Lords Sitting of 21 March 1994

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

The Disabled: Care Charging Policy
Lord Stallard Lord Stallard asked Her Majesty's Government:
What monitoring they are carrying out of the effect on disabled people and their carers of local authorities' policies to charge for community care services.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege): My Lords. the Government expect local authorities to monitor the effect of introducing charges or of changes to existing charging policy.
Lord Stallard: My Lords, I thank the noble Baroness for that reply. But it is inadequate to push the matter back to local authorities to monitor. Is she aware that local authorities, faced with cuts in their budgets, are having to introduce increased charges for non-residential community care such as home care and day care? Is the Minister further aware that variations between areas pose another problem which means, in effect, that services are determined not so much by the needs of the disabled or the carers, but by where they live? In my view the whole arrangement makes a mockery of community care when the matter is considered along those lines. Will the Minister support the proposition that the Government announce a moratorium on local authority policies until such time as they have had a good opportunity to form clear operational guidelines after consultation with local authorities and voluntary organisations?
Baroness Cumberlege: My Lords, the vast majority of local authorities are having an increase in their funding for the coming year, especially for community care, where the Government have allocated an extra £1.2 billion. That is more than twice as much as for this year. It is wrong to have a centralised policy for charging. It is for local authorities to use their discretion and to make the best use of the resources available in terms of voluntary and other private organisations which can provide a good service. We believe that council tax payers should get value for money. There is no question of having a moratorium at the moment. We want local authorities to develop their services by introducing a wide range of different services, so that the people who need them can benefit.
Lord Dean of Beswick: My Lords, is the Minister aware that my noble friend Lord Stallard is right in that there will be unequal treatment depending on where one lives? Does the Minister agree that that dispenses with the idea that we still have a National Health Service? Will the Minister take into account what I said in the
492
debate last week; namely, that cities like Manchester have a disproportionate number of elderly people, which includes a considerable percentage of disabled people? Does she agree that the result is that the burden falls very heavily on the council tax payers of Manchester to provide an adequate service unless some recognition is given to increased weighting for those particular areas?
Baroness Cumberlege: My Lords, health authorities do not charge for care services, but they do for services such as prescriptions and eyesight tests where there is a national rate. We are talking about local authorities. As regards Manchester, that authority is receiving an increase in funding for this coming year of 2.3 per cent. When I go through the list there are very few local authorities which are not having increases in their budgets for next year, but that does not negate the fact that we expect them to charge where they feel it is reasonable and always to take into account the individual's ability to pay.
Lord Skelmersdale: My Lords, has my noble friend noted the implication contained in the last two questions; that is, that one would only get an equal service across the country if one brings community care into the health service? More importantly, does she agree with me that the whole point of local authorities is that they provide the services that they see fit for their area, but now and again the electors disagree with them?
Baroness Cumberlege: Yes, my Lords, I agree with my noble friend. But the National Health Service deals with issues concerning health. We expect local authorities to deal with those concerning social services.
Lord Ashley of Stoke: My Lords, is the noble Baroness aware that despite the increase in funding to which she has referred, many local authorities could not afford a moratorium because they need the money? However, does she agree that we need a moratorium very badly because the charges are upsetting and damaging ageing, fragile and disabled people and their carers? Does she further agree that the answer is emergency funding by the Government for a moratorium? Will the Minister consider that, please?
Baroness Cumberlege: My Lords, there is no question of a moratorium. We are very anxious to see community care develop. We want new services introduced and for local authorities to use their imagination, working with the voluntary and private sectors in giving a much wider range of services. Although the cost of services varies enormously between authorities, on average about 9 per cent. is recovered, which is a very low rate.
Lord Molloy: My Lords, is the Minister aware that many local authorities put out such work to private contractors? Is it right for me to interpret her answers as indicating that the stringent examinations will apply also to all ex-servicemen who have been wounded in battle while defending their country and serving this nation?
Baroness Cumberlege: My Lords, local authorities are using the private sector more. We are very keen that

493
they should do that, provided that they get value for money and good quality services. I am afraid that I did not quite understand the second part of the noble Lord's question.
Baroness Jay of Paddington: My Lords, will the Minister note that the issues that are raised by my noble friend's Question cover many of the same issues that we debated fully last Wednesday in our debate on community care, when there was widespread agreement in the House that we need some form of national evaluation of, and national standards for, community care? Will the Government please reconsider this matter, otherwise the system will persist whereby the community care that one receives will depend on where one lives and not on what one needs?
Baroness Cumberlege: My Lords, there was a lot of support in that debate for the close monitoring of community care and I gave an undertaking on that. There was much less support for national standards. The Social Services Inspectorate is about to carry out five studies of people with physical and sensory impairment. Among the things that it will consider is the effect of local authorities' charging policies.

EC Draft Budget for 1995
2.44 p.m.
Lord Bruce of Donington Lord Bruce of Donington asked Her Majesty's Government:
What is the latest date by which the preliminary draft budget for 1995 for each of the European Community's institutions will be available for scrutiny by both Houses of Parliament and whether they will give particulars of how further scrutiny can be accomplished within a reasonable time before the draft budget for 1995 is established by the Council of Ministers.
The Parliamentary Under-secretary of State, Department of Employment (Lord Henley): My Lords, the Government will continue to ensure that all available documentation is deposited for scrutiny as soon as possible after it is received by the United Kingdom's permanent representative in Brussels. The Government regret that it is not yet possible to indicate by what dates this documentation will be available.
Lord Bruce of Donington: My Lords, is the Minister aware that his Answer is thoroughly unsatisfactory? Is he further aware that the British Parliament normally has the right to question expenditure before it is incurred or even before it is authorised? Will he take steps to ensure that the Committee of Permanent Representatives, on which the Commission also has a seat, does not so arrange events that it will not be possible for the documents to be made available to Parliament on time?
Lord Henley: My Lords, like the noble Lord, I would very much hope that the documents can be made available as soon as is possible. I can only provide the
494
noble Lord with the assurance that we shall continue to do all that we can to ensure that that documentation is made available as soon as is possible and that the noble Lord, who was given assurances last year, will receive copies of the overview as soon as is practical after publication.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that his Answer will disappoint a great many of us? Surely Her Majesty's Government are entitled to insist on the draft budget being brought forward in time for proper discussion in both Houses of this Parliament and to indicate that unless that is done, it will not be accepted?
Lord Henley: My Lords, Article 203 of the treaty sets out the exact dates as to when the various parts of the preliminary draft budget and the draft budget shall be made available and when they shall go through their various different stages. Those dates are quite late. We hope that we shall have the preliminary draft budget by the beginning or middle of June. As I said, we hope to have the overview available earlier and I have given an assurance that that will be made available to the House in due course. However, I accept that time is short and that that creates some difficulties in relation to parliamentary scrutiny. But the deadlines have existed for a number of years and I believe that we can live with them.
Lord Barnett: My Lords, while I do not always agree with my noble friend Lord Bruce of Donington on European matters, he is absolutely right on this. I hope that the Minister and his officials will ensure that the information comes before both Houses quickly, otherwise that expenditure will continue at a pace and in areas with which neither House of Parliament would agree. I think that my noble friend and the noble Lord, Lord Boyd-Carpenter, are absolutely right in seeking to ensure that the Government press for the documentation to be brought before us rather sooner than has been the case in the past.
Lord Henley: My Lords, the noble Lord is correct, as is his noble friend Lord Bruce. That is exactly why I gave an assurance—and I shall keep it—that we shall do all that we possibly can to ensure that all the documentation is made available to this Parliament so that it can exercise adequate scrutiny as early as possible.
Lord Annan: My Lords, if the information is to be received before June, does that mean that the article will have to be amended?
Lord Henley: My Lords, no, I did not say that. What I said was that the actual date by which it has to be received is some time much later. I think that it is 1st September, but I refer the noble Lord to the treaty and to Article 203. We try to get the documentation much earlier and the Commission normally produces it much earlier. We hope to get the preliminary draft budget by early to mid-June.
Lord Renton: My Lords, bearing in mind that the British taxpayer has to contribute towards Britain's

495
contribution to the European budget, can my noble friend say as to which financial year in Europe the British taxpayer has to pay up in terms of our system of financial years?
Lord Henley: My Lords, that is a rather complicated question and I am not sure whether I can give my noble friend a safe and satisfactory answer to it. We are talking about the preliminary draft budget or the budget for 1995, which will come into effect as from 1st January next year, so I presume that we are talking about moneys that this Parliament would vote in either this or the next financial year.
Lord Eatwell: My Lords, following the reference by the noble Lord, Lord Renton, to the obligations of the British taxpayer, will the Minister confirm that if Norway, Sweden and Austria are admitted to the European Union they will be net contributors to the budget? Will he further confirm that the result would be a fall in Britain's contribution? Will he therefore explain why the British Government are so determined to prevent the widening of the Union, thus costing the British taxpayer millions of pounds?
Lord Henley: My Lords, Her Majesty's Government are committed to widening the Union. As to whether those four countries will join is another matter. There is also the question of the own resources decision and agreement by all 12 countries as to when that comes into effect, and therefore at what level the budget can be set. Whether that would lead to an increase or decrease in the United Kingdom's net contribution would depend upon a number of factors, and it would not necessarily follow that our net contribution would fall because a number of other net contributors had joined.
Lord Bruce of Donington: My Lords, in view of the Minister's statement that he will do his best to see that the documents are received as soon as possible, does he not agree that we are now at the high table of the European Community; that we are now in there with great powers under Maastricht? Why cannot we show a little guts in the matter and insist upon what we want rather than lie down under whatever is possible? Further, will the Minister give the House an assurance that, notwithstanding the proposals for own resources at the Edinburgh conference, it would be possible for the Council to set a budget which is in total lower than that specified in the Treaty of Edinburgh?
Lord Henley: My Lords, the noble Lord is correct. Until all 12 countries have ratified the own resources decision taken at Edinburgh, no budget can be set that is greater than the existing own resources decision.
Lord Bruce of Donington: My Lords, that was not the question.

UK Budgetary Deficit
2.52 p.m.
Lord Stoddart of Swindon: My Lords, at his request, and with his consent, I beg leave to ask the Question on the Order Paper standing in the name of the noble Earl, Lord Selkirk.
The Question was as follows:
To ask Her Majesty's Government whether the deficit due to the Maastricht Treaty, reported by the Central Statistical Office, shows that this year the United Kingdom's budgetary deficit has increased by roughly 100 per cent. on the general government debt of the previous year and whether this increase is likely to continue in succeeding years.
Lord Henley: My Lords, the UK Government's budgetary deficit, on the measure adopted for the Maastricht Treaty excessive deficits procedure, rose from £19.8 billion in 1991–92 to £45.7 billion in 1992–93. The November Budget forecast showed a further rise in 1993–94 to £55 billion. However, economic growth combined with a tight control of public spending and the measures announced in the two Budgets last year will put the government deficit on a firm downward trend.
Lord Stoddart of Swindon: My Lords, that was a complicated Answer to a complicated Question. Is the Minister aware that we all wish him well? We hope that his hope will be realised. But is not the difficulty that under the Maastricht Treaty in future our budget deficits will have to be in accordance with a common policy agreed by the Commission? That will not take into account credits such as the sale of privatised assets. Will not that, in turn, put further pressure on Her Majesty's Government to reduce their budget deficit, thereby increasing deflationary pressures, leading to loss of businesses and jobs in the UK?
Lord Henley: My Lords, I hope that the noble Lord did not find my Answer too complicated. What he probably found somewhat confusing is the fact that the deficit as agreed under Maastricht is a different measurement from the PSBR, to which the noble Lord referred. I do not believe the mere fact that the measure is calculated differently will have the effect that the noble Lord seems to suggest.
Lord Eatwell: My Lords, does the Minister agree that the Maastricht requirements for the measurement of the government deficit are in accordance with correct accounting practice, unlike the usual UK method for the measurement of the PSBR which confuses current transactions with balance sheet transactions'? Be that as it may, will he tell us for how many years since 1979 the Government have not been in deficit on the basis of the Maastricht measurement?
Lord Henley: My Lords, the point to get over is that central government's financial deficit, to which the noble Lord refers as the Maastricht definition, and the PSBR are basically different measures. The main differences between the two are that the PSBR includes

497
public corporations' borrowing, privatisation proceeds and other financial transactions. As regards the number of years when we have not been in deficit since 1979, from my figures I understand that there was just one year which was 1988–89.
Lord Bruce of Donington: My Lords, will the Minister cite that part of the Maastricht Treaty that defines precisely how the government deficit is determined? Is he aware that we appear to operate on a cash in and out basis, including items of negative expenditure and similar creative accounting methods? Will the Minister give us some assurance that a common definition will be arrived at and that a determination of the deficit will take into account capital receipts and capital expenditure so that we can have an above-the-line and below-the-line position, but, above all, something that can be agreed, preferably in writing, by the Commission.
Lord Henley: My Lords, I refer the noble Lord to Article 104(c) of the Maastricht Treaty. It is somewhat lengthy and I do not believe that the House would welcome it if I were to read it out in detail.
Lord Stoddart of Swindon: My Lords, does not the answer given to my noble friend Lord Eatwell confirm that under European Community rules the deficit could very well be higher than under the British rules? Under those circumstances, the 3 per cent. deficit which would activate action under the Maastricht Treaty would be reached sooner and on a different basis, and could therefore trigger deflationary policies. Is that not so?
Lord Henley: My Lords, further to the answer I gave to the noble Lord, Lord Eatwell, looking at the figures from 1979, there are relatively few years when we reached that 3 per cent. guideline under the Maastricht Treaty. I understand that we did in 1983–84, 1984–85, 1991–92 and subsequent years. I do not believe the mere fact that a different measure is used for calculating deficit, as opposed to the PSBR, need necessarily cause the noble Lord any worry. As regards the second part of the guidelines—that debt itself should be below 60 per cent.—we have been consistently below that figure since 1979. I understand that we were last above that figure many years ago.

Employment Appeal Tribunal: Procedure Rules
2.57 p.m.
Lord Lester of Herne Hill Lord Lester of Herne Hill asked Her Majesty's Government:
Whether constitutional principles have been observed in the Lord Chancellor's instruction to the then President of the Employment Appeal Tribunal, Mr. Justice Wood, referred to in the Observer newspaper on 6th March 1994, to dismiss appeals as "hopeless cases" on paper and without an oral hearing.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, the short Answer is yes, but in view of the fact that I do not accept some of the allegations in the article to which reference is made in the Question perhaps your Lordships will bear with me while I give a rather fuller explanation.
Rule 3 of the Employment Appeal Tribunal Rules provides that where it appears to the registrar that a notice of appeal does not give the appeal tribunal jurisdiction to entertain the appeal, then subject to the opportunity for the appellant to revise the notice and to express dissatisfaction with the reasons given by the registrar, no further action should be taken on the appeal.
I understood Mr. Justice Wood's position to be that it was undesirable to apply the Rule 3 procedure fully. After many exchanges with Mr. Justice Wood and against the mounting backlog in the EAT, I remained concerned that that view was still affecting the work of the EAT. Accordingly I wrote to Mr. Justice Wood asking for his assurance that Rule 3 would be applied in full and that preliminary hearings were not being used when no jurisdiction was shown in the notice of appeal. If he did not feel able to give me that assurance I asked that he should consider his position. That meant that I wished to ascertain on what basis a procedure not applying that rule in full might properly rest. I had no intention whatever of inviting Mr. Justice Wood to resign his judicial office, and I did not do so.
Lord Lester of Herne Hill: My Lords, most unfortunately, I am bound to say that I find the Answer given by the noble and learned Lord the Lord Chancellor less than satisfactory. Am I not right in saying that the letter from the noble and learned Lord the Lord Chancellor was written only after he had received a full and carefully considered letter from Mr. Justice Wood, written after he had consulted senior legal colleagues, explaining why Mr. Justice Wood, and his predecessors, regarded the long-standing practice of the Employment Appeal Tribunal as expeditious, economical and conducive to the interests of justice, and why he could not see any alternative way of fairly resolving the problem in the manner demanded by the noble and learned Lord the Lord Chancellor? Did not the noble and learned Lord the Lord Chancellor in his letter say in terms that he wished no further discussion of the rule, despite Mr. Justice Wood's full and reasoned earlier letter?
The Lord Chancellor: My Lords, as I said, I had a number of discussions and exchanges with Mr. Justice Wood. He was concerned about the interpretation of the rule, especially the meaning of the phrase to which I referred in my Answer about jurisdiction to entertain the appeal. As I made clear to him, I was concerned with the question of whether the rule was being applied. I was not disputing his interpretation of the rule; I was asking that the rule should be applied.
That rule was laid down, under the authority of Parliament, in its original form by Lord Elwyn-Jones and in its current form by my noble and learned friend Lord Hailsham. I concluded that it was necessary that the rule should be applied, having been laid down by

499
statutory authority. I considered that as the Lord Chancellor was under parliamentary authority—the rule-making authority in this connection—he was entitled to ask for such an assurance. If Mr. Justice Wood was not prepared to give that assurance I wished him to state the basis upon which a procedure, which was not fully applying the rule, could properly rest.
Lord Oliver of Aylmerton: My Lords, is the noble and learned Lord aware that this matter is the cause of the gravest anxiety to the judiciary and to practitioners? Is it the fact that an assurance was demanded of the judge that he exercise his judicial discretion by adopting a procedure that he had already indicated on carefully reasoned grounds he regarded as inappropriate and contrary to the established practice of Employment Appeal Tribunal?
The Lord Chancellor: My Lords, I had understood Mr. Justice Wood's anxieties about the rule. My point was that the rule had been laid down for a statutory tribunal under statutory authority. Therefore, it was a rule to which the Employment Appeal Tribunal was subject.
My noble and learned friend Lord Oliver asked about anxiety within the judiciary and among practitioners. Prior to the article appearing in the Observer to which the Question relates, no member of the judiciary—that is, apart from one who came to see me in connection with another matter and mentioned this matter, and apart from discussions with my colleagues in heads of division—has raised any question about this matter with me.
Baroness Elles: My Lords, almost a year has passed since the writing of the alleged letter and the publication of the article in the Observer on 6th March. Prior to that date was there any suggestion of the resignation of Mr. Justice Wood or his transfer from the Employment Appeal Tribunal?
The Lord Chancellor: My Lords, Mr. Justice Wood resigned later. He made it clear to me in his letter of resignation that it had no connection whatever with this matter. A considerable time before that letter was written, he had made it clear to one of my colleagues, a head of division, that he intended to resign in 1993. With that knowledge one could have left this matter over but, in view of the discussions that had taken place, I felt it right to put to Mr. Justice Wood, as succinctly as I could, the real issues in this letter.
Lord Taylor of Gosforth: My Lords, is the noble and learned Lord the Lord Chancellor aware that I was privy to this matter at the time, that I did not consider there to be any question of suggesting to the judge that he ought to resign has judicial office and that if I had felt any anxiety about, any encroachment on judicial independence I would have raised the matter with him?
The Lord Chancellor: My Lords, I am extremely grateful to my noble and learned friend the Lord Chief Justice. I am aware of what he said and I know well that he is ready to raise any questions that would impinge upon judicial independence in respect of any action of mine. As regards the judicial complement, the
500
arrangements for the EAT on a day-to-day basis were normally handled by my colleagues in the judiciary; that is, the Lord Chief Justice and in particular at the relevant time the then Deputy Chief Justice.
Lord Irvine of Lairg: My Lords, many appeals to the EAT are by appellants who do not qualify for legal aid and are thus unrepresented. Therefore, does the noble and learned Lord believe that there is a real risk of injustice if so-called "hopeless cases" are dismissed without the appeal tribunal having satisfied itself at a preliminary hearing where the appellant is heard that there is no arguable ground for appeal? Is that not so in particular because so many applications that are considered by the EAT at a preliminary hearing go forward to a full hearing on the footing that there is an arguable point, and they actually succeed?
The Lord Chancellor: My Lords, I appreciate the value of an oral hearing to a prospective appellant. But I have no doubt that when Lord Elwyn-Jones made these rules after consultation with the then Lord President of the Court of Session he had that in mind. The rules make a provision along these lines. If one is looking at justice in this matter, the important point is that people who had an undoubted case before the Employment Appeal Tribunal, a case in which there was jurisdiction, were being kept waiting for some two years while resources that could have been used for those hearings were devoted to the preliminary hearings to which reference has been made.
Lord Campbell of Alloway: My Lords—
The Lord Privy Seal (Lord Wakeham): My Lords, we must move on.

Business of the House
3.8 p.m.
Lord Wakeham: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That Standing Order No. 38 (Arrangement of the Order Paper) and Standing Order No. 44 (No two stages of a Bill to be taken on one day) be dispensed with until the Easter recess in respect of the Consolidated Fund (No. 2) Bill and, if they are brought from the Commons, the Insolvency (No. 2) Bill and the Transport Police (Jurisdiction) Bill.— (Lord Wakeharn).
Lord Tordoff: My Lords, I do not wish to discuss the subject matter of the Bills, in particular the second and third, having indicated that we assent to the Motion. However, as regards the Transport Police (Jurisdiction) Bill, there are one or two issues that I shall raise on Second Reading about which the noble Lord the Leader of the House ought to know. I understand that the British Transport Police query the adequacy of the Bill that is being brought forward. It was published only on Friday and has not yet been before another place and therefore we are in some slight difficulty. Clearly, the Insolvency (No. 2) Bill is essential in order that jobs are not lost and the transport Bill is important in order that the British Transport Police can have jurisdiction

501
beyond 1st April outside their own back yard. We shall do our best to see the Bill through but I hope that the Government who, after all, are papering over a pretty large crack in the British Rail privatisation Bill of last year, have got it right this time.
Lord Wakeham: My Lords, I am grateful to the noble Lord for indicating that he wishes to raise one or two points. I shall say nothing about the substance but there will be opportunity for debate and for amendments should they be necessary. We had better wait for the Bill to come from another place before deciding what to do.
Lord Graham of Edmonton: My Lords, in case there is any dubiety, I wish to say that we on these Benches fully recognise the importance and the urgency of these matters and raise no objection to the Motion. However, during the Bills' stages there could be room for amendments. There is no intention to do other than speed the legislation through this House as quickly as possible.
On Question, Motion agreed to.

Social Security (Incapacity for Work) Bill
3.10 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Viscount Astor): My Lords, I beg to move that the Bill be now read a second time.
I think it important to start by setting the scene for the changes that this Bill will bring about. Last year my right honourable friend the Secretary of State announced a long-term review of the social security system. To assist in that process, the department published an analysis of the growth of social security provision over the next decade. The findings highlighted that benefits for incapacity were one of the three areas of likely growth.
Invalidity benefit is the fastest growing contributory benefit. It is second in cost only to retirement pension. Spending on this benefit has doubled in real terms in the past 10 years, from £2.7 billion to £6.2 billion. No responsible government could let that growth go on unattended. If we did, spending would grow by a further 50 per cent. in real terms by the end of the decade. That is why the Government decided to tackle that area first. The Social Security (Incapacity for Work) Bill brings about a fundamental reform of benefits for people who are unable to work because of sickness or disability.
The new benefit—incapacity benefit—will replace sickness and invalidity benefit and has three major objectives: first, to ensure that benefit is targeted on those who are genuinely too sick or disabled to work; secondly, to provide a more rational structure of benefits; and thirdly, to ensure that incapacity provision is affordable and sustainable into the next century.
Before we embarked on this reform, we commissioned a series of research projects to look at the reasons behind the massive growth in invalidity benefit which has taken place, despite the improving health of the nation as a whole. That research highlighted two
502
particular problems. The first is the structure of invalidity benefit itself. It is not a means tested benefit, neither do we propose to make it so. But it is poorly focused on need. It provides a basic income in lieu of earnings, yet unlike those earnings it is tax free. It is paid to people who are unable to work, yet it is also payable for up to five years beyond pension age. And a significant element of the benefit, the additional pension, is earnings related, which often duplicates occupational and private provision for sickness.
The second problem we identified is the existing medical controls; the means by which a person's incapacity for work is judged. Over the years the original intention of the benefit to provide an income for people whose medical condition prevents them from working has become blurred.
The GP's role has become difficult. Through no fault of their own, GPs are often placed in the unacceptable position where, on the one hand, they have an obligation to their patient but, on the other, have to act as gatekeeper for the social security system. Ineffective medical controls have led to some abuse of incapacity benefits. Many people who are capable of work view invalidity benefit as a readily available supplement to their occupational pensions. The public at large resent this abuse. We concluded that the reforms must deal with both structural reform and new medical controls, in order to return to the original intention of the benefit.
The Bill will introduce a new benefit—incapacity benefit —which will be payable at three rates. The longer the period of sickness, the higher the benefit. Most people receive statutory sick pay for the first 28 weeks of sickness. The Bill will simplify statutory sick pay by replacing the two existing rates with a single rate set at the present higher rate. It will be worth an extra £4.70 a week at April 1994 rates for mainly lower paid and part-time employees. Those people are less likely to work for employers with generous occupational sick pay schemes.
For those who do not receive statutory sick pay, incapacity benefit will be available for the first 28 weeks, at the same rate as sickness benefit now. After 28 weeks it will increase to the same rate as SSP and it will become taxable. It has always been our intention to bring benefits-replaced earnings into tax, including invalidity benefit. But it is important to remember that not everyone receiving the benefit will pay tax. Only those with income from other sources bringing their income above the tax threshold will be affected. After a year of incapacity the basic rate will increase once again to the same rate as basic IVB.
The long-term element of the new benefit will not be available beyond pension age. Short-term incapacity benefit will be paid for up to 52 weeks where a person has become incapable of work before their 60th or 65th birthday. The earnings-related additional pension will not be part of the new benefit for those who come on to the benefit after April 1995. The additional pension has been recognised as somewhat of an anomaly.
Increases for age and adult dependants will continue but these will be restructured in order to better target the benefit. The age-related invalidity addition will be simplified and the ages of entitlement brought forward.

503
People whose incapacity begins before the age of 35 will receive an extra £12.15 a week on top of their basic benefit. Those incapacitated between the ages of 35 and 44 will receive an additional £6.10 a week. The age addition will continue to be paid for as long as a person remains on incapacity benefit. Increases for adult dependants will be paid for those who are looking after children, and for spouses aged 60 or over.
A key element of the reform is the new medical test of incapacity which is being developed to provide a clearer and more objective assessment of incapacity. An aim of this Bill has been to refocus the benefit on those who are medically; incapable of work. It is right that a benefit designed for the long-term sick and disabled should have entitlement restricted to those who are unable to work because of their medical condition.
We arrived at cur current proposal—that is, that incapacity should be measured by a functional assessment—after a thorough and wide-ranging research programme. The incapacity test will assess the effects of a claimant's medical condition. The test will measure limitations in a number of functional areas, and assess them against a commonly agreed standard of mental sensory and physical capabilities required for work.
We have based our test of incapacity on the approach used by the Office of Population, Censuses and Surveys in its disability surveys in the 1980s. OPCS used established definitions of disability, but a new feature of its method was an attempt to measure the overall severity of disability arising from a number of different limitations. We are seeking to do the same for incapacity for work. There are several stages to this: first, the development of a series of scales covering all the areas of disability that might affect capacity for work; secondly, the ranking and scoring of the items in the scales in terms of their effect on capacity for work; thirdly, the identification of the point in each scale at or above which a person should be considered unable to work for the purpose of deciding benefit entitlement; and fourthly, the development of a model for assessing the effect of combinations of disabilities of different types and severity on capacity for work.
We published, on 1st December, a consultation document with detailed proposals for the new test, describing the proposed assessment and how it had been developed. The consultation period ended on 11th February and has prompted over 350 responses so far. All the responses have been extremely useful and are now being fed into the development process.
We have convened an expert panel, which is working through these stages. It has been at work since December, reviewing the scales and assigning incapacity scores to items within them. We have now reached the fourth stage, in which we ask the panel to score combinations of disabilities. There are over 80 people on the panel. They include disabled people, members of disability organisations, medical and occupational health: specialists, researchers and members of the Departments of Employment, Health and Social Security. All are included to provide expert views rather than to represent particular interests or organisations.
504
A sub-group of the panel is looking at the particular questions raised by the assessment of mental health. A second expert panel has begun work to assess the effects of disabilities on capacity to do particular jobs. Its findings will serve as a check on the results of the main panel.
The detail of the test will be revised to take account of the outcome of the consultation, development and evaluation processes. We will then issue a report which will summarise all the work that we have undertaken and present our proposals for the test. Only after all this shall we present our final proposals on the test to Parliament for approval, in the form of regulations. As a consequence, the Bill seeks from Parliament powers to prescribe in affirmative regulations the detail of the new test.
We propose to apply the new medical assessment after 28 weeks of incapacity for work. For the first 28 weeks of incapacity most people will be assessed against their ability to carry out their normal job. That is little different from now. It will be based on a GP's certificate.
After 28 weeks, people will move automatically on to a higher rate of benefit. Most will be sent a questionnaire for completion. Claimants will need to ask their GP for a statement of diagnosis, together with a description of the main disabling conditions. The majority of cases will be referred to a departmental doctor for a report and examination. The assessment will create an overall picture of the effect of the medical condition on the person's ability to carry out a range of work-related activities and hence their capacity for work.
When the new test is introduced it will apply to existing as well as new recipients. To do otherwise would be inequitable. No existing beneficiary of invalidity benefit who is genuinely incapable of work need have any worry. Indeed, the new test is being designed specifically to ensure that such people continue to get incapacity benefit.
The new test will not be applied to those new and existing claimants who are clearly incapable of work. That includes the terminally ill, those in receipt of the highest rate care-component of disability living allowance and those suffering from certain specified illnesses. A preliminary list of such illnesses was announced by my right honourable friend the Secretary of State in another place on 24th January. It is not final, and will be developed during the consultation process. We are consulting with the Disability Benefits Consortium on the content of the list.
In addition, existing IVB recipients who are aged 58 or over at the point of change, and who have been continuously in receipt of invalidity benefit since the proposals were first announced on 1st December last year, will not have to go through the new test. In total some 850,000 out of 1.5 million people will not be subject to the new test; they will, instead, continue to be subject to the existing medical controls.
We intend to use transitional arrangements to ensure that existing beneficiaries continue to receive their old rates of benefit and, with the exception of any additional pension, have it uprated annually, so long as their incapacity continues or there is another change in their

505
circumstances. An important feature of the new arrangements is that people will be able to undertake voluntary work subject to an hours limit of 16 hours per week without it affecting their benefit. That has been widely welcomed by voluntary and charitable organisations.
It had been our intention to bring this provision into effect when the new benefit is introduced. However, following representations, I am pleased to announce that the Government are bringing forward those arrangements for voluntary workers so that they will apply to recipients of sickness benefit, severe disablement allowance and invalidity benefit before April 1995. We will bring forward regulations to give effect to this intention at the earliest opportunity. I hope to have the arrangements in place by the summer.
The new arrangements will recognise the sensitivities of the vulnerable group for whom incapacity benefits were originally intended—the long-term sick and disabled. It will protect their benefit against those who abuse it. Nevertheless, we must have a system that combines safeguards for the vulnerable with being modern, realistic and affordable. I beg to move.
Moved, That the Bill be now read a second time.—(Viscount Astor.)
3.23 p.m.
Baroness Hollis of Heigham: My Lords, I should like, first, to thank the Minister for his clear introduction to the Bill. The number of people on invalidity benefit is growing and the cost is rising. The Prime Minister said that it "beggars belief- that that can have anything to do with increasing sickness and disability. Therefore, instead, as the Secretary of State said when introducing the Bill in the other place on 24th January, it must be to do with, in his words, "haphazard" access, "lax" controls and a system, again in his words, that is "open to abuse". In other words, according to the Secretary of State invalidity benefit costs are rising because too many people on invalidity benefit are malingering; benefits are too generous; and GPs are being too lax.
So we have the Bill which will make the medical test tougher, thus making it harder to claim incapacity benefit. If the person passes the medical test, that benefit will be sharply reduced in value to make it less attractive; and, finally, as the Minister made clear, it will take away from GPs—who might know about people's conditions—the job of certifying that people should remain on benefit after six months and give it to independent adjudicators who will not have that knowledge.
Even if the assumptions of the Secretary of State which inform the Bill were valid, we would still argue that the Bill is both unnecessary and harsh. As the disability groups have all reminded us, the safeguards in the system are already adequate to root out any abuse or fraud. But when, instead, we know that the assumptions behind the Bill are false—and we know that they are false because the department's half a dozen pieces of research (which are in the Printed Paper Office and the Library) tell us that such assumptions are false—then the Bill is unusually unpleasant. As one of the disability
506
groups stated, at the core of the Bill is an assumption about malingering and abuse. Indeed, the noble Viscount referred to that this afternoon. The aim, according to that disability group, is to cut public expenditure by character assassination of the disabled. The group is right.
Let us take the first of the Government's assumptions; namely, that the growth in IVB is about malingering or abuse connived at by the general practitioner. Sir Michael Partridge, the Permanent Secretary of the department, was very clear when he told the Public Accounts Committee that,
"the theory of increased numbers due to fraud is not borne out by research".
Quite so, my Lords. However, I am not entirely sure whether the latter told the Minister the same thing. Why does he believe that the disabled are not abusing the system? The reason is that they are steady workers; indeed, more than half of those on benefit worked for their previous employer for more than 10 years and struggled to stay on in work as their health deteriorated, even though three-quarters of employers did nothing to help them stay in work by altering hours, conditions or types of appliances, but often actively pressed them to go.
I quote from the Government's research regarding a woman who was a supervisor for 15 years in a fish factory who suffered from severe osteoarthritis which became worse by standing on wet and cold concrete floors. She said:
"They"—
that is, the employers—
"weren't interested … you are just a number to them. It didn't matter if you had been there years, if you couldn't do the job, that was just too bad".
As I said, that example comes from the Government's research.
Once on invalidity benefit, in nine cases out of 10 the disabled do not find their health improving. However, in those cases where it improves—and they are usually the younger men and women—they try desperately hard to find work. They put themselves on the line time and again only to be met with rebuff and rejection. One manual worker with diabetes said that he was turned down each time because of his illness.
Again, I quote from another case which comes from the Government's research. A building labourer with severe arthritis who needed occasionally to sit and rest, stated:
"These employers have got that many people to choose from now … why should they hire me?"
Why indeed? After all, most disabled people are middle-aged, unemployed men from manual jobs with no formal educational qualifications. Their work, and their world of work, are disappearing around them. At the best of times and even in good health, they remain marginal to the labour force. Add to that the cost of their disability to employers through statutory sick pay, and it is not surprising that, once on invalidity benefit, those people find it hard to re-enter work.
They are told that they are fit for light manual work. But what does that mean, if such work does not exist? It is suggested that they might, for example, be car park attendants in an age of pay-and-display systems; lift

507
attendants or garage pump attendants when such jobs no longer exist; or swimming pool attendants, when pools have been closed. Even more bizarre was the case of a disabled man whole only language was Punjabi being told that he was fit to be a telephone operator, or that of a 59 year-old electrical engineer with respiratory disease, who was told that he was fit enough to be a dispatch rider even though he had never held a driving licence in his life. A scrap metal dealer with angina was told that he was fit enough to be a tax collector; and a roofing tiler with spinal injury was told he was fit enough to be a computer operator. Others were told, bizarrely, that they could be artists' models—presumably for someone other than Lucian Freud—taxidermists or embalmers. This would be funny if it was not used as an argument for depriving decent and desperate men of their benefit. How can it be right to tell them they are fit for work—work which for them does not exist—and then remove their benefit?
If the Government really believed—as the Secretary of State has said—that abuse was the problem, and that people were malingering who truly were fit for work, the Government and the Benefits Agency could simply refer more cases for review. However, the Government are, not going down that path precisely because they know that so few additional cases would be thrown up that the process would not generate the savings the Treasury is demanding. After all, last year the Benefits Agency reviewed 900,000 cases of people on invalidity benefit and the judgment of the GP and the claimant was upheld in 800,000 of those—that is, eight out of nine cases—and many of the rest comprised either those experiencing fluctuating conditions in their health or were mental health cases, which are notoriously hard to determine.
It is because claimants are not malingering and because they pass the existing medical test—there is no reason to think that test has become easier over time—that the Government need to make the test harsher and more stringent if they are to save any money that is now spent on the sick and the disabled. It is precisely because the disabled are not malingering that the test and the rules of the game have to be changed. Hence there is to be a new medical test which, it is suggested, will in a full year take nearly 200,000 people off invalidity benefit (or incapacity benefit as it will become) and will prevent a further 70,000 people who would have qualified for it becoming eligible for it. That will save the Treasury £1.45 billion as that procedure bites.
Of course, by making the medical test more stringent, those who fail to get invalidity benefit or incapacity benefit will sometimes still be too poorly to be regarded as available for work and therefore they will be refused unemployment benefit as well. A man who injured his spine as a result of falling from a roof discovered that he was refused invalidity benefit but denied unemployment benefit because he could not walk very far. What do people in such situations do as regards income? They are considered too 5t for invalidity or incapacity benefit but not fit enough to receive unemployment benefit. What do they do? Presumably they go on to income support except that half of them will not be eligible for
508
it because they will fail the means test either because they have modest savings or a partner in work. So, in return for what has been a contributory benefit, those who are in poor health will find themselves without any independent income at all.
The Government also argue that the numbers on invalidity benefit were growing because claimants were malingering and this was happening because the benefit was too generous and hence acted as a disincentive to work. That really is not true, and again the Government's own research shows that. Over half of those on invalidity benefit found that the benefit was worth less than half of what they had earned in their previous job. Invalidity benefit is not generous compared with earnings, and it is not therefore an incentive to leave work to go onto the benefit. What is true is that invalidity benefit is relatively more generous than other benefits such as unemployment benefit, sick pay, income support and old-age pensions precisely because it carries—as it was always intended to do—an additional allowance to cover the additional cost of disability. We all know that disability incurs necessary extra costs for special diets, extra heating, aids and appliances and for laundry.
This Bill will not only make the medical test harsher but—what is even worse in some ways—it will sharply cut the level of benefit thus requiring the disabled to shoulder the cost of their own disability. At the moment a disabled man aged 48 with two teenage children who has received invalidity benefit for 30 weeks receives, believe, £120 a week. In future, that same man, if he has passed the medical test and is receiving incapacity benefit, will receive just £79 a week. He will be £40 a week worse off, and he will receive the same income whether he has one child or three. He will receive no help for the costs of disability. Therefore he will receive £79 a week, whereas currently he receives £120 a week. If he were on income support, which is regarded by the state as the minimum poverty level for a family, he would receive not £79 a week but £109 a week.
In other words, not only will the new medical test result in invalidity benefit being withheld from over 200,000 people a year, but it will so depress the value of that benefit that thousands of people will, for six months, receive a benefit which is considerably below the level of income support. I would ask the Minister how those people are supposed to live. How will they rebuild their health and re-enter work living on £30 a week below income support? These people have passed the medical test and have been deemed to require a disability allowance.
No one denies that there are increasing numbers of people receiving invalidity benefit. However, as all the research shows, that has not occurred because more people are claiming the benefit, but because it is harder for poor people in poor health to come off the benefit. As the PSI report of June last year showed, this is true all over Europe. The reason for the increasing cost of invalidity benefit lies in the economy as a whole and derives from the firing and hiring practices of employers rather than in any malingering by the disabled.
We know—we debated this matter when we discussed the Statutory Sick Pay Bill—that the disabled

509
are three times more likely to be unemployed than the able bodied. We know that the disabled are six times less likely to be interviewed than the able bodied; and when they are interviewed, the disabled say that the biggest obstacle to their returning to work is the refusal of employers to take them on. When they have sought to return to work, one in six disabled people have experienced health problems as they could not carry out heavy work, and they could not move around much or work in long stretches. However, two in three disabled people said that they failed to return to work because employers would not interview them or because, when they did, the disabled failed the firm's medical test.
It is not the case that the disabled are abusing the system but that the system is failing the disabled. With the economic recession, the marginally employable across Europe have become unemployed, and as they are even more marginalised as a result of their disability and ill-health, it would have been sane and humane to allow such men and women to continue to qualify for invalidity benefit. They are unable—not unwilling—to work; but the Government's insistence that the country is keeping in idleness many disabled people who can work but will not do so confronts the employer's view that he cannot afford to employ those who may want to work but who, in his view, cannot do so. Caught between them, the disabled are distressed, maligned and impoverished.
I end by referring to an article which appeared in my local newspaper last December under the headline "Wife's Anguish". Mr. Skipper lived not far from me in Norwich. He was 50 years old and had been on invalidity benefit since 1990 because of a heart condition. His GP wanted him to remain on invalidity benefit but was overruled by the Benefits Agency Medical Service. In December, 48 hours after losing his invalidity benefit on the grounds that he was fit to return to work, he died of a heart attack. His doctor said:
"There have been patients which I have been quite certain were not fit to work but each time I have never succeeded in overturning the judgment of DSS doctors".
Mr. Skipper was told that he was fit for light work. According to his wife, it was worry about losing his benefit that brought on the heart attack. She said:
"I am angry, really angry with the Government. How many more people are going to die because they have been taken off invalidity benefit?"
Because it was December she had bought his Christmas present, a music centre. He played it just once.
Mr. Skipper's wife was angry. We should be ashamed. I hope that together your Lordships will substantially amend the Bill.
3.41 p.m.
Earl Russell: My Lords, I should like to thank the Minister for the encouraging words that he said about volunteers in the course of his speech. I shall want to read those words carefully before I decide whether they are sufficient to save us some time in Committee. I was at least pleased to hear them.
Those of us who are in the habit of moving amendments to Bills know that in Whitehall there are
510
two categories of recognised amendment: the unnecessary and the wrecking. Similarly, I am beginning to suspect that in the Department of Social Security there are two recognised categories of benefit: the unnecessary and the abused. In fact, I am beginning to wonder whether Cardinal Morton has taken up occupation in the Department of Social Security since the famous fork is alive and well in Richmond House—for if few people claim a benefit it is not needed; if more people claim a benefit it is abused. The Department is well known for looking on itself as a honey pot surrounded by benefit seeking wasps.
Speaking in another place on the Second Reading of this Bill the Secretary of State said, as the noble Viscount said today, that the system is open to abuse. He might perhaps have said that the system is open to use, for this benefit is being changed because there was an increase in the number of people claiming it. The department and the Minister have made an assumption as to why the increase occurred. As far as I can see, they have no significant evidential reasons for that assumption.
It is interesting to look at what appear to be the reasons. As the noble Baroness pointed out, the Policy Studies Institute has noticed the same increase all across Europe. It therefore seems a little improbable that it should be the result of a quirk in the British benefit system. Some people, rather than receive the first five years of pension, have been on invalidity benefit because it is not taxable. The Bill changes that. Therefore, if that were thought to be the cause there was no need for the whole mechanism of a new test as well.
Most important, the Policy Studies Institute has found that the major problem is that, because of changes in the labour market, on which the noble Baroness touched, it is becoming harder to get off benefit. Rules of order forbid me from quoting from the excellent speech of Mr. Alan Howarth on the Second Reading of the Bill in another place, but I trust that at least the Minister and any of his noble friends who take a special interest in this Bill will read that speech with great care.
Today the noble Viscount talked about the improving health of the nation and used that as a reason for doubting whether so many people could be entitled to invalidity benefit. That carries an assumption that previously take up was 100 per cent. That is possible, but it is improbable. If the department thinks that, I should like to know why.
It is perfectly possible that the health of the nation as a whole may be improving. But the health of that part of it which is liable to unemployment, which has regrettably increased, may be worsening. If, for example, one looks at the Caine study undertaken following the closure of the Harris bacon factory in 1985, one finds that in the subsequent year GP consultations increased by 20 per cent., specialist referrals increased by 20 per cent. and hospital outpatient treatment rose by 60 per cent. Is that not in line with the increase which the department has found in invalidity benefit? Might we not be seeing here yet another example of what John Stuart Mill called the inability of the unanalytic mind to recognise its own handiwork? In addition, when we consider the

511
possibility that many of these people will end up on income support we may wonder just how much saving this measure will produce.
So we have a spurious problem. To solve the spurious problem we have a spurious solution. Therefore, the Department of Social Security, in true Whitehall fashion, has bethought itself of an objective test. What does Whitehall mean when it thinks of an objective test? It thinks of filling in a form. The amount that can be discovered about anyone's health by filling in a form is very limited. Forms necessarily are concerned with what is quantifiable and measurable. They concentrate on the measurable, and it is called the objective because it is easier to measure. They remind me of the Black Country Enoch and Eli story. Enoch found Eli scrabbling in the gutter late one night and said, "What are you doing there?". "I dropped half a crown". "Did you drop it here?" said Enoch. "No. I dropped it over there". "Then why are you looking here?" "The light is better here" The objective test tests what is easy, not what is relevant.
I also have considerable misgivings about the use of the all work test. Most of us here, in any normal sense of the word, work. I would hesitate to pronounce that most of us were fit to apply for work as a docker, supposing such work to exist any more. Curiously enough, almost the only exception which occurs to me—my noble friend Lord Addington—counts as disabled because he is a dyslexic. That just goes to show how difficult it is to apply an all work test.
I also believe that it has been a mistake to refuse point blank to take account of non-medical factors. Take, for example, the case of somebody who has suffered an eye injury. If he goes to work from Highgate he can easily travel on the Tube. But if he goes to work from South Molton or from Ysbyty Ifan in Merioneth, or one of the increasing number of places from which he can only go to work by car, if he is told that he must go to work by car I just hope that I am not travelling the other way when he does so. So fitness for work may depend on the circumstances from which you have to go to work.
The test also misses the intermittent effect; it is a snapshot, as any examination must be. To take cases from my own recent teaching experience, I have been seeing pupils suffering from depression and bronchial asthma. I know well that they are much fitter to work on some days than on others and any test which measures only a single day is likely to have got it very wrong indeed. We also ignore the effect of the test on the patient. To take a slipped disc —and I speak from memory—one may be fit to lift the object one is asked to lift in that one can raise it up, but once one has done that, one may be unfit to do anything else for the next three months. It is not really a sensible idea.
The test also downgrades the GP. At Second Reading on 24th January 1994 the Secretary of State said at col. 41 of Hansard that the GP was not to give an opinion on the person's capacity for work. That ignores the best advice and—this is the crucial piece of Whitehall thinking—it ignores all the individual factors which are the most important points in the story. It also leaves us
512
with a crevasse between signing on for work and losing invalidity benefit, down which many people appear to be falling and more will fall when the Bill is in place.
A citizens advice bureau in Sussex reported a client with crushed vertebrae who was in receipt of invalidity benefit. He was found by the Benefits Agency medical service to be fit for light work. He was told to sign on with the employment service agency, where he was told that he was not fit for any work that it could find. That is important, because if you cannot sign on and you are not pronounced unfit, you lose your national insurance contributions, with considerable long-term effect.
Before this Bill goes through we must somehow find a way of bridging the crevasse so that people do not fall into it. At present I do not see how that can be done. But I would be extremely grateful if we could do it on a consensual basis so that we may have consultation about it.
However, the test itself gives me the greatest misgivings of all; in particular, the use of the allegedly objective test for mental health. It is the key to mental health that in its more severe forms the patients lose insight and therefore their responses to a standard checklist test are not likely to be particularly reliable. The man who believes that he is the Emperor Napoleon is likely to pass with flying colours. A citizens advice bureau in Somerset found a manic depressive diagnosed as psychotic who passed the test with flying colours. But those of us who are in better mental health,. because of the much more self-critical nature of our answers, are liable to come out a good deal worse.
Some of the questions are very silly:
"Do you care about other people?".
The only person I can think of who would have answered no to that was the jolly miller who, in the song, lived on the river Dee. He said:
"I care for nobody, no, not I, If nobody cares for me".
He was not showing mental illness; he was showing the effects of enjoying a privatised monopoly. It is not good for one's social relations.
Some of the questions prove a good deal too much. Let us take a few of them:
"Do people or things so upset you that you just lash out?".
I presume that it means metaphorically, but it does not say so. When I found that I had lost this document at midnight last night, remembering the unflappable competence of my Whips' Office was the only thing that restrained me from qualifying myself as insane under the test.
"Do you prefer to be left totally alone at all times?",
otherwise known as the "Greta Garbo" syndrome;
"Do you feel panic-if you are on your own even for a brief time?",
otherwise known as the club bore syndrome;
"Do you need someone always in reach in case of problems?",
otherwise known as the Junior Minister syndrome;
"Do you hate the slightest change in your daily routine?",
otherwise known as the Lord Chancellor's Procession syndrome;
"Do you often sit for hours doing nothing?",
otherwise known as the Lobby-fodder syndrome. The test proves a great deal too much and it puts us in a quandary when we consider Clause 5 of the Bill.

513
That clause authorises the Minister, without further approval, to bring in the test by regulation. Members in another place may vote against it if they are not satisfied, and that illustrates why in the end this place will have to think again about voting against regulations. I am not yet convinced that the House is ready for it and therefore I cannot let Clause 5 go through in its present form and give the Minister a blank cheque to bring this into effect. I hope that we may be able to consider an amendment which, like the one we had on the Social Chapter, demands that this House should approve the test by resolution before we allow it to come into effect. I look forward to the comments of the Delegated Powers Scrutiny Committee on that and other matters in the Bill with a great deal of interest.
3.56 p.m.
The Countess of Mar: My Lords, I accept that the number of those claiming social security benefits because they are incapable of work by reason of illness or disablement has risen rapidly in recent years. I also accept that there is a need to curtail unnecessary expenditure. However, I do not accept that the provisions of the Bill will ensure that those who are genuinely incapable of work will be protected.
I shall confine myself to Clauses 5 to 7 which concern the tests for incapacity for work. Noble Lords will be aware of my interest in sheep farmers and others who have suffered chronic ill health which they believe is attributable to exposure to organophosphate pesticides. For several months I have been receiving letters from these people asking for an explanation of the behaviour of officials from the Benefits Agency. All have had their claims for invalidity benefit disallowed by an adjudication officer. Some have undergone a medical examination of sorts by a Benefits Agency medical service doctor. From the letters it appears that very few, if any, of the doctors know what signs to look for or what symptoms to ask about in the case of chronic ill health caused by exposure to organophosphates. Their tests are rudimentary and seem to take no account of the fluctuating levels of ill health which can vary from hour to hour, let alone from day to day.
As a result of the letters, I have had a protracted and not very satisfactory correspondence with the chief executive of the Benefits Agency and his deputy about the problems encountered, particularly with medical examinations. It was not until last Friday that I was told through a third party that the chief executive of the Benefits Agency is not responsible for advice to the BAMS GPs, nor for monitoring them. That is the responsibility of the chief medical executive at Quarry House. Why was I not told this months ago, when I first inquired? It is beyond me.
As a result of my failure to obtain a satisfactory answer from the Benefits Agency, I was prompted to inquire further. I am no longer surprised that matters are in such a mess. In the West Midlands there are about 120,000 claims for invalidity benefit outstanding; 60,000 of those are waiting for further information and 30,000 claimants are waiting for medical examination. There are 667 doctors to cope with the workload.
514
The doctors who conduct the examinations are volunteers. There is no requirement that they have experience in either occupational medicine or disability and they are not vetted to ensure that they have no prejudices. Many are newly retired GPs. Their GP training, however distant in time, is considered more than adequate to enable them to identify individuals who are incapable of work. Let us compare that with paragraph 3.4 of the consultation document in respect of GPs who do not know whether or not someone is capable. The only specific training is half a day on form filling. There is no age limit, and dismissal is only on the grounds of professional misconduct. While I have a high regard for the medical profession as a whole, I am well aware that within it there are practitioners who leave much to be desired. I do not believe that sick and disabled people are best served now. What will be the situation when the Bill is enacted?
I see that the Government consider that only 1,100 extra staff will be required for the first two years; and that figure will be reduced to approximately 260 from 1997–98. Does that take into account the Benefits Agency medical services? It may well be that the Government believe that self-assessment questionnaires will weed out many of the applicants who at present go forward for medical examination. Experience with that type of questionnaire for claims for disability working allowance indicates that there would be difficulties for several groups of applicants for the new benefit. I am thinking particularly of those whose illnesses present symptoms of fluctuating severity. There is a long list of such diseases. Chronic illness caused by exposure to organophosphates is one of them. How, for example, is an applicant to complete a question asking whether he can lift a particular weight when one day he can and another day he cannot? If he answers "no", he can be accused of lying. If he answers "yes", he does himself an injustice. From my own experience I know that on some days I feel able to do quite a lot; on others I feel very weak, am in severe pain and need to sleep most of the day. Would I be considered capable of work because I have good days? What employer would employ me on the basis that I would only be able to perform my duties in an unpredictable manner?
I ask the Minister: will special provisions be made for those whose illnesses are of a fluctuating nature? Will the Government ensure that the Benefits Agency medical services are given the funds to employ and train enough suitably qualified doctors to give applicants for incapacity benefit an efficient and fair service? I do not deny that I am unhappy about several aspects of the Bill. I hope that they will be dealt with during its passage through this House.
4.2 p.m.
Lord Dean of Harptree: My Lords, the easy way when dealing with a situation like this is to do nothing, to turn a blind eye and to let expenditure rip. I give the Government considerable credit for tackling a difficult and sensitive issue on the lines of this Bill. After all, the original statute laid down quite clearly the definitions for sickness benefit and invalidity benefit. It was clear that it was intended for people who by reason of some

515
specific disease, or bodily or mental disablement, were unable to work. As my noble friend said in introducing the Bill, the definition has been progressively widened to introduce non-medical factors, and it has become increasingly difficult for GPs to work the system. Therefore I believe that the Government are right to act. I am very glad that they are conducting detailed research. It is clearly very important to get the definition right if we are to avoid hard cases arising.
Another reason why I believe that the Government are right to act is that in all such social security matters we have to get a balance between the needs of those who are on benefit and the cost to those who have to meet the cost; namely, employers, employees, the self-employed and the taxpayer. That balance has to be kept in mind all the time. In making changes such as this from an old system to a new one, the transitional arrangements are all-important. They were referred to in particular by the noble Earl, Lord Russell. After all, expectations are built up. There must be many people who have been on invalidity benefit for a long time who were led to believe that they were likely to remain on the benefit for life. As a consequence, their budgets, mode of living and housing arrangements have been built upon the expectation that the benefit will continue. I am very glad to hear my noble friend say that those who are on invalidity benefit at the present moment will continue to have their rate of benefit protected. I assume that will be so only so long as they qualify under the new test.
As I understand it, three broad categories of people will he affected by the transition arrangements. First, there are the most severe cases, who, as my noble friend pointed out, will have no new test at all. They will go straight on to the new benefit. If they have been on benefit for any length of time, it will remain at the same level as invalidity benefit and will be up-rated on an annual basis in the customary way. The second category will be those who will undergo the new test and who will qualify. They will move from invalidity benefit to incapacity benefit. That will be paid at the same rate after 52 weeks of incapacity. Those groups seem to me to be straightforward. What about the rest?
There will be another category of people who will undergo the new test and will fail. That is not a new situation; it happens under the existing arrangements. But I assume that more people will be involved. I wonder whether my noble friend can give us a little more information about that category. I assume that some of those people, when they lose the benefit, will be entitled to one or more of the "back to work" benefits. Others will be entitled to income support. In those categories it seems very important that we should avoid hard cases arising. Certainly the organisations that represent the disabled are concerned about this group. They feel that there will be some cases where there will be substantial loss of benefit, and hardship will be created. I hope that my noble friend will be able to give us some assurance particularly about this category of people.
I very much welcome what my noble friend said about people being able to do 16 hours' voluntary work without losing benefit. That is immensely important for disabled people: they can do some useful work; they
516
feel that they are wanted; and it gets them out of their own home environment. That is most welcome. I understand, too, that—possibly not as part of the Bill but as part of this package—it is the Government's intention to improve the motability scheme. It is a very valuable, imaginative scheme which was introduced some years ago when we began to recognise how important it is that those who are disabled should have the maximum mobility. The scheme has been improved in the light of experience over the years, and I understand that there is to be a further improvement as part of this package. Perhaps my noble friend can give the House a little more information about that.
In conclusion, I believe that the Government are right to tackle this difficult and sensitive issue on the lines of the Bill. But I hope that my noble friend will be able to give the House some assurances particularly about those who will not be eligible for the new benefit.
4.9 p.m.
Lord Ashley of Stoke: My Lords, we have just been listening to the lone voice supporting the Government in this debate. I am afraid that I have to say that it was not the most convincing speech I have ever heard the noble Lord make either in this place or the other place. When the noble Lord referred to the old and the new system, that in no way disguised the fact that the new system under this Bill is very damaging indeed to disabled people. There can be no doubt about that among the organisations concerned with disabled people and disabled people themselves.
The basic fact about the Bill is that it attacks the recipients of sickness and invalidity benefit. It criticises both them and doctors. It criticises the recipients as malingerers, which means crooks, and the doctors for being less than truthful. Those are very serious allegations. The Government have not begun to substantiate any of them. My noble friend Lady Hollis in her marvellous speech was not quoting Labour Party propaganda. She was citing the Government's own research. It will be very interesting to see how the Government manage to meet and respond to that kind of criticism. I find it very impressive to quote the Government's own research. I had intended to raise some of the points which have already been mentioned but I do not propose to repeat what my noble friend said.
Basically, the Bill will reduce the very low incomes of disabled people. Those incomes are already grossly inadequate. It will hurt those people where they can be damaged most, and that is in their pockets. Their poverty will be made even worse. It will intensify their sense of persecution. I have spoken to many of them and I know how very deeply disturbed they are about it.
The new incapacity test has been well described by various speakers in the debate. To test on functional grounds whether any person is fit for any work, which is the core of the Bill, is a very major step. it is very controversial, to put it mildly. Yet the final details will not be available until August. So we are now discussing a Bill of which we do not know the details. That is a very strange procedure. We are debating the Bill today and

517
will have to consider further stages of it without having precise knowledge of that very controversial test. Frankly, it is an absurd situation.
All we can do is consider the questionnaire in the consultation document. I hope that the Minister looked at the evidence of the citizens' advice bureaux. It shot the Government's case to ribbons. It was devastating. In the CAB's view, the questionnaire was loaded with loaded questions. The CAB felt that it was ambiguous and imprecise, with all or nothing questions, and was particularly difficult for mentally handicapped people. Yet it is on that information or something like it that the finances of disabled people will depend. It is like giving them cardboard crutches. The Government must do better than that. Disabled people are being let down by the provisions of the Bill.
I appreciate that determining incapacity for work is very difficult. The Government have very serious problems to consider. I accept that straightaway. I also accept that the old, cosy attitudes have been shattered by new technology. Paralysed people can now function by blinking, and those who have seen them regard it as a minor miracle. Also telecommunications permit worldwide contact from a bedroom. Willpower can be more important than muscle power and intellectual skill and experience can be most crucial of all.
If that is the case, and I believe that it is indisputable, how can an inflexible test be expected to operate? Such an inflexible test is almost bound to fail, unless there is a major allowance for discretion and common sense. There is no such allowance in the provisions of the Bill.
One of the outstanding disability groups is the Disability Income Group. I was disappointed that that group's amendment, which suggested,
"work which he can reasonably be expected to do",
was not accepted in the Committee in another place, particularly as I understand that the panel of 80 experts was told to think of the concept of people,
"not normally expected to work".
Some such concept should be part of the Bill.
It is quite clear that the incomes of disabled people are going to fall. That is the intention of the Bill. The Minister made no attempt to disguise that fact. It is deplorable. I entered the other place in 1966 and began to support the campaigners for a comprehensive disability income. It is very regrettable that after more than 25 or 26 years we are moving away from the concept of a comprehensive disability benefit rather than moving toward it. I cannot understand how any government can move in that direction.
It is particularly disturbing that the Bill looks likely to create a major gap in the welfare system, in that people will be deemed fit for work by the Benefits Agency, and therefore denied incapacity benefit, and will be assessed as unfit for work by the Employment Service and denied unemployment benefit. We simply cannot have two government agencies giving conflicting rulings to the detriment of disabled people. People are either fit for work or they are not fit for work. They cannot be both. Simple logic precludes us from fiddling about and shilly-shallying. It is one or the other. At the
518
very least every disabled person should be offered the crumb of either incapacity benefit or unemployment benefit. It is illogical and unjust to deny both.
In conclusion, the Bill seems to have been drawn up by bureaucrats isolated from reality. Unfortunately, it has been given the imprimatur of government Ministers. Disabled people cannot be forced to work, nor can employers be forced to employ them. When disablement strikes, there has to be a sensitive process of readjustment and rehabilitation. It is not an all-or-nothing situation. There needs to be a proper, partial incapacity benefit and not the means tested DWA. I hope that the Government will heed the voices of the disability organisations and respond to the anxieties and dismay of disabled people themselves.
I have an apology to make. Because of a previous engagement, I must leave the Chamber now. It is a gross discourtesy to the House and I apologise for it but it is inescapable. I shall read the proceedings with very great interest and especially the speech of my noble friend Lady Turner and the response of the noble Viscount, Lord Astor. I apologise to them for being unable to stay. I hope that my words will at least be considered by the Government.
4.20 p.m.
Baroness Turner of Camden: My Lords, this is another unpleasant Bill from this Government. Many noble Lords have already expressed their concern about it and, as has already been said, only one noble Lord spoke in its support. I do not want to repeat a great deal of what has been said.
As we know, the intention is to replace current sickness and invalidity benefit with a new benefit, incapacity benefit, from April 1995. The Government have been frank about it: one of the objectives is to save money. If it were simply an exercise to simplify benefit structures we might perhaps be disposed to look at it in a rather different light. It is further alleged that it will encourage employers to improve the motivation and health of employees. In that respect it somewhat resembles the recent Bill considered by your Lordships—the Statutory Sick Pay Bill. Indeed, the Secretary of State in the other place made it clear that the two measures are all part of the same social security package. Both are intended to cut social security expenditure and both will undoubtedly have the effect, when fully in operation, of denying benefits to those who really should receive them.
At the root of both Bills is the belief, voiced to some extent by the Prime Minister, that a lot of people are now receiving IVB when they are simply swinging the lead. Indeed, in a debate in the other place, as my noble friend Lady Hollis said, the Prime Minister actually said that it beggared belief that so many more people have suddenly become invalids, especially at a time when the health of the population has improved. He said that he made no apologies for looking at this area of expenditure, and the clear implication is that people are receiving IVB who should not be receiving it.
Everyone would agree—certainly on this side of the House —that it is the duty of government to ensure that there is a review from time to time of social security

519
expenditure and the benefit structure with a view to ensuring that changing needs are being properly met. Of course governments have a duty to consider whether all taxpayers' money—I stress "all"—and not just social security expenditure is being wisely spent.
Our quarrel with the Government is that the reviews they conduct always seem to result in the poorest and most vulnerable becoming even worse off. An example of that was their decision to do away with wages councils, where there is evidence that even low wages council rates have been cut by unscrupulous employers now that they no longer have to pay a statutory limit.
I know that the Government commissioned studies by the Department of Social Security and by independent research establishments. They were referred to by the Minister and by my noble friend Lady Hollis. But it appears that the studies reveal that the reasons for the growth in claims are multifactorial. There have been demographic changes so that there are now more elderly people. Many of them have been made redundant in the shake-outs that have taken place in industry and commerce over the past 10 years. It is difficult for a man over the age of 50 to obtain work in many areas. That fact itself has a bad effect on health.
The Disability Income Group takes the view that the evidence shows that demographic and other changes have had a significant impact on the growth in numbers of IVB recipients and that the increase is largely a consequence of a lack of realistic work opportunities. If it is the Government's intention to get as many people as possible currently receiving IVB back into employment of some kind, perhaps they should look at other ways of achieving that desirable object.
Is it sensible to keep loading social costs on to employers? The Statutory Sick Pay Act is a case in point. Et is not likely to cause employers to take risks with applicants with poor sickness records or with people who have been on IVB. Then again there are the new access to work measures under which employers are to pay 50 per cent. of the cost of equipment that enables disabled people to work. If the Government were to look again at their policies in those areas, I may be inclined to take more seriously their claim that the benefit changes proposed in the Bill are intended to take people off benefit and put them back into work; in other words. that they are benevolently inclined.
Moreover, there is no doubt at all that the new benefit will mean substantial losses to people who are not well off in the first place. The Disability Income Group produced figures showing what those losses may be for various sections of people. The biggest cut of all is in the 29 to 52-week period when a married man of 40 with two children could lose as much as £1,095.60 in a year. A married man of 50 with no children would lose £1,132.80 a year. Prose are astronomical figures when one looks at what people are receiving anyway—and they are people who are not well off by any reckoning.
Therefore, in addition to the worries consequent upon ill health, people are to be further stressed by the loss of a substantial amount of income which they might have received had the present system continued. As we know, there will be a new definition of "incapacity for work" which is being established by a panel of experts. A
520
number of noble Lords mentioned the problems in regard to the new definition. It was pointed out by the organisations involved with the disabled that loss of functional ability does not necessarily equate with incapacity for work. A so-called purely medical test of incapacity for work may fail to take account of the realities of life for the disabled. My noble friend Lord Ashley dealt with that point at some length based on his own unrivalled experience.
The test of incapacity for work associated with invalidity benefit has taken account of many factors, including age, education, experience, state of health and other personal factors, including the likelihood of obtaining employment. All those factors are to be excluded from the new test. There is a fear that many people who are not able to do full-time work will fail the new test. Indeed, as has already been said, the aim would appear to be to exclude around 20 per cent. of the people currently eligible for IVB. If that is so, many more claimants will be found capable of work, even though they have a disability or illness which substantially restricts their work capacity and therefore their employability.
What will happen to such people? Will they suddenly become unemployment statistics once again as they start claiming unemployment benefit? There is a fear that some people may fall between two benefits, so to speak. They may not be fit enough to qualify for the jobseeker's allowance but too fit for incapacity benefit. They simply may not be fit enough to go out to look for work in a way that claimants will be expected to do in order to qualify as a jobseeker.
It is therefore another nasty Bill. The intention clearly is to save money and to do so at the expense of people who can ill afford to make so substantial a contribution to public funds as envisaged in the savings here. Over the years the Government have foolishly cut the Treasury provision to the National Insurance Fund and provided national insurance rebates to persuade people to leave SERPS and occupational pension schemes who would have been better off not doing so. Thus the Treasury has forgone income it might otherwise have had. We should not now be looking to make savings from the poor and the sick. We do not oppose Bills at Second Reading in this Chamber. But we must do our best in Committee and at Report to ameliorate to some degree this quite awful Bill.
4.27 p.m.
Viscount Astor: My Lords, the Bill that we are considering today is integral to the evolution of the welfare state. It is not simply a cuts exercise. The benefit system needs to be targeted and sustainable. The Bill addresses the changing needs of the welfare state ensuring that benefits are paid to those who genuinely need them at a level that the country—the taxpayer—can afford.
The noble Baroness, Lady Hollis, said that it was an attack on the disabled. It is not. She said that it is not the disabled who are abusing the system. I agree with her. It is those who are not disabled who are abusing the system. The noble Baroness quoted some of our research figures and in doing so proved why the Bill is

521
so necessary. Of course, as always, when we look at these Bills, the Labour Party offers no alternative policy. It contracted out responsibility for its policy development to the Social Justice Commission—a form of privatisation, I suppose. It concedes the need for reform but has not yet offered alternatives of its own. In order to make sure that I am entirely fair to your Lordships, I should point out to the noble Earl, Lord Russell, that his party does not even have the excuse that it contracted out to an independent body. However, I shall now turn to the Bill.
Your Lordships are concerned about the medical test. I appreciate those anxieties, which are understandable. In another place while the Bill was going through Parliament the Government offered the Committee an opportunity for a briefing by my department's medical advisers and officials on some of the detailed aspects of the test. As in another place, I am happy to make that offer to those of your Lordships who have spoken today and who will find it useful, perhaps before the Committee stage. I intend to write to your Lordships who have spoken to offer that opportunity at a time and date when we come back after the recess, if any of your Lordships find it useful. The medical test is complicated and it is a departure; it is a new test. I will today attempt to answer as many questions on it as I am able.
General practitioners are placed in an unacceptable position in their role as gate-keeper to the invalidity benefit. Not only can that role upset the doctor-patient relationship, but it can also impact on a GP's earnings if a patient decides to leave the practice when the GP refuses to issue a medical certificate. In a recent independent survey, two-thirds of GPs interviewed said that they had issued certificates to people who were either not sick at all or were not sick enough to be incapable of work. The new arrangements for long-term incapacity benefit will relieve the GP of the burden of issuing medical certificates to claimants who are long-term sick. Incapacity benefit is intended for those who are medically incapable of work. The test must focus on the effects of the medical condition. We are taking the greatest care in the development of the test. I have already outlined the degree of consultation and evaluation that we are undertaking. Moreover, personal input from the claimant, the GP and the Benefits Agency doctor will ensure that each case is looked at on an individual basis and assessed accordingly.
The consultation document that was published last year set out detailed proposals for the medical test. The test is complex, and it is right that we consult widely to ensure that the final proposals are an effective assessment of incapacity for work. In addition to consultation process, we are undertaking a formal evaluation of the test. The objectives of the evaluation are to test the validity of the method of assessment, the effectiveness of the questionnaire and other documentation, and the consistency of the medical decision making and the new adjudication arrangements. The evaluation exercise has three stages: pilot, main stage and follow-up. Before the regulations are made, we shall
522
produce a report that summarises the findings of the consultation and evaluation, setting out in detail the new test.
The noble Baroness, Lady Hollis, made the point that surely the GP was the best person to know whether his patient was fit for work. A GP is not an occupational physician and cannot be expected to be able to assess his patient's abilities in the job market as a whole. Some feel that they have to try to make assessments from a poor knowledge base; others feel that this type of assessment is outside the jurisdiction of GPs. Perhaps I may quote from part of a programme of research carried out by the department to examine the factors that have led to a growth in those receiving IVB. One of the GPs interviewed for the report said:
"you're ultimately deciding whether someone's going to get some money or something … and it's better in many ways, if there's someone, an independent person, a third person … I do wish it didn't rest with us".
The Government have never said that they think GPs are to blame for the growth in IVB or that they have acted in any way improperly in issuing certificates. The Government have listened to what GPs have said about how they feel as the gate-keeper for social security benefits.
The noble Baroness, Lady Hollis, offered some bizarre examples of jobs. I share the anxieties of the noble Baroness. Presently, where an adjudication officer decides that a person is incapable of his normal occupation but is capable of alternative work, case law requires that he specifies the type of work that that person may do. The jobs do not have to be available. The test is: if such work was available, could the person do it? That is why under the new test there will be no such requirement. The new medical test gets away from the method of assigning people to particular jobs and looks at the physical, mental and sensory capabilities required to do work, and by consensus will set a threshold at or above which capacity for work is substantially reduced.
It would not be right to continue to pay incapacity benefit to people who are not incapable of work. Unemployment benefits are available to people who are not incapable but are available for work. Unemployment services provide a range of programmes to help people back to work according to their particular needs. This ranges from help with fares to get to interviews to retraining for a new occupation. Those people who have been out of work for a long time are given priority.
The noble Earl, Lord Russell, asked about mental health difficulties. We are taking steps to ensure that the particular needs of people with mental health problems are addressed. A special procedure is being developed for people with severe mental illness. There will be questions in the questionnaire designed to provide information in cases of mild to moderate mental illness. In all such cases, a departmental doctor will consider the matter before a decision on entitlement is made.
The noble Earl asked about the purpose of the mental health questionnaire. The purpose is to provide a scored assessment of the effect of mild to moderate mental health problems on a person's capacity for work. It is aimed at the borderline between those people who can be considered fit enough to return to work and those

523
who are still unfit. It is not a diagnostic test of any mental condition, but provides information on the features of mental health problems that affect incapacity for work. Members of the assessment panel are working on the questionnaire to derive a threshold at or above which capacity for work is reduced by the existence of mental health problems.
In all cases where there has been a certified diagnosis of mental illness, the matter will be referred for advice to Benefits Agency doctors after 28 weeks. Information will be sought from the person's GP about the severity of the condition, including details about clinical findings and whether the person requires secure accommodation or is capable of independent living. In severe cases no questionnaire will be issued. The Benefits Agency doctor will return the case to the adjudication officer with the relevant information.
The noble Countess, Lady Mar, asked about Benefits Agency doctors being capable of assessing functional limitations and medical conditions and giving advice. Those doctors have long experience of, and skills in, the assessment of disabilities. They will be fully conversant with the requirements of legislation and trained in the application of the new test. They will be able to provide independent advice without the constraints of the doctor-patient relationship which many GPs feel frustrate their ability to give an objective opinion.
Benefits Agency doctors will be involved in various ways. They will offer immediate advice to adjudication officers on the consistency between the information provided by the claimant on his or her functional limitations and the diagnosis and statement of main disabling conditions by the GP. They will obtain factual medical information from GPs or hospitals and carry out a functional assessment following a medical examination. The assessment will include the confirmation of diagnosis and the main disabling condition, a functional assessment of the person's ability to carry out the activities included in the test, a record of the person's functional limitations, including an explanation of any differences in the customer's questionnaire, and a recommendation as to whether or not further reviews should take place, if at all.
The noble Earl, Lord Russell, asked about the questionnaire and whether it was an objective medical test. The questionnaire is the first step in the gathering of evidence to determine the claimant's incapacity. It continues the emphasis on the greater involvement of claimants in the decision-making process. The questionnaire focuses on capacity in terms that a lay person can understand. The proposed scheme will provide a comprehensive system that will give a full and fair service to all claimants.
The noble Earl was also worried about whether the test was just a limited look at someone's illness. It will not be a snapshot of medical assessment but will involve the completion of a questionnaire by the claimant, a statement of diagnosis from the claimant's GP, a list of principal disabling conditions and, when required, referral to a departmental doctor for report and examination. Departmental doctors who examine claimants will take account of the variability of the conditions over a period of time. Thus the assessment
524
will create an overall picture of the effect of the medical condition on the person's ability to carry out a range of work-related activities and hence their capacity to work.
We are developing a test which assesses specifically the effects of a claimant's medical condition on their capacity to work. The test is not looking at the overall ability to get and retain a job. Where a person is disadvantaged in the labour market because of factors such as age and qualifications, other forms of help are available to them. Our original intention is to introduce a test which is based on the effects of medical conditions. Many people have said that factors such as, experience and qualifications should be taken into account. These are not medical factors. The ability to travel to work is, however, different and its inclusion into the consideration would not necessarily invalidate the test. We have recently initiated a further validation exercise whereby we shall be considering this further.
My noble friend Lord Dean of Harp tree, asked about people who fail the test. It would be wrong to continue paying incapacity benefit to people who are assessed as capable of work. Those who fail the test will be able to register as unemployed and claim unemployment benefit and income support if they are unable to find work. Those who find a job within two months of leaving incapacity benefit will be able to claim disability working allowance.
My noble friend also asked about protection and how long it will last. Existing IVB claimants will transfer to incapacity benefit at IVB rates so long as they remain incapable of work. The rates of benefit will be up-rated annually except for the additional pension which will be frozen at the April 1995 rates.
Much of the debate has focused on helping sick and disabled people to get back to work. Many people who receive incapacity benefits do indeed want to work. We are making important changes to provide help for those who wish to go back to work. Benefits for the disabled have undergone massive and effective change in the past two years with the introduction of the disability living allowance and the disability working allowance. The disability working allowance in particular strives to provide assistance for those disabled people who wish to work and also provides a very important link back to the higher rates of incapacity benefits should the individual's attempt at work fail. Although take-up has been disappointingly slow, we must remember that the benefit is still quite new and I hope that take-up will improve in the future.
We are making a number of improvements to disability working allowance. The recipients will qualify for remission of prescriptions and dental charges from April 1995. We are introducing a disregard from October this year for up to £40 worth of childcare costs. This will be worth up to £28 per week for DWA recipients who wish to return to work with children under 11 years of age.
Recognising that many sick and disabled people wish to undergo training before starting work in future, they will be allowed to attend training courses between their final payment of incapacity benefit and starting work, and will still qualify for DWA. This is yet another step

525
towards ensuring that those people who wish to work will receive a comprehensive package of support that will enable them to re-enter the labour force.
In addition, the Secretary of State for Employment will be examining very carefully the circumstances of those who will become unemployed after being disallowed incapacity benefit; the intention here is to enable them to get back to work.
We are also carrying forward existing arrangements to allow some of the work and earnings of members of disability appeal tribunals to be disregarded when determining entitlement to existing incapacity benefit. We shall go further by introducing arrangements for Disability Living Allowance Advisory Board members. This, like the arrangements for voluntary work has been widely welcomed.
The noble Earl, Lord Russell, was anxious about the powers to make delegated legislation. I hope that your Lordships will see in this case that the powers are being properly sought. Secondary legislation is appropriate for the medical tests for three reasons. First, there will be a lot of detail to put into legislation which will needlessly add to the ever larger volume of statute law. Secondly, defining incapacity for work is a difficult process. Amendments may need to be made quickly to the medical test. Finally, making provision for delegated legislation allows for both the new arrangements to be brought in in 1995 and a wide-ranging consultation and evaluation exercise. Transitional issues too are complex. Regulations will allow a degree of flexibility if change is necessary in the light of operational experience. I hope that that provides an assurance to your Lordships. The regulations will be subject to the affirmative procedure if made within three years of Royal Assent.
The noble Baroness, Lady Hollis, spoke about IVB rates compared with unemployment and sickness benefit rates. The average amount of IVB currently in payment is about £90 a week. The earnings related additional pension can be up to £70 a week on top of that. IVB is paid without regard to financial need, occupational pension or the savings which the individual may have. That compares to the current rate of unemployment benefit of £45 a week. In future, the basic rate of long-term (highest) incapacity benefit will still be about 25 per cent. higher than the rate of unemployment benefit.
The noble Baroness also asked about the additions paid for child dependants. The increase will be paid with the highest rate of incapacity benefit for each of the dependants.
Baroness Hollis of Heigham: My Lords, perhaps I may help the Minister because this is a crucial point. We were talking about the higher rate for the short-term period which was between 26 weeks and 52 weeks when no child dependency allowances come into play. Therefore, a disabled man, married and with two teenage children, may find his incapacity award about £30 a week below what he would be getting in the same position on income support. Will the Minister confirm those figures, please?
Viscount Astor: My Lords, I was trying to point out to the noble Baroness that the child dependency increase will be paid at the highest rate of incapacity benefit for each child. I shall study what I said earlier and also what the noble Baroness said. If there are any differences, I shall perhaps write to the noble Baroness.
Incapacity benefit will continue to be paid even to those who have other income or savings. The benefit can be topped up by occupational pensions or income support for those who need it. The basic rate of incapacity benefit will be the same as the existing basic rate of invalidity benefit. Age additions will be payable to those whose incapacity begins early in their working life before they have been able to make their own private provision. Increases will continue to be paid to those who have a dependent spouse or dependent children. Even after the changes, about 70 per cent. of the new, long-term incapacity benefit recipients will have circumstances which will take them above income support entitlement.
The noble Baroness was also concerned about people who fail the incapacity test, but who are considered by the employment service as unfit to work and therefore will not qualify for any benefit. The employment service does not question the capability of those found fit to work by an adjudication officer. Those who are available for and are actively seeking work, will be eligible to claim unemployment-related benefits.
The Bill contains specific provision to ensure that a decision on incapacity benefit applies to other benefits. The noble Baroness was also concerned about disabled people being disadvantaged in the jobs market. All Employment Service and in Training, Enterprise and Educational Directorate programmes and services for unemployed people are open to unemployed people with disabilities, often with entry criteria being relaxed. In addition, there is a wide range of services and schemes for those who need special help.
The noble Earl, Lord Russell, was concerned also about this subject. A person who is either incapable of work or who is registered as unemployed, will qualify for national insurance contribution credits. The new more objective test of incapacity will apply across the social security system and will establish whether a person is medically capable of work. My officials are working closely with colleagues in the Department of Employment on the design of the new test. Any claimant found capable under the test who wants to receive benefit will need to make a claim for unemployment benefit.
Lord Richard: My Lords, perhaps I may ask the noble Viscount a simple question. Are we meant to hear what he is saying or is this just a conversation that he is having with himself?
Viscount Astor: My Lords, I am sorry if the noble Lord cannot hear what I am saying. I was trying, within the time available, to answer as many questions as I could. The noble Lord can study Hansard tomorrow so he will be able to read anything that he could not hear.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that most of us have listened with very great interest to his careful and skilful analysis of some of the problems?
Viscount Astor: My Lords, I am grateful to my noble friend for pointing that out. Perhaps noble Lords opposite do not want to hear what really matters. Perhaps they want to hear only what suits their case—and nothing else. If their amplifiers are not working well, I am sure that noble Lord opposite can make appropriate noises in the right direction.
The Bill is a fundamental reform. It is backed up by the findings of an extensive research programme. I believe that it is a fair response to the conflicting pressures of making provision for sick and disabled people and ever-growing expenditure. I commend the Bill to the House.
Baroness Hollis of Heigham: My Lords, before the Minister sits down, perhaps I may first assure him that under the Bill, for six months disabled men with families will be worse off than family men on income support and without disabilities. If the Minister is surprised by that, perhaps we may hope that that is a good sign and that he will be willing to amend the legislation in Committee. Secondly, does the Minister agree with his own Permanent Secretary, Sir Michael Partridge, who told the Public Accounts Committee:
"The theory that increased numbers on invalidity benefit is due to fraud is not sustained by the research".
Does the Minister agree with that? If he does agree, is it not the case that the medical test is being changed precisely because there is no fraud in the system—because if there were fraud, it could be rooted out in other ways?
Viscount Astor: My Lords, the noble Baroness is confused about what is and what is not fraud. I believe that the Permanent Secretary was entirely clear about what he regarded as fraud and what is something else. The noble Baroness is confusing the two issues totally. Fraud is not telling the Benefits Agency about one's entitlement or working when one is claiming benefit. That is a totally different matter from whether the test is objective and whether it is working. It has nothing at all to do with it.
Earl Russell: My Lords, before the noble Viscount sits down, perhaps I may ask him a purely procedural question. If it should be the wish of the House to approve the Bill but not to approve the medical test, by what procedural rule can the House pursue that objective?
Viscount Astor: My Lords, the regulations with regard to the medical test will be affirmative regulations and will come before your Lordships. Your Lordships will have a chance to debate those regulations, and the noble Earl can table a Motion against them.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Insolvency (No. 2) Bill
Brought from the Commons; read a first time, and to be printed.
British Railways Order Confirmation Bill
Brought from the Commons; read a first time, and (pursuant to the Private Legislation Procedure (Scotland) Act 1936) deemed to have been read a second time and reported from the Committee.

Enforcement of Community Competition Rules: ECC Report
4.54 p.m.
Lord Slynn of Hadley Lord Slynn of Hadley rose to move, That this House takes note of the report of the European Communities Committee on the Enforcement of Community Competition Rules (1st Report, HL Paper 7).
The noble and learned Lord said: My Lords, the prohibition on anti-competitive practices, which is set out in Articles 85 and 86 of the Treaty of Rome, has long been recognised as essential to establish the freedom of movement of goods, services and capital in the Common Market. It is no less essential that rules should have been established for the investigation and enforcement of those provisions. It is no less essential that if that were done by the Commission (as it had to be in view of the trans-national nature of many of the agreements and in view of the fact that many member states did not have a developed system of anti-competitive laws), those rules should be applied on a uniform basis.
By 1982, the backlog of cases before the Commission was considerable and there were many complaints by enterprises and their lawyers about the way in which the Commission was carrying out its tasks. For that reason, your Lordships' Select Committee on the European Communities conducted an investigation into those procedures and reported. Its criticisms were taken seriously by the Commission and, to a considerable degree, its recommendations were implemented. It was a remarkable achievement that that report was made and that its recommendations were so fully implemented.
Lately, however, there has been renewed concern about certain aspects of the Commission's procedures, as expressed by business enterprises and their lawyers. One reason—it is not the only one—is that, inevitably, the number of cases to be investigated by the Commission has increased. It is for that reason that the Select Committee decided to investigate the matter again and to see whether we could recommend further changes to avoid those difficulties. The committee has received very great assistance. We wish to express our appreciation to the many witnesses who gave evidence: the Bar, the Law Society, the Confederation of British Industry, the Director General of Fair Trading, the Monopolies and Mergers Commission and others. We should like to pay tribute particularly to Dr. Claus-Dieter Ehlermann, the Director-General of the Competition Directorate, not only for his evidence, but

529
also for his open-minded consideration and reception of our proposals. We are also greatly indebted to Mrs. Eileen Denza, our legal adviser, for her considerable and valuable help in preparing our report.
I do not propose to detain your Lordships with an analysis of much of the detail that is set out in our report, but I invite your Lordships' consideration of four particular matters. The first concerns the structure of the Commission's teams. It is sometimes said that it is wrong that one body should set out to detect breaches of the treaty, to prosecute and then to take a decision about whether there have been violations of Articles 85 and 86. There is a superficial attraction in that approach and in saying that the same person should not be judge, prosecutor and policeman at the same time. However, in the end we were not persuaded that that was a necessary or desirable course. The setting up of one or more independent agencies would create problems. Even the setting up of separate directorates-general within the Commission would not be easy and we do not think that it would necessarily remedy the defects of which complaint has been made. We concluded that subject to the other changes that we recommend to achieve the goals of transparency, fairness and effective deterrence, it was not necessary to do that and that the function should be left with the Commission.
The second matter that we considered arose out of a number of very serious complaints that had been made by lawyers and business enterprises that they were being denied access to the Commission's files when their business affairs were under investigation. It is only fair to say that the Commission and, in particular, Dr. Ehlermann in his evidence, denied that there had been such a refusal. It appeared to the committee that it was essential that those enterprises which were being investigated should have access to material necessary for them to know the case made against them and to prepare their defence. However, we recognise that against that there has to be balanced the need for confidentiality and a justified claim by the Commission to preserve some of its internal working documents.
The task is not an easy one, but it seemed to the committee that it is essential that people should know where they are and to what they are entitled. So we have recommended that the Commission should publish a set of rules on access, making plain the limits of access and what types of documents are not to be made available. Equally we have recommended that there should be prepared an internal manual of procedure for Commission reporters to work to so that parties which are being investigated will know the rules. But we want to go much further than that.
After the last report in 1982, the post of hearing officer was created by the Commission. It was his job to supervise and to preside over oral hearings by the Commission and to make a report before a decision was taken by the Commission. The hearing officer has carried out an important function in relation to the oral hearings and the follow-up, and he has done that very well, but in the committee's view his function is too
530
limited. We recommend that he should have interlocutory powers to resolve procedural disputes in the course of an inquiry.
If a company wants to get hold of documents, and the Commission refuses its request, it should be for the hearing officer to decide whether the Commission is right or whether access should be granted. We have recommended some time-limits for the conduct of those inquiries, and the hearing officer should be empowered to resolve those disputes if they arise. Moreover, we think it quite wrong that the hearing officer's report should not be given to the parties, and we recommend that in future that should be done.
That is a big new step, but we recommend an even further step. We do not believe that it is enough that the hearing officer should necessarily have the last word. Following the Single European Act 1986, the court of first instance was established. It has already done good work to the satisfaction of most enterprises in deciding important cases. It has given confidence to business enterprises that there will be a full review of Commission decisions, and that procedural rules will be clarified and enforced.
The committee recommends that there should be a right of appeal from a decision of the hearing officer to the court of first instance, either directly or via a decision of a single commissioner. Otherwise, it seems to us that the practice will continue that disputes about procedure which arise at a very early stage will be the subject of a judicial decision only at the end of the case, perhaps years later when a great deal of work will have been done and perhaps wasted. So we recommend that there should be set up a right of appeal to the court of first instance.
We realise that it might be said that that would take time and cause delay. There might be delay, but we consider that that delay can be reduced considerably if two steps are taken: first, the appeal should be with leave only, we suggest, of a single judge of the court of first instance or of the hearing officer; secondly, we believe that the matter should be dealt with not by the full court or even by a chamber, but by a single judge. That suggestion would require a revision of the Court of Justice's rules. We thought in our report that it might also need an amendment of Regulation 17—the basic regulation which sets out the Commission's rules—but the view has been expressed by a number of eminent members of the Bar that it would not be necessary to revise Regulation 17. We may have been overcautious, but that is something that can be looked into by the Commission's lawyers and, I hope, by the United Kingdom Government's lawyers.
Whether or not Regulation 17 needs amending, the committee strongly urges that that right of appeal to the court of first instance should be set up as soon as possible. We very much hope that whether or not it requires amendment of Regulation 17, the Government will support our proposal. We have every reason to think that it may be a proposal acceptable to the Commission, and we believe that it will be a crucial step in giving business enterprises the confidence to feel that these inquiries are being conducted properly

531
I can deal with the other two points more briefly. The third point concerns a document which is somewhat curiously called a "comfort letter". When the Commission finds that it is unable to conduct a full inquiry and come to a decision within a reasonable time, and when the case is perhaps a relatively simple one, it writes a comfort letter indicating to the business enterprise concerned that it does not really see that there has been a violation of the treaty, but without giving a firm decision. That is good in that it helps to keep down the backlog, but the committee considered that it would be very much better if comfort letters were made more effective, and led, in many cases, to a decision by a single commissioner on the basis of the comfort letter. It would give a great deal more comfort if a commissioner could take a decision on the basis of the letter, and again, if that were properly carried out we do not believe that there should be unnecessary delay.
The fourth matter which is important in the present climate and context is the relationship between the Commission and national competition authorities. There have been many suggestions that investigations into anti-competitive practices should be dealt with more frequently by the national authorities, and the Commission itself has strongly encouraged that as a policy. So far the Commission has given what has been called a notice on co-operation. We believe that many of the less complex cases can well be dealt with by national authorities. We have recommended that criteria should now be established in order to decide whether the case should be dealt with in the UK or in the Commission in Brussels.
It will be necessary though to ensure that there is some supervision of these matters by the Commission, and we hope that that will speed up the process and lead still to uniform decisions within the Community. It may well be that most of our recommendations can be put into place now, or very quickly, without an amendment to Regulation 17, but if amendments to Regulation 17 are needed, the committee urges that the Government should press for the amendment of Regulation 17. Of course it will take time, but that need not hold up our other recommendations.
Lord Clinton-Davis: My Lords, I thank the noble and learned Lord for giving way. As I shall indicate in the course of my remarks, I believe that he and his colleagues have done a tremendous service. However, I am a little puzzled by the omission of one aspect, to which he might later allude. No reference has been made to political influences which may affect the final judgments of members of the Commission. The noble and learned Lord will know that in a number of instances the Commission has divided on these issues by nine to eight or even on the casting vote of the president. Does not that give rise to some anxiety that perhaps the competition elements are subsumed by other political and even national considerations? Why did the committee not choose to take the evidence of a former commissioner with responsibility for competition or, indeed, of the present commissioner?
Lord Slynn of Hadley: My Lords, we did not deal with that matter because it was felt to be completely
532
outside our remit. We were looking at the basic procedures of the Commission and of methods of judicial review. It may be that one of the other sub-committees of your Lordships' Select Committee might be competent to look into political influences and the way in which the Commission operates. However, it was not felt to be an appropriate subject for the sub-committee dealing with law and institutions. I understand the basis of the noble Lord's question, but on this occasion we felt that it was inappropriate to deal with that matter.
I hope that the Government will accept our recommendations. If Regulation No. 17 has to be amended, and if it it going to take time to amend it, the sooner we get on with it the better because it has been in existence for 30 years.
I have not dealt with many of the detailed and minor but important aspects of our report. That would be an improper use of your Lordships' time. I beg to move.
Moved, That this House takes note of the report of the European Communities Committee on the Enforcement of Community Competition Rules (1st Report, HL Paper 7).—(Lord Slynn of Hadley.)
5.12 p.m.
Baroness Elles: My Lords, I support the introduction to the debate, which was ably and comprehensively covered by the noble and learned Lord, Lord Slynn of Hadley. I join him in replying to the noble Lord, Lord Clinton-Davis. Our sub-committee deals entirely with law and institutions. It does not deal with political matters, which are outside the remit of the committee. I support the noble and learned Lord in his reply.
It is sometimes questioned whether the reports from your Lordships' Select Committee on European Communities have any positive effect. In the report before the House today the committee gave a unique opportunity for legal practitioners and others to raise the problems arising from the administration by the Commission relating to competition cases. The matter was initially raised in correspondence from the joint working party of the Bar and Law Societies of the United Kingdom and in evidence to the committee. I mention that in particular to show the basis on which the investigation took place; it came from practitioners in this field.
In 1982 the committee examined the subject for the first time. Many of the recommendations contained in its report were implemented. They involved administrative changes, including the appointment of a person who became known as the hearing officer. Later provision was made in the Single European Act 1986 to establish a court of first instance. That reflected the recommendation of the establishment of a new court subordinate to the European Court of Justice which would have the duty of hearing appeals on questions of law and fact from the decisions of the Commission in competition cases. That was included in the recommendations of the 1982 report. The court's role has proved invaluable in its reviews of Commission decisions relating to competition cases. I welcome the new task that has been

533
given to the court of first instance in reviewing decisions relating to anti-dumping cases that was recently announced.
It should be stressed that in 1982 and recently in the examination of competition rules the Commission was most co-operative and helpful. I endorse what the noble and learned Lord said in relation to the full co-operation of the Directorate-General of DG IV, Dr. Ehlermann, who provided both written and oral evidence which assisted the committee to identify those areas in which changes can and will be implemented. The committee is extremely grateful to him and I strongly endorse the sentiments expressed by the noble and learned Lord.
The problems identified fall broadly into three categories. The first two require administrative action to meet specific difficulties. The first category, which has been generally a matter for anxiety, has been access to the files by a defendant. That was mentioned by the noble and learned Lord, but I wish to stress it because, in practice, they were sometimes available to defendants or to businesses involved in the cases either at the outset of the investigation or at other times only when the statement of objections was served. The procedure is clearly unsatisfactory.
The second category is to improve the conduct of proceedings. Evidence from practitioners showed that an increased role for the hearing officer would assist in dealing with procedural disputes during the course of the proceedings. It is understood informally that the Commission agrees to this proposal and is willing to implement it.
I shall not deal in more detail with the use of comfort letters and block exemptions. However, perhaps I may mention that they were strongly encouraged in the recommendations in our 1982 report in order to meet the vast backlog of notifications with which the Commission was faced. In 1982, approximately 4,000 notifications were waiting to be handled but at the end of 1992 the 22nd report on competition policy noted that approximately 1,560 notifications were waiting. Admittedly, that is a decrease but it is still formidable.
The problems with this form of comfort letter are that the measures are not legally binding and they can have consequences for third parties. Therefore the matter needs investigating. In the past few years dramatically increased fines have been imposed by the Commission without any apparent justification. We recommend that reasons for fines should be set out so that an element of transparency is introduced into the decisions.
The third category of recommendations requiring amendment to Regulation No. 17—a regulation that has governed the distribution of administrative powers between the Commission and national authorities in relation to Articles 85 and 86 of the treaty since 1962—would contribute to meeting many of the difficulties encountered at present. Among those that would be welcome is the imposition of a binding timetable, which was introduced informally by Sir Leon Brittan when he was responsible for competition policy. Deadlines can work; they were imposed by the 1989 regulation governing mergers and acquisitions. The task force appointed to handle such cases has operated effectively.
534
It must be observed that while the size of the staffing of DG IV cannot be the sole reason for failure to handle the large backlog of notifications, it was stated in the 22nd report that the number of staff was 407, of which only 44 per cent.—fewer than 200—were handling Article 85 and 86 cases. That appears in paragraph 125 of the report. The equivalent staffing in the US Department of Justice is more than 1,000; and that is without the added complication of receiving evidence in one or more of nine languages. There is a need to look at the staffing to see how it can be handled, in particular as a result of the enlargement of the Community to 16 countries. Presumably there will be an increasing workload on the Commission as regards competition cases. I do not see how it can manage with a staff of fewer than 200 and a large backlog of notifications.
In order to lighten the Commission's burden it issued a notice to give encouragement to national courts to hear more competition cases, to which the noble and learned Lord referred. Although our report supports that concept, it raises quite a number of problems: the question of which member state court is to be the forum of the complaint; increased costs arising from translation and interpretation services; the burden of costs on the complainant if the outcome is negative, which is not applicable in cases decided by the Commission; and the use of a block exemption as a solution being reserved to the Commission. Those matters may be overcome. If so, the Commission's task may well be lightened, but I believe that the matter needs much closer examination as it is possible also that recourse would then be had to the European Court of Justice under Article 177 of the EC treaty.
Whereas in most areas of Community law administration is left to member states, competition rules are administered directly by the Commission. I believe that the report has fulfilled a useful function in that the committee was able to have the benefit of discussions with experts in the field about the many anxieties which have been raised and which have faced practitioners in recent years.
It is hoped that the recommendations made by the report will achieve what are considered to be the desirable objectives of fairness, transparency and speed. It is perhaps worth pointing out that, although the proposals are based almost entirely, though not wholly, on evidence produced by British experts, they will benefit all those who practise in the field throughout the European Community. I shall listen with great interest to the Minister's reply, particularly in relation to the possible amendment of Regulation 17.
5.21 p.m.
Lord Bruce of Donington: My Lords, the House will be extremely grateful for the report prepared under the chairmanship of the noble and learned Lord, Lord Slynn of Hadley, and will be grateful also to the committee which produced the report that we are now discussing.
I should say at the outset that although, as will emerge, I agree with many of the observations made in the report, I have the most profound misgivings concerning certain aspects of existing procedures and

535
structures and, more particularly, profound unease as to the role of the Council, the Commission and, in some cases, the Government in connection with these extremely important matters.
believe that it will be agreed—and I hope that the noble and learned Lord agrees—that the report has certain limitations. I am not saying that that diminishes its importance or the cogency with which the arguments are conducted. However, in the main, those limitations are connected with the procedures and, indeed, the structures that carry out the procedures, starting from the commencement of the investigation until the solution of the case:. A certain amount of time elapses before the investigation commences. I hope to persuade your Lordships that that is a matter of some importance.
The next limitation of the report is that it deals with Articles 85 and 89 of the Treaty of Rome, which still applies even after the amendments of Maastricht. However, it does not deal with the enforcement powers applicable to infringements of the Treaty of Paris of 18th April 1951 in connection with, in particular, the payment of illegal subsidies. That question and the whole question of the status of the Treaty of Paris is not dealt with at all in the report. As your Lordships will see, that may be extremely germane to the views which I hold about the recommendations made in the report.
The committee's report lays down quite correctly the objectives of law enforcement which are to be found at paragraph 96 which states:
"The objectives of law enforcement are that it should be fair—justice must be done; transparent—justice must manifestly be seen to be done; swift—justice delayed is justice denied",
and your Lordships will observe at a later stage of my remarks that I shall return to that point. The paragraph continues:
"and deterrent—the sword in the right hand, as well as the scales in the left".
As the committee's conclusions are directed at Articles 85 and 89 and at the procedures in connection with them, I agree entirely with many of its observations. It is desirable that national courts should be brought into a wider sphere and be given encouragement. It is desirable that the court of first instance should be used more extensively and I shall have more detailed observations about that. Pending any changes—and I shall certainly recommend some—I agree that Directorate-General IV should have more lawyers and accountants in it in order to carry out more satisfactorily its tasks. In general, on the assumption that no fundamental changes are made, I am in substantial agreement with the report, subject to one thing only: I think that it is highly undesirable that the functions of investigation, prosecution, judgment and, ultimately, punishment or acquittal should be in the hands of one body. That is extremely undesirable. I am known to have somewhat definitive views on the EC and some of its operations. However, having discussed the matter with a number of noble Lords who are learned in the law I am fortified in tie view that that is generally undesirable.
That brings me to the point made by my noble friend Lord Clinton-Davis concerning the nature of the Commission. In essence, the Commission is not a judicial body: fundamentally, it is a political body. If
536
justice is to be determined within the sense that most of us—and some of my lawyer friends—understand it, then it must be done within an atmosphere which is essentially judicial and not political. As I hope to be able to prove later in the course of my' remarks, being an intentionally political body, with the atmosphere of politics permeating it from top to bottom, the Commission is not really the ideal body to arrive at judicial decisions, even within the political context of the Treaty of Rome or the Treaty of Paris.
Although the law undoubtedly has political flavouring at all levels of the Community, I recommend that the judicial process—that is the process of determining results based upon the law—should be left to the court of first instance; and that cases should be referred to the judgment of that court rather than to any branch of the Commission.
I am well aware that that would entail extensive new recruitment of lawyers and their staffs for the court of first instance. Indeed, there would, perhaps, have to be opportunities for hearing in front of a single judge, and so on, because not all cases are of equal gravity or dimension. However, I put it to noble Lords that, however it is accomplished and without wishing to cast any adverse reflection on anyone, judicial functions ought to be taken out of the hands of the Commission.
If anyone doubts the political atmosphere pervading the Commission, one only has to look at reports in today's newspapers where it can be seen that commissioners are taking an overtly critical view of the United Kingdom's attitude towards the current voting procedure discussion. It has become commonplace over the past few years, especially since the advent of M. Delors, for commissioners to take sides with some member states against another member state. I believe that it is within the knowledge of your Lordships to observe that over the past few years endeavours by individual commissioners to place the United Kingdom "in the dock" have grown both in number and intensity. Therefore, I suggest that, in some form or another, the judicial function ought to be taken out of the hands of the Commission. I do so for the reasons stated in part by my noble friend Lord Clinton-Davis and partly for the observations that I shall make.
Baroness Elles: My Lords, before the noble Lord sits down, does he support the idea that it should be for national courts to hear such cases? Does he endorse that particular view?
Lord Bruce of Donington: Yes, my Lords; I have already indicated that I support those recommendations. As long as such cases are solved judicially, as opposed to having deep political overtones and undertones, I would be happy with the situation. I may not be happy with all the judgments and I may even reserve the right of the ordinary citizens to criticise judges. I see that my noble friend wishes to intervene. I give way.
Lord Clinton-Davis: My Lords, I am much obliged. While I have gone some way along the road with my noble friend, I certainly do not find myself in the broad thoroughfare of his argument. Is it not right that, ultimately, the court has supervision of the matter? I

537
shall argue for greater transparency in the process of decision making other than that which the court now ultimately has as regards supervision of the matter.
Lord Bruce of Donington: My Lords, that is right as regards the end process rather than the process of justice itself. I am not anxious to bring my noble friend all the way with me in such matters. Indeed, that would be out of tradition with the relationship that I enjoy with my Front Bench which I am most anxious not to disturb unduly. However, I welcome my noble friend's support periodically.
I revert now to the Treaty of Paris. I do so because the competition rules also apply to it. Indeed, as the noble Lord, Lord Ezra, reminded us in the course of the debate which took place in your Lordships' House on 25th October 1993 on the steel industry:
"Article 4 of that treaty states that certain acts are recognised as incompatible with the Common Market and shall accordingly be abolished and prohibited. Item (c) in that list is:
'subsidies or aids granted by states, or special charges imposed by states, in any form whatsoever'."—[Official Report 25/10/93; col. 719.]
Further, Article 54 of the treaty lays on the "High Authority" (which at a later stage became the Commission) powers to carry out certain duties. It reads:
"The 'High Authority' may facilitate the carrying out of investment programmes by granting loans to undertakings or guaranteeing other loans. However, if the High Authority finds that the financing of a programme or the operation of the installations therein planned would involve subsidies, aids protection or discrimination contrary to this Treaty, a decision to this effect by the High Authority shall have the effect of prohibiting the undertaking from drawing on resources other than its own funds. Undertakings which disregard such prohibition may be fined up to an amount not exceeding the 'improperly devoted' funds".
That is further reinforced by Article 95 of the same treaty.
It is quite clear that over a number of years there have been wholesale violations of the Treaty of Paris condoned by the Commission. In support of that, perhaps I should draw noble Lord's attention to another report by the Select Committee of this House. It is entitled Restructuring of the EC Steel Industry (HL Paper 30) and was published on 1st March. Of course, it was too early to have been taken into account by the noble and learned Lord's committee which was dealing purely with Articles 85 to 89. The findings of the committee are astounding. Perhaps I may just give your Lordships a flavour of what the committee said. Paragraph 5 on page 5 reads:
"As part of the package, and at the United Kingdom's insistence (Q 10), a more rigorous monitoring system was set up, which requires the Commission to report directly to the Council, to identify illegal subsidies".
I shall have some observations to make as to why the Council should, at this very late stage, seek to persuade the Commission to do something which it ought to have done long ago. The Commission has been aware of the situation for some time.
I should like now to refer to some of the evidence in that respect which the committee considered. For example, I refer noble Lords to Mr. Moffat's views given in evidence on 27th January. He is the leader of the steel industry in the UK. He said:
538
"In our view, the Commission has a duty to police the industry to ensure that ECSC law is not flouted … If a Government feels strongly enough about a situation, by not agreeing, in effect, it uses the veto".
The Commission has done nothing and the Government have not exercised any veto. Therefore, the illegal subsidies which have been going on for years, still continue. In case the Minister is a little embarrassed, I should point out that at a later stage the Government agreed with Mr. Moffat, so it is no good saying that such views are not those of the Government. Indeed, I shall deal with the Government's views in a moment. Mr. Moffat continued:
"We still have a situation now, for example, in Germany, that a company that was made bankrupt, a company called Saarstahl in the Saar, whose main shareholder walked away from it, which was a State-owned company incidentally, was subsequently declared bankrupt and the Government of the Saar quite openly since then has been propping it up with State money to the extent of even paying the wages. The Commission to date, despite protests from British Steel among others, to our knowledge has not formally challenged the situation and yet it is a month now since the Council of Ministers meeting where words like that were spoken".
At that stage in the proceedings, the noble Viscount, Lord Mersey, made an intervention by saying:
"In that context, where a Member State makes a complaint to the Commission that State aid is enabling one of the aided companies concerned to under-price, the Commission will launch an investigation, in particular under Article 60 ECSC".
However, it has done nothing of the kind, despite the fact that those illegal subsidies are openly published in German newspapers. Then Mr. Moffat described the meeting with the Minister, Mr. Sainsbury, stating:
"I met with Mr. Sainsbury two of the United Kingdom's largest constructional steel companies who are customers of British Steel, not very long ago, pointing out where subsidies are existing, and the fact that they are in competition with people who are being subsidised".
Yet nothing at all was done about that. That prompted the noble Earl, Lord Lauderdale, to comment on this matter at a later stage, saying,
"Can I get one thing absolutely clear? I have understood, correctly I hope, that this was not subject to QMV? It was a situation which Britain could have vetoed if we had had the guts".
The QMV in that quotation refers to qualified majority voting. The answer to that question was "Yes".
The Government's own position on this matter is made abundantly clear on page 9 of the evidence when Mr. Sainsbury, on 10th February, replied to a question from the chairman. Mr. Sainsbury stated:
"I think the most important part of the agreement is the emphasis on the elimination of future running cost subsidies and the monitoring arrangements to control that agreement … and the attitude of the Commission to those are I think much stronger than anything in the past, together with the important point that the Commission have to come before the Council to report on their monitoring".
The first meeting with the Council is 24th April.
I could give further examples of the present situation and I could record, while I am about it, the attitude of Her Majesty's Government within the Council of Ministers. Mr. Sainsbury records his account of the meeting of the Council of Ministers on 17th December. In referring to a lack of support of his arguments from Germany and France, Mr. Sainsbury stated:
"I have to say that at the end their support was, perhaps, not as robust as one might reasonably have expected, but other factors come into play and maybe other Community activities which they were concerned about influenced their eventual decisions".
He concludes,

539
"So every time I looked along hoping to get a bit of support, it was silence. I am afraid".
This is what happens, apparently, even after Maastricht when we are supposed to be right at the heart of Europe. We look for some support to persuade the Commission to take action, as it is required to do under the Treaty of Paris, and we receive no support from anyone, possibly of course because other deals have been done and the non-intervention of the Commission is probably part of some package deal.
I suggest to your Lordships that this is wrong. I am suggesting—as I indicated that I would—that there must be speedy justice because justice delayed means that justice is not done. In this case three or four years have passed since the Commission became aware—this was documented and relayed to the Commission—that certain member states were in breach of the subsidy requirements of the Treaty of Paris and yet the Commission has done nothing. In the next few days, possibly tomorrow, we shall be able to determine how much esteem and resolution the Government can muster in support of their position, allegedly at the heart of Europe. We shall probably know the position after tomorrow. In the meantime your Lordships ought to give serious examination—I put it no higher than that—to the degree to which the Commission is either competent or has the political will to enforce the law of competition in cases where it does not suit it, for other reasons, so to do.
5.45 p.m.
Lord Holme of Cheltenham: My Lords, I shall be brief not only because I do not have the depth or detailed familiarity on this matter of the noble Lord, Lord Bruce of Donington, but also because we on these Benches in general warmly support the recommendations of this report. It is important to put the report in the wider perspective of the ever-growing pressure of international competition particularly from Japan and the Asia-Pacific region but also from North America.
It is right that the single market should be unambiguously competitive. It is worth referring to the political issue that both the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Clinton-Davis, mentioned. Of course the European Commission is full of politics, just as the British Government are full of politics, but I am glad to see that the concept of fortress Europe cosseting its European champions, giving special protection to those who would fight on Europe's behalf, seems to have largely given way to a Europe which will be internally and internationally competitive.
As the noble and learned Lord, Lord Slynn of Hadley, and the noble Baroness, Lady Elles, have said, the evidence of Dr. Claus-Dieter Ehlermann of Directorate-General IV and the attitude of DGIV towards the work of the committee are encouraging and indicate the substantial commitment of the Commission to competition in an enlightened and rational way. The sub-committee, which was so ably chaired by the noble and learned Lord, Lord Slynn of Hadley, and of which I had the honour to be a member, had to grapple with the tension between competition administrators and business. Mr. Daniel Goyder of the MMC put it well
540
when he alluded to the necessary compromise between competition administrators, who want a tough law, and industry, which wants a relatively liberal law. I believe that what industry actually wants—this is apparent from the CBI's evidence—is speed and natural justice. Industry wants things to be done properly. The key issues which the noble and learned Lord, Lord Slynn, referred to, of access and procedures and the strengthened role of the hearing officer, will greatly contribute towards the ability of companies to obtain what they see as greater natural justice.
I address my next remark to the Minister. I know that the Government are dedicated to subsidiarity. Of course it is relatively easy in the case of mergers to see how subsidiarity operates. I, personally, am glad that the review of merger control has been postponed for another three years and that therefore the triggering threshold is unchanged. However, I wish to ask the Minister a specific question on that. The threshold is, of course, in no way index linked. Are the Government at all concerned about the attrition—if one cares to call it that—of the threshold as a result of inflation?
However, subsidiarity on other competition issues is much less easy to discern. I was struck by the evidence of Sir Bryan Carsberg who took a positive attitude. He thought that, by and large, there was no tension between national competition authorities and European competition authorities. However, it is true to say that competition law is far less well developed in some other countries of the European Community than it is in Britain. I should be interested to hear the Minister's observations on that.
Finally, I turn to comfort letters. They have been a considerable success as a decongestant of a rather gummed up system. They precisely illustrate the tension which I believe the noble Lord, Lord Bruce of Donington, was getting at between a quasi-judicial procedure and an administrative procedure. Naturally our committee, which had several distinguished lawyers on it, tended to say that we should make comfort letters more judicial, as it were, make them in some way more binding and give them greater authority. I am not sure this is the right way to proceed. I believe the merit of comfort letters is that they are a thoroughly practical way of stopping the system becoming gummed up. My slight fear is that, if we make them more formal and more legalistic, they will not perform that useful function. As the noble Baroness said, fairness, transparency and speed are the object of the exercise, but I hope that in relation to comfort letters the Government will not take the report of our committee too literally.
5.49 p.m.
Lord Clinton-Davis: My Lords, I begin by reiterating the congratulations which I offered earlier, in an intervention, to the noble and learned Lord, Lord Slynn, and other noble Lords who served on the Select Committee. They have produced a formidable and influential report.
The noble and learned Lord paid a wholly justified tribute to Dr. Ehlermann, who is a very distinguished director-general of DG IV, which deals with

541
competition affairs. He is a gentleman whom I have known for some considerable time, and I claim to be a friend of his. I find him a very impressive man indeed. I am confident that he will be receptive—as I hope commissioners will be—to the proposals for change which have been adumbrated in the report.
I wholly support the areas of change on which the noble and learned Lord concentrated in his opening remarks. All of them are constructive, and it is to be hoped that they will not require any amendment of Regulation 17. However, if they do the opportunity will arise in the not too distant future. The opportunity will also arise to reconsider the suggestion that there should be an organisation independent of the Commission to deal with these issues. As my noble friend Lord Bruce of Donington recognised, that opportunity will occur in 1996 when the Maastricht Treaty falls to be reconsidered. Having said that, I agree with the conclusions reached by the committee on that point.
The Commission has been extremely receptive in the past to ideas that have come forward from your Lordships' House. That bodes well for the future. The Commission has tried to avoid the possibility, so far as is conceivable, of amending Regulation 17 and certainly of amending the treaty. That is the art of the possible, as the noble and learned Lord put it on page 167 of the report.
The objectives of law enforcement are set out succinctly in paragraph 96 of the opinion of the committee. Even if the Commission falls short of those objectives in some measure, ultimately the court is in a position to supervise the position. Therefore, many of the apprehensions of my noble friend Lord Bruce of Donington can be put at rest. The important point is that in the overwhelming majority of cases these are issues which can and should be dealt with by the Commission, although the requirement for transparency may be missing in one material respect, namely the one to which I referred in my intervention and to which I wish to return in a moment.
The emphasis upon consistency of approach and equality of treatment is correct. That goes to the heart of the purpose of Regulation 17, which requires effective co-ordination and liaison between the Commission and the competent authorities in member states.
I am pleased that the report recognises that the Commission overall has emerged well from this test of balance at a time when it is being obliged to assume even greater burdens of responsibility in this field. I am also pleased that the report stresses that the effectiveness of the implementation of the principles depends largely on the level of resources provided to the Commission as well as the procedures which are laid down. There can be little doubt that, with the additional burden of responsibility which the Commission has had to assume in this regard, as in so many other regards, it is as well to recognise that the resources available to the Commission in terms of its officials are very slender. If the member states want to see these procedures working better they have to give attention to that factor. That will not please my noble friend Lord Bruce of Donington, but it is a reality of life.
542
I return to the point which the noble and learned Lord indicated was not within the remit of his committee. I find it very difficult to see how one cannot reflect, when thinking in terms of the enforceability of competition law, on the way in which the Commission goes about its business at the level of the decision of the college. I have some reservations about that which I believe can be cured by greater transparency on the part of the proceedings when they reach the college. Those two issues—the quasi-judicial and the political—are inseparable.
Major issues can arise which affect certain member states, or there may be an issue of Community interest as it is perceived by members of the college—and I assure my noble friend that it is not always a matter of Satan at work because genuine views are held about the question of what is a Community interest, which is fundamental in this regard. In such cases the commissioner himself or herself, unless it is the commissioner with responsibility for the dossier, is unlikely to have read the file and is certainly unlikely to have read the evidence. The commissioner will rely very heavily upon some measure of scrutiny which is undertaken by a responsible member of his or her cabinet, and upon a resume of the case which is prepared by that person. That may be an unsatisfactory way of dealing with matters.
In addition, there is no doubt that from time to time deals are struck. That is not done ignobly. That happens when governments undertake quasi-judicial or administrative determinations. I believe that the answer would be for much greater transparency where divisions of that kind occur so that the parties to the dispute and the public know what arguments have been canvassed in the college of commissioners in pursuit of their ultimate finding. In any event, that is a matter over which the court can exercise its jurisdiction to ensure that ultimately justice is done. That approach would be wholly in pursuit of the argument of greater transparency which the Commission has adopted in its express views about Maastricht. I see nothing untoward in that regard.
In relation to the question of co-operation between the national courts and the Commission in applying Articles 85 and 86, I have taken the opportunity to have some interesting discussions with a colleague of mine—who will be known to the noble and learned Lord—Stephen Kon, who is a former chairman of the Solicitors' European Group and who is a notable practitioner in this field of law. He had some interesting things to say, which I should like to rehearse to the House, in relation to the difficulties which a practitioner encounters in dealing with these issues, particularly in making a choice between advising a client to refer a matter to the Commission or to the national court.
I think that the Commission notice fails to address fundamental problems concerning the application of Regulation 17. In a sense, it tinkers at the edges. The real problem which is avoided lies, in my view, in seeking to approximate the laws of member states as regards both the substantive and the procedural application of Articles 85 and 86 by the national courts

543
and the Commission respectively. The notice endeavours to finesse the system without dealing with the substantive or procedural rules. The net result is that major difficulties in the domestic enforcement of the competition rules are likely to persist.
The first point I would make in underlining that position is that perhaps the most acute difficulty arises in relation to the Commission's sole jurisdiction in being able to grant an exemption under Article 85(3), pursuant to Article 9(1) of Regulation 17. The only truly effective means of enforcing European Union competition rules before the domestic courts would be for the domestic courts to have jurisdiction to apply Article 85(3). It has been argued that that would prejudice the uniformity of application of that article, even though people who frequently argue the point seem to accept the unsatisfactory nature of its enforcement. In his evidence to the Select Committee, Mr. Jeremy Lever QC argued that the Commission had been unable to provide the public law service required in applying Article 85(3), rarely granting exemptions and using no formalised procedure for comfort letters, many of which are not preceded by Article 19(3) notices or by publication in the official journal. I note what the noble Lord, Lord Holme, said in that regard, but I happen to disagree with him.
Additionally, Commission decisions granting exemptions are not binding as to fact or law on national courts and they are able to refer any finding as to the legality or validity of those decisions to the European Court of Justice under Article 177. It has been held in the European Court that national courts are competent to assess the legality of any European Union instrument. It has also been established that negative clearances are not binding on national courts.
So even if the Commission gives priority to exemption cases which are before domestic courts, any Commission decision can be no more than persuasive before the domestic courts. Moreover, since European law forms part of English law, a formal decision of the Commission cannot provide evidence which is admissible in the United Kingdom, and the same must apply to a Commission opinion given at the request of a national court.
I turn to focus on the issue of the Commission and the national courts, because clearly there is a need to add greater efficiency to the proceedings. One of the declared objects of the notice which the Commission has issued is better to define relationships between the Commission and national courts so as to increase the dialogue between them and to enable the Commission to focus on those proceedings which have a sufficient Community interest. However, given the Commission's monopoly of granting exemptions under Article 85(3), parties whose agreements are subject to domestic court proceedings will find that there is little alternative but to await the outcome of the Commission's consideration of a request for an exemption. Together with the encouragement given by the notice for national courts to ask questions and seek guidance from the Commission, it may well result—and that is acknowledged in the report—in a backlog of cases both before the domestic courts and before the Commission while the parties wait
544
for a decision as to exemption pursuant to Article 85(3). Alternatively, they may wait for the Commission's response to questions referred by a national court.
In its notice, the Commission stresses that it will not accede to requests for information unless they come from a national court, either directly or indirectly, through parties which have been ordered by the court concerned to provide certain information. In the circumstances, it is possible to foresee serious log-jams, with everyone waiting on the Commission. That is the very problem which the notice is intended to resolve.
The dilemma for legal advisers is to decide whether to advise their clients to opt for deliberation before the national court or before the Commission. Given the limited number of cases where the Commission will have sufficient interest to intervene and the very slow and unsatisfactory procedures before the. European Court of Justice, there are likely to be only a limited number of cases where a party will be well advised to complain to the Commission.
Even if a case has a European Union interest and the advice would generally be to take the matter to the Commission in the first instance, if the primary object of taking such proceedings is to claim damages, it must be right, subject to Article 85(3) considerations,. to take the matter to the domestic courts directly, since a Commission decision would be of only limited use because it does not bind, as a matter of fact or law, the national courts.
Working on the basis that legislation is not to be introduced in the near future at European Union level to amend Regulation 17 and to approximate national laws, what can domestic courts do to make the application of the notice as effective as possible? It would appear that perhaps the right way forward is for the court itself to take the lead to deal with some of the fundamental procedural difficulties by way of a practice direction in providing guidelines in an appropriate case as to the way the courts in this country, for example, intend to apply the notice. The guidelines may have to be changed in the light of experience.
There are a number of fundamental matters upon which guidance can be necessary. Whether the domestic courts will, as a matter of practice, seek the advice of the Commission or request the Commission to intervene in proceedings as amicus curiae and, if so, in what circumstances are clearly matters which need to be determined. Some have expressed the view that in legal and jurisdictional terms it would be unsound for a domestic court to seek the views, opinion or advice of an administrative authority. I am not convinced by that but it is an issue that will have to be decided.
If the domestic courts are to seek the advice of the Commission, then there are serious evidential issues that have to be considered. Quite rightly, the courts here have been reluctant to accord any authority to statements of objection. There is no reason why greater authority should be given to the views of a Commission official.
Those are difficult issues but ones which have to be dealt with by the domestic courts. The domestic courts have a limited knowledge of the application of those articles. The question, therefore, is how they can

545
become better informed. It is not a new matter because, particularly in relation to issues like the difficulties of discovery and the general difficulties of judges dealing with complex economic issues, those are issues which are dealt with already in the patent courts. Perhaps, just as in the commercial courts there is a commercial users' committee which can deal with special procedural requirements, it might be worth while following that route.
Finally, there is no good reason why national courts should not take a pro-active and dynamic approach in applying Article 85(1) to determine on their own account that an exemption will or will not be given. If they require the aid of the Commission, they should seek such aid in accordance with strict time limits. Article 177 could be used to seek legal interpretation. Such an approach should avoid unnecessary delays and encourage the Commission to speed up its own procedures, and as regards Article 177 the parties will remain free to appeal to a higher court and ultimately to the European Court of Justice.
I have taken some time, I fear, in dealing with the matter but I thought it was as well to put the issues on the record. Having done that, I conclude as I began by congratulating the noble and learned Lord and his colleagues on an excellent piece of work.
Lord Bruce of Donington: My Lords, before the noble Lord sits down, will he give the House the benefit of his observations for the record? What action should be taken in the event, as has already happened, that the Commission has known about breaches of the Treaty of Paris of 1961, has known about them for the past three years, has all the details in its possession and so far has neither investigated them in detail nor endeavoured to prosecute them? What action would the noble Lord recommend that either national parliaments or anybody else should take in order to ensure that the Commission itself makes an active endeavour to enforce the law in this respect on the basis of information that has been in its possession for a long, long time?
Lord Clinton-Davis: My Lords, that is one of the easiest questions that my noble friend has ever asked. I suggest that all that he has to do is to write to Dr. Ehlermann. Perhaps he will get a reply in the not too distant future.
6.10 p.m.
The Minister of State, Department of Trade and Industry (Lord Strathclyde): My Lords, it is always a pleasure to respond to one of these debates, and particularly so after the introduction and contribution of the noble and learned Lord, Lord Slynn of Hadley. I very much welcome the opportunity that this gives me to respond.
I am pleased to welcome this thorough, thoughtful and clear report. In the Government's view, competition enforcement is a central element of Community policy. An effective competition regime is essential to the success of the single market and—as the noble Lord, Lord Holme of Cheltenham, said—the competitiveness of Community industry.
546
The Government have delivered to the House a written response to the Select Committee's report. Our written response addresses each of the Select Committee's specific recommendations, and I hope that noble Lords have had sufficient opportunity to consider it.
Perhaps I may also say at the outset, in response to the intervention that was made by the noble Lord, Lord Clinton-Davis, right at the beginning of this debate, that the Select Committee concentrated on procedure in institutions rather than on Community policy. Accordingly, I too shall confine my remarks to those subjects.
The noble Lord, Lord Bruce of Donington, again entertained the House at some length with his views of the European Community, its institutions and some of its faults. The noble Lord particularly concentrated on illegal subsidies under the Treaty of Paris, which is a very interesting subject. But it is very much outside the remit of the Select Committee report, so if the noble Lord does not mind I shall not address that issue.
The committee's conclusions are aimed at remedying perceived defects in the fairness, transparency and speed of European Commission procedures in competition cases. The Government fully endorse that objective. We are committed to removing unnecessary regulatory burdens from the shoulders of business—whether from the United Kingdom authorities or from the European Commission. Any procedural unfairness constitutes an unnecessary burden; so does lack of transparency; so do delays in case handling—until a case is disposed of, businesses cannot be certain whether their transaction is permissible or prohibited, and they are left in a state of lingering commercial uncertainty.
For those reasons the Government are actively involved with other member states and the Commission in seeking ways to improve procedural fairness and to speed the handling of cases under Community competition rules. The Select Committee report is an extremely valuable contribution to that continuing debate.
In considering various options, the Government need to bear in mind other considerations as well. We are determined to remove unnecessary burdens on business. But we are also committed to ensuring that this should not prejudice the effective and consistent enforcement of the rules—because it is in everyone's interest that serious anti-competitive practices should be stamped out. Consumers benefit from the increased choice and lower prices which effective competition enforcement can offer. Industry and commerce benefit from the opportunities for enterprise, and the stimulus to greater productivity and innovation. These fundamental points must never be lost sight of when we consider these matters. And the rules must be applied consistently throughout the European Community. There must be no suggestion that the competitiveness of British businesses is suffering because the rules are being applied more stringently in this country than elsewhere.
As with all proposals for deregulation, a balance has to be struck. Let us remove regulatory burdens, yes; but not to the detriment of effective and even enforcement of competition rules. And while it is desirable to speed

547
up case handling, that must be balanced against ensuring proper procedural protection for all the parties involved. It is within that basic framework that the Government are approaching these issues.
I now turn to the Select Committee's specific recommendations. Noble Lords will have noted that the committee very sensibly divides its recommendations into first, those which involve practical reforms requiring no legislative change, and second, those which could only be achieved by the Council agreeing to amend Regulation 17.
Perhaps I may make one point about the Government's attitude to the recommendations. We think that all the recommendations in the committee's report are worth considering. But in the immediate term we would prefer to see whether those which require no significant legislative change can be made to work before the Community and member states have to embark on the process of negotiating a revised version of Regulation 17. Past experience shows that such negotiations can be very time-consuming indeed. We would be concerned if time and energy were to be diverted away from the immediate, and necessary, task of implementing practical improvements in the Commission's enforcement procedures. Both the noble and learned Lord, Lord Slynn of Hadley, and my noble friend Lady Elles asked specifically about that matter. I hope that that is helpful.
As I have mentioned, the Select Committee sees its recommendations as addressing perceived defects in the fairness, transparency and speed of European Commission practices. Taking those issues in order, I should like to comment briefly on the committee's main recommendations.
First, in relation to fairness, the Select Committee had to address itself to complaints from business and practitioners that, in competition cases, the European Commission is—as the noble and learned Lord, Lord Slynn, and the noble Lord, Lord Bruce of Donington, said—"simultaneously the detective, the prosecutor, the negotiator and the decision maker". That was perceived to have a potentially adverse effect on the Commission's impartiality—and in particular, on the feeling of a company under investigation as to whether it is being given a fair hearing. As my noble friend Lady Elles said, there are worries about disputes over access to the Commission files.
The committee's suggested remedy focuses on the role of the hearing officer. The Select Committee recommends that the hearing officer's functions be widened so that he can perform a similar role in disputes: about whether (and when) a company under investigation should be allowed access to the Commission's files on the case; about time limits in the procedures; and so on. The Select Committee also recommends that more hearing officers should be appointed, and that at least one should be of a higher grade.
The Government agree with the Select Committee on the need for internal reforms within the European Commission -to improve impartiality and fair treatment in its procedures. The Commission must be fair, and be seen to be fair. There needs to be a clear and consistent
548
commitment from senior officials in the Commission's competition directorate to ensure that. Precisely how it achieves these reforms is essentially a matter for the Commission. But the Select Committee's proposals certainly represent one possible way forward, and we urge the Commission to consider them. Initial responses from the Commission have been favourable, and welcome that. If the hearing officer's role is to be enhanced in this way, we believe that its functions will need to be clearly defined. As I said in my opening remarks, care will need to be taken to strike a balance between, on the one hand, protecting the interests of the company under investigation, and, on the other, ensuring that elaborate procedural protection cannot be abused by parties so as unreasonably to delay effective enforcement.
As a further recommendation, the committee suggests that there should be a right of interlocutory appeal from a ruling of the hearing officer to the European Court of first instance. The report says that a change to Regulation 17 would be desirable to achieve that. But while we welcome examination of that proposal, so far as possible we would prefer to see whether internal reforms worked before deciding on the need for reforms involving an amendment to Regulation 17. One would also have to bear in mind that the merits of any interlocutory procedure would need to be balanced against the risk of possible further delays in competition enforcement—in particular where appeals without real substance might be lodged. If, as the noble and learned Lord, Lord Slynn, suggested, a way could be found of instituting interlocutory appeals and deterring appeals without substance, without having to amend Regulation 17, the Government would wish the proposal to be very seriously considered.
Turning now to transparency in Commission procedures, the Government believe that, in this complex area, it is essential for businesses and practitioners to be as clear as possible about how things work, and the implications of the decisions that they take. Greater clarification on those points should ease the regulatory burdens that they face.
We therefore look to the European Commission to take steps along the lines of those recommended by the Select Committee: updated guides to competition procedures; and, where fines are imposed, a Commission statement of the reasons for the particular fine. On that last point, we note the anxieties expressed to the Select Committee about similar infringements being punished by fines of a different level. We understand that it has become practice to set out the reasons for fines fully in Commission decisions. In the interests of certainty, and of retaining confidence in the system, we believe it essential that the application of fines should be consistent and be seen to be consistent.
Moving now to the Select Committee's recommendations for improving the speed of Commission case handling under Articles 85 and 86, the Government believe that there are a number of practical measures which could be taken to reduce the Commission's backlog of cases and thus help speed up case, handling. All options should be carefully considered on their merits.

549
One method is to use comfort letters as an alternative to a formal decision when companies apply to the European Commission for clearance or exemption, provided that the companies indicate their willingness to accept that. Issuing comfort letters requires a less formal procedure. So it is quicker and reduces the case backlog.
We endorse the Select Committee's view that comfort letters cannot be expected to provide legal certainty against third party liability. The committee makes practical recommendations for enhancing the legal status of comfort letters, so as to provide more legal certainty. The noble and learned Lord, Lord Slynn of Hadley, referred to the recommendation for comfort letters to be followed by a formal decision. We have set out our specific comments on those recommendations in our written response. I should like to make the general observation that, again, a balance needs to be struck. Enhancing the status of comfort letters requires more procedural formality, which inevitably reduces some of the advantages in terms of speed.
The Select Committee also recommends the publication of further block exemptions in appropriate cases. We agree that consideration should be given to further block exemptions, provided that it would not prejudice the effective application of the competition rules. We understand that the European Commission intends to carry out an empirical study to identify new categories of agreement that could be granted block exemption. We welcome that.
Another possibility for practical reform would be the institution by the Commission of systematic monitoring of incoming competition cases. This would allow the Commission to prioritise cases according to their commercial, economic and legal importance. In this country, we already have some experience in this area with the codes for enforcement authorities which we have established. Targets are set, the attainment of targets is monitored and it becomes possible to set more challenging targets in subsequent years. We believe that such codes are easily implemented, and would quickly repay the effort devoted to introducing them. Indeed, this January the Office of Fair Trading published a Code of Practice on Enforcement which set new self-imposed time targets for various stages in its handling of competition cases. We commend this approach and would see it as a way of increasing efficiency in case handling at Community level.
In general, the Government believe that these practical reforms ought to be explored and tested before more radical steps to speed case handling, involving legislative change, are explored. But I emphasise that we do not wish to rule out any option.
I note the committee's anxieties about resourcing. My noble friend Lady Elles and the noble Lord, Lord Clinton-Davis, have today reiterated similar worries. But I do not need to remind noble Lords that the decisions on resourcing and recruitment need to be made against a background of severe constraints on public expenditure, not only in this country but throughout the Community.
I welcome the realism shown on that point by Dr. Ehlermann the head of DG IV when he appeared before
550
the Select Committee (paragraph 68 of the report). Experience shows that there is scope for increasing the effectiveness of staff deployment in DG IV. The Commission's latest reports on competition policy show that during 1992, the last full year for which we have records, the Commission's case backlog under Articles 85 and 86 was reduced by more than 30 per cent. while the numbers of staff allocated to such cases rose by 4 per cent. The proposals to which I have referred for increasing efficiency and reducing the case backlog could help to alleviate many of the resource problems which DG IV now faces.
My noble friend Lady Elles referred to the Select Committee's recommendations for the introduction of mandatory time limits for cases under Articles 85 and 86. Last year the Commission introduced self-imposed time limits for consideration for certain types of joint venture under Article 85. This new procedure, which required no legislative change, seems to have worked well. We welcome the Commission's willingness to consider extending the system to other types of case. But the important point is not whether time-limits are self-imposed or mandatory but that effective steps should be taken to ensure that the Commission in practice is able to accelerate its procedures.
The Select Committee's report also recommends that investigation and assessment of appropriate cases should be delegated to national authorities. The Government see decentralisation of cases under Articles 85 and 86 as one possible way of speeding case handling and one which ought to be and is being fully considered. As part of that consideration, various issues will need to be looked at and properly addressed, including the kind of cases which could appropriately be delegated, the extent to which delegation of such cases would reduce the Commission's caseload and so help to speed up procedures and how to safeguard consistent application of the Community rules between member states.
We are not seeking here to reject the suggestions out of hand. On the contrary, we want this and other proposals for reform to be fully considered. In any event, we believe that there is a wider role for national authorities to play in providing information to the Commission on local market conditions in their territory. But to reiterate, we believe that it is essential to assess each proposal on its merits, to see how effective it would be in achieving our desired objectives.
Regarding the notice on co-operation between the Commission and national courts, the Government broadly endorse the Select Committee's assessment and recommendations. In general terms we welcome the notice; but for various reasons, such as the costs of litigation, and, as the noble Lord, Lord Clinton-Davis, said, the courts' inability to take exemption decisions under Article 85(3), we agree with the Select Committee that it cannot be expected to reduce the Commission's case backlog significantly. We believe that it is premature to make the legislative amendments needed to grant to national courts the right to grant Article 85(3) exemptions. As I said earlier, we would be concerned at the implications of a consistent application of Community rules.

551
I should like briefly to turn to the point made by the noble Lord, Lord Holme of Cheltenham, on merger control. The Government believe that it is premature to he considering a change in the level of the turnover thresholds either up wards or downwards. The regulation has been in force for little more than three years and we consider that further experience needs to be gained before amending it.
There is here a considerable agenda for reform. While many of the Select Committee's recommendations are for the Commission to implement, the Government are participating fully and will continue to participate fully in the debate about how best to achieve the desired improvements.
We sent a copy of the Government's response to the Competition Commissioner and we asked him to give serious consideration to the points that we make. I am pleased to be able to tell you that Mr. Van Miert has replied very fully and positively. He too welcomes the report and has indicated his intention to implement many of its recommendations, while sharing our hesitations about others.
Last October, the Commission and the directors general from the various national competition authorities discussed ways to increase effectiveness of the competition rules through the involvement of national authorities and by improving Community procedures. A working party was set up at official level to consider these issues, and report back. The UK is on the working party, and in that forum the UK is putting across many of the points that I have been making.
The report of the Select Committee, and the views expressed by noble Lords here today, offer valuable and stimulating contributions to the continuing debate. I have also mentioned the positive attitude of the Commissioner. The Government intend to take all these points fully into account as discussions with the Commission and other member states progress.
Lord Bruce of Donington: My Lords, earlier, the noble Lord mentioned that he proposed not to deal with the matters that I raised in the course of the debate in regard to the steel industry. From that, are we to take it that the authoritative representations made on 25th October 1993 by the noble Lord, Lord Ezra, supplemented by representations of the British steel industry, are to result in no action being taken on behalf of Her Majesty's Government? Does the noble Lord think that the steel industry should be entirely exempt from the competition rules? If it is not to be outside the competition rules, why the inaction of the Government in relation to the Commission's deliberate refusal to initiate investigations ?
Lord Strathclyde: My Lords, the noble Lord, Lord Bruce of Donington, is to assume nothing of the kind. We have discussed the situation in the European steel industry many times; notably, just before Christmas when my noble friend Lord Goschen responded to a debate similar to that that we have had today on the steel industry; we have also had numerous Questions dealing with he steel-industry. My point was simply to state that the report we are considering today had little to do with some of the more general points in regard to the
552
European Commission's work and particularly steel policy. It is for that reason that I did not specifically respond to those questions.
6.30 p.m.
Lord Slynn of Hadley: My Lords, I thank the Minister for his reply and the other noble Lords who took part in the debate. It is gratifying for the committee that the Minister accepts a substantial number of its recommendations. The last time I came with a report from the Select Committee I was virtually told that the Government liked the style but not the content. This time I go away with greater cheer.
I want to comment on just three points. The first is of considerable importance. I understand that the Government would prefer changes which can be made without amending Regulation 17. But at the heart of our report and our recommendations is the proposal that the decisions of the hearing officer should be subject to judicial review. I ask the Minister to bear in mind that that recommendation—perhaps to my surprise—was warmly received by the legal profession, by, I believe, the Commission and by those members to whom I spoke at the Court of First Instance.
This is the moment when this proposal is likely to gain support. It would be extremely unfortunate if it were allowed to lapse merely because nobody was prepared to look again at Regulation 17. T hope the Government will feel that it is the right course for the United Kingdom Government to take the point forward to the Council if it is found to be necessary for Regulation 17 to be amended. That is at the heart of our report.
Secondly, the noble Lord, Lord Bruce of Donington, said that we had left out some matters. Certainly we did. We left out mergers, subsidies and state aids, and that was quite deliberate. We were trying to ensure that business enterprises can be protected in the way their affairs are investigated but at the same time that the competition rules are enforced. Those are all different matters which fall for another day.
Thirdly, the suggestion was made by the noble Lords, Lord Clinton-Davis and Lord Bruce of Donington, that the Select Committee should have looked at the difficulties arising from possible political divergencies and influences in the Commission. They persuaded us no doubt that there is a problem here. But they convinced me totally that it was not a problem which falls to be considered by the Select Committee under this heading. It is plainly a general question and not one related purely to competition procedures. In any event, the question seems both to overlook the role of the staff of the Commission in the work that they do and to underestimate the supervisory role of the Court of Justice.
In the discussions leading up to the Maastricht Treaty Germany alone proposed that there should be an independent agency to take the decisions in this area. Other member states opposed it. What is important is that the Court of First Instance and the Court of Justice are there to supervise decisions of the Commission from

553
the point of view of their legality. I should like to refer to one answer given by Mr. David Vaughan, QC, during the oral hearing. He said,
"I think one of the things that the Court of First Instance has done is to make it very clear to everyone that whether they are a tribunal, a court, or whatever they are, they expect them to comply with Article 6 of the Human Rights Convention. I think that clearly will lead the Commission, if they continue on that jurisprudence, to think very carefully about whether in fact their structures are right to deal with this question and whether they should not have a better system for arriving at the right answer".
Finally, the relationship between the Commission and national authorities is a difficult question which will require profound and detailed consideration by the Commission and by member states. In our report we put forward a number of suggestions which we believe need to be dealt with first. I hope that the Commission and the Government will carry them forward. But it must not be forgotten that in dealing with those matters we are not simply considering the United Kingdom; we are considering other member states which may have different systems of competition procedures. I thank your Lordships for the attention given to the report of the committee.
On Question, Motion agreed to.

Insolvency (No. 2) Bill
6.37 p m.
Brought from the Commons; read a first time, and to be printed.

Railways (Rateable Values) (Amendment)Order 1994
6.38 p.m.
The Earl of Strathmore and Kinghorne The Earl of Strathmore and Kinghorne rose to move, That the draft orders laid before the House on 24th February and 14th March be approved [10th and 12th Reports from the Joint Committee].
The noble Earl said: My Lords, I beg to move that the orders standing in my name on the Order Paper be approved en bloc.
Of the five draft orders before the House today, three relate to Scotland and two relate to England and Wales. First, I wish to say a few words on industrial derating.
554
The progress towards a common poundage and full harmonisation of valuation practice north and south of the Border, have reduced the need for industrial derating in Scotland to be retained. We accordingly are continuing to phase-out industrial derating in Scotland in line with the progressive reduction of rate poundages which continues in 1994-95. Those cuts in poundages next year result in a further reduction in non-domestic rates of £60 million. The Industrial and Freight Transport (Rateable Values) (Scotland) Order 1994 therefore sets a level of industrial derating of 10 percent.—a reduction from 17.5 per cent. in the previous year.
For mines and quarries, the same level of derating is continued by the Mines and Quarries (Rateable Values) (Scotland) Order 1994 which carries forward other valuation provisions, which also apply south of the Border.
Turning to the other Scottish draft rateable values order before the House today, this prescribes a formula for the determination of rateable values for 1993–94 and 1994–95 of Scottish Football League grounds. Scottish Football League clubs, the league itself and the Scottish Football Association have over a number of years argued that the different methods of valuation which apply to this class of subject on either side of the Border have resulted in an unfair rating burden being borne by Scottish Football League clubs. The Government have not felt that it is possible to prove that case with certainty, and have been assured by the Scottish Assessors and Valuation Office Agency jointly that cross-Border harmonisation of values, if not of method, was broadly achieved at the 1990 revaluation. We have however concluded that the method of valuation for this class of subject should be seen to be as similar as possible on either side of the Border in line with our overall harmonisation policy.
Within the draft order before the House today are formulae which seek to mirror the effects of the non-statutory English scheme of valuation. These produce a rateable valuation on the basis of an individual club's home league gate receipts in the antecedent year for the 1990 revaluation. Most affected clubs will benefit from the order although the valuation of a few may rise. Clubs which have incurred significant costs in modernising grounds to meet the requirement of the Taylor Report or which have built new stadia recently are likely to see particular benefit.
Next, I wish to refer to the first draft English and Welsh order before the House: the Telecommunications Industry (Rateable Values) (Amendment) Order 1994. This revises the recalculation factor which is used to update rateable values in England and Wales for Mercury Communications. At present, the revaluation factor works by applying a formula based on cable lengths to England and Wales separately. The existing factor has had the effect of increasing the company's rateable value in Wales by some £21,000 for each extra kilometre of cable laid, whereas in England the equivalent figure is only £2,000. To resolve this inequality, the order before the House provides for the recalculation factor to be based on increases in length in

555
England and Wales together for the year 1994–95. Similar provisions apply in respect of other industries south of the border, including British Telecom.
Finally, I come to the other draft English and Welsh order. This makes provisions for the change in rateable occupation of railway property as a consequence of the privatisation of rail services. The provisions of the Railways Act 1993 allow for transfers of property between the British Railways Board and other companies. the largest of these transfer schemes is the one that concerns Railtrack. On 1st April Railtrack plc will become a new government owned company and the occupier of the majority of the property previously owned by the board.
The order simply divides what would have been the board's rateable values for 1994–95 between the board and Railtrack. The ratio of the split is 95 per cent. for Railtrack and 5 per cent. for British Rail. The values are given separately for England and Wales. Similar provisions will be proposed for Scotland but, owing to the different statutory framework, they will be brought forward at a later date, along with related matters concerning Scottish public utility rateable values for next year.
The provisions of these orders have been the subject of formal consideration with ratepayers and others concerned. I believe that the measures that I have described represent fair and reasonable proposals. I commend them to your Lordships.
Moved, That the draft orders laid before the House on 24th February and 14th March be approved [10th and 12th Reports from the Joint Committee].—(The Earl of Strathmore and Kinghorne.)
On Question, Motion agreed to.

Advice and Assistance (Financial Conditions) (Scotland) Regulations 1994
6.48 p m.
The Earl of Strathmore and Kinghorne The Earl of Strathmore and Kinghorne rose to move, That the draft regulations laid before the House on 7th March be approved [11th Report from the Joint Committee].
The noble Earl said: My Lords, the first two sets of regulations provide for the uprating of the financial eligibility limits for civil legal aid and for advice and
556
assistance. The Civil Legal Aid (Financial Conditions) (Scotland) Regulations 1994 raise the lower disposable income limit for civil legal aid from £2,293 to £2,382 a year. The regulations also increase the upper limit from £6,800 to £7,060 a year. The Advice and Assistance (Financial Conditions) (Scotland) Regulations 1994 provide for a similar uprating in relation to advice and assistance. In these cases the calculation is carried out on the basis of weekly income. The regulations raise the lower limit from £61 to £63, and the upper limit from £147 to £153. The regulations also revise the scale of contributions for applicants with disposable income between the upper and lower income limits for advice and assistance.
These proposed changes represent an increase of 3.8 per cent., matching the uprating level of income-related social security benefit. They are entirely straightforward and do not introduce any new provisions into this area of the legal aid system. The regulations are proposed to come into force on 11th April, the day when the annual social security uprating comes into effect.
The third and fourth sets of regulations provide for the extension of assistance by way of representation, which is a form of advice and assistance under the legal aid arrangements, to cover a number of straightforward cases and to exclude the same cases from eligibility for criminal legal aid. These are technical changes designed to streamline and improve the administration of the legal aid system.
We will also shortly be laying before the House a number of further regulations under the negative resolution procedure to enact a number of further minor and technical amendments and improvements to the legal aid system in Scotland.
These regulations make provision for the uprating of eligibility limits and for other useful, if minor, changes to the system of legal aid in Scotland. I commend them to your Lordships' House.
Moved, That the draft regulations laid before the house on 7th March be approved [11th Report from the Joint Committee].—(The Earl of Strathmore and Kinghorne.)
Lord Macaulay of Bragar: My Lords, I am glad that the noble Earl, like ourselves on this side of the House, is concerned with the question of access to justice. The matters that he has raised have been debated in another place to a large extent and various issues have been raised. We await further consideration of what took place there. I will not detain your Lordships' House by discussing these matters in detail.
I raise only two issues. First, I should like to ask the Minister how the new figures compare in real terms with the levels that applied from 1989 onwards. Secondly, since the alterations were made in 1989 perhaps he can tell us how many applicants have refused offers of legal aid because the contribution that they have been required to make in respect of civil litigation is too expensive. Are the Government satisfied that the alterations that are made by these orders increase access to justice by litigants and that that has been maintained and not diminished by financial restrictions? I know it is not possible for the Minister to answer those

557
questions at short notice, but I shall await his reply in due course when he is able to write to me on these matters.
The Earl of Strathmore and Kinghorne: My Lords, the noble Lord, Lord Macaulay of Bragar, asks two important questions. Unfortunately, the information is not available in the form requested at present. I can however say that in the large majority of grants of civil legal aid no contribution is payable. The noble Lord is absolutely correct in what he says: I do not have the information with me. I undertake to write to him on both points.
On Question, Motion agreed to.

Russia
6.49 p.m.
Lord Kennetrose to ask Her Majesty's Government what is their policy towards Russia and its relationship with its former subject and allied states.
The noble Lord said: My Lords, in the coming weeks the future of our relations with Russia will be decided, and so will the whole shape of international affairs, by intent or default. We may return to a version of the cold war with Russia set up as the grand opponent, or we may tailor our policies and reactions to others' policies and reactions so as to avoid that and get on with making our world sustainably habitable.
A few days ago Edward Shevardnadze, Gorbachev's foreign minister, now president of Georgia, on his return from Washington reported:
"As for the danger of the cold war—and there were quite a lot of questions referring to this issue [in the United States] … a danger of recurrence is real … I spoke about the inadmissibility of this sort of confrontation, at every level … with the president … at the Congress … at the Senate …".
To decide these things aright we must understand what has been happening, not just push the worst case analysis button and accept the file as gospel. What we have seen over the past few years has been a triple event: the simultaneous dissolution of a thousand years of absolutism, four centuries of empire and 70 years of a communist command economy. Our own Mr. Rifkind has recently said that we cannot allow Russia to resume control of the CIS. Indeed. But there are 24.5 million Russians still living in the former imperial territories, and the only infrastructure and organisation there are the old imperial and communist ones.
So there are now multiple moves to re-attach the snapped links; to reconnect the networks and to establish "our own Maastricht" in their phrase, in order to live. Even the Polish Foreign Minister now advocates the reinstatement of CMEA-type economic partnerships in Eastern Europe. Poland was indeed interested in close association with NATO, but security concerns and economic interests, he said, can and should be distinguished. This is a straw in the wind. Ukraine meanwhile—another straw in the wind—is to be the first member of the CIS economic union also to have an association with the European Union. And, when Finland joins the European Union, it will have an immense common frontier with Russia.
558
To quote Mr. Shevardnadze again:
"I tried to explain in my discussions that despite the disintegration of the Soviet Union, the territory which it occupied remains a single socio-economic space…. I am convinced that all the new independent states should be viewed as a whole. Otherwise the stability of even the largest and most influential of them may be undermined by instability on its borders".
The difference between the Russian empire and the other European empires was that they walked and the rest of us sailed. The CIS countries touch Russia; their histories, their economies and their societies interpenetrate. In last Monday's International Herald Tribune, George Kennan recalled the situation in 1949; critically fluid, like today's. In 1946 he had proposed containment of the Soviet Union; with the Marshall Plan and the Berlin blockade containment "won", he advised discussion and possible collaboration. He writes now in his nineties,
"One of the great disappointments of my life [was] to discover that neither our government nor our West European allies had any interest in entering into such discussions at all".
Instead, we procured,
"the vast and useless nuclear arsenals that … remain today a danger to the very environment of the planet [and] 40 years of communist control in [Eastern Europe. And] all of this because we were too timid to negotiate".
The ball now is in our court far more decisively than it was in 1949. Today, we have a rather sensible Russian Government to deal with. It rules a dilapidated great power attempting to find itself again, to regain a valid self image. The self image it knows, and which reality still proclaims, is that of a great power. Prime Minister Chernomyrdin is balancing on the knife-edge between inflation and the social collapse threatened by the previous "shock therapy". "Pay no bills" seems to have been a prime element of it. Western governments have now recognised that democratic reform and laissez-faire market economics can be incompatible.
The noble Lord, Lord Henley, told me last week in a Written Answer that the G7 Ministers are now to,
"urge the Russian Government [that] a credible system of social support",
should operate alongside its efforts to achieve,
"macroeconomic stabilisation",
and that the IMF and the World Bank have been instructed by their member governments to the same effect. That is belated common sense.
Kozyrev and Churkin are, for the time being at least, highly constructive, seeking collaboration through the UN, the CSCE in Bosnia, in Eastern Europe and in keeping the peace in their own "near abroad". There is a new and constructive chairman of the Duma, Mr. Rybkin, who did a fine job during his visit to the United States Congress. I trust that we shall soon see him here.
President Yeltsin himself is in a subdued mood after the cold bath of the December elections and after Mr. Clinton's hearty, but short-lived assurances of "partnership". The Duma's amnesty for the October Parliamentarians has let him off quite a lot of hooks. His suppression of the old Parliament was quite unlawful, despite our support for it, and state trials would have shown that up. It is a great pity that so much American and British opinion holds that Gaidar and his friends were the goodies, the real "reformers", and that the rest are nothing but hardliners wanting to restore communism by force.

559
The Western governments ought now to throw off their illusion that Russia might have been instantly transformed into an obedient, textbook democracy-cum-laissez faire market. Russia is moving towards some kind of democracy and markets are beginning to operate, but, when stability is reached, even if it is a stable market democracy, it will be entirely Russian in its characteristics and not American. The "state" element will be stronger than Western governments would instinctively approve—more like the Far Eastern model, which we cannot claim does not work.
After the December elections when democracy worsted shock therapy, Mr. Chernomyrdin felt able to call the former orthodoxy "economic romanticism" and to reject the romanticism while keeping the reform. Romanticism it was, particularly when Western governments were doing nothing to stem the outflow of capital from Russia and the other ex-Soviet CMEA states into Swiss and other Western banks. This is said now to amount to a billion dollars a month from Russia alone. For Ukraine, officials say that there are something like 7 billion to 8 billion dollars in Swiss banks, the press says nearer 18 billion. Our Western governments tolerate this haemorrhage on the grounds, I believe, of economic ideology. But it can only stultify the hope we and the Russians share for their prosperity. It is like bleeding a haemophiliac.
In the real world Russia will be nobody's poodle; and we must integrate Russia into the international community. Not only history dictates that, but the facts of life do, too: the nuclear weapons, the Security Council veto and the massive resources of raw materials that include much of Europe's oil and gas supplies. It would be idiotic if we shooed them out of Europe into an Asia where they also belong.
It will be hard to insist that Russia should not have military installations and spheres of interest outside their borders while the US may. If the United States goes on interpreting "manifest destiny" too energetically, it will find opposition rising up. Japan could become a nuclear superpower quite quickly; China is building up its strength. Today the United States is tangling with each of them and Russia is perhaps making overtures to them which could well be reciprocated.
What about the institutional problem? I believe that we should now call it that. We have NATO; a military alliance formed for collective defence against an easily identified and clearly threatening adversary. That adversary not only no longer threatens, it no longer exists. NATO is a fine implement that no longer has an obvious purpose. So what should we do with it? The danger is quite clear. It is that, if we integrate Russia too closely with it, NATO could come to be feared and resented all round the world. It could increasingly look like the White North under arms. Its very existence would he bound to provoke the question of its purpose. That is beginning to happen. It was risked with NATO's Sarajevo ultimatum We were lucky that Russia weighed in as she did and NATO bombs did not fall.
I had a Written Answer on 14th March saying:
560
"On 11 March NATO's Assistant Secretary-General for Political Affairs led a PFP briefing mission to the CSCE in Vienna, during which he pointed to the complementary nature of the work undertaken in the two fora."
Was that the first contact? That is an interesting question. Mr. Wörner has said that the Partnership for Peace and action in the North Atlantic Consultative Council,
"will aid in bringing about the conditions under which the CSCE can become the core of an effective pan-European security system".
I hope so. That is a route which would make sense. Mr. Wörner was echoed by Mr. Kozyrev a few days ago,
"It is the CSCE that should play the main role in making the system of Euro-Atlantic co-operation truly stable and democratic".
To that we should say "snap".
It may be, strangely enough, that out of poor little Bosnia a solution will come. Mr. Zhurkin showed exemplary skill in both getting the Serbs outside Sarajevo to withdraw or hand over their guns and at the same time restoring America's UN balance after a bad wobble towards unilateralism. The Coldstream Guards' band playing on the Sarajevo football field could turn out to have been celebrating not only the beginning of peace in Bosnia, but also the beginning of a new European order in which Russia and the United States play co-operative roles in facing the problems that the whole world faces: starvation, population, environment, trade, currencies, drugs and arms.
7 p.m.
Lord Belhaven and Stenton: My Lords, I am grateful to the noble Lord, Lord Kennet, for calling attention in his Unstarred Question to the matter of Russia and her former subject nations and former allies, if you could call them that. I fear that I shall not entirely follow the noble Lord's line, but perhaps it is as well to have two or more views on these matters.
To make sense of Russia, one must have regard to her history in the long term both under the Tsars and under the communist regime. The last time that the map of Europe looked at all like it does now was immediately after the revolution in 1918-20, when the nationalities, including Ukraine, enjoyed a brief period of independence. However, the Russian empire was swiftly reconstructed under the title of the Union of Soviet Socialist Republics. Certain areas of the Russian empire were not regained immediately; namely, Finland, Poland and the three Baltic states.
In 1939-40, the Soviet Union tried, and failed, to subjugate Finland. She did, with Hitler's agreement, subjugate the Baltic States and East Poland. However, between 1945 and 1950, a whole area of Europe which had never previously been occupied by Russia was overrun and brought under a cruel and oppressive tyranny which survived until 1989. The list of those countries is impressive. In addition to Poland and the Baltic states, which had formed a part of the old Tsarist empire—at least, half of Poland had—those countries included East Germany, Czechoslovakia, Hungary, Eastern Austria, Romania and Bulgaria. The extent of empire gained was enormous and the monster was still

561
not satisfied. The rest of Europe, including this country, was placed under threat and forced to form the defensive alliance that we now call NATO.
The havoc which Russian rule wrought in its subject territories is part and parcel of what we are trying to cope with now. They were subjected to the economics of the madhouse. Services such as shops, telephones, travel and communications were systematically run down. Police terror replaced police protection for most of the time in most of the areas. Furthermore, as I said, the monster was not satisfied. A whole group of third world countries, many of which had been part of the British empire, were destabilised and some were placed under Soviet-style regimes which took their orders and their armaments from Moscow. Civil wars were fomented throughout the African continent.
I could go on, but I say this because I believe strongly that Her Majesty's Government ought not to forget these facts of very recent history—and nor should we. Certainly in the past few years, there has been a huge change and the empire has gone back to the heartland of Russia itself. That is most welcome, but I believe that we should be very wary before we satisfy ourselves that the leopard has permanently changed its spots.
The fact is that, historically, Russia has always threatened her neighbours. Some time ago I watched a television programme in which the actor Peter Ustinov, himself of Russian descent, observed that Russia was more invaded that invading. Mr. Ustinov's Russian blood has made him over-patriotic, because that just is not true. It is so far from the truth that it makes one gasp and rub one's eyes, but it is a view which is held by many people who have failed to analyse historical fact. Let us take a bit of recent history. Russia was invaded by Hitler in 1941. That is a fact. In the two previous years, Russia herself had invaded Latvia, Lithuania, Estonia, Finland, Eastern Poland and part of Romania. Afterwards, the Russians said that they had done that because they wanted to go further west in anticipation of a German invasion. Any excuse, it seems, is better than none to overturn one's neighbours' borders, deport millions of their populations and subject the rest to police terror, poverty and starvation.
We can accept that Russia has changed only if we can be sure that she does not go back to her old bad habits. I believe that she should be encouraged to keep her army at home and I absolutely disagree with the idea that it ought to be used for peacekeeping. We have seen only too recently what Russian peacekeeping can lead to in Afghanistan. The possibility that Mr. Zhirinovsky—or someone of his persuasion, whether nationalist or communist—may succeed Yeltsin as president is too real for us to take any chances with the situation today.
We should be wary of voices that tell us that we must not "upset Russia". Mr. Zhirinovsky and his friends are upset already and no amount of appeasement will modify their scandalous ambitions. They are very near to the levers of power and, in my view, the West—that is, NATO—ought to act now to guarantee at least the central European nations which are already committed
562
to democracy and stability. That is the Visegrad group. The Russian army (under any guise) should not be seen again in Warsaw, Prague, Budapest or Berlin.
I should like to quote from the editorial in the Financial Times of Friday 18th March. It starts with what the West should be doing instead of what it is doing. That is quite common in newspaper commentaries. I quote:
"First it must remember that Russia is both a nuclear power and Europe's most threatening neighbour. Its problems cannot be approached as if the country were the Philippines or even Brazil".
It later states:
"The claims inherited from the Soviet Union greatly exceed the resources upon which the Government can lay its desperate hands. The budget deficit is supposed to be 10 per cent. of the gross domestic product. In fact, it is at least 15 per cent. before meeting the defence minister's demand for a doubling of the military budget".
What is the purpose of doubling the military budget? One has a right to ask that. Are the aid and loans which are being given and which will be given going to go, as so often in third world countries, by direct or indirect ways into even heavier armaments? And this is at a time when we have what I think is the absurd Options for Change and when every country in the West (except, I understand, France) is reducing defence expenditure. What price the peace dividend now? It might be a very heavy price indeed.
There are enough straws in the wind to make one feel uneasy. There is the concern which the noble Lord, Lord Kennet, mentioned for ethnic Russian minorities in the newly independent states. That is an understandable concern, but we ought not to forget that a similar concern was Hitler's excuse for first destabilising and then destroying Czechoslovakia.
It was reported last week that Mr. Rutskoi, recently released from gaol, favours a referendum throughout the former Russian territories on the question of whether the former Soviet Union should be reconstituted. These are the sorts of policies which are favoured by communists and nationalists alike, but not by the present government. But we would be optimists indeed if we were to expect the present government to be in power for much longer. Already President Yeltsin has been forced to backtrack on his assurance given to President Walesa of Poland last August that he had no objection to Poland joining NATO. That was last August, not very long ago. We do not know what we may hear next August or next year, but we should follow the advice that I was given as a young man when I was selling cattle in a poor market, "Hope for the best and prepare for the worst".
I do hope for the best. I hope that what I am saying may not be true, but I fear that a lot of it—in fact, most of it—is true. The best way that we can help Russia out of her semi-bankrupt condition is to encourage her to help herself. If the government there can bring the bureaucracy under control and create conditions suitable for stable investment, I am sure that that investment will come. Russia is a huge country with unlimited possibilities. As I have already said, we ought to be very careful that aid and loans do not find their way immediately into armaments. Like all countries and people, the Russians ought to be encouraged to cultivate their own garden and to leave their neighbours in peace.

563
If those neighbours—the former client states—are left in peace, there is, in my view, a good chance that they will prosper, especially in central Europe and the Baltics. What they least need is the dead hand of Russia in a peacekeeping or any other guise. The next time round, their loss of independence may mean our loss of independence. It nearly happened to us 45 years ago, but we were lucky. I end with a fairly trite quotation, but a true one: The price of liberty is eternal vigilance. Let us not forget that.
7.10 p.m.
Lord Weidenfeld: My Lords, the noble Lord, Lord Kennet, enables us to debate an issue not just central to our foreign policy, but one that presents the West with fateful options and challenges our fundamental views. But we must clear our field of vision of received ideas born of insufficient knowledge and entrenched distortions.
Sometimes I fear that we lack, or perhaps do not make sufficient use of, our sophisticated tools of political seismography to measure that great earthquake which was the fall of the Soviet Empire. General de Gaulle, in a prophetic statement 30 years ago, said that if the Soviet Union, the last of the great empires, were to implode and crumble, the Russians would have not one but a dozen Algerias on their hands. Today, nearly five years after the annus mirabilis, we view our relations with Russia sometimes with alarm, with wariness and with intemperate disappointment. That is only partly justified.
We should not be setting ourselves unattainable tasks for building a new order by believing that what took five, six, seven centuries of democratic evolution in some Western polities can be achieved in a country which, in a thousand years of history, had only eight-and-a-half years of qualified parliamentary rule. It would be equally naive to think that a government in Moscow—any government in Moscow—would ever desist from doing all in their power to preserve what can be preserved of the former Soviet Empire, and to widen its sphere of influence and push its security border further west.
The Russian revolution was not the end of history but the return of history to its habitual rhythms and patterns: power politics, the balance of power. It is not a fashionable but an enduringly valid notion. No one can say with certainty hew that Russian revolution will turn out. Is it entering a new stage? Will it take a Bonapartist turn? Russia could well be ruled by an amalgam of pan-Slav, neo-Fascist and recidivist communist forces, but more likely by an authoritarian compromise coalition, weary of quick new wealth and paternalistic in character, which would free the market slowly and sluggishly improve the quality of life.
If Boris Yeltsin is the best man for us to back at this moment, as I believe he is, so be it; but let us not focus all our policies on one man. It is easy to condemn a Zhirinovsky, but it would be dangerous to overlook or underrate men and movements in between the two political poles. I agree with the noble Lord, Lord Kennet, that we must not label politicians as "goodies" and "baddies". We are far too apt to talk of former
564
communists, neo-Stalinists, apparatchiks, obdurate managers of the military/industrial complex. There are so many answers and so many possibilities, and also some for the better.
We must not become casualties of oversimplification. Basically we have no reason and no right to insinuate ourselves and interfere in the internal affairs of Russia, to be condescendingly prescriptive. Only two principles should guide us. One is our enlightened self-interest and the other the insistence on a minimum threshold of human rights observance. We have not always been very clear in defining the former and we have been far from successful in attaining the latter. But one conclusion we can draw is that if one sets out with maximalist ambitions, holding inadequate means of implementation, one ends up making abject concessions, trampling over both moral principles and human lives. That is the lesson of Yugoslavia.
Essentially, our central policy towards Russia should be to recognise that she is still a great power politically and a superpower militarily. She must be conceded a sphere of influence that includes the CIS countries—the Ukraine, White Russia and the greater part of the Caucasian and Central Asian republics—all countries which for obvious reasons of economic independence, transport and demographic complexity, must be encouraged—yes, encouraged by us—to find an honourable and bearable modus vivendi with Moscow. Since we are clearly unable and unwilling financially, let alone militarily, to bear those sacrifices which in theory could achieve all the national aspirations of all those countries, we must confine ourselves to using such persuasive powers, such clout as we have with Moscow, to ensure that a code of human rights hold; sway, that a loose co-operative grouping does not infringe sovereignty unduly. We must prove that economic freedom in the area is in Russia's own interest and will allow her to plug into the circuit of world trade.
But at the same time as we concede to Russia that right to some form of rehabilitation, we must be quite clear about the fate of the lands between the Baltic and the Black Sea, and more specifically those countries in the heart of Europe which felt themselves betrayed by the West and oppressed by Hitler and Stalin—countries which of their own volition and in the West's vital interests must be allowed to form an integral part of the European Union and the North Atlantic Alliance. Poland, the Czech Republic, Slovakia, Hungary and Slovenia (a small country which lives up to all the tests of eligibility) should speedily and unequivocally—phased in certainly with all current reservations—be allowed to join. We should have seized the opportunity and taken the Russians at their word when President Yeltsin and Foreign Minister Kozyrev publicly raised no objection to such a policy. Since then, Moscow has changed its tune, perhaps encouraged by the lack of determination shown in the Western camp. But I think the window of opportunity has not been slammed: there is still hope and need for negotiation.
The Baltic countries present a different problem. No self-respecting Russian government, Left, Right or Centre, could tolerate the guns of another great power or alliance pointing at St. Petersburg from the territory of

565
a next-door neighbour. To a Russian ear the word "neighbour", as George Kennan, who has already been quoted in the debate once put it,
"does not have that friendly, warming sound it has to an American or Canadian. To a Russian, neighbour means Tartar, Turk and Teuton".
A statute of neutrality, in the strictest sense of the word, must be elaborated for the Baltic states, together with built-in safeguards for the substantial Russian minority. Young Russians born in Riga, by now as much a Russian as a Latvian city, must not be punished for the sins of their fathers.
I said previously that one of the priorities for Britain and Europe should be the integration of the Visegrad states into the European Union. Overwhelmed by other events at home and abroad, and perhaps misled by oversimplified reporting, we are not aware of how much progress has been made in some of those countries. It is true that the romantic shine of the velvet revolution has dimmed, but it is to be hoped that the present restoration is made up of coarser and perhaps more durable cloth. Of course some of the charismatic figures of the first phase have left the centre stage and are now writing books and editorials or lecturing abroad, but new men and women (important men and women) are at the helm and are producing results.
Poland has the biggest rate of growth in all Europe. The Czech Republic is economically a going concern. On the other hand, the Slovaks suffer from their self-induced divorce from Prague. To the Slovak leader, Mr. Mejczar, one might exclaim with Molière:
"Tu l'a voulu, Georges Dandin!"
Hungary lags behind somewhat and is in danger of becoming enmeshed in ethnic quarrels with Slovakia and Romania. But still there is progress to report.
The need to be precise in clearing up the position of those states in central and eastern Europe within the framework of wide-ranging negotiations with Russia is urgent and must not be left in limbo. It is high time that after half a century of changing frontiers, moving millions and the most horrendous cycle of ethnic barbarities in the history of man, eastern Europe, the fulcrum of the vast Eurasian land mass, might enjoy some of the blessings of a truly civil society.
7.20 p.m.
Lord Thomson of Monifieth: My Lords, I too thank the noble Lord, Lord Kennet, for asking this Question and introducing the debate. He made a characteristically thoughtful speech. He has long been a serious student of matters in the former Soviet Union and in eastern and central Europe. While I do not agree totally with all that he said, I believe that he introduced the debate with a thought-provoking speech.
The developments inside Russia and its relations with the countries of its former empire are some of the most important issues for western foreign policy. Whatever our views about the best way out, I believe that we have all replaced the original feelings of satisfaction, excitement and euphoria about the ending of Communist tyranny with an awareness of what the noble Lord, Lord Weidenfeld, called the unwisdom of
566
the maximalist position. Countries which have known little democracy for many centuries have suddenly converted. There has been the sudden dissolution of an empire, the creation of a new capitalist society in place of a communist command economy and the creation of a pluralist liberal democracy. In many ways, those are proving to be impossible demands in the kind of timescale that is being suggested. In Russia in particular, the recent elections gave a stark warning of the reaction of ordinary citizens to the impossible demands that have been made on them.
I was interested in the virtually unanimous verdict of foreign observers of the elections that the voting process was fair. I am associated with one of the international media organisations which monitored the elections. I was struck by its finding that the state-owned press and television and radio allocated equal time and space to the contestants. Against that background, one must meditate on the fact that Mr. Zhirinovsky emerged as the principal victor with nearly 23 per cent. of the votes. However, we must also recall that during the election he was given more editorial space in the western press than in the Russian press.
The conclusion must be that that reflects in Russia a mood of economic hardship and, perhaps more importantly, of national humiliation. That is shared by many Russians. John Lloyd, one of the most perceptive journalistic observers of events in Russia, recently remarked in the Financial Times:
"These are hard times in Russia, and fears are growing that the country is becoming ungovernable, or governable only with an iron hand".
The developments inside Russia are putting pressure on the other CIS states. Stalin was particularly fond of the old proverb that one cannot make an omelette without breaking eggs. It is turning out to be more difficult to restore the original eggs of a 70 year-old omelette. The noble Lord, Lord Kennet, was right in describing the reality of life in Russia today as being a series of CIS countries in which there is a great mixture of ethnic groups, but in which there are substantial Russian minorities almost everywhere.
I turn to the impact that the developments in Russia are making outside its immediate boundaries. One can take Belaurus as an example. There are moves for its reabsorption by Russia and moves for monetary union between Belaurus and Russia. The vital gas supply pipelines which served Belaurus have been taken over by Moscow. That is bound to be a disturbing development to democrats in the Balkan states and the Ukraine with their vision of a Baltic to Black Sea bloc, as described by the noble Lord, Lord Weidenfeld. That in turn would be bound to lead the Visegrad states to seek firmer security guarantees. The Ukraine may react by clinging on to its nuclear weapons instead of observing the agreement reached about their disposal. Such instability would feed the dangerous advocates of the new doctrine in Russia—or perhaps a revision of the old and dangerous doctrine of Brezhnev—of justified military intervention.
That gloomy analysis may be over-pessimistic; indeed, the noble Lord, Lord Kennet, may feel that it is. However, it underlines how far the western response to

567
the break up of the Soviet Union has failed. As the noble Lord. Lord Weidenfeld, said, it is not too late to do something better about the situation. However, I depart from his more modest views and refer to the United Nations' Economic Commission for Europe. In its latest annual report it called on the G7 nations:
"to commit themselves to a long-term reform programme on the scale of the post-war Marshall plan".
The Economic Commission for Europe stated:
"One of the worst outcomes would be … a list of short-term measures, hastily put together with a maximum of publicity".
That is too accurate a description of the West's reaction to the problems. The Economic Commission for Europe urges western governments:
"not to neglect other eastern European countries in their concern for Russia. A broader, regional perspective of the transition to market-based economies is needed".
Those are wise words which even at this stage we ought to heed.
Of course the problems of Russia, the CIS countries and the eastern and central European countries that were former Soviet satellites are different from the physical ruin of western Europe at the end of World War Two. What is needed is something on the same imaginative scale as we had at that time. The responsibility rests principally on the countries of the European Union. These developments, with all their risks and dangers, underline the need for the European Union to get together its political and economic diplomacy and its defence and security policies than has hitherto been the case. The European Union should take the lead in a new Marshall plan for the 1990s in Russia, the CIS countries and eastern and central Europe.
The prosperity and possibly the peace of our European continent are at stake. With the ending of the Cold War and that tidy bi-polar situation, with the balance of nuclear power terrifying as it was, it becomes increasingly a European problem and a European responsibility. I wish that I could see the European Union equipping itself to fulfil that responsibility. I wish that I could see the British Government taking an effective lead in that matter. Against the magnitude of the developments on our Continent, the response of the European Union is inadequate. As was said a few days ago by my noble friend Lord Bonham-Carter in the defence debate, when one is dealing with matters such as these the idea of inter-governmental arrangements for a joint foreign policy or movements towards a more effective security policy is a recipe for indecision rather than decision. If the European Union is to be effective in our dangerous modern world it must move towards more effective decision-making powers instead of bogging itself down, as the British Government are doing, in arithmetical questions of maintaining a voting minority, which is art absolute recipe for indecisiveness.
7.30 p.m.
Lord Clinton-Davis: My Lords, as other noble Lords have said, the House is indebted to my noble friend Lord Kennet for tabling this Unstarred Question for debate this evening and for the profundity of his speech. The House will be grateful also to the characteristically eloquent speech made by the noble Lord, Lord Weidenfeld, who was right to remind us of
568
the seismic changes that have occurred with quite remarkable speed in regard to the collapse of the Soviet Union and its empire. As a number of your Lordships have said, we must bear that in mind when considering our approach to the current situation. In my view. the noble Lord, Lord Thomson of Monifieth, made a perfectly justifiable plea for a re-orientation of the thinking about this issue both by the European Union and Her Majesty's Government.
This is also a timely debate because the news that one read in the Financial Times this morning—and perhaps the noble Baroness can bring the House up to date as to any further changes—was of an apparent failure by the Russian Government and the IMF to reach an accord on the further loan of 1.5 billion dollars which was designed to aid economic reform.
That is part of the general aid package—as I understand it, the second tranche—and part of the total 43 billion dollar package which was agreed by the G7 in Tokyo last year. The loan that we are thinking of, and to which I have just alluded, is small viewed against the immensity of the problems confronting Russia at present. But we need to recognise that that would be seen as an emblem of some hope and confidence on the part of the West in the survival of a reformed Russia and the burgeoning of its democratic reforms, limited though they have been in practice up to the present time; and would help to curb further economic decline and to stay impending moral and fiscal bankruptcy.
There is a view, which I hope will be rejected by the Government, that there is increasing evidence that if the money were to be given, it would be simply thrown away because the Soviet Union does not have the ability to use it prudently. That would be a gesture of despair and would be untimely in the extreme.
We need to maintain a sense of proportion about the package that was, and perhaps still is, on offer. It is only 0.5 per cent. of Russia's GDP but its significance is infinitely greater in terms of both the signals that it will provide and the prospects of success for extreme nationalists whose power increases in direct proportion to the degradation of the state, its economy and of society generally. I believe that our future is inextricably bound up with the ultimate success of Russia as a democratic state.
The risk of failing to address the problem adequately, as my noble friend Lord Kennet pointed out, and as was reiterated by the noble Lord, Lord Thomson of Monifieth, is that the people of Russia will regard it all as hopeless; or, it may be that even if democracy survives, Russia will turn away from Europe towards China and Japan with regard to its trading policy and its overall global commitments. The worst scenario is that Russia will simply sink into totalitarianism, with all the attendant risks for us.
I cannot help feeling that much of the advice which was offered to President Gorbachev and then to President Yeltsin by the Chicago-school type economists and ideologues—ideologues not only in government but also in the IMF—has been utterly misconceived. That is a point that has been echoed in the debate. 'To have expected that the Russian leadership could have transformed the command economy of the Soviet Union

569
into a free market economy in a stable western-style democracy without any real appreciation of the alphabet, let alone the language, of the two concepts was fanciful in the extreme and has proved to be immensely damaging.
Any talk of gradualism on the part of the Russian leadership was not only questioned but denounced by those great pontificators whose record in the West has scarcely suggested that imitation in Russia and elsewhere in Central and Eastern Europe was bound to succeed. But belatedly, as my noble friend Lord Kennet reminded us, there has been some recognition of the need for social stability.
The situation of Russian decline has been accompanied by a sense of quite remarkable national humiliation. Some years ago, in 1990, I went to what was then the Soviet Union just before it collapsed. That sense of national humiliation was evident. People were able to speak freely and they spoke freely about that. They spoke freely about many other things. They spoke freely about their lack of confidence in Gorbachev at the time. They spoke freely about the evident hopelessness of the position unless we were prepared to accommodate the needs of the Soviet Union in our international policies because without that, and without some firm international aid, they could see no future.
Of course, on the basis of that short visit, I cannot speak as an expert. I was only there for a few days. I should need another two days at least to become an expert. But that sense of national humiliation is dangerous and it has been compounded by that appalling haemorrhage of capital, to which my noble friend Lord Kennet referred, which has desperately weakened an already desperate economy.
There is disillusionment, massive unemployment, dreadful inflation and burgeoning crime and the fear of it. People do not feel safe in their own homes these days. Senior academics and scientists are paid a pittance for their services, even if they have the opportunity to provide those services. Like so many of the former satellite states, Russia has many highly trained academics, scientists, technicians and technologists. Health is increasingly threatened by the degradation of the environment. Therefore, it is no small wonder that unpleasant overt racism and ideas of expansionism and totalitarianism are favoured by people like the opportunist Zhirinovsky, whose ideas have appealed to so many.
I believe that to suggest that that man is simply a clown could be a major miscalculation in itself. The noble Lord, Lord Thomson, referred to the elections in Russia. One wonders—and I only say this parenthetic-ally—how and from what source Mr. Zhirinovsky obtained his resources for the purchase of television time in those elections which seemed to be totally out of proportion to the television time allocated to others, except the Government.
I am not at all comforted by the Government's response to that serious state of affairs if it is reflected by a speech made in another place by Douglas Hogg, a colleague of the noble Baroness, on 2nd April last year. Of course it is right that our ability as a nation to
570
influence the direction of the changes taking place in Russia is limited politically and economically, as he said, and that essentially, it is for the Russian people to decide substantially the future of their country. But we are able to play some part as a member of the European Union; and, indeed, individually. It is ominous to say, as the Minister did on that occasion, that if Mr. Yeltsin ceased to be a reformer—that is to say an economic reformer, permitting industry to remain in the state sector—it would lead, in the Government's view, to the possibility of a withdrawal of support. If that is the idea underlying British foreign policy in that respect, I believe it to be extremely dangerous. Latterly, Mr. Yeltsin and his advisers have come to the view that a policy of gradualism would make much more sense. I only wish that that had been the voice of reason that prevailed much earlier.
Is the aid programme currently being offered (even if the IMF deal were to go through) sufficient? Is it aimed at the right objectives? Inward investment generally is stagnating as large western multinationals wait for political and economic stability to take root before they undertake substantial investment in Russia, and indeed in other countries of Central and Eastern Europe. Of course, there are exceptions. But one cannot help generalising in a sense in such a short debate. It really is a chicken and egg situation.
I read today in the Guardian newspaper an article written by Margaret Sharp who canvassed the concept of a grand Marshall Aid type programme, shifting resources into the shattered economies of Eastern and Central Europe. It is not just a question of shifting money into Eastern and Central Europe; it is a question of the provision of expertise, of technical and financial aid packages and of the provision of transferred technology. I thought that there was a great deal of substance behind the article. She writes that we would be talking of something equivalent to a provision on the part of the West of something like £77 billion. That is an enormous amount of money. However, like Marshall Aid in the 1940s, it is not a question of being philanthropic. The aid programme which at that time buttressed democracy in reviving ailing Western economies and which enabled American industry to prosper with orders from Europe, was not only something which created prosperity in Europe: it also created prosperity for American industry. The European Union could not be in greater need of that today with 20 million people out of work, many of whom are youngsters, with new jobs desperately needed and re-equipment and re-skilling to cope with the new technologies vitally required.
There is also the question of support through such a programme for small and medium-sized enterprises which are so important. The quality of the aid programmes is also important. I would plead for much more emphasis to be given to the environmental ingredient which should, by European Union requirements, be an essential component of all policies. The levels of urban pollution of rivers, seas and other areas —and also of land—are incredibly high. There are inadequate waste and water-treatment facilities. Health and even life is threatened on a scale unknown in

571
Western Europe. It is a decomposing environment which not only threatens millions in Russia, and elsewhere but also the citizens of the European Union. The safety of nuclear installations has big question marks over it, many of which are based on the Chernobyl-type installation. We really should worry about that.
Are we responding sufficiently? Clearly, the views of most speakers in the debate tonight are in the negative. What priority are the Government giving to promote sustainable development in Russia and in the burgeoning democracies of what were former dictatorships ? I know that the Government would say that the Know-How fund is all important. Indeed, according to the Prime Minister. it seems to be the main focus of the United Kingdom's environmental and industrial aid to Eastern Europe and the Soviet Union. In fact, the Know-How fund strategy statement utterly ignores the issue of sustainable development, despite numerous ministerial proclamations. The amount of environmental aid is minuscule; nor does the Know-How fund operate any formal environmental procedures. Environmental issues are simply not central, but marginal. At worst, they are even regarded as irrelevant by the Government so far as concerns Eastern and Central Europe.
It is not enough for the Government to shelter behind the PHARE programme (which does prioritise questions of the environment) since, as the Minister, on 14th October 1991, said:
"The problems are so great there is no concern about the replication of assistance".
I shall conclude on the question of defence upon which I shall say a few words. The "Partnership for Peace" —the provision for the former Warsaw Pact countries which want to obtain eventual membership of NATO —sets out the basis of co-operation with NATO. Should Russia still, as the noble Lord, Lord Weidenfeld, said, a great power despite its political and economic distress (as evidenced by its skilful diplomacy over Bosnia) be granted a special status, having some voice in which Central and Eastern European countries would be able to join ? It rightly asks,
"Who is to bear all the costs of standardising weaponry and equipment?"
What is the Government's response to that and, indeed, to the wider questions posed by other speakers in tonight's short but invaluable debate?
7.46 p.m.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, we are indeed indebted to the noble Lord, Lord Kennet, for having tabled tonight's debate, which we have enjoyed. With our European partners, Britain re-established relations, first, with the Baltic states in August 1991 and then, between December 1991 and March 1992, we recognised the 11 successor states to the Soviet Union and Russia as its legal continuation. Since then our policy has consistently been to seek to help the new countries consolidate their independence and sovereignty. We are
572
doing that by supporting political and economic reform, both bilaterally and through multilateral organisations and the international financial institutions.
What is abundantly clear not only from your Lordships' contributions this evening but also from every exchange that we have had—which are ever more frequent, not only with the Russian federation but also with other members of the former Soviet Union and with the countries of central and eastern Europe—is that this time of very great change is not static: the pace is actually changing at a different rate in different countries. Their own relationships are extremely fluid. Therefore, in what I say to your Lordships tonight I shall not be dogmatic about what will or will not happen. However, I shall try to respond to some of the points raised and to ensure that our concerns are properly conveyed to the House.
There is no doubt that relations between Russia and many of the former Soviet Union states are close and they continue to be so. The economic and trading links remain important. In some areas, the links are being underpinned by the institutional development of the CIS (the Commonwealth of Independent States). We accept that Russia has important and legitimate political, economic and strategic interests in other parts of the former Soviet Union. But the independence and sovereignty of its neighbours are paramount. Those are the principles that we expect Russia to uphold in all its dealings with its neighbours.
Russia's relations with its former allies in central Europe are now, I believe, based on respect for each other's independence and sovereignty. However, I take to heart the comments of the noble Lord, Lord Weidenfeld, about the distrust which still exists as regards a number of relationships as they change country by country. We strongly support the important principle of independence and sovereignty but we also believe that we should encourage good neighbourly relations.
The central European countries are all seeking closer integration with the West. They turn to us before they think of continuing links with Russia and the other countries of the former Soviet Union. The West supports this aim and we expect Russia to respect the wishes of those countries in turning to the West. The noble Lord, Lord Kennet, in his interesting opening remarks talked about the historical political process. I do not believe that that is yet over because democratic institutions and major economic reforms will not be achieved overnight. It is quite clear that while there has been substantial progress since the disintegration of the old USSR at the end of 1991, there have inevitably been a number of setbacks along the way.
We cannot and should not ignore the emergence of an extreme nationalist party but I urge your Lordships not to over-react. Zhirinovsky did not win the election; in fact only about 50 per cent. of the people voted. His party is not the biggest in the Duma, but in saying that I would not wish your Lordships to think that we are in any way complacent because I believe that the time is right now to reinforce and not to relax our efforts in underpinning the achievements of Russia to date. In that sense continued western support for its reforms is

573
essential. I have no doubt that a stable, democratic Russia is in all our interests but there will be a number of ways of achieving this.
I noted with great care what the noble Lord, Lord Thomson of Monifieth, said about the reading of Zhirinovsky's showing in the polls. Like many others, I believe it was very much a protest vote. Certainly it played on emotions and national pride, but I believe it would be dangerous to draw firm conclusions, because the same view was not taken within the federation as seems to have been taken by many western commentators about that election. Further, things have changed, even since that election. Russia is now going through a great sensing of its own values and strengths. The Duma is finding its feet and it is gradually gearing up to a peaceful existence. It is holding debates and its members are looking forward to new elections in 1995. It believes that its election process has only just begun. Its main business has been the budget where there has been a clear debate between the agriculturalists and the industrialists. The Parliament is also now addressing the all important question of the social safety net. I shall return to economic matters in a moment.
Mr. Chernomyrdin, the Prime Minister, has to conduct a difficult balancing act and that is an area where we should be giving support for the reforms that still continue. I wish to say a few words about the military angle before discussing other matters. It was my noble friend Lord Belhaven and Stenton who said that the Russians should keep their army at home. They are, of course, increasingly repatriating their army from all the satellite countries in which it was placed. However, we must be absolutely clear that Russia has decided that it could not afford to keep its army all over the place. Although there are some tendencies for the Russians to be more active in the south at the present time, in Tajikistan, for example, I believe there is a clear understanding between most of the former Soviet Union countries and Russia that Russia should only maintain a presence in those countries at the latters' invitation. Certainly, Mr. Grachev, the Minister of Defence, seems to be moving in that direction.
There is another aspect in all this that is important and that is the way in which the conventional forces in Europe treaty is playing its role. That is largely an unsung role, but I believe this is an opportune moment to say that in the 16 months to November last year Russia destroyed 799 battle tanks out of a total of 3,692 pieces of equipment reduced. At the end of the reduction phase in November 1995 Russia will have destroyed over 3,000 tanks and over 7,000 armoured combat vehicles, artillery pieces, combat aircraft and attack helicopters. Certainly the inspection visits that have taken place since the treaty came into force in July 1992 have not shown any evidence of wilful evasion of the obligations. We shall continue to watch that process with the greatest of care.
This is going on at the very time when the Partnership for Peace, endorsed by the NATO Summit last January, aims to develop a practical working relationship between NATO and the individual states of the former Soviet Union and central and eastern Europe,
574
NATO's partners. Its aim is to enlist partners' assistance in peacekeeping operations and to guide their armed forces towards compatibility with those of NATO countries. The individual programmes under the Partnership for Peace could include joint military exercises and planning and training. There is also provision for monitoring progress towards respect for international treaties such as the one I mentioned; the civilian control of the military and the transparency of defence budgeting. Partnership for Peace has been offered on a non-discriminatory basis, as it will be for each partner to determine the level of its involvement. However, that level will be known to all other partners. I believe this is an important part of the developing relationship between the central and eastern European countries and the countries of the former Soviet Union, particularly Russia.
The scheme does not entail membership for partners, but it offers a clear perspective on that goal and it allows the active partners to consult NATO in the event of a direct threat to their territorial integrity, political independence or security. General Grachev has said that the Russian Federation intends to sign the Partnership for Peace. We certainly hope that that will happen because the closer the partners work together in the Partnership for Peace, the greater the knowledge and accountability that will be required between partners. I believe that that is highly necessary for the stability of these emerging democracies. For our own part Britain is helping with the resettlement planning for redundant soldiers in the Russian Federation Army and a good deal of help has already been given as regards demobilisation. There was one argument—
Lord Kennet: My Lords, is there any assumption, whether overt or just assumed, that the joint peacekeeping operations that Partnership for Peace might lead to should invariably be under the United Nations?
Baroness Chalker of Wallasey: My Lords, there is no assumption, nor is there any overt requirement, that it should be so but we shall have to see how international peacekeeping develops. I shall discuss the question of Bosnia in just a moment. However, it is clear that there has to be an open relationship in UN peacekeeping, particularly when forces which have not traditionally worked together suddenly start to work together. We are learning all the time, as I saw for myself in Bosnia last week.
The noble Lord, Lord Kennet, made one comment to which I must respond. He said that there was no obvious purpose for NATO. We have heard that allegation before. From what I have just said, and from what I hear on almost a daily basis, it is clear that there is a very obvious purpose for NATO in the minds of Central and eastern European countries. They are literally queuing up to join NATO because they believe that there is a vital role for NATO. It is a role in which they want to be involved.
When the noble Lord, Lord Weidenfeld, spoke about expansion of NATO I was minded to say to him that that enlargement which is sought by many countries is by no means a straightforward issue. It is highly complex

575
Alliance security guarantees are a serious undertaking. We would have no wish to create new divisions within Europe nor to diminish the effectiveness of the alliance. I believe that NATO will enlarge but that will only be when the time is right. That is why at the NATO Summit in January leaders stated clearly that they welcomed and expected enlargement but did not give any timetable.
We know that the Poles are extremely keen to join NATO. As my noble friend Lord Belhaven and Stenton said, any link between the Poles and NATO should not give rise to a confrontational relationship between the applicant nation and the Russian Federation. My noble friend will understand from what I said earlier about the Russian Federation wanting to join the Partnership for Peace that we do not believe on the present showing that that is likely to be a problem.
The central aspect which the central and eastern European nations are seeking is conflict prevention and peacekeeping. In that regard they see NATO as the main provider rather than looking to the United Nations as the noble Lord, Lord Kennet, implied just now.
Perhaps I may say a word about the CSCE. When the Russian Foreign Minister, Mr. Kosyrev, spoke recently about his proposals for a European security architecture he envisaged a co-ordinating role for the CSCE as the overarching regional political forum. That proposal is based on the Russian mistrust of NATO. However, on the current showing we do not believe that the Kosyrev proposals are likely to be taken up. We believe that the CSCE has an important role to play, but we retain our doubts about the possibility that it might be a co-ordinator of other security organisations. I know that many who are active within the CSCE framework do not see CSCE as a co-ordinator of others.
We have heard much tonight about the relationship between Russia and her neighbours. I believe that there will continue to be difficult discussions with most of them, but we shall always urge all sides to deal with those difficulties constructively and flexibly. That is why we look at the relationship between Russia and the Ukraine, which has been exceedingly strained at times over the past three years, in order to see where we can be of assistance. They have an agreement on nuclear weapons and Russia's role in helping to implement that agreement. We hope that that will be the basis of a more co-operative relationship. But that agreement will only be of real value when we see them working together to reduce their nuclear weapons. When and how we can help them is a matter which is constantly being considered by mernbers of NATO. That is an area in which NATO countries will have a major role to play.
We have heard a great deal tonight about the financial needs of Russia in particular, but those needs extend well beyond the Russian Federation. We have been adamant in the European Union that we should all be outward looking to the needs of the countries of the former Soviet Union and the central and eastern European countries. The European political and economic order is aimed at establishing stability and prosperity from the Atlantic to the Urals. Much of the work on the developing relations between the European Union and the countries to the East has involved frank
576
political dialogue and helping, through various means, to underpin the development of liberal trading relations. Certainly the partnership and co-operation agreement which is close to completion with the Ukraine gives a good indication of how that is done. The negotiation of an agreement between the European Union and Russia is also well advanced, giving a good indication of how the development of relations can be carried through. However, that can only be achieved on a case-by-case basis, and I believe that it will be some time before there is formal agreement between the European Union and all the countries we are discussing tonight,
So far as concerns the position of the United Kingdom—about which the noble Lord, Lord Clinton—Davis, asked a number of questions—we have pledged well over 1.8 billion dollars for support for Russia, both bilaterally and multilaterally. The G7 programme of phased support, linked to progress on reform, is worth over 46 billion dollars to Russia. Our Know-How funds, which the noble Lord did not seem to realise were so much valued in Russia, were doubled last year to £120 million and the annual rate of disbursement is rapidly increasing. By the end of the current financial year in a couple of weeks' time some £30 million will have been, spent on more than 100 projects. There are many more in the pipeline.
I can tell the noble Lord, Lord Clinton-Davis, that the Know-How fund is not only highly regarded by British industry, it is said time and time again by the recipients to be the most effective means of helping them because it is flexible. We channel aid to the institutions, the cities and the regions as they are prepared to change, and we do not go through central government. Therefore, the danger which my noble friend Lord Belhaven and Stenton mentioned of it going to a bank somewhere does not exist with the help that we give through the Know-How fund.
Lord Clinton-Davis: My Lords, I do not question its value. I suggested that it seemed to ignore or pay insufficient attention to the environmental component. That was my point.
Baroness Chalker of Wallasey: My Lords, if I misunderstood the noble Lord, I apologise. Indeed, we have taken account of the needs of the environment. However, one has to have the assistance and willingness of the Russians to implement some of the environmental changes. They say that they recognise the problems, but recognising the problems is only the first step. There has to be a willingness to act—and some of the central and eastern European countries have accepted help and support from us in that very field of nuclear safety. We have spent more than £3 million in the past few years on assistance in relation to reactor safety and nuclear fuel. We take nuclear safety extremely seriously. Our bilateral help, which is mainly technical co-operation, is contributing greatly to improved nuclear safety.
As regards the European Bank for Reconstruction and Development's nuclear safety account, we have contributed more than £8.25 million. We work through the Atomic Energy Authority in trying to improve many of those aspects of nuclear safety which are so essential.

577
The noble Lord, Lord Clinton-Davis, also asked me about the report of the IMF on its most recent visit to Moscow. I do not have the detailed report to hand but conditionality on macro-economic support is important as a means of influencing the governments' decisions. I believe that the targets for deficit and inflation in the draft budget would in principle be acceptable to the international financial institutions. However, it is not yet clear how the Russian Parliament will react to the budget because that budget would impose monetary discipline at the expense of larger scale support for agriculture and industry. I was making that point earlier when speaking about the Duma.
We certainly have a critical role to play, both bilaterally and through the European Union, in assisting the former Soviet Union. TACIS rather than PHARE —the programme for the central and east European countries—is a wide-ranging programme. It is targeted on many different sectors such as public sector training and agriculture. There has been some impatience—indeed, I have expressed it myself—at the slow rate of disbursement of the TACIS fund, but we are working for improvements in its management. I shall discuss it later this week in Brussels.
TACIS is operational in all former Soviet Union countries, and not just Russia. Above all, what we have sought to do with British aid to the former Soviet Union and the central and eastern European countries is to help countries to help themselves. The Know-How funds are particularly targeted to do that and not to allow spending to go towards armaments. If my noble friend Lord Belhaven and Stenton would like it, I shall give him some good examples of the Know-How fund by letter, so as not to detain your Lordships too long tonight.
We are seeking to help Russia, the 11 CIS countries
578
and all the central and eastern European countries, in my noble friend's words, by helping them to help themselves. There is no doubt in my mind that in the past four years they have come an extremely long way. There is no single prescription for them. We do not know, for example, whether the CIS will become a genuine Commonwealth of Independent States or remain a loose economic alliance between some or all of them. Some see benefits in close co-operation. Russia is bound to dominate by virtue of her economic power and the sheer size of the country. But we look to Russia to conduct her relations responsibly because that is essential for stability and prosperity in the region as a whole.
By contrast, the situation in central and eastern Europe has normalised to a great degree. Eventual membership of western institutions is very much on their agenda. For its part, the West needs to build a relationship with Russia, such as the one already established with the Czech Republic. But one thing we must never do is to allow Russia to have a veto over what happens in central Europe. I can assure the noble Lord, Lord Weidenfeld, that we shall not allow that to happen. We want a democratic and prosperous Russia, at peace with herself and her neighbours. We shall do all we can to support that goal and ultimately that is the only guarantee of long-term regional stability and security for all Russia's neighbours and allies.
I thank all of your Lordships who have spoken in the debate. We have much work to do to help Russia and the former Soviet Union and the central European countries forward. Noble Lords can be assured that Britain will do at least her part in that and will encourage others to do likewise.
House adjourned at fourteen minutes past eight o'clock.