Lords Sitting of 22 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.

Gulf War: Kuwaiti Prisoners
Lord Molloy Lord Molloy asked Her Majesty's Government:
Whether they will, as a matter of urgency, ask the United Nations to take steps to secure the release of all Kuwaiti prisoners, both military and civilian, taken by Iraq during the Gulf war and not yet released.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, as the noble Lord will be aware from my answers to his previous questions, we raise the plight of Kuwaiti and other detainees at the United Nations whenever the Security Council reviews sanctions against Iraq. We last did so on 17th March. We shall continue to raise it in the Security Council until Iraq complies with its obligations under Security Council Resolutions 686 and 687 to co-operate with the International Committee of the Red Cross in its attempts to gather information on Kuwaiti and other nationals remaining in Iraq.
Lord Molloy: My Lords, I am most grateful for that very informative Answer and for the spirit in which the Minister gave it. Is the Minister aware that the Kuwaitis have a passionate love for this United Kingdom because we and the Americans gave them back their country? Is she also aware that they are now suffering a new threat in that they are discovering that thousands of men, women and children are being taken by Saddam's army back to Iraq where they are suffering under appalling conditions? Could we, with our colleagues in the free world, try to do something about that dreadful and appalling situation?
Baroness Chalker of Wallasey: My Lords, the noble Lord is right. We have excellent relations with the Kuwaiti people at all levels. We know how hard they have tried to regularise the situation. However, as the noble Lord said, that is not the case on the Iraqi side of the border. Although the ICRC representative visited Baghdad last December to urge Iraq to respond to earlier requests for information, Iraq has so far failed to reply in any way. We passed detailed case files to Iraq as long ago as January last year. I assure the noble Lord that we shall keep up the pressure.
Baroness Blackstone: My Lords, can the Minister tell the House how many Kuwaitis and other nationals who were seized after the Gulf war are still in captivity? Can she also say whether the International Committee of the Red Cross or any other humanitarian organisation
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has access to those prisoners and, if not, whether representations have been made to the Iraqi Government about that?
Baroness Chalker of Wallasey: My Lords, representations have been made to the Iraqi Government. Although the ICRC is the key organisation dealing with Iraq in these matters, it certainly cannot visit all the prisoners. We reckon that there are something over 600 such prisoners, but there are other estimates of much higher numbers. One of the great difficulties is that when the ICRC organised a meeting involving the tripartite commission (the US, the UK and France), Kuwait and Saudi Arabia, the Iraqis failed to send a representative. It is extremely hard to make any progress on this matter, but we shall go on trying.
Lord Rea: My Lords, does the Minister agree with Amnesty International that a number of Iraqi citizens who were living in Kuwait at the time of the Gulf war have been imprisoned without trial or with inadequate trial? Would not the case of the Kuwaitis be rather better if those people—if they exist —were given proper justice?
Baroness Chalker of Wallasey: My Lords, like the noble Lord, I too have heard those accusations. Although we are not aware of persons being held without trial, I shall look again into what the noble Lord has said because I repeatedly hear the same accusation although I cannot find any justification for it so far.
Lord Molloy: My Lords, does the Minister agree that the crimes committed by Saddam Hussein are almost without parallel? Does she agree that there is also the terrible agony of people who have had their children, brothers, husbands or wives stolen by Saddam Hussein and taken back to Iraq? They know that their families are suffering appallingly from terrible threats as well as by being punished and tortured for trivialities. Does the Minister accept that there is that second agony in the minds of those Kuwaitis who have lost loved ones and who are therefore enduring a living death because of the villainous behaviour of Saddam Hussein?
Baroness Chalker of Wallasey: My Lords, I must say to the noble Lord that Saddam Hussein's actions are without parallel. They are not "almost without parallel"; they are definitely without parallel. It is perfectly true that that appalling brutality and disregard for the welfare of the Iraqi people led to Security Council Resolution 688 in 1991. That resolution has not been complied with.

The Rosetta Stone
2.42 p.m.
Lord Spens Lord Spens asked Her Majesty's Government:
Whether it is their policy to facilitate the return of the Rosetta Stone to Egypt.
Baroness Trumpington: My Lords, it is the view of Her Majesty's Government that the Rosetta Stone, which was legitimately acquired, should remain in the British Museum.
Lord Spens: My Lords, I thank the noble Baroness for that rather depressing Answer. Is she aware that of the 100,000 or so artefacts on display in Cairo's extraordinary Museum of Antiquities, the only copy on display is that of the Rosetta Stone, which is a rather poor copy to boot? If the noble Baroness were to be asked formally by the Egyptian authorities, would she consider discussing some form of exchange—either a permanent or temporary loan—with that museum for some of its artefacts, which I suspect might be more of a draw to the British Museum than that rather dull old lump of basalt?
Baroness Trumpington: My Lords, the answer to the first part of the noble Lord's question is yes; and the answer to the second part is no.
Lord Strabolgi: My Lords, have the Government been asked officially for the return of that stone? I have not read anything about it.
Baroness Trumpington: My Lords, the noble Lord is correct. There has been no official request for its return.
Lord Renfrew of Kaimsthorn: My Lords, is my noble friend aware that many Egyptians welcome the universal admiration for their ancient civilisation which is furthered by the existence of ancient Egyptian artefacts in many museums in the world? Will she welcome, as I do, the words of His Excellency the Egyptian Ambassador? He spoke at the British Museum this year and said that the Egyptians take pride in the British Museum's collection, which they see as contributing to the world appreciation of Egyptian culture?
Baroness Trumpington: My Lords, I am most grateful to my noble friend Lord Renfrew for his fascinating, intelligent and perspicacious remarks.
Lord Mowbray and Stourton: My Lords, perhaps I may be bold and cast a little grit in the nice oily welcome the Question seems to have been given. But how can the Government say that the stone was acquired legitimately? I gather that it was acquired at the peace of Amiens—was it in 1802?—when Napoleon Bonaparte, as he then was—the general commanding the French army—who had invaded Egypt took it. As your Lordships probably know, he took two dozen scientists, and the one thing that they wanted was the Rosetta Stone. When Napoleon escaped with his favourite generals, did he not take back with him the Rosetta Stone? Therefore he had no legitimate interest in it. How, I ask myself, were the British Government entitled to say that they had acquired it legitimately?
Baroness Trumpington: My Lords, I am absolutely fascinated by my noble friend's question because I gave him the very information just before this Question Time began. I repeat the answer. We acquired it legitimately, and the Egyptians have not asked for it back.
Lord Donoughue: My Lords, will the noble Baroness inform her noble friend that it is always difficult to unstitch the fabric of history and to decide
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what was acquired legitimately? Otherwise, perhaps certain Members of the House would not be here. Does she agree that we do not want gestures of gratuitous generosity on a one-off basis, and that what would be helpful would be to have a multilateral agreement among all the relevant countries to decide upon what basis and in what circumstances some cultural objects might appropriately be returned?
Baroness Trumpington: My Lords, as the noble Lord may be aware, there is a draft UNIDROIT convention which is attempting to address the problem of the public law provisions for such matters. It has been working for some time. We have participated in the work that it has been doing, but I cannot anticipate whether the UK will eventually become a signatory, but we shall certainly try to work to the end of the UNIDROIT convention, and hope that it will have a satisfactory result.
Lord Beloff: My Lords, is my noble friend acquainted with recent reports which suggest that the treasures which are in the Cairo museum are being neglected badly owing to the Egyptian Government's lack of resources? Would it not be far better if more such treasures were in museums in countries where they can be preserved properly?
Baroness Trumpington: My Lords, I should never dream of criticising another nation. I merely say that we must not be greedy.
Lord Jenkins of Putney: My Lords, is the noble Baroness aware that I warmly agree with the sentiment that she has just uttered? In fact, this country is seen as having been rather greedy in regard to such matters in the past and as dragging our feet over the restoration of objects which are of national importance to the countries concerned. In that respect, if we are going to change our attitude, would not it be a good idea to start with the Elgin Marbles?
Baroness Trumpington: My Lords, a Question on the Elgin Marbles is coming up, and I should hate to spoil that opportunity.
Lord Morris: My Lords, is my noble friend aware that I am certain that she will recall that the Rosetta Stone provided the key to the deciphering and translation of Egyptian hieroglyphics, and that the man who largely did that work was Thomas Young, of England, and a Frenchman called Jean Francois Champollion? As such, the stone is an international treasure which could not be nurtured better than by the British Museum.
Baroness Trumpington: My Lords, I have no argument with my noble friend's statement.
Earl Alexander of Tunis: My Lords, does my noble friend agree that this is a dangerous precedent to set because the Sovereign's jewels have come from abroad?
Baroness Trumpington: My Lords, I can give your Lordships answers on the Cullinan diamond, the Koh-i-noor, the Sphinx's Beard, Cleopatra's Needle, the

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Rosetta Stone, the Elgin Marbles, Turkish sculptures, the Canning Marbles; and all of them have been acquired legitimately.

London Underground: New Trains
2.50 p.m.
Lord Jay Lord Jay asked Her Majesty's Government:
Whether they have now completed the financial arrangements for the purchase by London Underground of new trains for the Northern Line.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Mackay of Ardbrecknish): My Lords, the timing for the acquisition of any new trains for the Northern Line is for London Underground Limited. The Government are urgently considering whether a leasing arrangement, such as the one recently proposed by ABB Limited, is consistent with the published criteria for such deals under the Government's private finance initiative.
Lord Jay: My Lords, as these trains are acutely needed by hundreds of thousands of people who use the line every day; as British industrial plant stands ready and waiting to produce them; and as the leasing scheme to which the noble Lord referred involves no government expenditure of public money, will the Government refrain from obstructing any longer the leasing scheme on grounds which appear to be no more than Treasury theology?
Lord Mackay of Ardbrecknish: My Lords, we are not obstructing the scheme. We are assessing the details of the scheme and we at the Department of Transport and others at the Treasury have had detailed discussions with ABB Limited. We are assessing the project to see how it accords with the rules for private funding. I expect a decision to be made in the near future.
Lord Jenkin of Roding: My Lords, is it not clear that the financing of these Northern Line trains is becoming something of a litmus test for the Government's good faith over the private sector/private finance initiative? If that is the case, do the Government recognise the enormous importance for this and many other projects which stand or fall by the new rules? If the new rules are substantially unchanged from the old Ryrie rules, does the Minister expect Sir Alistair Morton and his team to remain in office?
Lord Mackay of Ardbrecknish: My Lords, we fully appreciate the importance of the scheme for the Northern Line and its customers as an indication of the kind of scheme that we can encourage through private funding. That is why it is important for us to study the scheme properly and reach a properly balanced assessment that it accords with the rules.
Lord Clinton-Davis: My Lords, what is the difference in principle between the provision that was made for network express trains to be built and leased to British Rail and the situation that affects the Northern Line? Is it not the case that the Treasury and the Department of Transport have not seen eye to eye on
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this issue and that, as Winston Churchill once put it, the Treasury is continuing to behave like an inverted Micawber waiting for something to turn down?
Lord Mackay of Ardbrecknish: My Lords, the noble Lord is being extremely unkind to the Treasury, as noble Lords who are former Treasury Ministers will expect me to say in their collective defence. The noble Lord rightly mentioned other projects on leasing that have been allowed. However, it is important to note that this project varies in some respects and we must explore it carefully to ensure that it obeys the rules and that there is a sufficient transfer of risk from the public to the private sector. That is one of the key components of private-sector funding.
Lord Clinton-Davis: My Lords, is it possibly the case that the Government are waiting until the brink of the local elections to make an announcement about the matter?
Lord Mackay of Ardbrecknish: My Lords, I cannot think why the noble Lord should have such an ungracious thought. If the Government were waiting to make an announcement I could think of no better occasion than my appearance at the Dispatch Box today.
Lord Jay: My Lords, election or no election, as the Government have been making their balanced assessment for some months will the Minister say when the decision will be taken?
Lord Mackay of Ardbrecknish: My Lords, we have not been making the assessment for "some months", in the plural view which the noble Lord implied. We have treated the matter seriously and hope to make an announcement soon. We are well aware of the importance of the work that is needed on the Northern Line, as on the whole of the Underground. That is why during recent years we have put such large resources into London Underground and we intend to do so during the next three years.
Lord Tugendhat: My Lords, does my noble friend agree that London's future, not only as an international centre but as a business centre within the United Kingdom, depends on the efficiency of the public transport system, in particular the Underground system? Does he further agree that the delays that have taken place in respect of the Northern Line, CrossRail and London Transport do not inspire great confidence in the importance that the Government attach to the position of the capital as a business centre and an international financial centre?
Lord Mackay of Ardbrecknish: My Lords, I am afraid that I cannot agree with my noble friend's sentiments. As I mentioned in answer to the noble Lord, Lord Jay, the Government have made considerable investments in London Underground. Indeed, during the next three years we shall invest approximately £3 billion, including in the Jubilee Line. Currently the £0.75 billion Central Line modernisation is on course for completion next year.
Lord Dixon-Smith: My Lords, I am an occasional user of London Underground and admit that I am constantly impressed by the speedy and efficient way in which it moves large numbers of people about our capital city. However, some of its rolling stock is more fit to be in a museum. Will the Minister assure me that every effort is being made to find a way to facilitate this deal, which might slip through our fingers? Will he further assure me that it has nothing to do with the fact that the Treasury insists on treating both capital and revenue expenditure in the same way?
Lord Mackay of Ardbrecknish: My Lords, I echo my noble friend's point about the efficiency of London Underground. Every day it moves a large number of people in a complex structure and it does so remarkably well. I fully appreciate the need, for example, for the Northern Line to be refurbished; that is the track, the electrics and the carriages. The Government are well aware of the importance of refurbishing the line. I assure him that if the project meets with the rules the Government will be more than willing to see it go ahead.

CAP: Commission Report
2.57 p.m.
Lord Bruce of Donington Lord Bruce of Donington asked Her Majesty's Government:
Whether they will take steps to urge upon the European Commission the necessity for the prompt publication and distribution of the report written for it by a team of agriculture academics including Professor Kenneth Thompson calling for the end of the common agricultural policy.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe): My Lords, I understand that this is an internal European Commission study on which work is not yet fully complete. Eventual publication is, of course, a matter for the Commission. If the Commission decides to make the study available I will have a copy placed in the Library of the House.
Lord Bruce of Donington: My Lords, is it not remarkable that the Government know the history of the Rosetta Stone, the Cullinan Diamond and the Elgin Marbles but have no information as to the whereabouts or extent of this important report? Is the Minister telling the House that Her Majesty's Government, who are allegedly at the heart of Europe, cannot obtain from the Commission a copy of this report? Is he telling the House that the Commission is so powerful that it can prevent the document from being circulated—a document that has already been in the hands of some of the press—and that the Government cannot obtain it for the information of the House? If so, they may as well abandon government.
Earl Howe: My Lords, in the light of the noble Lord's Question I made inquiries about the report. I understand that it is an internal European Commission
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report and that it is not yet complete. Therefore, it would appear to be inappropriate to seek from the Commission a report that does not yet exist in its final form.
Lord Boyd-Carpenter: My Lords, is it the Government's intention to secure that the report, when complete, is not suppressed and that it is made available to be seen by those concerned and those responsible?
Earl Howe: My Lords, the report covers long-term issues relating to the common agricultural policy. The Government have no difficulty about encouraging debate on the CAP and the issues which affect it. However, these are sensitive matters and we must be careful that any action we take does not in the event turn out to be counter-productive.
Lord Stoddart of Swindon: My Lords, I am sure that the Government and the Minister are anxious about the enormous rise in agricultural expenditure within the Community. That expenditure rose from £30 billion in 1990 to £52 billion in 1993. I hope that the Government are concerned about that large increase. Is not the noble Earl anxious about rumours that the report, which has apparently been unanimously agreed by the experts, is being suppressed to suit the convenience of M. Jacques Delors, the president of the Commission, who intends to stand for the presidency of France? Will the noble Earl comment on those rumours and reports?
Earl Howe: My Lords, the Government's view is that the cost of the CAP is too high and that agricultural support should be brought down over a period of time. Support prices are already coming down as a result of CAP reform in 1992. We wish to see further reform. But the pace of that process must be judged extremely carefully. It will not help if we are clumsy or if we are seen to force the pace in an unrealistic way.
As regards the second part of the noble Lord's question, as I have explained, as far as we understand it, that study is not yet complete. I have no evidence to support the allegations put forward by the noble Lord that its publication is being suppressed by M. Delors or anyone else in the Commission.
Lord Pearson of Rannoch: My Lords, in order that we can better understand the possible significance of this possible report, could my noble friend inform the House of the present annual costs to the British taxpayer of the common agricultural policy and how much it adds to the average family's food bill each year? Could he also, in order to let us reach a decision on this matter, give us the annual costs to the Community budget of intervention, storage, export refund and set aside?
Earl Howe: My Lords, I shall gladly write to my noble friend with such detailed figures as are available. It is not possible to give a precise figure for the UK's contribution to the cost of the CAP. The UK contributes to the EC budget as a whole and that contribution is reduced by the Fontainebleau abatement. That abatement cannot be attributed to particular sectors of the EC budget.
With regard to the cost of the CAP to consumers in the United Kingdom, various figures have been bandied about but most of them are misleading because they are

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based on the difference between EC prices and those on world markets. But if EC prices were reduced, it is likely that world prices would strengthen in response to that. Therefore, any estimates which my noble friend may have read should be treated with extreme caution.
Lord Carter: My Lords, the report in question is supposed to call for the end of the common agricultural policy. Is the Minister aware that the European Union stretches from the Arctic to the Mediterranean and from the Atlantic to Poland and that there are vast differences in agricultural systems across that land mass? Does the Minister agree that it is not possible to run a centralised system from Brussels which is targeted down to the last hectare of land as regards set aside or the last litre of milk quota, which is not fraud ridden? Does the Minister agree that if there is a policy in Europe which is crying out for subsidiarity, it is agricultural policy?
Earl Howe: My Lords, if you believe in the single market, you need common rules to make it work. Without common rules, there is no level playing-field in Europe. To take the action advocated by the noble Lord would be incompatible with that principle.
Lord Bruce of Donington: My Lords, the noble Earl said to the House that he understands that the report is not complete. Is the noble Earl aware that those of us who have had some experience of Brussels and the way in which the Community works know that that really means that the Commission is still trying to alter the report to suit its own convenience, as it did with regard to one Court of Auditors' report? Will the noble Earl give the House an undertaking that he will get that report quickly from the Commission so that it can be in the possession of the Government and the House?
Earl Howe: My Lords, I should be happy to pass on the noble Lord's strength of feeling to my right honourable friend and I have no doubt that she will take appropriate action.

British Railways Order Confirmation Bill
3.5 p.m.
Considered on Report.

British Railways (No. 2) Order Confirmation Bill
Considered on Report.
British Railways (No. 3) Order Confirmation Bill
Considered on Report.

Consolidated Fund (No. 2) Bill
The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley): My Lords, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read a second time.—(Lord Henley.)
Lord Boyd-Carpenter: My Lords, perhaps I may ask my noble friend to inform the House as to the Government's intentions with regard to the implementation of the undertaking given at the time the House was persuaded not to allow debate on the Consolidated Fund Bill. At that time the House was told that there would be a full financial and economic debate to compensate. Can my noble friend say when the debate will take place?
Lord Henley: My Lords, that is a matter, I believe, for the usual channels. I am sure that my noble friend will find adequate means of taking up the matter with my noble friend.
Lord Eatwell: My Lords, at the time of the last Consolidated Fund Bill, the noble Lord, Lord Boyd-Carpenter, protested about the fact that there was inadequate time to discuss economic matters in the House. He is quite right: he was told that such time would be made available. That has not happened, although I can quite understand the Government's reluctance to discuss economic affairs and to have their rather disastrous record subjected to careful examination. However, it is true that the Government assign very little time in this House to discussion of economic affairs. When such matters are scheduled for debate, as was the recent report to the European Commission by the Government about the status and performance of the British economy, the debates tend to be scheduled late on Thursday afternoons. Will the Minister give an assurance that more time will be made available by the Government for the discussion of economic affairs?
The Lord Privy Seal (Lord Wakeham): My Lords, as the noble Lord would discover if he were to speak to the Opposition Chief Whip, there will be a Finance Bill before the House very shortly. That will afford a proper opportunity to discuss these matters. In view of the Procedure Committee's recommendations to the House, I wonder if this is the right time to proceed.
Lord Boyd-Carpenter: My Lords, does my noble friend recall the undertaking, given at the time the House was persuaded to agree to ban debate on the Consolidated Fund Bill, that there would be an alternative debate on finance and economic matters Is my noble friend aware that the mere statement that the usual channels will discuss this matter is not an implementation of that undertaking?
Lord Wakeham: My Lords, if I recall the discussions that we had at that time, I do not believe that the House needed much persuading not to pursue the question of debates on the Consolidated Fund. There was an agreement to arrange alternative economic discussions and, as I understand it, we arrange those debates in this House through the usual channels. I give an absolute undertaking to do that.
Lord Bruce of Donington: My Lords, I agree with the noble Lord, Lord Boyd-Carpenter. Would it not be possible to organise a debate on the detailed report that the Government submitted to the European Commission

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under Article 104(c) of the Treaty of Maastricht so that we may then know the obscure moving of the Government's mind on these matters and what they feel able to report in that regard to the Commission? Would that not be an admirable occasion on which to discuss such matters, as suggested by the noble Lord, Lord Boyd-Carpenter?
Lord Graham of Edmonton: My Lords, I should like to be helpful. I do not for a moment disagree with the intentions expressed when the matter was raised earlier. I have cast my mind back to the period in late November and December of last year when we had the Queen's Speech debates, immediately followed by a Labour debate. Certainly, there was no disinclination on the Government's part at that time to produce an extra day. Recognising the fact that we had had a fair ration of economic debate in late November and December, our side of the House did not pursue the matter. In the light of what has been said, surely the noble Lord the Leader of the House is being very fair in saying that the matter should be returned to the usual channels to see whether an opportunity can be found for such a debate. We certainly agree with that proposal.
On Question, Bill read a second time.
Committee negatived; then Standing Order No. 44 having been dispensed with (pursuant to Resolution of 21st March), Bill read a third time, and passed.

Education Bill [H.L.]
3.11 p.m.
The Minister of State, Department for Education (Baroness Blatch): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Baroness Blatch.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Lord Judd Lord Judd moved Amendment No. 84A:
Before Clause 20, insert the following new clause:
("Exemption for the Open University
Nothing in this Part shall apply to the Open University.").
The noble Lord said: In introducing the amendment, I should like to make it very clear that, as I understand it, the Open University strongly favours democracy and sensible administrative controls, but that at the same time it is understandably unhappy about the prospect of being caught up in expensive arrangements which are quite unnecessary and which are obviously designed for very different kinds of institutions, with ever present student communities throughout the academic year.
The realities and dynamics—the involvements both domestically and professionally—of 130,000 students in the Open University Students Association are totally different, although they do in some ways relate to all higher educational institutions providing distance
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learning. The points in that respect which I imagine the noble Lord, Lord Flowers, will want to raise later this afternoon are, I suspect, highly relevant.
The Open University already operates the kind of financial controls which the Government seek to introduce in their new clause. The governing body does indeed monitor the financial affairs of the student union. Therefore, there seems little point in forcing the provisions of the Bill on such a well-regulated institution. But it is the prospect of a secret ballot for all of the 130,000 students at a cost in the region of £52,000 which is the greatest bone of contention. It seems to be a pretty ludicrous waste of scarce resources in an institution characterised by mature students who are all very much part of the communities where they live and work rather than of a self-contained student community on campus. Further, as I understand it, no one in the student community has so far even raised the issue of the need for such a ballot. Indeed, by contrast, the Open University students seem to be very happy with the existing arrangements for indirect election.
I know that the Minister has been in consultation with the Open University about its special position and about how that might be covered. I know how much her concern has been appreciated by all those involved. Therefore, in the course of what I imagine will be quite a brief following exchange, I hope that the Minister will be able to say something to reassure the Committee on the issue of the special position of the Open University. Perhaps at the same time she may also be able to indicate whether she proposes to do something about distance learning in general. I beg to move.
Baroness Carnegy of Lour: I am a little mystified by the noble Lord's amendment. A few weeks ago I would have agreed with him that the matter needs to be looked into. At one time the Open University saw itself as being quite separate from the university system as a whole. It was funded directly by central government and not through the funding council. It has now opted—in my view, quite rightly—to be part of the mainstream university system which is funded through the funding council, as are other universities. I do not think that the OU would want to be exempted from the whole of Part II which, as I understand it, is the aim of the noble Lord's amendment.
On the question of the ballot, as it happens I was present at the council of the Open University this very morning when the Bill was discussed as an item on the agenda. Representatives of the students' association were also present and I spoke to them after the meeting. I believe that the Open University has accepted—although the noble Lord may be right in what he says —that it would perhaps be very nice for a union (a students' association as is the case with the OU) to be free of all regulation under the Bill. However, those concerned realise that in the real world, and if they are to be part of the mainstream, they should be subject to the clause. In fact, the proposed new clause which we shall shortly be discussing meets almost all of the points upon which the Open University took issue with the Government. Indeed, the OU is quite satisfied with that new clause, except for the point about ballots.

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The noble Lord is quite right. I know that the Minister wrote to the Open University on 17th March (the letter was referred to during the council meeting this morning) to give an undertaking that she would try to meet the point about ballots, not only for the Open University but also for any other university which might have a preponderance of distance learning students. Ballots can be difficult to organise if you have students living all over the place and they cannot, therefore, take part except by post.
Doubtless my noble friend the Minister will tell the Committee what she has in mind. I believe that the amendment is quite unnecessary. Indeed, should the noble Lord decide to press the matter to a Division I hope that Members of the Committee will not support it. I do not think the amendment meets the present wishes of the Open University.
Earl Russell: I have also been in contact with the Open University. I have with me a letter from the office of the secretary. The Open University wishes to join in the welcome which is being universally extended to the proposals that the minister is about to bring forward. I agree that the OU has always wanted to come into the mainstream of higher education. On the academic front it has been extremely successful in doing so. However, we are discussing a system which has been designed specifically for use on residential campuses.
The Open University has requested that I ask the Minister whether she will reassure Members of the Committee that the current system of electing officers to the Open University Students' Association satisfies the requirements of the proposed legislation as it gives all the students an equal entitlement to participate in such elections, and that the amended Clause 20 will not entail an annual postal ballot of 130,000 students, which would cost £52,000.
An assurance to that effect from the Minister would be an end to the matter. However, I rather suspect that she will not be able to do so. If that is the case, perhaps the noble Baroness would consider going a little further than the suggestion in the amendment of the noble Lord, Lord Judd. In the future, there may be other institutions of open and distance learning. Therefore, would the Minister consider having an exemption for institutions of open and distance learning? If she were to consider such a form of words, the Minister might find that it would solve some of the difficulties that we have been experiencing as regards multi-site further education colleges.
We are all beating on an open door. I believe we are approaching this in a mutual and agreed and constructive desire to reach a solution. I have every faith in the ability of the noble Baroness to do so in consultation with others. I look forward to hearing her reply.
Lord Campbell of Alloway: I would ask the noble Lord, Lord Judd, that if it appears—that is my understanding as well as that of the noble Earl who has just spoken—that the Open University does not want to opt out totally of Part II of the Bill, would it not be appropriate to consider the specific problems arising, such as affiliation needs and others, with the Open
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University when we come to consider the requirements of Clause 21(2) which are now, so to speak, under the new disposal open to discussion not only today but between today and Report?
Lord Judd: I hope I may reply to that point and to what the noble Baroness, Lady Carnegy, has said. It is certainly the case that the major anxiety in the Open University concerns the ballot. I am sure that if the Minister can say reassuring things about that—I rather hope she will be able to do that—we shall all feel glad. I must emphasise that I understand that the discussions which have been going on between the Minister's department and the Open University have been greatly appreciated. However, the difficulty is that we do not yet know whether there will be a change of clause this afternoon. It is quite clear that, were there not to he a change of clause, it would be essential to pursue this amendment with some vigour. What I am therefore seeking—I am sure the Minister understands this—are some words of reassurance in this slightly difficult situation as regards how she views this matter in terms of the future. I would say in response to the noble Baroness, Lady Carnegy of Lour, that the Open University may have come to terms with the other provisions apart from the ballot. What I am suggesting, however, is that it is really unnecessary to apply those provisions to the Open University because the OU is so different in so many ways. It is already doing virtually everything that is required of it in this respect. The provisions may also be superfluous as regards other centres of higher education but it seems quite superfluous to extend them to the Open University even though it may be able to accommodate them. However, I totally agree with the noble Baroness that the key issue here is the issue of the ballot.
Baroness Blatch: I share my noble friend's puzzlement on this matter. I signed a letter and sent it to the noble Lord telling him what I was going to do. Therefore it is puzzling to receive a public request across this Dispatch Box to exempt the Open University from secret ballots. If the noble Lord has not received my letter, I shall try to find out why. However, I know that other noble Lords have received that letter, as have some of my noble friends.
The noble Lord pressed the argument that the Open University is different. However, the particular distinction between the Open University and other campuses has been addressed; namely, the issue of corresponding, for secret ballot purposes, with 130,000 university members scattered all across the country and not resident on a single campus. The noble Earl, Lord Russell, referred to that matter. I have agreed to address that issue. The noble Earl, Lord Russell, asked whether the Open University's present procedures would fit with the measures in the Bill. My understanding is that they would. The Open University would be required to notify all of its members that there was to be voting for officials of the union and that could be done in the newsletter that is sent out to all members of the Open University. As long as each member of the Open

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University knew that a ballot was to be held at a particular venue to elect officials of the union, that would meet the requirements.
I can assure the Committee that the exemption will apply to a category of institution and will not specifically name the Open University. We want to name the category; that is, institutions which predominantly serve the interests of open and distance learning students. If in the future other institutions come into that category, they would enjoy the same exemption as the Open University. The difficulty I have today with this amendment is that it disapplies the whole of Part II of the Bill. I do not accept that the students of the Open University should be treated in such a cavalier way. The objectives of our reforms—choice, democracy and accountability in relation to the student union—are essentials for Open University students no less than for other students. Again the argument pressed by the noble Lord is that the way in which the Open University conducts its affairs is exemplary. I could argue that case as regards many higher education institutions. What we want to codify on the face of the Bill is that it should be a requirement that all institutions should follow the practice of the best.
I accept that the provisions that we propose for direct balloting of the student body would be especially difficult to operate for the Open University. We shall debate in a minute the details of the Government's proposals in Amendment No. 85 for ballots in relation to election of union officers and to affiliation decisions. I shall explain then how I propose that the requirements for ballots should be disapplied in the case of the Open University in view of its particular circumstances.
However, I do not believe that the Open University should be exempted from the other requirements for best practice in student unions' conduct. Why should Open University students not have the right to choose whether to belong to their student union? Why should Open University students not have access to a complaints procedure if they have cause for complaint about their student union? Why should Open University students not have access to information about the student union's budget? Our proposal to disapply the ballot requirements in the case of the Open University is intended to accommodate its special circumstances. I therefore hope that the Committee will agree that this exemption meets the only concern that I know of which has been communicated to us by the Open University. We have been in constant communication with the Open University. I hope the Committee will reject the noble Lord's amendment.
Lord Judd: I am grateful for that reply. The Minister has dealt fully with the ballot point and, as we have agreed, that is the main bone of contention. Incidentally, we noted with, I believe some encouragement, what she said about distance learning in general. That is good news. I still believe that in view of the exemplary way in which the Open University has conducted its affairs, and in view of its special circumstances, there is a strong case for saying that what applies to the rest, if it must apply to the rest —we shall discuss that later—should
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not have to apply in the area we are discussing. While I certainly accept the point that was made that we must look closely at what happens later in our proceedings today and its implications for the Open University and other institutions, I feel that the Minister has moved firmly in the right direction. In the circumstances, I would not want to pursue this amendment. Therefore I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 [Services supported out of public money]:
On Question, Whether Clause 20 shall stand part of the Bill?
Baroness Blatch: I rise to oppose the Question that Clause 20 stand part of the Bill. In doing so, I wish to speak also to Amendments Nos. 86A and 89A. This is the first of the two substantive changes that the Government propose to Part II of the Bill. I hope I may trespass a little on the patience of the Committee to explain how the Government now propose to implement student union reform, in the light of the Second Reading debate.
In answer to a question from my noble friend Lord Colnbrook on 24th February, I confirmed that we had taken most careful notice of the points raised in the Second Reading. After extremely helpful consultations we identified a revised approach to implementing student union reform. In considering the way forward I was greatly assisted by the amendment tabled by my noble friend Lord Campbell of Alloway supported by my noble friends Lady Young and Lady Perry. The substance of that amendment is reflected in an amendment in my name that we shall debate later; I am grateful to my noble friends for giving me a start, and for now withdrawing the amendment in favour of my Amendment No. 85. I have appreciated very much the constructive spirit of those discussions. I have also, of course, taken careful account of the important work of the Delegated Powers Scrutiny Committee, which expressed some concerns about Clause 20.
I make no apology for revising our approach. This Chamber is at its best when it probes the Government, as it did with gusto on Second Reading. But our objectives in seeking the reform of student unions are unchanged. We are committed to securing choice, democracy and accountability in the student unions.
The reforms will give all students the long overdue choice over whether to belong to the student union.
Democracy is naturally a feature of student union constitutions, and the proposals aim to build on and reinforce those provisions. We aim to ensure that all student unions meet the high standards that students have a right to expect, acting with fairness and transparency.
Financial accountability, similarly, must be maintained to the highest standards. Student unions have considerable sums of taxpayers' money at their disposal. We must be sure that it is spent on legitimate activities and is properly accounted for.
In the Second Reading debate there was widespread understanding of the need for reform, so as to maintain the highest standards of behaviour in student unions.

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The fire —which did not lack heat—was concentrated on the method of implementing reform that we had proposed in Clause 20. We now propose to delete Clause 20 and instead, if I may express myself in shorthand, to enhance the provisions of Clause 21 in order to secure reform.
I shall not anticipate the detail of the later amendment, Amendment No. 85. The Committee will already have seen that it provides for students to be able to exercise a choice over student union membership; for the promotion of the best practices throughout the public further and higher education sectors; for democracy; and for accountability.
This revised approach to reform rests on universities and colleges defining their responsibilities in relation to their student unions. Those will be transparent and accountable. That, I believe, is where the responsibilities properly belong. I am confident that the Committee will find this approach more acceptable than the machinery that we had set out in Clause 20. The deletion of that regulation-making power in Clause 20 requires two consequential amendments—Amendments Nos. 86A and 89A—to Clause 22, where there are cross-references to it.
I hope that it has been helpful to take a little time to set in context the immediate question under debate; namely, whether Clause 20 should stand part of the Bill. Our discussions since the Second Reading debate have been most helpful and productive. Our revised approach will deliver effective reform, but without the disruption and bureaucracy that Clause 20 would have entailed. I hope that the Committee will join me in deciding that Clause 20 can be discarded.
Clause 20 negatived.
3.30 p.m.
Baroness Blatch Baroness Blatch moved Amendment No. 85:
After Clause 20, insert the following new clause:
Requirements to be observed in relation to students' unions
(".—(1) The governing body of every establishment to which this Part applies shall take such steps as are reasonably practicable to secure that any students' union for students at the establishment operates in a fair and democratic manner and is accountable for its finances.

(2) The governing body shall in particular take such steps as are reasonably practicable to secure that the following requirements are observed by or in relation to any students' union for students at the establishment—

(a) the union should have a written constitution;

(b) the provisions of the constitution should be subject to the approval of the governing body and to review by that body at intervals of notmore than five years;

(c) a student should have the right—

(i) not to be a member of the union, or

(ii) in the case of a representative body which is not an association, to signify that he does not wish to be represented by it,

and in the following provisions a student who has exercised that right is referred to as a "non-member";

(d) appointment to major union offices should be by election in a secret ballot in which all students other than non-members are entitled to vote;

(e) the governing body should satisfy themselves that the elections are fairly and properly conducted;

(f) a person should not hold sabbatical union office for more than two years in total during the time he is a student at the establishment;

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(g) the financial affairs of the union should be properly conducted and appropriate arrangements should exist for the approval of the union's budget, and the monitoring of its expenditure, by the governing body;

(h) financial reports of the union should be published annually or more frequently, and should be made available to the governing body and to all students;

(i) the procedure for allocating resources to groups or clubs should be set down in writing and freely accessible to all students;

(j) affiliation to external organisations should be decided upon by a secret ballot in which all students other than non-members are entitled to vote, and should be subject to annual review;

(k) there should be a complaints procedure available to individuals or groups of students dissatisfied in their dealings with the union, which should include provision for an independent person appointed by the governing body to investigate and report on complaints;

(l) complaints should be dealt with promptly and fairly and where a complaint is upheld there should be an effective remedy.

(3) The governing body of every establishment to which this Part applies shall for the purposes of this section prepare and issue, and when necessary revise, a code of practice as to the manner in which the requirements set out above are to be carried into effect.

(4) The governing body of every establishment to which this Part applies shall as regards any students' union for students at the establishment bring to the attention of all students, at least once a year—

(a)any restrictions imposed on the activities of the union by the law relating to charities, and

(b)where the establishment is one to which section 43 of the Education (No.2) Act 1986 applies (freedom of speech in universities and colleges), the provisions of that section, and of any code of practice issued under it, relevant to the activities or conduct of the union.").

The noble Baroness said: This new clause sets out how we aim to achieve our objectives for student union reform: choice, democracy and accountability. It introduces voluntary membership. For the first time all students will be able to choose whether they wish to be members of their student unions.
Those are important goals. But we do not wish to interfere with current arrangements where there is no need; our proposals build on the best practice that already exists in many institutions. I do not think that the Committee will find our proposals either superfluous or excessive.
The new clause would replace the present Clause 21. It retains the structure of Clause 21 as originally introduced. We propose in subsection (1) that each university and college should have a duty to ensure that its student union operates in a fair and democratic manner and is financially accountable. We set out in subsection (2) a number of detailed requirements which together encapsulate fair, democratic and accountable behaviour. Subsection (3) would place each institution under a duty to set out in a code of practice how it plans to satisfy those requirements.
There are two significant changes from Clause 21 as introduced. First, we propose to drop the previous subsection (4) which provided for governing bodies to have regard to any guidance issued by the Secretary of State. The revised approach places responsibility for the conduct of student unions where it belongs: with the institutions themselves. The need for guidance in large part rested on the proposals for a control on the use of public money, which we have now dropped.
Secondly, there are a number of changes of detail to subsection (2), which we have introduced to strengthen the requirements to be observed by student unions and to take account of points made during the consultations that we have had with members of this Chamber and with representative bodies from the universities and colleges.
It will be obvious to all that in these proposals we have picked up some ideas from the amendment tabled earlier by my noble friend Lord Campbell of Alloway, which has now been withdrawn. In particular, my noble friend's amendment first set down the proposal that students should be able to opt out of student union membership. As I said earlier, I am most grateful for my noble friend's help, and that of other colleagues, in finding a way to implement student union reform that avoids the drawbacks in Clause 20 as originally proposed.
It may be helpful if I say a little about how the detailed requirements in subsection (2) are conceived. First, choice is secured in requirement (c), which will enable students to decide whether they want to be members of their student union, or represented by it where it takes the form of a representative body.
Choice is an important aspect of democracy. Other requirements promoting democracy are set out in paragraphs (a) and (b). Those provide for universities and colleges to ensure that their student unions have proper written constitutions, approved by the governing body and reviewed by it at least every five years. Members will be entitled to take part in secret ballots for the president and other main student union offices under requirement (d), and under requirement (e) governing bodies will have a duty to secure that those elections are properly conducted. Ballots will also be required under requirement (j) where a union wishes to commit itself and its members to affiliation with an outside body. I shall say a little more about that in a moment.
Those measures will promote democracy and reduce the politicisation of student unions. They will be further reinforced be requirement (f), which restricts individuals' tenure of sabbatical officer posts to two years so as to provide no platform for the career student politician.
To promote the financial accountability of student unions, requirements (g), (h) and (i) set out a framework for the scrutiny of union accounts, including approval by the governing body of a union's budget and monitoring of its expenditure against that plan.
As a further safeguard, under subsection (4) students are to be reminded annually of the effect on the union of charity law and the legislation on freedom of speech in the 1986 Act. The restraints imposed on the political activities of charities are not well known among students. Greater awareness of those provisions among students would reduce the temptation to undertake activities that are ultra vires for a student union under charity law. And we want to be sure that students are aware of the existing legislation on freedom of speech on campus, so that democratic values are upheld. Together these provisions will help to ensure that high standards are maintained.
Finally, the new clause provides for a complaints mechanism should things go wrong, in requirements (k) and (l). That provision, and particularly the requirement for an element of independence, will give students—individuals or clubs —confidence that they will be dealt with fairly by their union.
Having outlined the provisions of the new clause, I should add that we have continued to consult on its detailed provisions since it was drafted. As a result, we have identified a number of points to which I shall need to return on Report. I hope it will be helpful if I summarise them now.
First, there is the question raised by Amendments Nos. 85A and 85C in the name of the noble Lord, Lord Flowers. Those would limit the requirement that elections of student union officers should be by secret ballot. The requirement would not apply to students on courses lasting less than three months.? Let me say straightaway that I appreciate the aims of the amendment. I can see that it might not appear equitable that students who attend for, say, two hours a week over a period of six weeks should have equal voting rights with full-time students engaged in a course of study lasting several months or years. That is true of ballots for the election of union officers and also of ballots for affiliations which we propose to require.
Having consulted and reflected further on that question, I accept that it would not be appropriate to give those voting rights to students whose connection with the institution was minimal. The solution will be to apply the requirement for ballots only to those students who are members of the union —not to all students. The extent of union membership is of course determined by each institution in its union constitution. The Government have no plan to change or reduce institutions' discretion in this area. Each institution will be able to determine whether part-time students—the group I believe to be of concern to the noble Lord, Lord Flowers—or indeed any other group should be eligible for union membership and, consequently, to take part in those ballots. I propose to bring forward amendments on Report to amend our proposed ballot requirements in that sense.
I wish to let the debate run and to listen to the argument pressed by the noble Lord, Lord Flowers. I believe that there may be a case to think again about the issue between now and Report stage and perhaps to weave together the amendment that the Government have in mind with the amendment of the noble Lord. If the debate will run its course, I should like to offer that as a way forward from today.
Secondly, concern has been expressed about the handling of affiliation ballots in other institutions. Many unions maintain a large number of affiliations, and I recognise that to require a secret ballot on each of them every year, as the new clause does, could be onerous. I propose therefore to bring forward on Report amendments to reduce that possible burden. I shall be proposing, first, that students should receive information about their union's affiliations, and their costs. I shall also be proposing that the list of affiliations should be subject to annual approval through the union's normal democratic processes. And I shall be proposing

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that students should be able to requisition a ballot, within the framework of a specified percentage trigger point, on any particular affiliation. By this means, annual balloting on each and every affiliation will not be required. But that vital democratic procedure will be available where it is needed, and where the students in some numbers deem it to be so.
Thirdly, I have considered further the particular position of the Open University, discussed this afternoon. The ballot requirements would pose special difficulties there, as the student body is of course scattered all over the country. As I said in the debate on Amendment No. 84A, I have decided that, in the special circumstances of distance learning institutions, the requirements for ballots should not apply. I propose to bring forward amendments for that purpose on Report. The other aspects of these reforms would, of course, still apply at the Open University.
For completeness, I should say that if the new clause is accepted, there will be some minor consequential changes to the definitions in Clause 18, to which we shall also return on Report.
It may be slightly unusual to introduce a substantial government amendment with an explanation of how the Government propose to amend it further. That is the fruit of our continuing consultations. We are determined to ensure that student union reform is effective, and that means being sure that the measures are workable at institutional level.
We pride ourselves in this country, and particularly in this Chamber, on the independence of our universities and colleges. These measures are developed from best practice that already exists. We want to be sure that best practice becomes commonplace. But we have taken care to ensure, if Parliament approves these provisions, that they do not introduce central control over institutions' activities.
The reforms will bring significant benefits to all students. They give students the choice to determine for themselves whether to belong to their student union. They provide assurance for students and the taxpayer that unions will be conducted fairly and in accordance with democratic principles. I commend the measures to the Committee.
3.45 p.m.
Lord Flowers Lord Flowers moved, as an amendment to Amendment No. 85, Amendment No. 85A:
After Clause 20, line 22, leave out ("all students") and insert ("students who are registered at the establishment for a course with a minimum duration of three months").
The noble Lord said: The amendment is a technical amendment concerning the participation of part-time students in union elections, especially those outside the higher education sector. In some ways it is the other side of the Open University coin. I am encouraged by what the Minister said to believe that I may receive a sympathetic hearing from her. However, if the Committee agrees, I shall speak as though I had not heard what she said because I believe that the Minister wishes to hear my argument so that it can be taken into account at the next stage.
I recently had the honour to become president of the Association for Colleges which represents the general further education colleges, the tertiary and sixth form colleges, and various specialist institutions whose courses range from dance, art and design to domestic science and engineering maintenance. We do not hear much about those colleges in this Chamber. Even though there must be many noble Lords who are thoroughly conversant with the college sector, we tend to concentrate on the universities, and indeed, the Bill is drafted entirely in university language.
Yet the colleges cater for more than two million students of whom more than half are part-time, evening only, or distance learning. In certain institutions the figure is much higher than a half. The colleges are diverse in their offerings. They cater for about half of those studying for A-level examinations. They give courses leading to various vocational qualifications; and under franchise arrangements with universities they provide for the 10 per cent. of so higher education students who wish their studies to be vocational in character and who therefore choose to study within the further education colleges rather than the universities. The colleges do almost no research.
So the colleges differ in important respects from universities. It is not surprising that student unions within the colleges differ from those within the universities. Generally those unions work without sabbatical officers and concentrate their efforts on the provision of welfare and voluntary services. Indeed, they may often be student councils rather than unions, representative of the students to be sure but closely dependent on the college authorities and a far cry from the semi-autonomous and sometimes politically motivated bodies which inspired Part II of the Bill.
The colleges are as relieved as the universities that the Government have had second thoughts about controlling student unions by central regulation. They warmly welcome the new Clause 20 proposed by Amendment No. 85. However, a particular problem remains which derives from the fact that so many of their students are part-time. The requirement that all students who have not opted out should be able to participate in secret ballots presents the colleges with a difficult practical problem. It is a problem shared to any substantial extent with few universities although the Open University is certainly one.
Quite apart from being part-time, many college students may be taking short evening courses of only a few hours of study each—at any rate, of less than a term's duration. That is an important activity for the colleges as well as for the students but it means that the use the students make of union facilities tends to be somewhat fleeting. Statistics are sparse in the college sector. However, we know that there are at least 40,000 students countrywide whose participation can be so described, and possibly many more. Are they individually to have the same weight in elections as students whose participation, although possibly still part-time, is very much more substantial, representing a much greater commitment to the institution and to what it has to offer? Are those students to burden the

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institution with the considerable administration and expense of secret ballots conducted at times when many of them are unlikely to be present?
That is why my amendment calls for a distinction to be made between students whose total participation in the work of the college is of short duration and those whose commitment, whether full-time or part-time, is more substantial. In subsection (2) (d) new Clause 20 states that,
"appointment to major union offices should be by election in a secret ballot in which all students other than non-members are entitled to vote".
I wish to replace the phrase "all students" by the more restrictive phrase,
"students who are registered at the establishment for a course with a minimum duration of three months".
Three months is about a term. That seems to me, and to the Association for Colleges, a reasonably practical balance between the democratic desire to give all students an equal vote and the complexities and ambiguities of giving the vote to students whose call upon union facilities, including representation, is rather slight.
It has been suggested that rather than Parliament approving a measure of such obviously undemocratic intent it should be left to the institutions themselves to decide who should be entitled to vote and who should not. That might be much less democratic and much more open to challenge. Moreover, there can be genuine concern that if some such measure is not adopted the intentions of the Bill could be quite grossly abused; for there would then be nothing to prevent a group of persons registering for a short course of half a dozen hours of study, which they had no intention whatever of attending, in order to take control of the union in a ballot in which rather few students are likely to vote in any case. It is a well-known electoral device and I have no need to explain it further.
That can be overcome by something akin to a minimum residence requirement. If those entitled to vote have to register for a course of not less than three months' duration there is a decent opportunity for the college, including its students, to discover whether or not they are bona fide students. Of course, it could be six months rather than three; or, indeed, six weeks. But in my judgment three months is about right.
My proposal is tabled as an amendment to the new Clause 20, Amendment No. 85. Since I am a pessimist in these matters I have assumed that the new clause might fail. With that possibility in mind, I have taken the liberty of proposing an identical amendment to Clause 21, which will very likely not stand part. Having spoken to Scylla, I shall not speak to Charybdis as well. I beg to move.
Lord Campbell of Alloway: In speaking to this amendment first I wish to thank my noble friend the Minister, as I would have wanted to do on Clause 20, for her revised approach and for her kind words. As to the revised approach, it is much appreciated and it has to be said that Part II of the Bill, as it stood and still stands, had to be opposed. The proposed exercise of Executive
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control over governing bodies and students' unions under Clause 20 and Clause 21(4), enforceable by the courts, was wholly unacceptable.
The amendments to which the Minister referred were withdrawn, but only when the Government's proposals, as reflected in these grouped amendments, were considered to be acceptable. The amendments were acceptable not only as representing a compromise between noble Lords' objections on Second Reading and the Bill as it stands, but also acceptable to the governing bodies, the students, the CVCP and the NUS, subject to clarification and further discussion. Thus the requirements of Clause 21(2)—and this affects the amendment to which the noble Lord, Lord Flowers, spoke—may be wholly perfected before the Report stage.
It is right to say that under the aegis of the Minister the Committee stage was delayed to allow arduous and protracted negotiations to ensue. That is now so much spate water under the bridge. The resolution stands as a tribute to the wisdom, patience and sheer stamina of my noble friend the Minister. Nevertheless, but for the good offices of a former Leader of your Lordships' House on this occasion—my noble friend Lady Young—it is much to be doubted whether any such resolution which binds the Government in both Houses would ever have been achieved. The gateway to the path of discussion is now open. The seamanship of my right honourable friend the Secretary of State, in changing course to steer clear of the rocks of confrontation, is acknowledged with gratitude and relief. The Government are surely entitled to take much credit for this, the second occasion when, acting on the advice of your Lordships' House on Second Reading and on the advice of a former Leader of your Lordships' House, they have undertaken a fundamental reappraisal of the limits of Executive control. I hope that the amendments will commend themselves to the Committee.
Baroness Young: As I have attached my name to Amendment No. 85, perhaps I may say a few words on the matter. I too wish to thank my noble friend the Minister for bringing the amendment forward. I am only too well aware how much she has contributed to its drafting and to what I think and hope will be a happy resolution of the matter. I should like to thank her and my noble friend Lord Campbell of Alloway for their kind remarks.
Since the Bill was first introduced I have always believed that what the Government wished to see in student unions—the principles of democracy and accountability and the proper use of public funds and freedom—was shared by the university world. I do not think there was ever—at any rate in my discussions with vice-chancellors—any disagreement on the main principles. The argument—and it was a considerable one—was how to achieve that objective with the agreement and co-operation of the Government, the Committee of Vice-Chancellors and Principals, and the NUS. All those bodies were involved in one way or another in the matter.
I am very pleased indeed to hope and believe that we now have something which we can all accept, both for

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the main principles which are spelt out in the amendment and, equally important, because it is a solution which is workable and which has the support of the university world and of the NUS. I was delighted to learn that from a letter which I received today from the union.
I can see that in the course of this afternoon and on Report we may look at details. Speaking for myself, I have considerable sympathy with the amendment moved by the noble Lord, Lord Flowers. I have every reason for thinking that the Minister will look at it because it clarifies an important point. If it is not clear, then it should be. I have no doubt that there may be other small points like that.
However, it is important that we have found a solution to the problem. It is a good example of your Lordships' House doing what it has frequently done —that is, exercising its constitutional function as a revising Chamber and improving a piece of legislation. I hope that it will now be acceptable to the whole Committee. I also hope that the CVCP will feel that it is a workable solution and one on which we can now all agree and go forward.
Baroness Perry of Southwark: My name is also attached to the amendment and I wish to add my thanks to my noble friend the Minister for the hard work which she has put in on the revision of the clause. I should say how fortunate we are on all sides of the Committee to have a Minister who not only listens carefully to what is said within the Chamber but who also has a genuine concern to make sure that what is passed in legislation will work in the system outside. I believe that she has genuinely put the interests of the universities and the young people within them at the front of her concerns.
As my noble friend Lady Young said, the amendment as it stands ensures democracy in student unions, which is a very important principle for young people to learn, and also accountability. I am happy to quote from what the NUS has said about the Government's amendment that has now been put forward in revision of the clause. In its own words the union suggests that,
"Part II of the Bill should [now] form the bed-rock of a fair, democratic and workable system".
That is an extraordinarily mature remark.
I should also like to align myself with the concerns expressed by the noble Lord, Lord Flowers, about the position of students who are on short courses or are studying only part-time for a short period. I very much share the noble Lord's concerns. I am pleased to hear that my noble friend the Minister is willing to take them on board. I should like to raise just one caveat; namely, that, as those concerns are taken on board, we look very carefully at the position of adult education institutes, where there can be a majority of students who study for very short periods and part-time. Clearly, their interests will have to be looked at in any revision of the clause. I commend Amendment No. 85 very warmly to the Committee.
4 p.m.
Lord Renfrew of Kaimsthorn: My name also stands to this amendment. I should like to join with those who have welcomed the position of the Government. The
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amendment now commands a wide consensus. I am happy to say that, like my noble friend Lady Perry of Southwark, in using the expression "wide consensus" I am again quoting the National Union of Students. The concern that some of us expressed at Second Reading was not against the broad intentions of the Government, which were indeed to ensure that democratic processes operate within the student world, including student unions. The concern was that, as proposed, the Bill we are about to amend would have restricted the range of student activities. I pay tribute to my noble friend the Minister and to my right honourable friend the Secretary of State. They were quick to take that point after the Second Reading debate. As we have heard, intensive discussions led to the formulation and putting down of the amendment now before the Committee which commands very wide support.
One or two points of detail may be of concern. Certainly, I know that student bodies welcome the operation of the block grant system and would be concerned if those students opting out of student unions were in some way to gain financial benefit themselves or diminish the income to student unions by so doing. As I understand it, there is no suggestion that the block grant system will be varied—I hope that my noble friend the Minister may be able to give some assurance on that point—and therefore there will be no financial benefit to those student individuals who wish to opt out. It is very important that student unions should not be diminished. I am happy to say that I believe that the amendment safeguards the position of a very wide range of student activities, including extra-curricular activities, which we all believe play an important role in our education system. I am very happy to support the amendment.
Lord Judd: In speaking to the amendment I too pay tribute to those involved in what were obviously exhaustive and detailed discussions to try to knit this agreement together. I hope that I shall not be regarded as churlish for making the observation, but it seems to me an extraordinary way to approach public policy and legislation to bring out detailed proposals in a Bill that cause maximum anxiety among all concerned and then to undertake, almost under duress, a process of consultation. That does not seem to me the hallmark of a mature and balanced democracy. I am sorry that it happened. Without in any way wanting to be mischievous—and I am genuine about this—I believe that the Minister of State has played a very responsible and constructive part in trying to reach a solution.
It seems to me that too often in our affairs the unacceptable is proposed. All sorts of people affected by the unacceptable then try to limit the damage and to civilise the propositions being put forward, and so become involved in a process of making the unacceptable acceptable. While I would certainly not want to unpick the compromise, as it has been called, that has been put together, I want very firmly to put on record that on the Labour Benches it is our view that the Government should never have been on this territory. We believe that the matter should have been left to the law of charity, as recently strengthened, with all the

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provisions for a more rigorous application of charity law, with perhaps some legislation of the requirement for a code of conduct.
That position was not one that the Government were prepared to countenance. They pursued their determination to interfere in university affairs. In those circumstances I, too, accept that what has been put forward now is an improvement on what was there before. Again, I have a certain amount of respect for the Minister in this context. She specifically said this afternoon that the Government set great store by the independence and freedom of our universities and centres of higher education. It is precisely for those reasons that this becomes so lamentable a story in which many people have been caught up in trying to find at least a workable way forward.
It is significant that the propositions have been put forward at the very time when the Government are making a centre plank of their policy of deregulation. The tobacco industry is already regarded as quite responsible enough to handle its own advertising affairs so far as, for example, targeting the young is concerned. The banks are considered quite adequate to handle their own affairs in terms of bank charges. Water companies are regarded as quite adequate to handle their own affairs in terms of disconnecting consumers. The Government supports them in that. But the universities are not regarded as mature or reliable enough to handle their own affairs. I find that a ludicrous proposition.
Perhaps I may now turn briefly to one or two of the detailed points. We must not forget that this is the Committee stage and we therefore need to look at some of the detail. It would be helpful if the Minister could give us some thoughts on these points.
I turn first to paragraphs (a), (b) and (c) of subsection (2) and particularly paragraph (c). I wonder what the Minister has to say about the anxiety that has been expressed that it would be unfortunate if the Bill were to lead to students opting out on political grounds—not in the sense in which the word "politics" is more narrowly used —from the students' unions; for example, on political sectarian grounds. I wonder what the Minister's feelings would be if, for example, students in Northern Ireland were to feel that they wanted to opt out and form their own sectarian union. I am sure that she has given that matter thought. It would be good to hear her observations.
There is also the anxiety expressed by the vice-chancellors that opting out is a concept alien to the whole notion of a community of scholars; that in a university or a centre of higher education, people belong. They do not opt out. I should be interested to hear the Minister's reflections on that criticism.
There is also the whole issue of what services are to be rendered to non-members of student unions, and how that should be determined. The Minister's thinking on that point would also be helpful. I know that she has written to various Members, but I think it important to hear her reflections in the Chamber.
There is then the whole issue of the cost of ballots. There are the possibly exorbitant costs in the case of the Open University but Vice-Chancellors and others are
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worried about the costs in more typical universities, where a ballot may cost well in excess of £1,500 at a time when funds are desperately short. It is important to hear the Minister's observations on that point.
The noble Lord, Lord Flowers, told us about centres of further education. We are deeply indebted to his insight on these matters. My attention has been drawn to two examples as regards which it would be good to hear how the Minister would suggest that balloting might be handled. At Sheffield City College there are 47,000 students on six totally different sites. That will raise quite significant issues of organisation. I am sure that the Department for Education has thought the problem through. It would be interesting to hear the kind of detailed propositions that it is making for how that situation should be handled. At Liverpool Community College there are 50,000 students on various sites. How is balloting to be properly arranged in that kind of context? It is important to hear the Minister's views.
There is also the issue of the major union offices for which ballots are to take place. It would be useful to have some more detailed thinking in specific terms as to which offices the Minister has in mind.
There is the observation in paragraph (e) that:
"the governing body should satisfy themselves that the elections are fairly and properly conducted".
I take it—it would be good to have the Minister's assurance on the point—that she is talking about supervision of elections rather than about conducting them. I should like to hear her observations.
I am interested too in paragraph (f) and wonder whether there is some loose drafting there. It states:
"a person should not hold sabbatical union office for more than two years in total during the time he [or she] is a student at the establishment".
What happens if a person is elected at the time that he, or she, graduates? Is that person regarded as still being a student at the university?
I come to paragraph (j), which is about affiliation to external organisations and the fact that it:
"should be decided upon by secret ballot in which all students other than non-members are entitled to vote".
I know that the Minister has consulted quite widely on this point. It would be helpful if she could say more today about how she sees that issue. Does she see it as an opportunity for students to insist on a ballot when they feel that a ballot should take place, or should it be a requirement that a ballot shall invariably take place, which would seem to be excessive, not least in cost?
The Minister's remark today about the political activity of students' unions was interesting. The law of charity clearly precludes political campaigning. But I wonder whether she could confirm that the Government stand by the judgment of Mr. Justice Scott, in the case of The Attorney General v. Ross in 1986, when he said:
"I can see nothing the matter with an educational charity, in the furtherance of its educational purposes, encouraging students to develop their political awareness or to acquire knowledge of, and to debate, and to form views on, political issues … the proposition that an educational charity, be it a school, polytechnic or university, cannot consistently with its charitable status promote and encourage the development of political ideas among its students has only to be stated to be seen to be untenable".
It would be good to have an assurance from the Minister this afternoon that she stands by that interpretation of the law.

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It would be particularly good to have that assurance because of our general anxiety that, in this whole initiative, the Government have trespassed onto territory on which they should never have gone. In the name of academic freedom, which is one of the finest traditions of the United Kingdom at its best, and the independence of our academic institutions, why should there be such intrusion? We have never heard it satisfactorily argued.
What we have now is a patchwork solution which is endeavouring to make the best of a totally bad situation. I do not want the situation to be made even worse and therefore I am afraid that I shall have to support this proposition.
4.15 p.m.
Lord Beloff: I should like to join everyone else in thanking the Minister for the attention that she has given to the Bill and for the degree to which she has been prepared to accept views which were not originally those that she put forward. However, I am afraid that at that point I part from my noble friends in regarding the proposed amendment with some regret. It seems to me that what the Government legitimately required and the Chamber generally supported is completely covered by the first subsection, which states:
"The governing body of every establishment to which this Part applies shall take such steps as are reasonably practicable to secure that any students' union for students at the establishment operates in a fair and democratic manner and is accountable for its finances".
Why does one need anything else? Surely that gives the universities the authority to monitor those desirable ends. One is bound to ask: why add to it with a whole list of details which are encompassed in the original subsection?
One might say that it did not matter very much, were it not for the fact—as this debate, the amendment of the noble Lord, Lord Flowers, and some of the remarks made by the noble Lord, Lord Judd, have already shown—that once one starts prescribing details, one runs into problems arising from the fact that the resemblances between the University of Cambridge and the colleges in Sheffield and Liverpool, let alone the Open University, are quite considerable. So for each of the subsections one is bound to ask: how will this operate in relation to a particular institution? If the Government had confined themselves to the first subsection, each institution could have had its own particularities looked after by its governing body. Surely that would have been much more agreeable and much less likely to lead to future controversies
We already know that even this amendment, upon which much work has been done and on which many consultations have taken place, is not the final version. The Minister has already said that she will be bringing forward further amendments to it at Report stage. I suspect that after the Report stage something else will be spotted which will not work in some particular context, and another amendment will be tabled at Third Reading.
I do not propose to go through every item and illustrate my point from each particular instance. A number of the difficulties were listed by the noble Lord, Lord Judd. I should like to take only one item to which he did not refer; namely, paragraph (k) about the
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complaints procedure. I know that the National Union of Students, although generally pleased with the way things have gone, has made a proposal that the person who is appointed to examine a complaint should be someone from the institution itself, presumably some senior academic or administrative figure. The noble Baroness, who was good enough to send me a copy of her reply, rejected that proposal.
I should like her to reconsider it for one particular reason. Students are the very devil. We cannot tell what complaints will arise, and how serious or how trivial they will be. Suppose the chess club complains that week after week its room is occupied by the tiddlywinks club; is the university disposed to ask Lord Justice Scott, with his usual entourage of distinguished QCs, to examine the complaint regarding the tiddlywinks club? Furthermore, the university must satisfy itself that the complaint has been dealt with. It can only do so by exercising its own authority. Mr. Justice Scott, or his equivalent, will have disappeared. Surely it is better that the complaint be investigated by the body which must put it right.
One must not forget that the student union—that all-embracing term which arises in the affiliations question, on which I do not propose to go into detail—embodies or provides for a large number of separate societies. The figures that have been given vary between 50 and 100. With 100 different student bodies one or other will be complaining a great deal of the time. If the matter had been left to the universities and we had been asked to deal with only the first sub-section, it would not have occupied so much legislative and administrative time nor led to what is the main point in regard to the other questions raised; that is additional expenditure by the universities which they could much better spend on their proper tasks.
Earl Russell: I have not taken part in the negotiations which led to this settlement. That gives me an advantage. I have only one thing against the body of speeches from the Benches opposite; that is, that they have not praised the settlement highly enough. That is because of their natural modesty since they have been involved in the detail of making it. As I have no such inhibitions, I can say that the settlement is not merely good, it is excellent.
We owe thanks to the House as a whole. We owe great thanks to the noble Baroness. The noble Baroness will forgive me for saying, but she is not generally regarded on this side of the Chamber as the easiest Minister to persuade. On the other hand, once she is persuaded, she is the most useful Minister. Things happen. Once the noble Baroness is persuaded then her energy and determination, her attention to detail and care in working out the exact wording are unrivalled. She has shown all those skills on this Bill and I thank her very warmly indeed.
I should like to join in the thanks to the Delegated Powers Scrutiny Committee which has won its spurs on this Bill. Clause 20, in its old form—I shall look back no further than is necessary—was as much a threat to this House as it was to student unions. I hope we can now take it as recognised practice, as was said by the

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legislative commission of the Hansard Society in its memorandum to the Delegated Powers Scrutiny Committee:
"We emphasise that statutory delegation should never leave an Act bare of everything except a framework of ministerial powers, with all real substances being left to ministerial regulations, etc.".
That is a point for the future as well as the past. I have listened to a good many settlements in this Chamber. One can star them as one can star hotels. A one-star settlement is in fact a ceasefire. A two or three-star settlement is an honourable compromise. But it is like a Neapolitan ice cream; one looks at the amendment and one can see where the concession to one side stops and the concession to the other side begins. Very occasionally we get a four or five-star settlement in which the scrum has wheeled; the objectives have been redefined and each side can take the victories of the other side as triumphs of its own. In my opinion this is, at worst, a four-star settlement and if I probe it in detail, as I must, I hope and believe that it will become a five-star settlement and be capable of lasting with loyalty and affection for a generation.
Both sides learnt a great deal during the debates on the amendment. The Government understood more than ever before what student unions are. They have the same sort of relationship to student life that the facilities of this House do to parliamentary life. It is in that light that the Government learnt to understand much better than before what is meant by "opting out". In particular, in that context, they have no effect on the funding mechanism.
The Government originally talked of abolishing the closed shop. One of the reasons why they ran into difficulties in drafting is that it is difficult to draft a Bill to abolish what does not exist. That idea, as I understand it, has been abandoned. Those of us who were on the other side of the argument have learnt, as that agenda has been removed, that there was not in fact a hidden agenda. We understood that the Government's concern with free speech and fair play is perfectly genuine. It represents values which are shared by us and by those in charge of the National Union of Students. With that understanding we have seen how to put together a clause which embodies best practice and I and the National Union of Students entirely agree with the Minister that it does embody best practice. Therefore, we will be able to approach the job of preserving free speech and fair play with a consensus of support all round the spectrum and have much more chance of success than we ever would have with anything resembling the original Bill.
We must also record our debt to Lorna Fitzsimons of the National Union of Students, for it was she who two years ago began the move to bring the National Union of Students in this direction. I heard her arguing it to the Liberal Democratic youth and student fringe meeting at our Harrogate Conference two days before Black Wednesday. It was an extremely able performance. What we have now is what she wanted as much as it is what the Minister wanted.
There are a few points of detail about which it is necessary to ask. We must ask about the rights of non-members and of opting out. In particular, we must
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ask whether it is understood that they can only use student union facilities with the consent of the student union. There is an opinion from my noble friend Lord Lester of Herne Hill which argues that it would infringe the European Convention on Human Rights if that were not so. The National Union of Students, on that understanding, is perfectly ready to be co-operative on this, but that point is legally as well as practically vital. I am sure that we will have reassurance on it.
The noble Lord, Lord Judd, touched on the vital issue of Northern Ireland. Those of us who have read our newspapers this morning have been reminded of quite how vital it may be.
The point about all students other than non-members being entitled to vote extends the vote to part-timers. The National Union of Students welcomes that change. It gives rise to a certain number of complications. I have every confidence in the way the Minister is addressing it, though giving institutions the task of defining eligibility may on occasion cause problems. We will need to talk about the details of that, and I am sure that we will do it successfully.
What the noble Baroness said about affiliation I found extremely encouraging. She is doing what the college president of my own student union said was the best thing that she could possibly do. I agree with his judgment and with hers. I think that she has found the right way forward.
There is just one remark the noble Baroness made with which I do not agree. She said that students generally are not aware of charity law. Those who work in the student unions in general know a great deal about the requirements of charity law, and the ultra vires requirements bite a great deal more than she suggests. But that is a reason for believing that the settlement she has put forward is even better than she thought. It is in that spirit that I put the point forward.
4.30 p.m.
Lord Rippon of Hexham: Perhaps I may follow the point that has been raised by the noble Earl, Lord Russell. I join him in everything that he said about the Minister, and I also thank her and the noble Earl for the kindly words that they had to say about the scrutiny committee. We appreciate the way in which the Government responded to our suggestion that in this particular case the House should look carefully at the proposal to delegate the power to regulate student unions.
There is something which follows generally from this; namely, that on the whole the Committee has been concerned with whether or not a Henry VIII clause is sufficiently narrow in its scope to be permitted, and whether there ought to be affirmative or negative resolutions in dealing with regulations. That alone is not necessarily enough in every case because what this has shown is that even if there is an affirmative instead of a negative resolution you never really get the opportunity to debate what is often the fundamental principle of the Bill. It is all very well saying that we agreed in principle that something should be done, for example, about students unions, but if that is to be contained in regulations which this House can only deal with either

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by affirmative resolution or negative resolution, and in neither case take a vote and in neither case be able to make an amendment, it is clear that there must be circumstances in which your Lordships should have to consider from time to time whether the power should be delegated at all or whether the power should be clearly defined on the face of the Bill. I am glad to say that that is being done on this occasion, which gives not only one opportunity for consultation but two or three if necessary.
The Earl of Limerick: I am one of the few, it seems, whose name was not on this amendment. As long ago as 7th December, on Second Reading, I was less than complimentary about the approach then in Part II of this Bill, and was even so disobliging as to say with some force that if the Secretary of State was listening it was not apparent that he was hearing. I am very happy to revise that judgment and to welcome the evidence brought forward by my noble friend Lady Blatch this afternoon that not only was she listening but she was hearing, and she went on to get her department to act on the weight of the argument.
As my noble friend foreshadowed, there will be some tidying up to be done on this matter on Report, but it is not necessary to dwell on that. I merely mention in passing just two areas, both of which are included in the commentary from the CVCP. The first is the definition of services which may or may not be provided by non-members; the second is what one might term the policing of affiliations. I am sure that those can indeed be dealt with.
Listening to other speakers, it occurred to me that the noble Lord, Lord Judd, found fault in the name of those on the Benches behind him—and from where I sit that was not very apparent—that universities were singled out, it seemed uniquely, as bodies not entrusted to regulate their own affairs. He then went on to find fault with an amendment designed to facilitate that very self-regulation.
I reflected, in listening to my noble friend Lord Beloff, that if one adopted his approach a one-clause Bill in this House saying that sin is wicked and would be punished would be all that we need do from this time henceforward. I therefore suggest to those, like me, who opposed the approach of Clause 20 on Second Reading but saw merit in the development of the code of conduct as hinted in the old Clause 21, that this revised approach is entirely welcome. I believe that the Government now, with the benefit of the consultations that have taken place, and with due acknowledgement to all who participated, have got it right.
Lord Walton of Detchant: I propose to speak very briefly. Before doing so I must declare an interest—not so much as a former dean of a medical school or even as a former head of an Oxford college, but because 50 years ago I was president of a medical students' representative council and also for a brief period a member of the executive of the NUS.
May I say how much I welcome the work that has been done behind the scenes in relation to this Bill? I echo the warm congratulations which the whole House owes to the Minister for the work that she, and others
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with her, have done in formulating this amendment, which strikes us as being wholly acceptable, with one or two minor points of detail requiring clarification.
It has been warmly welcomed by the Committee of Vice-Chancellors and Principals, and it has also been warmly welcomed by the National Union of Students. Several points have been raised by other Members of the Committee where issues still require a little clarification. The noble Baroness referred to some of these in her speech, indicating that she would be coming forward with certain further amendments at Report stage. We look forward to seeing those amendments.
The Committee of Vice-Chancellors and Principals is anxious about the question of affiliation and believes that it is a matter on which local interpretation and implementation must operate. While annual review of affiliations would be entirely acceptable, the committee takes the view that there is no need for annual ballots. Perhaps an affiliation ballot every three years would suffice so that each cohort of students would have the opportunity to express a view; and of course the points made by the noble Lord, Lord Flowers, about part-time students and those on short courses must surely be taken into account. It is important that ballots should not be triggered at the whim of a tiny handful of students. The institutional code of practice could indicate a simple procedure and a minimum number or percentage of students required for the calling of such a ballot.
The only other point to which I wish to refer is that mentioned by the noble Lord, Lord Beloff, relating to the complaints procedure. Those of us familiar with higher education institutions believe that within the bodies that serve the university, whether councils or courts or other comparable organisations, there will be a sufficient number of independent lay members who are familiar with the workings of the institution so that from the governing body one could readily select such an individual to take account of the complaints procedure as laid down. I hope that the Bill will not exclude that possibility and decide on having somebody totally independent of the institutions.
Baroness Carnegy of Lour: I tried to enter the debate right at the beginning—perhaps inappropriately —because I wanted to follow what the noble Lord, Lord Flowers, said when he referred to further education colleges. There is a view in another place among some honourable Members that this House tends to act as a mouthpiece for the university vice-chancellors. That is an unfortunate view. Of course there are many in this House who know what is going on in universities; we discuss it with a lot of knowledge, and we have done so on this occasion. If I may say so, it is very good to hear a noble Lord putting forward the case that particularly affects further education colleges and who involves himself in higher education. We must never forget that. I am very grateful to him for bringing forward that point. It seems to me to have a great deal of sense about it.
By the same token, in thanking the Minister for her extremely hard-working, tolerant and receptive approach to the whole matter, I should like to thank students all over the country who have helped noble Lords to understand the details of the problems of

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regulating student unions by legislation. They have certainly helped me, and I am sure they have helped other noble Lords. They have done it responsibly and have been very careful about it. We should mention them, because we are in a sense speaking for them as well when we talk about student unions. I hope that as time goes on we shall carefully balance our discussions about further education to make sure that we look at all points of view and are not seen by the country at large and honourable Members of another place as simply paying attention to vice-chancellors. We feel that that is a danger.
Lord Pearson of Rannoch: I join with others in welcoming new Clause 20. In doing so I seek clarification of the right of non-members, briefly touched upon by the noble Earl, Lord Russell, and my noble friend Lord Limerick. Under subsection (2) (c) a student has the right not to be a member of a union or indeed of an association. I appreciate that under paragraph (k) there will be a new complaints procedure and that under subsection (3) the governing body will have to prepare and issue a code of practice.
My question for clarification was inspired by a briefing document from the Committee of Vice-Chancellors and Principals which I received today. In touching on student union membership, it says that student unions cannot by law be required to provide services for non-members. The CVCP believes it important that the provision of services to non-members must be left to local agreement between the institution and the union and that clear guidance must be given to incoming members about their rights of participating in union affairs, and so on. My question concerns their rights of participation in other activities, such as my noble friend Lord Beloff's tiddlywinks club, chess club or indeed the rugger club. My understanding is that the finance for those activities comes through the block grant to the institution. I therefore trust it will be possible for the institution to arrange matters in such a way with the union that non-members are not in any way disadvantaged as regards the activities they wish to pursue.
Baroness Darcy (de Knayth): I, too, welcome the new clause most warmly, although I feel that anything I say may be slight bathos after the splendid welcome by the noble Earl, Lord Russell. It is certainly a great improvement for all students and, as the noble Baroness, Lady Young, said, a workable solution. I too thank the Minister for being willing to reflect upon and discuss this matter. For students with disabilities there are two particularly welcome aspects. The clause means that unions can continue to provide essential welfare services and their valuable campaigning work. Many institutions have improved their facilities as a result of that.
I was slightly worried about one point in relation to subsection (2) (j): affiliation to external organisations. I hope that the Minister can reassure me. The letter that I received today, together with what she said in the Chamber when she introduced the clause, almost does so, but I would be grateful if she would respond to my
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point. I am thinking of Skill (the National Bureau for Students with Disabilities), of which I have the honour to be president. That charity provides information and advice to disabled students. It has 46 student unions affiliated to it at the moment. In a sense, it is a symbiotic relationship, because the unions benefit from Skill's expertise and Skill needs the union membership to be sure that its work is focused upon students. It is a very important service for those who need it but it serves only a very small proportion of all students who may not appreciate the need to affiliate. Skill fears that a secret ballot may mean that fewer unions are affiliated. I look forward to hearing the Minister's reply, and I hope for a firm assurance on that point. I do not believe it will be necessary to go to another stage in order to sort it out. Meanwhile, I echo my warm support for the new clause as a whole.
Lord Addington: I thank the Minister and all noble Lords who have helped in reaching this compromise. I give special thanks to the Minister who was, I believe, under considerable pressure from other quarters not to change the original plan. I thank her very much for having listened to her colleagues and the rest of the Chamber.
I join the noble Baroness who has just spoken in commenting on subsection (2) (j). As the Minister spoke rather quickly, perhaps she can clear up the position of what happens when one is about to join outside bodies, particularly sporting bodies, because of the huge numbers involved. There are dozens of such bodies—everything from athletic associations to rugby clubs. Perhaps she can give the Committee a slightly more comprehensive idea of the criteria for joining those bodies and what would be the sort of threat to their membership, if that is not too combative an expression, or what pressure would have to be applied before this would be challenged. If we have to hold annual ballots and the sporting bodies will have to be affiliated to a body to take part in outside competitions that effectively means they will be able to participate only against opposition other than in their own university about one year in three.
Lord Lucas: I should like to add one small gloss to the amendment proposed by the noble Lord, Lord Flowers. I am the governor of a sixth-form college which has 1,500 16 to 19 year-olds studying full time and 3,000 adults studying part-time, mostly in the evenings. I do not see any immediate prospect of the two student bodies being at war over who controls the students' union. I do not see any immediate prospect of our being given any funds to run a students' union, but since we are required under this legislation to set up the structures I would appreciate having the flexibility to keep the interests of the two very different student bodies separate. Indeed, if one goes on to consider the further education and tertiary colleges that the noble Lord, Lord Flowers, talked about, there are at least three different student bodies within those organisations. We need to be able to provide separately for them and to balance their interests, not let one group dominate the others.
Baroness Blatch: I am deeply appreciative of the comments that have been made, but I have not done it on my own. I have had a great deal of support from others. However, I am most grateful for what has been said.
I say to the noble Lord, Lord Flowers, who spoke after me in the debate—it seems some time ago—that I will read what he had to say and consider the whole issue in the light of his remarks and those of other noble Lords and indeed of my own views on the issue. I should just like to flag up one particular difficulty that I am advised may be a problem. The European Convention on Human Rights may prevent our giving or denying the student a right to vote by reference to course length. The imposition of this measure may interfere with the student's right to associate or not associate with a body. I also have to take that into account, but I will take advice on that matter between now and the next stage. I know that concern about the whole issue is shared by my noble friends Lady Perry and Lord Lucas.
The noble Lord, Lord Judd, asked how unions operating on many different sites would be able to handle the complex balloting procedures. I rather hope that if they claim to be efficient they know where all their students are, wherever they are located. For example, although students may be scattered all around Sheffield—and I have visited that establishment—I know that the union can be in touch with all its students.
I wish to put into context what we are considering here. Whatever the costs of a ballot, set against, for example, Leeds University passing over £72,000 of its funds to the National Union of Students, I think that if members wish to have a ballot and query whether £72,000 should pass to an outside body—whether it be the National Union of Students or any other external body—that seems to me highly appropriate. Therefore, the costs of a secret ballot would be quite insignificant set against the sums of public money that are being spent in the name of an institution.
My noble friend Lord Beloff asked, "Why add to the preamble?"—that is, subsection (1). There are a number of principles that we believe it is important for all institutions to address. If institutions want to address other principles, it will be for them to do so, but I think that it is important that we set out the framework on the face of the Bill.
My noble friend Lord Beloff also asked, "Why prescribe at all in law because different institutions operate in different ways?" That is precisely the point addressed in the amendment. The responsibility for putting the requirements into action will lie with the particular institution concerned. It will be for the institution to introduce those requirements in its own way. The provisions offer flexibility to operate and address specific points of principle in a way that makes sense. That is where the words,
"take such steps as are reasonably practicable",
come into play as they relate to each institution.
My noble friend Lord Beloff was also concerned about the complaints procedure. He used a flippant example of being subjected to an elaborate complaints procedure. We expect most campuses to deal with most of their problems in the way that they have always dealt
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with them—on a day-to-day basis. However, there will be times when a matter cannot be resolved at campus level. It is sometimes in the interests of the governing body of the campus that an independent arbiter be brought in to help in the resolution of a problem. Not all problems are trivial; some are extremely serious. Therefore, it is no bad thing to have an external element.
My noble friend also said that it is possible that even at the next stage we will find little things wrong with the Bill and that we will resort to more changes. I make no apologies for that. We shall go on talking about the Bill until it receives its final blessing from your Lordships' House and moves on to another place. That is what we are about; we are a revising Chamber. Where we recognise that there is an issue to be investigated or explored further, we shall, where possible, continue to explore it. We hope to pass the Bill on to another place in the best possible shape.
The noble Lord, Lord Judd, was concerned about political campaigning. I should say first that the example that the noble Lord gave falls entirely within charitable rights. Any activity that is undertaken by any student or body of students which furthers their education or interests would be entirely consistent with charitable law. However, if in the course of that activity the students caused damage to people or property, the activity that had been entirely legitimate to start with could turn out to be ultra vires and outside the law. It is important, therefore, that students understand the limitations of acting within the charitable law. The idea that we can pass laws in this House to prevent students from campaigning is forlorn.
Lord Judd: I am immensely grateful to the Minister for her constructive reply on this point, but I wonder whether she can confirm specifically and in terms that the Government stand by the Scott judgment.
Baroness Blatch: I shall come to the Scott judgment in a moment. That judgment, which was referred to by the noble Lord and others, was helpful in clarifying the extent to which unions which are charities may engage in political activities. It is not for Ministers to agree or disagree with the judgment. That was the judgment and we simply accept that it is the latest clarification of the issue. The essential point is that unions should engage in political activity only to further the interests of their members. They should not spend public funds in pursuing causes which have no such connection. Therefore, if there was another case which raised that question it would be a matter of challenge. We have brought to the notice of students the fact that if they are unhappy about particular activities they can exercise a challenge.
The question "Why regulate for students?" has been posed. The noble Lord, Lord Judd, gave three examples: tobacco companies, water companies and banks. I am not sure whether the noble Lord gave any great thought to what he was saying because the water companies are subject to regulation. There is a regulator specifically for the water companies. The banks are subject to financial regulations and the tobacco companies are subject to advertising standards regulations. But all those bodies

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are dealing with their own money. They are not dealing with taxpayers' money, so the noble Lord has not put forward a correct analogy.
I was asked about our feelings on opting out on either political or other grounds. We shall not make judgments about the reasons a student prays in aid for opting out. We believe that it should be a matter for the student and his or her conscience. I happen to believe—this is a personal view—that with this framework (which protects the rights of students and makes the system more transparent) the case and requirement for opting out will be minimised substantially. I do not expect it to be a common occurrence, but that is purely a personal view. Students have that right.
The question of Northern Ireland was raised, but these measures do not apply to Northern Ireland.
There are people who, on the grounds of conscience, do not join anything. The Plymouth Brethren are one such group. It is important that unions and governing bodies recognise those conscientious reasons. The framework provides a number of safeguards for students, and we have made accountability explicit on the face of the Bill.
The noble Lord, Lord Judd, asked to which offices the ballots apply. He raised an important question about what happens when the sabbatical officer is not on campus. If I may, I should like to return to that question later. I would expect the requirement to apply to the union president and to others with a significant role in running the union. I think that it is obvious that appointments to the main positions in a student union (for which there is normally a ballot which at present takes place at that one meeting a year) will be subject to the main ballot. I am sure that noble Lords would not want me to be over-pedantic and over-prescriptive in the Bill. What we have laid down is the framework. As I said, I take note of the noble Lord's other points about the sabbatical officer not being on campus.
I think that I have put the cost of ballots into context. We are talking about large sums of money passing from one institution to external bodies. I think that it is entirely appropriate that the costs of the ballot should be seen in that light.
The noble Lord, Lord Judd, was concerned about elections. It will be for the governing bodies to decide how to satisfy themselves that union elections are fairly and properly conducted either directly or through delegation to an appropriate official, such as the returning officer. It is important to ensure that that is not delegated to the union itself. That would not satisfy the democratic principle.
The noble Lord, Lord Judd, asked for my views on opting out of a student community. I think that I have addressed the points about opting out. It must be a matter for students themselves. The reforms are not about opting out of the student community. All students are automatically part of an institution's community of students. Is it right, however, that a student should be forced to belong to a student union which may carry out political activities with which that student disagrees? I think not. Our reforms are intended to provide choice and, where students decide to belong to their union, to
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ensure that that union operates to the highest possible standards in achieving democracy and accountability in its affairs.
The noble Earl, Lord Russell, and my noble friend Lord Pearson were concerned about the rights of non-members. Students may lose privileges through opting out of student membership. That is their right and their choice. As the noble Lord said, non-members may not have access to all the rights that are conferred on members. However, I believe that institutions and unions can work together to ensure that, by exercising their democratic rights to opt out, students do not lose access to vital services, such as welfare services. We lay a moral obligation on institutions to think about this matter. It is important to note that it will be for institutions to decide how to provide for opted-out students either directly or through the student union.
I hope that institutions will make clear to young people, as they become members of an institution, just what opting out will mean, and the services available for non-union members as well as union members so that young people will know what they are opting out from, and will not take a subjective judgment depending on who is opting out from the union. I have to repeat that we are up against the European Convention on Human Rights. We are not allowed to impose upon a governing body or students' union a requirement that they make particular provision for any particular students.
The noble Lord, Lord Walton, referred to affiliation ballots being held only every three years. As I have said, I shall be bringing forward detailed provisions for ballots on Report. I believe that students should be able to ballot annually, if they wish. Three years does not coincide with course length in all cases, but requirements for ballots should be triggered by students. I take the point made by the noble Lord. We need to make it a reasonable number of students so that we do not have the nonsense of ballots being triggered for no good reason. Therefore I shall take that point into account when I come forward with the amendment.
The noble Earl, Lord Russell, commented that students' unions know what the charitable law is about. While many officers in students' unions may know what the charitable law is about, many students at large do not. Our proposals are intended to bring the restrictions of the charitable law to the attention of all students so that they have the information they need to decide whether the students' union is spending taxpayers' money on legitimate activities. I hope that the students receive the information in an intelligible form and that the Plain English Society will have something to do with the prose that is given to students.
I thank my noble friend Lord Limerick for his comments. My noble friend is not in his place. I was going to apologise for being rather late in replying to a letter that he sent me. He asked how we were going to monitor affiliation. From the way in which we are setting up the framework, it seems to me that it is a matter for students. First, the students' unions will affiliate to outside bodies. The information will need to be made available to students, but if they do not like what they see—whatever the percentage trigger point is—it will be for them to trigger the need for a ballot.

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I can give the noble Lord, Lord Addington, an assurance on the point he raises about clubs and societies on the campus. The affiliations with which the Bill is concerned are those which are made by the students' union in the name of the generality of students. All the small clubs and societies —the rugger club, the tennis club, or whatever, affiliating to the national society—will not be affected by the measures contained in the Bill.
There is no risk to the affiliation about which the noble Baroness, Lady Darcy (de Knayth) was speaking. It is inconceivable that, whatever the trigger point is, a number of students will come together to vote that there should not be affiliation to a body representing the interests of students with disabilities. I believe that that is an unfounded fear.
We have put in place a framework with maximum delegation for the operation within that framework to the institutions themselves. I hope that it meets with the Committee's approval.
5 p.m.
Lord Flowers: I have one comment about Amendment No. 85A upon which the Committee was good enough to listen to me. I should like to thank Members of the Committee who have supported me on this general matter. I should like especially to thank the Minister for understanding so clearly the importance of the issue that the amendment addresses, and for promising to look at it further. The Minister warned the Committee that we may have to take into account the European Convention on Human Rights on limiting to a small extent the students who can take part in elections. We shall clearly have to think about that point. When she takes the matter back, will she be good enough to regard it as applying to subsection (2) (j) as well as to subsection (2) (d)—the secret ballot affecting affiliation?
In view of the Minister's generous undertaking to take the matter back, I beg leave to withdraw the amendment.
Amendment No. 85A, as an amendment to Amendment No. 85, by leave, withdrawn.
On Question, Amendment No. 85 agreed to.
[Amendment No. 85B not moved.]
Clause 21 [General conduct of students' unions]: [Amendment No. 85C not moved.]
Clause 21 negatived.
Clause 22 [Orders, regulations and directions]: [Amendment No. 86 had been withdrawn from the Marshalled List.]
Baroness Blatch Baroness Blatch moved Amendment No. 86A:
Page 12, line 29, leave out ("or regulations").
On Question, amendment agreed to.
[Amendment No. 87 not moved.]
The Lord Bishop of Guildford The Lord Bishop of Guildford moved Amendment No. 88
Page 12, line 32, at end insert ("save that no order shall be made under section 8(4) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament").
The right reverend Prelate said: Perhaps I may crave the indulgence of the Committee to raise this matter briefly. I recognise that it was grouped with the other amendments, but they came up well past midnight on the first Committee day. Just at that time of night when my powers of resilience and concentration were beginning to diminish I gained the impression that the Minister was becoming more robust and vigorous. She romped home while I was still fumbling for the starting line.
This is a matter of some importance because it touches upon an issue brought before us by the Delegated Powers Scrutiny Committee. So we should not, on the brief debate that took place at midnight, just allow the matter to go by. Perhaps I may put my concerns to the Minister in the form of questions. The amendment of course suggests that the Secretary of State should have to use the affirmative procedure for giving directions to the Teacher Training Agency.
Under Clause 8, he can give directions of a general kind or of a much more particular kind. My concern is that if he can give general directions is it, for instance, possible for him, under Clause 8, to give a general direction to the Teacher Training Agency that the balance referred to in Clause 6 between school-centred courses and other courses should be of a particular proportion? If that is so, it is a major policy decision, and I am rather anxious to know whether that can be done without Parliament having any power to look at the proposal.
Again, under the general direction, is it possible for a future Secretary of State to indicate to the Teacher Training Agency that it should not fund, or not fund completely, the voluntary colleges? That again would be a major shift of policy, and I am not at all sure that he should have the power to do that without the scrutiny of Parliament.
Under the more particular provisions of Clause 8, it seems to me that the Secretary of State would have power to name a particular institution and to indicate that he is not satisfied with its financial management, and so to direct that it should not be funded any further. Again, that would appear to me to give him power to withdraw all funding from one of the voluntary colleges. I must of course say that I am speaking in particular on behalf of the voluntary colleges. It is for that reason that I have some anxiety about the power.
We are not likely to run into that kind of difficulty with the present Administration and the present Ministers, but we are providing legislation for the future. We have to come to terms therefore with what a future Secretary of State might do when the situation is different. In its memorandum to the Delegated Powers Scrutiny Committee, the Department for Education claims that that is a fallback power which is not to be used under any circumstances. It further states of course that all it does is to replicate a power which already exists in the Further and Higher Education Act 1992. I accept that. The department says that that power has not been used under that Act, but the Act has only been up and running for 18 months. So that is no clear guide to us.
If the power is a fallback one and to be used only under extreme circumstances, surely the argument is all the stronger that it should be subject to the affirmative procedure. We have here, if I may dare to suggest it to the Committee, a much more serious point which in the small hours of the morning of the first Committee day we did not have the chance to look at as seriously as we should have done. It is for that reason that I thought it right to take the liberty of bringing it before the Committee again this afternoon. I beg to move.
Earl Russell: I shall not gild the right reverend Prelate's lily but I shall support his amendment.
Baroness Blatch: Although I take the point about the lateness of the hour, it is unfortunate that we had a discussion on Amendment No. 57, with which this amendment was coupled. Even at that late hour I should have been more than pleased to have heard what the right reverend Prelate had to say. The amendment has the same effect as Amendment No. 57, which we debated on the first day of the Committee. Nonetheless, it is important that we discuss the matter today.
The Secretary of State's direction-making powers under Clause 8 are exactly analogous to those that he already has under the Further and Higher Education Act 1992 in respect of the existing funding councils. I recognise that this does not alone justify the powers, as I am sure the noble Earl will warn me. However, I mention it to clarify that there is nothing new or sinister in Clause 8.
The Secretary of State has two direction-making powers under this clause. First, he can make general directions to the agency and to Welsh Higher Education Funding Council about the exercise of their functions. It is unlikely that we should ever need to use this in practice since we expect the agencies to use their funds effectively and prudently. There has been no occasion remotely to consider using them. But since the Secretary of State is ultimately accountable to Parliament for the use of the agencies' funds it would be improper for him to have no such power when in practice he could one day face a real need for action. And if that need did arise— following attempts to persuade the agency by non-statutory means—it would almost certainly require speed, which the affirmative resolution procedure does not allow.
Secondly, the Secretary of State may also make specific directions to the agencies about their support for individual institutions where he has evidence of financial mismanagement at those institutions. He may, for example, need to direct that the institution's funding should be stopped in whole or in part until the matter can be investigated, in particular if there has been serious misappropriation of public funds. Again, this is a power which a prudent Parliament should expect him to have and in the event of this procedure being needed speed will be of the essence.
I recognise that the right reverend Prelate is concerned about the position of the Church colleges under a future Secretary of State. But the exercise of his powers under Clause 8 would have to be reasonable. That is a charge he would have to defend. They could
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also be negatived by Parliament as we have made directions under this clause subject to the negative resolution procedure. Nor must this clause be seen in isolation. The Teacher Training Agency is placed by Clause 6(4) under a duty to have regard to the desirability of maintaining a balance between the support given to denominational and to other institutions. That is an important extra safeguard which is there because of the high value we place on the Church colleges. The balance between school-centred courses and non-school-centred courses means that these measures cannot cut across the discretion under the Bill. The answer is the same in respect of denominational colleges. Again, this discretion would not be affected.
The Lord Bishop of Guildford: I am grateful to the Minister. I accept her rebuke that I should have raised these points in the middle of the night, whenever it was. However, I nodded because I fell between two other amendments for which I was wholly responsible and I did not leap to my feet in time to support the noble Lord, Lord Judd. I am, in a measure—but only in a measure—reassured by what the Minister said. However, I recognise that I should have raised the matter earlier and I do not believe that it is right to press it further at this stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 89 had been withdrawn from the Marshalled List.]
Baroness Blatch Baroness Blatch moved Amendment No. 89A:
Page 12, line 33, leave out ("or regulations").
On Question, amendment agreed to.
[Amendment No. 90 not moved.]
Clause 22, as amended, agreed to.
Clause 23 agreed to.
Schedule 2 [Consequential amendments]: [Amendments Nos. 91 to 96 not moved.]
Schedule 2 agreed to.
Remaining clauses agreed to.
House resumed: Bill reported with amendments.

Transport Police (Jurisdiction) Bill
Brought from the Commons; read a first time, and to be printed.

Insolvency (No. 2) Bill
5.16 p.m.
The Minister of State, Department of Trade and Industry (Lord Strathclyde): My Lords, I beg to move that this Bill be now read a second time.
Before I undertake an explanation of the Bill's proposals, I should first outline as a matter of necessary background the circumstances which have led to it being brought forward as an emergency measure.
The Insolvency Act 1986 contains two procedures which are used frequently to rescue financially troubled companies or save viable parts of their businesses. These are administration and administrative receiverships. In Scotland the latter is known simply as

623
"receivership". I hope that it will be less confusing if I refer simply to "administration" and "administrator" and "receivership" and "receiver" where the context does not require me to be more precise.
Putting together a rescue package for a financially troubled company and seeing it through to, hopefully, a successful conclusion often takes several months of intensive care, if not longer. If the business is to be rescued or sold it has to be kept going and to do this the administrator or receiver will almost certainly need to keep on at least part of the workforce. The legislation allows him a period of grace of only 14 days before he has to decide whether to adopt their contracts of employment.
In the case of administration, the effect of adoption is that in practice the obligations under the contracts of employment become expenses of the proceedings. In an administrative receivership, however, there is an additional consequence. The receiver also becomes personally liable under the contract. The 14-day grace period will seldom be long enough for the administrator or receiver to effect a sale of the business. It will rarely, if ever, be long enough to put in place a rescue procedure, with all that that involves.
Administrators and receivers were clearly worried about the implications of adopting contracts of employment right from the time the legislation came into force at the end of 1986. In February 1987 the receivers of a company known as Specialised Mouldings Limited obtained directions from the High Court that it was possible to avoid adopting such contracts but to continue to employ the employees. From this, receivers developed what appears to have become a common practice of sending letters to those employees whom they wished to retain saying in essence that, although they were not adopting their contracts and they accepted no personal liability, they would continue to pay wages, salaries and pension contributions as before. In due course, this seems to have become standard practice in cases of administration too, although I have to say that the legislation does not actually provide for an administrator to have personal liability.
Matters proceeded on that basis for more than six years. But in July last year a decision of the High Court in the case of Paramount Airways Limited (No. 3) doubt on the effectiveness of this disclaimer, if I may call it that. In February this year the Court of Appeal upheld the decision of the High Court.
Now, the Paramount case concerned an administration order. However, the judgment raised such serious doubts about the effectiveness of this disclaimer in receivership cases that since then the general perception has been that it is no longer safe to place any reliance on the use of disclaimers and that, if employees are not dismissed within the 14-day grace period, their contracts will be held to have been impliedly adopted.
Of course, the Paramount case was decided on its facts. It is important not to lose sight of that. However, it has clearly established that contractual rights arising from the termination by administrators of contracts of employment which they have adopted, even unwittingly, constitute a priority charge on the company's assets.
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Insolvency practitioners—one has to be an insolvency practitioner to act as an administrator or administrative receiver—concluded that the effect of this might be to place such a burden on the company's already fragile finances that there would be no substance left upon which to base an effective rescue package. They were even more alarmed at the prospect of incurring substantial personal liability in cases where they acted as receivers. The result was likely to be that they would resort to wholesale dismissal of employees unless the business could be sold within 14 days, with, what I am sure your Lordships would agree, would be unacceptable consequences.
Those consequences were not acceptable to the Government. Accordingly this Bill proposes that, with effect from 15th March 1994 (which is the day after the President of the Board of Trade made a Statement on this issue in another place) administrators and receivers will be able to adopt contracts of employment with more restricted effects than at present. In that way, there will be no need for them to feel impelled to dismiss employees simply because of the fear of extensive liabilities which may be incurred—in the case of receivers, extensive personal liabilities—as a result of the adoption of contracts. Under the Bill only qualifying liabilities (which I shall describe shortly) would be incurred.
I shall now proceed to deal with the Bill's specific provisions and I hope I may be brief. Clause 1 of the Bill contains proposed amendments to Section 19 of the Insolvency Act 1986. Those provide that, in administration cases, only qualifying liabilities would in future be covered by the statutory priority charge over the company's assets. Qualifying liabilities are defined broadly as wages or salary or contributions to an occupational pension scheme in respect of services rendered after the adoption of the contract. This would also cover rights to holiday pay and sickness pay arising after adoption.
I think I should say at this stage that there has been a question as to whether the wording which is used in the Bill is possibly not apt to cover contributions to a pension scheme referrable to a period of service, rather than in respect of services rendered.
By way of example, paragraph (2A) (c) in Clause 3(4) provides that one of the conditions which a liability must meet in order for it to be a qualifying liability is that it is:
"in respect of services rendered",
wholly or partly after the adoption of the contract. Similar wording is used in Clauses 1 and 2 and in Schedule 1 to the Bill. I consider that the words:
"in respect of services rendered",
are apt to cover payments to a pension scheme. It is the Government's intention that the words should cover such payments.
Clause 2 proposes amendments to Section 44 of the Act to give effect to the proposals in cases of administrative receivership. These amendments also restrict a receiver's personal liability, and consequently his statutory right of indemnity from the company's assets, to only qualifying liabilities, as I have just described them.

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Clause 3 makes provision for amendment of Section 57 of the Act. That introduces the limited personal liability of the new scheme into the Scottish system of receivership.
Clause 4 and Schedule 1 to the Bill then provide for its effects to be brought about in Northern Ireland by amendment of the relevant provisions of the Insolvency (Northern Ireland) Order 1989.
I think it right that I should indicate to your Lordships that the proposed amendments do not disadvantage an employee whose contract is terminated by an administrator or receiver. Liabilities, other than qualifying liabilities, arising from a contract of employment will remain, but they will be treated as an unsecured claim against the company. Moreover, the proposals will not affect the employees' position under employment law.
I should also make it clear that this is not a measure to overturn the decision in the Paramount Airways case, which may yet go to appeal. As I said earlier, it would apply only to contracts which are adopted on or after 15th March 1994. Any contract adopted before then will not be affected by these changes.
I do not think there can be any doubt that, if these proposals are adopted, it will prove possible more often to return companies to viability or sell their businesses as going concerns. In that way, more employees will keep their jobs and, of course, those employees will not be affected by the proposals because their contracts of employment will not have been terminated.
I am aware, of course, that a number of amendments have been tabled and your Lordships will proceed in due course to consider them in Committee. However, I hope it may be helpful if at this juncture I make some comments to indicate the Government's position regarding any widening of the scope of the Bill.
When the President of the Board of Trade made his Statement in another place, he indicated that he intended to bring forward legislative proposals as an emergency measure. The purpose of the legislation would be to enable administrators and receivers to adopt contracts of employment with more limited effect than is presently the case. The legislation would have the limited effects which I have outlined and it was made very clear that it would affect only contracts of employment adopted on or after 15th March. There was to be no retrospection beyond then.
The measure is one for the future conduct of administrations and receiverships. It does not pretend or purport to address the past. Nor do I think it should. That is not to say that we do not recognise the problems which the decision in the Paramount Airways case has created; we do. But those are not matters for this Bill. I am convinced that, if we sought to go beyond the limited scope of the President of the Board of Trade's Statement, we should be abusing the goodwill which has been shown on all sides of this House and another place, which is vital if these urgently needed measures are to be put into force without delay.
I welcome this opportunity to introduce the Bill to this House. I commend it to your Lordships.
Moved, That the Bill be now read a second time. —(Lord Strathclyde.)
5.27 p.m.
Lord Peston: My Lords, I thank the Minister for the clarity and completeness of his introduction to the Bill. Due to the pressure of other business on 14th March, the Statement made in another place was not repeated in this House. However, I am happy to repeat at the outset the assurances given then by my honourable friends that we shall give the Bill a fair wind.
That does not mean that I am entirely happy with the Bill, but there is a need for immediate action, and that is so even though the number of companies in trouble and the number of insolvencies have diminished as we come out of recession. The number is still high and it will not be very long before the next recession begins.
My anxieties are as follows. First, I am always unhappy with legislation taken on the hoof, so to speak. I am sure that the draftsmen have done the best that they can in the time available, but we should not be over-confident that they have it right. After all, they and government Ministers must have thought that the 1986 Act, which took a lot of parliamentary time, was all right.
Secondly, the problem has been recognised to some extent for a few years. I refer to the intervention made by the honourable Member for Tynemouth in the other place at col. 29 of yesterday's Hansard. If there were not doubts about the law, why did the receiver in the Specialised Mouldings Limited case go to a judge for an answer to the central question?
Thirdly, is it possible for this piece of legislation to be used for other purposes connected with bankruptcy and insolvency for which it is not intended? That question was raised in another place by my honourable friend the Member for Bolsover at col. 25 of Hansard. I am not sure that the Minister's answer was as reassuring as it might have been.
I know that the Minister has referred already to this matter, but has he any more up-to-date information about the likelihood that the Paramount Airways case will be considered on appeal by the House of Lords? Let us suppose that the House of Lords were to say that the Court of Appeal had got it wrong. What would then happen to this piece of legislation?
I shall speak again briefly on retrospection in regard to the amendments, but perhaps I may make two points now. Like many honourable Members in another place, I am doubtful about retrospection. That is as much to do with principle as with the practical point made by the Minister in the other place that we could not be certain about who may benefit and who may be disadvantaged. My honourable friend the Member for Middlesbrough made a fundamental and logical point; namely, if the defect that we seek to rectify lies at the heart of the 1986 Act, a case may emerge for retrospection to that date. I hope that the Minister will take that extremely seriously, even though we are unlikely to be able to do anything about it now.
The essence of the economics of insolvency is that a business may become insolvent as a result of past decisions and events, but is viable in the future. That is

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why it makes no economic sense simply to allow a bankrupt firm to disappear. I hasten to add that I do not make the same point about bankrupt governments. Receivers have many interests, not least to creditors; but, most of all, they must act to save economic life, especially the jobs of the workforce. That is the reason we support any attempt—and, indeed, this attempt—to rectify the problem that has arisen and to make insolvency law as effective as we originally imagined it to be. However, I am fairly confident that there may be more problems here than are apparent at first sight. That is a topic to which we shall be obliged to return.
5.30 p.m.
Lord Ezra: My Lords, I, too, should like to support the intention behind the Bill. When the Insolvency Act 1986 was introduced to the House with the intention of saving as many businesses as possible that had found themselves in difficulty, it seemed to us to be a very forward-looking move. As a result of the case of Specialised Mouldings Limited, it was clear, to the extent that the workforce continued in employment, that there was a limit on the liability of the administrator or the administrative receiver in their regard in order to enable the business to be saved. However, that has been overturned by the subsequent Paramount Airways case which has opened the whole issue of how far the administrators or administrative receivers can act to save companies. As a legal issue, it will possibly be taken to the House of Lords but, in the meantime, I believe that the Government were right to introduce the present proposals.
The Minister expressed grave doubts about retrospection. However, as it appears, the judgment in the Paramount case is itself likely to be retrospective. Therefore, if a judgment is retrospective—which we are trying to correct so as to enable the intention of the original legislation to be carried out—I do not quite see why the corrective legislation could not go back to the time at which the intention of the legislators was made clear in the original legislation. Of course, we shall return later to that matter when we deal with the amendment which the noble Lord, Lord Reay, has proposed.
There is also the question of whether such provisions should be extended to cover other types of receivers, especially those operating under the law of property who have similar problems. While the present legislation has been hurriedly put together and, therefore, has addressed itself to the major issues, we should, nevertheless, seize the opportunity to consider other aspects of receivership which may be involved. That, too, will be discussed when we deal shortly with the amendments.
I fully support the Government's intention to bring forward the legislation. I believe that it could be made more effective if the amendments which we shall subsequently consider are fully taken into account and absorbed within the Bill
5.35 p.m.
Lord Reay: My Lords, the CBI supports the Bill and has commended the President of the Board of Trade for the speed with which he acted to amend the law of insolvency following the decision of the Court of Appeal in July last year to put an interpretation on the 1986 Act which reversed the court's previous interpretation of 1987 (the Special Mouldings Limited case) and which effectively changed the law from what everyone thought it had been into a new law which threatens all kinds of undesirable social consequences.
If the Bill is not passed, not only will a large number of jobs be at risk, as administrators and receivers are forced to dismiss employees of firms whose future they have not yet had a chance to secure for fear of creating a new prior charge on assets, but will also, as a result, so the Government's whole strategy successfully promoted by the 1986 Act of doing as much as possible to rescue firms in trouble—the so-called, "rescue culture". The encouragement to dismiss employees within 14 days, which the Paramount ruling in effect gives, is of course reinforced in the case of administrative receivers by the personal liability to which the Act exposes them.
I suggest that the Government of the day are open to criticism for having put an Act with unclear provisions on to the statute book, although it must be said that the accountancy profession at the time sought many assurances over the precise meaning of the term "adopted". For over six years, administrators and receivers have relied on a court ruling as the basis for many successful rescue operations of companies. The Paramount ruling has now exposed how shaky that reliance was and revealed just how vulnerable to claims, including personal liability claims in the case of administrative receivers, are insolvency practitioners.
The Paramount case may come to appeal in this House and noble and learned Lords may then reverse the Paramount judgment. However, the Government have decided that they cannot wait for the outcome of such an appeal so far as concerns future contracts of employment to be adopted by administrators. Of course, it is future contracts of employment which will preserve, or their non-adoption which will threaten, future jobs. All contracts of employment already adopted, or which were adopted in the past, do not threaten future jobs in the same way. The Government have not felt obliged to cover the intervening years since 1986 in the current legislation.
However, I believe that the Government are making a mistake in not seeking to extend the protection offered to administrators and receivers by the Bill to those who were responsible for adopting contracts of employment in the years 1986 to 1994. In equity, surely that is indefensible. Firms of accountants should not be left to shoulder professional and personal liabilities of an unquantifiable magnitude for carrying out government policy because they happened to do so between two dates on which two contradictory legal rulings were made, the second of which overrides the first with immense retrospective effect.

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The CBI has estimated that accountancy firms face claims of up to £1 billion as a result of the Paramount judgment—enough to cripple, even bankrupt, some smaller or medium-sized firms. Many other firms who rely on accountants would be adversely affected by such a development. Those who would benefit are unlikely to be the ordinary mass of employees who lost their jobs and their chances of redundancy pay from their firms when those firms collapsed, although I suppose that there could be mass claims organised by trade unions. However, more likely to be affected are directors who missed their golden handshakes, and their lawyers. Already, three Olympia and York directors (of Canary Wharf fame) have filed claims for £10 million against the administrators. Those claims consist of bonuses which were promised to them by their firm's founders.
The Bill solves the problem only partially. I support it as far as it goes, but I have an amendment (with which we shall deal shortly and to which the noble Lord, Lord Ezra, has also attached his name) which would apply the provisions of the Bill from 1986. My noble friend the Minister made an obscure reference to my amendment, which, I must say, I did not quite follow. He seemed to be saying that it would abuse the good will of another place if, in our dealings with the Bill today, we went beyond what the President of the Board of Trade announced in his Statement on 14th March. I am not quite sure what my noble friend meant. However, last night in another place, his honourable friend, Mr. Neil Hamilton, said:
"I cannot foretell the circumstances in which the House or another place might amend the Bill".—[Official Report, Commons, 21/3/94; col. 25.]
Plainly my honourable friend contemplated the possibility of an amendment here today and I do not therefore understand what my noble friend meant. However, we shall discuss that matter in a moment in Committee. I support the Bill in principle.
5.40 p.m.
Lord Donaldson of Lymington: My Lords, I apologise to the House and to the Minister for having failed to put my name down by the witching hour of noon, as I was completely unaware of that fact. With the indulgence of the House I wish to make it clear that my special interest in this Bill arises out of the fact that I am the part-time chairman of the Financial Law Panel, which is an organisation sponsored by the Bank of England and the Corporation of London, with the purpose, among other things, of identifying and assisting in removing uncertainties in the law which affect the United Kingdom financial markets. In that context, I and the legally qualified chief executive of the panel have been looking at this Bill and the problem which it addresses.
In my judgment the Paramount Airways case demonstrates widespread misunderstanding of the law rather than any uncertainty of the law. In view of what has been said in the House this afternoon I should perhaps say that, according to my information, no one has ever been able to find a transcript of any judgment in the Specialised Mouldings Ltd. case and it seems
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highly likely that the learned judge—I believe it was Mr. Justice Harman—never gave a ruling at all. It was indeed a test case, or was intended as a test case. The judge was asked to authorise a particular course of conduct in that case and he said, "Yes, go ahead". It is by no means clear that he was giving his mind to the general question and the general matters of policy on which the insolvency profession appeared to rely in the following years. Therefore it is not quite accurate to say that the law was clearly laid down by the High Court, and then—however many years later it was—was reversed by the Court of Appeal. However, we have a situation with which this Bill is intended to cope.
The two misunderstandings which emerged from the Paramount case are the following. First, it was apparently genuinely thought that Section 19 of the 1986 Act had the effect which it will have, if and when amended by this Bill. There is a clear need to remove that misconception. I welcome the Bill although it is surprising to find in operation what I think my classical friends would describe as communis error facit lex.
However, there is a second misunderstanding which I venture to think is of much greater importance in the long run. It appears to have been believed by the insolvency profession that by means of what Lord Justice Dillon castigated as a ritual incantation, it was possible in effect both to adopt and to disclaim contracts of employment. The Bill does not address this point at all. As I understand it, the Minister in another place said that adoption means that a person procures the performance of a contract. The adoption may be by words—that is to say, express adoption—or it may be by conduct (that is to say, implied adoption). With all that I respectfully agree. That is the law and the law is absolutely clear. But the uncertainty arises when one tries to apply that law to a factual situation, as is demonstrated by many cases. It seems to me that employees need to know where they stand. They need to know whether their contracts of employment are being adopted or disclaimed. They cannot afford to wait until there is some dispute in the courts long afterwards and then be faced with a confusing story of conduct which at one time seemed to adopt the contract but at another time seemed to disclaim it, and so on and so forth.
I have suggested to the Minister, and through him to the Secretary of State, that this could be dealt with in this Bill if one amended Section 19(5) of the 1986 Act by adding to the second paragraph some such words as,
"within seven days of the expiration of this period"—
that is to say this 14-day period—
"each employee of the company shall be notified in writing by the administrator of whether he is adopting or disclaiming the employee's contract of employment".
That would make it wholly clear and employees would have no reason to fear that at some future date they would become embroiled in a dispute as regards their contractual status. Unfortunately, I am told that that is not acceptable to the Secretary of State. No doubt if I were to table the amendment I would be immediately voted down. However, that would not be an entirely novel experience. I refrain from pursuing this matter simply because, like the noble Lord, Lord Peston, I am

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not convinced of my ability to amend Bills on the hoof. I would have preferred a few days in which to discuss this matter.
I am bound to say that I do not understand why this is being rushed through at this rate. For my part, I cannot understand why, once the Secretary of State had announced that as from 15th March the law would be amended, an extra week could not be taken to get that amendment right.I welcome the Bill but I regret the omission to deal with this major problem of what constitutes adoption. However, I shall refrain from referring to that again in Committee.
5.47 p.m.
Lord Strathclyde: My Lords, I have listened to the comments of noble Lords who have spoken with considerable interest. I listened with particular interest to the learned comments of the noble and learned Lord, Lord Donaldson.
It would be with some trepidation that I would seek to engage in a detailed discussion of the deep legal niceties of much of what has been said but I wish to address the questions that have been posed. The noble and learned Lord, Lord Donaldson, certainly in his introductory remarks, made a useful exposition of the Paramount case and of the legal implications of what has been done. The noble and learned Lord then criticised certain aspects of the Bill. He said that there needed to be a definition of the meaning of the word "adopt" in the context of this legislation and for there also to have to be a positive act of adoption. The noble and learned Lord had the good sense to warn me that he might raise this issue on Second Reading and I have therefore been able to prepare a reply.
I can fully understand the desire that there should be certainty in these matters. Without any doubt it would be possible to provide a definition. However, what I am not convinced of—nor are my advisers—is that that definition would create certainty and remove all doubt. I am afraid that it is often in the nature of such matters that they tend to spawn further argument. We have preferred to approach the matter from a rather different angle. What this legislation would do would be to make it easier for an administrator or receiver to adopt a contract of employment. This means removing the present uncertainty about what it is he is letting himself in for. In future he will know precisely what it is he will have to pay. It will be the wages, salaries and occupational pension contributions of those employees he keeps on. He will also know that the liability extends only to services rendered by the employee during the course of the procedure. In this way he will be able to assess the costs of continuing to employ the employees, as well as his potential exposure to personal liability, if he is an administrative receiver. We believe that that is the better way forward and that it will enable administrators and receivers to make sound judgments about the viability of the companies and businesses they are appointed to administer.
It is clear from what the noble and learned Lord said that he does not entirely accept the view of the
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Government. I was able to write to him shortly before the debate took place and he replied in his Second Reading speech.
Perhaps I may turn now to some of the points raised by other noble Lords. The noble Lord, Lord Peston, asked about the status of the Paramount appeal and whether the House of Lords would be giving its opinion at some stage. We are not aware whether a petition for leave to appeal to the House of Lords has been lodged. Any decision made by the courts in the case will not affect these changes.
The noble Lord, Lord Ezra, made an excellent speech, which also dealt with the question of retrospection. That is an issue which we shall be dealing with in some detail in a moment in Committee. Likewise, my noble friend Lord Reay made a hard-hitting speech about retrospection. It will come as no surprise to him that I disagree with much of what he said.
Perhaps I may clarify one point that I made in my introductory speech about abusing good will. It is entirely appropriate that we should have these discussions about retrospection. My point was that in bringing forward these emergency provisions we have of necessity had to ask for the good will of both Houses and to work with other parties in order to achieve a basic agreement that this is the right way forward. If we open up a whole variety of extremely complicated legal questions about retrospection we run the risk of abusing that good will. That was the point that I made, but of course it is right that we should debate these issues fully.
I have already indicated to your Lordships the circumstances which have caused the Government to act so quickly. The purpose of the proposals is to enable viable businesses and companies to be saved along with the jobs which they provide. On the basis of the public utterances which have been made by many commentators outside Parliament, I venture to suggest that the proposals have enjoyed unanimous support.
It is understandable that there may be those who wish us to do a little more, but I have already indicated this afternoon that that little more is not appropriate for this Bill. I am sure that there would be righteous indignation if the opportunity which has been granted for this legislation were lost because we had attempted to do too much.
These are extraordinary circumstances. This is an emergency piece of legislation. In that spirit I hope that the House will agree to a Second Reading.
Lord Richard: My Lords, before the noble Lord sits down perhaps he can help me to follow this argument. It is not an area of the law with which I am very familiar.
As I understand it, in the Paramount case the Court of Appeal declared what the law is. That did not accord with what everybody thought the law was under the judgment which cannot now be discovered and to which the noble and learned Lord, Lord Donaldson, referred. The Government take the view that the law should be different from that which the Court of Appeal declared it to be. They have therefore introduced this Bill to correct the decision. I can understand all that.

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I should be grateful if the noble Lord could help me in regard to one aspect which I do not understand. For the past six years administrators and receivers have acted on the basis of what everybody, including the Government of the day, assumed the law to be. Therefore, are they not at risk and vulnerable in respect of their acts during that six-year period? I do not understand why, in those circumstances, the Government dismiss the idea of retrospection quite so conclusively and all-embracingly. If the Government believe that there is a legitimate case for changing the law, the law having now been determined by the Court of Appeal to be what the Government did not intend it to be or believe it to be, then perhaps further thought should be given to this issue.
I do not suggest for a moment that the Bill should be held up. Nor do I suggest that the amendments should be carried. But I think that the noble Lord could go so far as to say that the Government will actively consider the question of whether or not the Bill should be made retrospective so that those who are now at risk will be given at least some comfort.
Lord Strathclyde: My Lords, the noble Lord the Leader of the Opposition has pre-empted the debate that we are about to have. However, his comments were useful because he has gone neatly to the nub of the whole issue of retrospection. With the leave of the House, before we reach the Committee stage I should like to deal with the matter.
First, the Government are not setting their face entirely against retrospection. I shall go into that point more fully when we reach the Committee stage. The point is this. The Court of Appeal has voiced an opinion about the status of the law as it stands. There may or may not be a further appeal to the House of Lords. We shall have to wait and see. There is thus certainty as to where the law stood prior to 15th March 1994. Once this Bill has passed there will be a new certainty as to where the law stands.
When the Court of Appeal made its decision it effectively gave a new set of rights to a whole range of people who hitherto did not realise that they had any rights. If we were to legislate now retrospectively in the way that has been suggested
Lord Richard: My Lords, perhaps I may intervene briefly. The Court of Appeal has not given them new rights. It has declared that they always had those rights, even if they did not know it.
Lord Strathclyde: My Lords, this is where the noble Lord's legal training is so invaluable. The noble Lord has explained the position correctly.
If we were to legislate retrospectively as my noble friend and the noble Lord, Lord Ezra, suggest in their amendments we could remove those rights from people who have not had a chance to consider whether they would like to do something with those rights.
I said at the beginning of my reply to the noble Lord that I am not setting my face against retrospective legislation. This is a matter which requires further
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consideration. That is the line that I shall take in response to the amendment. I hope that the House will agree to give the Bill a Second Reading.
Lord Richard: My Lords, I am obliged to the Minister for what he said.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 21st March), House resolved into Committee.
[The BARONESS SEROTA in the Chair.]
5.57 p.m.
Clause 1 administrators: priority of liabilities under adopted contracts of employment]:
Lord Reay Lord Reay moved Amendment No. 1:
Page 2, line 26, leave out ("15th March 1994") and insert ("30th December 1986").
The noble Lord said: The amendments in my name seek to apply the provisions of the Bill not from last week but from the date when the Insolvency Act was passed in 1986. They thereby seek to ensure that what everyone thought the law was since that time, and what a judge said that the law was (or is generally accepted to have said the law was even if there is no proof today that that is what he said) actually was the law.
Of course, the amendments would be retrospective in their effect. But then the Paramount ruling was retrospective in its effect. For six-and-a-half years from February 1987 everyone had to act on the basis of what a judge said in that month, or was reported to have said, the law was. In July 1993 another set of judges said that all along the law had been something else. That is retrospective law making and its effects can only be undone by retrospective legislation. I argue that that is what should be done.
I said a moment ago at Second Reading that the CBI estimates that accountancy firms, often small and medium sized firms, face claims totalling hundreds of millions of pounds from those who have now been told that the law entitled them to claim against the assets of firms which passed through the hands of receivers. If the law had been known to be what judges now for the first time say that it was, administrators and receivers would never have exposed themselves to such claims—in most cases probably by avoiding making any serious effort to rescue the companies with which they were involved. In truth, of course, if we had known sooner what we learned last July, the statute law would have been changed that much sooner.
I am sure the Government realise that something must be done to address the issue. I suspect that they wish to be seen to be reluctant to introduce retrospective legislation. If an appeal to this House in the Paramount case results in a reversal of the Paramount judgment, perhaps they feel that they may be able to avoid further legislation altogether.
The Government have argued that estimates of claims likely to be made against insolvency practitioners are "speculative". My noble friend appears to want to wait to see the result of those claims. I agree that we do not yet know what they will amount to. The Paramount judgment has pitched us into a fast-moving

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situation which the Bill has simply speeded up. If this House in its judicial capacity decides to hear the appeal which, according to my information, has been lodged today, and decides to overturn the Paramount judgment, then maybe no further action is required. But in my judgment further legislative action is certainly required if the Court of Appeal upholds the judgment in the Paramount case.
My noble friend has hinted already that he may be able to say that the Government will continue seriously to consider the matter. If he is able to state in his reply that the Government accept the case for extending legal protection to administrators and receivers who were responsible for adopting contracts of employment between the years 1986 and 1994, but that before taking legislative action the Government wish to await the outcome of the appeal lodged in this House, then in those circumstances I would be willing to consider withdrawing the amendment. I beg to move.
Lord Ezra: I wish to support the series of amendments for the reasons that have already been clearly stated by the noble Lord in introducing them, and by the intervention of the noble Lord, Lord Richard.
It seems to me that in the past six years or so, a large number of companies in difficulty were rescued by the procedures introduced by the 1986 Act. Indeed, the President of the 13oard of Trade in a Statement in another place indicated that of the 3,000 firms which go into receiverships in a year, about half are rescued in one way or another as a result of the legislation introduced in 1986. It is quite obvious that that would not have occurred if the legislation had been interpreted in the way in which the Court of Appeal decided the Paramount case. Administrators and receivers would have been most reluctant to have taken the steps they then took which have saved so many companies. Those receivers and administrators acted on a reasonable interpretation of the 1986 legislation, buttressed by what they understood to be a view taken in a test case. It is inequitable that they should now believe that their actions during that period of six years could be subject to serious doubt and that in some cases they could be rendered personally liable. It seems wrong to allow such a situation to arise. I therefore very much hope that since we seek to correct a situation, we should do so from the time at which the 1986 Act took effect and not from the time that this legislation was introduced; otherwise, the whole situation could be placed in serious disarray.
I hope that the Minister will accept the amendment, or at least will state that the Government are conscious of the problem that the issue raises and will give the matter serious consideration.
Lord Barnett: I hesitate to intervene in the debate. However, I do so by declaring an interest as a former senior partner in an accountancy practice. I upset many of my partners and other accountants with the complex finance Bills which I introduced over the years, and I should like to make amends if I can.
Let me make crystal clear at the outset that in principle, and for many reasons, I am opposed to retrospective legislation. It would help some people, but not all those who might otherwise be helped. However,
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generally speaking, I do not like the idea of going back on legislation that has already been passed. But some things which have been said, in particular by the noble and learned Lord, Lord Donaldson, worry me. Let us suppose that the law now finds that between 31st December 1986 and 15th March 1994 the position is not quite as was understood; and the law then says that administrators and receivers were quite wrong to make all the people redundant whom they made redundant. If that is the case, all those former employees would be able to sue those small, medium-sized and large firms of accountants, who tend to have most of the administrations in receivership, for a lot of money in redundancy pay and whatever else. The large firms are well insured and would be able to cope, although given what they have had to pay out recently I am not sure that that would be the case.
I should like to hear from the Minister whether such action is a possibility. I know that none of us can be aware of what will happen when the Paramount case goes to appeal, whether to the House of Lords, or wherever. However, it would be a disaster if the law were found to be as it was always understood to be—as the noble and learned Lord, Lord Donaldson, said—and there clearly would then have been a case for going back to 30th December 1986. That is the strongest argument for at least reconsidering the issue.
The question has already been asked: why are we rushing the Bill? I understand that it is an emergency. Something needs to be done. Quite rightly, the Secretary of State considered the possibility of introducing legislation and moving it through both Houses quickly —that has been done in the past on other occasions. But if the legislation is only to be from the date on which he made the statement on 15th March 1994, and not earlier, then as the noble Lord, Lord Peston, and the noble and learned Lord, Lord Donaldson, pointed out, there is no need for such a rush. If the legislation is only effective from 15th March 1994 we have time to consider whether this measure is the right way to proceed, and whether other amendments need to be looked at. I refer, for example, to a provision which allows employees the right to know and for administrators and receivers to circulate all their employees on the situation and how it affects them. That seems a perfectly reasonable provision, but if we are rushing the measure through today we shall not be able to get such an amendment into the Bill.
Those are the only reasons for a delay. I agree with the need to introduce legislation. The Minister was absolutely right in stating that administrators and receivers cannot decide in 14 days, for fairly obvious reasons, how the company in receivership can be managed. That is quite impossible. Consequently they make all the employees redundant to save themselves a potential burden on whatever assets will be administered for distribution to employees as well as to shareholders. In those circumstances, the Government are absolutely right to introduce legislation. However, for the reasons I have indicated, I am still more than a little worried that, while I am against retrospection, there could in this instance be a case for it on the grounds I have given.
Lord Donaldson of Lymington: I have no objection to the Minister saying that the Government will think about the matter. I should have the strongest possible objection if the result of their consideration were to agree to the amendment or anything like it. It needs to be borne in mind that while I have considerable sympathy for the insolvency profession, which, after all, is a sub-branch of my own profession, it is a powerful lobby which is pessimistic by nature. The figures which are bandied around are almost certainly greater than those which would come to pass in fact. I say that not on general principles but because I am told, probably correctly, that the Department of Employment has laboured under the same misapprehension as the insolvency practitioners ever since the 1986 Act was passed. In consequence, they have been picking up the tab for the redundancy payments where no assets were available to the company or to the receivers, whichever it may be.
Even if those people who achieve redundancy payments from the Department of Employment were now to sue for those payments, they would be told: "You can't have them because you have already been compensated". Technically they might be entitled to the payments, but equally the Department of Employment would almost certainly be entitled to be repaid. On the grounds of avoiding security of action, I suspect that the courts would sensibly dismiss the claims. That gets rid of the vast bulk of the potential liabilities of the insolvency practitioners. There remain some esoteric directors with even more esoteric contracts who may be able to sue.
The point of principle is the following and I can illustrate it in the starkest possible manner by reference to the Paramount case. It has already been said that, if the House of Lords, in its judicial capacity, allows the appeal, there would be no problem because it would be declaring that the law is and always has been what the Bill will make it, or it will confirm that that is so. That is not a clear statement, but I hope that my meaning is clear.
If, on the other hand, the House of Lords in its judicial capacity were to affirm the Paramount decision —and it would be most improper for me to express any view as to whether or not that is likely—what should one do about the successful claimants in the Paramount case? The House of Lords, in its judicial capacity, having said that the claimants are right and entitled to perhaps a great sum of money, is it then to turn round in its legislative capacity and say: "We are very sorry, we are taking all that back. You can't have your money."? That would produce a major constitutional clash between the courts and the legislature. I do not suggest that the legislature is not entitled to do that: it is supreme. In that sense, it would be constitutional. But in terms of our unwritten constitution, I think it would be an abomination.
Then one has to ask: "Are you to make an exception for Paramount Are you going to make an exception for any other case where action has been brought or threatened and a settlement reached? Will you make an exception for that?" Then we get into difficult territory. Although there may be some hardship for the
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insolvency profession, I hope and believe that it is grossly exaggerated at the moment. There may be some hardship for it, but that is a sacrifice which, regretfully, it will have to make on the altar of principle. Retrospective legislation in such a matter affecting the individual rights of private citizens would be the greatest possible mistake.
6.15 p.m.
Lord Peston: As an academic economist I am, of course, above such sordid considerations as the financial viability of accounting firms or any others. We are having a rather bizarre debate on the amendment because the Minister covered the matter in reply to me and my noble friend the Leader of the Opposition on Second Reading. I read the speech on this or a similar later amendment in the other place only yesterday. I should like reassurance from the Minister, I read that his honourable friend in another place showed a kind of sensitivity to further questions which I understand the Minister to repeat now and which he has repeated in response to my noble friend the Leader of the Opposition.
Essentially, I interpret the Government as saying: "Look, there is a need for immediate action and we are taking it". There are other considerations such as retrospection and the point which the noble and learned Lord, Lord Donaldson, raised and points arising from other possible professions in the later amendment. All I want is a reassurance, which I believe I have received from the Minister, that, once we have done all that, his department will consider it carefully. If it thinks that something satisfactory could be done and if further problems arise, the Minister says that he will come back to the House of Lords or the other place and say, "We've got to go further". I hope that I am right and that the Minister has already given us the kind of assurance which should enable his noble friend to withdraw his amendment.
Lord Strathclyde: This has been an interesting debate on the whole issue of retrospection, which is important, and it is quite right that we should have the debate. I was only sorry that both my noble friend Lord Reay and the noble Lord, Lord Ezra, did not mention the mini question and answer session that I had with the noble Lord the Leader of the Opposition at the end of the Second Reading debate. It neatly encapsulated the kind of issues with which we aredealing.
I very much understand the concerns of my noble friend Lord Reay and the noble Lord, Lord Ezra, in seeking to make the application of the limitation of liability effective, not from 15th March 1994 but from 30th December 1986—that is, immediately following the implementation of the main provisions of the Insolvency Act 1986. That change is sought because of the possibility that employees whose contracts might be deemed to have been adopted by administrators and administrative receivers and who were subsequently dismissed by them might, in the wake of the Paramount judgment, be able now to make claims for liabilities arising from the termination of their contracts.

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As my noble friend suggested, various people have mentioned substantial sums which could fall on administrative receivers. That could be difficult. I reiterate that this is an important issue, not only from the point of view of administrators and administrative receivers but also from that of employees. In considering the amendment, therefore, account has to be taken of the wider implications.
In his statement in the other place on 14th March, my right honourable friend the President of the Board of Trade was quite clear in his view that the provisions of the Bill should have effect only in relation to any contract of employment adopted after 14th March.
It would not be appropriate to speculate on whether any claims in respect of contracts of employment terminated before 15th March 1994 would succeed and in what sums. Each case would have to be considered on the facts of the case. In many cases, of course, rescues have been secured with the company emerging intact or with the viable parts sold on and the employees' position protected without the likelihood of claim. But, for other employees, we have come to the conclusion that it would not be right to affect entitlements acquired before 15th March 1994.
My own inclination is against retrospective legislation and I am sure that that inclination is shared by many Members of the Committee. No clearer indication of that was given than by the speech of the noble and learned Lord, Lord Donaldson, with whom I am in absolute agreement on the point. I hide behind the noble and learned Lord's words. He put the matter very much better than I should have been able to do. This is not my amendment. It is the amendment of my noble friend Therefore 1-.e has to respond to the case put forward by the noble and learned Lord, and indeed to some of the points that I have made.
In reply to the noble Lord the Leader of the Opposition, I said that I was not setting my face against retrospection, and indeed I am not. The Government will look very carefully at the situation as it develops. Of course we shah be prepared to take note of any developments that may come to fruition in this area in the near future. I have explained in some detail the purpose of this Bill. I very much hope that my noble friend can leave it at that.
Lord Barnett: Do the remarks that the noble Lord just made mean that, if it goes through this Chamber today, then that is the end of the Bill—which has already gone through the other place? Does he mean that he will then introduce another emergency Bill if he finds that some of the points that have been made in this debate unfortunately turn out to be true?
Lord Strathclyde: I am neither saying that nor not saying that. I am simply saying that we shall look at the situation and at how matters develop. We hear what has been said in this Chamber and in another place. I could certainly not be drawn to be more explicit than I have been on whether or not there would be a future Bill.
Lord Reay: My noble friend began his reply to this debate by regretting that neither the noble Lord, Lord Ezra, nor I made any reference to the exchange that my
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noble friend had with the noble Lord, Lord Richard, towards the end of the Second Reading debate. Perhaps I can make amends for that omission and say that completely endorse everything that the noble Lord, Lord Richard, said in that exchange. He encapsulated perfectly the argument for this amendment.
My noble friend used rather a curious argument in his reply to the noble Lord, Lord Richard. He said that, if we acted along the lines of this amendment, we would be removing rights from people who have not yet decided what they want to do with those rights, implying that that would be a rather hasty way to act. That seems to be a rather curious argument. It would seem to imply that one should wait to see if they are going to claim their rights and, if they show any sign of wishing to claim them, then we should legislate to remove that right. I would have thought that it would be kinder to legislate now. I take my noble friend to mean that he wants to wait and see how matters develop, if claims are made and what their magnitude is, and on the basis of that decide whether it will be worth bringing forward further legislation.
This Bill is plainly being taken at speed. I do not want to over-burden the Bill or the goodwill which has been necessary to get it through Parliament. I do not in any way want to act precipitately, and plainly the arguments of the noble and learned Lord, Lord Donaldson, deserve careful further study. I note that my noble friend has not set the Government determinedly against acting retrospectively if they consider that the case warrants such action. I note that they will look carefully at the situation as it develops. That does not go very far towards meeting the demands of the amendment. However, in the circumstances, I do not think that I wish on this occasion to press the amendment. Like my noble friend, I shall follow matters closely and we shall decide what to do in the future. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
Clause 2 [Administrative receivers: extent of personal liability on adopted contracts of employment]:
[Amendment No. 2 not moved.]
Clause 2 agreed to.
Clause 3 [Receivers (Scotland): extent of personal liability on, and agency in relation to, adopted contracts of employment]:
[Amendment No. 3 not moved.]
Clause 3 agreed to.
Lord Ezra Lord Ezra moved Amendment No. 4:
After Clause 3, insert the following new clause:
(" —(1) Section 37 of the Insolvency Act 1986 (personal liability of receiver or manager appointed under powers contained in an instrument for certain contracts) shall be amended as provided by subsections (2) and (3) below.
(2)in subsection (I) (a) (liability for contracts of employment adopted by him in performance of his functions) after "provides) and" there shall be inserted ", to the extent of any qualifying liability,".
(3)After subsection (2) there shall be inserted—

"(2A) For the purposes of subsection (1) (a), a liability under a contract of employment is a qualifying liability if

(a) it is a liability to pay a sum by way of wages or salary or contribution to an occupational pensionscheme,

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(b) it is incurred while the receiver or manager is in office, and

(c) it is in respect of services rendered wholly or partly after the adoption of the contract.

(2B) Where a sum payable in respect of a liability which is a qualifying liability for the purposes of subsection (1) (a) is payable in respect of services rendered partly before and partly after the adoption of the contract, liability under subsection (1) (a) shall only extend to so much of the sum as is payable in respect of services rendered after the adoption of the contract.

(2C) For the purposes of subsection (2A) and (2B)

(a) wages or salary payable in respect of the period of holiday or absence from work through sickness or other good cause are deemed to be wages or (as the case may be) salary in respect of services rendered in that period, and

(b) a sum payable in lieu of holidays is deemed to be wages (or as the case may be) salary in respect of services rendered in the period by reference to which the holiday entitlement arose.

(2D) In subsection (2C) (a), the reference to wages or salary payable in respect of a period of holiday includes any sums which, if they had been paid, would have been treated for the purposes of the enactments relating to social security as earnings in respect of that period.".

(4) This section shall have effect in relation to contracts of employment adopted on or after the 15th March 1994.").
The noble Lord said: I beg leave to move this amendment. It introduces a new section to the Bill and extends the relieving provisions of the Bill to cover receiverships, including Law of Property Act receivers who are not administrative receivers and whose appointment is therefore governed by Section 37 of the Insolvency Act 1986 rather than by Section 4.
That would apply in cases when single assets were being recovered, such as, for example, hotels, office blocks or apartments. It has been suggested that, as those receiverships are sometimes handled by surveyors who may not be qualified insolvency practitioners, it would be inappropriate to extend the legislation to include them. But the 1986 Act made no such distinction, nor have the courts when these matters have come before them. If this clause is not accepted, it will open up a distinction that does not exist in practice between property receiverships and business receiverships.
The effect could be serious. If a hotel or property company went into receivership with different properties secured to different finance companies, if it was not possible to get an overall receiver to deal with the issue there would be no incentive for a property receiver to keep the individual properties as a going concern because he could then be exposed to the risks which have now been revealed. I am advised that there are many property receivers who would now be in that situation. Therefore a number of properties which could be rescued would not be rescued. I therefore feel that there is a very strong case for applying the same provisions as are proposed in this Bill for business receivers to property receivers. I beg to move.
Lord Reay: I should like to support the amendment of the noble Lord, Lord Ezra. If the Bill is not extended to cover Section 37, receivers appointed under particular chartered surveyors would be, in my view and in that of the CBI, unfairly discriminated against. They would
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still be subject to personal liability in the future from employees who were kept on beyond the statutory 14 days. I do not see why the Government propose to legislate in this discriminatory fashion.
I might add to what the noble Lord said that the law of property receivership frequently involves hotels or industrial buildings where a considerable number of people are involved. We are therefore talking about substantial potential liabilities. I hope that my noble friend will accept the noble Lord's amendment.
Lord Strathclyde: As I said earlier during the course of the debates on this Bill, the Bill was introduced quickly to deal with potential problems for administrative receivers and administrators when rescuing businesses. Receivers or managers to whom Section 37 of the Insolvency Act 1986 applies are in a different position.
An administrative receiver is a receiver or manager of the whole, or substantially the whole, of a company's property appointed by the holder of a charge which, as created, was a floating charge. A receiver or manager can be appointed over any part of a company's assets. He can be given the power to manage in the charge document but will not necessarily control all the company's assets or businesses. Such people do not have to be licensed insolvency practitioners or necessarily have any qualifications and do not have the same powers and duties as administrative receivers.
Receivers and managers can be appointed in a wide range of circumstances (not just Law of Property Act receiverships) and the situation is very different, as I have already outlined. Therefore extending the new arrangements to receivers or managers would need careful consideration, which has not so far been given.
However, the noble Lord, Lord Ezra, makes a point which deserves a certain amount of consideration. We do not want to lose sight of the point. Therefore, we shall reflect further in the context of a consultative document issued by my honourable friend Mr. Hamilton, who has a departmental interest in these matters—it is a consultative document on company voluntary arrangements and company rescues—when these points will be dealt with, perhaps more effectively than could be done at this time.
The amendment proposed by the noble Lord goes beyond the very narrow purpose of the Bill, as I have outlined. On that basis I invite him to withdraw it.
6.30 p.m.
Lord Ezra: I am disturbed at the thought that property receivers who have been operating for the past six or seven years within the scope and framework of their understanding of the 1986 Act should now be faced with a different situation and should not even have the protection, non-retrospectively, that the Bill would offer to business receivers. That is a distinction which should not be made. Therefore I cannot quite understand why the Government are reluctant to accept the amendment at this stage.
However, I am relieved that the matter will be looked at and that there is to be a consultative document. I hope that I am right in supposing that, among other things, it

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will address this specific issue—the noble Lord nods his head and so I must be correct—and that as a result of that consultation and consideration this gap in the legislation in due course might be closed. With that in mind, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 4 and 5 agreed to.
Schedule 1 [Corresponding provision for Northern Ireland]:
[Amendment No. 5 not moved.]
Schedule 1 agreed to.
Remaining schedule agreed to.
House resumed. Bill reported without amendment; Report received; Bill read a third time, and passed.

ACP Banana Producers: Aid
6.33 p.m.
Lord Pitt of Hampstead Lord Pitt of Hampstead rose to ask Her Majesty's Government why they have not supported the European Commission's proposals for technical aid and income support to the African, Caribbean and Pacific banana-producing countries, and whether they are satisfied that the commitment in Protocol 5 to the Lomé IV Convention can be fulfilled in relation to our traditional Caribbean banana suppliers without such aid and support.
The noble Lord said: My Lords, I begin by saying how deeply I regret having to ask this Unstarred Question. Her Majesty's Government played a very praiseworthy part in enabling the European Union to produce a banana regime which would fulfil the commitment in Protocol 5 to the Lomé IV Convention and which guaranteed that traditional banana exporting states would have no less favourable treatment in the future than they enjoyed in the past in respect of both access to their traditional markets in the European Union and their advantages in those markets.
In the case of the United Kingdom, those advantages traditionally comprised not only duty-free access but also market management, which ensured an economic return. Until last year those traditional advantages, although guaranteed under Lomé, were applied on a national basis by the United Kingdom, France and Italy, which are the three traditional ACP markets. When the Community was joined by Greece, Spain and Portugal, the markets of those countries were similarly protected for the benefit of their own domestic growers. But those arrangements existed side by side with totally open markets in the other six member states, apart from the 20 per cent. tariff on other third country imports. Even then, Germany had a dispensation from applying that tariff under a special protocol in the Treaty of Rome.
That was the situation until the coming of the single market. All those arrangements had to come to an end with the advent of the single market under which internal frontier protection between member states disappeared. But although that happened, the European Union's commitment under Lomé remained and had to be met in some other way.
To achieve a common regime for the whole of the European Union, a regime was introduced in July 1993
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which guaranteed access to traditional volumes of ACP bananas and applied a tariff quota for third country imports, which were initially fixed at 2 million tonnes. Importation above that level was still permitted but only subject to a very high tariff. It has been said--in fact one knows it from a reading of what happened—that the regime was only agreed with great difficulty. It is being challenged by Germany in the European Court. It is also claimed that important features of the regime are inconsistent with GATT rules. For the purpose of today's debate we can ignore those, except to record that I believe that the uncertainties increased the need for some form of aid and income support. The regime was expressly designed to ensure that traditional ACP supplies continued to find an economic return in the Community market comparable to that which they had hitherto enjoyed.
The European Commission recognised that transition to the new regime would entail a risk of market disturbance and loss of revenue which small-scale producers in the ACP countries would find difficult to support. Because of that, it proposed a system of emergency income support which would apply if the market was disrupted, but only until stability was restored. Unfortunately, the Commission proposal was not adopted by the Council of Ministers and Her Majesty's Government was, and remain, one of those who opposed it. As your Lordships will realise, the fact that Her Majesty's Government played such a leading role in all other respects as a champion of ACP interests in this sector meant that the United Kingdom opposition to the proposal had an extremely negative impact in the Council. Therefore I ask the Minister tonight to explain why Her Majesty's Government are so opposed to the proposal.
The foresight and wisdom of the Commission proved only too well founded. In answer to a Written Question the noble Earl, Lord Howe, supplied figures showing that the price of bananas in the case of the Windward Islands—the area in which I am most interested—fell from £562 per tonne in March 1993 to £524 per tonne in September 1993 and to £373 per tonne in December 1993. Noble Lords will not need me to explain or expand on the implications of those figures. The returns fell well below the cost of production.
Under the Commission proposal the producers would still have been assured of some economic return based on historic links. It is because the proposal has not been accepted that they are experiencing their present suffering. The absence of emergency income support has created great hardship for small farmers who grow bananas in places like the Windward Islands. The effect is particularly detrimental in those islands because bananas provide a regular income to the large and growing number of small peasant farmers who live there. I refer to people such as my grandfather, although that was a long time ago—or perhaps not so long ago.
It is probably fair to say that bananas are a perfect cash crop for the small farmer. Production is non-seasonal and through the ratoon process there is a continuous cropping system which provides a regular source of income throughout the year—income every week or every fortnight. But the small farmers cannot

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sustain large variations in the price of the crop. They need the type of income support recommended by the Commission. My question to the Minister is: why are Her Majesty's Government denying them that support? It seems particularly unfair because precisely the same provisions have been adopted for the benefit of the European Union's own producers. As a consequence they have been largely protected against the effect of the market collapse. Why are the poor farmers in places like the Windward Islands being made to endure that hardship? It is particularly galling to the Windward Island farmers because, as Martinique and Guadeloupe are departments of France, they receive that protection while their neighbours Dominica and St. Lucia do not.
I want to remind your Lordships that 70 per cent. of the export earnings of Dominica are from bananas and 30 per cent. of its workforce are employed in the banana industry. In the case of St. Lucia, 60 per cent. of its export earnings come from bananas despite the fact that it has a thriving tourist industry. I am told—or I may have read somewhere—that it is the Government's view that the loss of earnings can be met from the STABEX fund. But the demands on STABEX, as your Lordships will be aware, cover a wide range of primary products and 69 ACP countries. They always exceed the funds available. In a Written Answer the Minister confirmed that the highest percentage of loss it has ever met is 43 per cent. Therefore, to suggest that these poor farmers' needs can be met through the STABEX fund is simply insulting them. In any case, the Commission proposal explicitly states that the aid would be payable only if, and to the extent that, losses could not be covered by STABEX. Therefore, the idea of STABEX is—I do not want to use too strong a word—irrelevant.
The Commission proposal has a second facet. In addition to income support it offered technical and financial assistance to improve infrastructure, marketing and competitiveness in the EC banana industry. That is particularly necessary in the present circumstances and, frankly, it would be essential if the regime were ever to unravel—and it might. In any case, it is a definite requirement if those countries are to try to diversify their economy.
The proposed aims could also help to bring about improvements which are urgently needed in some ACP states if they are to attain their place in a more competitive market and so help to narrow the gap which exists between them and the dollar banana producers. The dollar banana producers are based on large estates owned by multinationals whereas the Windward Islands producers are peasant farmers operating on small estates.
It is suggested that there are ample unused funds in the Lomé Development Fund. I have heard that one too. But since the regional funds were specifically refused in respect of banana products on the grounds that they would be separately catered for under the Commission's proposals, the poor banana producers have fallen between two stools.
ACP countries firmly believed—I stress the fact—that the Commission proposal, comprising both technical and financial aid, in order to make them more
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competitive, together with emergency income support, formed part of the total package that was being offered as the new means of safeguarding the traditional advantages assured to them under Lomé IV, certainly for as long as it lasted; at least until the year 2000.
Without the safety net of emergency income support, the Lomé commitment is not met because there ceases to be any reliable way of ensuring the economic return that these countries and these farmers had available to them under the nationally managed markets. That is a fact.
I hope that when the Minister replies she will assure your Lordships that the Government have given further thought to this matter and have recognised the necessity of supporting the Commission proposal in the Council of Ministers and that they will press for its acceptance when the Council of Ministers next meets. I await her reply in hope and expectation.
6.53 p.m.
Lord Palmer: My Lords, that was indeed a powerful, emotional and extremely strong speech, and I, too, eagerly await the noble Baroness's reply. I am grateful to the noble Lord, Lord Pitt, for asking this Question tonight and for explaining the situation so extremely carefully and with such thorough understanding of the problem.
It has, as some of your Lordships are no doubt aware, been no secret that since July last year things have been far from right in the ACP countries, and having just returned from a trip to St. Lucia, where I had the chance of meeting many farmers, I am appalled to realise how extremely serious the situation has become. I feel I must declare an interest in that I have just discovered that I am a residual beneficiary in a large, albeit non-productive, banana plantation on the island of St. Lucia.
All members of the Lomé IV Convention realise that they must diversify, but that that diversification must be on the back of banana production. That is why I feel that the European Commission's technical aid and income support is so vital. What it is important to remember is the vast difference in yield per acre between the ACP producers and the dollar banana producing countries. The noble Lord, Lord Pitt, mentioned the difference and the economic scale of the dollar banana producing countries. They can often out yield the ACP producers by as much as two and a half times—two and a half times, my Lords.
The figures in cash terms are, I believe, even more horrific. To date, the Windward Islands' income from bananas has fallen by over 100,000,000 EC dollars. Put into people terms, that is a drop of just over 1,000 East Caribbean dollars for every single inhabitant on the island of St. Lucia; over 1,000 dollars, my Lords. When viewed in this perspective, I do hope that the noble Baroness realises how serious the problem is, especially when St. Lucia accounts for 12 per cent. of all ACP production. Thirty-five per cent. of the population of St. Lucia is directly involved in banana production. The aid from the European Commission is desperately needed to improve the infrastructure, to set up reception centres

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and to finance irrigation. I was fortunate enough to travel the length and breadth of the island and saw at first-hand how vitally this aid is needed.
When the noble Baroness comes to reply, I do hope that she will be able to explain why the French Caribbean islands and the Canaries are being subsidised through their mother countries and through the European Union. If France can, for example, as the noble Lord, Lord Pitt, mentioned, claim that Guadeloupe is part of the Massif Central, surely we have the basis and the right to claim that St. Lucia is part of the Outer Hebrides.
I would also like to ask the noble Baroness why it was that France was able to refuse entry to Cameroon fruit last year, and yet Britain accepted it, which of course still further drove the price down. Will she be able to give an assurance that this will not happen again?
I fear it is a frightening statistic that today a St. Lucian farmer is receiving six pence a pound for his bananas; at lunchtime today bananas were selling on Ox ford Street at 80 pence per pound.
The noble Baroness is much loved and respected throughout the developing world, and especially in the Caribbean, as my meeting only last Friday with the St. Lucian Minister of Agriculture, Mr. D'Auvergne, so evidently proved. I do so hope that tonight she will be able to demonstrate how well deserved that respect is.
6.57 p.m.
Lard Rea: My Lords, I am fully aware that this is a technical area of some complexity, with a number of conflicting interests involved. My noble friend Lord Pitt has explained to your Lordships the details of the situation in a very clear way. A possible solution to the problem, or at least an alleviation of the symptoms, is, as he has pointed out and as the noble Lord, Lord Palmer, has pointed out, tantalisingly close.
I am concerned that the late 1990s do not turn out to be as disastrous for the ACP banana producing countries —especially those in the Caribbean—as the 1980s and, sadly still, the 1990s have been for Africa, with an increase in poverty, child malnutrition and a contraction, if not collapse, of health and education services.
My concern also stretches to the banana plantation workers in Latin America, the producers of the so-called dollar banana—which I gather is unfortunately the same shape as an ordinary banana—who have wretched living conditions and even lower incomes than the Caribbean banana farmers, a high proportion of whom are small, independent producers, many owning their own land.
The economic situation of the Windward Islands' banana producers is dire at present, as both noble Lords have pointed out very clearly, with prices well below the cost of production. This means that debts are increasing. They are already high as a result of the devaluation of sterling one-and-a-half years ago; inputs of fertiliser and pesticides are running out, or running down; and a vicious circle has started in which the crop yield will fall and the situation become worse. Intervention now is necessary to stop this.
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I think it is understood in the Caribbean that. the secure protected system under Lomé of the past few decades is unlikely to persist. Higher productivity, increased local food production and diversification of the economy will be necessary but that will take time —a decade, probably more. It will be a hard ride. Initial steps have been taken through SPAT (Small Projects Assistance Team) in Dominica to get alternative industries off the ground. I gather that there are similar organisations in the other islands.
What puzzles my noble friend and those who support him in this Unstarred Question is why the terms of the 1993/404 settlement, which has been referred to, cannot be enacted, particularly those parts which provide interim price supports. I gather that the agreement only scraped through in Brussels by a whisker, but is that a reason for delaying that part of it which can give a life-saving interim boost to several small, dying economies? As my noble friend has pointed out, it is apparent that because the banana growers of Martinique and Guadeloupe are regarded as part of the Massif Central and also Spain with the Canary Islands, they are already getting assistance. I am not sure whether that assistance comes through the European Union or directly from France and Spain. That is not clear, and perhaps the noble Baroness can elucidate the point.
As other noble Lords have pointed out, it is quite unfair that British Commonwealth territories are less well treated. The only reason I can think of for this is. that perhaps they consistently makes fools of us at cricket. But to treat them in this way is definitely not cricket.
My noble friend Lord Pitt has quoted a Written Answer given to him by the noble Earl, Lord Howe. Perhaps I may quote the words of a Written Answer given by the noble Baroness on 28th February:
"There are funds for financial and technical assistance which could be used to strengthen the industry, in the 1994 EC budget." —[Official Report, 28/2/94; col. WA 64].
Previously, Mr. Lennox-Boyd had said:
"We are working close with the Commission to assess how these [funds] can best be used to assist the [ACP]".—[Official Report, Commons, 15/2/94; col. 737.]
I am sure that the noble Baroness will give reasons why no action has yet been taken—possibly due to the problem of the size of the dollar banana quoted for Europe (at present still under discussion) and the conflict between Lomé and the 404 agreement with GATT. But that should not prevent interim price support or other assistance being provided as an emergency measure.
I should also like to draw attention to the lot of the plantation workers of Latin America. In many ways their situation is worse than that of Caribbean growers. They have always received a smaller proportion of the final price of bananas-7 per cent. as compared with 10 per cent. for Caribbean growers. Many are now out of a job as a result of tumbling prices. Large-scale growers in dollar areas gambled on a large Eastern European and European Union market which has not materialised. Although their prices are lower than those of Caribbean growers, the plantations are in great difficulty. As well as helping the Caribbean, I feel that means should be found to assist destitute plantation workers in Latin

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America, possibly by the generous funding of local NGOs who will see that the aid reaches those who need it. That was suggested by Christian Aid. One way of generating such funds could be by recycling the tariffs gained for "over quota" imports of bananas from those countries.
To conclude, I can do no worse than to give the way forward as suggested by Christian Aid. They believe that the United Kingdom and the European Union should provide effective protection to small-scale farmers; provide transitional price support; provide support to increase the efficiency of the Windward Islands banana industry; include clauses to embrace social and environmental conditions in banana production in all exporting countries; and support diversification away from bananas. Like both noble Lords who have spoken before me, I very much hope that the noble Baroness will be able to give some good news when she answers.
7.5 p.m.
Viscount Waverley: My Lords, the main thrust of my contribution has been touched upon in differing ways. I would respectfully suggest that what might be criticised as duplication tonight must be perceived as emphasis.
As has already been made clear, the Community Banana Regime, Regulation 404/93, fixes a quota on cheaper Latin American bananas. It applies an import licensing system, imposed in a relatively arbitrary fashion, which appears to favour existing companies trading in ACP fruit. The underlying rationale for this regime is a protocol in the Lomé Convention, Lomé IV, which has been outlined by the noble Lord, Lord Pitt.
Her Majesty's Government has an excellent record of support for Caribbean and other ACP interests. The United Kingdom traditionally has made special provision to secure a viable outlet in its marketplace for Caribbean bananas. In 1992, during the long and difficult negotiations in the EC to replace national arrangements with a single market regime for bananas, Her Majesty's Government went to great lengths, in its role as president, to try to secure a Community regime designed to safeguard ACP interests. Yet, regrettably, the same Government are now perceived by the ACP, in particular by our Commonwealth friends in the Caribbean, as blocking the fulfilment of the European Union's binding commitment under Lomé IV.
The regime was explicitly intended to secure, through tariff quotas, an economic return comparable with that which they had previously enjoyed under bilateral arrangements. Because of the risks that that would not be achieved, the European Commission proposed a system of emergency income support to apply if the market was disrupted. This would prevent any loss of revenue which small-scale producers would find difficult to sustain. Such income aid—a proposal explicitly stated by the Commission—would be paid only if prices fell and only to the extent that the resulting loss was not met by STABEX.
What if the funds are not available? It is held that STABEX is bankrupt. The highest loss that it has ever
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met is 43 per cent. Caribbean producers suffered a severe loss of earnings at the end of last year but continue to be denied income aid. Yet emergency income support has been approved for the benefit of the European Union's own producers in Guadeloupe and Martinique, who are thereby protected against the effect of the market's collapse. That is the problem.
I now ask Her Majesty's Government to consider and comment on the following: first, the offer of technical aid to assist in a realistic and intense scrutiny of the overall viability of the industry. The levels to which production costs could be lowered visa vis Latin producers, and whether subsidies are a disincentive to cost-effective production would be questions fundamental to such a feasibility assessment.
If bananas are not the answer, then realistic alternatives must be found to permit diversification, and sufficient time and assistance offered to realise such far-reaching changes. Long-term solutions covering 25 and 50 years are what is required. Mercifully, the current regime could allow for this period of transition.
Secondly, will the Government consider approving the release of income support? Vital and welcome long-term measures would not dispense with the need for immediate income support for the short term to mitigate the effect of market disturbance resulting from the transition to the new regime.
Thirdly, will the Government ensure that an equitable solution is found to the issues surrounding percentage share between latin and ACP producers? Latin production is operated principally by American multi-nationals which control over 70 per cent. of the world market and nearly two-thirds of the European Union market. The current ACP percentage of the Community market is a mere 17.5 per cent. Once an agreement is reached, immediate and unstinting support must be forthcoming.
Fourthly, and possibly a little controversially, I ask the Government to watch closely to ensure a sense of fair play between banana traders, who must not benefit unduly from the industry when farmers are suffering from a downturn in the market.
It must be recognised that while some companies may on occasion step into the breach to support the industry, concerns persist that the regime is too protective of traders who traditionally deal in ACP fruit. It is the farmers who must receive just deserts for their labour. I ask Her Majesty's Government to do what they can to ensure that farmers are adequately compensated. I realise this would be interfering in commercial activities, but I ask the Government to do what they can.
Finally, I bring to the Government's attention that their position has a negative impact in the Council of Ministers. It is clear that there is little hope of securing support for these measures from other member states while Her Majesty's Government remain opposed. Yet without these measures, the Caribbean producers no longer have the traditional advantages guaranteed to them under Protocol 5 of the Lomé Convention.
Also incorporated into the aid question is the need to resolve transferability issues, probably on a regional or even sub-regional basis. Caribbean nations are susceptible to force majeure in the form of hurricanes

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and drought which devastate monocrop economies. It is often said that on some issues it would facilitate the European Commission if the ACP countries could agree among themselves internally, at least regionally, on an acceptable formula on the question of transferability.
The Caribbean, like the rest of the ACP, is not a homogeneous area where blanket solutions and joint decisions can be expected. The banana industry in each country is at a different stage of development, with differing problems and requirements. The impact of production failure or quota loss varies for each. The difficulties of the Windward Islands differ from those of Jamaica, and in turn from those of Belize.
At this point, it would be entirely appropriate to declare an interest, albeit non-pecuniary, in that Lady Waverley is the High Commissioner for Belize. My interest is of course to see a just outcome for all ACP banana-producing countries. However, I propose to surnmarise Belize's difficulties to illustrate the point.
Belize's quota ceiling has not catered for investments already in the pipeline. Investments had been undertaken from 1986, with help from various aid agencies, including the Commonwealth Development Corporation and the European Community's development fund. This was to develop both production and deep water port facilities to a level which ensures the viability of rapid weekly shipments to the UK by large vessels, and therefore optimum quality on arrival. Unfortunately, Belize's permitted maximum quantity (at 40,000 tons annually) is now well below the viable level, so that the main objective of the investment is frustrated and current production cannot all be shipped.
The Council agreed that,
"the aids provided in Article 12 of the Commission's proposal, and in the parallel proposal for the ACP, provide the necessary flexibility to cope wilt any unexpected development".
The Council also noted that,
"in cases where it can be shown that investment has already been committed to a programme of expanding production, a higher quota may be set for that ACP state".
I believe Belize has shown this to be the case.
A potentially disastrous summer is about to befall that country: there is a pressing need to meet interest payments on an under-utilised port; quotas have been over-utilised, and future shipments will be penalised. This situation coincides with the severe loss of earnings occasioned by the withdrawal of British troops from Belize, which began on 1st January this year—a loss of some £20 million per year, a substantial portion of the gross domestic product.
The banana problem threatens to be financially disastrous: more than 800 people are set to lose their jobs immediately, and a once thriving industry will founder. As any farmer will tell us, once soil conditions and production standards fall, the corresponding efforts required to restore viability increase dramatically. That illustrates the individuality of each country's set of circumstances.
Banana exports to the European Union are of major economic importance for all the Caribbean producers, and for some they represent as much as 60 per cent. of all export earnings. The losses already sustained and the
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continuing uncertainty about the future are causing grave concern and risk provoking civil unrest, as evidenced recently in St. Lucia.
I hope that Her Majesty's Government will offer the necessary assurances tonight and outline the conditions needed to bring these about. My Lords, justice must be done!
Finally, I should like to thank the noble Lord, Lord Pitt, for tabling this Unstarred Question, and to commend him on his valuable and lucid exposition of this important issue.
7.18 p.m.
Lord Redesdale: My Lords, I too should like to thank the noble Lord, Lord Pitt, for raising this issue. My experience with bananas has been limited to Malawi, where I harvested them for a couple of weeks and ate them for the same period.
Although I respect the Minister greatly, unlike some people I do not believe that she can control the world supply of bananas. I believe that market forces are partly to blame. However, like many noble Lords, I ask the Minister to explain why the Government have not lived up to their commitments to Commonwealth countries and vulnerable ACP countries which are banana producers.
The fourth Lomé Convention was designed explicitly to give some reassurance to ACP countries that their traditional produce (bananas) would continue to receive an economic return in European Union markets. When the price collapsed in the Caribbean markets, under the Lomé Convention the European Commission drew up some proposals for income support. It seems strange then that the UK to which many countries, especially in the Caribbean, look first for support, refused to agree to the Commission's proposals, giving other European Union members a pretext for rejecting them too—a point made by the noble Viscount, Lord Waverley.
The reasons for failing to support the Commission's proposals seem inconsistent. In Written Answers the Minister has said that the STABEX fund would be able to compensate for the shortfall in income. However, as the noble Lord, Lord Pitt, pointed out, the STABEX fund has never managed to match more than 43 per cent. of the shortfall. A Written Question put down by the noble Viscount, Lord Waverley, relating to the Commission's proposals was answered by the Minister who said that we could not support inefficient banana-growing countries. However, without support, there is no way that those banana-producing countries can change their production methods. Also, as the noble Lords, Lord Palmer and Lord Rea, pointed out, farmers in Caribbean countries are facing enormous hardships. One of the points that must be highlighted is that that situation is bound to deteriorate as in Latin America vast areas of flat land are used to produce bananas. There are some plantations as big as 250,000 acres. They are highly mechanised and irrigated. Their soils give double the yield of those of the Caribbean countries.
In those circumstances, the Latin American countries are producing bananas far more cheaply than the Caribbean countries will ever manage to do. I hope that

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the Minister will be able to give some assurance that she will be supporting the European Commission's proposals.
7.23 p.m.
Lord Carter: My Lords, like other speakers I thank my noble friend Lord Pitt for putting down this Question. The details of the subject have been well covered, and I have no wish to rehearse the arguments which have already been advanced. The debate illustrates the general point about both GATT and the single European market. We know that GATT is not designed to help the poorer countries in the world—a point largely ignored by the free market and the free trade ideologues. The experience of the ACP countries bears that out.
To illustrate the background to the debate I should like to quote some figures prepared by the OECD, giving a calculation of the annual global gains by 2002 in billions of dollars as a result of a successful GATT settlement. The figures show that the gain annually to the European Union and the EFTA countries together amounts to 94 billion dollars; to China, which is curiously second, it amounts to 37 billion; to Japan it is 26 billion; to upper income Asia it is 21 billion; and to the USA 19 billion. We can compare that with the calculation of the gain to low-income Asia, which is 2 billion, and the loss to Africa which amounts to 3 billion. Obviously we all understand that calculations of that nature are as heroic as the assumptions upon which they are based, but they illustrate the problem that we are discussing: GATT, and what flows from it, is largely a rich country scheme. For the poorer countries, as the figures show, the gains are either small or there is a loss.
As a result the ACP countries and the poorer countries producing dollar bananas are left to fight one another in a disrupted market. The system for bananas —before the combination of GATT and the single market produced the current crisis—although certainly not perfect worked reasonably well. The ACP countries had a guarantee of a market at reasonable prices and, as my noble friend Lord Pitt said, it was a managed market. Other speakers have made the point well, and I have no wish to repeat it, in relation to banana growing, especially in the Caribbean. It was the nature of the banana-growing system which engendered the marketing system that was in force.
However, as we are discovering to our cost in agriculture generally, the ideology of the single market and the free trade liberalism of GATT are a powerful force in helping the strong at the expense of the weak, as the OECD figures I quoted earlier show clearly. What is so alarming and disturbing about the present situation in bananas is that before the ink is dry on the agreement regarding the crop, and before its effects can be determined properly, the member governments of the Union are already renegotiating in the midst of a highly disrupted market. We understand that the 2 million tonne quota for the non-ACP countries is already being negotiated upwards. There are objections to the proportion of licences for the import of dollar bananas allocated to banana importers in the ACP countries.
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Those objections were almost certainly prompted by the three multinationals which control 60 per cent. to 70 per cent. of the world market.
As we have heard, the income aid originally proposed has not been forthcoming. As has been pointed out, we can imagine the frustration in a tiny, poor country like Dominica when aid is denied to it but it sees income aid going to Martinique and Guadeloupe. They are immediate neighbours and their growing conditions and problems are the same. Will the Minister tell the House whether agreement has now been reached between the Commission, on behalf of the European Union, and the Latin American countries? If so, what does that agreement entail, and how does it relate to GATT? Has there been a reduction in the tariff preference for ACP banana producers and a further increase in the dollar quota? If there has, the argument for income aid is overwhelming.
I say in passing that the collapse in the first-hand price of bananas was reflected to some extent in the shops, with a reduction in 1993 of about 20 per cent. in supermarket prices, although it is unclear how much of that was due to the reduction in wholesale prices and how much to the price war among the supermarkets, with bananas perhaps being used as a loss leader. Will the Minister tell the House why, in the event, the Government did not support the income aid proposals which were a part of the scheme proposed in 1992 under the UK presidency of the EC? We supported them at the outset, and then support was withdrawn when the Commission's proposal reached the Council of Ministers. As we have already heard, the demand for funds from STABEX always outstrips available resources, and the aid proposed originally by the Commission was only for losses not covered by STABEX. So why did the Government resist the aid proposal in the first place? What would be the cost now of providing the income aid to the ACP countries as originally proposed by the Commission? How much aid is available for allocation to the ACP countries in the Lome Development Fund? Does the Minister also agree that the commitment in Lome has not been met so far as concerns the ACP banana producers? What proposals do the Government have to see that the commitment is met?
I am sure that the Minister will say that restructuring and diversification are important, and indeed they are. However, it is hard to restructure and to diversify if you are rapidly going bankrupt. What are the real possibilities of alternative crops for the small family farmers who produce bananas? Where are the transitional measures to promote stability, as promised?
I said that I would be brief because the points have been well covered. It is clear that the absence of income support and assistance with restructuring, in particular in the more vulnerable Caribbean islands, is causing severe hardship. It is essential that the European Union recognises its responsibility in this matter and approves without further delay the aid that is so badly needed. If it does not, there is a real risk that the GATT agreement will fall apart and ACP suppliers will be marginalised in an all-out banana war. We all know the power of the multi-nationals which have ability to exercise predatory

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pricing and to flood the market if it suits them. With other noble Lords, I hope that the Minister will assure the House that action is envisaged which will help to solve this difficult problem.
7.30 p.m.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, I have listened to the debate with great interest. I thank and warmly congratulate the noble Lord, Lord Pitt, on introducing the Question tonight. It is such an important question for the Caribbean producers. I also wish to pay tribute to the noble Lord, Lord Pitt, for all that he has done in this House for the interests of the Caribbean
Noble Lords: Hear, hear!
Baroness Chalker of Wallasey: My Lords, he has tried to bring a little light not only to the banana regime but to the needs of other Caribbean producers, be they of rum or sugar—what I genuinely refer to as the Lome cocktail. No one has been better at mixing it than the noble Lord, Lord Pitt, in the best possible way.
We have long understood the critical importance of the British obligations to the Caribbean banana producers. In 1973 they became Community obligations under the Lome Convention. We have fought hard to maintain these commitments because we recognise the vital importance of the banana industry, in particular in the Windward Islands. We played a major role in defending African, Caribbean and Pacific interests during the negotiations for the Community banana regime under the single market. I too know—I have seen and heard at first hand on several occasions—of the needs of the banana growers and the hardships that the Caribbean producers are facing. I visited Dominica only last month and talk regularly with Dame Eugenia Charles, the Prime Minister.
One of the aspects that strikes one on every occasion that one looks at the Windward production is the dominance of banana growth and the fact that the necessary diversification will in some of those islands be hard to achieve. We have for a long time been supporting research into other crops; in Dominica, for instance. I shall say a few more words about that later. Ever since the discussions in 1992 we have not been standing still in trying to resolve the Community banana regime under the single market.
As the noble Lord, Lord Pitt, said, our opposition to the Commission proposal for technical assistance and income support has disappointed people. That is mainly because they have not understood the reason for that opposition. The reason is that it was the wrong proposal and as it stood it would not have achieved for the future what every Caribbean producer believes to be right; that is, to help them moclernise and reform the industry. The Commission proposal as it stood was a sticking plaster approach which would have kept producers afloat for a few more years. However, it would have only postponed the collapse of the industry because the Windward Islands are the most vulnerable producers of all. I have always had their needs uppermost in my mind in our discussions about what needs to be done.
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What have we been doing? We have been arguing for a more radical approach to be built around restructuring the industry; giving the industry the help that it tells me and Dame Eugenia it needs. Tonight I am pleased to be able to report that at last we are making good progress. Yesterday we told the European Commission that the United Kingdom would be prepared to lift its opposition to the proposal if it would agree to amend it:in a way that would clearly link it to an overall reform policy for the banana industry, which emphasised the importance of diversification and modernisation. The Commission is now considering that favourably and I hope that it will form the basis for a breakthrough.
It would mean an amendment to the proposal for assistance to the ACP, which the Commission made in 1992. This would make it clear that any country wishing to claim support following a shortfall on its banana income would have to explain not only what had caused. the shortfall, but what policies the producer was following to rectify the problems. Any funds provided would then be used only within a framework of a. consistent reform policy in the banana sector to sustain the economic viability of production or assist adjustment operations to restructure production and export activities.
In short, that would mean that all the funds would be used to improve efficiency and quality or to provide other means of employment, and that there would be no danger of simply propping up those industries which are currently inefficient. Frankly, that was what was wrong with the proposal as it stood.
The noble Viscount, Lord Waverley, asked about technical help. We are already involved in giving technical assistance to the Organisation of Eastern Caribbean States in order to help it draw up terms of reference for a consultancy to advise on restructuring the Windwards' industry. My officials have already held discussions with the Commission, the Caribbean Development Bank and the OECS and that is being taken forward urgently. That comes after many years of advice about the banana crop and about other crops which could be grown instead.
One of the reasons why that Commission proposal was truly unacceptable was that it risked hindering rather than helping the long-term future of the Caribbean banana industry. As the noble Lord, Lord Pitt, knows only too well, it is the long-term future which needs to be safeguarded and not just a year, or two. The EC proposal contained only short-term compensation, which would be a disincentive to the fundamental changes that all noble Lords realise are necessary.
For the sake of the Windward Islands and other producers we were right to oppose the Commission proposal. But we were not the only country to oppose. The Commission proposal had met with widespread opposition. It may have been for other reasons, as noble Lords have said, but Germany, the Netherlands, Belgium and initially Denmark opposed the proposal from the Commission. That was partly due to the fact that they have a fundamental opposition to the single market banana regime and the protection that it offers to the ACP. It is true that Denmark subsequently withdrew

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its reserve, but Spain stated that it would support the proposal only if a parallel proposal for support to Latin American producers was also agreed. I shall return to that point a little later.
In the past few moments I have sought to say that we have been working fairly hard behind the scenes because we realise how important all this is. That work has been done not only in London and Brussels, but my officials in the Caribbean have also worked closely with the governments of the Caribbean islands, the banana growers' associations and the Caribbean Development Bank to prepare the reform strategy and proposals for restructuring the industry. Even in the past two weeks, we have been having detailed discussions with the Commission. I now believe and hope that we shall see a swift response from all countries.
Lord Carter: My Lords, I thank the noble Baroness for giving way. Is it possible to assure the House that the total amount of aid under this extremely welcome proposal will be the same as would have been available under the Commission's original proposal?
Baroness Chalker of Wallasey: My Lords, the value of the original EC proposal was 220 million that is, about £170 million. I understand that that has been scaled down because of the late start of the regime, but the cost to us is about £20 million over three years. That would provide a real and lasting benefit. I shall be making sure that we help the Commission to persuade other member states that that is the right way to go because it is absolutely critical, both for the Caribbean producers and also for the British taxpayer or any Community taxpayer, that we use the money in a first-class way and not in the way that was originally proposed.
I believe that it is important to point out to your Lordships that income aid, which was mentioned also by the noble Viscount, Lord Waverley, for non-EC producers was certainly not part of the original single market deal reached under the UK presidency. Indeed, I hope that we can proceed, because until July 1993 we had separate arrangements for the import of bananas which were incompatible and did not help the producer countries. We have always had a commitment to make sure that all Caribbean bananas of marketable quality had an entry. That commitment predated our accession to the European Community.
I do not believe that I need to go into the EC banana regime which your Lordships obviously know and understand all too well. We still intend that ACP bananas shall enter the EC tariff-free up to the quantity that was previously exported to the EC. Latin American and ACP bananas above those traditional quantities are of course subject to tariffs and the licences to import the dollar bananas are and will be granted in proportion to the imports of ACP fruit. Therefore, all importers have an incentive to import ACP bananas. That is a good compromise, which is why we supported it. We had to consider not only the producer and consumer interests, but also we had to fit in with the GATT. That has not been easy but I believe that the ACP now has access to
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the whole EC market on preferential terms. We must rise to the challenge to help them take full advantage of that.
A number of questions were asked by your Lordships. The noble Lord, Lord Palmer, asked me why Martinique, Guadaloupe and the Canaries had different arrangements. Of course Martinique and Guadaloupe are part of metropolitan France and the Canaries are part of Spain. Independent Caribbean islands have a different relationship with Britain. Independent countries have to compete for bilateral aid from us; and of course we give them that too.
The noble Lord, Lord Palmer, asked also about France having excluded French West African fruit from the market last year. He asked why that had been diverted to the UK market. Some quantities of French West African fruit appeared on the UK market in the second half of last year, but I do not believe that that was because the fruit had been excluded from the French market. In practice the French market was presumably like any other previously regulated market and, just as in the UK, there was an over-supply in the second half of last year. As a result, we had Cameroon and Ivory Coast bananas in neighbouring markets such as our own.
The real problem was the failure of a development of a genuine single market for bananas in the early months of the regime and also the failure of ACP fruit to make headway in new markets such as Germany. Therefore, the Community markets were very unevenly supplied and both the United Kingdom and France were over-supplied. French West African fruit certainly had a disruptive effect. It is an irony that in Germany and Denmark, there were shortages of bananas at that time. That just shows what a crazy situation that is and why the overall regime must be strengthened and made to apply more openly.
The noble Viscount, Lord Waverley, asked about Belize, in which he naturally takes a particular interest. Indeed, it has a special problem. The quota that it was allocated did not take account of the new investments that Belize was making to increase its banana production. The quantities for each ACP's quota were agreed after discussions between the ACP countries themselves and the secretariat of the ACP group in Brussels and the Commission. I am not in a position to be certain which particular planned investments were taken into account in fixing a traditional quantity for Belize, but I can tell the noble Lord that the United Kingdom has worked hard to raise Belize's quota from 35,000 tonnes, to 40,000 tonnes. We support Belize's efforts to raise that further. That would include the projected increase in production from those investments.
Belize has understood very well that reopening that issue could have meant reopening the single market negotiations. That could have led, I suspect, to the collapse of what was a fairly delicately balanced package. If the GATT settlement leads to any reconsideration of the package, I assure the noble Viscount that Britain would support the inclusion of Belize's quota problems in that reconsideration.

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The noble Lords, Lord Palmer, Lord Redesdale, and others talked about the deterioration in the position of the ACP banana producers since the introduction of the new regime. That regime was a good deal for the ACP countries because it provided new trade opportunities. But the difficulties to which the noble Lords, Lord Pitt and Lord Rea, referred arose because it is taking longer than anyone had hoped for a genuine single market in bananas to develop. I have referred already to the previously regulates markets in connection with the glut of West African bananas. It was certainly quite clear that the previously regulated markets, including Spain, were heavily oversupplied. As no headway was made in countries like Germany and possibly Holland as well, there were bound to be extremely depressed prices in a country like our own and, indeed, in France. In consequence, the returns to the Caribbean producers, which were already adversely affected by the currency changes to which the noble Lord, Lord Redesdale, referred, were extremely low.
There has also been turmoil in some production areas in the Caribbean and the changes in the growers' associations have produced instability. Therefore, there were many reasons for the instability but if anything, that underlines the need for us to take this opportunity to have a proper reform of the production of Caribbean bananas. It also underlines the need for a consistent quality if ACP fruit is to compete successfully in the demanding EC market. That is why we have talked about a substantial restructuring, not only to give a viable financial basis to the production but also to arrive at a better quality fruit to secure the markets.
Many questions were asked about the financing of the proposals. I have already referred to that aspect as regards the Caribbean in answer to the noble Lord, Lord Carter. The £20 million about which I spoke is in addition to our bilateral programme for the Caribbean. Of course, that programme is about £40 million a year to the independent Caribbean and the British Caribbean dependent territories. We are also giving substantial support to the region through the Commonwealth Development Corporation and our high level of support in per capita terms reflects the importance that we attach to our links with the Caribbean and all that its people are trying to do.
I should mention that the Latin American proposal from the Commission would give them up to £45 million over six years. The United Kingdom's share of that would be around £1 million. I know that the European Parliament has made provision in the 1994 budget for payments of about £7.5 million to the ACP for 1994.
I hope that the first funds for compensation to the ACP will be disbursed early in the course of 1994; that is, if we can achieve a decision soon. Certainly, there are also European funds available for technical assistance. The one thing that we ask of the Caribbean countries is that their projects should be well designed. Obviously, it cannot all be done overnight, but it does need to be done carefully. I have already spoken of our work with the producers.
There are other sources of help for the ACP producers. For example, compensation for losses of
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export earnings is available through the STABEX scheme under the Lome Convention. The conditionality of STABEX is good, but the problem is that it has not always gone to the people who most deserve it. We shall ensure that the available funds from the European Development Fund for diversification are well used. Certainly what is good about the position that we have: now reached is that most of the banana producing countries have made large provision in their national indicative programmes for agricultural diversification. Combined with the help from the European Commission, that really will help us move forward.
Obviously, there are also questions about aid to Latin American producers. The Commission's parallel package has not yet been finally agreed. I believe that the Commission wishes to bring both packages together. There is no doubt that the position of the Latin American producers will be strengthened further in the search for a GATT settlement. After all, as the noble Lord, Lord Redesdale, indicated when he referred to the flat land and the large acreage which can be produced, they are high quality, low-cost producers. However, there may be a need for some limited assistance to Latin American producers, but that will not be at the expense of ACP producers.
The noble Lords, Lord Rea and Lord Carter, asked about GATT aspects. Of course, we have been disappointed by some of the developments in GA TT —for example, the very fact that some Latin American countries challenged the EC single market regime. The Community's attempts to reach a compromise failed to prevent the publication of the GATT panel report that criticised several key aspects of the regime and could undermine the position of the ACP in the longer term if we were not to act in the way that I have suggested tonight.
We must wait patiently for the outcome of the talks between the Commission and the Latin American suppliers. Such talks continue this week. I know that there is a danger in all of that; but, as I said, if concessions are made we must ensure that the Commission takes account of their adverse impact on the ACP and that those concerned are in no way harmed.
The noble Lord, Lord Carter, made a further comment to which I must respond. He said that GATT was harmful to the developing countries. I often hear that allegation. It will not be bad for those developing countries which want to trade to have the beneficial effects of freer world trade. In the long term, it will be a benefit for all. I say that because generalised prosperity will help to offset the short-term negative effects. However, the longer-term effects are currently much harder to quantify. Those who have sought to do so have not always, if I may say so, done so with an independent mind.
Lord Carter: My Lords, is the Minister saying that the OECD is not independent?
Baroness Chalker of Wallasey: My Lords, several estimates have been made of what would happen. However, even some of the OECD commentators do not believe that they have a final answer. Indeed, it will take several years before it is quantifiable.

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We have debated many important issues tonight. I trust it is now clear that Britain has its obligations to the Caribbean very much at the top of its priority list. Equally, the way in which we have had to go about that should not be seen as an attack on the so-called "dollar producers" in Central America. It is simply that we recognise the vulnerability of the ACP producers. We are determined to help them become more competitive so as to have a better business. Our concern with compensation is that it should be used to put the ACP producers on a viable footing for the future. I am pleased
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that we are now in a position to use the EC assistance in order to do so. I hope very much that I shall shortly be able to bring a revised proposal back from Brussels. With the close co-operation that we already enjoy with the ACP, we shall help to achieve real and lasting positive change.

British Railways (No. 4) Bill
Reported from the Unopposed Bill Committee without amendment.
House adjourned at three minutes before eight o'clock