Lords Sitting of 27 July 1993

Preamble
The House met at half-past two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Peterborough.): The LORD CHANCELLOR on the Woolsack.
Lord Kenyon—Sat first in Parliament after the death of his father.

Common Land: Status
Baroness Nicol Baroness Nicol asked Her Majesty's Government:
Whether it is still their intention to legislate for the greater protection of common lands, on the basis of the Common Land Forum Report.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde): My Lords, it remains our policy to safeguard the status of common land and to strengthen the ways in which it is protected and managed. We recognise that this may require legislation, but I see no prospect in the foreseeable future of adopting the comprehensive approach proposed by the Common Land Forum. The Government are looking, however, at practical ways to tackle the most immediate difficulties.
Baroness Nicol: My Lords, I thank the Minister for his rather disappointing Answer. He will understand that after waiting so long for legislation I am uneasy about the alternatives that may be proposed. Can he identify points of departure that are likely in the new approach from the findings and recommendations of the forum? Can he say, for instance, whether what is proposed would have been instrumental in saving Blackstone Leys and Spring Common in the Huntingdon constituency?
Lord Strathclyde: My Lords, I am sorry that the noble Baroness finds my Answer disappointing. I had hoped that she would be encouraged by the fact that the Government are looking at practical ways in which to go forward. We shall be looking particularly at the problems of de-registration and the management of common lands in a coherent fashion, taking account of the grant regimes currently in existence.
Lord Hailsham of Saint Marylebone: My Lords, perhaps my noble friend can remind me whether I am right in thinking that the time within which common lands not previously so identified can be registered has now expired and that therefore no new commons can be created except by statute.
Lord Strathclyde: My Lords, my noble and learned friend is correct when he says that there is a time bar that has passed. That is one of the problems that we shall have to tackle in deciding whether or not we should bring further legislation to bear.
Lord Williams of Elvel: My Lords, I declare an interest, not only as president of the Campaign for Rural Wales but also as one of 28 graziers on Gilwern Common in mid-Wales, on which I am entitled to
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graze 60 ewes. It is a pecuniary interest, only in this case the pecuniary interest is negative rather than positive. Is the Minister aware that those of us who are interested in common land are extremely worried about the management of such land? Can he explain why only one interest, namely, grouse shooters—a pursuit in which noble Lords opposite spend their autumn afternoons—and the Moorlands Association are able to hold up the conclusions of the Common Land Forum for so long; six years to be precise? Will he further accept that the management of common lands is of extreme interest to all people living in the countryside, who are fearful that the Government are not taking the matter with the seriousness that it deserves? Perhaps I can remind the Minister of an old rhyme about a central principle of English law:
"The law locks up the man or woman Who takes the goose from off the common; Then it turns the person loose Who takes the common from the goose".
Lord Graham of Edmonton: Have a gander at that!
Lord Strathclyde: My Lords, clearly the noble Lord, Lord Williams, is in holiday spirit: the House appreciates his doggerel. It is not just the Moorlands Association. We received many representations about commons after the Common Land Forum. On that basis, and through lack of parliamentary time, we decided not to go forward with those proposals. Management, as the noble Lord points out, is the key issue. That is why we should like to begin informal consultations with various groups to see what is the best way forward.
Lord Renton: My Lords, I welcome my noble friend's statement of government policy and remind him that it is always better if results can be achieved without legislation. May I also remind him, in the light of the question asked by my noble and learned friend Lord Hailsham, that, even where common land was not registered under the Act of 1965, it is still open to the courts to decide that it is common land if historically it can be proved?
Lord Strathclyde: My Lords, I agree with my noble friend when he says that if we can achieve our means without legislation, that is infinitely preferable to taking Bills through both Houses. As to my noble friend's second point, that is a matter on which I shall have to check.
Baroness Nicol: My Lords, the Minister refers to the representations that he has received. Is it not the case that the Country Landowners' Association and the National Farmers Union, in addition obviously to a large number of conservation bodies, are still in support of the recommendations of the forum?
Lord Strathclyde: My Lords, I do not know whether that is the current view. Certainly, when the approach proposed by the Common Land Forum was announced in 1986 that was the view.
Lord Williams of Elvel: My Lords, will the Minister give an assurance that consultations are to be carried out as quickly as possible and that the Government will introduce legislation in the next Session?
Lord Strathclyde: No, my Lords.

Royal Marsden Hospital: Cancer Patients
2.37 p.m.
Lord Auckland Lord Auckland asked Her Majesty's Government:
How many persons are currently awaiting treatment for cancer in the County of Surrey and whether, in view of uncertainties over the future role of the Royal Marsden Hospital in Surrey, adequate facilities are available for patients requiring treatment for cancer.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege): My Lords, generally speaking, cancer patients do not wait for treatment. The South West Thames regional health authority returns show that for 31st March 1993 only five patients were waiting, and that was for clinical reasons. The Royal Marsden has no plans to close its site in Surrey.
Lord Auckland: My Lords, I thank the Minister for that largely reassuring Answer. Will she confirm or deny that there are plans for the Royal Marsden to be linked with St. George's Hospital in Tooting when the official announcement is made? If so, and while realising that this is speculative, is she aware that car parking facilities at St.George's, Tooting, are totally inadequate, and that this will have an adverse effect on those patients and staff?
Baroness Cumberlege: My Lords, there are a number of options open, not only for the Royal Marsden Hospital but for a number of hospitals within the London area. I am not sure whether that specific proposal is at the moment receiving attention by the Royal Marsden Hospital. Certainly we know that in our review of London many options are being explored.
Lord Williams of Mostyn: My Lords, bearing in mind that this is the last occasion before the autumn that the Minister will answer Questions, and reflecting on her invariable courtesy, to me at least, over the past months. I should like to ask this question. Does she agree that the key word in the Question of the noble Lord, Lord Auckland, is "uncertainties"? Will she undertake to indicate to the Secretary of State what I believe to be the feeling in every corner of this House that these uncertainties are eroding staff confidence; are a significant burden on those who are ill; and are now becoming intolerable?
Baroness Cumberlege: My Lords, I thank the noble Lord for his opening remarks. I appreciate exactly what he says with regard to uncertainty. That is why the Government are anxious to come to some conclusions quickly. Speed is of the essence. This has been a long-standing problem. It is important that all the information is gathered first before decisions are reached.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that the uncertainty to which the noble Lord opposite referred has been created by the
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Government's failure to give a complete and emphatic rejection of the proposals of the Tomlinson Report in respect of the Royal Marsden? Will she now say that it is the Government's intention to preserve the Royal Marsden in its full vigour and in its present places?
Baroness Cumberlege: My Lords, I cannot give my noble friend the assurances that he seeks. I appreciate the uncertainties that are being caused at the moment. But it is important that before they reach decisions, the Government should take into account the research reviews recently carried out and also the specialty reviews. The situation in London is very complex. I believe that it would be unwise for any government at this time to rule out any options.
Lord Cledwyn of Penrhos: My Lords, will the Minister accept that there is a group of hospitals in the London area of international repute and significance? There is no doubt about that at all. Does she agree that the delay in coming to a conclusion is causing great anxiety and unrest and that if those hospitals, including the Royal Marsden, were closed, it would be a tragedy of considerable proportions? Can she tell her right honourable friend that it is therefore essential that some conclusion should be announced as soon as possible?
Baroness Cumberlege: Yes, my Lords. It is recognised that there are some specialties, units and departments in London that are of international importance. It is the Government's intention to ensure that the excellence in London is preserved. But it does not necessarily mean that facilities will be in the same buildings as now. We are seeking to ensure that those units that have very good reputations and superb services are preserved. We want a situation in London where we do not have 13 cancer units, 13 neuro-science units, 14 cardiac centres and nine plastic surgical centres. When services are so fractured, it is very hard to get the amount of expertise in one place to ensure that London competes internationally in those particular fields. I have to say that in some areas it is not doing so.
Viscount Tonypandy: My Lords, is the Minister aware that those of us who live far from London do not regard the Marsden as a London hospital? It belongs to the rest of the country. Will she accept that the whole world envies the accumulated wisdom and experience that is there? Will she further accept that the Government will be under very special scrutiny if they propose to weaken in any way the experience gathered as one body at the Marsden? The House will understand that it is not often that a Southwalian gives way to a Northwalian.
Baroness Cumberlege: My Lords, in no way do we wish to detract from the London hospitals. The situation in which we now find ourselves is due to the success of London. London has trained many specialists in different fields who have left London. They have gone to other parts of the country and set up superb services all over the land: in Newcastle, Southampton, Leeds, Leicester and Manchester—I could go on. Increasingly, specialties in other parts of

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the country are attracting patients to their units. As a consequence fewer patients now go to the London hospitals.
Baroness Gardner of Parkes: My Lords, can my noble friend say how long people have to wait for the first appointment? Does she accept that with regard to the treatment of cancer, although she said that there is a very short waiting time for treatment, early diagnosis is of the utmost importance?
Baroness Cumberlege: My Lords, my noble friend is absolutely right. Looking through all the waiting lists for the cancer units, I can find nobody waiting longer than two weeks.
Lord Richard: My Lords, it is clearly right that the uncertainties should be cleared up as soon as possible. But will the noble Baroness agree that it is also right that the decision should be announced to Parliament? Can she give us an undertaking, an assurance or some indication that the decisions in which this House and the other place are extremely interested will not be allowed to trickle out in the Recess when we shall have no opportunity to question the Government?
Baroness Cumberlege: My Lords, I can give the noble Lord an assurance that there will be no trickling during the Recess.
Lord Peyton of Yeovil: My Lords, will my noble friend keep in mind the tendency of those who conduct such reviews to listen to the wrong people and jump to the wrong conclusions? Will she accept that in the case of the Marsden they seem to have been marvellously blind to what everyone else knows very well?
Baroness Cumberlege: My Lords, the Government have absolute confidence in the reviews. They were conducted by people with national reputations. Indeed, some of them have international reputations. Those results will be considered when decisions are reached. Perhaps I could also say that the decisions will not be reached without further consultation. Then the Secretary of State will then decide a way forward.
Lord Orr-Ewing: My Lords, is my noble friend aware that the Royal Marsden and the Sutton associate was the first cancer hospital in the world, and is the largest in western Europe? Does she agree that it would be a shame if all that knowledge and expertise and all the money spent on modern equipment (£13 million from government funds and no less than £25 million from voluntary contributions last year—that is a substantial amount and it has only been used for a single year) as well as the expertise of the staff were abandoned in view of the reputation of the hospital worldwide?
Baroness Cumberlege: My Lords, all the points made by my noble friend will be taken into account before any decisions are reached.
The Countess of Mar: My Lords, will the noble Baroness agree that continuity of care is very important for all patients and particularly for cancer patients, whose treatments can be very long drawn out? Can she say what reassurances are being given to
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the staff of the Royal Marsden that their teams will be kept together so that the patients can receive satisfactory treatment?
Baroness Cumberlege: My Lords, it would be our intention to keep all the expertise that we can. A clearing house has been set up for staff in London to ensure that their futures are explored and that opportunities are given to them.

M.25 Motorway: Widening
2.48 p.m.
Lord Stoddart of Swindon Lord Stoddart of Swindon asked Her Majesty's Government:
What are their plans for the widening of the M.25 and, in particular, the section linking the M.3 and the M.4.
The Minister of State, Department of Transport (The Earl of Caithness): My Lords, we announced last Thursday a package of improvements for the M.25 to ease congestion and prevent traffic diverting into local towns and villages. Among the measures were to continue preparing plans for the three-lane link roads on the busiest stretch of the motorway between Junctions 12 (M.3) and 15 (M.4).
Lord Stoddart of Swindon: My Lords, I thank the noble Earl for sending me a copy of the proposals, which involve a 14-lane motorway between the M.3 and the M.40. Is he aware that the arguments for those proposals are depressingly familiar? Are they not the sort of arguments that are always used by the road lobby and his own Department of Transport? Will he accept and understand that increases in road transport cannot indefinitely be accommodated and encouraged without hurting the environment and indeed people's health? How does he reconcile his point of view and these proposals with the point of view of his right honourable friend Mr. Gummer, the Secretary of State for the Environment, who has said—I believe on a number of occasions—that present traffic growth cannot be sustained and will put us on the road to ruin?
The Earl of Caithness: My Lords, there is nothing environmentally friendly about the traffic jams that exist on the M.25. As the noble Lord will be only too well aware, the more the traffic is stationary, as it is between Junctions 12 and 15 for an average of around one hour a day and between Junctions 15 to 16 for around three hours a day, the less people benefit. Neither the local residents nor the environment benefit from that, and no one benefits from the resulting rat-runs. The AA has now gone to the trouble of producing a booklet to show where you can "rat-run".
Lord John-Mackie: My Lords, does the Minister remember when the Government built the M.25 and completely forgot that there was a crossing through the Dartford Tunnel of only one lane? It took 10 years before the bridge was built to relieve the congestion. Are arrangements being made to ensure that the

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bridge and/or the tunnel are enlarged to deal with the increase of traffic? The lack of planning was an absolute disgrace.
The Earl of Caithness: My Lords, I am happy to reassure the noble Lord that the Dartford Tunnel section is being reviewed for future provision. He will know as well as I do that the M.25 is the worst bottle-neck between Scotland and Europe.
Lord Allen of Abbeydale: My Lords, can the Minister say when the public inquiry is to be held into this regrettable proposal and who will conduct it? I speak as a local resident.
The Earl of Caithness: My Lords, I am sorry that the noble Lord does not give a warmer welcome to such an excellent proposal. A public inquiry will be held next year, but at this stage I am not sure who will conduct it.
Lord Clinton-Davis: My Lords, is it right that following the Government's public consultation 12,000 replies resulted, of which the overwhelming majority opposed the scheme? Is it right also, as my noble friend intimated, that Mr. Gummer said only yesterday that the Government's transport policy and Britain's international obligations to cut carbon dioxide emissions are on a collision course? Can the Minister confirm that 15 local Conservative Members of Parliament indicated their opposition to the Government's proposals? Does he consider, recalling the Prime Minister's recent aside, that such opposition is legitimate?
The Earl of Caithness: My Lords, what is clear, as I am sure your Lordships are aware, is that to do nothing is not an option in this case. We have a major problem on the M.25; we have a major problem with the surrounding villages and with the environment. The proposals put forward by the Government, which will go to public consultation, will do much to benefit the environment. They will speed the traffic flow and take the pressure off the local villages.
Lord Clinton-Davis: My Lords, is the Minister aware that that is precisely what was said when the M.25 was first being designed? Is not the Government's priority hopelessly distorted? This country needs the money which it is proposed to invest in this hopeless scheme invested in public transport.
The Earl of Caithness: My Lords, it is a great surprise that the noble Lord is not aware that for every £3 invested in public transport in the London area we invest only £1 in roads?
Lord Montagu of Beaulieu: My Lords, does not my noble friend agree that the people who are complaining now and will complain in the future about the extension of the motorways will complain about the lack of planning by the Department of Transport in 10 years' time when not only the motorways but also the rat-runs are at a standstill?
The Earl of Caithness: My Lords, my noble friend is absolutely right. I look forward to the noble Lord, Lord Clinton-Davis, giving up his car immediately to set a good example.
Lord Stoddart of Swindon: My Lords, has the noble Earl and his department not yet realised that building more and wider roads simply attracts more traffic? It does not solve the problem. Will he or his successor be coming forward in the future with proposals to widen parts of the M.25 to 28 lanes?
The Earl of Caithness: My Lords, the whole problem of cars and other vehicular traffic is of concern not only to this country but also to many other countries where there is over-congestion. We have an immediate problem on the M.25 that needs to be rectified for the benefit of all those who use the road, of the economy of this country and of local inhabitants.
Lord Howell: My Lords, can the noble Earl assure the House that when the M.25 is widened service stations and lavatories will be provided? The mind boggles at the thought of people waiting three hours without moving. Can he say why no service stations of any sort are provided even now on the 120 miles of the M.40? When can we have that situation civilised, together with the roadways?
The Earl of Caithness: My Lords, I am delighted to have the support of the noble Lord. He will not have to wait for three hours; he will be all right.

Hedgerows: Protection
2.55 p.m.
Lord Beaumont of Whitley Lord Beaumont of Whitley asked Her Majesty's Government:
How they propose to protect important hedges as part of the wider countryside under the habitats and species directive and whether they intend to introduce legislation.
Lord Strathclyde: My Lords, our proposals to implement the directive will be issued shortly. We recognise the importance of hedgerows and are committed to measures to preserve them. A number of initiatives have already been introduced to protect hedgerows and to encourage their restoration and management.
Lord Beaumont of Whitley: My Lords, I am delighted to hear that it will be introduced shortly. Can the Minister say in what form it will be introduced? In view of the 20 per cent. loss of hedgerows over the past 10 years, and in view of the failure of a large number of ecological measures—for example, the 5 per cent. loss per annum of sites of scientific interest—is it not essential that any measures are introduced through both Houses of Parliament? Your Lordships and Members in another place can then comment and amend them.
Lord Strathclyde: My Lords, the directive must be in place by June 1994. We are working to put in place our administrative and regulatory measures by then.

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Article 10 merely seeks to exhort member states to encourage the management of landscape features such as hedgerows. We believe we are already doing that.
Lord Renton: My Lords, is my noble friend aware that in Huntingdonshire in the past 48 years nearly 1,000 miles of hedgerows have been destroyed? While I welcome what my noble friend said in regard to the Government's efforts under present powers to halt that process, can he say to what extent the giving of grants to plant fresh hedgerows is retrieving the situation?
Lord Strathclyde: My Lords, my noble friend is correct that there is a problem, not just in Huntingdonshire but also in many other parts of the country. Between 1984 and 1990 it is estimated that 16,000 miles of hedgerows were removed. We have various grant schemes, particularly the hedgerow incentive scheme which is designed to encourage people to plant more hedges. We hope in the autumn to be able to celebrate the 1,000th mile of new hedge.
Baroness Nicol: My Lords, did I understand the Minister to refer to the management of hedgerows in his Answer? Is he aware of the research done by the Institute of Terrestrial Ecology which said that the quality of hedges is as important as the quantity? Can he reassure the House that the management of hedgerows will be considered?
Lord Strathclyde: My Lords, the noble Baroness is correct. Under grant schemes such as the farm and conservation grant scheme, and also under cross-compliance conditions and a number of schemes such as set-aside, and in environmentally sensitive areas, hedgerows have to be managed.
Baroness Sharples: My Lords, can my noble friend define an "important hedge"?
Lord Strathclyde: My Lords, there are a number of definitions of "important hedges". I believe that all hedges are important because they are essential to the migration, dispersal and genetic exchange of species.
Lord John-Mackie: My Lords, I shall be interested to know what the word "protect" covers. My noble friend Lady Nicol raised a relevant point. Half the environmental people want hedges beautifully trimmed and kept down and others would like to see them shoot through the roof. I was in trouble recently for cutting a hedge too low, the spread of which was nearly a yard in a 150-acre field.
Lord Strathclyde: My Lords, the noble Lord is correct in saying that there are some differences of opinion on the management of hedges. The reason Peter Ainsworth's Private Member's Bill in another place failed was because that situation could not be resolved.
Lord Williams of Elvel: My Lords, are we now clear from the noble Lord's response to my last question on common land—that there would be no quick consultation and no legislation—that the Government are considering further legislation on the question of hedgerows? The noble Lord quite rightly pointed out
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that the Hedgerows Bill was talked out by Conservative Back-Benchers in another place. Did that Bill have the support of the Department of the Environment? If it had the support of the Department of the Environment, as I believe is the case, will the Department of the Environment now bring forward that Bill as a Government Bill into the next Session?
Lord Strathclyde: My Lords, the Ainsworth Bill certainly had the full support of the Government. But what the process in another place demonstrated is that there were some very important issues which were extremely difficult to resolve and that perhaps legislation itself is not the best way to go forward.
Lord Mackie of Benshie: My Lords, are there any cases where a farmer might take out a hedge in order to improve his efficiency, or perhaps the view, provided he plants another hedge, or is he totally prohibited from cutting down any hedge?
Lord Strathclyde: My Lords, at present there is no prohibition to removing hedges. That is why the issue is so live at the moment.
Baroness Carnegy of Lour: My Lords, on a lighter note, is my noble friend aware of the saying that as one travels north in Great Britain "Where the hedges stop, the sense begins"?
Lord Strathclyde: My Lords, I prefer not to comment on that.
Lord Beaumont of Whitley: My Lords, does the noble Lord—
The Lord Privy Seal (Lord Wakeham): My Lords, I think that we should move on.

Crossrail Bill
3.1 p.m.
The Chairman of Committees (Lord Ampthill): My Lords, I beg to move the Motion standing in my name on the Order Paper.
This is in effect a Motion to carry over the proceedings on this Bill to the next Session. Another place intends to embark on its Select Committee hearings during the spillover but is unlikely to complete them before the end of this Session.
Moved, That this House do concur with the orders made by the Commons set out in their Message of 21st July.—(The Chairman of Committees.)
On Question, Motion agreed to, and it was ordered that a Message be sent to the Commons to acquaint them therewith.

House of Lords Offices: Select Committee Report
The Chairman of Committees: My Lords, I beg to move that the sixth report from the Select Committee on House of Lords Offices be agreed to.
Moved, That the sixth report from the Select Committee be agreed to (HL Paper 109).—(The Chairman of Committees.)

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Following is the report referred to.
1. Annual Report and Accounts
The Committee has considered and approved a draft Annual Report and Accounts in respect of the financial year 1992–93. The Report and Accounts will be published as a House of Lords paper and circulated to every peer.
2. Accommodation strategy
The Committee has been informed of new accommodation which will become available to the House of Lords between autumn 1993 and early 1994 as a result of the relocation of staff in the Lord Chancellor's Department and of the police control room. The Chairman of Committees and the Chief Whips will draw up plans for the use of this accommodation and will report to the Administration and Works Sub-Committee later in the year. At the same time the Clerk of the Parliaments will undertake a study of how best to provide office facilities in support of peers in the future.
3. Development of Black Rod's Garden entrance
The Committee has approved the basis on which final sketch plans will be drawn up, and submitted later this year, to provide a new vehicle entrance and Pass Office in Black Rod's Garden.
4. Expenditure on security
The Committee has taken note of a review of expenditure on security, and in particular of the fact that the House of Commons Commission has now agreed that expenditure on security should in future be divided 60:40 between the House of Commons and this House, instead of 50:50 as hitherto. The Committee has approved a proposal, recommended by the House of Lords Staff Adviser and the House of Commons Staff Inspector, for the replacement of Metropolitan Police security staff in the Pass Office by civilian staff. These staff will be employed by the House of Commons, and the House of Lords will pay 40 per cent of the cost. The resultant saving will enable security to be strengthened in other respects within the existing financial provision.
5. New pay arrangements
The Committee has confirmed its approval (given in principle in March) of proposals for applying new Civil Service pay arrangements to the staff of the House of Lords.
6. Childcare Vouchers
The Committee has been informed of the outcome of a survey to test the level of demand for Childcare Vouchers under the scheme approved in principle in May. It appears that the annual cost will initially amount to only half the maximum expenditure approved, and the Committee has accordingly endorsed the scheme.
7. Application of Health and Safety legislation to the Palace of Westminster
The Committee has been informed that, in the light of its decision in March 1990 that employment legislation applicable to the House of Commons should be extended to the House of Lords, the Health and Safety Executive had been notified that this House could be expected to approve the application of health and safety legislation if the Commons authorities approved its application in that House. The Committee has taken note with approval, on the understanding that primary legislation would be required and that the House would therefore be able to examine the details of its application further when considering that legislation.
8. House of Lords Library
The Committee has been informed that the recataloguing of the Library's main collection has been completed with the result that for the first time in its history the Library has a single catalogue.
The Committee has congratulated the Librarian on this achievement.
9. Computers
The Committee has agreed that the House of Lords should participate fully in the first phase of the Parliamentary Data and Video Network and in decisions about its long-term future.
The procurement of computers for use by peers should be primarily funded by the House, rather than out of the peers' allowance for secretarial costs. Computers paid for centrally should remain the property of the House, with the emphasis on shared facilities.
The Committee has been informed of plans to undertake a full review of computer security. All those using House of
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Lords computers will be expected to sign an undertaking that they will comply with conditions of use imposed by the Library and Computers Sub-Committee.
10. Staff of the House
The Committee has approved proposed regradings in the Record Office recommended by the Staff Adviser, as follows:

(1) The regrading of the post of Deputy Clerk of the Records from Grade 6 to Grade 7 when a vacancy arises.

(2) The regrading of the post of Assistant Archivist from Executive Officer to Curatorial Grade E/F.

(3) The regrading, on a personal basis, of the part-time Architectural Archivist from Higher Executive Officer to Curatorial Grade D.

The Committee has also approved the creation of a new post of Personal Secretary, 4 days a week, to serve the Law Lords' Office.
Lord Bruce of Donington: My Lords, I wonder whether the Lord Chairman can give one or two small explanations for items that appear in the sixth report. I observe that at paragraph 5:
"The Committee has confirmed its approval (given in principle in March) of proposals for applying new Civil Service pay arrangements to the staff of the House of Lords".
This is the first time that many of us may have heard of new Civil Service pay arrangements. Can the noble Lord give a brief indication as to how those vary from the Civil Service pay arrangements previously in force?
My second question arises on paragraph 9, where the committee is good enough to state:
"The procurement of computers for use by peers should be primarily funded by the House".
Many of your Lordships will welcome the indication that the Offices Committee is considering the provision of computers for the use of peers. There are many of us to whom this facility would be extremely welcome and it would relieve the work-load, particularly in regard to EEC matters. EEC matters will, I take it, be made direct through to the House of Lords which would facilitate many demands that there would otherwise be on the research staff in your Lordships' Library.
Finally, in paragraph 10 we note:
"The Committee has also approved the creation of a new post of Personal Secretary, 4 days a week, to serve the Law Lords' Office".
We should like to know just why it has become necessary at this late stage to provide this facility to the Law Lords' Office. No one would wish in any way to do anything other than facilitate the labours of their Lordships on the second floor, but if we could be informed as to what inspired this extra facility, to which I am quite sure none of your Lordships will object in any way, we should be very much obliged.
Having asked those three questions, perhaps I may be permitted—possibly with the approval of the whole House —to congratulate the Librarian on having completed the entire re-cataloguing of the Lords' Main Collection. That is a formidable achievement indeed. I should like to offer my own modest congratulations on this achievement.
Noble Lords: Hear, hear!!
The Chairman of Committees: My Lords, I thank the noble Lord for his last remarks in respect of the Library. I am sure that the whole House would wholeheartedly agree with him. It has been a mammoth task. I do not know whether the House is

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aware that there are 44,900 volumes which have now been catalogued. It is a remarkable achievement which has been brought to a conclusion.
The noble Lord asked about pay arrangements. There has always been a relationship, as the noble Lord is aware, between pay rates in the Civil Service and those for the people who work in the House. A new complication has entered our lives—performance related pay.
Noble Lords: Oh!
The Chairman of Committees: Whereas some noble Lords fully understand how it should be implemented in this House, I have to confess that I find it extraordinarily difficult. But we are struggling to do our best in this regard.
The noble Lord will have read in paragraph 9 that we want everyone to be able to participate fully in the first phase of the parliamentary data and video network which is gradually being installed. A great many of your Lordships are computer literate. Some of us, I regret to say, are not. But we wish to introduce facilities for those who can make use of these toys. They will be available and they will be of benefit to those who can make use of them. The Clerk of the Parliaments is undertaking a study whereby certain rooms may be designated where they will be installed—two or three rooms perhaps scattered around in areas in which Back-Benchers work, where communal use can be made of these machines so that we do not have to install too many of them.
The additional part-time secretary for the Law Lords is, I believe, reintroducing a service which previously existed. There has been a modest increase in the number of Law Lords over the past few years and I dare say it would be said, if any of them are present, that they are working even harder than they did before. It is a necessary inclusion.
Lord Ackner: My Lords, perhaps I may make a comment about the secretarial assistant. The opposite numbers of the Law Lords on the Supreme Courts in Canada and in the United States each have three research assistants and two secretaries. The Law Lords have one-fifth of a secretary and no research assistants at all.
The Chairman of Committees: My Lords, perhaps the House detected a slight note of jealousy in the noble and learned Lord's observations. We should congratulate the Law Lords on the magnificent job that they do without such invaluable help.
Baroness White: My Lords, can we be informed whether performance related pay is operative on the Government Front Bench; and can we have a vote?
The Chairman of Committees: My Lords, I may not have fully understood the noble Baroness's question. I believe that this refers to those who work for us in the House rather than those who work in the House.
On Question, Motion agreed to.

Railways Bill
The Earl of Caithness: My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That the amendments for the Report stage of the Railways Bill be marshalled and considered in the following order—

Clause 1,

Schedule 1,

Clause 2,

Schedule 2,

Clause 3,

Schedule 3,

Clauses 4 to 46,

Schedule 4,

Clauses 47 to 57,

Schedules 5 and 6,

Clauses 58 to 96,

Schedule 7,

Clauses 97 to 111,

Schedule 8,

Clauses 112 to 128,

Schedule 9,

Clauses 129 and 130,

Schedule 10,

Clauses 131 to 147,

Schedules 11 to 13,

Clauses 148 and 149.—(The Earl of Caithness.)

On Question, Motion agreed to.

Railways Bill
The Earl of Caithness: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That the Railways Bill be re-committed to a Committee of the Whole House in respect of Schedule 10 to the Bill. —(The Earl of Caithness.)
On Question, Motion agreed to.

Consolidated Fund (Appropriation) (No. 2) Bill
3.10 p.m.
The Earl of Caithness: My Lords, I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read a second time.—(The Earl of Caithness.)
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 22nd July), Bill read a third time.
The Earl of Caithness: My Lords, I beg to move that the Bill do now pass.
Lord Bruce of Donington: My Lords, I rise merely to reiterate the law of right at some future stage, should it ever arise, of fully discussing this Bill.
On Question. Bill passed.

Finance (No. 2) Bill
3.11 p.m.
The Earl of Caithness: My Lords, I beg to move that this Bill be now read a second time.
Your Lordships will be pleased that in the past week or two we seem to have been fed on a diet of good headlines about the economy. It is clear across the economy that the recovery is gaining in strength and breadth. The vast majority of indicators from both official statistics and business surveys tell the same story. The recession is behind us, and recovery is well under way.
The most compelling evidence is the rise in total non-oil output in the first half of the year. Provisional estimates show non-oil output rising by 1 per cent. in the first half, and total GDP has now been rising for a year.
Manufacturing output rose by nearly 2 per cent. in May alone, and this followed sharp rises earlier in the year. In fact, if the high level in May is sustained, manufacturing output has already risen by more than half the total loss it sustained during the recession, and in only five months. Exports outside the EC have soared 17 per cent. on a year ago in the second quarter to record levels.
Business confidence has improved considerably. The British Chambers of Commerce survey published last week showed a rise in almost all areas of activity in the second quarter in both manufacturing and services, and a further rise in confidence for the future. The recovery is also apparent on the high street. Retail sales in the second quarter were up over 3 per cent. on a year earlier.
This time last year when I addressed your Lordships I spoke of tentative signs of recovery on the high street. Those signs have now become well established, and retail sales have now been rising for a year to record levels.
Unemployment has defied expectations and fallen for five months in a row. The fall is widespread across the country. It is early days, but there is further evidence that labour market conditions are improving and at a much earlier stage than during previous recoveries.
I do not suggest that we can expect our progress to be perfectly smooth and steady. At this stage of the recovery we must expect to see the occasional poor figure among the good ones. But with low inflation and low interest rates, together with a credible strategy to reduce the budget deficit, there is every reason to believe that recovery will be sustainable and that it will be the start of a lasting period of economic growth and prosperity. In fact, the signs of growth have been so strong that already some are prophesying boom and doom. They talk of an unsustainable pick-up induced by depreciation and aggressive cutting of interest rates. They say that the recovery will be frittered away by loss of control over inflation. We cannot afford to allow that to happen.
We currently have the lowest inflation rate for nearly 30 years and the lowest in almost any EC country. Since last December, we have been below the
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G7 average. We have the fastest-growing productivity since 1986. Unit labour costs are falling at a record rate while those of our competitors continue to rise. Growth in earnings is at its lowest rate for a generation and still falling.
The evidence favours the optimists. I am not ashamed to say that I am one of them. I expect that the recovery so far this year is a prelude to long and sustained non-inflationary growth. That is what our strategy is designed to deliver. We have to keep downward pressure on inflation; to nurture the recovery and ensure that it lasts; and to restore the public finances to better health. Those aims are complementary. We will not achieve sustainable growth and steady recovery unless we maintain low inflation. And we cannot have a healthy economy without healthy public finances.
We are certainly not complacent. The biggest threat to future growth and prosperity would be to allow the public sector borrowing requirement to run out of control. It has understandably built up during the recession and it is vital to make certain that it comes down fast enough during the recovery. The people of this country have made huge sacrifices over the past three years; some have lost their homes, their jobs and their businesses. For the Government to continue living beyond our means would be to make a mockery of those sacrifices.
There are three clear routes by which the public sector borrowing requirement will be reduced. The first is through growth in the economy. This will mean that the calls on social security spending will be reduced and government receipts from taxation will increase. But even if the increase in the deficit were entirely due to the recession we could not rely solely on recovery to provide the solution. Whatever its origin, the public sector borrowing requirement adds to the amount of public debt outstanding and thus to debt interest payments. The burden of debt interest is already almost £20 billion a year and in four years' time will have risen by a further £10 billion. That is £10 billion less to spend on priority programmes. Let us never forget that debt is a tax on our children and our grandchildren.
The second way of reducing the deficit is through the tight restraint of public spending. Noble Lords will no doubt be aware that the last Autumn Statement set out tough ceilings for public expenditure designed to ensure that spending falls as a share of national income over time. The Government have committed themselves to sticking to those ceilings for this year's spending round. This represents a tough but realistic remit. As the spending round gets under way, the pressures on the ceilings will be intense, but we must not exceed them. If the deficit cannot be reduced sufficiently by these means, then it is only left to do so through higher tax revenues. The Bill before us today contains a number of revenue-raising measures, and the Chancellor will be considering carefully whether there is a need for further tax rises in the Budget on 30th November.
I turn now to the Bill. The Bill gives effect to many of the important measures announced in the Budget Statement in another place. That Budget must be

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given a large measure of credit for the signs of recovery. It combined a prudent and determined approach to the management of public finances with policies to encourage and sustain the recovery in its early stages.
It was a Budget which increased some taxes—and that is never popular—but reduced others, and that is never commented on. But virtually no net increase in taxation is proposed for the current year. Instead, the Budget measures—many of them in the Bill before us today; others to be legislated at a later date—will create a steadily rising wedge of revenue from 1994–95 onwards.
Moreover, the measures which do take effect in the current year show a strong commitment to business, which is of course the engine of recovery. The Bill gives business the benefit of around £1 billion in tax reductions in 1993–94 (I shall be mentioning a number of specific measures later) so it is no surprise if the good seed sown by the Budget is already beginning to bear fruit.
Let us not pass over the bad news in silence. Taxes are going up, raising additional revenue of £6½ billion in 1994–95, and £10½ billion in 1995–96. Those increases are essential. The public sector borrowing requirement for this year will be around £50 billion. That is £1 billion a week —£1,000 a year for every man, woman and child in the kingdom. No responsible government could fail to take action in the face of a deficit of that size, and the former Chancellor was right to grasp the nettle. To risk losing control of public borrowing would be to burden future generations with our profligacy. It would be no better than gambling with the life savings of our pensioners. I am sure that your Lordships agree that that would not be just short sighted; it would be morally reprehensible.
This is not a government who would propose tax increases unless they were essential. Nor is it a government who would propose tax increases unless they were fair. The package of Budget measures was carefully designed so as to be broadly neutral right across the income scale. That means that it is fair in its distributional effects. Those who can afford to pay the most will make the biggest contribution.
I have heard some criticism of the length and complexity of this Finance Bill. In general, the increasing complexity of tax legislation reflects an underlying commercial reality. In particular, this Bill includes a number of technical but nevertheless important and necessary measures, such as the provisions relating to foreign exchange gains and losses. Those and others have been the subject of widespread prior consultation. The Bill also contains some anti-avoidance provisions made necessary by the increasing efforts of some taxpayers to find ever more ingenious ways of avoiding paying their share of taxes.
I turn now to the detail of the Bill, beginning with those clauses covering indirect taxation. Some of these are familiar clauses changing excise duties. Alcohol and tobacco duties rise by 5 per cent. and around 6½ per cent. respectively, figures judged to balance the revenue and health policy considerations pointing to large increases against arguments for caution in the
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first year of the single market. The notable exception, of course, is that there is no change to duty on Scotch whisky, something I and many others of your Lordships welcome wholeheartedly, I am sure.
Vehicle excise duty for cars rises by £15 to £125—still below its 1979 level in real terms—and fuel duties rise by 10 per cent. That increase reflects in part the need to recoup lost revenue from the widely welcomed abolition of car tax in last year's Autumn Statement. It also reflects the Government's new long-term commitment to raise road fuel duties by at least 3 per cent. in real terms on average in future Budgets, as a measure to encourage fuel efficiency and thus reduce carbon dioxide emissions.
The Bill also legislates for duty on the national lottery. The lottery is an excellent innovation which will provide important funds for important causes. We have always made it clear that the lottery would have to be taxed, to offset tax lost as consumers diverted their expenditure from elsewhere, and I was pleased that we were able to announce an initial rate of tax on stakes of 12 per cent., lower than many had speculated, with no tax at all on winnings.
I turn now to value added tax. Clause 42 of the Bill, which extends VAT to domestic fuel and power, has been the subject of long and intense debate in another place. It will raise very substantial revenues; it will encourage energy conservation, helping the UK to meet its United Nations commitments to reducing carbon dioxide emissions; and it will bring our VAT treatment of energy into line with every other EC member state. The Government have made it clear that extra help will be made available to those on low incomes through income-related benefits, before the effects of higher fuel bills are felt. Cold weather payments will also be increased. My right honourable friend the Secretary of State for Social Security will announce the details in the autumn.
The Bill also contains two important measures on VAT to help business, which have been widely welcomed. VAT relief on bad debts is now available after a six-month waiting period, rather than 12 months, benefiting business to the tune of £150 million this year, and addressing a common source of representations, especially from small businesses. The VAT penalty regime will also be reformed, to remove some of its harsher features and to make it more flexible and fairer to the honest trader.
I turn now to direct taxation. As far as any personal tax is concerned, Clause 52 holds allowances to the level they were last year, a measure the Government believe is justified by the need for revenue, and the current low rate of inflation, while Clause 51 extends the 20 per cent. tax band introduced last year to the first £2,500 of taxable income. A further £500 extension is planned for the next tax year, fulfilling the Government's pledge to make progress towards a 20p basic rate of income tax for all.
The Bill also contains a number of clauses dealing with the taxation of benefits in kind. I draw your Lordships' attention in particular to Clause 72, which establishes a new, fairer and more rational basis for the taxation of company cars, based on the

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manufacturer's list price. This reform took into account the results of an extensive process of consultation, and has been generally welcomed.
Turning to business taxation, Clause 53 sets the main rate of corporation tax at 33 per cent., and Clause 54 sets the small companies' rate at 25 per cent. Even in a revenue-raising Budget, the Government felt it vital to retain the advantages of low business taxation. Our main rate of corporation tax remains the lowest in the European Community and the G7.
The Bill also contains proposals to help businesses with surplus advance corporation tax, while raising substantial revenue for the Exchequer in later years. Clauses 77 to 79 reduce the rate of advance corporation tax (ACT) to 20 per cent. in two stages, reduce the basic rate of tax on dividends to 20 per cent., and reduce the tax credit on dividends to 20 per cent. Clause 80 provides transitional relief for charities from the impact of these changes on their dividend income, at a cost of around £100 million.
Clauses 113–115, and Schedules 12 and 13, are also good news for business. They legislate for the time-limited enhanced capital allowances announced in the last Autumn Statement. These were warmly welcomed in the business community, and will surely in due course be given credit for the progress in the recovery which we are now seeing.
I want also to mention a particularly welcome change in the capital gains tax rules as they affect entrepreneurs. Clause 87 and Schedule 7 extend CGT rollover and retirement reliefs for entrepreneurs in a way which should give great encouragement to these individuals—the key to our economic success, and thence of course to employment—who want to go on investing their returns in new enterprises.
There are two long parts of the Bill on which I do not propose to dwell. The first deals with the tax treatment of foreign exchange gains and losses. As I have already mentioned, this is a highly technical subject, but one on which we have consulted widely and on which we have been pressed to legislate. The second concerns Lloyd's underwriters. The changes affecting Lloyd's will place the tax treatment of this great British business on a firmer and surer footing for the future. They are broadly revenue neutral.
The changes to petroleum revenue tax proposed in Part III of the Bill put in place a credible and sustainable tax regime for the North Sea. Abolishing PRT for new fields and cutting it to 50 per cent. for existing fields will make for more soundly based commercial decisions and remove barriers to investment. And the amendments which have been made to this part of the Bill, based on representations by the smaller oil companies, will provide significant transitional protection. The Government believe that the position set out in the Bill, on both the transitional arrangements and the final objective, will endure in the long term, and we have no plans to revisit the issue.
This is a long Bill—longer than I would have liked and I have made a longer speech than I would have liked—and there are many important clauses in the Bill which I have not had time to mention. But I have
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no doubt that it is a Bill for recovery, a Bill for business, and a Bill for sound public finances. I commend it to the House.
Moved, That the Bill he now read a second time.—(The Earl of Caithness.)
3.27 p.m.
Lord Peston: My Lords, I thank the noble Earl, Lord Caithness, for introducing the Finance (No. 2) Bill. He said that he approached this whole matter as an optimist. I hope that he will forgive me, as a practitioner of the dismal science, if I am slightly less optimistic, but I would not have become an economist if I had the same robust view of life as he has.
I shall follow the noble Earl in looking at the economy in the large and then looking at the detail of the Bill. On the economy at large I hope, as the noble Earl hopes, that the recession is behind us. Whatever one's political views, no one can wish one's country to produce at less than the highest rate of output that we can sustain and no one would wish our factors of production, notably the labour force, to show much unemployment.
However, I must draw to the noble Earl's attention the latest figures available for second quarter of 1993. They show that output (at 114.5) is above the low point—or what appears to be the low point—of the recession a year ago of 112.8. Wearing my economist's hat, I must draw the noble Earl's attention to the fact that at the peak, which occurred in the second quarter of 1990, output was more than 3 percentage points higher than it is now, so we need at least a year's recovery—perhaps more than a year's recovery—before we get back to the previous peak. That is not much of an achievement in a growing economy. What one wants is growth well beyond that.
Therefore, although the position—to put it bluntly—is not as bad as it was it is a long way from any state of affairs that anybody could regard as satisfactory. I could make a similar point about manufacturing. Clearly, manufacturing output is now rising but, again, it is over 5 percentage points below the position that it reached at its peak in 1990.
Equally, the Minister did not place, or if he did I was not paying sufficient attention, enough emphasis on manufacturing productivity. If he did not say it, let me say that manufacturing productivity has clearly risen in the last couple of years, and that is a good thing. The only problem is that it has risen to a considerable extent as a result of firing workers rather than achieving anything positive by obtaining extra output from existing workers.
On the macro-economic position, the Minister was right to draw our attention to the fact that unemployment is falling and not rising, but it is falling from 2.99 million to 2.91 million. It is a sad day for our country when 2.91 million unemployed people is regarded as an acceptable state of affairs. Speaking as an economist I have to admit, as do most of my fellow economists, including the alleged seven wise men, that one is somewhat puzzled by the fact that unemployment is still not rising. But, to say the least, it is not falling very much. I hope that the Minister will forgive me if I point out that unemployment in the best year

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during which the Government have been in office was at 1.6 million, and 2.9 million is a fair way from that and is no kind of achievement.
One further matter on the macro-economic picture —unless again I missed the point—the Minister said virtually nothing about the rate of exchange. He did not remind us that we were driven out of the ERM and that sterling has been devalued. He did not tell us something which I hoped he would have told us. I read in one of the Sunday newspapers that the Treasury now believes, in so far as our performance has improved, according to some unpublished but leaked Treasury paper it has improved because we were driven out of the ERM. As an economist, I find that hard to believe. I should like to see that leaked, unpublished report.
I shall be interested to know whether that is the view of Her Majesty's Government: that whatever upturn we have had is connected with being driven out of the ERM. That relates to another matter which the Minister has not discussed. What is the Government's view of the exchange rate? Are they happy with the fact that it is now drifting up again? Do the Government regard that as a satisfactory state of affairs or do they take the view that the devaluation was helpful to us? Are the Government now worried that sterling might strengthen again? Depending on how the clock ticks away, I may have another word or two to say on the ERM. Indeed, the terrible word "Maastricht" might even pass my lips, but I am not certain about that. It will depend upon the time.
Let me accept the Government's dilemma in terms of what policy should be. What should policy be? If we assume that what is called the underlying growth rate of the British economy is between 2.25 per cent. and 2.5 per cent. per annum, then by any standards the current growth rate of 1.5 per cent. per annum is low. We should be growing more rapidly than that. We should be able to sustain growth of over 3 per cent. per annum for a few years.
The question we must ask the Government, while they are still there, is, first, do they agree with that? Secondly, do they feel that they need to do anything to help that or do they accept that it will happen automatically? What one has—one's heart always goes out to the Chancellor—is the obvious contradiction: unemployment by any standards is too high; GDP is well below its peak; and, as the Minister pointed out, the inflation rate is by any standards low, and I congratulate the Government upon that.
Looking at those indicators, there can be no doubt that policy should be in expansionary mode. The Government should be encouraging rapid expansion. When I used to teach that sort of thing, that would be the scenario in which one would say, "Move into an expansionary mode of policy". But at the same time the Government have the problem of the twin deficits. They have the budget deficit. As the Minister pointed out, the interest rates on that deficit will in due course give rise to a serious burden on taxpayers. It would not necessarily be a burden were the deficit used to finance investment. That investment would yield returns that would be beneficial to future taxpayers. The trouble is
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that that deficit is financing social security payments which, although it is right to make such payments, yield no returns.
That is one of the Government's problems. The other is the current account deficit on the balance of payments. I have bored your Lordships for years by pointing out the tremendous burden that that will become in due course. We moved to a position of surplus, not unconnected with North Sea oil and the accumulation of foreign assets. I have seen calculations that already suggest that our net asset position overseas is negative. Even if it is not, it is not far off. That has a similar effect in that there will not be a net interest payment flowing across the exchanges to help finance the trade deficit. That is why the Government are in such a dilemma. On the one hand, from the domestic standpoint, they wish to engage in an expansionary policy on the variables that I have mentioned; but, on the other, all the indicators would suggest a contractionary policy.
That is why in the end we have had no indication from the Minister—I do not criticise him for this—about what the Government might do. I can say only that we then find ourselves in a weird position, because in four months' time we shall have another Budget, and although we are debating this subject today—it is no insult to the Minister; he knows that I would never insult him—we are waiting to hear what his right honourable friend the new Chancellor will say to us in November. I should like to see a way out of this dilemma.
What I wrote in my notes, and I might as well go to it now, is that again one has heard nothing from the Minister about the future of the ERM. Now that the Maastricht Bill is law, as I understand it—I am slightly naive about these matters, but I believe that it is the law of the land—the Government are in what we might call, if your Lordships will forgive the poor English, the pre-EMU situation. What interests me is whether we shall see moves relating to the Government's own deficit and the overall ratio of government debt to GDP. Will the Government move to a position where it is up to them to choose what to do about EMU?
I shall not say any more about that subject because by the time that I sit down the ERM may not be there. As the Minister is aware, I speak with forked tongue. On the one hand, I am a strong supporter of the ERM; but, on the other, I am off on my holidays to France next week and a fall in the value of the franc would suit me to a considerable degree. But, of course, as a man of principle I wish to see the ERM survive. We do not know that and so all our debates on these matters may be entirely theoretical. As an economist, of course, I do not mind things being theoretical.
Perhaps I may turn to the details. There are parts of the Finance Bill which are wholly acceptable. Perhaps I may mention two, neither of which I think the Minister mentioned. The first is that it is to the credit of the Government that in real terms they have pushed up the excise duties on tobacco. Whenever my noble friends attack the Government because their 14 years in office have been totally worthless, I always reply,

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"They have not been totally worthless; they put up the excise duty on tobacco in real terms". I am glad to see that that has happened again.
Secondly—and I see that my noble friend Lord Donoughue is with me today—I am pleased with what the Government have done about bloodstock and its taxation. There are of course things in the Finance Bill of which we on this side of the House approve. But noble Lords would find it remiss of me were I to devote what time I have to saying what the Government have done that is right. So I must at least mention two or three things about which, to say the least, I am unhappy.
Obviously the lack of change in tax allowances—it is clearly an increase in taxation—infringes a principle about which I am worried. The allowances should be kept at the minimum in real terms. The Government should not duck out of other tax decisions by choosing not to index the allowances.
On purely democratic grounds I believe that not indexing the allowance brings too many people into the income tax net. That is a sheer waste of people's time and of the time of the Inland Revenue. Therefore, I deplore what the Government have done in that respect. Secondly, the increase of 1 per cent. in national insurance contributions is simply an increase of 1 per cent. in the marginal rate of tax. The Government can scream the place down about being opposed to increases in the marginal rate of tax, but that is as classic an example of it as one can have.
Unless I was not listening attentively, I did not hear the Minister mention the fact that the rate of relief on mortgage interest has reduced to 20 per cent. I had assumed that that was done following what we now discover was the view of a former Chancellor of the Exchequer and as a preliminary to the complete removal of mortgage tax relief. However, I gather from today's Financial Times that the Chancellor of the Exchequer has stated categorically that the Government have no intention of removing it. I should be grateful if in reply the Minister would comment upon that. I should like to know the argument behind that. I am puzzled that it has not been mentioned today since I thought that it was a preliminary.
The Minister and the Budget Statement dealt with the increase in VAT on fuel and so forth. The Budget Statement was intriguing in that the Chancellor argued for that increase on two grounds. The first was in terms of a "green" policy—that the increase will raise the marginal cost of using fuel; secondly, and grinning as a Chancellor —I am totally with him on that—that the increase will bring in a great deal of revenue. He said that as regards domestic fuel and power he was introducing VAT at an interim rate of 8 per cent. but that he would raise it to the full rate by April 1995. The Minister did not comment on that in his speech and I wonder whether in reply he will tell us whether it remains government policy.
Our debate gives me one last chance to say something about a matter with which I strongly agree in the Government's approach to these matters. I believe that a Budget which sets out the future in
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addition to saying what will happen immediately is good. I am not attacking the Minister's right honourable friend, or his previous right honourable friend, for saying what he intended to do in the future. However, I should like to know whether he will stick to that.
On the plus side there are two or three useful matters in the Finance Bill of a detailed micro-economic nature. However, I hope that noble Lords are aware of the fact that in terms of tackling the underlying macro-economic problems before the country the Government have avoided the question of whether they can set macro policy at a strong, positive level. Perhaps they are so scared that they cannot do that. Therefore, at this point one's judgment is ad interim and one must return to what the correct role of policy should be. In order to leave the House in no doubt, my judgment is that the recovery will not be sufficiently strong. If, as is not impossible, by November I and my noble friends were in charge of macro-economic policy, we should certainly move it into a more positive and expansionary mode.
3.44 p.m.
Lord Ezra: My Lords, I believe that debates in this House on finance Bills should concentrate on the broad economic strategy rather than on detail, which is a matter for another place. We should see how the broad thrust of the Government's financial measures is likely to impact on the long term rather than operate simply in the short term. That leads one to consider what our long-term strategy should be, a matter touched upon by both noble Lords who have spoken.
In my opinion, as we come out of the longest post-war recession there must surely be two main strategic economic objectives. The first must be to restore our industrial wealth-creating capability. The second must be to do so on a sustained basis and with an increasing regard for human and environmental considerations. We need to look at the measures in the Bill against those two objectives.
The Government's past economic policy has not been encouraging as regards the long term. Having allowed the economy to overheat at the end of the last decade with rapidly increasing inflation, the Government felt constrained to intervene to deal specifically with the inflationary problem and to do so by substantially increasing interest rates. That was the period of the blunt instrument about which we were all much concerned at the time.
Certainly, the Government achieved their objective of bringing down inflation. However, as a result of that policy, we are confronted with two other problems; namely, rapidly increased unemployment and a substantial budgetary deficit. In the measures before us the Government are concentrating on the budgetary deficit and are hoping that the unemployment problem will be curbed as a result of increasing growth.
We must decide whether the concentration on single issues—on inflation and then on the budgetary deficit—is the right way to plan forward for our economy. Is there not a case for saying that there should be a more balanced approach rather than a

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collection of ad hoc measures to deal with a day-to-day problem? I wish simply to pose that issue. I very much fear that if that is to be the approach we shall continue to have the disease from which we have suffered since the end of the last war; namely, stop-go. We have had the "stop" situation and we are coming out of that. We now have "go" but who knows when the next "stop" will come.
I wish to consider how a more broadly-based approach might be applied in relation to three major issues of economic policy; namely, investment, transport and energy. All those issues are dealt with in the Bill before us. I take investment first. During the 1980s the rate of investment while rising in Britain fell substantially below that of a large number of our OECD competitors. We fell signally behind in particular in the areas of innovation and patents. In recent times there has been some improvement in investment. The Government have helped that by the measures to which the Minister referred. But they are short-term measures. The question is whether the opportunity should not have been seized to consider an array of fiscal measures which, applied in the long term, could ensure a sustained higher level of industrial investment.
There is also a real problem as regards the public sector. While the level of investment has risen in a number of areas of the public sector it is, nevertheless, clearly inadequate. It has fallen below the required levels. I express the hope that the unified structure of the Budget to be presented in November, with its proper distinction, we are told, between capital and revenue expenditure, will lead to a better recognition than there has been in the past of the importance of public investment, especially in the infrastructure.
That leads to transport, an area where investment, although rising, has not reached adequate levels. Time and again in this House, when we have debated transport policy, emphasis has been put on the need to improve public transport in order to reduce pressure on the roads. However, what is the situation we are now in? As regards the railways, there is grave uncertainty about the levels of investment which will arise under the proposals for privatisation which the noble Earl is in the process of presenting to us. As regards the London Underground, whereas last year the Government increased expenditure in line with what the management had asked for, to provide a really up-to-date Underground system, those of us who follow the matter were amazed to see that in the Autumn Statement expenditure was cut by one-third. All those plans have now been jeopardised—at the very time when more people may come to work in London, as the economy recovers.
Like some noble Lords, I was disturbed to read an article in The Financial Times of 24th July. It was a special article dealing with the second car market. That is not the second-hand car market; it is the market for people who already have one car and wish to buy another. The article stated:
"As bus and rail services continue to decline, so the second car is becoming a necessity rather than a luxury".
That was written by the motoring correspondent; there is no political bias about the statement. It is the
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view of people who study such matters that our public transport is declining. Therefore, people need not one car but two cars in order to do what they have to. Surely, that is a serious indictment of our lack of an effective transport policy.
I turn to energy. The Bill touches on energy in a number of ways. There is the increase in the motor fuel tax, to which the noble Earl referred; VAT on domestic energy consumption; and changes in PRT. All those measures have at least one thing in common—they are revenue-raising. But the question I pose is whether they support what ought to be our long-term energy policy. What should that energy policy be? It would take more time than I have at my disposal to describe it adequately; I shall however make some brief comments. In the first place we have to stimulate efficiency in the use of energy; secondly, we must safeguard our long-term supplies of energy. I should have thought that those were two of the main aims we need to go for in regard to energy policy.
We need to ask whether the measures in the Budget satisfy those requirements. It can. of course, be claimed that any tax increases in energy would stimulate greater efficiency. But has that been done on a carefully thought-out basis? For example, let us take the tax on motor fuel. We need not only to raise increased revenue, but also to encourage people to maximise the efficiency with which they use motor fuel and to minimise the amount of CO2 and other noxious emissions they put into the atmosphere.
It so happens that there have been remarkable improvements in this country as a result of work done by British firms, in particular by Lucas Industries, in the use of diesel fuel. As I am sure your Lordships are aware, diesel results in about a 30 per cent. improvement in efficiency of use and a 20 per cent. diminution in CO2 emissions. The Government have in the past differentiated in favour of unleaded petrol, with some success. Why do we not do the same as other continental countries in favour of diesel energy? Furthermore, if a company in Britain has a leading edge in that technology, why not encourage it? The statistics in France and Germany, where there are differentials, show without doubt that it has an impact on the use of the fuel, with great benefits to their technology, and with atmospheric and environmental advantages. So again I say: have we sufficiently thought out what we are trying to do in that sector?
Let us come to the much-debated question of VAT increases on the use of domestic energy. I presided over an inquiry by one of the sub-committees of the European Communities Committee into the Commission's proposals for an energy tax. We came out with much criticism of that proposition. One of the reasons we did so was that we felt that it would bear very hard on people with low incomes. We were not against the idea of taxing energy, or having incentives for energy saving, so long as they achieved the required objective. However, will the Government's proposed tax do so?
In looking through the debates in the other place, I see that it was stated by a Minister that the Government would expect the measures to reduce CO2 emissions by 3½ per cent. I strongly dispute that

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figure. I have considerable experience of the problems of people on low incomes heating their homes because for many years I have been associated with an organisation known as Neighbourhood Energy Action. Its task is to insulate the homes of such people. There is no way in which they can reduce their consumption of energy without causing themselves substantial hardship. I have asked people who are not in that income group about the effect on their usage of energy. Most said, "We will use the energy that we require in order to heat ourselves". I do not therefore see where the saving would come, if that is the objective and it is not simply a revenue-saving measure.
I can tell the Government how to achieve savings in emissions. It is by substantially improving the standard of insulation in British homes. We lag way behind other countries. It is not simply a statistical matter. I regret that it is a matter of life and death because the mortality rate in this country in winter compared with summer is substantially higher than in any other continental country. We have about 30,000 to 40,000 more deaths in winter than we have in summer. In Denmark, the number of deaths in summer and winter is identical and in most other countries it is much lower than here. That is the crucial issue to be tackled by fiscal measures. Let us get our insulation improved; let us make better use of energy in the home. Then we shall achieve what is said to be the objective of the tax.
Perhaps I may turn to the PRT, the petroleum revenue tax. That affects one of the other aspects of energy policy to which I referred; namely, the need to safeguard our long-term supplies. Clearly, the best reserves in the North Sea have already been exhausted. One would have thought therefore that a major objective should be to stimulate companies to explore for the more difficult reserves. Indeed, the PRT system which existed until it was changed by the proposals before us did so. Now the incentive is being removed and the motivation of firms to explore for more reserves in the North Sea has been substantially diminished. Instead, there is greater incentive for those working on the large existing fields. But once exhausted, what will take their place?
The ultimate objective—which is to remove PRT altogether —is highly desirable. What is questionable is whether the interim measures have been adequate. I do not believe that they have, even though some changes were introduced during the course of debate in another place. I do not believe that the energy measures being introduced in the Budget can be regarded as anything other than revenue-raising measures. In my opinion, they do not adequately address the two main objectives of energy policy: first, to stimulate effectively efficiency and use; and, secondly, to safeguard long-term supplies.
On the question of long term supplies, we have only to remind ourselves of the problem that has arisen over the coal industry. It is very rapidly diminishing in size, even though its productivity is improving at a phenomenal rate. In a few years' time, we shall have
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very little coal capability left. It seems to me that those aspects of energy policy should be addressed in the future financial measures that are brought before us.
I gain the impression that the Government's's determination to deal with the budgetary deficit—which, of course, is important—has overridden all other considerations and that we are faced with a relatively disparate collection of revenue-raising measures which, having first been thought up by the skilful people in the Treasury, have subsequently been invested with some sort of justification. Too little use has been made of the fiscal weapon to achieve long-term objectives. I should like to conclude by expressing the hope that, in the unitary budget which will be introduced in November, we shall find a serious endeavour to relate financial, and particularly fiscal, measures to what the country needs in the long term.
4.3 p.m.
Lord Boyd-Carpenter: My Lords, my noble friend the Minister opened his very interesting speech in moving the Second Reading by saying that it was a very long Bill. It is not only a very long Bill, it is also one of major importance. Indeed, it is perhaps the most important measure with which we shall have to deal during the current Session. For that reason, I am sorry that we are to have only one debate on the Second Reading. I say that because with a Bill of this size, complexity and importance, one's speech would have to be measured in hours rather than minutes if one was to attempt to cover it in its entirety. One can only do as noble Lords who have already spoken have done; namely, pick out particular points in which one is interested and then pass them on. However, one must be conscious—as I am sure we all are—of the fact that a comprehensive debate on the Bill as such is all but impossible. In the light of this experience, I very much hope that when we come to the next Session the powers that be will arrange not only for a Second Reading debate but also for further debates on later stages of the Bill so that we can pick out particular aspects.
It must be remembered—and, indeed, those in another place must remember—that your Lordships' House includes a great deal of expertise on the subject. The House is full of people with experience either in the Treasury, in the City or in finance. Indeed, given a fair chance, this Chamber can give a great deal of help to the Government and to intelligent public opinion by its debates, not only from those speakers like the noble Lord, Lord Peston, who is an economist, but also from others with practical experience in various aspects of finance. There is far more expertise here than in another place. I hope that those who organise our procedures will, in the future, take note of the lesson to be learnt. I know that we cannot amend a Finance Bill, but we could have several stages during which debate could perhaps, by arrangement, be canalized on certain aspects of financial policy. I note that the noble Lord, Lord Peston, seems to be indicating that there is some point in what I say.
Having said that, I must say how much I admire my noble friend the Minister on the Front Bench—who,

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of course, is not a Treasury Minister—for his skill in making that admirable speech. Equally, one must be grateful to him for the very cheerful note upon which he began. He rightly pointed out that, although this country has been through an economically extremely difficult, trying and dangerous time, there are many signs of a recovery in the economy. That leads one to the conclusion that now is the moment for the very greatest care to be taken as regards the measures that are put forward. I say that because it is just at the moment of recovery that a blunder, or some heavy-handed mishandling of the situation, could check the recovery that we all seek. Therefore, although what my noble friend said about the tendency at present is cheering, I suggest that it is also, perhaps, a warning to your Lordships and to the Government that this is the time for the most skilful and most delicate handling of our economy.
I turn now to one or two of the points out of the many to which I should like to invite your Lordships' attention. I regard VAT as a thoroughly had tax. It is a tax which falls very heavily and clumsily right across the economy. It is a tax imposed not only on items but on work—for example, on work contracts. It is very oppressive in many ways and it compares very badly with its predecessor, the old purchase tax. I must confess to having some sympathy with the purchase tax as I administered it for many years. However, it had a great advantage that VAT does not have; namely, flexibility. Indeed, the rates varied enormously. They were very high on luxuries. If I recall rightly, the purchase tax on jewellery was 66⅔ per cent. On the other hand, whole areas of life, such as children's clothes, were tax free. It was a deliberately discriminating tax that I think worked extremely well, while also producing a very substantial revenue. Moreover, it was an infinitely more flexible and civilised instrument of taxation than VAT. I wish that we could move a certain amount of our VAT system in order to achieve some of the merits and assets which we derived from the old purchase tax.
Of course, VAT can be very oppressive. I wish to refer to a tiny example from my own experience. I am churchwarden of a small church in the country. Recently the diocese consulted an architect who told us that our roof had to be repaired. With very great effort we raised the £5,000 required to repair the roof, but then had imposed on us VAT of £850. I am aware that that is only a personal example, but it is a good indication of the clumsy nature of VAT. No one studying a case of that sort can conceivably say that there is any public interest served by imposing a tax on those who, with great difficulty, raise funds to repair a small church in the country. I wish to place on record the view that I consider that one of our present weaknesses is VAT.
I wish to say a few words about inheritance tax. For some time I have been pressing, unsuccessfully, for inheritance tax not to be levied on a principal home. There is already a concession in respect of principal homes as regards capital gain. When someone dies his family is in an unhappy position both from an economic and a personal point of view. For that family then to have to pay tax on a home seems to me
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wrong. It also means that people who inherit historic homes—there are quite a number of those who recently have done just that as their relatives have died—find it extremely difficult to carry on. Often they have to approach the Exchequer and ask for grants to enable them to continue to occupy their homes. I feel that when Her Majesty's Government are looking at taxation they should consider removing inheritance tax from people's principal homes.
Those are, of course, criticisms which point in the direction of reductions in tax. Therefore, I must in fairness move the other way. The noble Lord, Lord Peston, referred to tobacco duty. However, there is only a modest increase in that duty. I know of no reason why the increase should not be much more substantial. The Government could obtain considerable revenue thereby.
In that connection I must tell your Lordships of my own experience during my two tours of duty at the Treasury. On three occasions in those two tours of duty I succeeded in persuading the Chancellor to increase substantially tobacco duty. We were advised solemnly by Customs and Excise that we were going too far and that an increase of that kind would discourage consumption, thereby losing revenue. On all those three occasions I have mentioned, the Customs and Excise theory proved right for a fortnight. For a fortnight after the increase in tax, yields went down. However, in the third week, yields started to mount and I was proved to be right and Customs and Excise were proved to be wrong. We obtained a substantially increased revenue and we discouraged smoking, at any rate to some extent. That must surely he an advantage.
Very little has been said so far in this debate as regards my next point. When one is criticising increases in taxation—I very much share the criticism of those who are sad to see VAT imposed on domestic fuel and who believe it will cause a great deal of hardship to a great many people, whatever relief measures are imposed—it is fair that one should indicate how, in one's own view, the Government should proceed to help the development of the economy. I suggest to your Lordships that that must involve substantial cuts in expenditure. These are never popular and they cause offence. But it is essential, if our economy is to continue to work and to work properly, that it should not be exposed to increased taxation. If it is not to be exposed to increased taxation, given the present state of the national finances it is necessary to reduce public expenditure.
Having said that, it is only fair that one should offer one's sacrifices to your Lordships because any reduction in public expenditure naturally causes offence and difficulty to some people. I suggest that legal aid, which has increased and is again increasing this year and now amounts to one billion, four hundred million pounds, is simply too high and that the system requires radical reform. I know this may well cause difficulty to some individuals. It will certainly cause some disadvantage to some members of the legal profession. However, it is nonsense in the present state of our economy to continue to increase

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expenditure on legal aid. I suggest that it is time it was cut. I share the admiration of your Lordships for the gallant fight which the noble and learned Lord the Lord Chancellor has been making in that direction. I am only sorry that he has not been successful but there is a considerable saving to be made there.
There are other savings that could be made. One area of expenditure that is much smaller in scale but is not altogether negligible is the expenditure on the war crimes legislation. That is an utter waste of public money. There are a number of areas where, if the Government are determined, they can reduce public expenditure. I ask my noble friend the Minister to deal with that point when he replies to the debate, as it is the key to the problem.
If your Lordships take the view, which I hold strongly, that increases in taxation can only slow down the recovery and damp down the expansion of the economy, the only way to restore the balance is by reductions in expenditure. That calls for great courage and hardihood on the part of Ministers, but I am sure those are qualities they will show. Everything depends on getting the economy going again. If we can restore the working of our national economy, succeed in bringing down unemployment, increase production and productivity and expand our economic activity, then the Government will have given superb service to this country for which I know this country will, in due course, be very grateful.
4.18 p.m.
Lord Bruce of Donington: My Lords, since I first came to your Lordships' House there have been no fewer than 19 Finance Bills and I have participated in 18 successive debates on these Bills. After all that I feel that I have been here many times before and have heard most of the arguments many times before. But what depresses me today is not so much the comprehensiveness —some of it academic but all of it important—of the factors mentioned in describing our economic situation as a lack of urgency in the debate. In no part of the House so far has any real sense of urgency been introduced into the proceedings. I find that a little depressing. I should not like to arrogate to myself the attribute of being the only one susceptible of an emotional response. I am quite sure that I am speaking in the presence of extremely sensitive individuals who are just as sensitive as I am. However, I am disappointed by the lack of urgency expressed by your Lordships in relation to the economic situation as it has been described.
Fortunately, we do not have to enter into a re-description of the state of the economy and of the nation's fortunes during the years that have elapsed between 1979 and the advent of Mr. Major as Prime Minister because he has already done so in some unguarded moments. His comments rather surprise me since I would not normally like children to be exposed to broadcasts which contain four-letter words and other extreme expressions. Nevertheless, he said, with some truth, to his questioner. Mr. Brunson:
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"Just think it through from my perspective. You are Prime Minister. You have got a majority of 18. You have got a party still harking back to a golden age that never was but is now invented".
There can be no better description of the regime immediately preceding Mr. Major's.
When we reach a situation in which unemployment as such is mentioned almost en passant, without any realisation of the human misery and degradation that lie behind it, one cannot help but feel that economics is no longer discussed and thought of in human terms but in academic and tidy terms. The economy is regarded as being centred largely in City boardrooms or in the boardrooms of large companies, whereas the total economic activity of a nation goes right down to its smallest member. Its smallest member participates either as a customer or as a producer and enters into the economy of the country either through the receipt or expenditure of money, the receipt of services or as the provider of services. Therefore, the economy includes us all. When noble Lords opposite talk of prosperity I sometimes wonder in what context they think of it at a time when even the basic necessities of life are denied to millions of our fellow countrymen. The mind boggles at the thought.
There are occasions when public expenditure has to be raised. The noble Lord, Lord Boyd-Carpenter—with whom it is always a great pleasure to exchange views—always concentrates upon that. It is sometimes forgotten that the reductions in the cost of labour and in any redistributive taxation benefits are themselves a cut in effective demand for commodities. It is forgotten that it is not only the supply side of the economy that requires attention but also the demand side. Therefore, when there are squeals of delight at shedding labour (to use the impersonal term) and when executives are praised and given lavish bonuses for cutting labour costs, one should remember, as Keynes always remembered, that at the same time one is also cutting down the demand side.
What is vital at this time is urgent steps to stimulate demand. Of that there can be no doubt. As every economist knows—and here I include my noble friend Lord Peston—supply side measures, such as trading and investment, take at least two years from the drawing board stage to come into effective operation. Similar observations apply to training. It takes a long time before the economic effects of investment in skills and new machinery become significant.
Steps ought to be taken now to kick-start the economy. I have ventured to suggest to your Lordships many times that one of the steps is the release of massive funds already in the possession of local authorities to start building and construction. That would be non-inflationary and would immediately reduce unemployment, with all the multiplier effects that follow. That would begin to kick-start the recovery.
There can be no contentment while there are 3 million unemployed. The figure in terms of real unemployment is probably nearer 4 million than 3 million. As long as that remains, the demand-led expenditure of the Government on social security, health, law and order, education and a whole series of

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measures will become worse. The only way to get into balance once again is to reduce unemployment drastically as a matter of urgency.
I am not talking purely in terms of encouraging more human happiness among our people, although one could go on about that for a long time. At the moment there is fear throughout the country. There is fear in practically all strata of society. Creativity, purpose and morale do not flourish in a climate of fear. They flourish only when there is a perceptible purpose with which people can identify so that they have hope again. Once they have hope then the country can go forward.
If the Government regard recovery and prosperity in the conventional terms which have been mentioned in the past—which means that City boardrooms can award their managing directors and others terrific increases in salary for increased performance—they are sunk.
In my view the answer does not lie in theoretical solutions. Here once again I must assail the coalition between my Front Bench and the Government on the question of the exchange rate mechanism. Any re-entry into the exchange rate mechanism, notwithstanding the diligent brilliance of my noble friend Lord Peston, is quite out of the question. I tell him so again now and I shall be telling him so in two years time, when I hope he will be able to acknowledge that I was right. Any endeavour to enter the exchange rate mechanism and to remain in it will impose an artificial limitation on our ability to control our own affairs with at least the efficiency with which international bankers or unelected commissioners could control them. I have more faith in my own country than that.
Therefore the Government should take urgent action and should be supported by the Opposition. However, they should not follow the advice of the Opposition to re-enter the ERM at another uneconomic and uncompetitive rate. They should hold their counsel upon that. But one thing that they can do—they did not do it when they examined public expenditure—is to pay attention to the £2.5 billion which is subscribed out of the Consolidated Fund into the European Community. I know that it is an old hobby horse of mine, but nonetheless it is reputable.
I am not surprised that once again not only the other place but this House will be denied the opportunity to express an opinion on the Commission's draft budget for 1994. Once again, owing to some inexplicable delay in providing the documents and explanatory memorandum, the European preliminary draft budget for 1994 has not been presented for scrutiny and it is now too late to do so. It happens every year. It is always too late to do so. It has the convenience of ECOFIN being able to discuss the budget, if it discusses the budget in depth, in the months immediately preceding October, with a view to determining the draft budget to present to the European Parliament, which has to be done before this House or the other place reassembles. Therefore there can be no input from this House into the very considerable expenditure, some of it of a highly questionable kind, in the European budget.
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The noble Lord, Lord Boyd-Carpenter, and I have agreed, perhaps not all that uniquely, on the monstrous expense, amounting to billions of pounds, on the tobacco subsidy. But the evidence so far—believe me, I have read through all the documents—is that Her Majesty's Government have not varied more than an inch, occasionally, from the original preliminary draft budget that was presented in the first place. Their influence on the budget of the Community is virtually nil—and whether it is done by any deal or any other means I do not know. All I know is that when Sir John Cope on behalf of the Treasury discussed the European budget with the European Parliament in 1993, he presented a testimony of praise rather than uttering even the mild cautions which emanate from noble Lords such as the noble Lord, Lord Boyd-Carpenter, on the necessity for prudence in expenditure. His speech was one long adulation of the European Parliament for having adopted such a magnificent budget. That will not do.
There is no transparency at present. The £2.5 billion which goes out of this country from the Consolidated Fund is not chicken-feed. For example, if expended on the health service it could have prevented deaths taking place through the lack of kidney dialysis because of the under-use of existing facilities due to lack of funds. Such a sum could contribute considerably to housing programmes. It could contribute more to child care. Yet because the £2.5 billion a year goes to the Community, everyone assumes that it is sacrosanct and no one should pay attention to it. Surely that is an issue that Her Majesty's Government can take on board.
I assure noble Lords that I and many of my colleagues on all sides of the House will be watching this year to see how ECOFIN deals with the budget, even though it is dealt with in Recess. ECOFIN had better be most careful to have detailed explanations in the autumn in support of the various budgetary items. They will be examined line by line and clause by clause. I give my assurance on that. ECOFIN has been warned. I sincerely hope that it will take to heart the other strictures: that unless unemployment is dealt with we shall have years of even more hardship; at higher levels we shall have more sleaze than we have ever had before; and unless drastic steps are taken the country will be a less safe place to live in.
4.35 p.m.
Lord Stewartby: My Lords, having attended a great number of ECOFIN and budget Council meetings a few years ago, I am tempted to respond to what the noble Lord, Lord Bruce of Donington, said. I have a good deal of sympathy with his reactions even if not with the details of what he said about the European budget. However, I wish to use my few minutes today to talk about the Budget in the United Kingdom. I believe that it is a fortunate occurrence that the opportunity in your Lordships' House to consider those matters comes at a certain distance from the Budget and the initial impact of the announcements earlier in the year.
I recall last year—it was not exactly at this time of the year because there was a Finance Bill just before

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the dissolution of Parliament—that since another place had to wait upon your Lordships' House for those matters to be completed I sat on the steps of the Throne and listened to your Lordships' debate on the Bill. I recall in particular an important speech by my noble friend Lord Boyd-Carpenter on that occasion. Little did I think at that time that I might have the good fortune to be able to listen to his speech this year from very much closer at hand and to be able to agree in this forum with what he said about the importance of having a debate in your Lordships' House on budgetary issues despite the fact that we are constrained from amending the Bill and that our deliberations take place after this interval of time.
I wish to consider a few aspects of the Budget in the context of its economic judgment. I was most interested to hear the comments of the noble Lord, Lord Peston. He suggested that if his party were in control later this year it would be going for a much more expansionary economic stance. His noble friend Lord Bruce suggested that the economy was in need of urgent stimulus. I beg to disagree with the thesis which noble Lords opposite have put forward. I shall attempt to explain my reasons.
However, first I compliment, indeed congratulate, my right honourable friend Mr. Lamont on the Budget that he introduced earlier this year. In economic terms it seemed to me that it was a thoroughly responsible and well-pitched Budget in the economic circumstances of our times. Mr. Lamont has not had what one might call an outstandingly good press. However, it would be a great pity if any finance Minister who has to be in office at a time when exchange rate adjustments need to be made either has to leave office immediately or is so pilloried because of that event that it is impossible for him to stay in office for more than a limited period thereafter.
I do not believe that that is a civilised way to conduct our political or economic affairs. Everyone knows that if, during a period of currency pressure, a Chancellor or finance Minister says nothing it will be interpreted in a way that is bound to lead to greater pressure in the financial markets. On the other hand, if he does say something he cannot say, "I am thinking about taking the currency out of the exchange rate mechanism", or am contemplating a little devaluation", or something like that. To do so would be tantamount to bringing about the result that he was discussing. So he is not in a position to do other than say the sort of things which Mr. Lamont had to say last year, and which countless Chancellors of the Exchequer and finance Ministers in this country and elsewhere have had to say under those circumstances.
I repeat that I think it a pity if it is considered that that should automatically lead to the end of office for any Minister who finds himself in that position. I do not say that because Mr. Lamont was a former colleague of mine in the Treasury, or because he is a personal friend of mine. Both might be considered to colour the judgment which I offer. The judgment that I should like to discuss briefly today is the one that he made in the Budget this year in order to assist and encourage economic recovery from a very long,
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painful and protracted recession. That recession has not by any means been confined to this country. It is one that has been heavily influenced by the background of the economy in many other countries.
The one lesson that comes to me from the economic experience of the past few years is that monetary and fiscal policies are likely to produce the results that they are likely to produce. That may seem to be a truism and an almost fatuous remark to make. But how often people forget it. I remember that for a very long time after monetary policy was tightened in 1988, and more so in 1989, there was a serious debate among politicians and commentators in the business community as to whether there would be any recession at all. There was a lot of talk about "soft landing" and whether the economy could come painlessly back to a path of effortless, sustained growth. If one has interest rates raised to the middle teens and held there for two years or more, and an inflation rate—if one takes the underlying rate and not the rate that includes mortgage interest—never more than half that figure, one is bound to have a recession. It is inevitable. If one makes it less desirable and more expensive to spend, and more desirable and more rewarding to save, then one is bound to reduce economic activity. It does not take someone even like the noble Lord, Lord Peston, who is very distinguished in the black arts of economics, to see that. All of us ought to be able to see that if very substantial changes are made in fiscal and monetary conditions, there is a very strong probability that after a period of a couple of years or so they will have the effect which they are intended to have. Just as those effects took quite a long time to come into play after monetary policy was tightened at the end of the 1980s, so the effects of economic expansion take some time to respond to the loosening of monetary and fiscal policy which has taken place over the past year or so.
The noble Lord, Lord Peston, referred to Treasury work on the impact of sterling leaving the exchange rate mechanism last year and the consequence of that for the recovery. The consequence of sterling leaving the exchange rate mechanism was that we were able to resume a monetary policy which was compatible with our own domestic economic needs. It was the reduction in interest rates at that time, more than the change in the exchange rate, which led to the degree of economic recovery which is now perceptible. On those grounds, we should be very cautious about calling for further stimulus to the economy.
One can stimulate an economy either by a loose fiscal policy or by a loose monetary policy. Or one can have it with knobs on and apply both a fiscal and a monetary stimulus. It is interesting to see the combinations in those factors that have been at play in recent years, not only in this country but in other countries in Europe and in North America. If one has both fiscal and monetary policy tight, one will probably have a recession. If one has fiscal and monetary policy loose, at the same time one will almost certainly have an unsustainable boom. Ideally one should get them both about right, in the middle of the spectrum.

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When one is in a position, as we are now, of transition from one economic condition to another, then one has to look at the relative balance in power of the ingredients of economic policy. In the case of this country, I would assess those to be as follows. We had an exceptionally tight monetary policy for the first three-quarters of last year, since when we have had a monetary policy which is probably just about right for the state of the economy at the present time; that is to say, we have come from interest rates in the mid teens, when inflation was about 8 per cent., to interest rates of 6 per cent. when inflation, according to whatever measurement is chosen, is somewhere between 1.5 per cent. and 3 per cent. That monetary policy seems to be much more balanced.
On the other hand, we have a considerably expansionary fiscal policy. We have a large public sector deficit. The Chancellor's judgment at Budget time was that that needed attention but that it should not be reduced too sharply in the immediate future because of the need to encourage the economy out of recession. In that judgment I believe that he was right. The cumulative effect of very tight monetary policy for three years, up to September last year, was so severe on economic activity that a degree of fiscal stimulus was entirely appropriate at that time. But I do not believe that it will continue to be entirely appropriate as the economy recovers. For that reason I welcome the inclusion in the Budget of elements which will increase revenue in the coming years. That seems to me the proper way to tackle it.
I cannot tell how much of the public sector deficit and the borrowing requirement is structural and how much is cyclical. Far wiser heads than mine have attempted that analysis, and mostly they cannot agree. There is no chance that I should be the one person to have particular insight into the matter. But I should not he surprised if half, or a little more than half, of the current deficit was due to cyclical factors. I say that because of the astonishing buoyancy of the revenue at the opposite point in the economic cycle. In the later 1980s we had, against all predictions, a public sector debt reduction figure—a PSDR instead of a PSBR—and that moved into double figures. One of the paradoxes of our economic management is that when one has a public sector surplus, one is tempted to reduce taxation because one does not need so much of it, which is stimulatory. And when one has a public sector deficit of this size, one is almost bound to increase taxation because one needs to reduce it. It would be a great advantage if we could bring and keep fiscal and monetary policies more in balance with each other and so avoid the more extreme fluctuations around the trend. I hope that we shall now be able to do so.
I have spoken for too long but perhaps I may conclude with just a few words about interest rates and the exchange rate. I do not believe that we should have an immediate reduction in interest rates. I understand that many people in business would like to see such a thing. I noticed the comments of the CBI to that effect in its quarterly survey released today. In my view it would be wrong to prejudge the fiscal decisions that the Chancellor will take in the next few months
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because the fiscal background is absolutely essential prior data to have before one can judge the appropriate monetary policy.
Since we have a monetary policy at the moment which is clearly neither too tight nor too loose, it would be much better to stay even on 6 per cent. interest rates for the time being and have a degree of stability. If we reduced them too quickly, there would be more damage to confidence by having to raise them again than there would by not having lowered them in the first place and having a longer period of stability for businessmen to plan.
I shall also mention the exchange rate. We have recovered a good deal of the ground that was lost against the European currencies immediately after we left the exchange rate mechanism. That is not a problem at all. I believe that it is a good thing. The adjustments usually overshoot and the sterling exchange rate undoubtedly overshot on the way down in the immediate aftermath of those traumatic events. But the exchange rate is a factor against which one should consider one's domestic monetary policy. If the exchange rate continues to strengthen and at the same time continental interest rates come down by a significant amount, it would be appropriate to reconsider the levels of interest rates in this country prior to the Autumn Budget which we now await.
In the meantime, it seems to me that the balance that was achieved in the Budget was appropriate. To say that four months after a Budget is quite a good reflection on the judgment of the Chancellor at the time. I believe that the Chancellor's judgment has been and will continue to be vindicated for a sound Budget and one which I personally regret was his own last Budget.
4.52 p.m.
Lord Desai: My Lords, the noble Lord, Lord Stewartby, tempts me sorely to start discussing the merits or demerits of the previous Chancellor. It was not so much what the Chancellor said during the week prior to Black Wednesday but what he did that caused the problems. He borrowed several billion ecus, giving everybody a signal that he expected trouble. He did not raise interest rates, despite saying that he was willing to do anything to defend the pound, and then he raised interest rates too late. I will not go into the matter further.
Basically I take the view that since about 1986 we have not had a sound and balanced fiscal and monetary policy. We have been on the roller-coaster of an outrageous boom followed by a severe recession. I do not know whether the new Chancellor will be any better than the last three Chancellors.
First, let me point out that, although the recession is over, we cannot say that recovery is at all strong. Traditionally, recovery from previous recessions has been much stronger than this one. One should expect an above-trend rate of growth if one is coming out of a severe recession such as we have experienced. We may have a 1 per cent. growth rate in the GDP, as was forecast, or—it may happen by accident—we can have 1.5 per cent. or 2 per cent. Those growth rates are not

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at all adequate. We should be seeing 3 per cent. or 4 per cent. growth rates, as we saw when we came out of the previous recession of 1981.
We have not seen those figures because in a sense the Government have fallen into a trap of their own making which has tied their hands as regards fiscal policy. The PSBR is in the state that it is in right now because, at a previous stage in the 1987 and 1988 Budgets, decisions were made about taxation which have shrunk the tax base. Having shrunk the tax base and, in preparation for the last election, having prodigiously given away expenditure bonuses in health, education and so on, they find that the tax revenue is not buoyant and expenditure refuses to come down.
The £50 billion PSBR is not a sign of an active fiscal policy. It reflects a passive fiscal policy. It has been caused more by passivity and is being spent more on consumption rather than investment items. It would be very good if we could spend money on infrastructural investment, as my noble friend Lord Bruce said. It would be very nice if we could start construction programmes. But we cannot start them, partly because of irrationalities in the way that the PSBR is calculated but also because the Government have got themselves into a situation in which the tax base has shrunk too much.
In the last Budget there was a welcome reversal of the old prejudice against income tax. It is true that income tax rates have been left untouched. But there have been sufficient adjustments by way of personal allowances, non-indexation of certain allowances, mortgage interest relief made assessable at a lower rate, and so on. We see that in the full year 1995–1996, the Chancellor hopes to raise almost as much from direct taxes as he hopes to raise from Customs and Excise. That was a welcome move. I do not know how long the Government can go on pretending that—to put it technically—by adjusting the intercept of the income tax rate, they will be able to raise more money so long as they leave the slope unchanged. Sooner or later they will have to re-examine the tax rates, especially above the higher level. It is unlikely that we shall tackle the Budget deficit properly without considering tax in general.
The tax mix in this Budget—the split between direct and indirect taxes—is reasonable. I should have been much distressed to see greater indirect tax compared with direct tax.
I should like to say a few words about VAT in general and its imposition on domestic fuel. In fact, I am not against VAT at all. One should not think of tax rates in isolation as progressive or regressive. One has to think in terms of tax rates and what is done with the tax revenue and with entitlements as such that will make a fiscal regime progressive or regressive. My own preference would have been, while increasing VAT on domestic fuel or anything else one cares to name, simultaneously to adjust items such as child benefit and pension so that the impact on the poorest people is lessened and the richer people end up paying. I still say that perhaps in the next Budget the new
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Chancellor will do that and while increasing VAT, benefits are so adjusted that only the better-off end up paying the tax rather than the poor.
Something will have to be done very soon if the PSBR is to be tackled. The PSBR needs to be tackled, but not because of notions of fiscal orthodoxy. I quite agree that if we had a proper accounting system, capital budgets and revenue budgets it may turn out that the true PSBR on revenue account is perhaps half what it is right now and perhaps half of the PSBR is on capital account. Incidentally, I also welcome a feature of the Budget which means that a cyclical component of expenditure has been separated out. That comes to about £15 billion. It is quite wrong to think of the figure of £50 billion as a totem and bow down to it.
However, what is true is that both our trade deficit and the Budget deficit are jointly an indication that the economy over-consumes and does not invest enough. I am not saying necessarily that we ought to cut benefits. We need to know who in the economy over-consumes. It is true that all the so-called "marvellous" direct tax cuts, which were supposed to encourage investment, effort and enterprise, have simply made the rich richer. The rich have not invested more; they have spent more on consumption and often on imports.
Basically we have got to improve our fiscal regime. By giving tax cuts in the past we have ended up in a situation of over-consumption and simultaneously increasing poverty. To get a rough idea of the over-consumption we need to add together the deficit on the revenue account and the balance of trade deficit. When they are added together roughly speaking we find that our over-spending totals between £35 billion and £40 billion.
Unless we take a long-term view on tackling the structural problem in the economy, the "stop-go" cycles, mentioned by the noble Lord, Lord Ezra, will continue. I find it distressing that in the Government strategy such as it is —they are concentrating on obtaining a low rate of inflation; they are not examining the question of whether that low rate is due to a severe recession in the economy or is permanent. The government need a low rate of inflation with a sufficiently high level of employment and a balance of trade equilibrium. That is the only question worth worrying about. A low rate of inflation achieved by ruining the economy shows no merit on anybody's part.
I hope that in the future some thought will be given to the fact that, not only on the foreign trade account but also on the domestic revenue account, we cannot go on over-consuming at the present rate. From that point of view the fiscal policy of the past eight years stands indicted. Although at one stage, as the noble Lord, Lord Stewartby, pointed out, we were in a PSDR framework—repaying debt, including privatisation proceedings and so forth—the structural problem of our trade deficit was not tackled in those years. We over-consume and thought should perhaps be given to introducing tax structures to encourage savings rather than over consumption.

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I wish to make one comment on the ERM. The Government claim the great merit of achieving a low inflation rate. There may not be a definite answer to the question, but one could argue that the low rate of inflation achieved is partly due to the severe shock of being in the ERM. Now that we are out of it, sooner or later the economy will return to its old habits and the low rate of inflation may not be sustained.
Now that we are out of the ERM, let me say this. Since we left the ERM we have been in a shadow ERM situation—the same situation we were in before we entered. All the Government have done is shadow 2.5 deutschmarks. That can easily be seen from the way in which their monetary policy has been formulated. And the reluctance to cut interest rates below 6 per cent., despite the feebleness of the recovery, makes me feel that the Government are frightened of losing their anti-inflationary start. They want the exchange rate to creep up again. It is already in the range of 2.55 and above.
If getting out of the ERM and having all this freedom simply means that we will be tied to a slightly lower value deutschmark and still confined to a relatively tight economic monetary policy, will all that misery have been worthwhile? Perhaps the Government should have followed the policy suggested by Neil Kinnock before his departure as leader; that is, that we should have realigned within the exchange rate mechanism.
Be that as it may, I do not agree with the noble Lord, Lord Stewartby. The Government should perhaps be asking themselves whether they should be shadowing 2.40 rather than 2.50, if the recovery is so weak. If they want a strong recovery they should cut interest rates. They can easily afford to do so and I urge the Chancellor to join the Bundesbank next Thursday when it cuts interest rates. He missed the opportunity last time and could easily cut interest rates in the next round. Even at 5 per cent., the real interest rate is still quite stiff. It is stiff because we still have 2.9 million unemployed and a weak recovery. There is no reason, now that we have this sought-after freedom, why we should not use it. This may be the one point in the past 30 years of our history when we can afford not to be obsessed by inflation. We can afford to worry a little more about unemployment; 2.9 million is too high. As my noble friend Lord Bruce said, that is the official figure and the real figure may be much higher.
Without in any sense losing control of the economy, it is possible for the Chancellor to try a bolder monetary policy. He can take advantage of the shadow ERM and, even if he stuck at 2.50—it does not have to be above that number; it could be below —he could still cut interest rates. At the moment we have a Budget which is not too bad. However, the economy is in a poor situation and I hope that something can be done before the next Budget in November.
5.7 p.m.
Lord Brabazon of Tara: My Lords, I am grateful to my noble friend the Minister for his detailed explanation of the Bill and for the generally optimistic and bullish news on the economy which he brought us.
Inflation is at a 30-year low. Interest rates have been cut from 10.5 per cent. to 6 per cent. and they are now lower than anywhere else in the European Community. According to the European Commission, Britain will grow faster than any other country in the European Community this year and next. It is greatly to the credit of the Government that that will happen. But I join my noble friend Lord Stewartby—I already had a note to this effect—in saying that credit should be paid to my right honourable friend Norman Lamont. After all, it is his Budget which we are discussing this afternoon; it was he who set us on the right road, and it is perhaps unfortunate that he left office just as the signs were beginning to turn the right way for the recovery which is now under way.
I join too the noble Lord, Lord Peston, in being somewhat surprised that in his final speech my noble friend made no reference whatever to our departure from the ERM last September. I believe that that had a marked effect on the economy, particularly in allowing our interest rates to come down to a much more competitive level and our exchange rate to be more competitive in relation to our exports. I hope therefore that I detected in the words of my right honourable friend David Hunt last week that the Government's attitude is hardening away from rejoining the ERM. I hope that my noble friend will be able to tell the House this afternoon what the attitude of the Government is to the ERM, particularly as the ERM appears to be collapsing around its present members. Perhaps he will say what the Government think about that. I wonder also whether noble Lords who last week were urging us to join the social chapter so that we could influence from the inside and not be on the outside will urge us to rejoin the ERM, if there is one left to rejoin, so that we can influence events from the inside.
I should like to concentrate on two aspects of the Bill, both of which are in Part I. The first is alcoholic liquor and tobacco duties and the second is motoring taxation. An article in The Times of 12th July headed:
"Customs loses £5 million to Cross-Channel Bootlegging Gangs",
stated:
"Customs investigators are gathering intelligence on criminals taking advantage of the abolition of EC trade barriers".
That prompted me to wonder what impact the abolition of physical frontiers on 1st January was having on trade and indeed on the Exchequer's revenue. I am indebted to one of Britain's largest brewers, Courage, to the Brewers' Society, to the Scotch Whisky Association and to the Tobacco Advisory Council for providing me with facts and figures and their views on this matter.
In his Budget statement this year the then Chancellor of the Exchequer said:
"The removal of customs controls at the channel has been welcomed by many thousands of travellers who are now

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seeing the benefits of the single market at first hand. It has also brought many benefits to British business, including some 10 million fewer forms this year. But there is a natural concern as well about the impact of an increase in cross-border shopping, and the effect that it might have on British businesses, particularly in the south-east.
In considering what changes to make to Excise duties, I have had to balance that against the need to raise revenue".—[Official Report, Commons, 16/3/93; col. 176.]
He then proceeded to raise the duties on most alcoholic drinks by 5 per cent.—more than double the rate of inflation.
As a former Treasury spokesman, I am more than aware of the problems faced with the public sector borrowing requirement and the need to raise tax revenues which have been referred to by nearly every noble Lord who has spoken this afternoon. However, I am also concerned about the effects of the wide divergence in excise rates across the Community and the impact that this is having on many parts of the United Kingdom economy, including Treasury revenues, and particularly the brewing industry, whose figures I have been given.
The problem stems from the ceasing of border controls with the single European market. Now travellers have an indicative personal allowance of 110 litres of beer. That is not a maximum level. Should a traveller be stopped by a Customs official—and if one watches the streams of cars and passengers arriving from France one will realise how unlikely that is—one has only to persuade the official that the imports are for personal consumption (say, a private party) and one can bring in more than the indicative limit. This has led to, for example, private clubs sending articulated lorries to France to buy drinks supplies.
But there is another even more worrying problem; namely, illegally imported products for commercial resale in the United Kingdom without payment of duty to the Exchequer. The lack of border controls and the enormous financial incentive involved have led to some large-scale illegal importations. While Customs and Excise is having some success in controlling this problem, the logistics are such that it is unlikely that it is doing more than hitting the tip of the iceberg.
British brewers, retailers and others are more than happy to compete in a free and open market. In fact they believe that they could increase sales. British brewers can compete with French brewers on price, quality, service and choice. However, they cannot compete in a distorted market where the excise rate in the United Kingdom is 29.7p for an average pint of beer against only 4.2p in France, 7.7p in Belgium and 3.8p in Germany. The Government are therefore impeding the British brewing industry's ability to compete, not to mention how this affects retailers in the South of England. Just imagine being an off-licence in Dover at the moment.
Results from research currently in progress on behalf of the Brewers' Society suggest that 8 per cent. of the off-trade, which is 2 per cent. of the total UK beer market, is now accounted for by duty free or duty paid elsewhere in the European Community. This is an increase of 3 per cent. of the off-trade before the single market. While no one wants to stop travellers
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going to buy cheap beer, we should allow our industry to compete. The Danes, when faced with the German border and a wider divergence of excise rates, recognised the problem and slashed their rates by 46 per cent.
The lack of excise harmonisation has a number of results. Sadly, the French exchequer is gaining at the expense of the UK Treasury. The Government are currently working on the assumption of a £250 million loss in excise revenue. While that is already probably on the low side, it does not take into account the loss to the revenue which stems from a number of other points. The erosion of the beer market, which is already hit by recession, means that British producers will have to reduce production. That means cuts in jobs and investment. It also means cuts in profits on which corporation tax is paid and of course a reduction in income tax revenue. So all round it is bad news for British industry.
Turning briefly to whisky—and I wish I could—the problem is not quite the same because Scotch bought in France is still Scotch. I warmly welcome the fact that there is nothing in the Bill which raises duty on spirits, as my noble friend mentioned in his opening remarks. But of course the industry has consistently raised with the Government the issue of tax discrimination against whisky in the United Kingdom. This Bill, which freezes excise duty on spirits while raising it on other alcoholic drinks, goes some way therefore to recognising that.
Lord Bruce of Donington: My Lords, I am grateful to the noble Lord for giving way. If he proposes to reduce the duty on beer, how does he propose to compensate for the loss of revenue? What other duties would he raise?
Lord Brabazon of Tara: My Lords, my argument is that we are in danger of losing revenue to the French Government. If we reduced the rates on beer, and perhaps particularly whisky, we might actually increase the total sum of revenue brought in as we would not any longer be losing the revenue which the Exchequer is at present not receiving under this scenario. I shall turn to some suggestions in a moment which might help my noble friend with this problem.
Excise tax and VAT on whisky in the United Kingdom swallow up 66 per cent. of the price of a typical bottle of whisky. The comparable figure for a typical bottle of wine is less than 40 per cent. This has had the effect of depressing demand for a domestically produced product. Whisky sales are down more than 5 per cent. That answers to some extent the point raised by the noble Lord, Lord Bruce of Donington.
There is the possibility for increased revenues with a reduction in taxation. Revenues on spirits fell by £80 million in the last financial year, a drop of £7 million in real terms. And of course we have a worsening in the balance of trade, which has also been referred to by other noble Lords. So I think that the Government are in danger here of killing the goose that laid the golden egg.
The other danger is that overseas governments will indulge in copycat action and impose high taxes on spirits. From 1st July France has imposed a 16 per

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cent. increase in spirits' duty. That could well lead to a 5 or 6 per cent. drop in export earnings in France, which is the second most valuable export market for the Scotch whisky industry.
The noble Lord, Lord Peston, and my noble friend Lord Boyd-Carpenter wished that the Government had gone further in raising duty on tobacco. I would merely point out that a popular brand of king-sized cigarettes already costs £2.37 in the United Kingdom as against £1.71 in France and only £1.34 in Spain. So the incentives for either legitimate or illegitimate entry of cigarettes from both those two countries are very high. Many retailers, particularly in the South East, are already experiencing a drop in business. The average smoker, I am told, buys some 300 packs of cigarettes a year. If he brought them in from Spain on his holiday he could save about £300. Those savings would equate to an annual loss of more than £710 in turnover for every regular customer; and there is the attendant loss to the Exchequer.
What is required is an approximation of excise rates so as to take away the financial incentive for UK travellers to go over to France or indeed to Spain to buy cheap beer and other drinks. Naturally, some travellers will still wish to buy in France because they may prefer French beer. However, I believe that an equation needs to be worked out that balances the average extra cost involved in travelling to the Continent to buy products and the Excise rate which takes away the incentive—either that or we persuade the French Government to put up their rates for beer. But I cannot see us necessarily having much success in that direction.
I also support the excellent efforts of HM Customs on enforcement. I hope that it will get all the support that it needs when it comes to tackle the problem of illegal imports. I also urge my noble friend's own Department of Transport to be particularly watchful for overladen cars, lorries and minibuses coming back from the Continent full of these goodies.
I turn briefly now to motoring taxation. This Bill is of particular significance for road users and as regards the cost of road transport. Those costs are a very significant element in our industrial and commercial competitiveness as well as being important to very many individuals. The Chancellor signalled the Government's intention to raise fuel duty by at least 3 per cent. in real terms for the remaining life of this Parliament. I believe that the noble Lord, Lord Peston, said that in one sense it was helpful to have this kind of forward planning; but in this instance is it particularly well conceived?
The taxation of road users is already at an unprecedented level. The various forms of road-user tax—namely, vehicle excise duty, fuel duty and VAT—among them yield the Chancellor about £21 billion a year. The Government spend only about £5.5 billion on the roads, both local and national, so the ratio of tax to spend is now at its worst from the road users' point of view since the Second World War. There is a real issue of equity at stake.
Perhaps I may ask my noble friend this question: what does the 3 per cent. increase in fuel duty in real terms actually achieve? All the evidence suggests that
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far greater increases than that would be needed to have a worthwhile impact on people's propensity to use roads. Do the Government genuinely believe that this proposal will help to reduce the environmental impact of road travel or alleviate congestion? The price of fuel has been low in real terms for much of the past decade. Taxes already account for 65 per cent. of what the motorist pays at the pump. Adding to that proportion begins to look like a deliberate attempt to buck the market, which I find hard to reconcile with a belief in market forces.
My right honourable friend the Secretary of State for Transport, in commenting on the 1993 Budget, said:
"We must also recognise that transport must play its part in meeting the threat of global warming and achieving the CO2 reduction target by encouraging greater fuel economy".
However, taking the environmental justification at its face value, it seems to me that no account has been taken of the natural movement of the price of fuel in the market place. What do the Government intend to do if the price of fuel rises by 3 per cent. or more, as many analysts think likely? If that is the kind of increase which the Government consider necessary to help the environmental cause, may we have an undertaking that, in the event of such an increase occurring naturally, the artificially determined 3 per cent. increase will be set aside for the particular year in question? My noble friend may say that that is a hypothetical question, but I do not believe that it is. It deserves an answer. I know that he is unlikely to give me such an undertaking but in justifying the proposed increase the Chancellor referred not only to the environment but also to the need to raise more revenue. We all of course understand the economic imperatives behind that objective.
I hope that my noble friend will be able to give some answers to the points which I have raised. In general terms, of course, I welcome this Budget and I hope that he will be able to take some account of what I have said when my right honourable friend comes to present his next Budget, which is, after all, only a few months away.
5.24 p.m.
Lord Houghton of Sowerby: My Lords, I am glad that the noble Lord, Lord Harmar-Nicholls, is able to join us in the debate this afternoon because he and I, I believe, can modestly claim to be the pioneers of the effort to get a more positive role for your Lordships' House as regards the formal stages of the Finance Bill as it goes through this House. It has taken 10 years at least to get a debate of the quality that we have had this afternoon.
I come straightaway to the suggestion made by the noble Lord, Lord Boyd-Carpenter, that we should develop this kind of occasion. However, we need to do so a little earlier in the parliamentary year; otherwise through lack of time we cannot do the job properly. From the debate so far excellent grounds have emerged for claiming the ear not only of the other place but of the public and of all those who discuss these problems in an intelligent way.
There are views to be gained from your Lordships' Chamber that we can put alongside the rather rough

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and tumble political atmosphere of the House of Commons. I must not be disparaging about the other place. I was in it for 25 years and grew to love it very much. But reading the debates of the other place at the present time one is conscious of the difficulty of getting coherent and uninterrupted expression of opinion. That is a great mistake which develops because of the political nature of the representative Chamber.
We are free of that; but we are inhibited by the Parliament Act, and its shadow is very long indeed. I remember this as if it were yesterday. My father was jubilant when what he called the "House of Lords' veto" was removed so decisively. I did not quite understand how wrong he was or how right it was to make a clear division between the responsibilities of the two Houses on matters of finance.
The noble Earl introduced the debate in a most interesting fashion. His speech encouraged the very thought that the noble Lord, Lord Boyd-Carpenter, expressed. He went through the Bill in more detail than I ever remember before. I have listened to every one of these debates since I came to your Lordships' House 19 years ago. I believe that I have taken part in most of them. I want to encourage the idea that at a suitable earlier stage we could spend longer on the main issues in the Finance Bill.
I wish to turn to one or two other matters concerning our deliberations on the Finance. Bill. I agree with the noble Lord, Lord Ezra, that we should adopt in our approach a broad sweep as regards economic and fiscal policy. But detail is important in some respects. I believe that this House retains, and cannot be deprived of, its interests in the rights of the citizen. We have to watch what happens in another place regarding the citizen and his duties as a taxpayer, or as an unpaid, press-ganged tax collector. Many matters of administration and discipline are swept into the Finance Bill and we are thereby unable to debate them because of the 1911 Act. The dreadful words that Mr. Speaker certifies the Bill to be a money Bill is a warning to all concerned. But when under that cover some of the rights of our citizens are taken away by a Finance Bill, it is the duty of the House of Lords to express a view on that.
I mention as an example the way in which some years ago the House of Commons changed the penalties for default in Customs and Excise operations and converted the functions of the courts into the powers of the department. The VAT regime became very harsh when what are called "non-discretionary penalties" were introduced. They are imposed irrespective of the plea that the taxpayer may make unless he can satisfy one flexible condition, which is that what he did was "with reasonable excuse". The interpretation of the words "without reasonable excuse" now litters the pages of taxation, accountancy and other technical journals because of the decisions reached by the tribunals on what is and what is not a "reasonable excuse". That is an important point.
I draw attention also to the fact that in 1970 the Government introduced a comprehensive Taxes Management Act for the Inland Revenue. Since then no amendment to that Act has been undertaken
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outside the Finance Bill. Every amendment to the Taxes Management Act that has been made over the course of time has been under the cover of the Finance Bill barrier.
These things need watching. Matters of principle, especially in the field of criminal law, require the vigilance of your Lordships' House. After all, we now have mandatory sentences in magistrates' courts under the Dangerous Dogs Act. We also got into trouble because Parliament passed an Act for mandatory money penalties relating to the believed ability of the defendant to pay. That has run into serious difficulties. Another Criminal Justice (Amendment) Bill is to be introduced in the autumn, some parts of which need to be watched.
As regards indirect and direct taxation—the twin sisters that Gladstone had to eye with equal affection and attention (and what a difficulty he was in at times in deciding between them)—I think that our VAT system of taxation is virtually a European system. It will be extremely difficult to modify or replace it. We are all subject to VAT now in the Common Market and will be indefinitely. The problem with VAT lies with the harmonisation of rates within the EEC itself. Many current practices are thoroughly undesirable. Some traders are trying to take advantage of the differing rates of VAT applying in the different countries of the Community on the goods and services in which they are interested. Goods are being pushed around so that they attract the lowest level of VAT. That is an impediment to the free movement of goods and to free trade.
I should like to say something about a matter which I think is of some urgency. I hope that your Lordships will not feel that it is an intrusion upon a high level debate on other matters, but I feel that I must refer to the people behind this Bill. The Bill before us has over 300 pages, nearly 220 clauses and 23 schedules "etcetera, etcetera"—to borrow something from the title of the National Lottery etc. Bill. I refer to the people who are members of two revenue departments, Customs and Excise and the Inland Revenue. Altogether they comprise about 100,000 civil servants. They are gravely disturbed, as are other parts of the Civil Service, by the time being spent trying to find areas of public administration to put through the process called "market testing" and sold off to practitioners who will undertake the work. It is most upsetting. The morale of both departments has been affected. Many people do not know about their future. They do not know whether their work will be transferred to a private company.
Two companies are now bidding for the information technology department of the Inland Revenue at Telford, where over 1,000 staff are employed. Both companies are American. We do not know what may be in the draft contracts. It is conceivable that that work could be transferred to America. It is conceivable that the firm in Southern Ireland which is doing similar work for the police in New York could undertake that work also. One wonders what is going to happen to data going through the system, bearing in mind that much of what both the Inland Revenue and Customs and

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Excise handle is highly confidential information. Even if it has been described at the lower level as "support services" or "computerisation", there is every reason to believe that information relating to persons or firms being dealt with could become known. Confidentiality could be put at risk if a good deal of that work is put out to tender.
I turn to another point relating to the staff. As was true of the staff of British Rail until your Lordships' House recently passed that important amendment, the staff of those departments are forbidden to bid for their own work. They have been approached by consultants and firms of great standing and considerable resources which have said to them, "If you will make a bid, we will back you financially". But they are not allowed to bid. The contracts have to be placed outside. Although a good deal of capital must he raised if an inside bid is to be made (in order to acquire the rights and the capital assets of the work to be transferred), at least a partnership with the quality of some of those who are under threat could probably acquire those interests.
I have given the office of the noble Earl notice that I would raise this matter. Advertisements appeared well over a year ago asking for bids for, for example, the work at Glasgow. The advertisements indicated that the number of staff already in post was approximately 300. That mode of approach to the transfer of such work has been abandoned as unsuccessful. It was difficult to define the terms of the contract which had to be given a price, together will all the incidental and related matters. It was most intricate. However, because these are commercial operations, the staff do not get to know anything about them. There is an atmosphere of secrecy and concealment which I think is very bad all round.
Indeed, in regard to the Civil Service generally at present, I think that there is an urgent need to reconsider the joint machinery of the Whitley Councils and to get them working again on the basis that there will be the utmost candour in the exchange of views during discussions. I mention this as an important matter from the point of view of those who will be asked to work the new conditions introduced by this Bill and other legislation. We want a contented and enthusiastic public sector. We want to restore the philosophy and ethos of British public administration. We do not want them to go into the market-place. We do not want to make civil servants feel as if they are being sold in the slave trade. Someone at the top must pay attention to that matter.
I am not giving this warning at anyone's instigation, but I have many friends in both departments. I read their journals and the reports of their conferences. There is now a revival of militancy. It had been long gone under the legislation passed in this House a little while ago relating to trade union ballots for executive councils. It is creeping back. People are saying that they cannot make sense of or resolve the situation. They feel that a threat is being held over them all the time. They ask, "How can we emerge from feeling uncertain and unsettled and being subject to indifference by the administration?" After all, they are civil servants. The idea that they transfer
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to private employment or face redundancy is anathema to them. I am sure that they are right to feel that way. I have said it now, and I shall leave it with the Minister. Unless something is done to disperse the cloud of fear and uncertainty, the Government will shortly face an unhappy period with the public sector.
5.40 p.m.
Lord Clark of Kempston: My Lords, it is always a great pleasure to follow the noble Lord, Lord Houghton. We worked together in another place when I was chairman of the Select Committee inquiring into tax credits. He was a member of that committee, as indeed were the noble Lord, Lord Barnett, and the noble Baroness, Lady Castle. I am sure that the warning given by the noble Lord, Lord Houghton, will be taken on board by my noble friend the Minister.
I welcome the Bill because, by and large, it helps small business. There is a reduction in corporation tax which is now much lower than anywhere in the European Community. I, and I am sure most economists and financiers, look towards small business to increase employment. In the growth of small businesses more and more employment will be found.
I should like to refer to one or two matters contained within the Bill. The first relates to lottery duty. The national lottery will, of course, help charities. The qualifying donation for charities has been alleviated in the Bill. Now, anything over £250 given to a charity qualifies for tax relief. That must be good, because it helps the voluntary sector. More and more emphasis should be placed on the voluntary sector. There are many voluntary workers who will be able to do much of the work that social workers are trying to do. I welcome, as I am sure everyone else does, tax allowances on industrial buildings.
My noble friend Lord Boyd-Carpenter referred, rightly, to inheritance tax. He made a strong point. Exemption should be given in respect of an owner-occupied house as happens with capital gains tax. I read an article a little while ago which claimed that if there were a Labour administration the threshold for inheritance tax, which has been increased by this Government to £150,000, would possibly be reduced. That will of course cause great hardship to many beneficiaries.
I should like to discuss pensions. Pensions will pose a problem for future governments. I know the year 2020 is a long way away, but this country's population is ageing and the number of workers available to support pensioners then will be insufficient to pay the state retirement pension. Consequently, the Government must concentrate upon occupational pensions. There are fiscal advantages. Contributions to an occupational pension fund are allowable against tax. The pension fund itself is free from tax. That all helps occupational pensions. Actuarially, if any of those fiscal concessions are altered or removed the pension will be reduced, or the employee and employer will have to contribute more. If employers have to contribute more to the pension fund to make up for the fiscal loss many employers might say,

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"Pensions are far too expensive for us. Although our present employees must pay into the pension scheme, new employees will not be allowed to join the pension scheme". That will place an extra burden on the state. At the moment, many retired people have two incomes. They have, rightly, an income from the state, and an occupational pension. If that occupational pension is removed those pensioners will require more income support. The Government must ensure that the fiscal incentives remain.
My honourable friend in another place, Mr. Stephen Dorrell, gave an undertaking that those fiscal arrangements would be maintained. Will my noble friend the Minister confirm that undertaking when he winds up? For the year 1993–94, there has been a freeze on earnings. I hope that that will be a one-off and for this year only.
I now turn to life insurance. In this country, the life insurance industry is a great industry. We talk about the Single Market. The Single Market in insurance comes into force on 1st July next year. We shall then be competing with Continental insurance companies. If a British insurance company wants to sell a subsidiary abroad, all well and good! It can then sell life policies to people on the Continent. If, on the other hand, that insurance company sells from here a policy to France, Spain, Italy, Germany and so forth, the tax treatment of the profits on life assurance will be different.
Your Lordships' Select Committee reported in June 1991 and drew attention to the discrepancies that exist within the tax system throughout the Continent. The Government welcomed the report. Will my noble friend tell us what action the Government propose to take on that report? If we become uncompetitive because of the difference between the tax system in this country and abroad, we shall be unable to take full advantage of the Single Market. In his Budget Statement the Chancellor promised a document relating to occasional and exceptional losses in respect of the tax relief on equalisation reserves of life companies. I should like to know when that document will be published.
The change to a Budget on 30th November has been generally welcomed. It has always seemed silly to deal with money coming in and money going out months apart. It is ridiculous. No company in the world could remain solvent if it carried on its financial dealings in that way. I take the point made by my noble friend Lord Boyd-Carpenter, and the noble Lord, Lord Houghton, about the lack of time afforded to your Lordships' House when dealing with Finance Bills. One is inhibited, because one cannot change a Finance Bill. I agree with my noble friend and the noble Lord, Lord Houghton, that there is a wealth of knowledge in this place. We have here former Chancellors, former chairmen of clearing banks, former chairmen of merchant banks, and top industrialists. We know something about finance and can give a great deal of advice.
Baroness Seear: My Lords, I am sure that the noble Lord did not mean to omit the economists from his list of experts.
Lord Clark of Kempston: My Lords, the noble Baroness is right—they appear on the last page of my notes.
Lord Harmar-Nicholls: My Lords, I do not know whether or not my noble friend omitted the economists inadvertently but it is wise to separate the practical and theoretical economists. There is a great difference between them.
Lord Clark of Kempston: My Lords, that too was on the last page of my notes but my noble friend Lord Harmar-Nicholls has made the point. A November Budget, having incomes and outgoings on the same day, is absolutely right. I welcome the fact that there is to be a differentiation between revenue and capital. We have a borrowing requirement of £50 billion but how much of that is capital? It is not all revenue; some of it must be capital. According to the last figure that I had it was approximately £20 billion.
The Maastricht debate has overshadowed everything that we have done during the past few months and we have overlooked the signs of recovery in the economy. There are improved figures as regards retail sales and productivity; and unemployment is down for the fifth successive month. Inflation is well down and interest rates are the lowest in the EC. Exports have increased and during the past three months industrial production in the UK has risen by 2.1 per cent. as opposed to France where it was down 3.5 per cent., Germany down 8.4 per cent. and Italy down 4.1 per cent. As a country and an economy we have the best record in the European Community. Next year we shall be net exporters of motor cars, a situation that we have not enjoyed for many years.
We should be talking about our successes. Confidence is growing fast. The noble Lord, Lord Peston, said that because he was an economist he could not be optimistic. I know many economists who are optimistic. Continuing to talk down our economy will affect confidence within the country. I say to economists and to everyone else, "Please stop denigrating the economy". We must talk the economy up. There are good signs and we must take advantage of them.
5.53 p.m.
Lord Rix: My Lords, as might he expected, I wish to concentrate my few remarks on VAT changes, setting them in the charity-giving provisions of Clauses 67 and 68. The Bill has been characterised trenchantly if a little unfairly as one which encourages the public to give more of less to charities, which in turn will be required to do more with less as extra few costs bite and needs increase.
It puzzles me that as economic modelling becomes more sophisticated and computer programmes carry out statistical analyses which defy pencil and paper and the non-specialist brain, we seem to be as unable to avoid giving with one hand and taking away with the other as we were in the wax-tablet days of my youth. Perhaps the Autumn Budget will begin to change that. Having expressed that pious and probably unrequited hope, I wish to express my disquiet that as we reflect in our pricing structures the

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real cost of energy, housing, water or transport we lack the means of protecting the interests of the most vulnerable other than by means-testing.
We all know that means-testing is a little like trying to hit the bulls-eye by throwing all the darts at the board at the same time. It is a selective system but not a highly efficient one. Take-up and disincentive are problems, as are borderlines of eligibility. I wish that I could believe that citizen income and similar approaches to combining tax and benefits offer a better alternative to targeting and help. But, sadly, much of what is on offer in that area seems to add to the complexity and the cost and does little to resolve the problems.
Perhaps, with great temerity, I may offer three principles which all those involved in shaping the direction of public policy in general, and the Autumn Budget in particular, might have in mind. First, we cannot rely on growth to solve our social problems. Growth makes it all very much easier but in growth, stagnation or decline we have to make choices about sharing. That is inescapable. Secondly, as well as environmental impact statements, small business impact statements and European Community impact statements we should have attached to all major shifts in public policy social impact statements. Thirdly, I suggest that it would help the reality of decisions which may have significant effects on the real lives of real people if alongside the abstractions of modelling financial aspects we had volunteer, real families in relation to whom the impact of proposed policy changes could be assessed.
Whenever I have a recognisable interest in proposals I ask MENCAP members and officers for cases. Noble Lords who were in the Chamber last Friday will recall my somewhat over-use of some of those cases in what could be described as my "Ill-starred" Question. I see no reason why the Departments of Health and Social Security—and they still talk to each other—should not maintain on behalf of Whitehall generally contact with a sample of volunteer families. They should include, for example, families with profoundly and multiply-handicapped members. That should not be left to the voluntary bodies once the proposals have been announced or even implemented. Checking up on the likely effects of real people should be a routine part of planning. I am sure that that suggestion could well appeal to the noble Lord, Lord Bruce of Donington.
I suspect that the energy changes in Part III might have been rather differently handled had what I have suggested been established practice; putting the humanity back into planning and supplementing statistics with people. I realise that your Lordships have little or no influence on money Bills but one can see how marvellous it would be if those who are so grievously disadvantaged, together with their families, really had an influence on their own financial futures and their future quality of life.
5.57 p.m.
Viscount Chelmsford: My Lords, I am no economist and nor do I feel competent to comment generally on the Budget or on Budget strategy over the years, but
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I hope that I might be a little competent to flag a particular problem which I believe does not appear within the Budget and which might be set right. I am encouraged by my noble friend the Minister who said that he saw the Budget as having a strong commitment to business. I agree with him but the issue is a business problem which has perhaps been overlooked. It is perhaps, as was stated by the noble Lord, Lord Houghton of Sowerby, an impediment in the matter of free trade. It is a problem which was touched on briefly by my noble friend Lord Clark of Kempston and I should like to describe it in a little more detail. It relates to life assurance.
Many of us who supported the Government through the debates on the Maastricht Treaty did so at least in part because we believed that we have a better opportunity to trade profitably from within the market than from outside. Within the treaty there are a number of playing fields which we need and which will give us level playing fields provided that we can persuade our partners in the Community to action the terms of the treaties. But it is clear that tax is one area in which the treaties do not become involved and the playing fields are not equal.
To the life assurance industries, that is a particularly important point. I am no expert on the matter but I should like, using layman's terms, to go into the differences. A life assurance company in the UK, whether a UK-domiciled company or a foreign company domiciled here in order to trade in the UK, will be taxed on its profits. Also, the funds that it holds for the policy holders will be taxed over the 25 years or whatever it is that they are being rolled over. On maturity, when those funds are finally passed to the policy holder, they are not taxable.
If the company is resident on the continent, whether it is a continental insurer, a UK insurer in France or a subsidiary on the continent, again it will be taxed on the profits of the company. However, the funds that are being accumulated will not be taxed. Finally, on maturity, the benefits to the policy holder will be taxed.
It has taken the UK life assurance industry a little time to come to conclusions about the results of that policy. As far back as the beginning of the year the Association of Consulting Actuaries was advising the Government that in its view the disadvantage to UK companies who wish to trade on the continent by services, rather than by setting up a subsidiary or a branch, could be as much as 40 per cent. Such a disadvantage would wholly outweigh the savings which could be made through not having a branch or subsidiary overseas. Therefore, the position is one where the UK company is non-competitive.
Others have also made similar comments, including the Linked Life Association and the Association of British Insurers, which made the point very strongly and commissioned Price Waterhouse to submit a report. The report states that in Price Waterhouse's view, the maximum differential disadvantage to the UK is not as much as 40 per cent. but probably a maximum of 30 per cent. Either way, those are large numbers.

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The point I wish to put to your Lordships is that unless we make a change the life assurance industry's business will, as a result, leak to the continent. Already, major UK companies are setting up their subsidiaries in Luxembourg and Dublin, where the tax advantages are best. So unless we do something about it, as my noble friend Lord Clark said, there will be a leak of existing revenue to the Treasury in much the same way as my noble friend Lord Brabazon suggested happened with VAT.
As I understand it, what the life assurance industry would like to see happen—and certainly the ABI and the Linked Life Association would like to see it happen—is for the taxation system to be changed from the current UK basis to the continental basis. The industry believes that in that way it would have a level playing field. In addition, not only would the UK's tax revenue be prevented from leaking, but it might well increase because the industry is confident that its skills and products are such that they can be sold to great advantage on the Continent of Europe, given that the industry has level playing fields in all respects including tax. The matter is not something which has to be dealt with now. Like other noble Lords who have spoken about their anxieties, I believe that it would be possible to pick it up in the November Budget. As my noble friend Lord Clark has already said, the effective date is 1st July 1994.
6.3 p.m.
Baroness Seear: My Lords, it is common ground on all sides of the House that we have faced for some time, are facing and will continue to face three major problems: the balance of trade; the Budget deficit and the unacceptably high level of unemployment. One looks to the Finance Bill and asks: what contribution does it make to the solution of those problems, or at least their alleviation? "Solution" is too optimistic a word. One hopes for the alleviation of the problems, not only on a short-term basis of 12 months from one Finance Bill to the next but over a longer period. It is that in particular that many of us would like to stress in considering this Finance Bill.
Before I make a few short comments on the three problems, I wish to raise a rather dull but important point: the statistical basis and the facts and figures which lie behind the Finance Bill which are absolutely essential to any proper calculation of what policy should be and the sources from which the figures come. Nowadays the Central Statistical Office is a subsidiary of the department of the Chancellor of the Exchequer. I suggest that it was a mistake to move the Central Statistical Office to the department of the Chancellor of the Exchequer. I am sure that no open skulduggery goes on between the Chancellor and the members of the Central Statistical Office. But it is essential that the office should be able to carry out a totally independent, professional job. It is at least likely that its findings could be somewhat biased by the position in which it finds itself in the structure of government.
It was not always so. The office was not always under the Chancellor the Exchequer's department.
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But it would be a good thing if it were no longer there. In my view, the office should be directly responsible to the Prime Minister, and no one else. What is more, it should be adequately staffed. There is reason to believe that we do not obtain the information that we ought to have. Sir Samuel Brittan of the Financial Times has said again and again that there are huge gaps in the trade figures, unknown elements which never appear. Yet we base all our policies on figures on which we cannot totally rely. I believe that it is important that the Government should reconsider this. To economise on the essential raw data on which all other considerations must be based is the falsest possible economy.
In addition, when we consider the way in which the Finance Bill is presented to us, I wish to echo what the noble Lord, Lord Desai, and others have said. When and why did we ever lose what in my young days we used to call "above the line" and "below the line"—the revenue account as distinct from the capital account? It does not matter if we are borrowing for capital account, for capital expenditure. It matters tremendously if we are borrowing for a consumption bonanza. But we ought to be able to look at those two quite differently. If, as some noble Lords suggest, the capital account accounts for about £20 billion to £25 billion of the £50 billion deficit, we ought to know. It makes our whole thinking about the matter totally different. Until we have greater depth and accuracy in the presentation of the position, our judgment of the problems and the suggestions we make for dealing with them are inevitably—I am determined not to say "fatally flawed"; that is another of the horrible expressions which everyone constantly uses—at any rate inaccurate, which is much more important. That is for starters.
When we consider the balance of trade, of course it has been improving slightly in recent months. But I wish to put in a caveat against the assumption too easily made that that is a result of our coming out of the ERM. I refer noble Lords to the current edition of the Economist which produces good arguments and figures to suggest that it is coincidental with our coming out of the ERM but not consequential on it. It is not because we came out of the ERM that the recession began to recede. (Can a recession recede?) The recovery had started before we came out of the ERM. If that is so, one cannot say that coming out of the ERM led to the recovery. It may or may not have assisted it, but it cannot be the sole cause.
We should be careful before we assume that we were necessarily right to come out of the ERM, and I do not say that solely as a dyed-in-the-wool European. There was a discipline in the ERM; it gave us stability. Industrialists will, if asked, say that what they want above all is stability. They have to make long-term calculations and know what the value of their money will be not only today and tomorrow but in two or three years' time.
A number of people in a position to know say two things unreservedly: first, that we were overvalued in relation to the dollar but we were only very slightly overvalued in relation to a basket of ERM currencies; and, secondly, that we could have adjusted inside the

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ERM and did not have to come out to make the necessary adjustments. Certainly when we came out we let the pound fall further than it was right to. But that being so, it will go up again, and in any case we have not yet felt the results of letting the pound fall as far as it did because we have not yet felt the results of the increase in import prices which is bound to follow.
In the face of the latter, I certainly do not agree that we ought to cut interest rates. That was one of the few points upon which I do not not agree with the noble Lord, Lord Desai. I believe that a cut in interest rates would lead to further instability and would certainly encourage what we want least of all—any kind of consumer boom which may well lead to an increase in imports. With that would go any improvement that has been achieved in the balance of trade over recent years. Therefore, I do not see that as a solution.
Although there have been improvements, we must be extremely cautious because we do not know how long they will last. Further, if we look at their causes, can we rely upon them staying with us? A great deal depends on what happens to unit labour costs and therefore to pay levels and increases therein. Recently there has been a very welcome reduction in the increase of pay levels. But over the years there have been very few periods when pay levels have not outstripped the rate of inflation and certainly not grossly outstripped the levels of productivity. When noble Lords opposite say that the matter is now under control because of their enlightened "labour policy", I believe that they should think again. I suggest that the control over pay and the limitations on pay increases that we have seen are largely the result of unemployment rather than anything else. However, if the unemployment position were to improve, the boasted control over excessive increases in pay might become a thing of the past. Therefore, very little of what has been claimed as a secondary success is necessarily secure.
I turn now from the balance of trade to the Budget deficit and the contribution that the Finance Bill makes to it; to changes in taxation; and to some of the smaller but none the less important points. I entirely agree with the noble Lord, Lord Boyd-Carpenter, which is something that does not often happen. I believe that we should attack the tobacco industry with all the force that we have. I fail to see why it should not be taxed very heavily indeed. Surely we could gain more money in that direction.
Very little mention has been made of mortgage interest relief. There is some movement in the Finance Bill in that respect. Nevertheless, we must grasp the nettle. We cannot abolish mortgage interest relief straight away, but we could do a great deal more to cut back on it. Even at current interest rates, mortgage interest relief is costing the Government just under £5 billion. I can hear mutterings from the Front Bench to the effect that I may be £1 billion or so out in my calculation. At any rate, it is costing the Government a great deal in tax which could be collected.
Further, mortgage interest relief distorts the working of the economy in a variety of highly undesirable ways. It has been the cause of the excessive investment in housing which has trapped so many
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people who now find themselves in debt. I am rather surprised that there has been no mention of the problem of debt in the country, which is one of the big underlying factors holding back any recovery that we may be able to achieve. I ask the Government to take their courage in both hands and get together—and why not?—on a three-party basis to see what can be done about mortgage interest relief and how we could save money in that area.
I move on now to the question of unemployment. We cannot allow the present level to continue. It is said to be 2.9 million. I believe that everyone recognises that the real figure is considerably greater. That is not necessarily for reasons such as fiddling the figures but because there are many people, especially older women, who are not working but who would do so if the jobs were there. That is the true definition of unemployment, not the numbers of people who are or are not claiming unemployment benefit. It is a most appalling waste of wealth-creating resources and a very heavy cost on the Budget and to British society as a whole. It also has the most frightful social consequences, many of which are extremely costly.
I had the opportunity—if that is the right word —to talk to the governor of one of our newest prisons, dealing with the most difficult and dangerous prisoners. I am informed that it costs £1,000 a week to keep people of that level in prison. Anything that can get people into employment and help prevent the development of an underclass and all that goes with it is not only a top social priority; it is a top economic priority. We must start tackling the problem at its root.
In the longer term—and there is very little reflection of the longer term in the Finance Bill—we shall be up against the most tremendous competition from East Asia. China's growth rate (although its statistics are probably even worse than ours) is said to have been 12 per cent. last year. Well, even if it is not 12 per cent., it is certainly very high. Like other Members of this House, I once had the privilege of teaching people from East Asia. They are alarmingly able and hard working. The competition from them will be most alarming; indeed, it already is. They will take markets that we already have. But there will also be opportunities for people who have what it takes to get into the new markets which their success will create. But with our present level of untrained and uneducated people, we shall not be able to do so. That is the most serious long-term problem that faces all of us.
Any amount of money spent on reducing the number of people who will not be capable of competing must be money well invested. We want investment. I do not mean capital expenditure or expenditure on consumer goods. Let us not begin to think of recovery by that route. As many other noble Lords have said, we want investment in infrastructure but, above all, we need investment in people.
6.18 p.m.
Lord Eatwell: My Lords, as the end of the recession is at last in sight as well as the end of today's debate and, indeed, the end of the parliamentary Session, it is

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surely time to stand back and ask, at least with respect to the recession: what went wrong? How did the policies of the past decade come to precipitate such a deep and enduring recession? What mistakes were made and how are they to be avoided next time around? Further, what new policies are to be advanced to ensure that the British economy is not launched on another cycle of boom and bust? I believe that it would be most helpful to your Lordships' House if, in his concluding speech, the noble Earl could give some indication of what he believes were the erroneous policies of the past decade and what new policies are now planned to be put in place to prevent all that happening again.
I wish to focus on three aspects of the British economy which bear directly on the Finance Bill and which I believe are highly relevant to the overall performance of the British economy up to the end of this century. I take the injunction of the noble Baroness, Lady Seear, to look at the longer term. Those three aspects are, first, inequality, secondly, unemployment, and, thirdly, industrial performance and competitiveness. It may surprise your Lordships that the fiscal deficit is not included in that list as the deficit, and in particular the Red Book projection of a government deficit rising to £50 billion for this year, has dominated the debate. The reason the deficit is not included in my list is that I suggest to your Lordships that the deficit is a symptom of economic failure but it is not the disease. If we concentrate purely on the symptom without referring to the disease, we are unlikely to achieve the economic cure that the British economy requires.
The deficit is high because Britain has an unequal, slow growing, broadly uncompetitive economy, with high unemployment. What is most disturbing about the Finance Bill is that the Government not only seem to regard the deficit as the disease—and have been most successful in convincing many economic commentators of that view—but also that the measures which the Government have outlined in the Bill are, I suggest, likely to make the underlying deficit worse rather than better.
Of my three aspects I wish to deal first with inequality and the relationship between inequality and the Finance Bill. It is perhaps one of the most shameful aspects of the Government's economic record over the past decade that there has been a marked increase in inequality in this country. Inequality in relative pay is now greater in Britain than at any time since 1886. Moreover, during the past 14 years, at a time when the top 10 per cent. of households have seen an increase in their real incomes of over 50 per cent., the bottom 20 per cent. of households, according to the Department of Social Security, have seen their real income fall; that is, their real income is now lower than it was in 1979. Much of the increase in inequality is due directly to government policy. Let us, for example, consider the impact of the tax-cutting policies which the Government pursued in the 1880s. Between 1979 and 1992—
Noble Lords: The 1980s!
Lord Eatwell: My Lords, did I say the 1880s? The level of inequality is so reminiscent of the 1880s that I think your Lordships will understand why I made that slip, Freudian or otherwise. Of the £31 billion in tax cuts which have been given away (returned to the taxpayer, if you like) between 1979 and 1992, 27 per cent. of all that money, or just over a quarter, went to the top 1 per cent. of income earners and 15 per cent.—just about half of what went to the top 1 per cent.—to the bottom 50 per cent. of income earners. So we have a situation in this country today where the bottom 10 per cent. pay 43 per cent. of their incomes in taxes and the top 10 per cent. pay 32 per cent. of their incomes in taxes. That is the situation we have. What have the Government done about it in this Finance Bill? The noble Earl produced a staggering assessment of the impact of tax changes on the distribution of income in this country. I believe his precise words were that the impact is broadly neutral across the income scale. I cannot believe that he was serious in making that remark. Let us consider the measures in the Finance Bill.
Take, first, the VAT on fuel. The poorest 10 per cent. of households spend over 13 per cent. of their income on fuel and the richest 10 per cent. spend 3.5 per cent. of their income on fuel. How can that be a measure which is broadly neutral? Then, at the time of the Budget, there was the increase in national insurance contributions, flagged up from 9 to 10 per cent. Could there ever be a more cynically regressive tax increase? There will be 500,000 people paying that increased tax on their incomes who are even too poor to pay income tax. And there are, of course, no allowances against national insurance contributions. Moreover, national insurance contributions stop on incomes of a little over £20,000. The upper earnings limit means that the tax increase will not apply to incomes over and above £20,000.
Then there is the freezing of tax allowances which keep 200,000 low-paid people in taxation when, if the real value of the tax allowance had been maintained, they would have been taken out of taxation altogether. All those measures represent a continuation of this Government's assault on the poor and on the average family and of their cosseting of the better-off. What did we hear the Chancellor of the Exchequer say down in Christchurch the other day? He feels that the VAT net needs to be widened. Perhaps it would he helpful if the noble Earl would tell us what the Chancellor of the Exchequer has in mind. Where is VAT to apply next?
If this massive increase in inequality has been the Government's policy, what has it achieved? I suppose it is just a rather unfair debating point to say that since the tax cut for the better-paid in 1988, the economy has been in almost permanent recession. No one, however, can possibly argue that the increase in inequality has achieved a superior performance for the British economy. Moreover, inequality, as we know, tends to perpetuate low skills and low educational levels. But of course the prime cause of inequality in Britain today is not just the Government's fiscal policy but another aspect of government policy; namely, the policy of high unemployment.

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This is my second theme. Of course, we all welcome the falls in unemployment which have occurred over the past five months. However, we must remember, as several noble Lords have said during the debate, that the level of unemployment remains unacceptably high. We must also remember that each person who is unemployed costs the Exchequer £9,000 per year. Therefore the overall bill of the current level of unemployment is running at £27 billion. That is the cost of unemployment.
It is worth asking what is the Government's attitude to unemployment now. The former Chancellor of the Exchequer told us that it was a price well worth paying. Is that still the position of the Treasury with respect to unemployment? I rather suspect it is. I wish to refer your Lordships to the evidence given by the chief economic adviser, Professor Alan Budd, on 25th November 1992 to the Treasury and Civil Service Committee of another place. Professor Budd told the committee that a level of unemployment of 7 to 8 per cent. was natural in Britain. That constitutes roughly between 2.1 and 2.4 million people unemployed. Moreover, Professor Budd told the committee that unemployment could not now be lowered below that level without inflation accelerating uncontrollably. May we therefore assume, as it is the Government's policy to maintain low inflation, that it is not the Government's policy to lower unemployment below 2.1 to 2.4 million at best? Will the noble Earl confirm Professor Budd's remarks to the Treasury and Civil Service Committee and will he tell us whether they represent government policy?
What has the Finance Bill done for unemployment? There is new money for unemployment schemes in the Finance Bill totalling £125 million, which we must welcome. But we must compare that with the cuts of £1.2 billion which have been made in spending on the unemployed and training of the unemployed since 1990. What a miserable record—cuts of £1.2 billion and an increase in this Finance Bill of £125 million.
The problem is that unemployment is seen by the Government as a major cost upon the economy with no recognition that it is one of the causes of our current economic malaise. It is a waste of resources. There is a lack of training. Not only has training been cut but training targets are below those of our competitors. It is that continuous lack of utilisation of one of our most important resources, the one unique resource we have, in an era when capital and techniques are mobile around the world, which diminishes the productive capacity of this economy and diminishes the strength of the economy.
My third aspect is that of competitiveness. The Red Book states that the current account deficit is expected to rise to £17.5 billion this year and to go on rising thereafter. I suggest that the failure to compete, measured precisely by the current account deficit, is the central failure of the Government's economic policy. It is a central failure not only because it represents the lack of competitiveness of British industry but also because it is a significant drag on the Exchequer. A high level of spending on imports means that jobs are created abroad instead of being created at home and, moreover, that tax revenues go to
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foreign governments while our own government have to pick up the tab for unemployment. A significant cause of the budget deficit is the lack of competitiveness embodied in the current account deficit. The Government are in the red because Britain is in the red.
What measures do we find in the Finance Bill which might tackle the general lack of competitiveness in the British economy? There is what we might charitably call the accidental policy of devaluation, which has been referred to by several noble Lords. It would be helpful if in summing up the noble Earl answered the questions asked by his noble friend Lord Brabazon of Tara and told us what the Government's exchange rate policy is now. Perhaps we may ask him the broader question. Are the Government in principle in favour of managed exchange rates or are they in principle in favour of free floating exchange rates?
I should like to suggest to noble Lords, as I believe the noble Baroness, Lady Seear, hinted in her remarks, that the exchange rate is not the whole answer to the competitiveness problem. If we do not invest in our industry and if we do not increase our competitiveness by improving the quality of our training, our research and our design as well as the quality of our machinery, then in the medium term no exchange rate is sustainable.
Yet what we have seen over the past five to 10 years has been a significant bias in the British economy against investment and in favour of consumption. For years and years in the British economy, roughly 60 per cent. of GDP went on personal consumption. That was almost an historic concept. Then, in the mid-80s it started to rise and it has now risen to 67 per cent. of GDP. That sharp increase in consumption, fostered by the policies of the Government, has resulted in a counterpart squeeze on investment and a deterioration in the foreign balance. In the current recovery we find the same story being repeated, with consumption growing at an average rate of 2.4 per cent. and investment growing at an average rate of only 1.2 per cent.
What are the Government going to do to re-balance the economy and to increase the volume of investment? Will the investment allowance introduced in last year's Autumn Statement be extended beyond October? What about the Government's suggestion last year that they were going to encourage greater private investment in public sector enterprise? Has there been any greater increase in private investment in the public sector? What proposals do the Government have for ensuring the rate of return which private investors will receive when investing in the public sector? And what measures do the Government propose to increase expenditure on research and development and on training? I believe that this Finance Bill is seriously deficient in all those areas.
I come finally to the question of the deficit, which is the result of all that mess. We have now a government policy which appears to be dominated by fear of the deficit. The reaction is to attack the weakest in society and to make them pay for the mistakes of

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the Government. The Government's policy towards the welfare state and in their spending review is one of cutting expenditure. It is not a policy for social justice.
That attitude towards cutting the deficit, an attitude which is now shared, regrettably, not only here but among all our partners in the G7, is seriously reminiscent of the attitude prevalent in the 1930s when spending cuts, wage cuts, unemployment and growing deficits chased each other downwards in a continuous vicious spiral towards the disaster at the end of the 1930s. What the G7 now desperately needs is a co-ordinated expansionary policy among all the industrial countries.
President Clinton has called for a summit on unemployment. Can the noble Earl tell us what proposals the Government will be taking to that summit on unemployment? What proposals does the Treasury have for creating jobs around the world instead of simply cutting government expenditure, which will cut demand and is likely to stifle a fragile recovery when it has barely begun.
This is a Finance Bill which fosters inequality. It does nothing to cut unemployment by building the skills of the labour force. It does nothing to foster the investment boom which Britain so desperately needs. It is a Finance Bill which fails to face up to Britain's economic problems and fails to present a new economic strategy.
6.37 p.m.
The Earl of Caithness: My Lords, we have had a full and most interesting debate on the Bill before us. It has been a unique opportunity for your Lordships because, as some noble Lords mentioned, my right honourable friend the Chancellor will be presenting a further Budget on 30th November. Therefore, your Lordships have had the privilege of having the opportunity to present your views, which I know my right honourable friend the Chancellor will read with great interest.
I must also agree with my noble friend Lord Boyd-Carpenter about the high quality of the debate. I noticed in particular that my noble friends Lord Stewartby and Lord Clark of Kempston and the noble Lord, Lord Houghton of Sowerby, wanted further debate on the economy, not merely on the Bill. I would welcome that at any time, particularly when the noble Lord, Lord Desai, says that the Budget is not too bad and the noble Lord, Lord Peston, thinks that things are getting better. I am game for any debate on the economy.
I am particularly grateful to those who have had the opportunity to serve in another place who say that your Lordships' House is the right place to discuss these matters. Some of us have been saying that for a long time. I hope that those of your Lordships who have friends at the other end of the building will convince them that we have been right all along.
I was amazed by the speech of the noble Lord, Lord Eatwell. I was longing to take his blinkers off. He concentrated on the United Kingdom. Until the last moment of his speech he did not even look towards Europe, let alone anywhere else. The noble Lord,
1228
Lord Desai, did much the same. They talked about boom and bust in this country and seemed to ignore the misery which is present in other parts of the world —in America, in the rest of Europe, in Japan, in Australia and New Zealand.
The other point which struck me about the speech of the noble Lord, Lord Eatwell, was that he seemed to be longing to squeeze the businessmen, the entrepreneurs, the wealth creators and those who create employment, until the pips squeak. He was longing to go back to the miserably failed policies of the 1970s. However, I was grateful to the noble Baroness, Lady Seear, because she at last raised the question of the competition that faces this country: the competition that is coming from the Far East. I had the privilege of being in the Foreign Office and saw that competition coming three years ago. I told my right honourable friend the Foreign Secretary just what a threat we faced then.
The noble Lord, Lord Eatwell, said, "Yes, we have to be competitive". How right my right honourable friend the Prime Minister was not to allow us anywhere near the social chapter in Europe. The fact is that we are uncompetitive in Europe; that is our major flaw. That is our great handicap for the future; and although Europe is a mature society with high labour costs, until it starts to become competitive with what is coming from the far side of the world we always have serious problems in this country. It is no good just building a fortress around Europe hoping that we shall survive. We shall not.
The noble Lord, Lord Eatwell, and other noble Lords referred to unemployment. There is not a single noble Lord in this House who would not agree that unemployment is too high. We all want it lower. But the noble Lord signally failed to tell your Lordships that unemployment is falling in the UK. It is rising in every other major European country.
Let me turn now to the ERM. I can reassure the noble Lord, Lord Peston, that the Government continue to monitor the exchange rate as one of a number of indicators which guide monetary policy. The noble Lord will be delighted about that and I hope he will cogitate on it when he takes a very happy holiday in France. We wish him a good exchange rate at the appropriate time both in France and on the way back.
The noble Baroness, Lady Seear, was quite right to draw your Lordships' attention to the role that the ERM played in getting inflation down. Your Lordships must, of course, recall the five point cut in interest rates while we were in the ERM. There was a further four point cut following our leaving the ERM.
The noble Lord, Lord Peston, referred to the 1 per cent. increase in employees' national insurance contributions announced in the Budget Statement in another place. That measure forms an important part of the Government's revenue-raising strategy, raising an additional £1.75 billion in 1994–95 and £2.1 billion in 1995–96. The growing deficit in the national insurance fund which will require a Treasury grant of £7.5 billion this year to bring it into balance made an

1229
increase in contributions essential and the Government thought that it would be wrong to impose the burden of that increase on employers.
The noble Lord, Lord Peston, also referred to an article in today's Financial Times. I am not a great believer in what one reads in the press but I can assure him that it is the Government's intention to maintain the mortgage tax relief. My right honourable friend the Chancellor of the Exchequer, in the Treasury response to the report of the Treasury and Civil Service Committee made that clear. However, I noted what the noble Baroness, Lady Seear, said on that point.
The noble Lord, Lord Peston, also asked me to confirm the announcement of my right honourable friend the Chancellor that VAT on domestic fuel and power would begin at a rate of 8 per cent. in April 1994, rising to the standard rate of 17.5 per cent. in April 1995. I can confirm that that is the Government's intention. It is provided for in Clause 42 of the Bill before us. Again, it was a point to which the noble Lord, Lord Eatwell, referred, but of course he failed to mention that I had said in my opening remarks that there would be extra help for those on low incomes.
While talking on the question of energy, of which he is very much a recognised expert in your Lordships' House, the noble Lord, Lord Ezra, talked about the benefits of diesel. The duty differential with leaded petrol, including VAT, has risen from 5.8p to 6.4p per litre. However, I question whether the environmental case for or against diesel has been proven as he would believe. Diesel engines emit less greenhouse gases per mile but more per litre, but catalytic petrol engines emit less nitrogen oxides and particulates. Diesel running costs per mile in any case are lower due to the greater economy.
While on fuel duties with regard to petrol, I can confirm to my noble friend Lord Brabazon that the intention is to increase road fuel duties on average by at least 3 per cent. a year in real terms in future budgets. But as my noble friend will know, one cannot be too specific because each budget must be looked at and the freedom must he there for my right honourable friend the Chancellor of the Exchequer to do what he thinks fit at the right time. The reason that we have given this long-term duty commitment is to make a major impact on the United Kingdom's carbon dioxide emissions. It is intended to encourage manufacturers and drivers to greater fuel efficiency. We should be able to reduce CO2 emissions by about 1.5 million tonnes of carbon by the year 2000 and a further 1.5 million tonnes from VAT on domestic fuel and power. That is a major commitment towards what was agreed at Rio at the climate change conference. We estimate that we need to save some 10 million tonnes of carbon to get the year 2000 emissions back to the 1990 levels. About 20 per cent. of the total carbon emissions come from road transport. Therefore, we are now two-thirds of the way there.
I was sad that no one from the Liberal Benches commented on that point. When I was Minister with responsibility for the environment, I remember always being told about the necessity to get carbon dioxide
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emissions down and to increase fuel duties. Now that we have done so, the Liberals are amazingly quiet on that subject.
The noble Lord, Lord Ezra, suggested more action to improve insulation standards in homes. The Energy Efficiency Office has a budget for this year of nearly £70 million. That is 12 times the level of 1979–80. Some £40 million is being spent on the Home Energy Efficiency Scheme which provides grants for low-income households. The Government also take forward a number of ideas in the European Community context: for example, standards for energy labelling on new appliances.
The noble Lord, Lord Ezra, also questioned our investment policy in the 1980s. I am sure that he will recall that in the 1980s we had the fastest business investment growth of any G7 country except Japan. If he looks further back, he will recall that in the 1960s and 1970s we were second from bottom of the G7 table—quite a major change round. Of course, there has been some fall since the onset of the recession but, even at its forecast trough in 1994, business investment will be 14 per cent. of GDP; and that is higher than any year between 1970 and 1986.
The noble Lord, Lord Ezra, raised the question of petroleum revenue tax. I had thought that he might do so and I spent some time wondering about the outcome of the last licensing round. That took place after the Budget. I can report to him that the outcome was a successful licensing round and there is continued high interest in the North Sea. We have talked to a number of companies that are responsible for a substantial share of the activity. They say that they have no plans to cut exploration further. Therefore, although the noble Lord might fear that there will be a reduction in exploration, that has not been shown to date. We shall continue to look at that important area.
My noble friend Lord Boyd-Carpenter wishes to increase the tax on cigarettes. He was backed by the noble Baroness, Lady Seear, who wants to attack cigarettes with all vigour. My noble friend Lord Brabazon of Tara would not agree with either my noble friend Lord Boyd-Carpenter or the noble Baroness. Rather than referring to tobacco duty, my noble friend Lord Brabazon of Tara spoke about alcohol duties. The Customs are keeping the position on legal cross-border shopping under review, and the situation with regard to illegal bootlegging. That could be a problem if we raised tobacco duties more than we have done. It is a matter that needs to be borne in mind.
What is clear at the moment is that the revenue losses that were anticipated are in line with our expectations. It does not look as though we are on the point of diminishing returns, as my noble friend Lord Brabazon suggested, but again it is something that we need to continue to monitor. However, my noble friend will he delighted to know that new powers have been taken to impose severe penalties for offences of bootlegging: up to seven years in prison and unlimited fines, as well as confiscation of goods.
I was surprised that my noble friend Lord Brabazon wanted further tax approximation within the European Community. I can understand that from

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the point of view of the Brewers' Society that might be quite a good idea, but I know that in his heart of hearts my noble friend would not wish in any way to tie the hands of my right honourable friend the Chancellor of the Exchequer who needs, as every Chancellor does, the right amount of flexibility.
My noble friend Lord Boyd-Carpenter raised the important point of inheritance tax. He was backed by my noble friend Lord Clark of Kempston in his call for this to be abolished with regard to owner-occupied properties. I shall, of course, put that proposition to my right honourable friend the Chancellor of the Exchequer. I can say to my noble friends that inheritance tax now affects less than one in 30 estates. If the building is of outstanding historical or architectural interest, conditional exemption from inheritance tax can be claimed when the property is passed on following the death of an owner, provided that in return the new owner agrees to maintain and preserve the property and provide the public with reasonable access.
I am grateful to the noble Lord, Lord Bruce of Donington, for giving me warning yesterday that he would raise the case of the draft budget in the European Community and the lack of time that there is to discuss that. That is a question for the House to decide, and in particular for the European Communities Committee of this House. One always has had a problem of timing on this matter. As the noble Lord, Lord Bruce of Donington, will know, it is not until mid-June that the Commission publicises the preliminary draft budget in detail. It will of course have provided an overview in about May. On 22nd July the Budget Council gives the budget a first reading. It then goes to the European Parliament, where it is discussed at its first meeting in about the last week of October. It comes back to the Budget Council in mid-November, and back to the European Parliament in mid-December. This year is no different from any other year. We have always had a problem, but I will draw the noble Lord's remarks to the attention of the noble Lord, Lord Boston of Faversham, because it is a matter that the European Communities Committee of this House might wish to look at.
The noble Lord, Lord Houghton of Sowerby, expressed concern over the operation of VAT penalties. The noble Lord will be pleased to note the introduction of a new system of mitigation of VAT penalties set out in Schedule 2 of the Bill. The noble Lord also raised the question of market testing. I am sure that he would agree with me that it is important that the government services are delivered as efficiently and effectively as possible. We owe that duty to the taxpayers and to the population as a whole. In some areas that means opening up public services to market discipline by inviting outside tenders. That, I can assure the noble Lord, has already delivered substantial savings, although I understand the very real concerns that people have when they are faced with a situation such as market testing.
The noble Lord, Lord Rix, raised the question of charities. It is worth recalling that although VAT on
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fuel and power will be charged to charities, they are contributors to carbon dioxide and to the pollution that that causes with regard to global warming. So I think it is equitable that they too suffer what we as individuals will have to suffer. But charities were by no means forgotten in the Budget. Together with payroll giving and gift aid, about £30 million was granted to charities in a full year. It is worth recalling that, in total, between direct and indirect tax reliefs, the value to charities is now about £1.3 billion a year. That is a substantial sum of money from which the charities benefit.
My noble friends Lord Clark and Lord Chelmsford raised the important question of taxation on the life assurance industry. Again, the timing of this debate is very useful, so far as my right honourable friend the Chancellor of the Exchequer is concerned, in that I know he will read with great care what my noble friends had to say. However, I can say to my noble friend Lord Clark that on equalisation reserves my honourable friend the Financial Secretary announced last week in another place that a consultative document will be issued this week inviting comments on whether there should be a regulatory requirement for, and tax relief on, equalisation reserves for certain volatile types of insurance business. I have arranged for copies to he placed in the Library of the House.
On another concern of my noble friend Lord Chelmsford, I know that the tax treatment of life assurance business conducted here with non-resident individuals is seen by some in the industry as an impediment to full participation by UK insurers in the single market. The Government are currently studying the report made last autumn by the Association of British Insurers.
In conclusion, I would say that the economic context in which we are considering this Bill is steadily brightening. The main economic indicators published in July are all moving in the right direction. To find such unanimous improvement as we have seen this month would have been to go back over five years. The Budget of 16th March and the Bill that we are considering today have already made no small contribution to the restoration of confidence and brightening of prospects. Without this Bill every sector of our economy would have suffered from the cloud of uncertainty that would have hung over our public finances.
My right honourable friend the Chancellor of the Exchequer will deliver the first unified Budget on 30th November, bringing tax and public expenditure together for the first time in this country—something that all of us have welcomed. He has made it clear that he will look carefully at the economic situation at the time and take whatever action is necessary on both sides of the account to sustain the recovery and continue bringing the budget back towards balance in the medium term.
My noble friend Lord Boyd-Carpenter said that tax increases will damage recovery and that we must cut spending. I am sure that he acknowledges that the public spending limits agreed in the Autumn Statement are the toughest for 15 years. We are determined to stick by the limits. We cannot say that

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we shall not raise taxes. That is because we recognise that the greatest threat to recovery will be to fail to bring the public finances back to health.
To the noble Lord, Lord Peston, I say that we have come through a very long recession. Of course output is lower and unemployment much higher than we want, but we now have the best possible foundations for growth. Retail prices, producer prices and average earnings are rising at the slowest rates for a generation. At 6 per cent. interest rates are at their lowest for 15 years and are the lowest in the European Community. Productivity growth is the fastest for over six years and unit wage costs are falling at a record rate. And, my Lords, we are not to be tied to the social chapter. The Bill before us today makes a vital contribution towards our goals. I commend it to the House.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 22nd July), Bill read a third time, and passed.

Refugee Council
Lord Ennals Lord Ennals rose to ask Her Majesty's Government what steps they will take to assist the Refugee Council in its present financial difficulties.
The noble Lord said: My Lords, I first declare an interest, though not a pecuniary one. I have been involved with the Refugee Council since its inception and was involved with its two predecessor organisations for over 30 years.
The British Refugee Council is a service organisation to help refugees who come to this country for safe haven and to enable and assist them to become part of our society. It is an admirable organisation, with a very fine record of service. I am proud that my noble friend Lord Clinton-Davis is its current chairman. If the British Refugee Council did not exist, the Government would either have to create something similar or do the work themselves.
Tonight I want to mention the problems that have been created by a very serious cut in public funding for the Refugee Council. The council is an umbrella body whose members include the principal charities supporting refugees both in this country and overseas. In the overseas field it brings together such organisations as Oxfam, Christian Aid, Cafod, Help the Aged and Save the Children Fund. Here in Britain it provides essential services to people who come to our country to escape from persecution, human rights abuses and violent conflict. In the past year its advice and referral team dealt with as many as 9,446 cases of people recently arrived in Britain from some of the worst trouble-spots in the world. It has provided supportive accommodation for around 500 particularly vulnerable asylum seekers. It has helped more than 70 refugee communities to develop their own services in areas where they live. It has helped the development of services for refugees throughout the country.
I believe that a significant new piece of work in recent times for the Refugee Council has been the establishment of hostels for accommodating Bosnians
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who have come to Britain having been released from the infamous detention camps in the former Yugoslavia. It is an efficient, professional and caring organisation which performs well the task for which it was designed.
However, our concern is over the massive cut in the resources available for the council's training and employment centre. At the beginning of April this year the Refugee Council was told that the support from the South Thames Training and Enterprise Council (its local TEC) for the current financial year would be about £500,000 less than the support it received in 1992–93. That is a massive sum. It represents a cut of some 46 per cent.
The situation is made worse by the fact that the Refugee Council is able to use the support from the TEC to claim matching moneys from the European Social Fund. The loss of £500,000 from the TEC will lead to a further loss of around £400,000 from the European Social Fund. So it is a devastating blow to come at one time, and indeed after the financial year has started.
Quite apart from the inevitable redundancies, the result will be that something like 150 refugees will not receive the employment training which they need and which the Refugee Council had planned to provide for them this year. The people most likely to be denied training opportunities are those whose need for training is greatest. The more training that people need, the more expensive is their training likely to be and the more likely they are to suffer under these circumstances. We must remember that we are talking about refugees who have come from extremely distressing circumstances and are trying to come to terms with life in Britain. At a time when events in Yugoslavia and Somalia have focused public attention on the needs of refugees, there is surely something wrong when Britain's major charity for helping refugees is treated in that way. I believe that it must be of concern to the Government.
To make matters worse the Refugee Council was given notice of the cuts several days after the start of the year to which they referred. TECs rightly expect that the training providers with whom they contract will manage training programmes efficiently and effectively. But to impose a 46 per cent. cut retrospectively makes nonsense of attempts at sensible planning and indeed makes nonsense of the discussions that the TEC has had with the Refugee Council on its planned development. Although the TEC has subsequently offered some extra money to fund the transition, it is a small sum and the funds do little to lessen the severity of the cuts.
The cuts appear to be the result not, I believe, of some political decision directed against the support available to refugees. They are the result of an ineffective funding system and sheer muddle. If there were any serious political commitment to the training of refugees, we should never have been made dependent upon a system which is so unsuited to the Refugee Council's needs. Even if the problem had arisen, I should have thought that there would have

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been ministerial action to get around the bureaucratic difficulties. I wish that that was the case but it has not been so, as I shall prove.
When the TEC system was first proposed several years ago, the Refugee Council expressed concern that refugee training —a national responsibility because refugees are to be found in many parts of the United Kingdom—would be left to the mercy of local TECs, which might work to their own different agendas. Indeed, in October 1991 when Jim Lester MP and members of the Refugee Council staff met with Robert Jackson, who was then Parliamentary Under-Secretary of State at the Department of Employment, the Minister acknowledged the special nature of the employment and training needs of refugees and the difficulties of addressing them in local terms. At that meeting in 1991 the Refugee Council was told of plans to designate one TEC as a lead TEC for refugees, thereby in some way protecting the funds allocated for the training of refugees.
We were assured that, although the council need have a contract with only a single TEC, it would be considered a London-wide provider of training to refugees. Nothing was said to the Refugee Council to suggest that the situation was different from that described by the Minister until early April this year when the bombshell of a 46 per cent. cut arrived. It appears that the South Thames TEC's sudden decision to divert money away from the council has been based on local factors concerning training needs in the South Thames TEC area. It has nothing at all to do with the training of refugees. We have not been treated as a London-wide provider and the assurances given by Mr. Robert Jackson have not been honoured.
As soon as we were told of that body-blow to our refugee training programme, Jim Lester MP and representatives of the council met in April this year with Patrick McLoughlin, the Parliamentary Under-Secretary of State. The Minister refused to accept that any assurances had been given by his predecessor. Instead, Mr. McLoughlin maintained that the contract with the Refugee Council should be based on the local labour market as narrowly seen by the South Thames TEC. That cannot be right. It makes no sense at all and the Minister must agree when he considers it. I believe that it was patently unreasonable.
So Jim Lester wrote to the noble Viscount, Lord Ullswater, who will reply to the debate. By then he had taken over Patrick McLoughlin's responsibilities. I have to say that the response was even more negative. Positive suggestions of how problems might be resolved were ignored and the Minister even refused a meeting offered by the Refugee Council. I have before me his letter, in the last sentence of which he writes:
"it would not be appropriate for me to intervene".
I find that quite extraordinary. If in this year, when refugees are almost at the head of the world's agenda, the Minister feels that it is not appropriate for him, as a Minister, to intervene, then I do not know under what circumstances Ministers should intervene.
I believe that the Refugee Council has been badly treated by both the South Thames TEC and Ministers who have shrugged off the commitments of their
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predecessors and refused to face the responsibilities of their office. More importantly, refugees have been badly treated. The Refugee Council was established to look after people in very special need because of the world situation. Help has been denied to people who have come to this country in the most difficult of circumstances and who, with a little help, could make their contribution to our economy. To deny them training is not good enough. Our country should be ashamed to put them in that situation.
The Refugee Council must perhaps accept that the damage has been done for 1993–94; courses have been cancelled; people have been declared redundant; refugees who were entitled to training and needed it will not receive it. But I urge the Minister, in this debate and afterwards, to consider whether he can make amends in 1994–95. In my view it is not good enough for Ministers to shrug off responsibility for what is a national response to an international crisis. I plead with the Minister to give a helpful and considered reply.
7.11 p.m.
Lord Tordoff: My Lords, I am extremely grateful to the noble Lord, Lord Ennals. I too must declare an interest. The noble Viscount, Lord Ullswater, will face a three-pronged attack —if that is the right word—not only from the chairman of the Refugee Council and from the noble Lord, Lord Ennals, who is chairman of one of the committees, but also from myself. I declare that I am chairman of the Middle East Committee of the Refugee Council.
I shall be extremely brief. The noble Lord, Lord Ennals, set out the case extremely well and no doubt the noble Lord, Lord Clinton-Davis, will add to it. My position is simply to say "Hear, hear". I believe that the Refugee Council has been extremely badly treated.
The job that I seek to do with the council, in a rather amateur way, is to help to co-ordinate the activities of the various agencies and act as an information exchange in matters relating to the Middle East. A couple of years ago I had the privilege of travelling to Iran to survey the refugee camps of people from Iraq in both the north and south of that country. It may have been of some interest and help to your Lordships' House and indeed to the Government to have a first-hand account of what was happening in that troubled area where few people were allowed to enter, at that time. The Government got fairly good value out of it.
The truth is that the Government set up a system which failed. The TECs were central to the strategy which the Government understood and, it seemed, underwrote, at least morally. And the TECs led the Refugee Council into a cul-de-sac from which there is apparently no return. I do not blame the South Thames TEC. It clearly has problems of its own, as do all the TECs. I know that my noble friend Lady Seear had problems in the funding of training from the TECs concerning the various trusts with which she is associated. But the idea that the Government can totally wash their hands of the problem is unsatisfactory.

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In his letter of 7th June the noble Viscount, Lord Ullswater, said,
"Whilst I understand the Council's disappointment"—
It is not disappointment; it is devastation—
"at not receiving the funding they would like, I must emphasise that I cannot become directly involved in the contract negotiations between Training and Enterprise Councils and training and enterprise providers".
We understand that. But that is not the problem; it is only the mechanics of it. The problem is that the Refugee Council has been seriously undermined in its activities by the withdrawal of funding by the TECs and the consequential removal of funding from the European Community. Because the Government said that that was the way to do it, they have the responsibility for putting matters right.
It is no good the noble Viscount saying that he cannot become directly involved. He is directly involved. The Government are directly involved. The Home Office is directly involved. It is no good playing inter-departmental games. People's lives and livelihoods are at risk, not only in this country but also overseas because of our work in co-ordinating activities of information exchange between the various organisations working in that field.
I hope that I have made my position clear. The Government have a huge responsibility to assist the Refugee Council out of the mess in which it has been placed through being let down by the system the Government devised.
7.15 p.m.
Lord Clinton-Davis: My Lords, as chairman of the Refugee Council I specifically asked my colleagues to permit me to participate in this debate. I am most grateful to my noble friend Lord Ennals for speaking so eloquently this evening and for raising the issues which are central to our considerations. I thank my colleague in the Refugee Council, the noble Lord, Lord Tordoff, also.
At the outset I want to say that the Refugee Council has a number of politicians of all parties involved in its activities. I am glad that that is so, and long may it remain so. I thank them all for the efforts that they made on behalf of the council to try and find a way out of this impossible situation. I hope that the Minister will concede that it has arisen through no fault whatever of the Refugee Council.
The Parliamentary Under-Secretary of State, Department of Employment (Viscount Ullswater): My Lords, that is not right.
Lord Clinton-Davis: My Lords, I believe the noble Viscount said that that is not right. He will no doubt explain how the Refugee Council is culpable. Nowhere in the correspondence we have had with Ministers, and in particular with the noble Viscount, has it been suggested that the Refugee Council is culpable for the situation which has so regrettably arisen.
I had not wished this debate to result in my casting blame upon the Minister. That is not my purpose, although one has to set the framework for the debate. I am sure also that it was not the purpose of my noble friend Lord Ennals, nor of the noble Lord, Lord
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Tordoff. I am particularly sad that the Minister made that brief sedentary interruption. It may be helpful to me if he were to enlarge upon it at this stage as an intervention. I can then perhaps deal with the situation. It was not a helpful interruption. I shall give way to the noble Viscount willingly if he is prepared to give further and better particulars now of the so-called culpability of the Refugee Council in the terrible situation that has arisen. I can then deal with it.
Viscount Ullswater: My Lords, it would perhaps be proper for me to answer the concerns of the noble Lord. But as this is a relatively short debate on an Unstarred Question, it may be more helpful to the House if I give just a single answer.
Lord Clinton-Davis: My Lords, that is not a helpful intervention. Surely, when we are dealing with a situation which is not a party political issue but which involves the well-being of people who are the most vulnerable in society—refugees—and the affairs of an organisation which is committed and dedicated to helping them, the Minister should recognise that, when he has asserted something which has never been asserted before in the correspondence in which he and his predecessor engaged—namely, that the Refugee Council is in some way culpable—it would be helpful for him to enlarge on it. I can hardly deal with the matter after he makes his speech. I can perhaps intervene when he gives way, but that is an unsatisfactory way of dealing with the matter. I ask him to reconsider what he said. If he has further and better particulars of culpability on the part of the Refugee Council, let him say what they are.
The Minister declines to reply. Perhaps that shows the paucity of his case. I think, if I may say so, that he would have done the House and himself a rather better service if he had responded to what was a perfectly reasonable intervention.
It is a desperately cruel irony that we should be having to debate this issue tonight. Just think about the background —perhaps the noble Viscount is not familiar with it. I suspect that that is the case. According to the Home Office, we have had a flood of refugees into this country. Whether or not the Home Office is right about that, we have a substantial problem which has increased over recent years. The Minister must understand that the problem that has fallen on the shoulders of the Refugee Council has been one of considerable weight.
My noble friend alluded to the burden of responsibility falling on the advice and referral team of the Refugee Council. It deals with nearly 10,000 cases of extremely vulnerable people who have arrived only recently from some of the worst areas of the world where they have been afflicted with violent conflict, persecution and abuses of human rights. What the Refugee Council seeks to do—it does so many things that I shall not try to encompass them: my noble friend alluded to them—is to help in training and to ensure that refugees can play a valuable role in society. It seeks to help people who have enormous talents available to them. Many of them are well trained people who merely need linguistic training. That is one of the main purposes of the training and

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employment centre run by the Refugee Council. I would hope that the Minister would recognise the value of that work. I would hope that he would recognise that that work has provided real hope for many thousands of people over the years, and most particularly over recent months and years. I would hope that he would also agree that this work is of the greatest possible significance not least to our own society in making use of the talents of these people.
As the Minister has asserted that somehow or other the fault of all this lies on the shoulders of the Refugee Council, I had better tell him something about the refugee training that is undertaken. It is estimated that around 85,000 adult refugees live in the capital alone. Unemployment rates in refugee communities are between 65 and 95 per cent., which suggests between 55,000 and 85,000 refugees in London alone. Can that be anything other than an appalling waste of human talent? What these people want is to be helped—and they need help—in rebuilding their lives.
Employment is a crucial factor in enabling them to settle successfully. We need to try to make them become more self-reliant, to enable them to take more control of their lives once again, to restore to them a sense of dignity, of self-value and of a position in society which many were denied in the countries from which they have fled. Employment allows refugees to make a useful contribution to this society and to our economy. Many of these people arrive at the doors of the Refugee Council having held positions of great responsibility previously in their own countries. Many of them are senior civil servants, university lecturers, diplomats, people who have been successful entrepreneurs in developing their businesses. That is the kind of resource that we cannot neglect.
There are three areas in which we must direct more effort. Language is one of the key factors. It is a key factor in obtaining employment, yet the evidence suggests that the availability of language classes is very inadequate indeed. A survey by the language and literacy unit of Southwark College two years ago found nearly 4,000 people on waiting lists for classes in 51 institutions. The majority on waiting lists were refugees and asylum seekers. Several institutions had given up keeping waiting lists because of the level of demand, so the true number waiting for classes is even higher. Most of those people are under 25. There is a risk that we may lose their talents and injure their motivation.
A second area of concern is the validation of the qualifications which many refugees bring from their own countries. Too often experienced people cannot find jobs because their past qualifications are simply not recognised here. The Department of Employment has been making some progress in this area but it is all too slow.
Thirdly, it is not necessary to emphasise the importance of appropriate employment training and advice. A Home Office research group found:
"There is evidence that participation in training schemes had a measurable impact on chances of gaining employment".
Training programmes which are aimed at helping refugees to adapt their skills and to develop the new
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ones that they will require in our labour market are therefore vital—vital to help refugees to settle successfully here and vital to help them make their contribution to our economy. That is the real reason why the work of the Refugee Council's training and employment centre has been critically important. Thousands of refugees have been given training over the years—training in office skills, in computer application and in many professional fields. It has been combined with English training to help them overcome language barriers to employment. That, in a nutshell, indicates how important this aspect of the work of the Refugee Council is.
I turn to the Minister's letter of 28th June. I regard this letter as something which is needing of improvement on the part of the Minister. It is a brush off. It does not give any positive response to the problems that were posed to him by his own colleague, Jim Lester. I have to say in parenthesis that I too was a Minister some years ago. I cannot recall a single instance where I refused to see a colleague in the House of Commons coming from any party. I cannot imagine writing a letter like that indicating that a meeting is purposeless. It is never purposeless because you might learn from it. The Minister, regretfully, has never been in the House of Commons, and perhaps that is a disadvantage. Sometimes being in the House of Commons causes you to recognise the importance of dealing with Members of Parliament who also have responsibility to their constituencies, to the organisations to which they belong and so on. It is quite wrong, with the greatest respect in the world, for the Minister not to have seen his colleague on this occasion. Yes, he had seen Mr. Patrick McLoughlin, but he was requesting another meeting; and it was not given.
In that letter the Minister urged the Refugee Council to make early contact with the London training and enterprise councils to open discussions about funding for next year—very helpful indeed. We were told that by his colleague previously. The Minister must not think that the Refugee Council did not act on that advice, but so far funding has been unavailable. The Minister then questioned the suggestion that Mr. Robert Jackson, a predecessor of his, had given an undertaking or an assurance to the Refugee Council previously about the way in which these matters were to be dealt with. My noble friend Lord Ennals gave chapter and verse about that.
The Minister said in his letter that his understanding of Robert Jackson's suggestion was that he said that South Thames TEC might be willing to act as an administration centre for the co-ordination of training places offered by the Refugee Council but not as a lead TEC for training for refugees. I challenge the Minister to provide the House tonight with the minute of the meeting which took place between Mr. Robert Jackson, Mr. Jim Lester, Mr. Alf Dubs and perhaps others, because I have to tell him that that recollection—if it be recollection at all; the Minister was not responsible for it because he was not there—is completely inconsistent with the evidence that the Refugee Council has. That is a serious charge and the Minister must recognise that. It is denied categorically

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that Mr. Jackson in fact made that suggestion. It is asserted categorically that he said precisely what my noble friend has imputed to him.
The Minister owes it to the House to give chapter and verse if he denies that assertion. This is a very important matter because the word of a Minister is at stake—not the word of this Minister but of Mr. Robert Jackson. The Minister said in the letter that there are several other organisations around the London area, including the South Thames TEC area, which are also providing training for refugees.
I claim that the Refugee Council is the only major specialised agency in the field to which I have alluded. I do not believe that there are any other organisations that would contest that assertion. So it is not as the Minister has suggested in his letter. Does not the Minister agree that the Refugee Council has been badly treated and that this chain of events has led to damage being caused to those to whom the Refugee Council seeks to minister? Does he not accept that there were commitments entered into which have now been ignored? Is it not scandalous that refugees will have to bear the burden of this irresponsibility?
The question is how the damage can be repaired now and amends made in 1994–95 for what has happened. As the noble Lord, Lord Tordoff, said so accurately and eloquently, Ministers have a responsibility here. Even if they deny my case, they have a responsibility here. This Minister has a clear responsibility. I urge him to be far more positive in his response than he was in the unfortunate letter that he wrote on 28th June. How is he going to help?
7.33 p.m.
Viscount Ullswater: My Lords, the noble Lord, Lord Ennals, has raised this important subject for debate and a number of detailed points have been raised. I should like to respond to them later on. First, I am sure that it will he helpful if I remind noble Lords of our general policy towards refugees. The United Kingdom is a signatory to the 1951 United Nations Convention on the Status of Refugees. As such we undertake to treat refugees, lawfully in this country, in the same way as our own nationals. For example, refugees are entitled to a range of statutory benefits and services just like anyone else. I am referring of course to important needs that are fulfilled by income support payments, housing benefits, access to housing, schools and healthcare as well as the important range of employment and training schemes, which is really the nub of this particular debate.
As far as my department is concerned, we provide a wide range of assistance in two main areas. First, as regards training, my department recognises the considerable difficulties faced by refugees and asylum seekers, which is why a particular effort is made to help them. In making this effort, it is extremely important that a body with appropriate expertise and experience should plan relevant vocational training for refugees as well as other groups. It is for TECs to decide with whom they contract and, of course, they must use the taxpayers' money which they receive from the Secretary of State for Employment in the most cost-effective way. That means careful judgment
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about whom they should contract with and how their obligations to trainees can best be fulfilled. In those circumstances, there can be no obligation to support specific providers. But organisations which can supply training of good quality to fit special training needs are in a good position to be considered by TECs.
I believe that I should confront early on the situation which the noble Lords, Lord Ennals and Lord Clinton-Davis, brought up about the meeting with Mr. Jackson in October 1991, which I believe is the date that was used. I believe that there was a genuine misunderstanding over what Mr. Jackson offered. His suggestion was for the establishment of South Thames TEC as an administration centre to co-ordinate Refugee Council training places. Full-blown lead TEC arrangements are not appropriate to this situation. I believe that that view was reinforced to the Refugee Council via the Refugee Employment, Training and Education Forum in January of this year. That means that South Thames TEC was not obliged to take on the role of an administration centre. In fact, South Thames TEC spoke to the other London TECs to see whether some form of co-ordinated approach could be adopted, but that did not find favour with other London TECs.
The noble Lord, Lord Clinton-Davis, asked me to provide evidence of the mistakes that I believe the Refugee Council has made. I do not want to make them in a spirit of definite culpability, but I would like to indicate where I believe that they could have approached matters in a different way. As long ago as 20th August 1992 I understand that a meeting with the South Thames Training and Enterprise Council advised the Refugee Council that it would be in its best interests to approach other Training and Enterprise Councils in London with a view to spreading its contracts more widely.
That advice was repeated at a further meeting on 6th October when representatives of the Refugee Council met my honourable friend, the then Parliamentary Under-Secretary of State, Patrick McLoughlin. They said that they had not chosen to pursue that course at that stage. However, I am glad to say that a letter received today in my department indicates that that advice has now been accepted.
The South Thames TEC invited tenders for its 1993–94 adult training provision from both potential, new and existing providers, including the Refugee Council. The tender process was discussed at a TEC training provider conference on 26th and 28th January this year. Invitations to tender were sent out on 12th February. The deadline for the receipt of tenders was 1st March. That was a very clear statement of what was expected.
However, the Refugee Council had not put in its tender by that date. That does not suggest to me that the South Thames TEC contract was particularly important to the Refugee Council if it failed to meet the deadline for the receipt of tenders. The TEC then, of course, informed the Refugee Council on 4th March that no tender had been received. The Refugee Council finally put in a tender although the deadline had passed. The TEC agreed to include the Refugee Council's bid in the tendering process. So I believe

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that there is an indication, over a fairly long period of time, of concern being expressed by South Thames TEC—the advice that it gave the Refugee Council to look elsewhere in the previous August and the failure of the Refugee Council to submit its tender by the closing date. Those are the areas of concern that I wanted to point out to the noble Lord, Lord Clinton-Davis. Perhaps I may refer to them as "making mistakes"—
Lord Ennals: My Lords, I am grateful to the Minister for that explanation. Clearly, there have been some real misunderstandings and perhaps misinterpretations. As my final words to him were, "All right, we are looking at the next financial year, not this one", I ask that there should be urgent meetings between the officers of the Refugee Council and his own officials so that any misunderstandings can be removed because the challenge is a serious one.
Viscount Ullswater: My Lords, as I have said, the letter which my department received today has been extremely helpful. It looks as if the advice that has been submitted to the Refugee Council has now been accepted.
I appreciate that a reduced contract is a disappointment to the Refugee Council, but it is not easy to see how it can have such a great effect on the work of the council as a whole because prudent management would normally result in the separation of funding streams for funding activities. Although I can appreciate that the reduced TEC offer will have an impact on the employment training division, it surely should not have such an effect on the Refugee Council's core activities which are largely funded by the Home Office's £1 million contribution.
The Refugee Council is far from being the only organisation to provide training for refugees. Training and enterprise councils across London are making provision for refugee groups in their local areas. The West London TEC, for instance, jointly with Hounslow Borough Council and the European Social Fund has established a refugee employment service to meet the needs of refugees in the Hounslow area, which covers Heathrow Airport.
In one of the three points that he stressed, the noble Lord, Lord Clinton-Davis, emphasised the importance of language training. I can tell him that the South London TEC set up the South London Refugee Project in April 1992 to provide a language training scheme with a work-related emphasis. The scheme is funded under the Home Office's ethnic minority grant.
I could refer to more examples, but I wanted to quote just a few of the imaginative ways in which the TECs in London are funding training and support for refugees. If the Refugee Council can offer similar flexibility in its training and early integration of refugees into mainstream provision, and if it is willing to market its services more widely, I can see no reason why it should not be successful in competing for TEC business and in maximising its income.
Therefore, I must advise the noble Lord, Lord Tordoff, that I do not believe that TECs have failed in their duties to provide assistance to refugees. They
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have been both imaginative and innovative. I hope that the Refugee Council will look to spread its net wider with different TECs in order to gain more of the business.
Lord Clinton-Davis: My Lords, I am much obliged to the Minister for giving way. He has said that the Refugee Council misunderstood the assertion or assurance, as I put it, that was given by Mr. Robert Jackson and has given its own version of what occurred. Is the Minister able to produce the notes of the minute that was taken at the time? I have to tell him that the very clear recollection of Mr. Jim Lester and of Mr. Alf Dubs is inconsistent with his version. Indeed, it is not only a recollection because it was acted upon in the way in which my noble friend Lord Ennals indicated at the very outset of this discussion.
Viscount Ullswater: My Lords, I find it difficult to give evidence of what was discussed at that meeting. The evidence that I have is the recollection that I have been able to give to the House, which is that the South Thames TEC should act not as a lead TEC in the concept of a lead TEC but as a co-ordinating TEC.
Lord Tordoff: My Lords, I am grateful to the noble Viscount, but surely there must be a departmental minute of some sort for a meeting of that importance. It should not depend on the recollection of the Minister or his officials. Indeed, we are talking about a Minister whom I remember the noble Lord, Lord Beloff, referring to as being regarded as "the Pol Pot of higher education" in academia. I do not wish to cast aspersions on the honourable gentleman, but one would like to see what the minute actually states or to hear a quotation from it.
Viscount Ullswater: My Lords, from this vantage point I am afraid that I would have to inquire whether such a minute exists. If one does, we shall have to communicate it to the noble Lord.
The noble Lord, Lord Clinton-Davis, also referred to employment training and careers advice and assistance as an important part of what is on offer to refugees. I hope that the noble Lord will realise that the Refugee Council receives an ethnic minority grant from the Home Office of over £80,000 a year for three years. No fewer than 10 posts have been funded to provide careers advice and guidance across London. That is in addition to the TEC funding for the amount of training that is provided. What I am trying to say is that the Government recognise the effectiveness of the Refugee Council and are putting funding into the areas about which the noble Lord, Lord Clinton-Davis, is concerned.
I understand the anxieties of the Refugee Council, but I must stress that the Department of Employment's programme funding for adult training is allocated to training and enterprise councils each year by my department as part of the annual contracting process. It is then the responsibility of each TEC to determine, and then to contract for, the training that is appropriate to the needs of its area, including provision for those with special needs.
The Refugee Council has a membership of over 100 voluntary organisations and community groups

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concerned with refugee issues which carry out a host of activities, such as co-ordinating and representing the views of its member organisations, spreading information about refugee issues and providing community development programmes. The Refugee Council represents the interests of refugees throughout the country—not just in London or in one particular area but across the land. The Government support this important work of the Refugee Council to the tune of £ 1 million, which is the amount of Home Office grant aid that will he received in 1993–94, as well as making a contribution to its overseas work through the ODA.
My department has played its part in assisting and advising the Refugee Council. Noble Lords have heard how the Parliamentary Under-Secretary of State, Mr. McLoughlin, met the director of the Refugee Council and how I subsequently gave advice in several letters. The noble Lord, Lord Clinton-Davis, accused me of not agreeing to a meeting with Mr. Lester—
Lord Clinton-Davis: To a further meeting.
Viscount Ullswater: That was at a time when meetings were taking place between the representatives of the Refugee Council and my officials in an attempt further to clarify the situation for the Refugee Council and to suggest possible ways forward.
Time is now pressing. I have not mentioned the work of the Refugee Council which is funded by the Employment Service or the other good work that is being carried out. The Employment Service has contracted with the British Refugee Council at Brixton and is currently running Restart specialist courses as well as job review workshops and Jobsearch workshops particularly for refugees. Indeed, 164 refugees were aided through Restart last year. This year already 23 refugees have been helped; 118 have benefited from job review workshops; and 77 have taken advantage of Jobsearch.
The Government have funded the Refugee Council to cover our concerns to ensure that refugees' anxieties are properly regarded. Noble Lords have heard how a number of other sources of funding are available to the Refugee Council for its many important roles. I believe, and agree with the noble Lord, Lord Ennals, that the Refugee Council would find it helpful to open early discussions with other TECs with a view to marketing its services more widely. My department has already suggested that approach. I understand that it is now being taken up.
I thank the noble Lord, Lord Ennals, for raising the debate. I hope that I have indicated what I believe the future should be.
Lord Clinton-Davis: My Lords, before the Minister sits down, perhaps I may return to two points. The first is the astonishing fact that emerged that there was no minute of the meeting with Mr. Robert Jackson. So the Minister is in no position to refute what is the clear
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recollection, and evidence available to the Refugee Council, that his version of what occurred, to which he of course cannot speak directly, is inaccurate. Does not that make a substantial difference?
The second point I make is that the Minister has not alluded to the loss of the matching European Community funding from the social fund which the Refugee Council has suffered alongside the other loss. Does he not think also that it was strange that no prior indication was given by the TEC in question that that money was to cease as at 28th or 29th March? No notice was given until that date had passed.
Viscount Ullswater: My Lords, with the leave of the House, the Refugee Council is in a privileged position with its funding from the European social fund. Of course I understand that the lack of a contract with the South Thames TEC had the effect of withdrawing cover from the European social fund. Its lack of money is increased by being unable to claim on the European social fund. I have to return to the fact that I believe that adequate notice was given to the Refugee Council with its contract with South Thames TEC, as far back as August 1992 to indicate that it needed to look carefully at its current relationship with that TEC and to spread the net even wider.

Royal Assent
7.52 p.m.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts and Measure:

Appropriation Act,

Finance Act,

Education Act,

Criminal Justice Act,

Agriculture Act,

Highland Regional Council (Wester Bridge) Order Confirmation Act,

Pwllheli Harbour (Amendment) Act,

Allied Irish Banks Act,

Leeds Supertram Act,

Incumbents (Vacation of Benefices) (Amendment) Measure.

Ordination of Women (Financial Provisions) Measure
The Measures were laid before the House (pursuant to Section 4 of the Church of England Assembly (Powers) Act 1919) and ordered to be printed.
House adjourned at seven minutes before eight o'clock.