Lords Sitting of 28 April 1995

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

Finance Bill
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, I beg to move that the Bill be now read a second time.
It seems that a relatively short time has passed since we were discussing the 1994 Finance Bill. Today we are here to debate the 1995 Bill in full, following our earlier discussion of the Chancellor of the Exchequer's Statement on 10th December. The Bill contributes to the Government's overall economic policy of promoting sustained economic growth and rising prosperity, through structural policies to improve the long-term performance of the economy, by maintaining a stable macro-economic environment.
The key consideration underlying the 1994 Budget was the need to keep the economy on track to achieve sustainable and non-inflationary growth by maintaining firm control over public finances. Borrowing is set to fall rapidly. We are projecting a PSBR of £21½ billion in 1995–96, falling to £13 billion in 1996–97, returning to balance by the end of the decade. That reduced borrowing should provide an added stimulus to business confidence and further strengthen the economy.
The improvement in the public finances has been due in no small part to tight control of public spending. Spending will be almost £30 billion lower than previously projected over the survey period. We have introduced a wide range of policy measures designed to target resources to areas where they are most needed. We have launched a major crackdown on social security fraud which is set to save over £2 billion over the next three years. Reforms of housing benefit and income support for mortgage interest will keep costs under control while protecting those most in need. We are continuing with our tough drive for economy in administration. Central government running costs have been reduced by £300 million for 1995–96, compared with previous plans.
The Budget itself included a number of tax and other measures to help business, aimed at improving the prospect for jobs and strengthening the long-term performance of the economy. That included a package of measures worth £1.7 billion over the next three years, to help small businesses. We recognise the difficulties faced by such businesses and their crucial importance to the British economy. That is why we have taken a great many opportunities to provide help in the area since 1979.
The Budget included a cut in employers' national insurance contributions for the second consecutive year, transitional relief for business rates, tax reliefs for venture capital trusts and an enhanced enterprise investment scheme to stimulate investment in small firms, and numerous measures to ease the burdens on small
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businesses. That easing of burdens, particularly through deregulation, is a long-running theme of the Government's policy towards small business. Changes in the Budget include: allowing more firms to account quarterly for PAYE; consultation on a possible move to annual VAT returns, and on a simplified scheme of VAT accounting for small traders. The new venture capital trust scheme and the enterprise investment scheme will encourage the flow of investment into small and growing businesses, filling one of the gaps in the range of financing options available to growing companies. The measures that I have mentioned have been welcomed widely by many and will reinforce the Government's commitment towards ensuring that we have a healthy and vigorous small firms sector for the future economic well-being of the country and to achieve higher levels of employment. That theme is particularly important when one considers that 96 per cent. of the 2.7 million firms employ fewer than 20 people.
The Budget was intended to have a broadly neutral effect on the public finances compared with previous plans. But it followed, of course, two Budgets in which taxes have risen. We did not want to have to increase taxes, and we will reduce them as soon as it is prudent to do so; but we did it because it was economically necessary. It was a hard decision, but being in government is about making hard decisions. I should, however, point out at this time that, no matter how hard the decisions, the Government remain committed to ensuring that those more vulnerable members of our society are not neglected. With that in mind, I am sure that noble Lords will be pleased to note that from 6th April this year personal allowances for the over-65s were increased by £430—that was £330 more than was necessary by indexation—and that the lower 20 per cent. tax rate was widened by much more than was necessary for inflation.
My right honourable friend the Chancellor of the Exchequer said in the Budget Statement that the British economy is currently facing the most favourable set of economic circumstances it has seen for many years. The Budget was designed to create the right environment, strengthen British business, create jobs and keep the economy firmly on track for growth that can last.
I now turn to the Bill. Once again we have a long Bill before us and I accept there has been some concern about its complexity and its length. However, approximately 80 pages are devoted to self-assessment, a major reform of the tax system. Another 25 pages or so are dedicated to venture capital trusts, which I mentioned earlier. And about 30 pages result from a long overdue rationalisation and simplification of vehicle excise duty. The Bill also legislates for many of the Budget measures which give help to businesses and which provide further opportunities for savers.
The Government though are aware of how complicated tax legislation has become and remain committed to making it as simple as possible, consulting in advance wherever we can on our proposals. There has been extensive consultation with tax experts and with interested parties on almost two-thirds of this Bill. Over 60 clauses have been made available in draft to help the Government get the legislation right. And we will

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continue to consult wherever we can. Again, we have published explanatory Notes on Clauses. These have been welcomed as an aid to understanding the measures being proposed more fully.
I now turn to the detail of the Bill and I should like to begin with those clauses covering indirect taxation. As a result of the decision taken in another place on 6th December to leave the rate of VAT on fuel and power at 8 per cent., my right honourable friend the Chancellor of the Exchequer announced a number of measures on 8th December to ensure that the public sector borrowing requirement would continue to fall in line with the Budget strategy. I delivered this Statement concurrently to this House and, as a result, Clauses 3, 7, and 11 of the Bill we have before us today provide that the duty on alcoholic drinks be increased by around 4 per cent. and specific duties on most tobacco products increased by some 3.7 per cent. (on top of the increase of between 5 per cent. and 6.4 per cent. in Clause 10). There will be no further increase on hand-rolling tobacco but duties on road fuels (leaded and unleaded petrol and diesel) have also been increased by 1p a litre (including consequential VAT) equivalent to between 2.5 per cent. and 3 per cent. above the 8.3 per cent. in Clause 6.
Clause 12 reduces pool betting duty from 37.5 per cent. to 32.5 per cent. This reduction was implemented in response to the real concerns of the pools industries which have faced stiff competition and loss of turnover since the start of the National Lottery. Clause 13 increases the rates of duty on gaming machine licences by 20 per cent. This is the second increase since the March 1993 Budget but the two increases together do no more than restore the real value of the duty to 1987 levels. Clause 14 and Schedule 3 amend the Betting and Gaming Duties Act 1981 to widen the scope of gaming machine licence duty to include amusement machines and to allow payment by instalments for annual licences on all machines subject to the duty from 1st November this year. Clause 18 raises vehicle excise duties on cars by £5 to £135. Clause 19 and Schedule 4 contain amendments to the Vehicle Excise and Registration Act 1994. They are designed to simplify the vehicle taxation structure—reducing the number of concessionary clauses from 132 to 11—and to introduce other measures to combat evasion from excise duty, and to make minor changes in the administration of the duty. Clause 21 provides for an 8 per cent. rate of VAT to apply (with effect from 1st April this year) to fuel and power for domestic or charity use. This clause, through amendments to the VAT Act 1994, establishes the rate of tax and the scope of its application. Clause 25 is related to groups of companies and amends the registration provisions, and is designed primarily to counter a particular type of tax avoidance scheme.
Clause 30 increases the scales used for charging VAT on fuel used for private mileage in business cars in line with the Inland Revenue fuel scales with effect from 6th April this year and introduces a separate scale to be used by businesses on annual accounting periods. The scale charges to petrol cars are increased by 5 per cent. and for diesel cars by about 4 per cent.
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Turning now to direct taxation. Clauses 35 and 36 set the income tax rates and allowances for 1995–96. The rates of tax are unchanged from 1994–95. The lower 20 per cent. rate limit is set at £3,200 of taxable income, compared with £3,000 in 1994–95, an increase which is more than double that required by indexation. It is also worth noting that most allowances and thresholds were indexed in the last Budget. We also provided additional help for pensioners. The age related personal allowance has been increased by more than inflation and this will offset the effect of the restriction of the married couples allowance on the elderly. Likewise, the widening of the lower rate tax band overcompensates for inflation. This represents a tax cut for the less well off and we should not forget that over 5 million people—one in five taxpayers—now pay tax at only 20 pence in the pound.
Clause 44 exempts accessories for the disabled from an income tax charge when fitted to a company car. The exemption applies not only to special accessories designed solely for use by a disabled person but also to optional accessories, such as automatic transmission and power steering, where these are needed to enable a disabled employee to use the car, where the employee is an orange badge holder. These changes have been widely welcomed as ensuring fair treatment for disabled employees with company cars.
Clauses 70 to 73 and Schedules 14, 15 and 16 cover the measures in the Bill relating to venture capital trusts. Individuals will have relief from income tax on dividends from venture capital trusts for investments of up to £100,000 a year. Capital gains tax relief will also be available. Along with the enterprise investment scheme, the VCT proposals put in place an effective set of measures aimed at generating equity investment in growing companies.
The measures contained in Clauses 103 to 129 continue the work to introduce self-assessment. The new system aims to streamline the present complicated rules for assessing and collecting tax. A lot of consultation has already taken place in this area and the Government are determined to develop extensive education and publicity to help people to understand the new rules.
Clause 137 removed the existing restrictions on the inclusion of part-time workers in tax-relieved employee financial participation schemes. Clause 155 increases the rate of inheritance tax agricultural property relief for let farmland from 50 per cent. to 100 per cent. where the tenancy starts on or after 1st September 1995 for transfers made on or after that date.
Much of what I have said will not come as a surprise to those noble Lords who have followed the passage of the Bill closely. The Bill implements many of the measures announced by the Chancellor in the Budget last November. The Budget was designed to keep Britain firmly on track for growth that can and will last and which will strengthen British business, create more jobs and lay the foundations for sustained rises in prosperity.
The Bill implements many important parts of the Budget. I commend it to the House.
Moved, That the Bill be now read a second time.— (Lord Henley.)
11.21 a.m.
Lord Eatwell: My Lords, I am sure that the whole House is grateful to the noble Lord, Lord Henley, for providing such a clear and concise, if somewhat leaden, summary of a large and complex Bill. Of course, in dealing with the second largest Finance Bill of all time—he ably summarised the largest Finance Bill of all time last year—it is not surprising that he could not cover everything. However, there are some important elements in the Bill which he failed to bring to your Lordships' attention which led to an overall picture of the Bill and of the state of the British economy which is, I am afraid, more than a little misleading.
Although the noble Lord talked about tax simplification, he failed to draw your Lordships' attention to the historic significance of Clause 160 of the Bill. This is the first clause in living memory which has been introduced into a Finance Bill against government opposition. The noble Lord's omission was all the more extraordinary because Clause 160 is about tax simplification. One might think that the Government would be in favour of that, but in fact Clause 160 was opposed by the Government in Committee. Clause 160 requires that the Government prepare a report on tax simplification, lay that report before Parliament and publish it before 31st December 1995.
I shall not embarrass the Minister by asking him to explain why the Government are opposed to that clause which encourages simplification of the tax system. One might think, uncharitably, that they are afraid that their voracious appetite for higher and higher taxes would be exposed if the tax system were easier to understand. However, I shall ask him to give an assurance that adequate time will be provided in your Lordships' House for consideration of that important report. Can the Minister also assure the House that the report will include a comprehensive consideration of the whole structure of personal and corporate taxation with concrete proposals for reform and simplification?
The noble Lord also passed somewhat rapidly over the significance of Clause 21. That is the clause which fixes the rate of VAT charged on domestic fuel at 8 per cent., not the 17.5 per cent. which the Government wanted so desperately to impose on the British people and over which they were defeated in another place. Will the Minister give an unequivocal undertaking that there will be no more attempts, in the short time which this Government have left, to increase the tax on domestic fuel, given the terrible damage that such a tax does to the living standards of some of the poorest people in this country?
The Minister failed to mention Schedule 17. Perhaps that was a matter of both political and personal embarrassment. Noble Lords will remember that Schedule 17 was discussed in your Lordships' House on 2nd February this year. At that time the schedule proposed, among other things, the taxation of the non-existent interest on interest-free loans. On 2nd February the noble Lord, Lord Henley, announced that the Government were withdrawing that provision as it applied to charities. Noble Lords will be glad to know that, perhaps as a result of their interventions on that day,
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and despite the protestations of the noble Lord, Lord Henley, at that time, the provision to tax a wide variety of interest-free loans has now disappeared altogether.
That is an interesting example of how your Lordships' House can, if given the opportunity, make valuable and constructive suggestions about the contents of the Finance Bill. It reinforces the point often made by the noble Lord, Lord Boyd-Carpenter, that there should be a procedure whereby this House could examine the Finance Bill at greater length and at a time when arguments made here could be taken into account. If that were possible, the very considerable expertise available in your Lordships' House could be deployed to the ultimate benefit of government and taxpayers.
Finally on taxation, as everyone knows, this Finance Bill is the culmination of a series of tax-raising Finance Bills initiated two years ago by Mr. Lamont and pursued with messianic zeal by Mr. Clarke. The persistent increases in personal taxation since the last general election have resulted in two new Tory records: a record number of taxpayers paying record levels of tax. The noble Lord failed to mention that.
He did mention, however, that buried in this tax-increasing Finance Bill is a remarkable tax-cutting clause—Clause 155. That clause is likely to eliminate an entire category of tax revenue. Clause 155 will provide 100 per cent. relief from inheritance tax on agricultural land which is let to tenants on or after 1st September this year. That is an almost perfect device for avoiding inheritance tax for anyone with sufficient capital, whether or not they are involved in farming. There is no need actually to farm the land; no need to hand over assets seven years before death, with all the risks that that involves; just put your capital into land early and lease it out.
It may be that that measure will increase the amount of land available to let. But is it not clear that it is a perfect avoidance device which will push up the demand for agricultural land by passive holders and thereby increase the price of agricultural land, to the detriment of prospective small farmers? That clause is damaging to the integrity of the tax system. What is the Treasury estimate of the fall in inheritance tax revenue which will be precipitated by Clause 155? If it is less than 80 per cent. I do not believe it. Clause 155 is a device for tax avoidance—not pure, but certainly simple.
Those are some of the detailed and important clauses of the Bill which the noble Lord treated rather lightly in his précis. What he did tell us was that the economy was performing well. It would be not only churlish but downright inaccurate not to agree with him—at least in part. Growth is at 3 per cent.; inflation is rising, it is true, but at a low level; unemployment is falling; and the growth of the economy is being driven primarily by exports.
As I have argued in your Lordships' House on previous occasions, the policy mix which has brought about that desirable set of circumstances comprises: first, the devaluation of the pound; secondly, a sharp increase in personal taxation, needed to tackle the folly of that reckless consumption-driven boom of the late 1980s; thirdly, insecurity, negative equity and general gloom in the housing market which has been an important factor in

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keeping consumption down; and, fourthly, falling world commodity prices, which drew the inflationary sting from devaluation.
That has been the policy mix which has brought about the "success". The question which the Minister has persistently failed to answer on previous occasions, and the question to which your Lordships deserve an answer, is this: are the Government going to continue with that policy mix? Are the Government going to devalue further? Are taxes to go up further? Is insecurity to be maintained in the housing market; or is further devaluation to be resisted, taxes cut, and a new boom launched in the housing market?
While the noble Lord, Lord Henley, totally failed to answer those questions—he did not even bother to address them—some were confronted, at least indirectly, by the President of the Board of Trade in his speech to the Institute of Directors on Wednesday of this week. Ever since the World Trade Organisation revealed just before Easter that, despite the devaluation, Britain's exports have grown little faster than world trade as a whole, we have all—with the exception of the noble Lord opposite—become somewhat less euphoric about Britain's trade performance.
Wednesday's speech revealed Mr. Heseltine in a distinctly downbeat mood. There was no economic success story in Mr. Heseltine's speech. Instead he argued that the UK has a "fundamental problem" of carrying too many weak firms. He told us that Britain is facing growing competition from high cost, well paid competitor countries like Germany and Japan. He stated:
"The best of our companies are the equal of anything to be found in Germany. But too many of our companies are not".
We are "outcompeted" by Germany. We are outcompeted by the country whose currency has been sharply revalued—the country which rejoices in its adherence to the social chapter, which has absorbed the derelict East Germany, and whose exports last year grew in real terms as fast as ours did. No wonder Mr. Heseltine is worried. Devaluation does not seem to be enough. With manufacturing investment still stagnant, at levels which, as a share of GDP, place us at the bottom of the G7 league table, it is not surprising that he is worried. No wonder Mr. Howard Davies—by the way, we congratulate him on his appointment as Deputy Governor of the Bank of England—has argued this week that UK companies' ability to penetrate growing export markets is,
"beginning to be seriously constrained by a serious lack of capacity".
It was not only Mr. Heseltine who revealed some of the truth about Britain's economy last week. The IMF provided some insights too. Perhaps when he winds up the noble Lord will tell us why, if the British economy is so strong and doing so well, at the first sign of currency turbulence international investors sell pounds. Be that as it may, the IMF argued in its latest World Economic Outlook that the weakness of the pound,
"argues for earlier steps to raise interest rates further than would have been required otherwise".
Do the Government agree with the IMF' s analysis? If so, what will be the implications for the investment which is so desperately needed?
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The IMF did not confine itself to the question of exchange rates and interest rates. Its spokesman addressed the problem of British taxes too. Professor Michael Mussa, the chief economist of the IMF, argued that it is important that the British Government carry through the tax increases and public spending plans that they have already announced, and keep to their aim of balancing the budget by the end of the decade. In other words, there is no room for tax cuts.
In Washington, the Chancellor of the Exchequer seemed to agree. He announced that any tax cuts must be earned by further spending reductions. Mr. Clarke's position is understandable given the fact that we now know that government borrowing is running above forecast rates. But will the noble Lord tell us exactly what the Chancellor had in mind? What further spending reductions are there? Already public spending is set to rise at only 1.5 per cent. in real terms over the next two years and therefore will fall as a share of GDP. So what is to be cut? Education? Health? Social security? Defence? If not those, what? Perhaps the noble Lord will give us a clue.
While we are considering further cuts in public expenditure, will the noble Lord tell us the Treasury estimate of the increase in public expenditure which will necessarily derive from the impact of the sharp falls of the dollar on our subscription to the European Union budget? As noble Lords will be aware, a falling dollar automatically leads to higher CAP expenditure on agriculture export subsidies. Someone has to pay for that higher spending on the CAP. How much extra will the British taxpayer have to pay?
The European Union Budget Commissioner made a most interesting statement about that on Wednesday. He said:
"it is possible … that we will have to go to EU governments to raise the revenue ceiling under arrangements agreed at the Edinburgh Summit in 1993".
Will the noble Lord tell us what Mr. Liikanen meant? What arrangements were made at Edinburgh to raise the revenue ceiling above that already agreed? Have the Government agreed in advance to further payments to the European Union budget should spending be forced upwards "automatically" by such phenomenon as the falling dollar?
The noble Lord, Lord Henley, told us nothing of those problems. Yet they are the problems that must be faced if the current performance of the economy is to be sustained. What we want to hear from the Government are not empty slogans about tax cuts, or empty rhetoric about the imaginary dangers of the social chapter. Instead, we need to know how the growth of exports is to be sustained, how investment is to be encouraged, and how we are to avoid the uniquely destructive power of one of those old-fashioned, Tory, tax-cutting, inflationary consumer booms.
The truth is that anything about the economy that is working well today is not because of the policies that the Government espoused at the last general election, but in spite of them. The British people know that. They know that this Government cannot be trusted on taxation; they cannot be trusted on education, and they cannot be trusted

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with the health service. They know that this Government cannot be trusted with the economy. The sooner they go, the better for all concerned.
11.37 a.m.
Baroness Seear: My Lords, despite the illuminating, most interesting and enviably well informed speech of the noble Lord, Lord Eatwell, it is the custom of your Lordships' House not to discuss the Finance Bill in great detail—given the weight of it, that must be a matter of great relief to many of us —but to talk more about general economic policy, of which the Budget, and the Finance Bill as its instrument, is a most important element.
However, I intend to talk in rather more general terms than the noble Lord, Lord Eatwell, not least because I do not have the research facilities or the expertise that he displays so admirably. If we were discussing the Bill in detail, I should start by saying that what is required in taxation is a much greater degree of simplification. The noble Lord, Lord Henley, paid lip service to the idea of simplification of tax; but does this enormous document suggest that in reality any real simplification is taking place?
The noble Lord reminded us that a high percentage of the people employed in industry are employed in small firms. The complexity of the tax system for the small and medium-sized firms to which the noble Lord paid tribute—and rightly so—and whose importance he rightly recognised must surely be a considerable problem. How can such firms be expected to cope with the complexities that the present tax system presents? I do not blame the noble Lord for not listening to what I am saying—it is not particularly interesting—but it is rather depressing to see him reading papers at the same time, if I may say so. Surely we must press for greater simplification. Some small steps need to be taken in that direction; a great many more are needed.
However, the Budget is, first and foremost, an instrument of economic policy. Shades of Mr. Gladstone, my Lords! What would he have thought of these detailed elements in the Finance Bill, in which there is very little to indicate that the Government have a grip on the vast economic problems of this country, which will not get better without drastic measures? There is little in the Bill to indicate that the Government have a long-term strategy for maintaining economic recovery. Nor had previous governments. But I do not propose to go into party politics in great detail this morning. As I listened to the noble Lord, Lord Eatwell, accusing the Government of not saying where the money will come from to do all the things we need, I longed to ask him what his party would do and to explain to us where all the money would come from, if and when his party gets into power, to do all the admirable things he wishes. We would all like to do them if we could find the wherewithal.
The primary point I wish to make is that we are up against competition. Here I agree with the noble Lord, Lord Eatwell. The competition we will be up against increasingly in the future, which will become not easier but more difficult to deal with, requires policies. Those policies must, above all, maintain stability and will need to be continued year in and year out to meet the problems we face.
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We have been into the subject in a great many previous debates, but with what is happening in the eastern countries, the Pacific Rim, Japan and America, we shall find it extraordinarily difficult to hold our own. As the noble Lord, Lord Eatwell, pointed out, there are signs that some members of the present Government are well aware that that is the position.
It will mean hard decisions. What do the manufacturers, the wealth creators in the country, really require? Will they get it from the Finance Bill and the Budget? They require stability in the economic scene so that they can make their forecasts for investment with some idea of what the future is likely to contain. One recognises that in the present world, with the volatility of finance and all the rapid changes in modern communications, stability and the ability to forecast with confidence what the future will be like are extremely difficult to produce. However, that must be one of the major objectives.
The sudden fall in the value of the pound must create considerable difficulties. It helps manufacturers to sell, but what does it do for the import crisis? To date we have been lucky not to be affected by the changes in import prices, as many of us reasonably expected would happen with devaluation. The recent devaluation and fall must have a drastic effect on import prices, and we cannot go on expecting that we shall avoid the consequences.
Stability is one of the first requirements if we are to be able to meet the competition as we should. However, it has often been said, but bears repeating, that we need far greater encouragement to invest than we have had up till now. There are points in the Finance Bill which give encouragement to investment. It is true that industry is investing more now than in the past. There is some slight improvement in recent years in industrial investment.
However, that investment is nothing like enough. Because of modem technology and the rapidity of technological advances, with new opportunities appearing, much more investment is required to back up the advances than in the past when the change in technology was nothing like as great. That raises the whole level of problems of investment and companies' needs in order to meet the problems.
Another side of investment is the requirement to encourage savings. In this country we are not adequate savers. Almost certainly we pay out too much in dividends. We ought to put the money earned into investment in industry rather than dividends. What is being done about that? I believe that there have been occasions when the CBI—and I have heard Mr. Howard Davies say this—has said that we need to have much more restraint over dividends, as our competitors do, in order to build up a much greater degree of investment than in the past. The Government need to give greater attention to that.
It is also important that appropriate investment should be made by the Government themselves. Much industrial development must come from the people who run industry. But the Government are also important investors in infrastructure and, as we have so often said, in education. I do not wish to turn this debate into a further discussion on education, but it must be underlined that the changes needed in education will be expensive. We are

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way behind others. That is probably the main reason for the difference between our performance and the performance in Germany, even though there are other reasons. The Germans and our competitors in Asia have educated and trained people so that the workforce can cope with modem technology as that technology becomes more complex and demanding.
I know that the changes and the money that has been put into education are an improvement on the past and that previous governments of both parties did all too little for education in this country. But it is a major issue if we hope to compete. We must face the fact that we shall not have a return—we will not get consumer booms—even if we do the things that are needed. Consumer booms are the last thing we want in this country, and the Government ought to have the courage to say so. If we are to have the kind of society we would like, we must find the social policies which make acceptable the economic changes that we face. The Government must ensure that money is available for the social as well as the educational policies that are required if we are to meet the challenges of the future.
If we want a decent, successful society, we must pay for it. I checked with my party that I would not be too unpopular for saying this, and it is not a popular point to make, but a decent society requires that we spend the money that is needed in order to achieve it. It is my belief that if the country really understood what we are up against, if the Government made clear what is needed, the sacrifices that are needed and the cost of getting things right, people could be persuaded to accept them. I do not want a headline: "Liberal Democrats want to put up taxation". In the past we have said that we would tax people more to improve the education system. Nevertheless, I believe that that policy can be sold to the public if an attempt is made to sell it in the right way. We all want a decent society; people would subscribe to that. Spell out what it means in terms of policies and costs and then sell it to the public. That is what we want in the Budgets of the future.
11.47 am.
Lord Boyd-Carpenter: My Lords, I was glad that in the course of a most interesting speech the noble Lord, Lord Eatwell, indicated that he thought that debates on the Finance Bill in this House served a valuable purpose. They did so in particular in mobilising the amount of expertise to be found in the House and in educating public opinion. I strongly share that view. The fact that we cannot amend this Finance Bill as it is a money Bill does not exclude our exercising great influence on opinion. I disagreed with a good deal of the speech of the noble Lord, Lord Eatwell, but I was glad that he began by saying that this was a valuable exercise.
I say to my noble friend Lord Henley that I do not think the Government have gone far enough in the arrangements which they have made. We are dealing with an enormous Bill, with 163 clauses and 29 schedules. One of the schedules has 12 parts. We all find it difficult to make a speech which is relevant to the Second Reading of an enormous Finance Bill such as this and at the same time deal individually with the important matters which arise
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on each clause. I say to the Minister that the Government have not gone far enough in the direction which was commended by the noble Lord, Lord Eatwell. We ought at least to have an opportunity for a general debate such as takes place on the Second Reading of the Bill in another place. We should then have something equivalent to the Committee stage in another place where one deals with individual clauses about which one is concerned. That is not all of them, of course; there are 163, many of which are of great importance.
I understand the unwillingness of the Government to let us debate these matters, and the unwillingness of the usual channels as manifested through the Procedure Committee, to allow proper and full debate. Nonetheless, I urge my noble friend that on future Bills we should have at least one debate such as the present one at Second Reading, and another equivalent to Committee or Report stage to deal with individual items. As it is, one has to insert general propositions, such as the noble Baroness just did, into a debate in which one also comments on extremely important and interesting individual items.
Perhaps I may now touch upon one or two such items which seem to me to be very important. First, Clauses 1 and 2, dealing with the duty on wine, and Clause 3, which deals with the duty on beer, are very important in the light of their relative weight and impact compared with similar taxes in Europe.
Since it has been possible, to go on a trip to Europe and bring back, duty free, wine or beer that one wishes to consume oneself, it has meant direct competition between wine merchants and brewers in this country and those in Europe. That is very unfair to British producers. In this country we produce some excellent wine and probably the best beer in the world. It is a great unfairness to producers here that any of us can go over to Calais and buy wine or beers, as the case may be, which carry a very much smaller tax than if we buy them at the shop or the pub round the comer. It really is not right, now that the free access provision is in place, to impose a higher rate of tax on wine or beer produced here than is imposed by our continental friends on the wine or beer that they produce in their own country.
I am also interested in Schedule 3, which deals with the amusement machine licence charge. I shall be interested to learn from my noble friend what is the yield of the tax in that respect. Is it to be increased by the present Bill; or will it just remain static, and if so, at what sort of figure?
I should also like to indicate an objection to Clause 15 of the Bill dealing with air passenger duty. It is quite wrong to impose a tax on people who travel by air when there is no similar tax for people who prefer to go by sea, train or bus. Why is there discrimination against the airlines? Why is it necessary to tax people who travel by air when it is not thought necessary to tax those who travel by other means? British civil aviation is of very great importance to this country. I speak with some feeling on this matter. Some noble Lords may recall that I was the first chairman of the Civil Aviation Authority. It seems to me to be an act of extraordinary discrimination to impose a tax just on airline passengers while travellers using other means of

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transport are not taxed at all. If there is an explanation or a justification for that, I shall be very grateful if my noble friend will be good enough to tell the House what it is.
I turn now to Clause 33, on VAT. VAT is a very bad tax. It is inflationary in its effect: it directly puts up prices. Although I am glad the Government recoiled from their earlier intention to impose a very high rate of VAT on domestic fuel, it still seems to me to be a mistake to impose this still very heavy tax on domestic fuel, which is necessary for all of us, rich and poor alike, if we are to stay healthy and warm in winter.
I am afraid that there are several bad taxes in this Bill, of which VAT is certainly one. Despite the heavy taxation that it involves, we shall still be involved in a deficit that is the result of excessive expenditure. I therefore ask my noble friend, when he replies, to deal with the question of expenditure. If we are to maintain taxes at this level and still have an overall deficit, we are obviously spending more than we should.
I know that that is an easy comment to make, and it is much more difficult to say what could be cut. But I stress one example rather strongly; namely, legal aid. The cost of legal aid is mounting rapidly. Over the past two or three years, despite the most gallant efforts on the part of the noble and learned Lord the Lord Chancellor to restrain legal aid, it has risen enormously. There is a question as to whether we can afford legal aid at all.
There is an alternative. We could adopt the American expedient of allowing lawyers to charge by results, and therefore not find it necessary to extract their fees from the taxpayer when they represent people of limited means. Legal aid is extremely expensive. It is a new addition to the charges that our country imposes on its people. I suggest that if, as seems to be the case, we are still spending too much, one of the targets for reduction, or indeed elimination, should be legal aid.
We have before us an enormous Bill; one which is extremely important. On its operation depends very largely the future of our economy and therefore the well-being of the whole of our people. As I ventured to say, it is right that noble Lords should discuss it very fully, and that we should discuss individual items particularly where new and additional taxes are imposed. I hope that my noble friend the Minister will indicate that the Government are prepared to listen to the views of this House. I hope that they will bear in mind the fact that it includes a very large number of people with experience both of public and private finance, and that we can make a big contribution to the good sense and judgment of public opinion on the finances of the country if we are allowed full opportunities to debate this matter.
Therefore, I hope that this debate today will be the predecessor of an enlarged and continuing process of discussion before your Lordships' House on finance Bills and indeed—dare I say to my noble friend?—consolidated fund Bills, too.
12 noon
Lord Houghton of Sowerby: My Lords, perhaps I may be permitted to take up a short furnished tenancy of a place on the Cross-Benches to make myself more comfortable while I make my speech.
The first question that I put to the Minister is this: when are we going to bring the lottery into the Finance Bill? It is obvious that what is happening in the lottery is quite ridiculous and it is not too early to begin to take notice of it. At the present time, wherever I go I hear the same comment from the public about the jackpot: "It's ridiculous —£17 million; it's ridiculous!"
We are not taking into account the economic circumstances of that new feature in our financial affairs which generates £45 million a week and pushes it into the economy. What happens to it? What difference is that money making? Many charities will say that it is making a great deal of difference to them before any worthwhile money has been distributed for charitable purposes. We now find that a good slice of it is to be given away through our Heritage Fund for a purchase which has given rise to considerable criticism.
I shall not say any more on this matter, except that I believe that a national lottery justifies a special tax regime of its own. The provision of 12 per cent. allocation from lottery receipts to taxation is not enough. One way to ease the disappointment of those who win a £5 million jackpot (regretting that it is not £7 million, £9 million or £17 million) would be to have a threshold of 95 per cent. tax on all winnings over £1 million—or something quite moderate like that.
Your Lordships' imaginations are as good as mine, and probably better, as to what we might do with the lottery money to fortify the national revenue. It might stop Chancellors of the Exchequer sipping a glass of whisky, to fortify the Revenue, when introducing their Budgets. They might have something encouraging to say about the contribution of the lottery to the national revenue. That would help greatly and make them more popular.
I support in more than one way the comments made just now by the noble Lord, Lord Boyd-Carpenter. With him, I congratulate my noble friend Lord Eatwell, on making one of the most competent speeches on a finance Bill, relevant to the Finance Bill, that I have ever heard in your Lordships' House. Generally speaking, we go into the realms of the economy and the wider issues of the national condition; but we have deserted the terms of the Finance Bill itself. We ought to come nearer to the Finance Bill in these debates.
I regret that the Finance Bill is set down as a kind of secondary legislation to be discussed on Friday in this House. It ought to have a primary place in our order of business. Ever since I came to this Chamber, in conjunction with other noble Lords, I have tried to bring the Finance Bill to life in your Lordships' House and not pass it through all its stages—as I once saw happen—without a single word being said. I found that shocking. I attribute that to the state of mind created by the Parliament Act 1911, which seemed to strike the peerage a fatal blow in its pride and realisation of its functions. It is time for this timid House of Lords to reassert itself in the necessary quarters.

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Let us consider the Finance Bill as it is before us today. It has more than 20 clauses, from Clauses 103 to 123, to deal with the preparation for self-assessment. Clauses 103 to 118 wholly anticipate management changes. The last time that we had before us a taxes management Act was in 1970. That Bill was a very big one. It brought into a more modern perspective all the antique stuff in the Income Tax Act 1918. That Bill was open to debate in your Lordships' House and received a good deal of attention.
A few years ago, however, when we were discussing VAT, following the Keith report on enforcement—one of the most mischievous documents ever to come from an advisory committee on the subject—the Customs and Excise decided that they wanted to have powers to levy mandatory penalties taken from the courts and given to the bureaucracy. A whole schedule of mandatory penalties, which are as objectionable as the mandatory destruction orders for dogs (I must mention them), went through the other place but were considered to be outside the scope of debate in this House.
I tried to raise the question that, if there are to be mandatory penalties for failures of the VAT system under the Finance Bill, why should there not be some prizes, benefits and rewards for those taxpayers who perform their functions dutifully and accurately to date. After all, those who pay VAT to Customs and Excise are the agents of the public, who transfer the VAT paid by the public to the receiving department. Customs and Excise are merely a receiver-general of the taxes and products from VAT.
We must bear in mind the possibility that we may be asked—perhaps in the next finance Bill—to look at some more vital operative clauses on self-assessment. In this Bill there are 20 clauses anticipating the introduction of a system which we have not yet approved. That is the old dodge of the Government: to get as much done with the least amount of trouble in an area which is likely to be controversial.
Self-assessment is a revolution in tax affairs. The last one of its size was the introduction during the war of the tax deduction scheme which we call pay-as-you-earn. That was a real change. It needed an enormous amount of administrative attention and a great deal of care and public opinion to get it accepted and made workable, even in wartime, when the TUC was quiescent and the unions took it. Fancy allowing the hand of the Inland Revenue to go into the pockets of the workers, as they did under pay-as-you-earn, without those workers ever seeing the money or having any discretion as to when they paid it. It became a part of the system of pay-as-you-earn alongside all those assessed in Schedule D who had a tax called "pay-as-you-like". We must bear that danger in mind. Self-assessment will transform the whole tax system. It is time for us to give some attention to it. There should be some supervision of what is happening in the preparatory stages of such a revolutionary change in taxation. It may go so fast that the momentum cannot be stopped at the last post.
The Taxes Management Act, to which I referred earlier, should now become an issue. Your Lordships should protest against putting in the Finance Bill, year by year, under the protection of a money Bill, matters which are
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not matters of taxation but of criminal law. I refer to the penalties on the public, the fines. In the Customs and Excise scheme of VAT, the mandatory penalties are mandatory on the department and on its officials, just like the mandatory destruction of dogs. They say, "We are sorry, we have no discretion. The Act says we can do it. When we find that you have done this or that, the penalty is this. If it is repeated, it is twice as much. We are sorry, but that is the situation".
But there is a saving clause; the words "without reasonable excuse". What a beautiful let-out—"without reasonable excuse". The case law being built up in the Customs and Excise department at the present time in relation to the words "without reasonable excuse" will make history in fiscal circles later on. After all, unlike the Inland Revenue, Customs and Excise has not had over 100 years to build up its case law; it is having to make it up quickly as it goes along, otherwise it does not have the answer to many questions. For example, it did not have the answer to the question concerning biscuits. Are biscuits in tins subject to VAT? Are the biscuits food? What can be taxed? It was decided that if Customs and Excise could not tax the biscuits, at least it could tax the tins. It went to the Court of Appeal and I believe the verdict was that the court had no difficulty in coming to the view that biscuits in tins were biscuits and therefore exempt from VAT.
That is the kind of nonsense that goes on. Another case involved a plea of being late in making VAT returns. The man said that unfortunately he had left all his papers in another room at home and his little child, who was a tiresome little brat, had picked up a bundle, taken them to the lavatory and pulled the chain on them. He said that that meant he had to put fresh records together, which took time. Was that a reasonable excuse? The Customs and Excise said no and the court said yes. So, all right, you might give a tip on this matter to your grandchildren so that they know when to he mischievous and when not.
We are on the threshold of this great scheme of self-assessment. The public will be vitally interested in it. A pilot scheme was recently completed which involved 1,000 volunteers throughout the country. The aim was to see what they made of it. Nearly half of those involved made at least one mistake, though some of them were not serious. It was discovered, with some surprise, that a great many people in Britain today cannot transpose figures accurately and cannot add up at all. I fully understand those handicaps because I possess them both. But I have lived a long time to get into this condition and in many cases those people were much younger than I am. Another experiment which began a week or so ago is in a much more useful and sensible area —the City of Leicester. Just consider what the City of Leicester comprises today. That pilot scheme is in progress and it will be interesting to see what it makes of self-assessment.
Time is running on and I shall not keep the House more than a few minutes. I want to refer to the consequences of self-assessment upon the members of staff of the Inland Revenue. I fear that this Government are destroying the whole ethos of British public administration which has been our standby throughout the centuries and is the envy of the world today. There is nothing to compare with the purity and integrity of the administration that we have in

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Britain. We see scandals taking place here and there among those who ought to know better and who are paid to be honest; they are all in the private sector or areas which come near to being private enterprise. It is a reflection of the times. We do not find inspectors or collectors of taxes being put in the dock. They possess a standard of honesty to which I pay personal tribute.
It will be 80 years in July since I first entered the Inland Revenue and I have lived with its affairs ever since. For 38 years I was secretary of the Inland Revenue Staff Federation and saw it through some very formative years with important reorganisation. Do not neglect its members. Do not mess them about and chop them up. Many of them feel that their jobs are up for sale or that they are being asked to teach people in the commercial sector how to do their jobs only in order that they may be given the sack themselves. That is shocking. It is a blot on our record if we in this House cannot give some attention to Her Majesty's Civil Service. It is evident from what we have heard recently that we need more than ever to keep track of what is happening in the public sector at the present time.
The Civil Service is up for sale and that is shameful. It is much better to have honesty and integrity than to have slick stuff that goes out to computers and members of staff specially recruited. Where do the part-time workers come from? Many firms are introducing a new regime of work—the part-time job. They involve two shifts and it is mostly to catch women. There are morning and afternoon shifts because it is felt that more work can be obtained from two shifts than from one in a single day. That is what they are watching; output and economy.
I have delivered my message and I shall take every opportunity over the next few months of bringing some of these matters to the attention of your Lordships' House. I am sure everybody will be interested in what is happening to Her Majesty's Civil Service and, more particularly from our point of view, the Board of the Inland Revenue and its thousands of members of staff who have rendered incalculable service to Parliament and the public. They have got us through every fiscal crisis that I remember since 1915. Now they are being treated as though they are disposable and can be replaced by commercially recruited staff employed by those who have an interest in the public; but it is questionable whether they have their minds on the public interest.
Perhaps I may now return to my customary seat.
12.19 p.m.
Lord Clark of Kempston: My Lords, I am sure that I echo the sentiments of all your Lordships in saying how delighted we always are to listen to the noble Lord, Lord Houghton, whether he speaks from the Labour Benches or indeed from the Cross-Benches. His speech, particularly the part about the National Lottery, was very intriguing. Unfortunately, it had nothing to do with the Finance Bill. Indeed, having spoken about the National Lottery, I thought that he might have brought in some dogs.
Today we should be looking at the overall economic picture. All economies depend on competitiveness. An economy cannot be successful unless it is competitive. I
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welcomed the Budget. My noble friend who opened the debate mentioned some of the points in it but there are other points in the Budget which I think are worthy of mention. One is transitional relief for business rates which will particularly affect small businesses. That is a concession of some £600 million and it helps nearly 1.5 million small companies. There is extra funding for the ECGD which will mean that the insurance premium for exporters can be cut by as much as 10 per cent. That is on top of the small business tax of 25 per cent., which is the lowest in the European Union. The top rate of corporation tax is only 33 per cent. We are extremely competitive compared with our European partners. The comparatively recent set-up of information centres up and down the country to advise small businesses on how they might market their products and conduct their business is another help.
My noble friend mentioned unemployment. We should talk about our achievements a little more often than we talk about gloom. Unemployment has fallen by 632,000 since 1992. It is falling at the rate of about 1,000 a day. We have the lowest rate of unemployment in the European Union. Vacancies are increasing. Those are both pointers in the right direction.
The noble Lord, Lord Eatwell, spoke about the social chapter. Business generally accepts the fact that if we adopt the social chapter there will be an increase in unemployment. That will also be the case if we adopt the minimum wage. The noble Lord, Lord Eatwell, avoided mentioning the minimum wage because, apparently, the Labour Party cannot make up its mind whether it will introduce a minimum wage. Even if it does, it does not know what the amount should be. There seems to be a difference of opinion. I can well understand why the noble Lord did not mention it.
We heard a lot of criticism from the noble Lord, but we did not hear about one aspect of future Labour policy if the party opposite ever became the Government. I agree with the noble Baroness that the party opposite should spell out to the general public how much all its schemes will cost and where the money will come from. That is crucial.
The result of past Budgets under this Government has been the lowest inflation for 30 years. That is an achievement. In the second half of last year the balance of trade was in surplus and this year it is expected to be in complete surplus. Our exports are healthy. Just under half go to Europe but nearly 55 per cent. go to the rest of the world, We are competitive in that regard. Manufacturing output has increased by 3.9 per cent. Some may say that that is not much and that the figure should be higher. Of course it should be higher, but it is a step in the right direction. The car industry is very healthy and satisfactory. One point is seldom mentioned. Invisible earnings from the City amount to around £20 billion, which means a great deal of money for the Exchequer.
The accusation is sometimes levelled that the rich have many taxation advantages. Ten per cent. of the rich paid 44 per cent. of taxation last year. In 1979 the rich paid only 35 per cent. of the revenue. There is proof positive that lower taxation gives higher revenue to the Exchequer. In 1978–79 national insurance contributions and income tax accounted for 18.5 per cent. of GDP. In 1995–96 direct

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taxation has come down to 16.2 per cent. We should also remember that, while there have been increases in indirect taxes, welfare benefits have gone up to compensate those on the lowest incomes. More than 5 million taxpayers in this country now pay tax at the 20 per cent. rate. In the Finance Bill the limit was increased by more than inflation.
The reverse side of the coin for the Exchequer is the public sector borrowing requirement and the control of public expenditure. I sometimes wish that we could go back to the old system when we used to have above and below the line. Above the line was revenue; below the line was capital. That would give a far better balance sheet. If we are investing, we cannot charge it all to revenue. If the capital were deducted from this year's PSBR of £30 billion or £35 billion, the PSBR would probably be around £5 billion, which is containable. That is a much smaller figure than £30 billion or £35 billion.
Although direct plus indirect taxes have gone up, there is no question but that the standard of living in this country has increased tremendously. Since 1979 real take-home pay has gone up by some 40 per cent—by £80 or so a week. We should be proud of that. Living standards have risen. Everyone's disposable income has increased tremendously. I am delighted that in his opening remarks my noble friend mentioned the pensioners. The age allowance for pensioners has been increased year after year, and in this Finance Bill it has again been increased. More than 3 million pensioners will benefit from that.
I agree with my noble friend Lord Boyd-Carpenter, the noble Lord, Lord Eatwell, and the noble Baroness, Lady Seear, that these Bills are becoming too technical. As the noble Lord, Lord Houghton, said, it is time to sit down and go through the Finance Acts to see whether we can consolidate and simplify. The noble Lord, Lord Houghton, mentioned self-assessment. That will be a burden not only on the taxpayer but also on employers because in order to fill in the self-assessment form, employees will be asking their employers for more and more information. The CBI is very keen on self-assessment, as it is in relation to flexibility for occupational pension schemes. The Budget provides flexibility for personal pension schemes but that does not apply to occupational pension schemes. That should be remedied.
With regard to the future, my right honourable friend the Chancellor of the Exchequer should take serious note of the loss of revenue caused by people on ferries bringing in cheap wine, beer and tobacco. The duty being lost is extremely high.
The other aspect which should be welcomed in relation to small businesses is the introduction of measures to ease the paying of PAYE. That is a nightmare for some small businesses, as is VAT. This Bill makes provision to alleviate the problems in relation to that.
Over the years, PEPs, TESSAs and venture capital have all helped investment. I agree that we want more and more investment. In many cases, that investment is not taking place because companies wish to pay good dividends to ward off predators. We must watch that in our economy. Of course, there is also help for the long-term unemployed.
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Again, I should like to say to my noble friend in relation to small businesses that we should look at seriously the imposition of mandatory interest for debts. Many small businesses are profitable but they do not have a positive cash flow because their customers are not paying.
As my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Houghton of Sowerby, said, it would be good to hold more debates on the economy and the Finance Bill because, as they quite rightly said, there is a tremendous amount of expertise in this House. While constitutionally this House cannot change a Money Bill, it can give advice. That advice is given publicly. I was delighted to hear the noble Lord, Lord Houghton, defend the House of Lords and point out in very strong terms the advantages of keeping the House of Lords. I was delighted to hear that from a noble Lord of his stature.
In party politics we are always talking down and criticising. Let us stop that self-criticism. Let us talk about our achievements. We have many achievements. It should not be said that that is old hat. We have been pursuing those achievements year after year and we shall continue to do so.
12.34 p.m.
Lord Desai: My Lords, first, I join with those noble Lords who have said that we should find some device whereby this House can discuss the Budget before it becomes too late to do so. I understand that there are constitutional problems because the Bill must be passed by 5th May and, therefore, there is not much time available to us to discuss it. I wish that the usual channels could find a way to afford us a general discussion on the Budget soon after it has taken place. We cannot amend a Money Bill but that should not prevent us discussing the details of such Bills before it becomes too late. If we did that, we should be able to send a message across to another place that we have some ideas about the matter.
Lord Boyd-Carpenter: My Lords, surely one effective way of doing that would be by arranging to debate the Consolidated Fund Bill, which almost always follows the Budget within a matter of weeks.
Lord Desai: My Lords, I have never quite understood the technicalities of the Consolidated Fund Bill. But I have been in your Lordships' House for only four years and if I am given a few more years, I may be able to grasp it. I wish that we could have a debate on the Wednesday that follows the Budget on the Tuesday. We should have a general discussion on the economy and when the Consolidated Fund Bill is before the House, we could have another discussion on the economy. There should be a way to do that because I agree that, once the other place has sent the Bill to us, there is never enough time for us to look at it and the pressure is such that we have only one debate.
There are two ways in which to discuss the Finance Bill. One can either go into the details of taxation, as did my noble friend Lord Eatwell and the noble Lord, Lord Boyd-Carpenter, or one can follow the path of the noble Baroness, Lady Seear, and discuss the generalities. I am going to stick to the general economic debate rather than talk about taxation in any great detail.

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Having said that, perhaps I may just say something about the tax on wine and beers which the noble Lord, Lord Boyd-Carpenter, mentioned. We must think systematically about harmonisation and Europe. It will not go away. It is time we thought more about that. I do not agree with the noble Lord that the tax on wine and beer is a tax on British brewers because, after all, you can buy British beer in Calais and bring it back. It is really the retailers who are suffering more than the manufacturers. But we must find a way to equalise the disadvantage which the domestic shopper has vis-à-vis someone who can go across to the Continent on the ferry.
Perhaps I may extend the objection which the noble Lord, Lord Boyd-Carpenter, takes in relation to air travel. I too do not understand why only air travel is taxed. I believe that the ferries should be also taxed. But then again, I like taxation and have a weakness for it. If ferry travel were to be taxed, that would cancel the disadvantage for the domestic shopper and would not single out the air traveller for taxation. That would be one way in which to equalise the disadvantages.
Perhaps I may say to the noble Lord, Lord Clark, that what he said about above and below the line is beginning to happen in the Budget. If the noble Lord looks at Table 4.2 in the Red Book, he will see that there is a clear demarcation between current and capital expenditure. The Red Book is not very consistent and in earlier parts of it, privatisation receipts are treated as negative expenditure, which is extremely mystifying. There has never been a proper separation. When Mr. Lamont was Chancellor he promised to separate capital and current expenditure, and that is beginning to take place, although it is not yet fully transparent. We should have a clear separation between current and capital expenditure and treat privatisation receipts as any proper business would do and not have them appear as a negative expenditure.
Perhaps I may move on to the state of the economy. If we look at the longer term needs of the British economy, we all agree that we need more investment. But as some noble Lords have already said, we need to have more savings. We must somehow bring down the consumption from the very high levels that it reached in the mid-1980s so that it is at a level at which we can generate domestic savings.
There is a hidden movement to convert income tax into an expenditure tax. I would very much welcome it if they explicitly made income tax into expenditure tax, whereby all the savings made by individuals could be taken out of tax. TESSA and other schemes are rather arcane ways of doing it. Some noble Lords will remember the Royal Commission on taxation in the 1950s which advocated an expenditure tax. Given the pace at which things happen in the Treasury, 40 years should be a long enough period in which to implement the Royal Commission proposal.
There is another problem related to the structure of taxation. Despite the short-run fall, we have the problem of structural unemployment not only in this country but all over Europe. We tax labour far too much. When one thinks about it, the national insurance contribution is an outrageous tax. It is a tax on earned income, and it is a regressive tax because of the ceiling. I believe that we ought to rethink the national insurance contribution in a way that encourages employment rather than taxes it,
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perhaps shifting the burden of taxation away from taxing labour and to taxing our over-exploitation of natural resources, environmental pollution and matters of that kind. I believe that for the medium-run we need to think of a scheme that takes taxes off the working person and puts them more on the consumption either of goods and services or natural resources. I believe that that would be a healthy way of encouraging long-run sustainable development in the economy.
I turn to the immediate short run. I know that the Finance Bill is not concerned entirely with the immediate short run. The point that I am about to raise I mentioned in a recent debate introduced by the noble Lord, Lord Prior. The Chancellor still has a credibility problem as far as financial markets are concerned. That is demonstrated by the fact that the interest rate that the United Kingdom Government pay on medium gilts is about 1 per cent. above what the German or American Treasury pays. That shows that the market does not yet trust the United Kingdom Chancellor, whoever it happens to be. That arises because there is a great temptation to politicise certain items in the Budget, especially what I may term the dangerous talk of tax cuts. I find it astonishing that the party opposite should behave like the US Republicans. They do not mind what the deficit is as long as they can give tax cuts to their rich friends.
I believe that unless and until the Budget has been brought into a healthy state and we are following the Maastricht conditions and rules—I am referring to a balanced budget over the cycle and a deficit of no more than 3 per cent. of GDP; conditions that have not prevailed for the past few years—all forms of tax cuts should be treated as frivolous and dangerous. If by any chance the Chancellor is tempted to follow that advice I predict that the markets will punish him for it. We will have to pay a much higher interest rate. We are already paying £25 billion in interest charges on a debt of approximately £300 billion. I believe that it will do us no good whatsoever in the medium run if we fall for tax cuts. I would say the same if we had a Labour Chancellor. Given the need for investment, to establish credibility and to bring down long-term interest rates, I believe it is very important that a proper, stable fiscal framework is established and that we do not go for short-run political decisions.
12.45 p.m.
Lord Haskel: My Lords, the Minister's speech may have uplifted the spirits of noble Lords opposite, but I do not believe that the business community will agree with it. Apart from the major problems of small companies, it did not deal with the important problems faced by industry.
The noble Lord, Lord Clark, said that we should speak about our achievements. I agree. However, we should do so in a balanced way. Let us take as an example our export achievements. The satisfaction with our export performance must be balanced by the determination to continue the effort. Although the Minister cited the improvements that have been achieved in selected markets, we have not maintained our share of total world trade. As the President of the Board of Trade told us at the Institute of Directors, we are not losing out to low-cost

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labour countries, but to high-wage countries such as Germany, Japan and the USA. Twenty-five per cent. of our exports are made by a small handful of world-class companies. The Government's cuts in the training budget do not help to bring other firms up to the level of the best.
Another example is the prices charged by the privatised utilities. Yes, there have been price reductions, but many believe that the price reductions, particularly for electricity and gas, should have been greater. There is a suspicion that the increase in electricity prices before privatisation facilitated the price cuts after privatisation. Today, any businessman worth his salt who is engaged in manufacturing industry knows that he will be out of business in five years' time unless he achieves unit cost reductions each year. Of course, we welcome the price reductions in gas and electricity, but in today's business environment they are only to be expected. The real question is whether they are enough and whether they will be continued.
The same argument applies to the transitional relief for business rates. That point was picked up by the noble Lord, Lord Clark. Business welcomes the relief, but at the same time questions the need for an increase in business rates at a time when unit costs have to come down in order to remain competitive. The reduction in employers' national insurance of some £2 a week per employee is welcome, but that has to be balanced with the costs of the additional sick pay to be borne by many employers.
The Government need look no further than the gulf between the rhetoric and the reality for the reasons for their loss of credibility. In doing that, they fall into the very trap of which they were warned by the Engineering Employers' Federation. In its Budget submission last autumn that body said:
"Today there is a real danger that recovery from deep recession will be seen as evidence that the UK economy is healthy and that no further policy changes are needed. The EEF does not agree. The cyclical economic recovery which is now happily occurring will not be sufficient to ensure continuing growth of employment and living standards. For sustained future growth it will be necessary permanently to increase investment, by a large amount".
That warning still applies as we are currently near the bottom of the OECD investment league—to be precise, 22nd out of 24—based on the share of national income devoted to investment. Certainly, the Finance Bill contains welcome measures to encourage investment, but so have all previous Finance Bills. Perhaps the Minister can tell us what is different about the present Bill.
At this point I make a special appeal to the Minister in regard to the venture capital trusts and enterprise investment schemes that are mentioned in the Bill. They are obviously intended to encourage investment in higher risk and higher tech areas of business. As those schemes proceed, can the Minister ensure that they do not attract savings into property-backed, low-risk investments as has happened all too frequently in the past?
What is missing from the Finance Bill are steps towards a more positive engagement between the private sector and government. That co-operation is needed both for economic regeneration, and to defend the victims of the ruthless market conditions in which we now find ourselves. A confident Finance Bill would be trying to promote that relationship. A confident Finance Bill would
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also be seeking to encourage the healthy public interest in more open disclosure of information by our companies. A more confident Finance Bill would try to satisfy the current concern about the imbalance between the need for enterprise and long-term investment; the needs of shareholders; and the rights of employees and others with a stake in the company. A more confident Finance Bill would encourage business people to get on with running their companies without the need to second guess the Government. The Finance Bill has no fewer than 377 pages, as noble Lords said, and makes use of secondary legislation enabling the Secretary of State or Commissioners to make regulations. Business really is getting tired of the Government's tendency constantly to refashion institutions, and from what my noble friend Lord Houghton said, so are many public servants.
I turn to the Bill itself, and knowing how generous and even-handed the Minister is, I am surprised that he did not give a word of thanks to the Opposition for the changes they forced on the Government during the debates on the Bill. This is not a good Bill, but without those changes it would have been even worse. Noble Lords opposite should be grateful to the Opposition for forcing the Government to cut VAT on fuel to 8 per cent. Without that cut the Government would be yet more unpopular. I am surprised that there was no word of gratitude to the Opposition for forcing the withdrawal of the government proposal to extend tax breaks on executive share options to part-time directors. This matter of share options and the privatised utilities illustrates the poor judgment of the Government on business matters, and extending those privileges to part-time directors would have only compounded that poor judgment. Perhaps a little generosity of spirit would have been in order.
Fortunately, the Government listened to public opinion (both directly and also channelled through the Opposition) so that there has been a whole string of other changes during the debate on the Bill. There is the change mentioned by my noble friend Lord Eatwell, but public opinion also prevented the imposition of further vehicle excise duties on carriers in the Scottish Isles and the Scilly Isles. We also stopped increases in vehicle excise duty for farming vehicles and forced a cut in vehicle excise duty on recovery vehicles.
Tax concessions were secured to assist housing associations, universities, and accident and injury victims. The Minister mentioned the concessions on accessories for disabled drivers of company cars, but he did not mention the source of those concessions. The concession which may have the most long-lasting effect is the one mentioned by my noble friend Lord Eatwell. It is the agreement to examine the simplification of the tax system. Why the Government should be opposed to that baffles everyone except, perhaps, the accountancy profession. Yet, the Government call themselves a government of deregulation!
Of course the main reason why business people have become increasingly disillusioned with the Government is their broken promises over tax. As my noble friend Lord Eatwell said, we were promised tax cuts in 1992, but instead we had tax increases. A typical family is paying now £800 per year more in tax since the tax cuts were promised, as a result of some 20 different tax increases.

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I shall add only that taxation is part of the contract between the governed and the Government. Once that contract is broken, there is no credibility left. It cannot be put right by desperate attempts to promise tax cuts in the future. The Chancellor needs flexibility. These matters cannot be decided years in advance. Judgments have to be made at the time, and it must be wrong to limit the Chancellor in any way. The reversal of the decision on domestic fuel illustrated that. No, once this contract has been broken, the only solution is for the party that broke the contract to go.
12.55 p.m.
Lord Henley: My Lords, as always, we have had a well-informed and well-balanced debate. I agree with the noble Lord, Lord Eatwell, my noble friend Lord Boyd-Carpenter and others that debates in this House on the Finance Bill and the economy serve a useful purpose, despite the rather strange gloss that the noble Lord, Lord Eatwell, put on what I said when responding some weeks ago to his Question on interest-free loans. I said that I believed that these debates served a useful purpose and that we had had a good debate, and I am sure that those points were noted by the usual channels and by my noble friends the Lord Privy Seal and the Chief Whip. I am sure that they will take account of those points when deciding what time can be found for appropriate debates in the future.
I had considerable sympathy with much of what the noble Lord, Lord Desai, said, and I shall be interested to know in due course whether his party has the same sympathy with his views. No doubt that can await some elucidation on another occasion.
The purpose of any Budget is to ensure that the economy continues to strengthen. Since the Chancellor's statement, much has been said about the increasing tax burden that has been placed on individuals. Make no mistake, no Conservative Government ever like to increase the tax burden but, as I said in my opening remarks, tough decisions on taxes and spending were needed to restore the public finances and sustain the recovery. We have been acutely aware of the need to share that burden equally. The whole programme of tax changes since 1993, not just this year's, was shared fairly across income groups, with those who could afford to pay most making the biggest contribution. The better off now pay a higher share of the income tax yield.
My noble friend Lord Clark was right to stress that the figures are up from 35 per cent. in 1979 to 44 per cent. now for the top 10 per cent. of taxpayers. In that context it is also worth noting that the real incomes of the vulnerable groups have increased since 1979. Again, my noble friend Lord Clark of Kempston was right to stress the figures that he gave to the House.
This year's tax changes have also attracted a degree of comment from the Opposition. When one looks at the actual figures involved, the picture is very different from that painted by dissenting voices. In fact, all of the direct and indirect tax changes since last November have cost households on average just £2.30 a week. And with personal disposable income expected to rise by 1.5 per cent. this year, households are expected to be about £5 a
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week better off on average after tax and inflation. It is also worth making the point that people are much better off than they were under Labour.
I was rather amused by the picture that the noble Lord, Lord Haskel, tried to paint of the Labour Party being, I suppose, the taxpayer's friend. We remember that under Labour the highest rate of tax on some incomes was 98 per cent; now it is just 40 per cent. Married couples on average earnings are better off by £80 a week after inflation and tax. That demonstrates the Government's commitment not to return to the Labour Party's punitive high tax rates which so stifled enterprise and initiative in the past and to which it will have to return if it wants to spend as much as it sometimes seems to suggest.
I should like to deal with a number of the more technical questions on various aspects of the Bill put to me by noble Lords. Perhaps I may start with Clause 155 which relates to agricultural tenancies and which the noble Lord, Lord Eatwell, claimed was an avoidance device. I can assure him that it is not that. It is there to support the Government's proposals to reform agricultural tenancy law and create new tenancies. It is not designed as an avoidance device and, like all reliefs, we will keep it very much under review. We estimate that its cost will be less than £5 million per annum.
The noble Lord, Lord Eatwell, asked why we opposed Clause 160, which commits us to producing a report on simplifying tax law. As the noble Lord knows, we are committed to simplifying tax law, despite the length of this year's Act. On 16th February, my right honourable friend the Financial Secretary announced that he had asked the Inland Revenue to focus on that work. We opposed Clause 160 precisely because we felt that it was unnecessary as work was already in hand. The Government are perfectly happy to accept the thrust of Clause 160 and I am sure that the noble Lord looks forward to reading the report. As I am sure that he appreciates, the question of whether there will be time to debate it will be a matter for the usual channels, but I am sure that the usual channels will note what the noble Lord said about the matter.
The issue of cross-border shopping was addressed by my noble friends Lord Boyd-Carpenter and Lord Clark, and by the noble Lord, Lord Desai, from a slightly different point of view. The annual loss of both duty and VAT to additional legitimate cross-border shopping is estimated at £200 million in respect of both alcohol and tobacco. The total loss due to smuggling is estimated at £65 million per annum. That must be set against total duty receipts of some £6.5 billion in respect of tobacco and more than £5 billion in respect of alcohol.
I stress those figures purely to keep the problem in proportion. Cross-border shopping resulting from the single market amounts to approximately 2.5 per cent. of the United Kingdom drinks market and to even less of the tobacco market —approximately 1 per cent. We believe that some of the cross-border shopping for alcohol is additional consumption. I do not know whether my noble friend believes that that is good or had but, in terms of

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revenue, one can say that it is additional consumption rather than consumption taken away from legitimate sources—
Lord Boyd-Carpenter: My Lords, I am grateful to my noble friend for giving way. I raised the issue not so much from the point of view of loss of revenue but in respect of what appears to be the unfair treatment of brewers or wine producers in this country.
Lord Henley: My Lords, as was said by the noble Lord, Lord Desai, there is no unfair treatment of brewers or producers. I accept the argument that it can have an effect and that possibly in some areas it does have a disproportionate effect on retailers. I was trying to put the point in perspective in terms of the figures and to assure my noble friend that Customs will continue to act as vigorously as possible to protect United Kingdom revenue and trade from smuggling and illicit action of that kind. That is important.
My noble friend asked about gaming machines. The increase in the rates of duty on gaming machines will raise £30 million in a full year. The extension of duty to amusement machines, such as video games, will raise a further £10 million to £15 million in a full year. Those are legitimate sources for my right honourable friend the Chancellor of the Exchequer to consider.
As regards whether there is discrimination against air travellers in terms of the air passenger tax, I do not accept my noble friend's point. He should note that in some respects air transport is subject to less tax than other forms of transport; for example, in accordance with international agreement there is no duty on most aviation fuel as there is on other fuels. Trains and buses face fuel duty on the fuel that they consume.
I turn to the National Lottery. I was interested to hear the noble Lord, Lord Houghton of Sowerby, reverting to what we call "old Labour"—although at times he sounded "old Tory" in respect of some of his views—suggest a 95 per cent. tax on winnings of over £1 million. I do not intend to address that particular point; I am not sure that the suggestion would go down very well with those who invest in the National Lottery. However, perhaps I may address the point about the 12 per cent. that is raked off into Her Majesty's Exchequer. The noble Lord implied that that was not sufficient. The lottery duty of 12 per cent. was chosen because we intend the lottery to be tax-neutral. It roughly offsets the tax yield from the sources of money invested in the lottery which we would otherwise have received if the lottery had not been introduced. We believe that the total effect should be neutral.
I turn to the issue of self-assessment. Obviously, we share the views of the noble Lord, Lord Houghton, on the value of the Civil Service. I would be more than happy to repeat those. We have set out our views in the recent White Paper. However, I do not agree that self-assessment will destroy the integrity of public administration. Self-assessment introduces clearer and simpler rules for taxpayers to understand. It removes bureaucratic and routine processes, so releasing Inland Revenue staff to spend more time helping taxpayers with their tax affairs. I believe that it will improve public administration and
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benefit taxpayers individually and the taxpayer in general. My noble friend Lord Clark spoke of it being a burden on employers. We have consulted extensively on self-assessment and any additional costs to employers have been kept to a minimum. Clause 93, for example, introduces a change precisely aimed at reducing employers' costs.
As this year's Finance Bill draws to a conclusion, it is worth outlining the current prospects for the United Kingdom economy, for which the noble Lord, Lord Eatwell, asked. He accepted that on this occasion they were not that bad. We believe that continued economic growth is obviously the only way of raising living standards for all. It is the Government's objective to secure sustainable growth with low inflation. That means that growth should be balanced. We do not wish to return to the days of "boom and bust". I hope that that addresses one of the points made by the noble Baroness, Lady Seear. We might feel good for a while, but it does not last. That painful lesson has been learnt. Steady improvements in the standard of living are the prudent course.
The Government's prudent fiscal and monetary policies have contributed to the best set of economic indicators for a generation. Last year growth was around 4 per cent. It is expected to slow to a more sustainable rate this year, but the United Kingdom economy is still forecast to grow as fast as those of our major European Union competitors—and that after two years when the United Kingdom economy grew faster than any other major European Union economy.
We are experiencing healthy growth. It has come increasingly from exports, which are up nearly 9 per cent, Similarly, investment has risen by some 3 per cent. The noble Baroness believes that we should spend further on investment and she cited the case for spending yet more on education. I appreciate that that is Liberal Democrat Party policy. I can tell the noble Baroness that we spend more as a percentage of our GNP on education than, for example, the Germans. It is not so much a question of how much money you spend; it is very much a question of how you spend it.
As I said, investment has risen by some 3 per cent. and consumer expenditure is up by 2.5 per cent. We expect exports and investment to grow faster than the economy as a whole this year. Coupled with low inflation and sound public finances, the prospects for the UK economy are very good indeed.
Perhaps I may deal with an issue raised by the noble Lord, Lord Eatwell, which related to public finances. The noble Lord asked whether the fall in the dollar would increase our expenditure in terms of increased expenditure on the CAP. At the moment I do not intend to be drawn into the rights and wrongs of the CAP. However, I can tell the noble Lord that the new budget discipline decision makes it clear that any increase in the agricultural guideline can be made only by unanimity. I stress the phrase "by unanimity", and I assure the noble Lord that the Government will not agree to raising the agricultural guideline. Therefore, there can be no unanimity—
Lord Eatwell: My Lords, I wonder whether I may press the Minister on the matter. I do so because the increase in export subsidies which must be paid under

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the CAP as a result of the fall in the dollar is automatic. There is no change in the regulations or, indeed, in expenditure plans which will bring that about. It is an automatic consequence of the fall in the dollar. Therefore, expenditure on the CAP as a whole must rise unless there are cuts elsewhere.
Lord Henley: My Lords, I was trying to make it quite clear that any increase in the agricultural guideline can be made only by unanimity. As the noble Lord put it, that might involve hard decisions. I am not sure whether I quite understand the full detail of the noble Lord's question. I should prefer, if I may, to write to him on that point. However, I should like to stress to the noble Lord—this is important —first, that increases in the guideline require unanimity; and secondly, that unanimity will not be there because there will not be the agreement of Her Majesty's Government.
The noble Lord also asked where there would be cuts in government expenditure. My noble friend Lord Boyd-Carpenter, quite rightly, asked for cuts in government expenditure and then put forward his own suggestions relating to legal aid. Obviously, my noble friend would not expect me to comment on that particular aspect. Similarly, I do not think that the noble Lord, Lord Eatwell, would expect me to detail where restraint might be made in public expenditure, other than to say that, of course, we shall continue to subject the expenditure of every single department to the most detailed and scrupulous scrutiny in terms of looking for necessary savings. That is why I stressed in my opening remarks that we were looking for savings of some £300 million over original planned increases in government administrative costs over the next three years. We shall continue to look for savings throughout the whole range of public expenditure.
As I have stressed, we believe that the prospects for the United Kingdom's economy are very sound indeed. Certainly foreign companies still think so. Moreover, since the Budget, inward investment has continued to come into the United Kingdom, creating new jobs—and has continued to come in at the rate that applied before, with some 40 per cent. of Japanese inward investment to Europe coming to this country, together with a similar figure of American inward investment.
Unemployment has been falling by about 1,000 a day, and employment has been increasing. For the first time, I believe, since figures began, the numbers employed in manufacturing have shown an increase. As my noble friend Lord Clark quite rightly stressed, and as I said, unemployment has been coming down by 1,000 a day, and living standards are rising and will rise further this year. We have now had 18 months with inflation at below 3 per cent. —a record not seen since 1961. That certainly means much greater certainty and stability for individuals and businesses as they plan for the future. I hope very much that the noble Baroness, Lady Seear, accepts that that is part of our commitment to the stability that we certainly see as necessary for business in the future.
On the question of employment, the noble Lord, Lord Desai, said that we taxed labour far too much. I certainly have much sympathy with the noble Lord's views on the subject. However, I have to say that we tax labour
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much less than most of our European colleagues. I dread to think what would be the result of signing up to the social chapter, as the noble Lord's party suggests, and I wonder whether we would see a dramatic increase in the non-wage labour costs that manufacturers already have to face.
We believe that manufacturing has been revitalised. The skills and hard work of British management and workers are bringing success once again. Manufacturing output, investment, exports and productivity are all up, while unit wage costs fell last year. The performance of our exporters and the returns from prudent and valuable overseas investment have resulted in the current account returning to broad balance in 1994.
The United Kingdom's economy is strengthening month by month. The statistics are not just one month's figures. The momentum of recovery has been maintained. Businesses are continuing to capture world markets and our competitive position has been maintained as costs have been contained. More people are in work. Incomes are rising.
This Finance Bill ensures that the economy will strengthen further; that economic growth will be sustained; that inflation will remain low, and that the living standards of all will rise.
Lord Eatwell: My Lords, before the Minister sits down, perhaps I may give him the opportunity to correct the extraordinary error that he made just now when he said that manufacturing employment is rising for the first time since figures began. I can assure the noble Lord that, throughout the 1960s, manufacturing employment rose virtually every year, year on year, and that manufacturing employment is now 2 million below what it was in 1979. The small upturn that we have seen this year is not a compensation for those significant falls.
Lord Henley: My Lords, in no way did I say that it was compensation. Obviously it is not the numbers totally employed in manufacturing that matter but the total output and that, as we know, rises. I am prepared to look at what I did say and correct my figures should it be necessary to do so. Certainly, they have recently increased, and it is the first time in a very very long time that they have done so. I commend the Bill to the House.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 24th April), Bill read a third time, and passed.

Myanmar (Burma): Human Rights
1.16 p.m.
Baroness Cox Baroness Cox rose to ask Her Majesty's Government what measures they intend to take to bring pressure to bear on the State Law and Order Restoration Council (SLORC) regime in Myanmar (Burma) to respect the human rights of the Karen and other ethnic national minority groups in that country.
The noble Baroness said: My Lords, I am most grateful for this opportunity to raise in your Lordships' House the tragedy confronting the people of Myanmar, or Burma as it is better known, who are suffering from the brutal policies being carried out by the State Law and Order Restoration Council—the Orwellian name adopted by a regime which refused to acknowledge the results of the 1990 democratic elections; and still refuses to do so today.
The situation has deteriorated recently and the lives of tens of thousands of civilians are now endangered by military offences, by attacks on their places of refuge, by lack of essential supplies of food, medicine and shelter; and many other innocent civilians are suffering from grave violations of human rights, such as illegal imprisonment, torture and forced labour, tantamount to slavery.
The SLORC regime's policies are responsible for turning Burma into one of the worst places in the world today, in terms of the suffering cold-bloodedly inflicted on vast numbers of people, especially ethnic minorities such as the Karen and the Mon. Moreover, many others who have dared to try to promote fundamental principles of freedom and democracy, such as the democratically elected leader, Aung San Suu Kyi, have paid and are still paying a high price for their commitments.
There are so many issues to be raised, so many questions to be asked and so much suffering which needs to be documented that I am most grateful to other noble Lords who will be making their distinctive contributions to the debate. For example, I know that the noble Lord, Lord Avebury, will be speaking in detail about the issue of forced labour. I shall, therefore, touch only very briefly upon that outrageous policy being perpetrated by the SLORC regime. I believe that my noble friend Lord Cork and Orrery will remind us of the courage of the Karen soldiers who fought alongside the British with great valour and who now feel deeply disappointed by Britain's apparent lack of concern for the plight of their people. As I do not have a right of reply at the end of the debate, perhaps I may now thank all noble Lords taking part and also my noble friend the Minister for making possible today's debate on this important and tragic topic.
My own contribution will focus primarily on those aspects of the situation with which I have some first-hand acquaintance. Last November, I spent some time with some of the ethnic minorities who have been suffering at the hands of the SLORC regime. Under the auspices of Christian Solidarity International (CSI for short), I visited Manerplaw, where I met leaders of the Karen and of the Mon peoples and other members of opposition groups. I also visited many of the Karen people, displaced from their homes by the constant attacks of the SLORC troops on their villages, and now living in camps along the border with Thailand. I also met Karen soldiers inside Burma trying to defend their territory.
CSI is a human rights organisation, working for victims of repression, regardless of their colour, creed or nationality. We tend to focus on people who are often inaccessible to other organisations and to the media.
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Many of the people suffering as a result of the SLORC regime's policies come within this sad category of forgotten people. I will therefore give a brief overview of the current situation, with particular reference to the escalation of military offensives by the SLORC regime against ethnic minorities; the suffering caused by violations of human rights by the SLORC; the urgent need for more humanitarian aid; and the implications for the international community in general and the British Government in particular.
In January the SLORC broke its own guarantees of multilateral cease-fires which had been agreed with the ethnic minorities and the democratic opposition. Taking advantage of religious differences within the Karen National Union (KNU), SLORC started a massive offensive against Manerplaw, the headquarters of the main opposition groups. Manerplaw had to be evacuated and some 10,000 to 15,000 refugees had to flee across the border into Thailand. A student camp at Dagwin also had to be evacuated and in the following weeks the SLORC consolidated its hold on surrounding areas, preventing the further evacuation of thousands more villagers who are now trapped behind enemy lines. Many of these are Karen civilians who had previously had to flee from SLORC assaults on their villages and had sought refuge in areas protected by Karen soldiers.
Following the capture of Manerplaw, the SLORC intensified its attacks on Kaw Moo Rah, the Karen army base north of Maesot. Despite numerous attacks by SLORC troops over the past 20 years, and their vastly superior numbers and weaponry, the Karen had always managed to hold on to this base. But this time the SLORC offensive was unprecedented in its ferocity and in its use of weapons, including, allegedly, chemicals and gas.
The loss of Manerplaw, Kaw Moo Rah and surrounding territory has exacerbated the already desperate situation of the opposition and particularly of the Karen people living in these areas. Tens of thousands have had to flee to camps along the border with Thailand; countless others are trapped behind SLORC lines, cut off from major aid agencies and vulnerable to attack. If captured, they face murder, torture and/or enslavement—a fate which has already befallen many thousands of innocent civilians.
When I was in the area four months ago I received first-hand accounts of atrocities perpetrated by the SLORC against villagers and indeed I saw the evidence on their bodies of torture which they had suffered. Therefore there are a number of urgent issues which need to be addressed. First, there is the breaking of the cease-fire by the SLORC troops in their ferocious attacks against the Karen and other groups, and reports of the use of gas and/or chemical weapons. During my visit I received disturbing circumstantial evidence of the possible use of germ warfare by SLORC troops on previous occasions. I have in my possession one of the meteorological devices used in suspicious circumstances which is part of that circumstantial evidence. A few weeks ago one of my colleagues from CSI Australia, Dr. Martin Panter, who has worked for many years with the Karen people, met soldiers who had signs and symptoms consistent with the use of chemical and/or

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gas weapons. They described in detail the type of gas used and he saw third degree burns on exposed skin caused by highly corrosive chemicals.
Secondly, there are increasing reports of attacks by troops against civilians sheltering in camps, including those inside Thailand. These cross-border incursions result in murder and abductions and are causing intense fear amongst the displaced villagers who are already suffering from the tragedy of displacement and shortages of essential supplies, despite the valiant efforts of aid organisations, such as those working with the Burma Border Consortium (BBC). Thai military forces are making efforts to protect the camps, but cannot always defend them effectively against the type of raids launched against them.
For example, on 24th April, there was the following report in The Nation:
"Burmese soldiers and Karen rebel defectors have raided two ethnic Karen refugee camps in Thailand, abducting several people and threatening to burn the camps down…As many as 300 troops, the majority of them Burmese junta soldiers, swept into Mao Lor Ta and Mae Wee Klu refugee camps, deep in Thailand's Tha Song Vang district, early on Sunday, a KNU official said".
This report is consistent with a letter I have just received, written by Dr. H. M. Singh, the Karen medical officer of health, to my colleague from CSI, Dr. Martin Panter. I quote the following excerpt:
"There is an emergency situation in one of the Karen refugee camps. The said camp, Ka Maw Lay Klo, is about 77 km north of Maesot. On 25th April, two companies of combined DKBA and SLORC troops entered the camp at about 11.20 p.m. and set fire to it. About 250–300 houses were gutted down and about 1,500 people made homeless. The enemy used RPGs and M79 grenade launchers…The people in the camp are in dire need of help. All their belongings were lost in the fire…Please advise me what you can do at your earliest convenience".
Many of the camps for the displaced have had to be moved two or three times; the people are living in constant fear; and as the camps are relocated in places more inaccessible to SLORC troops they are also more inaccessible to aid organisations and the plight of the people is increasingly desperate. So, what can and should be done in response to this appalling suffering inflicted on its people by a regime whose brutality cannot be denied? I finish with some recommendations and requests.
First, I suggest that the international community cannot be seen to be condoning the policies of a regime which has kept a democratically elected leader, Aung San Suu Kyi under house arrest for nearly six years and has imprisoned many others, including politicians, journalists and students. Nor, surely, can the international community ignore the well documented violations of human rights, such as persistent attacks on villages inside Burma and forced relocation of villagers from their own land, the use of forced labour to build another railway, or of civilians as human mine-sweepers or military porters, many of whom die from exhaustion and/or maltreatment. Can the recent escalation of military offensives, including the possible use of gas or chemical weapons, be ignored?
The response of the international community has been varied. The USA has made strong representations and has warned Burma of the possible downgrading of relations. The US Deputy Assistant Secretary of State referred on 8th March to the possibility of,
"further restrictions in US-Burma relations".
I understand that the British Government have been associated with some expression of concern by the European Union. But the policy in Rangoon of promoting "British Week" in February has caused deep dismay to many who are disturbed by SLORC's brutal policies and has deeply upset many of those suffering as a result of those policies. It appears incongruous and unprincipled to be actively promoting trade with a brutal regime, when other countries are trying to put pressure on that regime to desist from its gross violations of human rights.
Secondly, there is an urgent need to establish protective measures for those suffering from the war, both within Burma and across the border in Thailand. Can my noble friend the Minister say whether the United Kingdom is supporting any initiatives by the international community to help to put pressure on SLORC to desist from attacks on camps for the displaced? Thirdly, can Britain increase assistance with humanitarian aid to those now destitute, whose suffering will be exacerbated with the onset of the rainy season? Can my noble friend also give some indication of what might be done to take aid to civilians trapped behind SLORC troops?
Fourthly, given the evidence of continuing widespread atrocities being perpetrated by SLORC against civilians inside Burma, especially in remote areas such as the Irrawaddy delta region, can my noble friend say whether the British Government will urge SLORC to allow access by human rights monitors to visit all parts of the country? Will he also give an assurance that the Government will not be satisfied if that important and principled request is not met?
I conclude by referring, with appreciation, to the UN resolution which was sponsored by Australia, Chile, Hungary, the European Union and the United States on 8th March. It declared that the UNHCR was "gravely concerned" over reports of extremely serious violations taking place in Burma, including torture, political arrest, enforced labour and displacement, abuse of women, lack of freedom of expression and association, and the oppression of ethnic and religious minorities. It also reiterated its call for the release of Aung San Suu Kyi and other political prisoners. Will my noble friend the Minister therefore reassure the House, and all those who care deeply about these matters, that the British Government will desist from offering the regime any further comfort in the form of encouragement of trade by "British Weeks", and that the United Kingdom will join other countries in principled condemnation of SLORC until that regime stops its brutal violations of human rights, seeks a peaceful solution to its conflicts

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with opposition groups and ethnic minorities, and adopts policies based on the fundamental principles of freedom, democracy and justice?
1.30 p.m.
Lord Avebury: My Lords, we are all deeply indebted to the noble Baroness, Lady Cox, for her continuous and amazingly energetic endeavours in the defence of human rights all over the world. With that tribute I couple Christian Solidarity International, of which she is such an ornament, and with which I have had some peripheral dealings. I am full of admiration for its work, but particularly for the way the noble Baroness goes into far-flung parts of the world and brings a note of authenticity to our debates on human rights which would otherwise be lacking.
The noble Baroness has never been more convincing than in her description of the appalling sufferings which are endured by the people of Burma under the SLORC regime, particularly the atrocities which have been inflicted on the ethnic minorities in the border area between Burma and Thailand as a result of military operations there by the Tatamadaw, as the army is called. As the noble Baroness pointed out, that has resulted in an increase in the number of refugees in Thailand of 10,000, to a total which is now in the region of 80,000.
There have also been reports this week from various sources of the crossing of the border by Burmese troops and their Karen auxiliaries. That has resulted in the attacks on refugee camps which the noble Baroness, Lady Cox, mentioned. Further incursions have been reported by the Thai army in which camps have been destroyed, displacing refugees, some of whom had to flee into the forest to protect themselves from the atrocities which were being inflicted on them.
That seems to me to be a violation of international law in that the Burmese troops crossed an international frontier. The UN Charter has been violated, and the Security Council should take action to stop those incursions. This is the second case which has occurred in recent months of a state marching into the territory of its neighbour, harassing and kidnapping refugees and killing civilians with impunity. I suggest that if the international community had taken a firmer line against Turkey when she illegally invaded Iraqi Kurdistan that might have deterred the Tatamadaw from its present adventures.
What protection are the Thai forces giving the refugees against those attacks? Are the Thai authorities allowing the UNHCR and other humanitarian organisations freedom of access into the border region, as the noble Baroness said, in order to help the victims? It was reported that the Thai Third Army region commander, General Surachet Dechatiwong, has been investigating the situation, that he met his Burmese opposite number, General Khet Sein, on 25th April and that the Burmese general said that he was unable to control the activities of the Karen auxiliaries. However, the so-called Democratic Karen Buddhist Army is
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financed and armed by the Tatamadaw and there are regular meetings between them. Therefore, I do not think that they can get away with that excuse.
Burmese forces also launched an offensive against the Shan leader Khun Sa's positions at Loi Hpaleng on 11th March. Three days later they attacked Huanamsai, north of Pangkawtai. Heavy fighting has continued around Burmese positions at Tachilek. Unfortunately, the SLORC offensive has been given support by the US State Department, which sees Khun Sa as a drug baron. If we allow the Burmese armed forces to continue attacking ethnic minorities in this way, there is no chance of a peaceful political solution which, as the noble Baroness said, was on the cards until very recently.
Whatever the outcome of those military operations, as Prime Minister Sein Win of the NCGUB said at the Copenhagen Summit last month, the democracy movement in Burma never intended to restore democracy through armed struggle. The KNU provided the democracy movement with a base from which to operate inside the country, and there are still areas that are not under SLORC control, but the NCGUB now operates mainly from Washington and would continue to function even if SLORC, with its 2 billion dollars worth of arms purchased from China at the expense of its own people, managed to wipe out the armed opposition within the country completely.
Sein Win believes that the SLORC's change of tactics from a policy of seeking reconciliation with each of the armed opposition groups to an attempt to secure outright military victory over the KNU, the most powerful of them, arises from the perceived weakening of the international community's position on human rights during 1994. From being a virtual pariah, Rangoon became an avidly sought partner in various forms of international dialogue, including the European Union's "Critical Dialogue". Do the Government see any need for a reappraisal of that approach in the light of Rangoon's military operations and the human rights abuses associated with them?
It could also be that SLORC always intended to follow the two policies simultaneously, on the one hand making deals through negotiation with some of the minorities, or parts of the minorities, and dealing with the more intransigent groups by military force. It would not have acquired such a huge arsenal from China for external defence purposes, because there is no conceivable outside threat to Burma's territorial integrity. I believe that there was a long-term plan to use those weapons against the minorities, and the Chinese are accomplices in SLORC's policy of dealing with political problems by military force.
What action will the European Union and the US take to criticise China's arms sales policies, which undermine the international community's attempts to scale down the diversion of resources away from peaceful development in the third world? Will the Government now suggest to our EU partners that a new approach should be made to China to halt the sale of weapons which are partly being used against the civilian population of Burma?

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The main purpose of my intervention in the debate is to draw attention to the horrendous use of forced labour by SLORC and to ask what the Government are doing about it. The United Nations General Assembly, in its most recent resolution on Burma in December 1994, urged:
"the Government of Myanmar to fulfil its obligations as a state party to the Forced Labour Convention 1930 (No. 29) and to the Freedom of Association and Protection of the Right to Organize Convention 1984 (No. 87) of the International Labour Organisation".
That is a recurring theme of almost every report about human rights violations under SLORC. The UN Special Rapporteur on Burma, Mr. Yozo Yokota, says in his latest report of 12th January 1995 that workers in Myanmar do not enjoy basic labour rights, including in particular freedom of association and the right to organise. He relates that he has received
"many complaints from several reliable sources that men, women and children from the age of 14 are allegedly used for forced labour for the construction of railways, roads and bridges".
The military use forced labour to carry heavy loads of ammunition, food and other supplies in areas which are inaccessible by vehicle.
The special rapporteur notes that the ILO convention committee established to consider Burma's violations of the Forced Labour Convention concluded that the exaction of forced labour and services, in particular porterage services, is contrary to the convention, which was ratified by Burma in 1955.
These reports from UN agencies are fully supported by the information gathered by NGOs. Human Rights Watch/Asia, in a paper on abuses linked to the fall of Manerplaw described the experiences of civilians who were forced to carry supplies for the Burmese military in the battle of Naw Hta, south of Manerplaw. They mentioned one elderly man who was press-ganged while on his way to hospital for treatment. He pleaded with the soldiers to let him go but they refused. They piled him into a truck where, he having been all day in conditions of enormous overcrowding in the back of the truck, at the truck's destination they found that he had died on the journey.
All the porters were beaten regularly with fists and rifle butts. Some had their feet blown off by mines and received no medical attention. Others were pushed over the edge of cliffs when they could no longer carry the heavy loads imposed on them—estimated at between 90 and 126 kilograms. They were given almost no food, and had to sleep on the bare ground in the freezing temperatures of December.
Apart from the porters, Human Rights Watch/Asia describes forced labour on other military projects such as road building, construction of latrines, cooking and cutting bamboo. These workers fared a little better in that for the most part they were not physically abused. But, like the porters, they still received no pay and had to supply their own food, cooking utensils and shelter.
Anti-Slavery International also reports on forced labour in some detail. It mentions in particular the work on roads and other construction projects which are believed to be related to gas pipeline projects from the Andaman Sea, where Total, Unocal, Texaco, Nippon Oil and Premier, which is a United Kingdom company, are
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operating. One way in which people in the West can demonstrate their feelings about SLORC is to boycott the products of companies doing business with the dictatorship. There has been a good example recently. Berkeley City Council in California decided that it would not buy goods produced by any of those companies, including the oil companies I mentioned—an initiative which follows its similar action a few years ago against apartheid in South Africa.
Women are not exempted from the forced labour conscriptions, a point I hope our representatives will underline at the Beijing women's conference in September. Anti-Slavery International reports that even pregnant women and mothers with children have been press-ganged by the military, and soldiers are particularly brutal towards women belonging to the ethnic minorities. Women are often the main victims because the men flee when the military approach, expecting to be conscripted into the army. ASI says that the worst human rights abuses against women, including beatings, rape and murder, have been perpetrated when they are doing forced labour.
Another horrendous form of women's forced labour is the kidnapping of women from Burma, and in particular women belonging to ethnic minorities, to become prostitutes in the brothels of Thailand. ASI says that between 40,000 and 100,000 women are engaged in that vile trade at any one time. Any women who try to escape from that sexual slavery are killed if they are caught. If they succeed in returning to Burma, they will also be killed if they are found to be HIV positive. But according to the World Health Organisation, as many as 400,000 people in Burma are now HIV positive.
In the past week, Anti-Slavery International has been reporting at the UN Working Group on Contemporary Forms of Slavery on the evidence that it has collected. The question is this: Where do we go from here, as the noble Baroness asked, when the practices in question have been condemned many times already without making the slightest impression on the junta?
First, what can be done in the working group itself? The problem with all UN human rights operations in Geneva is that it is almost impossible to obtain their reports. I suggest to the Government that they disseminate the conclusions of the working group to Parliament, trade unions and political parties, and that the UNDP, which already publishes much useful material from the General Assembly, the Security Council and the Secretary General's office, should have this material available on its Internet Gopher site so that it is readily accessible by those who wish to learn about human rights violations. There is also a clear need to consider what additional procedures can be developed for use when the practices have been "round the loop" several times, as has the question of Burmese forced labour, without any change in the conduct of the state. Every year for the past four or five years, those matters have been examined in the working group which reports to the sub-commission in August, and it in turn reports to the full Commission the following February. Then the process begins all over again the next April. There has

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to be a special track for what I might call recidivist states like Burma which leads to the imposition of some kind of penalties.
Secondly, will the Government work closely with our partners in the European Union and others, including the Burmese Government, to organise a direct contact mission by the ILO? That can only be done if the Burmese Government agree to it, but since they have stopped denying the practice of forced labour, and now justify the policy, presumably they would be glad to have their arguments examined methodically by the ILO.
It seems to me profoundly unsatisfactory that the ILO can apparently send a mission with the consent of the accused state only; and I suggest that Britain asks the governing body of the ILO to consider whether we cannot have a compulsory mechanism, such as exists in the OSCE, however rarely it may be used. If a state is violating human rights, and refuses to comply with the recommendation of the ILO, at present the international community has no mechanism to deploy in the last resort.
Thirdly—this is a point the noble Baroness mentioned—one of the main uses being made of the forced labour is for the restoration of Burma's ancient sites and associated facilities in preparation for the 1996 Year of Tourism. Will the Government discourage the British tourist industry from helping to achieve that aim? In particular, will they consider what the State Department says about the conscription of the whole population of Mandalay to work on the restoration of the palaces there which are now to be a source of attraction in order for the Myanmar regime to bring tourists from overseas into the country? I agree with the noble Baroness about the British week. It was unfortunate that that should have taken place at the residence of the British Ambassador.
The SLORC regime has defied world opinion for many years. Not only has it got away with it, but states are now eagerly competing for its business. One can be under no illusion that what is said today is likely to have much effect on that process, but neither can the Government imagine that their failure to act vigorously against the military regime will pass unnoticed. I know that it will be said, as Ministers have stated in correspondence over the years, that our direct influence in Burma is small notwithstanding the historical ties between our countries. But we could play a bigger role in the EU, the ILO and the UN in seeking to ensure that SLORC's gross and persistent human rights violations, and the use of forced labour in particular, incur concrete and substantial penalties which might cause it to mend its ways.
1.48 p.m.
Viscount Waverley: My Lords, I thank the noble Baroness, Lady Cox, for bringing this quite desperate situation before the House. Her dedication is indeed legendary. I have been moved by all remarks to date. A clear message is being sent to the authorities in Myanmar that we in the United Kingdom do not tolerate behaviour of this nature.
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My Lords, there is only one question. What will be the most effective policy to ensure a reversal in human rights abuses, and a return to the democratic process? For her part, Britain has severed defence links, suspended official non-humanitarian aid, and complies with a general European arms embargo.
But what has been achieved? A joint declaration following the 11th ASEAN-European Union ministerial meeting in Germany last September stated that the Ministers noted that there had been some positive developments in Myanmar. On the surface there were initial hopes that the need for reconciliation in dialogue had finally been accepted by the ruling generals of the SLORC government. Political prisoners were released, but there have been no positive moves since. By the end of October it was recognised generally that any possibility of further sustained improvements was not going to be forthcoming. So who is in the sphere of influence to effect change? I regret that it is not, I believe, the European Union. Britain has done more than most and has led the way on European action, pursuing a policy of critical dialogue, but to little avail. Late last year, the United States offered the regime two visions of a future relationship: increased co-operation linked to positive developments by the regime on issues of importance to the international community; or heightened isolation if progress is not forthcoming.
I would caution on the latter as possibly leading down the path of confrontation. The key to reform, in my opinion, lies in maintaining pressure, which the West is implementing, to make good Myanmar's programme of reforms, combined with trade and inward investment to be linked with conditions for reform from the ASEAN countries, Japan and China, if she could be encouraged so to do.
Her Majesty's Government should exert their influence with the ASEAN countries, and particularly Japan, to link further investment to improvements. The communiqué from the ministerial meeting in Germany supports that by emphasising that:
"they expressed the hope that Asean's policy of constructive engagement, and the European Union's willingness to engage in a critical dialogue will eventually contribute to achieving more sustainable improvements in all fields".
Indeed, a reversal of their human rights record and stepping down the road of democratic process would be in the interest of those who are investing in that country. Stability, as always, is the key to sustained growth.
Myanmar's "open door" policy has introduced a liberal foreign investment law which enables the country's long-closed economy to be integrated with the world economy, particularly with Asia's. Two billion US dollars has been attracted within a six-year period.
Economic reforms have contributed to the country's growth and recovery, but are not complete. More are needed if the present momentum of strong growth is to be sustained. Further inward investment will certainly then be forthcoming. There are some encouraging signs. After three decades of self-imposed exile, Myanmar is working itself out of isolation, and so to the opportunity of meaningful dialogue or "constructive engagement", which our ASEAN friends condone.

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Let there be no doubt as to key objectives as matters of the highest priority. First, halt all offensive military operations and allow humanitarian assistance to the victims of military operations. Secondly, release all those detained for the peaceful expression of their political views. Thirdly, remove all restrictions on freedom of movement. Fourthly, begin a process of substantive political dialogue. Fifthly, bring into Burmese law full conformity with international human rights standards. Myanmar could then look forward to an economy equal to that of her neighbours, and possible inclusion as an ASEAN member.
I end on a matter which gives me cause for concern and, indeed, distress. It has been brought to my attention that Sung Chee's husband, who resides in Oxford, has been refused a visa to visit her by the authorities in Rangoon. A visa has been granted in the past and the refusal seems both vindictive and retrogade. I ask the Minister to do what he can in the matter.
1.54 p.m.
The Earl of Cork and Orrery: My Lords, I have reason personally to be grateful to my noble friend Lady Cox for tabling her Unstarred Question this afternoon. She and I speak for people who have been my friends in the past. I regard them now with anxiety, affection and admiration. Therefore, I wish to speak about them as they were in the past and as I know them to be rather than about the situation which has been described by those who have already spoken. As I confess that I am biased in their favour, perhaps I may speak about them in the words of someone else. I recommend the book called Grandfather Longlegs to anyone who has not read it. It is about the great hero, Major Seagrim of the Burma Rifles who fought with and for, and eventually laid down his life for the Karens in the Second World War.
I wish to read a short passage about the Karens as people from the book by Ian Morrison:
"They are an extraordinarily good people. The word may be thought an odd and old-fashioned one to use, but it is the only one that describes the essential quality of the Karens, their honesty and truthfulness and, in its best sense, simplicity. The hill Karens, who have not been contaminated by contact with other races, are incapable of guile or deceit. They are peaceful and law-abiding folk, asking only to be treated fairly. Before the war there was practically no crime among them. After the harvest was gathered rice was stacked on the hill-sides with no guard over it. In the spring of 1946, when dacoity and lawlessness was rife all over Burmese Burma, the hills were absolutely quiet and safe".
My second quotation is from the same book, but is a quotation from a broadcast made after the war by a British officer who had served in Burma. He concluded his talk by saying:
"It takes two to make a quarrel, and it takes two to make a loyalty. And this loyalty of the Karens to the British cannot be surpassed, even between Englishmen born and bred in England. On the one side, it is due to men like Seagrim; on the other, to the character of the Karen people who have never been seduced, by promises, by money or by threats, from what they hold to be right".
That is a considerable tribute to the Karen people. They are one of several racial groups living in Burma which is not an ethnically united country. They live more or less in the hills, but also partly in the plains,
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round the southernmost part of Burma, level with Rangoon and the valleys of the Irrawaddy and the Salween rivers.
When the Japanese attacked in 1942, we retreated from the south of Burma right through Moulmein, up to Mandalay. It was really a later version of "The Road to Mandalay"—and a disagreeable one. We went through the Karen country. The Army then had cause to be grateful to the Karens because although it was in retreat and the Japanese were pressing on our heels, the people succoured, helped, protected and not infrequently fought for the army that was passing through their country. That help was complete and was given regardless of the Karens' personal safety. I am talking now about the civilian population, not the soldiers, but of course, the soldiers were there, including a number of Karens.
I was then serving as company commander in a battalion of the Burma Rifles which, like other battalions, contained three classes of people. For some reason, they were known as "classes" and they were the Chins, the Kachins and the Karens. We had a company of Chins and one of Kachins, and two companies of Karens. They were the warlike soldiers in the Burma Rifles. When the retreat was completed, many of them were disbanded from the Army and allowed to return home. In some cases they were given arms, ammunition and money. But most of them stayed with the Army and went into India, even though their own country was now in the hands of the enemy. They served again later (when we went back into Burma) with the so-called Special Force, the Chindits, commanded and led by General Wingate. The general himself said that they were the finest body of soldiers he had led. That is a remarkable tribute from such a man.
Those of the Burma Rifles who still remained had been reorganised for the second Chindit operation into reconnaissance platoons—partly British, partly Burma Rifles and largely Karen. One of those platoons was attached to every column that formed a part of that force. At the time I was first a column, and then a brigade, intelligence officer. I add my tribute to those invaluable soldiers, not only for their particular form of fighting, to which I shall return in a moment, but for their extreme usefulness in conveying information. They ought to have been used in that way before. They began by being organised —in so far as you can say seriously that anything was organised militarily in Burma before the war—as a standard infantry regiment. Their particular genius in wartime stemmed from the expertise that is natural to people who live in the jungle. They were spies, information carriers and scouts. They were enormously brave and absolutely invaluable.
In the second operation, they went into Burma about 800 strong, and came out stronger than when they went in. That is unusual, to say the least. That was because they had collected people of their own race inside the country and persuaded them to return to the Army or to join it for the first time. They had a great recruiting effect, which is again unusual in the middle of a war. Of course, they no longer exist as soldiers. Independence came, and that was the end of that.
As I remarked before, I do not wish to say anything in any detail about the present situation. But those people have served us in the past, and would no doubt do so again

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if they had the chance. When independence came, the Karen people stated officially and as a body that they wished not to achieve independence with the rest of Burma, but to become an autonomous state under British command. That is a measure of loyalty from simple people. This is a point that has not yet been made. They are extremely simple people. They are not very clever, but they are extremely loyal and extremely sensible; and, as I say, they are devoted to us. Can we not do something for them now?
I have heard it said that nothing can be done. Yet we have heard two noble Lords and one noble Baroness say that things can and must be done. I am convinced that they must be done —no matter what the cost might be. I know that one cannot quite say that, but it is not reasonable to say that nothing can be done. That is not a fit statement for anybody in the British Parliament to make.
I am personally grateful to my noble friend for initiating this debate. I am grateful on behalf of the Karens. I feel slightly entitled to say that. I hope that, somehow or other, a report of this debate and the remarks particularly of my noble friend Lady Cox will find their way through the pages of Hansard, or by some form of pigeon post, to the Karen country, so that those gallant and formerly devoted people may derive some comfort and benefit from what has been said.
2.5 p.m.
Lord Clinton-Davis: My Lords, like others, I not only welcome the remarks made today by the noble Baroness in initiating this debate, but pay tribute to her care in terms of international concern for violations of human rights. It is well-known in this House. She has done a service to the people of Burma in raising these issues in the way that she did today. The noble Lord, Lord Avebury, paid the noble Baroness an appropriate tribute in his opening remarks. It is one that I wholly endorse.
The debate has been interesting. I should like to touch on the last observations made by the noble Earl. It is absurd for anybody to suggest that this country has no voice in affairs affecting human rights in countries that are far away. These matters are indivisible; they are questions of human rights and freedom. It is always appropriate for this country to allow its voice to be heard in championing the causes of those who are downtrodden, victimised and often seemingly helpless.
This debate has concentrated on a powerful indictment of the disregard for and violation of human rights that is happening in Burma today. It is a long and disheartening catalogue of suppression of those rights. It is an indictment that has been forcefully drawn and documented by Amnesty International and other international organisations and has been reiterated and supplemented in today's debate. Unfortunately, those calls for international action have elicited no proper response, in my belief, from the Burmese Government. I do not want to go in detail into a large number of the issues that have been raised today, because it does not add to the pertinence of the observations which have been made by others. But the arrest and imprisonment, often without any
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or any fair trial, of hundreds of political activists who are opposed to the military regime is something about which the international community must be concerned.
It is worth remembering the circumstances in which all this has arisen in more recent times. The present government—the State Law and Order Restoration Council—took over from an even more savage military regime in 1988. It went on to hold free elections— reasonably free elections at all events. There was a landslide victory for the Opposition in 1990 and the State Law and Order Restoration Council refused to hand over power. It went on violently to suppress a nationwide pro-democracy movement, having, when they took office in 1988, done something to promote that unworthy cause even then.
Other persistent human rights' violations have continued over many parts of the country. We heard today about the arbitrary seizure of civilians to serve as military porters, or labourers—forced labour. That was very well rehearsed in the speech of the noble Lord, Lord Avebury, earlier. We heard too, notably from the noble Baroness who opened the debate, about the attacks on the ethnic minorities. Forced labour is terrible in itself, but when it is accompanied by savage beatings and other forms of appalling treatment and torture, it becomes infinitely worse. Tens of thousands of civilians have been forced by the Burmese army to carry supplies during counter-insurgency operations against Opposition armed groups.
I want to say here and now that there is evidence—again from Amnesty International—that some of the Opposition armed groups have behaved in a fairly uncivilised way too. It is fair to represent both sides of the issue. But we are dealing with the operation of a government which ought to set a rather better example, although it is often difficult to display all those elements of democratic rights that we would expect. It is certainly not an easy situation. But there is no way in which we can condone the torture and killing which is rife on the part of the armed military in Burma.
In fact, every part of Burmese society has been subjected to that barbaric treatment: Buddhist clerics, community leaders, university and high school teachers, students, doctors, writers, civil servants, lawyers, workers' leaders and so on. There is widespread expression of barbaric treatment.
Moreover, one must not forget, as has been said in this House, that one of the most outstanding Nobel Peace Prize winners of all time, Aung San Suu Kyi, has been under house arrest since 1989. Many other leaders remain imprisoned, or, if they are not imprisoned and have been released in more recent times, have been subjected to great surveillance by the government's intelligence agents.
Further arrests are taking place, although there was an abatement for some time. Certainly the scale of the violence seems in some way to have been reduced. I cannot help thinking that that is because people raised their voices in the international community and have taken action, which is more important even than raising voices, to ensure that pressure is maintained against the Burmese Government.

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I turn now to the attitude of our own Government, which has been substantially criticised by one of their own supporters; namely the noble Baroness. She is a supporter of the Government and cares to maintain them. That does not seem to me to be a very worthy aim in this day and age, but that is what she wants to do. Therefore, her criticisms must not be taken lightly by the Minister when he comes to reply.
The question with which I want to deal now is: what should be our attitude in relation to trade with Burma? The noble Viscount, Lord Waverley, said in effect that he wanted trade with Burma to persist or be encouraged but that it should be combined with demands for reform, particularly on the part of Japan, China and other ASEAN countries. I am not convinced that those countries are listening very carefully to any such preconditions for trade. But that is an important point. It is in marked contrast to a speech made by the noble Baroness, Lady Chalker, on 10th March when she spoke at the United Nations social summit, at least as reported in The Times of 11th March. At that time she said, "cutting off markets is not an effective way to improve human rights records",
implicitly suggesting that trade with Burma—and others, but we are talking today about Burma—should be accommodated and encouraged, but with none of the preconditions about which the noble Viscount, Lord Waverley, spoke.
It would be an untenable situation if that argument were to represent the endorsement of a fairly new attitude by Britain in this connection. What is more, it was shown to be a barren argument in relation to South Africa. I cannot believe for one moment that any Minister today would stand up in this House or in another place and say, as was said during the Thatcher Government, that trade with South Africa should be encouraged because it was helping to release new forces in that country. That is the very reverse of an accurate reflection of what was happening, as displayed notably by the Americans. It is unlikely in the extreme, unless one had preconditions such as those described by the noble Viscount, Lord Waverley, that to trade with Burma at this time could do more than be seen by the Burma authorities as condoning what is happening. Perhaps "condone" is the wrong word. It would display an indifference about the savage destruction of human rights that continues.
The demands that have been made by Amnesty International, which I shall briefly rehearse, are those which this Government ought to be demanding in the councils of the world and for which they should be seeking support. They are: first, the immediate and unconditional release of all prisoners of conscience; secondly, that all prisoners should receive proper medical attention and that international standards of decent treatment should prevail; thirdly, that there should be made public a list of all political prisoners released since April 1992 when Declaration 11/92 came into effect.
The fourth demand by Amnesty International is that all death sentences should be commuted to terms of imprisonment; the fifth is that all civilians subjected to forced portering and unpaid labour should be released; the sixth is that the forced relocation of villagers in circumstances where people are compelled to remain in
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another area because of their ethnic origins, should be ended; and, finally—to reiterate something said by the noble Lord, Lord Avebury, in his comments—that international human rights organisations (for example, UNHCR, the International Committee of the Red Cross and representatives of the Interparliamentary Union) should be allowed into Burma and permitted free access to prisons and other places of detention and to ethnic minority areas.
Those demands are perfectly reasonable. They should be the policy of the Government and I hope that we shall hear from the Minister along those lines and not along the lines suggested by the noble Baroness—rather uncharacteristically, if I may say so.
2.19 p.m.
Lord Inglewood: My Lords, I am grateful to my noble friend Lady Cox for initiating this debate and to noble Lords for the many useful points which they made. The situation in Burma remains one of concern to the Government. We and our European Union partners have always made our views plain, most recently in the European Union statement on 13th March about the latest offensive against the Karen, which states inter alia that:
"The European Union wishes to express its grave anxiety at the continuation of military operations against the last pockets of resistance of the KNU on the Burmese/Thai border, in total opposition to the policy of national reconciliation preached by the Burmese Government. Its wishes to reiterate in this connection its hope that a peaceful solution will be found quickly to the problem of the ethnic minorities".
We suspended non-humanitarian aid in 1988, imposed an arms embargo in 1991 and severed all remaining defence links in 1992. We have consistently applied pressure on the ruling military regime—the State Law and Order Restoration Council (SLORC)—both bilaterally and in international fora, to make progress towards national reconciliation and democratic reform.
Our policy, and that of our European partners, is one of "critical dialogue" with the SLORC. We do not believe that total isolation of the regime will assist the Burmese people. It is important that the regime understands that Burma cannot hope to regain its place in the international community unless it implements fundamental democratic and economic reforms and improves its human rights record.
"Critical dialogue" aims to influence the SLORC to implement liberalisation and political change. It is important that SLORC is made aware that normal relations with the European Union depend on progress in key areas. That is an essential pre-condition.
The ultimate goal of the policy we share with our European partners is to influence the SLORC to implement liberalisation and political change to achieve a peaceful, stable and democratic Burma led by a government freely elected by Burmese peoples which respects human rights. The current process is far from democratic and we continue to stress the need for real democratic reform. We fear that the national convention preparing the guidelines for a new constitution is not progressing towards this ideal. The convention does not reflect the outcome of the 1990 free elections; there is a pre-scripted agenda; and pro-democracy groups are given

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little opportunity to express their views. We have urged, and will continue to urge, the SLORC to hold open and productive discussions with all representatives of the pro-democracy groups, including the ethnic groups, on the formulation of a new constitution.
We believe that true national reconciliation will only result from the ethnic groups, among whom are the Karen but it is not the only one, and political parties being allowed to participate fully in the political process. We continue to urge the SLORC to enter into dialogue with these groups and we co-sponsored a recent resolution at the United Nations General Assembly which made specific reference to the need for SLORC to enter into a dialogue with ethnic groups. United Kingdom officials maintain informal contact with representatives of pro-democracy groups in exile. The establishment of a peaceful and prosperous Burma depends on the input of all ethnic groups.
We remain concerned at the human rights situation in Burma. In particular, we condemn the use of forced labour and military portering of the kind described by the noble Lord, Lord Avebury. We have consistently pressed on all appropriate occasions for international condemnation of the use of forced labour and portering. We also deplore the high level of internal displacement within Burma itself and the lack of provision for the most basic human needs. Our most recent action has been to co-sponsor toughly worded UN resolutions both at the United Nations General Assembly in December and at the United Nations Commission on Human Rights.
We have always maintained the importance of keeping UN involvement in Burma. Not only do we press for strong resolutions in the General Assembly and the Commission on Human Rights but we fully support the work of the special rapporteur, Professor Yokota, and the Secretary-General's "good offices" missions. We welcome further visits by the Secretary-General's envoys and hope for a greater degree of co-operation from SLORC.
We see United Nations action as one of the most effective ways to draw Burma to the attention of the international community. We therefore welcome the report of the special rapporteur on human rights for Burma. We fully support his conclusions about continued human rights violations in the country and regret the limited co-operation he received from the SLORC and the denial of access to Aung San Suu Kyi and other political leaders. We are concerned about the intimidation of others who wish to contact him. We continue to urge the SLORC to permit the special rapporteur further visits to produce an accurate assessment of the situation in Burma and urge them further to co-operate with the UN Secretary General's visiting envoys.
We shall consider carefully the suggestion made by the noble Lord, Lord Avebury, about the involvement of the ILO in Burma. But it is important to remember that our policy on Burma is part of a European Union policy.
I understand the anxiety of all noble Lords about that remarkable lady and Nobel laureate, Aung San Suu Kyi. Her continued detention without charge is indefensible and in flagrant contradiction of all principles of justice. We have repeatedly called for her early and unconditional
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release and have issued statements to that effect. We are particularly disappointed that SLORC has extended Daw Aung San Suu Kyi's detention until 11th July, and that it continues to hold many other political prisoners. We are particularly concerned that the regime has not yet acceded to International Red Cross requests for rights of access to Burmese prisons. We do, however, welcome the recent release of senior pro-democracy figures and encourage SLORC to resume meetings with Aung San Suu Kyi and to develop a serious and lasting dialogue.
The noble Viscount, Lord Waverley, asked about the refusal of a visa from the Burmese Government for Dr. Michael Arts. I understand that the United Nations Secretary-General has urged the Burmese authorities to issue a visa for Dr. Aris to visit his wife in Burma. We support the Secretary-General's action and hope that the problem will be resolved soon.
I share the concern of your Lordships as regards the safety of the Karen people who were so movingly described by my noble friend Lord Cork and Orrery. We remember with gratitude the support that they gave us during the Second World War, resisting the Japanese invader, and we have the deepest sympathy for their present plight. I am sure that all Members of your Lordships' House hope that this debate may, to some extent at least, help to improve the circumstances in which they find themselves.
With our European partners, we made a démarche to the SLORC in Rangoon on 5th February to protest against its attacks on the Karen. We reinforced that action by calling in the Burmese ambassador here in London two days later to underline our message. The European Union also issued a public statement on 13th March expressing our concern at the recent offensive and reiterating the hope that a peaceful solution would be found to the problem of Burma's ethnic groups. We deplore the actions taken by the SLORC and will continue to monitor events closely.
As was pointed out by my noble friend Lady Cox, and the noble Lord, Lord Avebury, the area of most immediate concern is the safety of the Karen refugees who have fled to Thailand. Obviously we are concerned for their safety and have encouraged the Thai Government to ensure that the refugees are treated humanely and will not be returned to Burma until it is safe to do so. Recent reports of raids on camps several miles across the Thai border have caused us disquiet which fuelled our concern. We are monitoring the situation carefully with the help of NGOs.
We encourage the Thai Government to ensure that the Karen refugees are treated humanely and the Thai Government have recently expressed their concern about the recent incursions by the Burmese Army and the Democratic Karen Bhuddist Army into Thailand. We shall monitor the situation closely and will await a further response from the Thai Government.
We are aware that there are Thai forces along the Burmese border but we are not aware of the level of protection which they can offer. But the Thai Government have expressed their commitment to offering protection to the refugees and we shall continue to encourage them to offer such humanitarian assistance.

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I understand the concerns expressed by the noble Baroness, Lady Cox, that chemical and biological weapons have been used against the Karen. The United Kingdom deplores any use of bacteriological and chemical weapons. Burma is an original Biological and Toxin Weapons Convention signatory, but has never ratified the convention. We would naturally condemn activities in any breach of the spirit or letter of the convention.
The Chemical and Biological Defence Establishment at Porton Down has analysed samples of equipment allegedly used to transport bacteria against the Karen, but found no conclusive evidence. The UK Government are willing to consider and analyse carefully any new evidence of their use in Burma or elsewhere. If evidence is presented to the UN, a United Nations inspection team may be asked to investigate.
The noble Lord, Lord Clinton-Davis raised the matter of trade. In the past year Britain's trade with Burma amounted to only £13 million. This gives a necessary perspective on our activities. We cannot and should not prevent British companies from exploring opportunities. There is no European Union trade embargo and other nations are in no way restricting their trade. It would be inappropriate to offer official financial assistance to companies or to list Burma as a priority market under the DTI's export initiative. We must not forget that trade access and the consequent maintenance of a western presence may provide leverage over the SLORC.
The noble Baroness raised the question of the British Week. This was a small-scale affair funded mostly by the private sector. It aimed to give British firms a chance to assess for themselves any opportunities that there might be in Burma. We took the opportunity afforded by that occasion to reiterate our concerns. This was an opportunity to promote Britain in its entirety, with important cultural and information elements. The commercial participants received no official support, and HMG contributed only a small amount to cover administration. We have no plans for further events. Such a cautious policy on commercial activity complements the strong political message that we continue to send to the military regime. When advising United Kingdom business visitors and potential tourists to Burma we ensure that they understand our view of the regime, our concerns about human rights and the lack of democratic freedoms.
Some noble Lords have raised the possibility of further action. I appreciate the concern for the Burmese people that lies behind such a call. We share that concern and have considered how best to help them, but we do not believe that sanctions will be effective without international support, which we do not judge to be forthcoming. Furthermore, while we do not wish to offer any succour to the regime, we do not believe that to isolate it entirely will necessarily benefit the Burmese people.
We remain worried by the military activities of the SLORC. Although we have no reliable information on arms purchases, we are concerned by recent reports of continued expansion of the armed forces and rising military expenditure. We have raised our concerns about Burma's arms purchases with Burma's neighbours on a number of occasions, but have no reliable information
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about the major suppliers of arms. The United Kingdom has given full support to the European Union's arms embargo of 1991. We severed all remaining defence links in 1992 and have encouraged like-minded countries to do the same.
The noble Baroness raised the question of aid to Burma. We maintain a distinction between developmental aid—which I am sure your Lordships agree is inappropriate in the case of Burma—and humanitarian aid which helps the people rather than the regime. Together with our European partners, we suspended all EU and bilateral non-humanitarian official aid in 1988, and we will not consider resuming such aid programmes until we are satisfied that real changes have been made, including a significant improvement in respect for human rights.
I can assure your Lordships that not only do we support existing UN endeavours in Burma, but actively initiate projects and resolutions. We support the work of the UNDP, UNICEF, UNHCR and UNDCP. We have taken a major role in securing UNDP agreement to redirect programmes towards grass roots activities, which give no assistance to the military regime but provide real help to the people of Burma. The withdrawal of UN projects will only hurt the ordinary Burmese people who most need our help.
Thus far, I have focused my remarks on the position of Burma and our own country and the European Union, but we must not overlook Burma's neighbours and the part they may play. The ASEAN countries share the same objective: to see a democratic and prosperous Burma that is able to play a full part in international affairs. Although there is a difference in emphasis between us, we believe that dialogue with Burma's neighbours is one of the most effective ways to influence the SLORC. We take every opportunity to urge ASEAN members to use their influence with the SLORC to achieve the reforms that we all wish to see, because Burma wants to have closer links with them.
The interest shown by the House in the plight of Burma, and in particular the Karen people, reflects our genuine wish to see democracy, freedom and full respect for human rights restored in that country. I have described in some detail a number of areas that are of concern to the Government and are very properly causing anxiety to your Lordships. I believe that not merely are the Government's actions a sign of our concern but that they represent the most realistic way in which pressure can be exerted for the re-establishment of these rights in that tortured country. For their part, the Government will continue to work closely with European Union colleagues and other like-minded states to help bring about the reforms that we all wish to see.

Building Societies (Joint Account Holders) Bill
Returned from the Commons with the amendments agreed to.
House adjourned at twenty-five minutes before three o'clock.