homosexual and heterosexual conduct which is prejudicial to good order and discipline should be punished, even if it amounts to no more than fairly mild sexual harassment. If homosexuals and heterosexuals cannot observe that degree of self-discipline, they should not have joined the forces in the first place. Service life is unique in many respects and calls for unique standards of discipline, including self-discipline.
Another point arises where the Government's view has been quite unchanged, despite powerful arguments put on both sides. It concerns capital punishment. The Government's view is that the threat of capital punishment should remain. They make that statement acceptable by invariably adding that that threat never has been and never will be carried out. That is what we were told last year. When the noble Viscount replies he will probably say the same thing. It has always seemed to me that that attitude is both illogical and weak. If that threat is considered to be a useful and effective deterrent, then the Government must seriously uphold it. As they do not uphold the threat, there is more likelihood that it will be wholly ineffective.
I invite the noble Viscount, when he replies, to give us an example of a situation where the threat of capital punishment may be effective. Let him paint a scenario in which, in conditions of extreme stress, a serviceman's conduct might be changed by the prospect—which has been made utterly remote and improbable by official statements and regulations—of him facing a firing squad. I challenge him to paint that

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scenario. In my view the time is long past when the disparity between military and civil law on that point should be removed.
I wish to raise one further point concerning ethnic minorities and the need for their greater representation in the forces. I do not question the goodwill of the Government on that point. They have made genuine efforts. But how disappointing are the results. Why do we have to wait for a questionnaire which we were promised three years ago? We are told that the process will not start until the autumn. I do not understand the delay. Perhaps the Minister can explain that.
It is profoundly disappointing that only around 1 per cent. of our forces are recruited from ethnic minorities. Perhaps the noble Viscount can tell us what is the most senior level a person of ethnic background has reached in the Armed Forces. How many commissioned and non-commissioned officers are there? Of course, conscription would solve the problem. Nevertheless, when we see in the United States of America that the most powerful and senior military figure in the world is a black man, it makes one despair of the situation in this country. We need to continue to make the most enormous efforts in this field.
Those are the only points I wish to put to the noble Viscount. But the fact is that another 12 months have passed with very little improvement on any of the subjects that I have raised. The admiration of the British public for the forces has probably never been higher—and never better deserved—than it is now. We must support the order but we hope that the Government will have much better things to report next year when we come to consider it again.
2.50 p.m.
Lord Williams of Elvel: My Lords, I am grateful to the noble Viscount for introducing the order, and I am also happy to join him in the tribute he rightly paid, as indeed we both paid the other day, to the performance of our Armed Forces. It is without doubt due to them that we are living in this country in a comparatively safe environment, although there are dangers on all sides. Nevertheless, we all appreciate, as the noble Lord, Lord Mayhew, said, the efforts of the Armed Forces and the way they conduct their business.
We have no intention of opposing the order because if we were to do so the Armed Forces might, under the Bill of Rights, cease to exist. Therefore, what we are doing is exploring certain areas which, as the noble Lord, Lord Mayhew, said, have been explored in the past and on which there has been relatively little action. I would number four areas. The first, as the noble Lord, Lord Mayhew, pointed out, is the question of capital punishment. It is extraordinary that we still have in the Armed Forces discipline five matters which are apparently subject to the death penalty. They are: serious misconduct in action; obstructing operations; mutiny or incitement to mutiny; failure to suppress mutiny; and assisting the enemy. The noble Lord, Lord Mayhew, invited the
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noble Viscount to describe a scenario where one of these matters could be applied. I shall help the noble Viscount by describing one such scenario.
Let us suppose, as the noble Viscount has mentioned Northern Ireland, that an IRA sniper aims his rifle at a British soldier. If he hits the British soldier and the British soldier is killed, the IRA sniper, if he or she is apprehended and convicted by due process of law, will not suffer the death penalty. If, on the other hand, the British soldier, appreciating that a sniper has aimed his or her rifle at him, runs away, then that soldier under our present disciplinary procedures is liable for capital punishment. That cannot be in any conceivable logic right. It is about time that the Government took a grip and lined up the disciplinary procedures, particularly in terms of capital punishment, in our Armed Forces with civilian procedures. In other words, treason is the only crime which should carry capital punishment. That should be the case for the Armed Forces as well as for civilians.
The noble Lord, Lord Mayhew, also brought up the question of homosexual activity in the Armed Forces. The noble Viscount was kind enough to say that the Government had paid attention to the report of the Select Committee in another place. The problem that I have, apart from the legislation problem to which I shall come in a moment, is that when I read what Mr. Hanley said in introducing the order in another place I find myself in something of a difficulty. Mr. Hanley said:
"The services continue to believe strongly that the special conditions of service life preclude acceptance of homosexuals and homosexual behaviour".—[Official Report,Commons, 21/6/93; col. 124.]
For the life of me I cannot see why, just because somebody is a homosexual—leaving aside whatever practices he or she may engage in—that is in any sense a question of military discipline and discharge. It is for the Government to say what they think about homosexual behaviour, but homosexuality in itself seems to me to be something which many people have. They may not engage in homosexual activity. While decriminalising homosexual activity and keeping it as a criminal offence from the point of view of the Armed Forces, that is a very odd proposition. That is what I understand the Minister said in another place. I very much hope that the noble Viscount will correct what the Minister said or enlighten me by saying that I am wrong in the matter.
If (as he said) the noble Viscount is worried that there is no legislative time for implementing the recommendations of the Select Committee on homosexuality', perhaps I may offer a suggestion. I am perfectly prepared to introduce in this House a Private Member's Bill or to encourage one of my noble friends to do so and at any time. If the Government were to say that they would support it, the Bill would go through the normal processes in your Lordships' House and then go to another place. Then the Government will decide there whether they wish to give it time. I make that offer in all sincerity and with the greatest degree of good will. It is a bit odd that we

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are told time and again as regards many recommendations that there is no legislative time. There is always legislative time available. I make that offer to the noble Viscount.
As regards ethnic monitoring, which the noble Lord, Lord Mayhew, mentioned, it is very disappointing that we have made so little progress. When the noble Viscount comes to reply, I hope very much that he will be able to tell us not just that we are sending out a questionnaire 18 months late, but that we are stepping up the recruitment of ethnic minorities into our Armed Forces. After all, traditionally, and in the loosest secular sense, in times of high unemployment there is high recruitment for the Armed Forces. That has always been the case. It is also the case that we are in a period of high unemployment and we are likely to continue to be so. Indeed, unemployment falls hardest on the ethnic minorities.
Therefore, it would be sensible and logical if the ethnic minorities were encouraged, in one way or another—it is for the Government to decide which way they do it—to join the Armed Forces. That would redress the imbalance which all noble Lords regret.
My last point concerns the role of women in the Armed Forces. I understand that they are now allowed and indeed encouraged to drive armoured personnel carriers in the front line, particularly in Northern Ireland. Are there to be any further changes in the role of women in the Armed Forces? If so, can the noble Viscount say what they are to be and how are those decisions arrived at? When the noble Viscount replies, I hope that he will be able to give us some information on that subject.
I join with the noble Lord, Lord Mayhew, in saying that the Government have many questions to answer. There are difficulties and there have been difficulties. We seem to be debating the same questions over and over again, year after year. Nonetheless, that does not discourage me from giving a welcome to the Motion because I believe that our Armed Forces should be encouraged. If I have asked what I hope are some rather pertinent questions, that does not mean in any way that we not not appreciate the role that our Armed Forces play.
2.59 p.m.
Viscount Cranborne: My Lords, I am extremely grateful to the noble Lord, Lord Mayhew, and the noble Lord, Lord Williams of Elvel, for the tributes that they paid to our Armed Forces. The last thing that I would ever impute to the noble Lord, Lord Williams, is the capacity not to ask pertinent questions. He has already proved that he is well able to do that.
Both noble Lords made a number of points which, with your Lordships' permission, I would like to address. I start with the question of legislation on homosexuality. Both noble Lords expressed a degree of disappointment on that point, which I share. There is no doubt at all that time can be found for legislation, but there is never enough time, as I am sure
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that both noble Lords know, for introducing all the legislation that is necessary for the Government's programme.
I ask the noble Lord, Lord Mayhew, to ponder what seems to me to be a fact—that what he was advocating is a bit of a will o'the wisp. He seemed to be advocating the idea that Her Majesty's Government should pursue instant popularity. That is something which we eschew most sternly, being convinced that over the lifetime of a Parliament there is no doubt that the longer-term view will commend itself to the electorate rather more perhaps than the short-term objectives of the noble Lord's party. I am content to await the verdict of the electorate at the next general election to see whether the electorate agrees with the noble Lord or with me.
I can advise both noble Lords, however, that we should very much like to find the time for the necessary legislation long before the next quinquennial Act is due. I take seriously the suggestion of the noble Lord, Lord Williams, of using a Private Member's Bill in your Lordships' House. If he will allow me to do so, I should like to take that idea away and think about it. If it seems an expedient method of proceeding, perhaps I may take the liberty of advising him.
On the question of ethnic minorities, again I must confess to a very high degree of sympathy for the views expressed by both noble Lords. It has taken a great deal longer than I should have liked to introduce the new procedures. Nevertheless, I think that I can reassure both noble Lords that those procedures will be introduced and working before the end of this year. I am delighted to be able to say that that is finally happening. I regret the delay, but the fact that it is now happening at least gives something of the lie to the suggestion of the noble Lord, Lord Williams, that no progress is made from year to year. Progress is sometimes a little like the mills of God. Nevertheless, we grind slowly on and progress is made.
Both noble Lords raised other pertinent points. I shall not weary the House with an account of the way in which we are trying to step up recruitment from the ethnic minorities. I hope that the noble Lord, Lord Williams, will accept that a very great deal is being done to enable people from the ethnic minorities to gain access to the Armed Forces. I gave some examples earlier. If the noble Lord, Lord Williams, would like at any time to see for himself some of the efforts that we are making, he will always be extremely welcome.
The question of the death penalty exercised both noble Lords. Superficially at least, I see that the services' view may seem a little antiquated. After all, the legislation governing the matter of high treason goes back as far as 1795. I have a copy of the relevant parts of the Act in front of me, but it would be unwise if I were to weary your Lordships too much with a trip down memory lane.
The noble Lord was right when he said that the last Armed Forces Bill passed in 1991 made no change to the powers of courts martial to pass a death sentence. I have to emphasise—from what he said, the noble Lord, Lord Mayhew, is well aware of this—that while

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the death penalty is retained it is a non-mandatory sentence. The policy is that such sentences should never be carried out in peacetime. The noble Lord, Lord Mayhew, was correct to suggest that that would be part of my answer. The fact that he predicted it does not make it any the less true.
The noble Lord, Lord Williams, was right to say that if the death penalty were applied it would apply only to five of the most serious offences which he enumerated. In wartime, such acts are likely not just to jeopardise national security but to put at risk the lives of other servicemen. There are a considerable number of safeguards governing the use of the death penalty. Your Lordships may like to reflect upon the fact that the nearest civil criminal offence of that nature—I suggest that it is entirely comparable with the five offences enumerated by the noble Lord, Lord Williams—is an act of high treason for which the death penalty is still mandatory in this country.
It is fair to say that in wartime, with all the unpredictable strains that apply, it is reasonable that the death penalty should remain in service law. Despite the pleas of both noble Lords, we have no plans to change that position.
Lord Williams of Elvel: My Lords, I am sorry to interrupt the Minister, but so far as I know, unless anything has happened while I have been in the Chamber, we are not at war. We are at peace. The Minister said that the intention was that the death penalty should not be exercised for any of the offences I enumerated during peacetime. Would it not be sensible, therefore, to eliminate the death penalty? If we do get into a war, I should be the first to join with the Minister in saying disciplinary measures of that form might well be required.
Viscount Cranborne: My Lords, I am grateful to the noble Lord, Lord Williams, for his acknowledgment that different circumstances apply in wartime. However, I am sorry that he feels that the assurance I have given him, that the policy in peacetime as it is, is insufficient. It would he inconceivable for such a sentence to he carried out in peacetime. I should have thought that it was an entirely reasonable provision for military legislation which, by its very nature, anticipates states of war being possible. Defence, after all, is an insurance against war, and, sadly, when war breaks out, it is up to the Ministry of Defence to ensure that the country is defended. It is consistent with the nature of the Ministry of Defence for the situation to be as it is. I am sorry that the noble Lord, Lord Williams, and I find ourselves disagreeing over the matter.
The noble Lord asked me to comment about the position of women in the Armed Forces. A great deal has happened on that front, despite the suspicions of both noble Lords that that is not so. The mills may have been grinding rather faster there than in other areas. Combat roles in service ships and aircraft have been opened to women in the Navy. The exception, of course, is submarines, where the lack of privacy for men and women makes the introduction of women a little difficult. Nevertheless, there are now over 700 women in the Navy serving at sea.
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As regards the Army, the Women's Royal Army Corps was disbanded on 1st April 1992. Women are now integrated with their employing corps. The Army is developing proposals for the introduction of gender-free physical testing. I am pleased to see that the noble Baroness, Lady Seear, is not in the Charnbeir to pull me up on military expressions, which is her wont in your Lordships' House. Physical capacity rather than the sex of the applicant will determine suitability for a particular specialisation.
As regards the Royal Air Force, women are now employed in almost all branches and on virtually all tasks without significant restriction. Your Lordships will be aware of the recent publicity attendant upon the qualification of fast jet pilots, who are women, for the first time in the history of the Royal Air Force.
That is all I wish to say in response to the points made by both noble Lords. I express my gratitude to them for the commendable comments which they made about the Armed Forces and for the support that they have given to the order. I associate myself emphatically with those sentiments. I hope that your Lordships will feel able to give the order the fair wind which I believe it deserves.
On Question, Motion agreed to.

Fishing Vessels (Decommissioning) Scheme 1993
3.11 p.m.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe) rose to move, That the order laid before the House on 26th May be approved [32nd Report from the Joint Committee].
The noble Earl said: My Lords, I am pleased to introduce today the Fishing Vessels (Decommissioning) Scheme 1993 under which £8.4 million is available in 1993–94 for decommissioning grants for fishermen. The scheme will help to reduce fishing effort and to fulfil our EC obligations.
Why do we need to reduce fishing effort? Scientific advice is that several fish stocks in UK waters are severely depleted and that all stocks are vulnerable. Technical conservation measures—for example, rules on mesh sizes and measures such as total allowable catches (TACs) and quotas, which we currently have in place—are not of themselves sufficient to protect the fish and allow the stocks to be replenished. The only sure way to conserve this important resource and thus to assure the long-term future of the industry is to have less fishing. The industry itself accepts that there are too many boats chasing too few fish but there is no incentive for the individual fisherman voluntarily to limit his fishing effort; he wants a guarantee that this action is being taken collectively.
That is why governments throughout the world have taken responsibility for the conservation of fish stocks for the good of their fishing industries. That is why the European Community has agreed multi-annual guidance programmes (MAGPs) with targets for capacity reductions and limiting effort which all member states must achieve by end of 1996. And that

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is why in February 1992 the Government announced a package of conservation measures aimed at reducing fishing effort. The package includes changes to the licensing regime, the £25 million decommissioning scheme and days at sea restrictions.
One way of achieving less fishing is of course to have fewer vessels and that is the objective of the decommissioning scheme. It has the potential to reduce the UK fleet by about 10,000 to 12,000 tonnes and to make a contribution towards our MAGP target of at least 5 per cent.
The purpose of this statutory instrument is to set out the rules for the payment of decommissioning grant. Eligibility for grant is restricted to registered fishing vessels which are more than 10 metres; more than 10 years of age; are seaworthy; have a valid fishing licence which has not been downgraded since 27th February 1992 (the date of the ministerial announcement); were acquired before 27th February 1992; and spent at least 100 days on fishing trips in each of 1991 and 1992 (to ensure that only active fishing vessels are decommissioned). The level of grant is to be determined through tendering with bids ranked according to pound sterling per vessel capacity unit (VCU). That will enable us to take out the greatest capacity for the available funds. The owners of eligible vessels must be prepared to scrap and de-register their vessel and surrender all its licences by 1st March 1994. That way we have a tightly controlled scheme.
Those are the eligibility rules which will apply for 1993–94. Next year they may be changed in the light of the experience of this year's scheme, so as to provide for the best targeting of funds.
Under the 1993–94 scheme £8.4 million is available and £25 million is available in total. A press announcement inviting applications under the scheme was made on 26th May 1993. The closing date for applications is now the end of July. My honourable friend the Minister of State announced on Wednesday this extension to the 9th July deadline to allow fishermen to reflect further and apply if they wish.
I believe that this scheme, as part of the package of conservation measures I have mentioned, will be effective. It offers those fishermen who meet the eligibility criteria and who wish to leave the industry an excellent opportunity to do so. It will help reduce pressure on scarce fish stocks and contribute significantly towards meeting our EC targets for reducing capacity.
I should like to say a few words about the other main element of the package, the days-at-sea restrictions. The fishing industry has expressed doubts about these restrictions and we are fully aware that some sectors of industry do have ideas on alternative solutions or concerns about the detail of the days at sea rules. My right honourable friend the Minister of Agriculture, Fisheries and Food and my honourable friend the Minister of State have been listening to the industry's views and as a result of its representations the Minister of State announced on Wednesday a postponement of the days at sea restrictions until 1st January 1994. That will give us the opportunity to
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consult fully with the industry about their concerns and to hear its ideas on tackling conservation. However, I must emphasise that effort controls remain a key element in meeting our MAGP targets and in ensuring that we make the best use of the £25 million available for decommissioning. We cannot remove vessels from the fleet and allow other vessels to fish harder. That would not give us value for money; nor would it be in the long-term interests of the fishing industry.
We hope that the industry will take the opportunity of the postponement to put forward constructive views and suggestions so that by the end of September we have its firm views and can take those into account in time for the final days-at-sea arrangements to apply from the beginning of next year. We shall listen carefully to what is said.
It gives me pleasure to commend for your approval this instrument which, together with the postponement of days at sea, shows the Government's commitment to help the industry and to listen to its anxieties and ideas about all aspects of the policy.
The Earl of Selborne: My Lords, before the Minister sits down, has he remembered the advice of Sub-Committee D to the European Communities Committee that, although £25 million is helpful, it is not sufficient to resolve the problem of too many ships chasing too few fish?
Earl Howe: My Lords, indeed, Ministers bear that advice strongly in mind. As my noble friend will no doubt realise, budgetary restraints in the current year will prevent us from instituting a larger scheme. But I am grateful to my noble friend for reminding the House of that advice and of the committee's work, which was of great value. I commend the order. I beg to move.
Moved, That the draft order laid before the House on 26th May be approved. [32nd Report from the Joint Committee]. —(Earl Howe.)
3.19 p.m.
Lord Thomson of Monifieth: My Lords, I thank the noble Earl for the way in which he introduced the scheme. He explained the background to it and described in clear detail the content of the scheme. I am sure that there is no dispute in your Lordships' House about the underlying reality which the noble Earl described as too many boats chasing too few fish. I believe that that is the most succinct way in which it can be described.
We have noticed the destruction of the Canadian east coast cod fishing industry in which 25,000 jobs have been lost because of a failure to engage in adequate conservation policies. We are extremely conscious that it is a particularly traditional industry with a very strong community base. Therefore, we are conscious that the social aspects of cutting back are particularly severe in an industry of this kind. I think that they deserve special attention.
I believe that the main problem was implicit in the noble Earl's remarks; namely, the need to combine a cut in capacity with a reduction in effort. Both are undoubtedly needed. But, in our view, the key to

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conserving fish is to give priority to limiting the total capacity of the fishing fleet rather than to fishing effort (by placing restrictions on all vessels in the fishing fleet). But one has to do both. It is a matter of balancing the two. In our judgment, the Government are not putting nearly enough emphasis on decommissioning as the method of reducing the capacity. I believe that their policies concentrate excessively on curtailing the fishing effort.
The present decommissioning scheme of £25 million over three years, with £8 million plus for this year, is even poorer than the one that was originally promised, which was to span over a period of two years. I believe that. I carry the noble Earl who intervened a short while ago along with me when I say that it involves so small a sum of money as to be without serious significance and is quite inadequate to meet the scale of the problem and the challenge that we face.
Therefore, from these Benches we advocate a more meaningful decommissioning scheme which will be matched by a social retraining programme for local communities that are specially affected by the harmful consequences of decommissioning. I refer, for example, to the unemployment that occurs, very often with no prospect of alternative jobs. There are also special problems associated with employment in the fishing industry, where share fishers who are not employees have no rights of redundancy and, therefore, decommissioning in financial terms will do nothing for them.
By refusing to receive 70 per cent. European Community grants for decommissioning, it appears that the UK is forfeiting a large amount of money. The figures that I have seen show that the United Kingdom (a country with a large fishing industry) has received 58.3 million ecu through the common fisheries policy; whereas equivalent countries, such as France and Spain, have received, respectively, 165.9 and 168.9 million ecu. I should be grateful if the noble Earl can explain why we have done so poorly in that respect.
On the face of it, some people may say that the scrapping involved in decommissioning is itself a rather wasteful policy. But clearly that is not the reality of the situation. If the vessels due to be decommissioned were in any way to survive and were sold off, that would lower the cost of buying fishing boats and encourage other countries' fishing industries to increase their activities, thus only transferring the problem elsewhere.
I do not underestimate the difficulties facing the Government. I am rather conscious that I am a late Friday afternoon layman on the subject. My experience of the fishing industry is confined to going down from Monifieth to Arbroath to buy my smokies. The memorable period when I played a modest part in the first shaping of the common fisheries policy when I was commissioner in Brussels left me with a very chastened feeling about the immense complications and problems of dealing with the fishing industry. Apart from the problems of stocks, it consists of communities that are basically very vigilant and watchful not only about what other countries receive
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(which they do not receive) but also about what their immediate neighbours receive under any policy. It is not an easy problem.
In trying to bring about a peaceful and gradual reduction in the scale and size of the industry. we very much welcome the news given by the noble Earl that the period before a final decision is taken about the particular days-at-sea method of reducing effort is to be extended until the end of the year. I believe that all of us in your Lordships' House hope that the Government will make a serious and earnest effort to examine closely the various alternatives that are being put out from various quarters in the fishing industry to see whether at the end of the day there cannot be an agreement on the best form of reducing effort. From these Benches I must reiterate that we believe that the Government have allowed the financial pressures on them to result in a decommissioning policy that is quite inadequate to the scale of the problem that has to be dealt with.
The Earl of Clanwilliam: My Lords, with the leave of the House, will my noble friend ensure that, with the execution of these important rules, the evident effect of which will be the saving of fish stocks, these fish stocks that are saved will not be fished out by our European competitors who do not follow the sarne rules as ourselves?
Lord Gallacher: My Lords, we on these Benches are also grateful for the explanation of the order which the noble Earl has given the House. We are equally aware that in the outstanding report on the common fisheries policy prepared by your Lordships' Select Committee, on the European Communities, the proposed £25 million over three years 'which is embodied in the scheme was regarded by the committee and us as a totally inadequate response to the magnitude of the problem. Although it is accompanied by restrictions on days at sea, even taken together we are not particularly sanguine that much success is likely to attend this effort, although of course we wish it well.
That enables me to ask the noble Earl the first of a number of questions on the order; namely, how much of the £25 million in the order will come from European Community sources? If the first tranche of £8.4 million is not taken up, will there be a carry-over of that sum to the following two years? I think the industry will appreciate the extension of the closing date for applications to 31st July as there will be arrangements for days at sea which are to apply now from 1st January 1994. Are there to be any geographical preferences within the scheme to take account of variations in the numbers of eligible vessels; for example, Scotland? If the tender method incorporated in the order results in an imbalance of decommissioning by areas, will this be taken into account when drafting rules for years two and three?
In another place on 7th July the honourable friend of the noble Earl, the Minister of State, said:
"My Scottish Office colleagues and I will shortly meet the Scottish Fishermen's Federation".—[Official Report, Commons, 7/7/93; col. 420.]
They are to meet to discuss the general question of fishing. Will the noble Earl say where responsibility will lie under this scheme for decommissioning in

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Scotland, particularly as regards the share of the sum of money available? Will it be weighted in any way to take account of the size, tonnage and catch, demersal and pelargic, of the Scottish fleet? Payments for decommissioning by the tender process, which the noble Earl has described, are to be by bids ranked according to tonnes of weight per vessel capacity unit; that is, the largest catching capacity. Is there any evidence—I do not object to the principle behind the scheme—that such vessels usually catch most fish? Will the noble Earl also say what provision there is in the decommissioning scheme for sharing the proceeds with crew members, especially where share fishing schemes prevail?
Without prejudice to the scheme and negotiations about days at sea regulations, we on this side of the House must express particular concern about the state of the industry at this time and the relationships between Her Majesty's Government and fishermen in all parts of the United Kingdom. We are aware of the announcement by the Ministry of Agriculture following the Fisheries Council meeting on 24th and 25th June. How urgently will the improved system of control and enforcement decided then be pursued in other member states? When will Her Majesty's Government see the text of the regulations giving effect to these decisions? Will they be discussed by Ministers at the meetings which they are to hold with fishermen's organisations in the United Kingdom?
As we see it, no peace is likely until United Kingdom fishermen are convinced that conservation measures are being even-handedly and strictly applied throughout the entire European Community. As I said at the outset, we are not convinced that the present scheme set out in the order is sufficient. However, we accept it gratefully, and I hope graciously, as a first step.
3.30 p.m.
Earl Howe: My Lords, I am most grateful to those noble Lords who have spoken in the debate. I welcome the agreement expressed by noble Lords on the need for greater conservation of fish stocks, a need which is acknowledged by the fishing industry itself. I am also pleased that the decommissioning scheme is welcomed as part of a package of measures to reduce pressure on the stocks and help meet EC targets for capacity and effort reductions. Decommissioning must be part of a package which includes effort controls. As the noble Lord, Lord Thomson, acknowledged, on its own it cannot be the solution to the problem of diminishing stocks.
That brings me to one of the main anxieties expressed by the noble Lord, Lord Thomson, and the noble Lord, Lord Gallacher, that the scheme is too little, too late. It has to be seen as just one, although a key, element in our overall policy to reduce fishing effort and in the context of the Government's expenditure on fisheries—£18 million on research and £20 million on fisheries protection per year. The figure of £25 million is a significant sum, given the criticisms by the PAC that the 1983 scheme gave poor value for money, that some vessels rejoined the fleet simply to
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claim grant, and that the scheme was inflexible and had no specific objectives. Furthermore, the scheme did not enable us to meet our MAGP targets. We had to think carefully in drawing up a new, effective scheme that would address the criticisms. We had to fight hard for the £25 million. Unfortunately, I see no prospect of that sum being increased in the foreseeable future.
It has been requested that all the £25 million should be made available this year or spread over two years. The noble Lord, Lord Thomson, raised that issue. The present multi-annual guidance programmes are segmented and they run until the end of 1996. Spreading the decommissioning scheme over three years gives us a better chance of targeting the scheme in subsequent years towards meeting the targets set for each segment of the fleet.
Anxiety has naturally been expressed, particularly by the noble Lord, Lord Thomson, about fishermen who lose their jobs and the effects on the fishing community. Inevitably, reduction of the fleet will mean fewer jobs, and I have every sympathy for fishermen and their families. However, unless fishing effort is reduced stocks will simply collapse and the jobs of all fishermen will be at risk.
The noble Lord, Lord Thomson, asked about decommissioning in other member states. All member states with fishing fleets bar Ireland and the UK operated decommissioning schemes during the period of the previous MAGP (1987–1991) at a total estimated cost of about 150 million ecu. However, a recent report by the EC Court of Auditors criticised that expenditure for providing poor value for money. The UK's previous decommissioning scheme was criticised by the Public Accounts Committee on similar grounds. Therefore, we thought it wiser to spend more time designing a scheme which will provide a real contribution to decreasing overall fishing effort and thus help to conserve fish.
The noble Lord, Lord Thomson, and the noble Lord, Lord Gallacher, mentioned that the Commission will contribute to the cost of the scheme. They suggested, therefore, that the Government could afford to spend more. It is misleading to talk as though the Community has its own funds. Whatever the Community pays will come from the Community budget to which we contribute. The rules are such that the UK taxpayer has to find a large proportion of the EC contribution. In any case, whether the funding is from the EC or the UK, we must ensure that it will offer value for money.
It is true that the UK has received less than other member states. That is partly because we have deliberately spent less on decommissioning. We have also spent less on construction and modernisation grants. That seems quite reasonable, I suggest, given the problem of excess capacity.
The noble Lord, Lord Gallacher, asked about the geographical balance of targeting the decommissioning scheme. We cannot prejudge the response to the scheme. As I have said, it is estimated that the available funds will take out about 5 per cent. to 6 per cent.—10,000 tonnes to 12,000 tonnes—of existing capacity. In the first year the scheme is open to all

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vessels over 10 metres meeting the eligibility conditions. However, in future years it may be targeted further to enable the UK to meet its EC objectives for reducing capacity as those have been set according to fleet segments.
My noble friend Lord Clanwilliam raised a point about what I broadly classify as the level playing field—if one can use such a term in connection with fisheries. I remind my noble friend, as I am sure he knows, that the UK has a major stake in EC fish stocks. We are very concerned to ensure that fisheries legislation is enforced in our waters as well as in the remainder of the EC. It is therefore very good news that at the June Fisheries Council, agreement was reached in principle on a new control regulation which will be of immense importance in ensuring that the Community rules are enforced to the same standard by all member states. Final discussions on the new regulation to clear up some outstanding legal points are due to take place next week; and the regulation should come into force in January of next year.
The noble Lord, Lord Thomson, asked about fisheries-dependent areas. The Edinburgh Council agreed that fisheries-dependent areas could qualify for support under EC structural funds. The Highlands and Islands of Scotland will, of course, qualify for maximum support under Objective 1. Other areas can qualify for Objective 5 or similar support. I realise the importance of fishing to certain areas. I believe that those anxieties can best be addressed through those mechanisms.
The noble Lord, Lord Gallacher, asked a specific question about whether the budget for 1993–94—£8.4 million—could be carried over until the next financial year if there were spare funds at the end of the current year. The answer to that is no.
I do not believe that the package of conservation measures discriminates against UK fishermen. I detected a note of that sentiment in what my noble friend Lord Clanwilliam said. All member states are obliged to meet their agreed EC targets for reducing fleet capacity and controlling their overall efforts. Even those member states proposing to achieve their targets by decommissioning alone will be obliged to monitor fishing effort to ensure that it does not increase. The Commission is keeping a close watch on progress and we are supporting it in that.
The noble Lord, Lord Gallacher, criticised the Government's days at sea policy. My honourable friend the Minister of State stated that he would listen carefully to the industry's suggestions between now and the end of September. Any proposal that the industry makes will, however, need to be judged against the following three criteria. Does it help to conserve the fish stocks? Does it contribute to the achievement of our MAGP targets and shall we be able to demonstrate that to the Commission? Does it meet our concern that expenditure on decommissioning should not be undermined by increased effort elsewhere in the fleet? The Government are ready to examine any proposals that satisfy those requirements.
It gives me pleasure to commend for your Lordships' approval this instrument which is designed
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to give those fishermen who wish to stop fishing the opportunity of a sympathetic way out, while contributing to the necessary reductions in fishing effort which will give our industry a viable future. I commend the order.
On Question, Motion agreed to.

Lloyd's of London
3.40 p.m.
Lord Peston Lord Peston rose to ask Her Majesty's Government whether they consider that the current arrangements for the regulation of Lloyd's of London are satisfactory.
The noble Lord said: My Lords, since the Government have made no effort to initiate a debate in your Lordships' House on what has happened in recent years in Lloyd's, and what ought to happen in the future, I felt it was my duty to do so instead. I am aware that in doing so through the medium of an Unstarred Question considerable limitations are placed on all of us but on me in particular because I can speak only this once. I must, therefore, apologise to the Minister that she will have to carry the full burden of dealing with any complications and technicalities that arise in the debate. I shall not be allowed to help out by coming back a second time. I shall refer to that later, but it does not mean that this is the only time I hope to debate the matter.
My purpose today is not to examine individual cases of which I have no direct knowledge but instead to consider regulation in general. Perhaps I ought to say at this point, because it appears to he a rather sensitive area, that I at least have no direct involvement with Lloyd's 'whatever; nor, so far as I know, has anyone with whom I am connected. That is my negative declaration of interest.
In considering regulation in general, it is my view that the system of self regulation under the Lloyd's Act 1982 has failed. It is also hard to believe that the proposed changes, following the reports of the task force and the Morse working party, do more than scratch the surface. Nothing essential has changed.
While it contains useful measures, I do not believe that the proposed business plan will work. There has been no suggestion that there will be a root and branch investigation and vetting of all names agencies, of all syndicates or of the behaviour of working members. In so far as there have been serious conflicts of interest —and there is no shortage of allegations on that—they seem to continue. It is hard to see how the new arrangements will prevent a recurrence in the future.
Therefore, above all, what we need from Lloyd's is a formal statement that the conflict of interest problem will be addressed and the highest priority given to exposing and removing such conflicts. By "we" I do not merely mean names —I have pointed out that I am not one. Nor do I merely mean those directly connected with Lloyd's. When. I say that we require a formal statement by "we" I mean all of us who are concerned with the probity of our financial institutions.
When your Lordships debated the Financial Services Act 1986, we on this side warned that the Lloyd's exemption under Section 42 would lead to disaster. Perhaps I may read to your Lordships the wording of that section of the Act because in my judgment that is precisely the cause of things going wrong. It states:
"The Society of Lloyd's and persons permitted by the Council of Lloyd's to act as underwriting agents at Lloyd's are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyd's".
That is precisely the mistake that underlies all the subsequent troubles. It is also of interest that that sentence fully recognises that what happens at Lloyd's is not simply or even overwhelmingly insurance and reinsurance; it is an investment business.
As I said, we divided the House on that matter. Our warnings were rejected by the Government but I have to say, to my regret and the regret of my noble friends, we have been proved right. Therefore, what is required urgently is new legislation to remove the exemption of Lloyd's from the Financial Services Act and to give clear cut roles to the DTI, in regard to overseeing insurance and reinsurance, and to the Treasury on the investment side.
I should also be interested to know—I do not know whether noble Lords or the noble Baroness can help me—the weight that can be attached to the approval by the Governor of the Bank of England to the appointment of what are called "nominated members" to the council. Can we be told who those people are and what they do? More to the point, what have they done in the past and, in particular, more recently in the past few years?
It also seems to me that we need an answer to the question of what went wrong. I find it hard to believe that it was a matter of bad luck. Obviously, in any risk-taking business there is bad luck but I do not believe that that was the essence of what happened. It seems that much more of what we observe was due a great deal to poor judgment and professional incompetence. In addition, as we are all aware, there have been allegations of all manner of corrupt practices and fraud. Many of those involve legal proceedings and are, or have been, before the courts. Other noble Lords may refer in general to such matters in the debate. My concern is that we have heard little or nothing from the Government on that aspect of the matter despite, as I said, the public interest in maintaining the integrity of our financial institutions and the public image of the City of London.
I turn briefly to some specific problems and questions. There are the so-called "open years", from which the losses are still not determined. There are also more recent years involving large losses which are difficult to quantify or predict. I understand that much of the difficulty in all those cases has to do with decisions in the United States court. The consequence is that it makes it impossible for names to estimate the extent of their exposure or make any kind of rational decision for the future.
It is not altogether clear how Lloyd's themselves
1708
propose to deal with the problem of non-payment and whether existing reserves, including extra reserves, can cover the liability. I should guess—again, I look forward to hearing what noble Lords have to say—that all the openness and unfinished business will act as a deterrent to the entry of new names, including the entry of corporate capital, which is given a certain degree of emphasis in the business plan, assuming that it will be proceeded with. In other words, it seems to me, as someone completely from the outside, that what I understand is to be called "NewCo" could go bust. As someone who recognises the importance of our financial institutions, I feel that if that were to happen it would be little short of disastrous, not just for Lloyd's but for the City in general.
What I and, I am sure, other noble Lords would like to know is what the Government think about this situation and whether they have anything to propose. I ask the noble Baroness whether, purely for precautionary purposes, the Government's own experts have made an analysis of the scale of the problem and whether they have at least examined a worst case scenario.
In general, the remarks that I have just made relate to the burden carried by existing names. That is a topic which I am sure other noble Lords will address. The central question that I ask is: to the extent that the funds of those names are exhausted, how are the losses to be paid for?
I referred to the problem of litigation and, in particular, to the allegations of negligence. As I said, I do not feel able to discuss that issue in detail. However, there is an important and logical point to be made. If the powers that be admit that all is not right with Lloyd's and that they intend to make changes, they would appear to be adding support to those who are claiming negligence or worse. Moreover, it may be that one reason why the root and branch reforms for which I call appear not to be in prospect is the fear that recognition by Lloyd's of the need for stronger action will be prayed in aid by those who are suing.
In terms of Lloyd's proposed new detailed internal arrangements, I have not discussed the introduction of corporate membership. It does not seem to be a bad idea. However, I am doubtful about the future of unlimited liability. The market could work without that. Above all, there is a great need for more transparency in the future. Names need to be better informed of the nature of the risks that they run and of the position of the people with whom they are dealing. There needs to be a properly formulated procedure for dealing with conflicts of interest.
I have sought to explain that there is a public interest in what happened at Lloyd's and what may happen in the future. Damage has been done to the way in which the City of London is perceived, especially by foreigners. Anyone who doubts that fact should read the overseas press. In my judgment the Government cannot sit idly by. I have called into question Lloyd's exemption and self-regulation. I reiterate that I do not believe that a new Lloyd's Act is required. The correct move is to add Lloyd's back into the Financial Services Act. In addition, the Treasury and the DTI need to play a bigger role; I

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hasten to add, which may disappoint some people, not as part of the social security system but as regulators or overseers of regulators.
There is a possible need for a new, fully independent investigation. As I understand it, the Morse working party did not do that. There may have been a full study done in-house. If so, I am unaware of it. Perhaps the noble Baroness is aware whether or not Lloyd's has done a full research study on what happened. I fail to see how a new business plan can have a proper basis unless there has been a full study on what went wrong by an independent person—by which I mean someone who has absolutely no connection with Lloyd's, past, present or future.
I have covered the points that I wished to raise. I look forward to the individual contributions to the debate and to the Minister's replies to my questions.
3.53 p.m.
The Earl of Lindsey and Abingdon: My Lords, I am grateful to the noble Lord, Lord Peston, for initiating this short debate on the current regulation arrangements of Lloyd's of London. I am sure that all those present this afternoon listened with interest to the noble Lord and that we will all wish to comment on what he said. I must begin by declaring an interest in that riot only am I a name at Lloyd's, but I was also a director of an underwriting agency until my retirement last year.
In the past I have defended the Committee and Council of Lloyd's in your Lordships' House in their endeavours to come to terms with the Lloyd's Act 1982, which includes provisions for self-regulation within the market.. For those noble Lords who were not present or around in 1982, the Private Bill had its Second Reading in your Lordships' House on April Fools' Day and came into effect in January 1983. Since that time the Council of Lloyd's has used everything in its power to try to improve the running of the Lloyd's insurance market by passing endless by-laws under the provisions of the Act. In fact, I thought that they were doing such a good job that when the Financial Services Act, to which the noble Lord referred, came along, I, together with many others, saw no reason to think that Lloyd's should be included within its regulatory powers like the rest of the City of London's financial institutions.
After all, the Lloyd's private Act had not had time to prove itself. However, since 1986 a lot of events have overwhelmed the international insurance market and especially Lloyd's, with its particular type of investor; namely, the unlimited liability member. Natural and manmade catastrophes followed one after the other through 1988, 1989 and 1990, all of which have recently been coming home to roost as insurance claims. On top of this, a small number of syndicates starting laying off risks among themselves. That went round in circles and subsequently became known as the spiral. This greedy and irresponsible experiment by some underwriters has led to more than 4,000 unfortunate underwriting members of Lloyd's ending up in what can only be described as a financial slaughterhouse.
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We must now ask the question: could some of this irresponsible underwriting have been avoided in the market if there had been an entirely independent regulatory body? Since all the bad news has come to light, the Council of Lloyd's has put together separate market and regulatory boards of its own. But the regulatory boards still have four out of 15 members who are working professionals from within the market. I do not query their honesty and integrity. But however good they may be, there is the question of the conflict of interest creeping into any dispute. The market board should be run in the main by the insurance professionals who work within the market; but serious consideration should be given to the setting up of an entirely independent regulatory board which might even require amending the existing Lloyd's Act 1982.
In conclusion, I believe that this approach would lead to a return of confidence within the rnarket which will, in its turn, attract new capital, both individual and corporate, as proposed in the recently produced business plan, so that Lloyd's can continue into the future as a major invisible export earner and a leader in world-wide insurance.
3.58 p.m.
The Earl of Harrowby: My Lords, very rarely do I take up your Lordships' time, because I discovered long ago that there are always at least a dozen people in the Chamber who know very much more about a subject than I do. However, my self-restraint has let me down on this occasion and I hope that it does not let your Lordships down at the same time. I thank the noble Lord, Lord Peston, for raising this subject at this most opportune time. I agree with him that it is surprising that it has not been raised before. I agree with 95 per cent. of his comments and conclusions; but I shall come on to those in a moment.
I have not a negative interest to declare; I have a positive interest to declare in that I am a name at Lloyd's. I am fortunately not a major koser—no more than you would expect in a recessionary period. I suffer my loss as I expect to do. It is not a major loss. I have a son who is in the medium category but riot a substantial loser.
Lloyd's is privileged to have its own Act and it has abused that privilege. It has, in my experience, been inefficient throughout, negligent very largely, criminally negligent on occasions, and fraud has been perpetrated in a number of known cases.
In retrospect, they clearly ought not to have had their own Act; they ought to have been brought under the Financial Services Act which came in at a later date. I do not agree with the conclusion of the noble Lord, Lord Peston. I believe that moving to that now would upset the apple cart and it would be too dangerous. Remarks have been made about the business plan and its chances of success. It would damage any possible chances of success if we started trying to change the regulatory regime. That does not mean that I should not like to see one or two changes in the Act. My noble friend who has just spoken mentioned that. I believe that one or two changes are

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essential and it is probably now best that they are done internally, much as we all distrust the past leadership of Lloyd's.
The point has already been made that we are not sole traders, but investors. We have not been protected. Only now is the new regime acknowledging that state of affairs, by implication only, and no formal apology has been made. But I believe that their thoughts, ideas and interpretation of philosophy have now changed and acknowledge that the outside names are investors and not traders and that they are not being properly advised.
I have been asked time and time again why I do not resign. I am a businessman. All my working life I have been a banker and an industrialist, and I do not know very much about the detailed workings of Lloyd's. I certainly know nothing about underwriting. But I have been fighting Lloyd's ever since Sasse because I recognised at that point, many years ago, the troubles they were in, the malpractices which were involved and the lack of control at the top which is at the root of all their troubles.
Their inefficiency beggars belief. To start with, they invariably—and until recently I believe, legitimately —over-traded. In my interpretation that means that premium limits were regularly exceeded and there was always a good excuse as to why they were exceeded. There is no point in having regulations if they are not adhered to.
Years ago I asked for my exposure. No answer was forthcoming and the reason for that is perfectly obvious: they were not capable of giving it. Until recently scientific risk evaluation has been absolutely nil. I imagine that it has improved now. I do not want to resign but to push Lloyd's back into the position of being the flagship that it was and something of which we were all proud.
In all this I am not criticising the new regime. I take my hat off to it. I believe that they are very brave men to undertake what they have. It is problematical whether they will succeed. I do not have total confidence in the business plan but, at last, and for the first time, somebody is taking control. As I said, I take my hat off to them for doing so.
I have a number of suggestions for the board, and I use the word "board" advisedly and on purpose—the committee. It too recognises the need for change. In the introduction to their Business Plan summary, they say,
"We must manage the Society in a new and more directive way".
That is using the word "directive" for the first time. That is right and it was needed long ago—otherwise this crisis will not be circumvented.
My first suggestion is that non-executive directors must he in the majority; otherwise, they will not be able to wield the rod that is needed so badly to get rid of the rotten apples, and so forth. Furthermore, it is beyond belief that someone facing litigation should occupy a very senior position on the committee. Can it be that that person was put there by working names? I have been asked on a number of occasions whether that is the way the City behaves. I have said, "No, the
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City does not normally behave like that. That is Lloyd's being a law unto itself". That sort of thing must end; and that is one of the reasons why the Act must be changed or someway round it must be found. If non-executive directors were in the majority, that situation would not be allowed to pertain for long.
It is right and proper that I should put on the record the fact that I warned the gentleman concerned that I would make these remarks in your Lordships' House today. That same gentleman might like to know that his office, which is one of the biggest at Lloyd's, is under heavy criticism from certain quarters among his active colleagues for its inefficiency and other misdemeanours.
My second suggestion relates to corporate investment. That means investment with limited liability. The rest of us do not have limited liability and, in equity, that cannot be allowed to continue. The introduction this year of compulsory high-level stop-loss should do that; but it must be acknowledged that that is the end of unlimited liability —or is it merely shuffling risks around the market, as has happened so often in the past?
Thirdly, agents have a dual role. They are shareholders and investment managers paid by us, the outsiders; yet many have exposed their names to their total wealth and more. Is that not criminal negligence? It is certainly negligence and, in my view, it is more than that. No regulator would have allowed that situation to have occurred. A regulator would have intervened long before. I suggest that, for the next decade at least, subject to any court variations, 20 per cent. of the salaries and pensions of the worst offenders should be devoted to the Hardship Fund for those they have abused. There should be a lesser percentage for less guilty brethren. I am sure that the ingenuity of the leadership of Lloyd's could find a way to make that legally possible.
Fourthly, any prudent risk-taker caps his liability. That should be obligatory. We should be able to say good-bye to open-ended commitments. The extraordinary US court awards would then be of no effect. In parenthesis, the United States will rue the day if Congress continues to refuse to cap court awards.
Fifthly, I should like to talk to your Lordships for a minute (if you can spare the time) about the dangers of asbestosis. The dangers have been known since 1924. Industrial working regulations were issued in 1931. But reaction at Lloyd's only began in 1974 when Sturge divested itself of all its liabilities. One up for them. But full awareness only struck the market in 1981. On 10th November of that year a committee member of Lloyd's chaired a meeting explaining the position to the panel of auditors—and yet those agents and auditors never warned names in the period up to 1988, and even then, they did so only in muffled terms. One might say that that is perhaps understandable because there would have been a major capital withdrawal from the market if they had. It might be understandable, but it is surely criminally negligent.
Stupendous damage has been done. Some of the water has flowed under the bridge. The rest must be ring-fenced. The new board is trying to do that, and I

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hope that it will succeed. It has to find a way to protect itself from the type of exaggerated awards that are current in the courts today. I am sorry that much of that is being copied in this country. I warn the Lloyd's committee, having learnt the lessons of asbestosis, against involvement in pollution, tobacco and professional indemnity business. Those are traps into which it may well fall if it is not careful.
Sixthly, I urge the committee to steer clear of such risks in America until the American courts regain some sense of balance and until exposure is capped. I wrote recently in Lloyd's magazine as an outsider that profits were the name of the game, not turnover or even market share. Lloyd's has to manage the business downwards. Managing the business downwards is the most difficult thing one can do; but, nevertheless, it is essential that it does that. Then, if one is efficient and cost competitive one can re-enter the market when the time is right.
Lastly, I fear that old habits are still entrenched in Lloyd's. That is why it must get down to sorting out the place and getting rid of a large number of people. I put forward a scheme to the committee about a year ago designed to assist some names who want to retire when their open years are closed. I would have understood if I had been told in answer that the scheme was not philosophically acceptable or technically feasible. I did not receive that answer. What I did receive was buck passing. The corporation said that it was not its business to establish syndicates. That is untrue, incidentally, because it has already established Centre-Write. Try the underwriting agents. The answer from them was that it was not on because it was not profitable. What does one do when one is faced with that attitude when they should be trying to help some of their members who have been fleeced?
It is essential that the new management in which I have confidence—I believe that it will do its best—goes through Lloyd's like a dose of salts and applies a rod of iron, because I want to see Lloyd's back on its pinnacle as one of this country's biggest earners of foreign exchange. I wish the new team every success with its first—believe it or not, it is its first—business plan.
In conclusion, I should like to say a word to my noble and learned friend the Lord Chancellor. I hope that his attention will be drawn to these remarks. There are a great many unhappy people out there. There are many people who have been badly advised, ill-treated and fleeced. Some of them are meeting procedural difficulties in pursuing their litigation aims. I recognise, as do other noble Lords, that it is not practical to ask for a change of the law or even a change of rules; but where there is the option of discretion, I hope that the judicial authorities will exercise that discretion in favour of those people so that even if they do not come away richer—as some of them undoubtedly will not, because, apart from the rights and wrongs of the matter, there is a limited sum of money vailable—they will at least have the satisfaction of knowing that their case has been in front of a judge.
4.15 p.m.
Viscount Chelmsford: My Lords, I suspect that I am the only insider in the Lloyd's market to speak today so perhaps I may start by declaring my positive interest. I was for 40 years an insurance broker with the same international company. For most of that time I was a passive underwriter; what is known as a working name at Lloyd's. My underwriting life was from 1954 until the end of the 1988 account.
My personal philosophy on underwriting was by no means typical of most Lloyd's names. Briefly, it seemed to me that as a young man I always needed a lot of money and should take chances. The older I became, the greater was my earned income. Eventually my school fees became less and the less I needed to put my earned income at risk from underwriting. Unlike most other names at Lloyd's, throughout my life I maintained a low profile, minimum lines and just two syndicates.
I am told today that the average number of syndicates for a name at Lloyd's is 16. Even granted that each of those 16 has a minimum line, the aggregation must today expose an average underwriter to significantly more loss—and, indeed, to significantly more profit—than it exposed me.
I have another view of Lloyd's, which again is uncommon. As an employer I was anxious that my employees should resign from underwriting at or about the time of their retirement. It seemed to me wrong that they should put their pensions at risk from underwriting fortunes; that was unless they had private wealth of their own. Having explained my background and my views, I leave it to your Lordships to decide whether what I wish to say about Lloyd's and regulation at Lloyd's is impartial or prejudiced.
Today's Question undoubtedly arises as a result of the losses. But I wonder whether it is as widely known as it ought to be that these losses are not just Lloyd's-wide; they are certainly UK-market-wide and internationally-wide in various areas, although not wholly across the international underwriting scene. Perhaps the worst affected country of any from the losses at which we are now looking is Scandinavia: that is Sweden, Norway and Denmark. Certainly the UK has been hurt and as much as Lloyd's names have been hurt, so also have insurance companies. Companies which spring to mind immediately are the, Municipal and Mutual, the Orion and the English and, American, which have all folded during the past couple of years.
If one looks at the commercial scene one finds that. a number of companies headed by the Prudential have pulled out of commercial insurance altogether and retired to life insurance and personal lines. If one looks at the reinsurance scene one finds endless companies which have pulled out of either all reinsurance or part reinsurance. Usually in the case of part reinsurance they have pulled out of treaty; certainly they have pulled out of excess loss. Therefore, the losses are not just problems at Lloyd's. As a result of Lloyd's unique system, it has received press coverage to a far greater degree than has beer given to companies.

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Why have we had these losses? There are basically four reasons. I wish briefly to go through them because it is fair and I should like to represent to your Lordships that at least three out of the four have little bearing on regulatory problems. The first reason was that we went through a long period of sustained low rates based on sustained profits. We have been through a period of an almost continuous oversupply of underwriters around the world. It is a fact that in the 1980s those in the London market, whether Lloyd's or the insurance companies, could no longer control the rates which they required in a way that they could when I first entered the market in the 1950s and 1960s. So they had to follow the rates down or get out of underwriting altogether.
The second reason is that we have been through a period which seems, thank goodness, to be over, in which there was a significantly greater than average number of catastrophes. That has been very difficult for everyone—Lloyd's, companies in the UK and abroad. Everyone has suffered from that far greater than usual incidence of catastrophes.
The third problem arises for anyone who underwrites business from America and there is the problem of the American courts to which my noble friend referred earlier. In the United States the social system and jurisdiction of that country has come to the conclusion that insurers have deep pockets which are there to be used for the nation's needs. That is based on the assumption that the insurers will get back their money in due course in any event. That is not the insurance on which I was brought up which was based on the principle of fortuity. Nevertheless, we have had to put up with the fact that those underwriters who accepted USA liability business have found that the policies which they underwrote in the 1950s, 1960s and 1970s which had no claims, because the claim that was originally submitted was regarded as being excluded, in the United States' courts is now found to be included; and of course, no reserves were set for problems of that nature.
All underwriters—British and American—have been caught by that. I do not regard them as negligent. Your Lordships may ask why a British underwriter underwrites in the United States if there are those problems. If one wishes to underwrite—and I hope to show your Lordships later on how important underwriting is to the economy of the country—you must underwrite in the United States. Until recently it contained over 50 per cent. of the world's premium income, and it is still between 40 per cent. and 50 per cent.
Those are the first three reasons for losses. The fourth reason is quite clearly that there have been some had underwriters and agents giving bad advice. I am in no position to say whether those bad underwriters and agents have been negligent and I have no doubt that when the court cases come to fruition, those matters will be sorted out. But, yes, there certainly has been some bad underwriting. However, the reason that we are looking at such a
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disaster today is because of a combination of all those four reasons. That has caused our problems. Only the last reason has regulatory implications.
As has already been mentioned—and I thank my noble friends for the positive way in which they spoke about Lloyd's—there is now a new Lloyd's team as from 1st January 1993. With that team comes a major culture change. That change is simply that today's leaders accept that they must manage the marketplace whereas yesterday's leaders only saw themselves as administering it. That is a big, big difference. I am extremely hopeful that it will make a major change for the future of Lloyd's, whether it be policyholders, names or staff.
As we have heard, the first thing that the new management did was to create a split. It set up two new boards—one for market affairs and one for regulation. For the regulatory board an outsider was brought in to be chairman who had nothing to do with Lloyd's—Brian Garraway. He had no previous connection whatever with Lloyd's. With respect, I do not believe that the fact that there is a minority of Lloyd's participants on that regulatory body will in any way influence its decisions because they are in the minority. It seems to me that there should be one or two people available who can tell the regulators what goes on. Therefore, I should have thought that it is a good thing to have a minority of players on the regulatory board to inform those who are not players at Lloyd's.
That board sets standards and minimum qualifications, and is looking at people to ensure that they are fit and proper. It is monitoring activity against bylaws and codes. Again, I am not sure how widely it is known that a number of bylaws and codes have been in practice for some time now.
On the market board side, we have seen continuous activity to increase the training and minimum standards required to bring in underwriters and others with responsibility. The regulatory board and the new market board are now just seven months old. I put it to your Lordships that they need time before we try to judge them.
Finally, I suggest that it is in everyone's interests that Lloyd's overcomes its current problems. I believe very strongly that it is in names' interests, because a bankrupt Lloyd's will be unable to give them the help which they currently seek with the losses that they have.
I have much experience of watching companies and concerns in the insurance world that have called in the liquidators and where, 25 years later, the claims are still coming in. Indeed, I do not yet know of a single concern that has wound itself up in the insurance company world that has actually been able to put in place at the beginning sufficient money to pay for claims received at the end of the procedure. Therefore, without doubt, a Lloyd's that was wound up by its membership would cause that membership far more trouble than a Lloyd's that was ongoing, continuing and—it is to be hoped—making some profits and, therefore, had money to help those members with their problems.

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It is in the City's interest that Lloyd's should continue trading. There are currently about 60,000 jobs in the City dependent upon Lloyd's. It is in the London insurance companies' interest that Lloyd's should continue to trade. I say that because each one of them will agree that Lloyd's is actually the hub that allows the Lloyd's brokers to bring in the business, a far higher percentage of which goes to the insurance companies than goes into Lloyd's. Finally, it is in the interests of the country, because of the importance of our invisible earnings arising out of the commercial insurance market.
I wish that I had the 1992 figures with me, but they have not yet been released. Therefore, the 1991 figures must suffice. They are as follows: £1.9 billion from the insurance companies; £0.5 billion from Lloyd's; and £0.9 billion from the Lloyd's insurance brokers, making a total of £3.3 billion earned by the insurance market for the country's balance of trade in 1991. Much has happened at Lloyd's; indeed, an enormous sea change has taken place. Please, give it a chance to work.
4.26 p.m.
Lord Lucas of Chilworth: My Lords, all noble Lords who have spoken thus far have advised the House as to the reason for them taking part in the debate. I shall do likewise. My reason for doing so is because during 1985 to 1987 I sat where my noble friend the Minister is currently sitting. I had to respond to many of the questions that were put by the noble Lord, Lord Williams, which have today been similarly put by the noble Lord, Lord Peston.
I am very glad that my noble friend Lord Chelmsford underlined the importance of Lloyd's in his concluding remarks. Therefore, I need not repeat it. However, I should merely like to underline the fact that Lloyd's must he made to work. It has an international reputation; it is a big earner and a big employer. Now is not the time to suggest that another organisation be created. I believe—and I shall return to the point later—that Lloyd's is capable of managing its affairs to meet the end described by my noble friend.
My noble friend Lord Lindsey and Abingdon said that he wanted an independent regulatory body, while my noble friend Lord Harrowby said that the 1982 Act should be scrapped.
The Earl of Harrowby: My Lords, with the greatest respect to my noble friend, I did not say that the Act should be scrapped; I said that there may be parts of it—for example, with regard to the board being able to veto certain directors—which should be capable of being amended. However, for the reason that I gave, I certainly do not think that it should be scrapped.
Lord Lucas of Chilworth: My Lords, I am most grateful to my noble friend for that explanation. I thought that he said that it was wrong that Lloyd's should have had its own Act. However, I entirely accept what he says.
I quote from the report of Sir Patrick Neill:
"Shortly after the 1982 Act received the Royal Assent, a series of scandals came to light which showed the imperative need for such powers",
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and so on. In that very splendid report, which admittedly was set against the background of the Financial Services Act, he described what changes he thought should be made.
Sir Patrick came to the conclusion that Lloyd's was capable of managing its own affairs and of being its own regulatory body. He set down 70-odd recommendations. When your Lordships debated that report in January 1987, the noble Lord, Lord Williams, said —I paraphrase his comments—that he knew that when Lloyd's was exempted from the Financial Services Act it would not work. I am sorry that the Liberal Democrat Benches are empty this afternoon. I am equally sorry that the noble Lord, Lord Peston, does not seem to have much support behind him. However the noble Lord, Lord Diamond, speaking from the Liberal Democrat Benches, said on the contrary he was happy that Lloyd's should act as its own self-regulatory body.
The Government reached that view also and held to that view. But in that debate my noble friend Lord Kimball, who I believe—if memory serves me right —was then the chairman of the disciplinary and complaints committee of Lloyd's, assured the House that already a number of the recommendations had been put in place and that the others would be dealt with. I do not know whether or not they have all been put in place. Certainly the events of the past two or three years give rise to some doubt that they have all been put in place.
I do not believe for one moment that it is a failure of the regulatory system that has brought about the unhappy situation in Lloyd's today and any loss of confidence that Lloyd's is suffering in the international scene. I believe that all this took place against the background that my noble friend Lord Chelmsford described and against the background of a lot of loose money tumbling over in 1986, 1987 and 1988 in all sorts of areas. Then the going got a bit tough, as has been said. However, human nature and natural greed overcame professionalism and proper management. I believe my noble friend Lord Harrowby said that that situation revealed inadequacy and an element of negligence. I will not disagree with him on that.
One then has to ask oneself what was being done to rein in the membership of Lloyd's. It has been suggested that the ruling body—the board—was inadequate and may still be inadequate. It may be that the culture was wrong arid that it was a cosy club which thought that if it administered itself, everything would be all right. The culture may have to change but that does not mean there should be a new regulatory body. Where is a new regulatory body to come from? In 1987 the noble Lord. Lord Williams of Elvel., wanted an SEC kind of arrangement. Surely he does not want that today—or does he? Unfortunately, the noble Lord, Lord Peston, cannot answer for him and is denied another opportunity to speak today. However, we shall hear from him again on this matter.
Should the regulatory body be taken away from Lloyd's? Where will it be put—in the DTI? ft should certainly not be put in the Treasury. I am sure about that. The responsibility which is enshrined in the 1982 Act and which was put in place by Lloyd's in a series

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of bylaws against the recommendations in Patrick Neill's report—all noble Lords applauded that report at the time, and I doubt whether any have any reason to change their opinion today—must be reconsidered. Perhaps a new arrangement might be satisfactory.
It is not for me to talk about why names enter the business with unlimited liability. I would not do so even if I could. That is a matter of the contract arrangements they made. I do not find it inequitable. They enter voluntarily. I shall say no more about that. If Lloyd's wants to change those arrangements, either to defend people through capping or by attracting new money, whether corporate or private, that is a matter for the Lloyd's board to sell to the people it wants to attract into that market-place.
I am desperately sorry for people who have suffered as a result of the greediness which overshadowed prudence and professionalism and led us to this sorry state. However, I do not believe, as the Question of the noble Lord, Lord Peston, implies, that a new regulatory authority need be set up. Nor do I believe that we need a new Act. Do we need another inquiry? Matters which may come before the courts could provide such an inquiry.
I should like to echo what my noble friend Lord Chelmsford said. Let the new culture—of which he has knowledge and I do not—which is evident in the new team which is planned have a chance. Let us stand behind that new culture to restore the confidence of the world in what is and always has been of importance to London as a world financial centre.
4.36 p.m.
Earl Alexander of Tunis: My Lords, I am grateful to the noble Lord, Lord Peston, for initiating this timely debate. I must declare an interest, being a name at Lloyd's.
Insurance is a unique business in which the principle of good faith is paramount. When a party comes "on risk" he is entitled to know the nature and extent of that risk. Should any material information be withheld—even by mistake—he is entitled to repudiate that contract. That is the law.
As it is simply not practical to carry out the degree of "due diligence" normally undertaken in commercial transactions, the insurer—the man who takes on the risk —also takes on the word of the insured. As stated in a case in 1869:
"the law demands a higher standard of good faith between the parties, and there is no class of documents as to which the strictest good faith is more rigidly required than in policies of assurance".
I hope that your Lordships will bear those words in mind when I recount just a few of the facts which have emerged since 1982. In 1982 the Lloyd's Act granted the Council of Lloyd's the status of self-regulation and legal immunity from suit. As your Lordships have heard, that is a privilege unequalled in the world of commerce. A grave responsibility accompanies that privilege: the responsibility of good faith which goes with unlimited liability.
One would have thought that names could sleep easily because that status also included a duty of care. The Chairman of Lloyd's himself said so in answer to
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a question at a recent annual general meeting. At that meeting almost the entire council was present on the platform, including the corporation solicitor. There was not a single dissenting voice. I have in my hand a verbatim transcript of that exchange:
"Question: Does the Committee/Council owe a duty of care to its members?
"Well, the answer is of course yes. The Council of Lloyd's does have a Duty of Care. Due care to see that the society is properly regulated. It does not have a duty to underwrite on behalf of its members etc. etc. The answer to the question is that for regulation [purposes] we have a Duty of Care".
There was some understandable confusion, because Lloyd's had already instructed its lawyers to plead in court that it owed no such thing.
Far from sleeping easily, investors had unknowingly signed away all the legal rights and protections which are afforded those who invest in, say, the stock market. Parliament awarded Lloyd's the right of self-regulation after a number of meetings at which Members of Parliament were told that only Lloyd's knew how to regulate the market. Financial reports and accounts to support their argument showed that all was well. In fact, no less than 142 syndicate accounts should have remained open as the losses from asbestosis and pollution were so large as to be unquantifiable—and that was in 1981.
Auditors' letters to Lloyd's asked for instructions. The committee insisted that all accounts were to be closed. The Lloyd's Bill was going through Parliament at that time. The closing and signing off of the accounts was achieved by a device called rolling the losses forward, thereby passing solvency at a stroke.
Many years later, following overwhelming evidence of negligence by the underwriters—I believe that it was referred to by my noble friend Lord Harrowby —Lloyd's wrote to all names imploring them to settle their differences outside court. Some stuck to their guns and continued the action. The settlement in their favour was some £116 million. Those members who heeded Lloyd's found themselves not only time barred but liable to the full extent of their losses. I ought to add that I was not among that party.
The Council of Lloyd's has powers to investigate agencies. One particular report was so damning that it might well have persuaded Parliament that Lloyd's should have outside regulators. However, unfortunately that report was not allowed to be shown to the names during the passage of the Bill through both Houses of Parliament. Names had to go to the High Court to obtain a copy; but by then it was too late and the damage had been done. Those suffering names made a further application to the High Court to obtain vital documents that were stored by Lloyd's in a warehouse outside London. Within hours of the judge ordering their release, the papers were destroyed by fire. To the best of my knowledge, Lloyd's made no attempt whatsoever to investigate or to assist the names in their pursuit of the facts.
Those affairs clearly demonstrate, to me at least, the breathtaking incompetence of the Lloyd's regulators. I would be doing my fellow names a disservice if I did not say that I believe that it is sometimes worse than mere incompetence. It is the greatest pity that the intelligence available to the

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market on asbestosis and pollution was not disseminated to the affected names, just as Lloyd's went on a recruitment drive in the early 1980s when members' agents scoured Canada, America and Australia signing up names.
My informants tell me that American members, perhaps less shy than others, are invoking the RICO Act—the Racketeer Influenced and Corrupt Organization Act. My own judgment, as I told them, is that such action is misconceived. Should they win, the errors and omission underwriters would apply to the courts to have their contracts set aside. The successful plaintiffs would therefore be unable to collect any of their damages.
A consequence of self-regulation and non-accountability is the violation of the law of agency. That states that an agent must at all times act in the best interests of his principal. Not so at Lloyd's, my Lords. When a conflict of interest arises between a name and Lloyd's the agent betrays the name. In one case bank guarantees were called despite the clearest evidence—I speak of Lloyd's own evidence—of false accounting.
I have copies of names' correspondence with the regulators of the market going back to 1985 in which were detailed and verifiable complaints. In particular, premiums were written on their behalf and in their name of between two, three and four times the limit that they agreed in writing with their agent. Furthermore—I believe that it is absolutely ludicrous —names were put on syndicates, insuring other syndicates that they were on, thereby paying management fees twice over for the same risk.
The council has had every opportunity over many years to put its house in order. Legal immunity has left names with no redress. Lloyd's defence is that it can do its job only if it does not have to look over its own shoulder. How do other professionals manage it? Stockbrokers, bank managers, lawyers, accountants, all handle clients' accounts.
In conclusion, I believe that the only way that disputes of this nature can be settled is, unfortunately, through the courts. Every man and woman in this country should have access to law if they feel that they have been wronged. Those of a vexatious nature are always weeded out. I fervently hope that the courts will expedite those cases of the many, many names who have been driven to penury by their misplaced trust in an institution which was once upon a time held in such high esteem. I believe that it is now up to Parliament to look again at the 1982 Lloyd's Act which has so shamelessly been exploited at the expense of the society's members.
4.45 p.m.
Lord Auckland: My Lords, the House will be much obliged to the noble Lord, Lord Peston, for initiating this sensitive debate. The pity of it is that we are discussing it late on a Friday afternoon, because the matter ought ideally to be debated before a full House of Parliament. There are those who are not only names at Lloyd's, but are involved in the whole international and national working of finance generally.
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I declare a very bygone interest, as one who began working in Lloyd's in 1948 in a fascinating building in Leadenhall Street. I shall not comment on the new building because it is not germane to the subject of the debate, but noble Lords will draw their own conclusions as to its architectural niceties or otherwise. However, that is irrelevant.
I was a working name at Lloyd's between 1956 and 1963. Many noble Lords will remember the three hurricanes, Betsy, Carol and Hazel, and I think I am right in saying that the losses were spread more over the market than the present losses. Even allowing for inflation since those days, the amount of the losses was probably not as great but most names—and it was mainly inside names in those days, there were relatively few outside names—like myself, were working names. Many of us felt as bitter as the names do now. However, I do not believe that at that time Lloyd's itself could be held largely responsible for the losses. It so happened that they hit the marine market which was then, as probably now, the one which makes the most profit. The Maryland coast was badly hit, shipping was badly hit and enormous losses were sustained. However, that is water under the bridge., if I may use that expression.
Of course, when one becomes a name at Lloyd's one knows that one is taking a certain amount of risk. Whether all agents are as competent as each other is another matter. An inside name has the advantage, or at least some advantage of knowing how the market works. At the time when I became a name, it was obligatory for anyone working in Lloyd's., in whatever capacity, to have worked there for five years before there was any question of their becoming a name, so that by that time they had some knowledge, even as a junior, of how Lloyd's worked.
Those who saw the recent "Panorama" programme on Lloyd's will have been shaken by the examples Many of those who are names at Lloyd's are relatively wealthy, but one's heart goes out to the pharmacist from Evesham in Worcestershire and the elderly lady who was secretary to a distinguished gentleman in the City. As a reward for the service which she gave to the company, in all good faith he made her a name at Lloyd's. Of course, both names faced the rnost enormous losses. Whether Lloyd's itself can be held largely responsible for that is a matter of individual judgment. In the present situation the outside names are in the majority.
There have been allegations (I do not know whether one can refer to insider dealing) that inside names have been given advantageous terms. They are allegations. As I do not work at Lloyd's, I am not in a position to comment. My knowledge comes from what I have heard, read and to some extent seen.
As other noble Lords have said, the organisation that has been set up within Lloyd's must be given time to work. My noble friend Lord Lucas of Chilworth put his finger right on the pulse. If Lloyd's is to lose its regulation, to whom will it turn? I do not believe that any government department will take on because departments have enough problems on their hands as it is without having to handle Lloyd's. It would be a major tragedy if Lloyd's were to go under. At the

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moment it is the subject of intense criticism, some of it brought on itself, as noble Lords must face. But Lloyd's has been going for 300 years. It was originally a coffee house and the term "A1 at Lloyd's" still, I hope, holds.
We live in a world of national and international turbulence. Nobody could foresee Piper Alpha. Nobody can foresee hurricanes in Florida or off the coast of the Shetlands or disasters anywhere else. Lloyd's can hardly be held responsible. But agents must warn those whom they are persuading to become members that such things happen. Some people assume that nothing can go wrong with Lloyd's. Of course, things can and do go wrong everywhere. It is to be hoped that the new organisation within Lloyd's will make it quite clear that the agents concerned must make quite sure that incoming names are aware of that. Obviously, this is not a very enthusiastic time for new names to come forward. We must face the fact that even in 1993 another hurricane or oil spill may occur. The risk is ongoing.
This debate has served to bring Lloyd's into the limelight. We must all hope that one of the greatest financial institutions in the world, which has been responsible for an enormous amount of foreign currency and export earnings, can ride the present storm.
4.54 p.m.
Lord Marlesford: My Lords, first I must declare an interest as a victim of Lloyd's. I am a longstanding victim who has been a member since 1964 and who, after taking into account every cheque received, is now hugely out of pocket as a result of that membership. Lloyd's problems are both longstanding and of relevance to the future of Lloyd's. The crucial question, which was asked by the noble Lord, Lord Peston, to whom we are grateful for having raised the matter, is whether the current arrangements for the supervision of Lloyd's are satisfactory. I, for one, do not expect the Minister to give an answer when she replies to the debate. I hope that today we shall be opening a wider debate outside the House that will enable the Government to come to a balanced view on what can and should be done.
There are four main causes of the Lloyd's disaster. I shall first list them and then give examples of each. The first was a coincidence of external factors over which Lloyd's can reasonably claim to have had relatively little control; secondly, there was serious professional incompetence; thirdly, there was negligence bordering on fraud; and, fourthly, there was a widespread failure of moral standards which has sullied the reputation of the City of London for a generation.
There are four external factors. First, the personal tax regime in Britain has always made membership of Lloyd's particularly attractive to high income individuals. With top marginal income tax rates of over 90 per cent., the Inland Revenue was in effect underwriting over 90 per cent. of any losses. In addition, there were certain tax free possibilities of capital gain. Rightly, in my view, loopholes in the
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capital gains tax provisions were closed and, even more rightly, the top rates of tax were slashed from 98 per cent. in 1979–80 to 40 per cent. in 1988.
I should point out that that was a lucky break for the Government. Noble Lords may have seen a recent Written Answer indicating the total of £880 million of tax repaid in respect of underwriting losses over the five years since 1988 and £386 million tax repaid in 1992–93. I imagine that the figures for 1993–94 and 1994–95 will be at least double that. At 80 per cent. marginal tax rates there would have been an extra £1 billion or so on the PSBR. None the less, in recent years Lloyd's has been an extremely unprofitable enterprise for the ordinary British taxpayer.
Secondly, there has been the most unusual coincidence of both natural and man-made disasters over the past few years —hurricanes, earthquakes, oil spillages and fires. Thirdly, the American courts have gone quite mad. Fuelled by the pernicious system of contingency fees for lawyers, American juries have been handing out mega and punitive damages in cases where British insurers, by the standards of the British law of contract, could have repudiated liability. How long Lloyd's should continue to pay for awards which would be repugnant to British standards of justice is a serious issue which has not yet been addressed. One can only hope that the slaughter of American insurance companies and the consequential impossibility of obtaining cover at reasonable rates for many of the risks which must be covered by insurance for an advanced society to operate properly will stimulate the American Congress to take action.
Fourthly, there was a huge increase in insurance capacity which resulted in Lloyd's being forced out of its traditional direct insurance markets into reinsurance, which is far more difficult to assess. Certainly, Lloyd's has proved that it was not up to the task, and that brings me directly to my next main point, which is incompetence.
It is deplorable that until recently no professional qualifications were required to be either an underwriter or a broker at Lloyd's. Even now many old hands are still operating who are hopelessly inadequate both intellectually and professionally. Lloyd's recently arranged for a group of parliamentarians—of which I was one—to visit the market. I spent some time in one of the boxes and was fascinated by the sophistication of the methods used to assess risks. I can only say that I believe that those methods are well beyond the capabilities of many of those whom I know personally to be working in Lloyd's, who are much better at the traditional method of writing their names on the slip based on the "quality" of earlier names on it.
There was, I suppose, an early warning of the incompetence in the affair of computer leasing. That goes back to the 1970s. Enterprising Americans purchased computers with bank borrowings to lease to users. Banks were rightly concerned that the computers could become obsolete. Astonishingly, Lloyd's were prepared to insure the computers against technological advance with predictable and considerable financial loss.

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I turn to negligence, of which again we had an early warning at Lloyd's. Many noble Lords will remember the unsavoury Savonita affair. It related to a reinsurance claim on a cargo of mainly Fiat cars carried in 1974 from Italy in a ship called the "Savonita". Part of the cargo was damaged at sea by fire. The Italian insurance company (part of the Fiat group controlled by the Agnelli family) had as their broker at Lloyd's a firm controlled by my noble friend Lord Pearson of Rannoch. Mr. Pearson, as he then was, became suspicious. It later emerged that some of the supposedly damaged cars were being resold in mint condition at near mint prices. Mr. Pearson refrained from pressing the claim on behalf of his client and, having obtained leading counsel's opinion on what he should do in relation to the fraud, reported the matter to the then chairman of Lloyd's. The net result was that Lloyd's did nothing about Mr. Pearson's submission. The business was transferred to Willis Faber who ultimately collected 96 per cent. of the claim for the Agnelli company.
Despite considerable pressure against him from the then Tory establishment this scandal was fully exposed on 23rd March 1978 in another place by my honourable friend Mr. Jonathan Aitken. Interestingly, the Minister of the then Labour Government who replied to the debate and who rejected the allegations made by Mr. Aitken was the noble Lord, Lord Clinton-Davis. At that time the Whitehall establishment was also protecting Lloyd's from exposure. I recommend noble Lords to look at that debate. Subsequently, the case led to the setting up of the Fisher Inquiry. The Savonita affair reflects nothing but credit on my noble friend Lord Pearson and nothing but discredit on the Lloyd's establishment at the time which, if it was not condoning fraud, was seeking to sweep it under the table.
A far more recent and significant case of negligence, or worse, is the cause of the growth of Lloyd's capacity by more than 70 per cent. from 1985 to 1988. The insiders knew the state of world insurance and of the fierce competition which had driven premiums far below what was prudent. Yet they deliberately pulled more and more people and capital into the market, assuring names that the market was turning at last. The then immediate past chairman of Lloyd's, Sir Peter Green, wrote to his names in September 1984:
"A number of years have now passed since we have been able to offer our Names an opportunity to increase their shares. The Underwriters report that rates are now hardening in all sections of our business and in some areas to a very significant extent … I believe that you should most seriously consider increasing your share from 1st January 1985".
Where was all the money to go? The LMX spiral was one answer—round and round incestuously, growing like a cancer. Another answer was in underwriting risks at premiums which should never have seen the light of day. So if the market for all this new capital was not there, what was it for? Why was it needed? Well, we have found out.
By 1982 it was evident to many in the management of Lloyd's, and to very many agents, that the environmental and health claims from America—pollution and asbestosis—showed every sign of turning from a row of molehills into a range of
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mountains as long and high as the Rockies. It was said last year that all the insurance money in the world is too little to pay for cleaning up America. No doubt there were those insiders, back in the early and mid-eighties, to whom it did not look quite so drastic. But most must have realised that if Lloyd's could broaden and deepen substantially its capital base it would have a better chance of riding out the fearful storm to come.
We still have to learn why the warnings of impending disaster over pollution and asbestosis, circulating in the Committee of Lloyd's; in 1982, were not passed on to all names. We still have to discover whether the warnings were received or understoocl by a host of auditors who sanctioned reinsurance-to-close year after year.
However, the crucial point is that Lloyd's capacity was expanded between 1985 and 1988, riot because the business existed to justify it—not even the agencies argued that —but because of their horrendous overhang from the past. Names, although made aware of their limitless liability for risks underwritten in their name, were enticed with the promise of greater profits, but wilfully kept in the dark about the true historic nature of those risks.
Was this a policy which the agencies pursued independently, all having come to the conclusion about the need to expand their capital base to avoid bankruptcy? Or was it a much wider conspiracy—of silence—starting at the top?
I now turn to the most distressing of all four causes of the Lloyd's disaster—the widespread lack of integrity. I shall focus on only one issue, the widespread practice and use of baby syndicates— technically known as preferential underwriting—to syphon off the best risks for a few favoured names. Typically, they would have under 50 names and often fewer than a dozen. They have been illegal since 1983 when a by-law was passed to require any syndicate to have at least 100 names.
I checked on the 1980 Lloyd's syndicate lists, a year when the baby syndicates were at their height, to see which of the high and mighty in the Lloyd's establishment were members of them. Two of the five most recent chairmen of Lloyd's were on them—Sir Peter Green and Mr. David Coleridge. Mr. Stephen Merrell, now a deputy chairman of Lloyd's, was also on one list.
Although they have only been banned since 1983, let us be quite clear that the baby syndicates are, and always have been, conceptually dishonest. There was never any excuse for them. They were of course one of the reasons why insiders did better than outside names, as is highlighted in Sir David Walker's report. And yet the baby syndicate ethos is still justified by many who still work in the market, sornetimes with little shame. I myself received a letter from a Lloyd's members' agent (not my own) dated 15th September 1992, commenting on the Walker report:
"It is well known that Working Names have an average capacity substantially below that of Non-Working Names and, indeed, taking 1992 as an example. 45 per cent. of Workers write £150,000 or less, whereas only 5 per cent. of Non-Workers have limits this small, the Workers of course being of relatively small capital worth".

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I have no reason, or confidence, to believe that, given half a chance, some of the Lloyd's insiders would not be up to their old tricks or new varieties of them. At present they are like the three-card fraudsters on Oxford Street who pack up into a side street when the police are around and return when the coast is clear. What we need is to make sure that the coast is never again clear.
I have heard nothing but good of the new regulator, Mr. Brian Garraway, a former deputy chairman of BAT, who, with no previous links with Lloyd's, arrived in January of this year as chairman of the Lloyd's Regulatory Board. This board was set up under the Morse Report. The fact is he reports to the Council of Lloyd's. In my view he should report either to the Secretary of State for Trade and Industry or to the Governor of the Bank of England. That is for discussion.
Finally, I want to deal with a most important aspect of the new business plan—corporate capital—the part which involves its introduction. Lloyd's was faced with a choice. It could attempt to save the many individual names who face personal ruin or it could attempt to save Lloyd's as an institution. Understandably, especially as the careers of those involved depend on Lloyd's, it has given priority to the latter and the vehicle chosen is corporate capital.
There is a market for such capital and I believe Lloyd's will be successful in raising the required capital to keep it afloat. A number of brokerage houses and investment bankers are working on schemes to invest in Lloyd's. Such schemes are typically tax efficient structures, located offshore, and attractive to international capital.
As I understand it, a scheme would raise an amount of capital—say × million pounds. It would invest that in the short-term capital market earning 6 per cent. to 8 per cent. on its capital. In addition it would be possible to underwrite two times ×x million pounds in Lloyd's premium. I believe that for capital to be attracted the returns will need to be around 15 per cent. Hence the Lloyd's return on premium needs to be around 4 per cent.; that is to say, two times 4 per cent. plus, say, 7 per cent. on the capital invested which equals 15 per cent. If the premium returns are in the region of 10 per cent., as Lloyd's has hinted, such vehicles will return 25 per cent. plus to their shareholders. That return will suck in international capital and quickly restore capacity. But the rates on Lloyd's market will become more fiercely competitive and be held down.
These corporate schemes will be ring-fenced so that they have no liability for prior Lloyd's losses. The net impact will be that they will serve new corporate investors and Lloyd's intermediaries and brokers. They can only be negative for existing names, as they will supply capacity to the commodity business which is reinsurance. In effect, traditional names are being abandoned and, albeit in a different form, the strategy is once again to bring in new capital to save the institution.
So what is Lloyd's doing to help? It is offering Greek gifts. First, it is doing all in its power to prevent
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names going bankrupt. I believe that it would be better for many names if they did become bankrupt. At least then they could start life again instead of being left in bond servitude for life like the victims of money lenders in India. Secondly, Lloyd's is reducing, in many cases by as much as a half, the cash that is being demanded this year. Like the skilful blackmailer, the calls are being adjusted to what the victim will bear rather than driving him to the police or to suicide.
There is an overwhelming case for the ending of self-regulation. Even so, for most names it will be too late. For them, Lloyd's will have been a sad story, and for many, a personal tragedy.
5.10 p.m.
Lord Renwick: My Lords, I rise to speak last and am glad of that because, as I shall explain, I declare no positive interest in Lloyd's. I am not a name and never have been. I started my career in the City with unlimited liability on the Stock Exchange. Therefore, somewhat luckily perhaps, I was not tempted to Lloyd's. However, I do know a great many members of Lloyd's and a great many names. Many of them are ravaged. Indeed, there are two in my close family.
The noble Lord, Lord Peston, should be very pleased with himself for stimulating what I think has been an excellent discussion from a very broad range of interests on this most desperately important subject. Without being personally involved, for the past six months I have been trying (in what spare time I have had) to understand the implications of the Lloyd's market and what has happened, and to discuss with various interested parties what could be done.
This matter is of national interest, as the noble Lord, Lord Peston, said. That view is shared to some extent by all of your Lordships who have spoken today. This debate is certainly in the individual interests not only of the 6,000 to 8,000 names whom I have been led to believe are very severely affected, but also of the 30,000 odd who make up the full complement of Lloyd's names.
I do not want to take up too much of your Lordships' time. I know that it is now late on a Friday evening and that this is but the first stab of your Lordships' House at being totally constructive in looking at regulations for this great institution and in discussing and looking at a way forward, which is something on which this House has a brilliant history.
I am sure that we all feel, with my noble friend Lord Chelmsford, that we need time to sort this out. We need to allow the new regime at Lloyd's and the new regulator the time to understand—as I have found it very difficult to understand—the full machinations at Lloyd's. I hope that there is time for that to happen.
I take the idea put forward by the noble Lord, Lord Peston, that there should be an inquiry by people totally unconnected with Lloyd's. Lloyd's has evolved over time as a very difficult market. As my noble friend Lord Harrowby said, it is difficult to gain information from within the market. He said that he looked to find the level of his exposure, but could not. Syndicates and groups of names who are having problems are finding it difficult to discover who is on

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which syndicate. So I am not sure that that will be easy. My noble friend Lord Marlesford asked whether we were confident that the old habits which die hard would not be continued within Lloyd's.
During the past few months a potential solution to the problem has been brought to my notice. Although I am not part of the group, I have been kept closely in touch with an extension of the Lloyd's business plan. I do not want to go into details now, but I can say that I believe it will be published and that the publication date is next Tuesday. It has been prepared by names and brokers who have experience of many of the things that have been discussed this afternoon. The solution has been proposed to the council, because, being an extension of the Lloyd's business plan, it is not something that the Council of Lloyd's can do itself. It is something that the members can do.
I have seen details that satisfy the requirement of all the players in this sorry saga. So it is with some hope, expectation and excitement that I announce this to your Lordships. The details will follow, because I do not want to refer to a small part of it and get it out of' proportion. There is some hope not just for the names who have been worst hit but for the managing agents and members agents. It may also give some relief to my noble friend the Minister.
I am in no way anticipating my noble friend's reply to the debate. I am looking forward to hearing what she has to say. The plan involves the current players in the Council of Lloyd's. I hope that there will be some relief for those names who have recently seen the 1990 results and have every reason to fear the 1991 results.
5.18 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield): My Lords, I thank the noble Lord, Lord Peston, for bringing this matter before the House. It is, as he said, some time since the issue was discussed here or in another place. Two facts need to be borne in mind. The first—on which many of your Lordships agree—is that Lloyd's is an important market place which has been commercially successful for many years, contributing considerably to our invisible exports; and, as my noble friend Lord Chelmsford pointed out, responsible for providing a great many jobs.
When trading difficulties arise, it is important to distinguish between what is a straightforward trading loss, whether or not subject to civil legal dispute, and what is a regulatory question.
The second point is that insurance regulation may he for the protection of two distinct parties; the policyholder on the one hand and the investor in the insurance undertaking on the other. Most of the comment that we have heard today relates to investor or underwriter protection rather than policyholder protection, although I shall return to the latter.
Every investor is now warned that investments can fall in value as well as increase. At Lloyd's every new underwriter or name is warned before he joins that insurance is a risk business and that he has personal unlimited liability for his insurance obligations. Several noble Lords have pointed out that unlimited
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liability is just that—unlimited. Every penny they possess is pledged to their insurance underwriting for the protection of the policyholder.
Lloyd's is a unique institution arid its self-regulatory regime has evolved specifically to deal with its particular features. operates a system of professional independent regulation with a strong practitioner input. The corporation of Lloyd's employs 200 staff dealing specifically with regulation. None of these employees may be names themselves. either as underwriters or as market practitioners.
There have been significant changes in the past decade in self-regulation at Lloyd's to improve the protection afforded names. This process is continuing. However, it is in the very nature of the insurance industry that problems take a long time to emerge and to resolve. Much of the underwriting giving rise to the losses emerging and being suffered by names today took place in the 1970s and before. For Lloyd's, as with other insurers, these problems have been compounded by the industry passing through the low point in its cycle between 1988 and 1992. As my noble friend Lord Lindsey and Abingdon said, low premium rates have coincided with an abnormally high level of catastrophes.
Lloyd's regulation encourages ethical standards of behaviour and not just obedience to the letter of the law. However, the Government recognise, as does the new management team at Lloyd's, that practice up to and during the early part of the 1980s fell short of what was required.
Much has changed since then. The Lloyd's Act 1982 revised the constitution of the society and a council was created to take over from the old committee of Lloyd's responsibility for regulation of the members of Lloyd's and all those businesses which operate within the market. A key aspect of the council was the introduction of outsiders to be nominated members whose role can best be approximated to that of a non-executive director. Since the council's inception and throughout the 1980s it undertook a massive overhaul of Lloyd's regulatory structure through the promulgation of new by-laws covering all aspects of the market's business.
A general review department was established to monitor the ability of agents and brokers to comply with the by-law requirements. It visits agents and brokers to assess the adequacy of their management, systems and p+ocedures. Investigation and discipline in cases of misconduct are handled through council committees with tripartite representation.
The information available to names has also been substantially improved. Better accounting arid auditing arrangements have increased the competition between agents. An ombudsman has been appointed to investigate complaints by names against their agents or the corporation. A names' interests committee keeps the complaints procedures under review.
The regulatory arrangements at Lloyd's have undergone constant evolution since 1982. In 1986 the Government set up a committee of inquiry into the regulatory requirements chaired by Sir Patrick Neill, QC. The inquiry was prompted by the wish to give

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names protection comparable with that proposed for other investors under the Financial Services Act. As my noble friend Lord Lucas of Chilworth pointed out, the Neill Report made 70 recommendations which the Government asked the council to implement. The council did that and all the recommendations have been acted upon. The Neill committee of inquiry did not consider that external regulation would be any better.
One of the key recommendations was to increase the number of nominated members of the Council of Lloyd's. The appointment of those members, who have no other connection with the Lloyd's market, is subject to confirmation by the Governor of the Bank of England. The noble Lord, Lord Peston, asked who those people are. They are chosen for their independence of thought and experience of regulation; for example, the chairman of the Securities and Investments Board is a nominated member and I am in no doubt that those members play a major role in securing a strong independent input into self-regulation.
Combined with the external members who represent the names, they form a majority of the members of the council. To emphasise the point, independent and non-practising members make up the majority of the council.
Lloyd's has not left self-regulation with the Neill recommendations. In November 1990 the council appointed a task force chaired by Mr. David Rowland, then the chairman of Sedgwick, to review the workings of the market. The task force report published in January 1993 recommended reform of the market's governance through the separation of market development and regulatory tasks at council level by the setting up of separate market and regulatory boards. The task force also recommended the strengthening of names' rights. These included: the right to ongoing participation in a syndicate; the right to request the council to replace the managing agent of a syndicate; the right to approve major syndicate transactions; right of access to syndicate information and a right to regular meetings of names on a syndicate.
Sir Jeremy Morse, a nominated member of the council, was asked to chair a working party to carry forward the governance recommendations. It reported in June last year. He recommended slimming down the Council of Lloyd's to reflect its reduced role without affecting the majority nominated and external members had over insiders. The regulatory board comprises four insiders, four external and four nominated members together with the head of regulation and the solicitor to the corporation, neither of whom may be names. Sir Jeremy's recommendations were implemented on 1st January this year.
The Lloyd's business plan published in April this year, which many noble Lords mentioned and mostly with approval, advocates yet further moves to make regulation at Lloyd's more overtly independent. The regulatory board is developing plans for reshaping regulation at Lloyd's. The council's aim is to create a structure that replicates the operation of external
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regulation as closely as possible. That will be achieved by stripping out administrative functions undertaken by regulatory departments, to achieve greater clarity of purpose, and more intensive training of regulatory staff and adoption of new regulatory principles. There is a firm conviction of the need to tackle the problems.
Despite these extensive changes, names who have lost heavily are understandably suspicious of the circumstances of their losses. Lloyd's has responded to their grievances in a number of ways. It has used its by-law powers to create a system of independent loss reviews which investigate the causes of losses by individual syndicates and provide a report for the names on those syndicates. Each loss review has been led by a senior figure, typically a senior partner of a large accountancy practice or some other figure commanding authority. I believe that many names have welcomed that approach and found the reviews objective in their reporting.
Many names suffering losses on so-called LMX syndicates sought investigation into these alleging fraud. Lloyd's asked Sir David Walker, then chairman of the Securities and Investment Board, and a nominated member of the Council of Lloyd's, to investigate the allegations. No evidence of fraud was brought before Sir David's inquiry.
However, Sir David did find inadequate standards of professionalism care and diligence on the part of a number of members and managing agents. He also noted regulatory weaknesses at least with the benefit of hindsight. In particular, he was surprised that some managing agents had failed to monitor their aggregate risk exposure and that capital adequacy rules contained no element of risk weighting. The regulatory board has either implemented his recommendations or is working on those which are outstanding.
Sir David also analysed the complaint which was mentioned by several speakers today that insiders fare better than external names. He did not find any systematic or large-scale preference for working names. He also observed that, providing it was not immodest, a better performance of the investment of insiders was to be expected.
My department has a role to play in the regulation of Lloyd's, but it is directed at policyholder protection. It is concerned with general oversight of the market and with solvency. The Council of Lloyd's deposits annually with the Secretary of State a statutory statement of business done by members in the previous year. It must, and always does, demonstrate that members of Lloyd's both individually and taken together are solvent as defined in UK and European law. The purpose of those requirements is to ensure that Lloyd's can pay all valid claims from policyholders. It is not the Government's responsibility to become involved in the day-to-day administration of Lloyd's, or to intervene in individual disputes.
We have to be clear on what regulation can and cannot do. Several of the reinsurance contracts between Lloyd's syndicates have resulted in disputes between those who wrote them and their names and those who wrote the original business. Unfortunately,

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regulation cannot prevent losses arising from adverse developments in the market or from poor underwriting. The emergence of losses does not mean that there has been fraud or negligence; but, if there is a suspicion of that, evidence should be provided and passed to the relevant authorities.
I shall try briefly to reply to some of the specific points that noble Lord have raised during the course of the debate. I should like to say to my noble friend Lord Harrowby that. I, for one, hope that he will not hesitate to let us hear him speak in future and that he will join us more regularly in debate. We benefited greatly from his contribution. He raised a point that was also mentioned by my noble friend Lord Marlesford. The Government are active in representing the interests of the British insurance industry in Washington, both in opinion forming and in the legislative process.
The noble Lord, Lord Peston, raised the matter of introduction of corporate capital. The rules for introducing corporate capital are still being developed. They will seek to strike the proper balance between the interests of new capital providers and the mechanisms such as the central guarantee fund which ensure the solvency of names and the payment of all valid claims. The Government are working with regulators at Lloyd's to ensure that corporate capital providers are not subject to double regulation by both the DTI and Lloyd's. The Inland Revenue and Lloyd's are working on the appropriate tax regime for corporate capital.
While doubting the value that the DTI may bring to the issue —for which remarks I forgive him—my noble friend Lord Lucas of Chilworth pointed out that regulatory shortcomings, as the reforms have shown, do not necessarily add up to regulatory failure. The
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noble Lord, Lord Peston, also asked me what aspects of the matter were being looked into. I believe that he referred to it as a "worst case scenario". My officials, in conjunction with those at Lloyd's, monitor its financial position regularly in the manner to be expected of prudential regulators.
I would say in reply to my noble friend Lord Alexander of Tunis that the events to which he referred occurred before the Neill committee of inquiry took place. That inquiry found no grounds for bringing self-regulation to an end. I do not believe that changing the legislation would do anything to help the present management of Lloyd's secure effective regulation in the meantime. What we have seen at Lloyd's is a decade and more of perpetual improvement. I was pleased that most noble Lords seemed to agree, particularly my noble friend Lord Renwick, that what is now needed is a period of stability. Those who call for new legislation to make regulation statutorily independent need to take a view on how long they believe this would take and what they think the impact of uncertainty caused by planning legislation would be on those currently charged with implementing the reforms recently recommended.
I am sure it will be felt that the contributions of your Lordships this afternoon have made a worthwhile input to the debate, which has certainly continued elsewhere for some time. I am sure that this is a subject to which we shall return. As my noble friend Lord Marlesford said, the new management at Lloyd's—and I am sure all others involved —will read Hansard with interest, and I would suggest it will be of value to them.
House adjourned at twenty-four minutes before six o'clock.