Lords Sitting of 27 February 1995

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

Hearing Aids: Mail Order Selling
Lord Ashley of Stoke Lord Ashley of Stoke asked Her Majesty's Government:
Whether they will take steps to bring mail order selling of hearing aids under the regulatory framework of the hearing aid Acts.
Lord Inglewood: My Lords, extending the coverage of the Hearing Aid Council Acts would require primary legislation. Before seeking parliamentary time for such a change, we would need to be convinced that it was necessary.
Lord Ashley of Stoke: My Lords, is not the noble Lord aware that there is a convincing case for primary legislation, because the failure to include mail order firms in those hearing aid Acts means that unscrupulous advertisers can sell inappropriate aids to deaf people with no possibility of detecting any of the 13 prescribed medical conditions which could be detected by a fully qualified prescriber? Surely it is in order for the Government to extend that legislation to protect all people who buy hearing aids, including the most vulnerable and the most gullible.
Lord Inglewood: My Lords, we are aware of the noble Lord's concerns about mail order hearing aids, but many of the advertisements fall foul of the new version of the British code of advertising practice. If that is the case, it follows that if a complaint is lodged with the ASA the advertisements will not be placed and therefore the trade will be curtailed severely. I should like to emphasise that loss of hearing is an extremely serious condition. Anyone who is concerned about it should seek proper medical advice rather than buy a hearing aid indiscriminately.
Lord Ennals: My Lords, what consultation has there been with some of the organisations involved? I am thinking of the Royal National Institute for the Deaf and SENSE, but there are other bodies. What consultation was there about my noble friend's proposal before that rather negative reply was given?
Lord Inglewood: My Lords, I am sorry that the noble Lord thinks that my reply was negative. We believe that the action provides safeguards. On the first part of his question, I am not in a position to enumerate the details of what has been done, but I shall write to the noble Lord with the information.
Lord Finsberg: My Lords, in declaring an interest, will my noble friend differentiate between catalogue
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mail order and the mail order to which I think the noble Lord, Lord Ashley, was referring, which is advertised in the national press, because the catalogue mail order trade is carefully self-regulated, and, I believe, has a high reputation?
Lord Inglewood: My Lords, I thank my noble friend for that helpful comment. We are concerned, as I hope I made clear earlier, about those people who merely buy a hearing aid, from whatever source, by mail order without knowing whether it is suitable for their needs. Those who supply hearing aids in a responsible manner to qualified dispensers are obviously operating differently.
Lord Molloy: My Lords, is the noble Lord aware that I can participate in debates in your Lordships' House thanks to a NHS hearing aid and the wonderful NHS staff whose work is so thorough? Despite the fact that some Members opposite do not agree, we should put on record our appreciation of the remarkable work that they do and that of those who construct the hearing aid which is probably the best in the world.
Lord Inglewood: My Lords, I am delighted to hear that the noble Lord is a satisfied customer and such a good example of the activities of the NHS. I just hope that all noble Lords feel grateful when they can hear every word said at the Dispatch Box.
Lord Swinfen: My Lords, in answer to a previous question my noble friend said that this trade could be controlled by the ASA. What sanctions does it have?
Lord Inglewood: My Lords, if a form of advertising is held to be in breach of the British code of advertising practice, the media will not place the advertisements that the advertisers are trying to put out.
Lord Peston: My Lords, I am rather puzzled by the noble Lord's Answer. The legislation which deals with the ordinary sale of hearing aids must have a purpose. Why do the Government believe that there is no need to apply that legislation to mail order selling? Is the noble Lord aware that for my part, there is no stronger red rag to a bull than being told about lack of legislative time? When one thinks of what the Government find time for, they might find time to do something useful. However, this matter is puzzling. Was mail order selling originally left out on purpose or is it a mistake which needs rectifying?
Lord Inglewood: My Lords, the origins of this matter go back to the Hearing Aid Council Act 1968. When it was introduced, it was intended deliberately that the National Health Service would be outside the scope of the Act. Secondly, at that time it was not imagined that there would be mail order selling of that product at all. The crucial part of the Act provides that a dispenser of hearing aids is regulated. A dispenser is defined as:
"an individual who conducts or seeks to conduct oral negotiations with a view to effecting the supply of a hearing aid".

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Obviously, the National Health Service is excluded because it does not negotiate with a view to supply, and mail order is excluded because it is not an oral transaction.
Baroness Gardner of Parkes: My Lords, is this situation parallel to that which applies in relation to glasses whereby buying them off the shelf may or may not help? Is there any question of hearing aids being harmful? Do customers have any protection under the Trade Descriptions Act if they lose their money?
Lord Inglewood: My Lords, I understand that appliances are more likely to be useless rather than dangerous. If a product is purchased which is clearly unsuitable for the purposes for which it is intended, customers will be able to get their money back. Ultimately there is the sanction of the criminal law.
Lord Ashley of Stoke: My Lords, as the Royal National Institute for the Deaf has been mentioned, I should state that I am president of that body, although I am not paid. Is the Minister aware that the noble Lord, Lord Molloy, is quite wrong: the hearing aids provided by the health service are not the best in the world? But that is a different question which I promise the Minister I shall raise again in a few weeks.
The Minister mentioned the advertising code of practice. Some of those unscrupulous advertisers are too clever for that. They get round it by manipulating the language. Therefore, that is no real answer. I hope that the Minister will reflect and perhaps return with a different answer, perhaps by letter.
Lord Inglewood: My Lords, we must be clear that the British code of advertising practice is interpreted according to the spirit and not the letter of what it contains. It has a very wide scope. As regards hearing aids, I understand that an improved range of National Health Service hearing aids will be available from 1st April.

NIREX Rock Characterisation Facility
2.46 p.m.
Lord Beaumont of Whitley Lord Beaumont of Whitley asked Her Majesty's Government:
What are the terms of reference for the public inquiry into the NIREX rock characterisation facility.
The Minister of State, Department of the Environment (Viscount Ullswater): My Lords, the Secretary of State for the Environment has today issued, under the provisions of Rule 6(10) of the Town and Country Planning (Inquiries Procedure) Rules 1992, a statement of the matters about which he particularly wishes to be informed for the purpose of his consideration of the appeal by NIREX against Cumbria County Council's refusal of planning permission. I have arranged for details of the statement to be circulated in the Official Report and for a copy of it to be placed in the Library.
Lord Beaumont of Whitley: My Lords, I am extremely grateful to the Minister for that helpful reply.
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Will the Government make sure that all the points raised by Cumbria County Council are open to discussion? Secondly, will they also ensure that all questions raised by the Royal Society report—The disposal of radioactive waste in deep repositories—of November 1994 on the evaluation of the NIREX scientific programme will be considered by the public inquiry?
Viscount Ullswater: My Lords, the list of issues about which the Secretary of State wishes to be informed for the purposes of the consideration of the appeal is not a straitjacket. It does not prevent other matters being raised at the inquiry, such as those put forward by Cumbria County Council. It is for the inquiry's inspector to decide on their relevance and whether he should permit evidence to be called on other matters.
Lord Williams of Elvel: My Lords, will the Minister assure the House that that will be a public inquiry in the full sense of the term and that there will be no restrictions?
Viscount Ullswater: My Lords, it is a normal planning appeal inquiry. We believe that it provides adequate opportunities for interested parties to make known their views and for relevant issues to be explored fully and appraised carefully before a decision is reached.
Lord Cavendish of Furness: My Lords, I declare an interest as a director of United Kingdom NIREX Limited. Is my noble friend aware that, as Cumbria County Council has pointed out, the proposed rock characterisation facility is intended to be for research only and is not to be a licensed nuclear facility? Does my noble friend agree that in finding a safe disposal site for radioactive wastes, knowledge is required to establish whether or not the geology is suitable? That is precisely why a rock characterisation facility is needed.
Viscount Ullswater: My Lords, yes, I agree with my noble friend Lord Cavendish. The RCF is intended for the purpose of research to assess the geological characteristics of the area and to allow informed decisions about whether to proceed with a repository to be taken at a later date. Any plans to go ahead with a repository would be subject to separate planning applications and consultations.
Lord Williams of Elvel: My Lords, is the noble Viscount aware that he seems to have agreed with his noble friend that the rock characterisation facility is necessary; in other words, he appears to have pre-empted the result of the public inquiry?
Viscount Ullswater: My Lords, it is for NIREX to decide whether it is necessary to continue with the research. That is why it has put in the planning application. If we are to go ahead with the burial of low or intermediate waste, I believe that such a research facility is required.
Lord Flowers: My Lords, as chairman of the Royal Commission whose report published 20 years ago led to the creation of NIREX, I have two related questions for the Minister because I am becoming somewhat

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confused. First, as the RCF is being considered because it will enable the properties of rock to be determined in the rock mass underneath the selected site for waste disposal, does the Minister agree that until the RCF has been constructed, measurements made and the scientific results evaluated, no inquiry can asses the suitability of the site for eventual waste disposal? Secondly, will the Minister confirm that, even if we were to abandon nuclear power altogether tomorrow and decommission all the nuclear reactors, the nuclear waste which has already accumulated would require substantial, safe underground storage?
Viscount Ullswater: My Lords, I believe that it is the view of scientists that some form of deep-waste disposal site is required. In answer to the noble Lord's first question, I should stress that the research has been concentrated at Sellafield where the drilling of some 25 boreholes has been tested and monitored along with a full range of regional geophysical and mapping surveys and that RCF is purely the next step. However, it is, of course, subject to planning permission.
Lord Beaumont of Whitley: My Lords, will the Government ensure that the names and the whereabouts of the 10 unnamed sites considered by NIREX for 1989, and the results of the investigations carried out by the company on those sites, will be available to the inquiry?
Viscount Ullswater: No, my Lords; I do not believe that that would be correct. After all, the inquiry is purely on the site as regards a particular form of rock characterisation. To name other sites which may have been looked at does not serve that purpose.
Lord McIntosh of Haringey: My Lords, in answer to two previous questions the Minister said that such a facility is necessary. However, is it not the case that a public inquiry on the application will have to take into account the issue of whether or not such a facility is necessary? Therefore, has not the Minister twice pre-empted at least one part of the issue before the public inquiry?
Viscount Ullswater: No, my Lords, not at all. I said that it was government policy that such a facility is necessary. The question is whether the RCF should be built at Sellafield.

Falkland Islands
2.53 p.m.
Lord Morris Lord Morris asked Her Majesty's Government:
Whether they have noted the observations of the ambassador-designate of the Argentine Republic, Senor Rogelio Pfirter, concerning the Falkland Islands.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, we noted the observations on the Falklands made by Ambassador Pfirter to the press in Buenos Aires on 6th February which we find
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objectionable. We have made our views on the matter very clear to Ambassador Pfirter and to the Argentine Government.
Lord Morris: My Lords, I am most grateful to my noble friend the Minister for her response. While I appreciate the difficulty that Ambassador Pfirter faced in that he had to answer questions from the press while standing shoulder to shoulder with his employer—namely, the President of the Argentine Republic —does my noble friend agree that it is, really most unhelpful to make such remarks in that context?
Baroness Chalker of Wallasey: Indeed, my Lords; we agree. However, from the exchanges between the new Argentinian Ambassador and our Permanent Under-Secretary in the Foreign and Commonwealth Office, I know that the Ambassador clearly regrets the exchanges with the press which led to the reported observations.
Baroness Blackstone: My Lords, in the light of the importance of a political settlement with Argentina, both from the point of view of a long-term relationship with Argentina and the long-term interests of the Falkland Islanders, can the Minister give the House an assurance that such a political settlement will be pursued with some urgency, despite the unfortunate and unhelpful remarks made by the Argentinian Ambassador?
Baroness Chalker of Wallasey: My Lords, as I told the House last week, we have regular high level exchanges with the Argentine Government on a wide range of issues. I believe that the Argentinian Government have shared our desire to maintain a real improvement in our bilateral relationship over the past few years. From the visits of members of Her Majesty's Government, and, indeed, from the activity of British investors, it is quite clear that good relationships are developing. However, I believe that we must hasten slowly in the matter and ensure that the preparations for better relations are most thoroughly prepared.

Income Gap
2.55 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
What steps they are taking to ensure that the income gap between rich and poor in the United Kingdom does not widen.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, the Government believe that giving people choice and opportunities, encouraging success and promoting wealth creation is the best way to safeguard the living standards of all groups. Our policies enable people to take advantage of opportunities through improved education and training, help the unemployed get back into work and protect the vulnerable by targeting help where it is most needed.
Noble Lords: Hear, hear.
Lord Molloy: My Lords, I thank the Minister for his reply. But I am not sure that he would get two or three

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cheers from the thousands of people who are unemployed. Unemployment is the greatest threat to any country. Therefore, will the Minister consider what growing unemployment has done to countries in Europe and the threat that it posed to this country in the 1930s? Ought it not perhaps to be taken most seriously? I know that the Minister cannot give me an answer immediately. But is he prepared to consider calling in the CBI, the TUC and the chambers of commerce—they would willingly help this or any Government—to help ensure that unemployment does not grow and that, therefore, especially in view of today's news, it does not threaten our country?
Lord Mackay of Ardbrecknish: My Lords, the noble Lord is quite right to put his finger on unemployment as one of the major problems when it comes to looking at the bottom decile. However, perhaps I may point out to him, and, indeed, to the House, that over the past year or so unemployment in the country has fallen by over half a million and is now well below the level found in the countries of some of our major European competitors. But we are still not completely satisfied, as shown quite clearly in the Budget Statement of my right honourable friend the Chancellor of the Exchequer last November, when he announced a package of benefit and employment measures worth almost £700 million in order to help get more of the unemployed back into work.
Earl Russell: My Lords, in his first Answer the Minister spoke of improvements in education under this Government. Can he mention just one of them, because I cannot think of any?
Lord Mackay of Ardbrecknish: My Lords, I am more than delighted to assist the noble Earl in that regard. However, as he comes from a university background I am surprised that he should ask such a question. In 1979 one in eight benefited from higher education; now it is one in three. More young people than ever are staying on in education and training: about 90 per cent. of 16 year-olds and 75 per cent. of 17 year-olds. I should have thought that the noble Earl would be aware of those figures. They certainly show the progress that has been made in further and higher education under this Government.
Baroness Farrington of Ribbleton: My Lords, can the Minister explain how the Government intend to tackle rising unemployment when they stand condemned by employers in the private sector construction industry for reducing investment in the fabric of our schools, our colleges and our homes in this country as part of their Budget strategy? That leads to job losses, lack of training opportunities and an increase in poverty.
Lord Mackay of Ardbrecknish: My Lords, I am sorry that the noble Baroness does not understand what a decrease in unemployment means. Despite there being half a million fewer people on the unemployment register now than over a year ago, we still talk about increasing unemployment. The noble Baroness is quite wrong in that respect. Further, if she studied page 71,
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Volume 2, of the Rowntree Report (which probably not many people managed to get into) she would see that improvements in education and training for unskilled workers are important, as is, in the European case, restructuring of taxation, especially payroll taxes like employers NIC, to reduce the relative costs of unskilled workers to employers. That is what we are attempting to do by refusing to sign the Social Chapter and to go along with some of the expensive desires of our European friends, and of the party opposite, which would actually make our competitive position in the world even worse.
Lord Avebury: My Lords, does the Minister accept that access to further and higher education varies enormously from one area of the country to another and that the average figures that he mentioned conceal those enormous variations? Can he say, for example, how many children in the London Borough of Lambeth gained access to further and higher education in 1979 and 1985 respectively and whether as a percentage of the total the number of children leaving school without any qualification at all has decreased or increased since 1979 in that borough?
Lord Mackay of Ardbrecknish: My Lords, I am not in a position to answer the question about the London Borough of Lambeth, but if the noble Lord puts down a Question to that effect I am sure it will be answered. I would give the noble Lord the figure I gave for the whole country. It is obviously an important one, as are the comparable figures, which I do not have to hand but which we all know about, which show the improvement that has come about in the qualifications of school-leavers, which is self-evident if the number going to university has increased from one in eight to one in three.
Lord Ennals: My Lords, does the Minister accept that some of us feel a certain sense of resentment that he should imply that we have not read the Rowntree Report which this House is debating on Wednesday? I can assure him that many people on this side of the House have already done so. But since he is in that sort of mood, so am I. I was surprised to see this Question on the Order Paper, as my understanding of the philosophy of the party opposite is that it is precisely to do this—to ensure that the rich get richer and the poor get poorer.
Lord Mackay of Ardbrecknish: My Lords, perhaps I may draw the noble Lord's attention to another part of the report which refers to one of the options that the noble Lord has just mentioned; that is, the poor are getting poorer. The other option is that more people are getting poorer. However, the report states that, by and large, it is the second of these options which seems to have happened particularly as unemployment has risen. Of course the snapshot taken by the Rowntree Report was of the situation two or three years ago, before unemployment started to fall. I would suggest that a snapshot taken today, with half a million fewer people out of work, would look slightly different to that of three years ago.
Baroness Seear: My Lords, will the noble Lord reassure my noble friend Lord Avebury that things in

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Lambeth are improving greatly since there have been so many successes of Liberal Democrats being elected to the council?
Lord Mackay of Ardbrecknish: My Lords, I would hate to get into a discussion between the noble Baroness and her noble friend Lord Avebury. But clearly, if there have been such successes, he has not caught up with them.
Baroness Hollis of Heigham: My Lords, returning to the reply which the Minister gave to my noble friend Lord Ennals, is he aware of the remarks of John Maples just a couple of months ago when he said:
"The reality is now that the rich are getting richer on the backs of the rest who are getting poorer"?
Does the Minister agree with the deputy chairman of his party?
Lord Mackay of Ardbrecknish: My Lords, if I remember the piece of paper which the Opposition have quoted from at length—they do not normally quote from government or Conservative Party documents at such length—Mr. Maples was talking about the perceptions that some people have. I know that the Opposition hate to think about it this way, but the simple fact is that the vast majority of people in this country are markedly better off than they were in 1979.
Baroness Hollis of Heigham: My Lords, I hope that the Minister will allow me to come back on this point. I think perhaps he misheard the quotation. John Maples did not refer to perceptions. He said:
"The reality is now that the rich are getting richer on the backs of the rest who are getting poorer".
Does the Minister still quibble with his honourable friend?
Lord Mackay of Ardbrecknish: My Lords, I quibble with Mr. Maples in that regard because, while undoubtedly there are some people who are poorer, there will always be a bottom decile, although sometimes one would not think so when one reads the Rowntree Report. But the fact is that the great bulk of our people have seen their standard of living increase immeasurably.
Lord Archer of Weston-Super-Mare: My Lords, can my noble friend confirm that those in the lowest income group have a far higher standard of living than they did in 1979? Is it not also true, since 1979 and 1992, that the average growth for a household in this country is 36 per cent. above inflation? Is it not true also that pensioners now have an average growth of 56 per cent. above inflation? When will the other side work out that since 1997 we have had a Conservative Government who have made these things possible?
Lord Mackay of Ardbrecknish: My Lords, my noble friend is of course right in what he meant to say and equally right, I am quite sure, in what he says about the future! I can confirm, as I have already mentioned, that average incomes have risen by over a third —by 36 per cent.—between 1979 and 1991–92. It is also particularly encouraging that pensioners have done well during this period, with an average increase of 56 per
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cent., and far fewer are represented in this bottom decile than were represented when the party opposite left power. It is one of the little contradictions that one reaches only towards the tail end of Volume 2 of the Rowntree Report the fact that the least well-off, as represented by the bottom 20 per cent. by income, have seen a rise in the possession of consumer durables: telephones and central heating are up by over a half. Half have motor cars and video recorders and nearly a fifth have home computers.
Lord Ashley of Stoke: My Lords, instead of the selective use of figures, as shown by the noble Lord, Lord Archer of Weston-Super-Mare, and instead of the standard, smooth party political answers which he has read from a carefully prepared brief, will the Minister bear the following in mind? There is in Britain today a growing underclass of people who are deeply embittered and they are becoming alienated from our society. Given the Right-wing drift of this Government, unfortunately encouraged by the Prime Minister, I fear for the future. I hope—this is a general point—that the Minister and his colleagues in government will reflect on the alienation of this growing underclass, because it is dangerous for our democracy and our democratic health.
Lord Mackay of Ardbrecknish: My Lords, I would not disagree at all with the noble Lord about the problem of an underclass—perhaps we can debate whether it is growing or not—which is caused not just by economic but also by behavioural reasons. We shall probably debate how far those are connected on Wednesday. I hope that I made at least some positive contribution when I mentioned that we take seriously the need to look for ways to continue the fall in unemployment, which, as I said—I underline this again because people seem unable to accept it —has added up to more than half a million in the past year and a bit.

Business
Lord Strathclyde: My Lords, at a convenient moment after 3.30 p.m., with the leave of the House, my noble friend Lord Mackay of Ardbrecknish will repeat a Statement being made in another place on Barings.

Environment Bill [H.L.]
3.8 p.m.
Viscount Ullswater: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the amendments for the Report stage of the Environment Bill be marshalled and considered in the following order—

Clause 1,

Schedule 1,

Clauses 2 to 12,

Schedule 3,

Clauses 13 and 14,

Schedule 4,

Clauses 15 to 19,

Schedule 5,

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Clause 20,

Schedule 6,

Clauses 21 and 22,

Schedule 2,

Clauses 23 to 60,

Schedule 7,

Clause 61,

Schedule 8,

Clauses 62 to 66,

Schedule 9,

Clauses 67 to 73,

Schedule 10,

Clauses 74 and 75,

Schedule 11,

Clauses 76 to 87,

Schedule 12,

Clause 88,

Schedule 13,

Clause 89,

Schedule 14,

Clause 90,

Schedule 15,

Clauses 91 to 94,

Schedule 16,

Clauses 95 to 97,

Schedule 17,

Clauses 98 to 105,

Schedules 18 to 20.—(Viscount Ullswater.)

On Question, Motion agreed to.

Law Reform (Succession) Bill [H.L.]
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(The Lord Chancellor.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 1 [Intestacy and partial intestacy]:
Lord Mishcon Lord Mishcon moved the following amendment:
Page 1, line 10, leave out ("14") and insert ("28").
The noble Lord said: On Second Reading I ventured to suggest that the survivorship period under an intestacy should copy what the practitioners in the law have been doing for a long time in regard to the making of wills. I then suggested that the period of 14 days was too short and that the period of 28 days would be more satisfactory.
The noble and learned Lord, with his usual graciousness, considered that suggestion and was kind enough to write to me in certain terms. I prefer that he paraphrases those terms, not I. I beg to move.
The Lord Chancellor: When the Law Commission considered this question it took the view that 14 days was an appropriate survivorship clause interval to adopt as part of the general law. In the light of his great
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experience as a solicitor, the noble Lord, Lord Mishcon, suggested at Second Reading, as he mentioned, that that was a rather short period in present circumstances and that in practice a period of 28 days would be better.
I have considered the suggestion carefully in the light of the information I have about current practice, and I have concluded that the noble Lord, Lord Mishcon, is right and that it would be an improvement to the Bill to substitute 28 days for 14 days. I advise the Committee to accept the amendment.
On Question, amendment agreed to.
Clause 1, as amended, agreed to.
Remaining clauses and schedule agreed to.
House resumed: Bill reported with an amendment.

Avon (Structural Change) Order 1995
3.12 p.m.
Viscount Ullswater Viscount Ullswater rose to move, That the draft order laid before the House on 9th February be approved [9th Report from the Joint Committee].
The noble Viscount said: My Lords, I beg to move that the draft Avon (Structural Change) Order 1995, which was laid before your Lordships on Thursday 9th February, be approved.
I am conscious that this is the second of these orders which has been put before your Lordships recently, and that we are likely to be considering many more over the coming months. I shall therefore try to focus my remarks on those issues which are specific to Avon.
Apart from a few minor points, this order implements the Local Government Commission's recommendations for Avon. Its effect will be that on 1st April 1996 the Avon County Council will be abolished and replaced by four unitary authorities. The existing authorities of Bristol and Woodspring will be retained, and will be given unitary powers. Woodspring is to be renamed North West Somerset. The existing authorities of Bath and Wansdyke will be abolished, and replaced by a single unitary authority to be called Bath and North East Somerset. The existing authorities of Kingswood and Northavon will also be abolished and replaced by a further unitary authority to be called South Gloucestershire. There is a point here about continuing and new authorities, to which the noble Baroness, Lady Farrington, refers in her amendment, and to which I shall return later.
In the absence of clear agreement on alternative names for the unitary authorities, the Government have concluded that they should not make any change to the names recommended by the commission. However, authorities retain the power to make changes to names if they resolve to do so. No doubt that is an issue which some of the unitary authorities in Avon will wish to consider.
I should like to emphasise that this order is not a judgment on the performance of the existing local authorities in the area. That is not what the review of

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local government is about. It is about finding the best form of local government for the future in each area, and that is why this order is before your Lordships today.
I should say also that in Avon there has been a generally constructive debate about reorganisation and the implementation of change. The Government have not agreed with every point that has been put to them but have considered them all very carefully. The debate has been conducted in a sensible and non-partisan way. The Government welcome that.
The Government believe that authorities which are to assume unitary status should be given a fresh democratic mandate. There will, therefore, be whole council elections to all four unitary authorities in May this year. All four authorities will then have responsibility for planning and budgeting for change before they assume responsibility for the full range of local government functions on 1st April 1996.
In future, the three councils outside Bristol will hold whole council elections every four years, although if they decide later that they want to move to elections by thirds it will be open to them to ask for this. The Government have no view about which system is preferable. Bristol will return to its current arrangement of elections by thirds from 1997, as was requested by the authority.
Warding arrangements for the two new authorities are as recommended by the commission, except for the correction of a minor technical error in South Gloucestershire. There are no changes to the current warding arrangements for Bristol and North West Somerset.
The commission also recommended the abolition of the county of Avon and its return to Somerset and Gloucestershire for ceremonial purposes. The order abolishes the county area of Avon and provides for Bristol to be a county in its own right as it was before 1974, with its own lord lieutenant and high sheriff.
As in the case of other areas for which orders have already been placed before your Lordships, we shall be making separate provision to put into effect the Local Government Commission's recommendations for ceremonial arrangements elsewhere in the present County of Avon. We shall be providing that, for ceremonial purposes, Bath and North East Somerset and North West Somerset will be part of Somerset, and South Gloucestershire will be part of Gloucestershire.
Once the order is made, all authorities in the area will have extra duties and powers to start preparing for reorganisation. They will each be under a duty to co-operate in implementing change. Unitary authorities will have access to the information which they will need. Once the new councils for the four unitary authorities have been elected, they will have further powers to make the necessary preparations, including setting budgets and recruiting staff, for the functions they take over on 1st April 1996. They will be required to consider whether any of their new functions would best be discharged through voluntary joint arrangements with other authorities. Taken together, these provisions will ensure that there is a smooth transition to the new structure, with proper safeguards for essential services.
In addition to the legal framework, I understand that all of the local authorities in Avon have been working well together for a considerable length of time now to ensure a smooth transfer of services. The council leaders and chief executives, as well as specialist officer groups, have been working in the county. In the area of each unitary authority, members of all the councils involved have been working formally together, following an agreed work programme.
In her amendment to the Motion, the noble Baroness, Lady Farrington, regrets that two of the present authorities in Avon are to continue and gain unitary status. I am sure it would help noble Lords if I set out the Government's thinking on this. Where an existing authority, as a result of reorganisation, assumes responsibility for new functions but its area is unchanged, that authority continues. The Government simply have no powers to abolish it. However, where a unitary authority has new boundaries not based on the existing boundaries of a previous authority then that authority may be new. Therefore, in Avon, Bristol and North West Somerset will be continuing authorities. South Gloucestershire and Bath and North East Somerset will be new.
Much has been made of this. Fears have been expressed. The Government have been told that it is unfair, since the continuing authorities will have an advantage. For instance, it is said that they will have an inside track on recruitment since they can get the recruitment process under way now, before the new authorities have come into existence and therefore will get the first pick of the staff available.
The Government do not agree. As soon as the order is made, all the authorities involved have new powers and duties to start preparing for reorganisation. They also all have to co-operate. So, Bath and Wansdyke, for example, can start work towards reorganisation just as much as Bristol. But the Government are very clear that the decisions on how the new authorities will run their affairs should be made only after a new mandate has been obtained. The order says the authorities cannot make decisions or appointments until after the elections in May. But in May all four unitary authorities will have identical powers to do those things. So the essential point is that when new powers are given to authorities, they are given to all who need them.
I know that there is concern about the impact of reorganisation on local government staff. The Government have always made it clear that in areas affected by reorganisation, they expect that the majority of local government staff (some 90 per cent.) will simply become employees of the successor authorities. All front-line service providers, such as teachers, care workers, etc. will transfer by statutory transfer order, ensuring continued provision of services during reorganisation. The Government accept that TUPE (the Transfer of Undertakings (Protection of Employment) Regulations) are also capable of application to local government reorganisation, but each case will depend on its facts.
The Government have also made regulations (which came into force on 28th December) providing for compensation in cases of redundancy arising from

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reorganisation. They have also recently consulted on draft regulations on general staffing matters and are considering the responses. Those regulations will provide, for example, for continuity of employment for transferred staff and appointment to new chief officer posts by open competition.
The order also makes specific provision in respect of a number of services. For the police, Articles 12 and 13 provide for the representatives of the four unitary authorities to replace Avon County Council's nominees on the Avon and Somerset Police Authority from 1st October 1995 for certain purposes, essentially so that they can be involved in decisions on the budget for 1995–96 and policing plans. Avon County Council's representatives will remain on the authority for all other purposes until that council is abolished.
For the fire service, the order provides for each of the unitary authorities to be fire authority areas. The Government will, in due course, be bringing forward proposals for a fire combination scheme, under the Fire Services Act 1947, so that the fire service will continue to be delivered over the present area.
As unitary authorities, the four Avon districts will be responsible for both strategic and local land-use planning for their areas. The Government are determined that there should be adequate arrangements for strategic planning in areas where reorganisation takes place. In the case of Avon, the commission proposed that the four unitary authorities should maintain separate local plans but work together on a joint structure plan. The Government have accepted that recommendation.
The draft order gives effect to it by transferring the county's strategic planning responsibilities to the four district councils. The Government look to them to make the necessary voluntary arrangements for joint working on the structure plan. The Government expect that the authorities in Avon will establish satisfactory arrangements to fulfil this important planning function.
The Government's policy is that there should be statutory arrangements only where absolutely necessary; they believe that voluntary arrangements are more accountable. In addition, they do not think that they should tie the hands of the authorities which will be elected in May.
In accordance with the commission's recommendations, each of the unitary authorities in Avon will inherit the county council's responsibilities for minerals and waste planning within their respective areas. This will enable them to work together on strategic minerals and waste planning policies in their joint structure plan.
The unitary authorities will also become responsible for preparing minerals and waste local plan policies and proposals for their areas. Article 15(2) of the order empowers the authorities to include such policies and proposals in their district-wide local plans.
Finally, the order vests the superannuation fund maintained by Avon County Council in Bath and north-east Somerset and designates Bristol as the relevant authority for the purposes of certain financial regulations.
The local government review and reorganisation in Avon have been the subject of a long and vigorous discussion. This has, not unnaturally, resulted in a degree of uncertainty for all those involved with local government in the area. This order will end that uncertainty. It is now time for authorities to set aside their past differences and work together to make a success of reorganisation and future local government in the area. The Government are confident that they will do so. I commend the order to your Lordships.
Moved, That the draft order laid before the House on 9th February be approved [9th Report from the Joint Committed.] —(Viscount Ullswater.)
3.25 p.m.
Baroness Farrington of Ribbleton Baroness Farrington of Ribbleton rose to move, as an amendment to the above Motion, at end to insert ("but that this House regrets that the draft order incorporates the unsatisfactory principle of "continuing" authorities and fails to deal adequately with the detail of the transfer of services.").—(Baroness Farrington of Ribbleton.)
The noble Baroness said: My Lords, my amendment to the noble Viscount's Motion refers simply to my anxieties—they are widely shared—about the legal framework put in place by the Government for the implementation of reorganisation. I wish to put on record in some detail what those shortcomings are. I begin of course by declaring an interest in this matter as chair of the Association of County Councils. However, I do not speak to your Lordships this afternoon in that capacity but as a Member of this House.
Before I proceed, perhaps I may argue that any change in local government is dependent on the widest basis of support from the local community within that locality. If the local community feels that its functions will be better provided for and carried out by the new, stronger framework, then the case for change can be made. I believe that other speakers, in particular the right reverend Prelate the Bishop of Bristol, will put before your Lordships local views drawing on local circumstances and detailed knowledge.
There are grave reservations about the changes proposed. Those are views with which I may wholeheartedly agree. However, the amendment does not deal with that basis but with some of the issues on implementation.
When the House debated the Cleveland (Structural Change) Order a few weeks ago, noble Lords described with great clarity the services, such as social services and education, which many perceived to be at risk during a process of fragmenting existing county services. In that debate the noble Lord, Lord Gisborough, was able to cite an expressive list of organisations which had questioned that change. I believe that your Lordships are aware of a variety of organisations in Avon which have expressed views. It is a point to which other speakers may return.
However, the process of change must not fracture or damage the continuing provision of services on which people rely. Therefore the amendment concentrates on grave doubts about the effectiveness and equity of the

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legal procedure followed by the Government. Despite its criticism of the structure proposed, Avon County Council has, as the Minister said, worked co-operatively with the full party support of members and officers from the district councils. I hope that noble Lords will join me in paying tribute to those members and officers in the Avon County Council area who have served their community so well during the past 20 years.
Avon County Council has a record of innovation and pursuit of excellence in its services of which it can be proud. Latterly the county has diligently sought improvements to the order. If there is a smooth transition from the current structure to the new structure, it will be due to the efforts of all those concerned in existing authorities. It is in that context that I wish to draw attention to some of the anxieties.
The Motion before the House refers explicitly to what I have called the unsatisfactory principle of "continuing" authorities to which the Minister referred in his introduction of the order. As your Lordships will be aware from our earlier debate on Cleveland, a flaw in the drafting of the Local Government Act 1992 means that wherever a new unitary authority is established on the same boundaries as an existing district or county, that authority is in legal terms a continuation of the existing authority rather than being wholly new, despite the radical change to its functions. The principle of the completely fresh start has been lost. This is quite against what was understood on all sides at the time of the Bill's passage.
The Government were warned, as soon as this flaw became apparent, of the damage it would cause. As the Isle of Wight—a unitary authority to be based on the area of the existing county council—proceeds to full-blown reorganisation this April, it is becoming sadly apparent how right the warnings were. Your Lordships will recall that the decision to have a unitary authority for the island was not controversial between any of the existing authorities. Moreover, officers and members from the county and districts deserve only praise for the hard work they have put in to make the transition to the new structure as successful as possible. However, all three authorities on the Isle of Wight are quite clear that they perceive the unsatisfactory nature of the procedure, as a continuing authority principle is enacted.
Planning for a fresh start with the new authority has been seriously impeded by the continuing authority problem. In particular, morale and motivation in the two district councils is low. Given the history of agreement on the island over the principles of the review, there is no reason to believe that it will suffer these problems more acutely than continuing authorities to be established elsewhere. Quite the opposite, indeed.
The order before the House abolishes Avon County Council, which currently provides services such as education, social services, libraries and highways. It will be replaced by four new unitary authorities. Two of these will continue. That is to say, the existing districts will continue and all the Avon services will be added on to that base. The two other new authorities will be totally new, with services and staff from both the county and the districts being taken on the same terms within a
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framework of equality of treatment. The latter two authorities will have no legal existence at all until after the shadow elections. This mixture of continuing and wholly new authorities has brought to light a complication not seen in either the Isle of Wight or Cleveland, and that difference matters very greatly. There are difficult decisions to be reached about the destinations of key staff and the future of county-wide services.
Were the Government to give a head start to some of the authorities in the Avon area but not others, it would be quite inequitable. The view that I have to put forward is shared by the districts destined to be subsumed into the two wholly new authorities. This issue was raised and discussed in another place. The Minister responsible for local government and housing sought to clarify and place on record the effect and meaning of the order. The legislation is extremely complicated, as the Minister speaking in another place confirmed.
I should therefore be grateful if the Minister could confirm in his reply that the Government recognise that it would be inequitable were some authorities to have a head start on others. The Minister in another place stated that the order prevents a continuing authority from making any decisions before the shadow elections on behalf of that authority take place.
I shall prevail upon your Lordships' patience and set out as succinctly as I can the detail of the matter which the Government could help to clarify. Between the making of the order and the shadow elections this May, Article 20(1) enables transferor and transferee authorities to
"take such steps as appear to them to be necessary for the purpose of preparing for the transfer and exercise of functions which will, on and after the reorganisation date, be exercisable by the transferee authorities by virtue of this Order".
However, the scope of that preparatory power is limited by sub-paragraph (2) (a). It states that after shadow elections transferee authorities alone shall,
"make such arrangements for organisation and management and such appointments of officers as are necessary to secure the proper performance of those functions".
It would be very helpful if the Minister were to provide in his reply a few examples of things that authorities may and may not do between the making of the order and the shadow elections. Also, could he confirm the view of the Minister responsible for local government and housing that, before the election of the new authorities, existing authorities cannot make appointments? In particular, I should be grateful if he would confirm that continuing authorities may not draw up job specifications for posts relating to the new functions and advertise and interview for such posts.
Finally, can the Minister also confirm that when references are made to joint preparatory work before the May elections, it is his understanding that that work should include both the existing tiers in the area of the new authority, whether or not that authority is, in legal terms, continuing or wholly new.
If the Minister can provide reassurance on those issues, it will go some way to establishing a fairer basis for change, although it would be unrealistic to believe that even after the shadow elections the continuing

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authorities will not have something of a head start in purely practical terms. The secondary legislation can only ameliorate the problems caused by the Act itself, not overcome them.
I should be grateful if the Minister can also spell out in detail why it is that Article 19(2) requires transferor authorities to furnish other authorities with information, but does not require transferee authorities to do the same. Is there a thought that authorities winding down their operations will never need to know anything from the new authority taking them over?
Out of respect for your Lordships' time, I wish to refer only briefly to the fact that Avon County Council and members have sought some clarification on the issue of continuity. There is also a concern about how the transfer of functions is being carried out with regard to the new authorities. Can the Minister clarify the loose arrangement of statutory responsibility during the transfer? Does he understand that a transferor authority may retain a power associated with a statutory duty, even if it no longer has that duty? What actual difference in law and practice does he understand placing the duty with the new authority, rather than leaving it with the outgoing one, makes for the transferor? Lastly, does Article 11(2) (c) of the general regulations apply automatically to the areas of the wholly new authorities? If so, how is the clear prohibition on certain activity reconciled with the interpretation of the order by the Minister responsible for local government and housing?
I apologise for the detail of the questions which I have raised. This is an extremely important and serious issue. The order does not have enough detail about the areas of transfer of services and functions and the problems that will face those who are trying to cope with the area referred to by the Minister—the transfer of the police and the transfer of other functions. Strategic planning remains a concern; statutory bodies are important to provide vital services. I know that the Council for the Protection of Rural England will have regrets that the umbrella bodies which hold the services together will be undermined by this order.
The Government's intention as to the final pattern of local government in England is not yet known. But that need not lead to a piecemeal approach to dealing with the technical issues that are raised by any reorganisation. Detailed discussion needs to take place. Avon County Council is concerned that it does not feel that it has been consulted either through meetings or through correspondence with the department on the detail of transferring these functions. I hope that the answers that I shall receive to some of the important questions I have raised will help to resolve some of the very real, detailed and grave concerns at local level. I beg to move.
Moved, as an amendment to the Motion, at end to insert ("but that this House regrets that the draft order incorporates the unsatisfactory principle of 'continuing' authorities and fails to deal adequately with the detail of the transfer of services.").—(Baroness Farrington of Ribbleton.)

Barings
3.40 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, with the leave of the House, I should like to repeat a Statement made in the other place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:
"With permission, Madam Speaker, I would like to make a Statement about the insolvency of the merchant bank Barings. The Bank of England announced late last night, ahead of the opening of the Far East financial markets, that Barings was unable to continue trading and was applying for administration.
"Barings' problems have arisen from major losses caused by unauthorised dealings by the chief trader in its Singapore incorporated subsidiary. The losses arise from contracts on the Singapore, Osaka and Tokyo exchanges. At the close of business last week total losses appear to have been in excess of £600 million. Crucially, these contracts have further to run, exposing Barings to further unquantifiable losses. As a result, Barings was unable to continue to trade without the injection of substantial new capital.
"As the Bank of England announced last night, the British banks were prepared to supply all the capital needed to recapitalise Barings but only if it were possible to cap the potential liability of the outstanding contracts. In the event this did not prove possible. Other parties were not prepared to take on open-ended and therefore unlimited liabilities. The governor did not recommend, and in any event I would not have agreed, that public funds should take on these liabilities. Regrettably, in the circumstances there was no alternative to Barings having to apply for administration.
"Although it was not possible at the end of the day to recapitalise Barings, I would like to take this opportunity to pay tribute to the governor and his staff and the London financial community for their commitment over the weekend to the search for a solution.
"I would stress to the House, Madam Speaker, that these circumstances are unique to Barings and should not apply to other banks operating in London. The Bank of England is ready to provide liquidity to the banking system to ensure that it continues to function normally. Deposits at Barings are, of course, at the moment frozen and the extent of any losses on them will not become clear for some time. The deposit protection board will be writing to all of Barings' depositors potentially eligible for assistance.
"Madam Speaker, the House will be rightly concerned about how such huge unauthorised exposures could be allowed to happen and build up so quickly without the knowledge of the company, the exchanges or the regulators. I am determined to address that question rigorously and to review the regulatory system thoroughly in the light of this collapse. However, before we come to any firm conclusions, it will be necessary to establish in detail

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the facts of the case. These were transactions conducted on the far side of the world by overseas subsidiaries on overseas exchanges. There may be some falsification of the relevant records within the subsidiaries concerned. It will take some time to unearth the full and detailed catalogue of events and the methods employed to evade all the required management and regulatory controls.
"I have asked the Board of Banking Supervision to investigate fully and urgently all aspects of this episode and to report back to me. The investigation will include the circumstances under which such unauthorised transactions were able to take place and to remain undetected until too late. The board will need to work closely both with Barings and with the Singapore, Osaka and Tokyo exchanges. The House will recall that the Board of Banking Supervision is chaired by the Governor of the Bank of England and comprises six independent members and three members appointed ex officio from the Bank.
"I can assure the House that I am determined that, when the full facts are known, all the appropriate lessons will be drawn and that any necessary corrective steps will be taken.
"In today's global markets, the regulatory tasks are international and must be tackled internationally. Over the past two years, with other Finance Ministers in the G7, the G10 and the IMF, I have taken part in discussions of the need to ensure effective regulation of international dealings in derivatives and other instruments in high technology 24-hour trading conditions. The problems are obvious but practicable solutions are less self-evident. No system of regulation can ever guarantee total security. There is always the chance of unwise or fraudulent dealing by one or a group of individuals. The better the bank's systems and controls the less likely this is to happen. Every regulatory authority and every bank must now be considering what further steps it can take to protect itself against this sort of risk.
"Madam Speaker, I will report back to the House at the earliest opportunity on our analysis of this case, the lessons to be drawn and any proposals to strengthen security in highly complex financial markets. I would expect to publish a full report on the facts of the case subject only to the need to protect the legitimate confidentiality of innocent third parties and my other legal constraints.
"Meanwhile we must also be concerned about the implications of this for the employees of what was, until a few days ago, a successful and highly respected firm. The administrator will no doubt take early steps to clarify the position of the 4,000 or so employees, some of whom will be needed to administer the assets of the business and many of whom work for successful and profitable businesses for which purchasers will no doubt be found. Some redundancies will be inevitable but the employees in this country will of course be able to rely on a measure of statutory protection in the event of their employer being so insolvent that difficulties arise in the payment of salaries and redundancy payments.
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"This failure is of course a blow to the City of London. But it appears to be a specific incident unique to Barings centred on one rogue trader in Singapore. There has inevitably been some turbulence in the markets since the announcement but global markets should be quite strong enough to absorb it without lasting damage since these events have not changed any of the fundamentals that underline foreign exchange, equity and bond markets".
My Lords, that concludes the Statement.
3.48 p.m.
Lord Peston: My Lords, I thank the noble Lord for repeating the Statement made by his right honourable friend the Chancellor of the Exchequer. I am aware that I and any of us who wish to comment on the Statement or ask questions must be sensitive to the effect of anything that we say on the value of sterling. Although I am second to none in my willingness on other occasions to criticise the Government's economic policies, I agree with the last sentence of the Statement; namely, it seems to me that the Chancellor is entirely right when he says that nothing that has happened in the past few days has changed any of the fundamentals that underline foreign exchange equity and bond markets, at least so far as this country is concerned. My own judgment, for what it is worth, is that certainly at the present time if anything sterling is undervalued and should not be moving in a downwards direction.
To turn to various aspects of the Statement, we have heard about losses in excess of £600 million. I assume that that is simply the Chancellor's best guess at this moment. There must be a doomsday scenario figure that someone in the Treasury must have which I assume is much larger. I do not know whether the Minister can enlighten us on that.
More to the point, given the nature of the transactions—I believe they are connected with the behaviour of various Japanese or Far Eastern stock markets—until the contracts are finally closed presumably we cannot possibly know the full scale of what is involved. Equally, I suppose that these contracts will close within not too long a period, given the kind of contracts we are discussing. One will then wish to have a statement on the total scale of the operation.
Obviously the Governor of the Bank of England was right to bring together last night those parties who could be helpful. Can the noble Lord enlighten us on whether there was any hope in what happened last night? I take the fairly ruthless view that if you engage in high risk financial activities in the hope of making a profit you have to accept that you may make a considerable loss; in other words, there is a downside risk, and that is the nature of the game that you play. I hope that no noble Lord will wish to be party to the view that it is the role of the Bank of England to meet these losses, certainly on an open-ended basis. I cannot see that the taxpayer can be asked to do that. Was there any hope of a formula being found? I am sure we all agree that, if there was a possibility of saving this bank, it would have been worth doing.

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That leads to a more general issue which I believe financial markets will wish to have explained to them. Since other banks can engage in precisely these activities while acting as banks, are we to believe that if the same thing happens in future—I do not mention any names in terms of clearing banks or anything like that—precisely the same line will be taken by the authorities, whether it be the Bank or the Treasury; namely, that in the end, if it is an open-ended commitment, they cannot guarantee any of it on a stop loss basis?
The Chancellor of the Exchequer is quite right when he says that he is determined to address the general question of regulation rigorously and thoroughly. He has told us what the Board of Banking Supervision will do. Surely we must support that. However, is the board capable of doing that job? In particular, will it be able to get all of the information that it needs to find out what happened? As the Statement makes clear, that body has to work closely with Barings and foreign exchanges in the Far East. What obligation do those exchanges have to be totally transparent and tell the Board of Banking Supervision all they know about what has happened?
That takes me to the matter of uniqueness. The Statement has used the word "unique". I have to say that I am not persuaded. I find it difficult to believe that this is the only example of this kind of activity that has occurred. I ask whether in looking at the specific transactions the Board of Banking Supervision will have regard to perhaps a large number of earlier transactions at least undertaken by Barings and possibly the same trader. In order to get an understanding of what has happened it must not be assumed that this is unique; we need to approach it with an open mind and ask what more generally has been going on.
The Chancellor has said that he is determined to discover the full facts and to learn the appropriate lessons. He has also said that he will report back to the House at the earliest opportunity. I hope that that also means that there will be a report back to your Lordships' House. I remind your Lordships that not very long ago I had to deal with a similar Statement relating to BCCI. At that time I said that it would be appropriate for your Lordships to debate the matter. I remind the House that there has been a deathly silence from that day to this. We have not debated it and have not had a chance to say what lessons can be learnt from it. In some ways this matter is more important. Once the facts have been established, an opportunity must be found for your Lordships to look into it in detail and debate it.
I am totally sympathetic to what the Chancellor has said in his Statement. I wish to be as supportive as possible when he says that these regulatory tasks are international and must be dealt with internationally. He says that the problems are obvious but the practical solutions less self-evident. I agree with that. Nonetheless, I feel that we can do better. I hope that the Chancellor in grasping this nettle is saying essentially that he is determined, together with international colleagues, to produce an agreed regulatory framework without destroying international markets and freedom of operation in international markets.
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I raise one other matter of a slightly delicate kind. I can see who the losers are to some extent but in this kind of esoteric finance we have the classic problem of seeing precisely who are the gainers. Do the Government at this stage have any information to indicate that anything of a fraudulent kind has been going on? One view is that we are discussing incompetence; another is that we are discussing fraud; and a third view is that we are discussing both. I should like to know whether we can be enlightened on that or whether the Minister's answer at this stage will simply be that he does not yet know. I must be right in saying that among the losers will be those who have deposits in Barings. One's immediate intuition is that perhaps they are simply big businesses: who cares about them? They have tonnes of money and this loss will be peanuts to them. I do not take that view. I do not know who the depositors are, but I guess that among them will be public sector institutions, or near public-sector bodies, which bank with Barings. Does the Minister have any information about that? For example, if there are such public sector institutions that bank with Barings, will they at least fall to be recompensed by the Treasury on the grounds that they are in the public sector and therefore need to be looked after?
Some of us will remember being taught in school about the Baring crisis which occurred 100 years ago. I feel very old when I now talk about a new Baring crisis and think that in future schoolboys and schoolgirls will be asked exam questions on both crises. Having said how serious it is, one has to keep a proper perspective. I believe that every day on the London markets about 90 billion or 100 billion dollars worth of foreign exchange is traded. In comparison with that, £600 million is not a lot. Though I do not withdraw my criticisms—and next time that we debate the economy I shall be my normal nasty self—I hope your Lordships will agree that in the end this is not the biggest event to have hit the world and I believe strongly that it is one with which we ought to be able to cope.
Lord Ezra: My Lords, this is a sad day for the banking system. It is an occasion when the matter should be dealt with responsibly, as has the Minister in presenting this matter and as has the noble Lord, Lord Peston, in responding to it. I was also impressed by the way in which the Governor of the Bank of England dealt with it in a radio interview this morning.
In my time in industry I have dealt with many merchant banks, Barings among them. I have always had the highest regard for the expertise and the great historical associations that Barings has had. It is sad that that great name in banking will, as far as we can tell, no longer be there. Having said that, I believe that we must ask some general questions about the trade in derivatives which seems to have caused this crisis.
Derivatives as such are a perfectly legitimate way of hedging against known risks. For example, a company which is trading in a big way overseas and wants to hedge against currency or interest rate fluctuations is perfectly entitled to use that form of trading. However, not only has it become extremely sophisticated; it has

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also become an area of pure speculation. It is that speculative aspect of derivative trading which is the cause of concern.
Barings has taken up most of the space today in the newspapers but the Midland Bank has also announced its results. In the detail one can see that this year the profits from dealing have been reduced by over £550 million compared with last year. Midland Bank has great resources and was not prevented from making a substantial overall profit. Nevertheless, that is a further illustration of the massive fluctuations that can result from that form of trading.
We live in a global economy of high technical sophistication. Great deals can be made at great speed, emanating from any part of the world and moving to any other part of the world. Therefore, this issue is not one that we alone can resolve. The noble Lord, Lord Mackay, said that this subject had been raised several times at the level of the G7. I wonder whether the Government now intend to propose an emergency meeting of whatever grouping of the G7 is relevant in order to re-examine the issues.
It is satisfactory to note that the Government intend to conduct a very detailed inquiry and come forward with proposals. Like the noble Lord, Lord Peston, I too hope that we shall be able to debate them in this House.
The most worrying aspect of the affair is what will happen to the depositors. This case concerns a merchant bank with probably a limited number of depositors, many of them large companies. It must, however, also touch some individuals. But, as the noble Lord, Lord Peston said, if by some mischance or misfortune such a thing should ever happen to a clearing bank, then the situation with depositors would be much more serious. I entirely agree that we must tackle this matter cautiously and prudently. Nonetheless, we must consider the implications for the future.
We are justified in asking the Government, in their national and international role, to reassure us that they have looked again at the whole issue and have taken material, additional steps to try to prevent anything like this situation happening on this scale or possibly on an even greater scale in the future.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lords, Lord Peston and Lord Ezra, for the careful and responsible way in which they responded to the Statement of my right honourable friend the Chancellor. I am particularly grateful to the noble Lord, Lord Peston, for underlining the points made by my right honourable friend in the last sentence of his Statement.
I was asked a number of questions and shall try to respond as quickly and as briefly as I can. The Statement mentioned that the losses were in excess of £600 million. Indeed, I can confirm to the noble Lord, Lord Peston, that some of the contracts have some time to run and it will therefore be a little time before the full extent of the losses are quantified. The noble Lord quite rightly pointed out that taking part in high risk business means that there are minuses as well as pluses. There is little doubt about that.
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Both the noble Lords asked what we would do if any other bank got into similar circumstances. It is not easy to respond to such a theoretical question. It depends greatly on the circumstances. As I said in the Statement, in this case the problem was the unlimited exposure on these outstanding contracts, which still had some time to run, and the very tight timescale in which the banks and the Bank of England had to manoeuvre and to put together a package. That had a lot of bearing on this particular matter. Clearly, other banks may have been and were prepared to come in and see whether they could help; but they were looking for some kind of cap on the unlimited liabilities and that was not available.
I was asked a question about the Board of Banking Supervision and what it will examine. Of course it will look at earlier transactions and indeed at every aspect of this case which it considers relevant. With regard to obtaining information, the Bank of England has extensive powers to glean information under the Banking Act 1987. Inevitably, it will have to rely on co-operation from overseas supervisors and exchanges. We have no reason to believe that the necessary information will not be forthcoming.The noble Lord, Lord Ezra, suggested that my right honourable friend the Chancellor might ask for an emergency meeting of the G7. I am not sure what is in my right honourable friend's mind in that respect. I should have thought that the first step is for the inquiry by the Board of Banking Supervision to report. We shall then be in a position to know exactly what happened and the steps that we should take.
To answer both noble Lords, the facts are not known in detail but it is clear that the chief dealer in the overseas subsidiary broke all the firm's internal control procedures and limitations by collusion and deceit. It appears that there may have been wider collusion and fraud. Only a full investigation will determine the facts.
With regard to deposits, the Bank of England has indicated its willingness to provide liquidity to the market so that the banking system can continue to function normally. The Deposit Protection Board will be writing to all Barings' depositors eligible for assistance under its scheme.
The noble Lord, Lord Peston, asked whether any public funds were at risk. Some public funds were on deposit with Barings. It will not be known for some time whether any losses have been incurred in that regard.
I hope that I have managed to answer at least the main questions asked by the two noble Lords.
4.7 p.m.
Lord Barnett: My Lords, I very much agree with the Chancellor that there was no way that he could use public money, much as he may have wished to save a bank as large as Barings and as important to the City. The Bank of England could not have provided such public money. It would have been quite wrong to have provided money for an uncapped liability.

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On the other hand, I find it incomprehensible that the main board of Barings did not sufficiently monitor the bank's employees around the world and allowed this kind of situation to arise. That is, however, an entirely different matter.
With regard to the Deposit Protection Board and its relationship to small depositors—I am sure that there will be such depositors—including public sector depositors, the noble Lord mentioned that they would he eligible for assistance. I am not quite sure what that means. Could he clarify that for me? Does it mean that if public sector bodies, which to a large extent might rely on government grant to survive, have lost some of that money, the Deposit Protection Board will provide resources to enable them to continue? Would it provide resources, which —much as we may regret what has happened—would be essential to keep those public sector bodies going?
Clearly, there will be some assets left in Barings and I imagine that they will be quite substantial assets. Can the noble Lord say, in the current circumstances in a bank of this size, what would be the order of priority for payment as between unsecured creditors, secured creditors, preferential creditors and depositors? I am sure that that information would be helpful to small depositors who have lost—or believe that they have lost—a lot of money. Will the noble Lord clarify that situation?
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lord, Lord Barnett, for the reaffirmation he made at the beginning of his question regarding the need to protect public funds and the fact that the taxpayer could not be asked to stand behind this problem, but I am not entirely sure that I am grateful for some of his further more detailed questions and comments. However, I shall take refuge in the response that I shall write to him about the priority for payments from secured and unsecured creditors in this instance.
As far as we can tell, no public sector body is in the position envisaged by the noble Lord. As I mentioned earlier, it will be some time before we can get a proper grasp on the quantity of money involved. Clearly we shall need to look at any specific problems that arise in that regard. The Deposit Protection Board will help small depositors to a limit of 75 per cent. of £20,000. Therefore, the maximum the protection board will help a single depositor will be to the tune of £15,000.
Lord Boyd-Carpenter: My Lords, perhaps my noble friend can clear up one point. The press generally has stated that the decisions taken on behalf of the bank in Singapore from which all this arose were taken by a very junior official, apparently without reference to his superiors. Can my noble friend confirm whether that is so? If so, is it not a reflection on the way in which the bank is administered?
Lord Mackay of Ardbrecknish: My Lords, I can certainly confirm that the chief dealer in the overseas subsidiary of Barings in Singapore appears to be the individual who brought about this problem, as I have already said. I should perhaps say that clearly the check
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sand balances in place at the time will be, and have been since this matter was exposed towards the tail end of last week, of considerable interest to Barings and the people who are to investigate.
Lord Hooson: My Lords, following the question asked by the noble Lord, Lord Boyd-Carpenter, is it correct that the dealer in question was only 26 years of age? Bearing in mind the awesome power he had over high risk investment, is that a unique situation in the banking industry?
Lord Mackay of Ardbrecknish: My Lords, my briefing does not contain a confirmation of the age of the individual concerned. However, I believe I saw his age stated in the newspapers as being either 26 or 28 and I have no reason to doubt that. I believe that the people who work in that rather tense environment are fairly young. Whenever I see television pictures of the floors of stock exchanges, the dealers seem to me to look, dare I say, like policemen—and getting younger by the year.
Lord Shepherd: My Lords, the Minister may be correct in that it is relatively young people carrying out those operations. But would he not agree that they are responsible to the management within whichever organisation employs them? Though it may be true that the individual concerned was a rogue, I hope nevertheless that the inquiry will he looking at the systems of control and discipline within Barings, particularly in Singapore and perhaps in London, to see how it was possible for one trader on his own to bring a bank of this repute to its knees in such a short time. It is not simply a question of how a rogue could do it, if he was a rogue, but how it is possible that he was able to do it within our banking system.
4.15 p.m.
Lord Mackay of Ardbrecknish: My Lords, the Board of Banking Supervision, in its investigation, will be asking exactly the questions posed by the noble Lord; that is, how it happened, how such unauthorised transactions were able to take place and how they could remain undetected by the checks and balances one would expect to be in place.
The Earl of Halsbury: My Lords, I pointed out to the House on an earlier occasion that nowadays people engaged in this class of transaction mature in their mid-20s and are burnt out by 35. They cannot operate as fast as they are required to operate. The rate of information exchanged, with all the computer accessories and so forth, must involve an uprating of the rate at which information reaches the management. At this time it is not necessarily the fault of any specific management; this had to happen at some time, somewhere, before we learnt our lesson.
Lord Mackay of Ardbrecknish: My Lords, I am sure that the noble Lord makes a valid point in relation to the speed and the 24-hour nature of transactions of all kinds around the world. In regard to somebody being able to do naughty things, in the past it would have been

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a slower operation. Nowadays, with the use of modem super-highways and the like, it can be done readily and quickly.
Lord Boardman: My Lords, my noble friend referred to the willingness on the part of banks in the City of London to inject initial capital if it had been possible to cap the liability. He referred to the difficulty of capping because of the uncertainty. Will my noble friend consider whether it will be possible at an early date to agree a cap on the basis that the certainty of a sum promised today with additional capital may be better than the uncertainty of what can be obtained from a bank in default? In that event, does he consider that the City of London may still be willing to put in additional capital or underwrite the debts rather than suffer the far greater losses that may flow from default in the City?
Lord Mackay of Ardbrecknish: My Lords, I am not a great expert in these matters. I should have thought that, with the administrator now in place, the die has been cast in that regard. As I expressed earlier to the House, the problem was the unlimited exposure. Added to that—perhaps I did not underline this point sufficiently—was the fact that a decision had to be arrived at before the opening of the Far East markets late yesterday evening. That meant that people were fighting against the clock as well as against the problems of the unlimited liabilities.
Lord Mishcon: My Lords, perhaps I may first emphasise a point made by my noble friend Lord Peston. It is apparent from the questions and comments that have arisen in your Lordships' House on this tragic matter that this House is possessed of an expertise and wisdom which, for the sake of the nation, make it important that we should have the opportunity to discuss the matter in full when the Government are prepared to make a further Statement. Having said that, can the Minister say whether the investigation into fraud is being left to the Singapore authorities or whether, with our great experience, we are sending an assistant body of people from this country to help?
Lord Mackay of Ardbrecknish: My Lords, the principal investigation on the ground will be undertaken in Singapore. The point was underlined in the Statement that these events happened on the other side of the world, involving regulatory authorities and subsidiaries that exist there. Therefore, while the investigation set in train by my right honourable friend will be thorough and complete in every detail, much of the work will have to be done on the other side of the world, especially with regard to establishing what happened on those stock exchanges.
I was asked earlier whether the administrator could renegotiate contracts. I believe that that was the point of the question asked by my noble friend Lord Boardman. I am advised that he can renegotiate contracts on behalf of the bank. In relation to the debate and the report back, in the Statement I read to the House my right honourable friend said that he would report back to the House at the earliest opportunity. I have little doubt that, if he does that via a Statement, I shall be asked to come here and
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repeat it. I shall pass on to the usual channels the suggestion of a debate. However, I do not think that there is any point in debating the matter until the report is received.
Lord Bruce of Donington: My Lords, I support my noble friend Lord Mishcon in requesting that some time should eventually be allotted to the House so that we can discuss this matter further. Your Lordships will be aware that over the past two years there has been contemplated in many circles—by no means confined to any one party—the desirability of broadening and extending the role of bankers within our society and indeed among countries. Will the noble Lord please take note that my reticence on this subject at the moment remains in abeyance for the time being and that when the time does arrive perhaps the circumstances will justify my suspicion that bankers in general are not the last repositories of human wisdom?
Lord Mackay of Ardbrecknish: My Lords, I think I get the drift of the noble Lord's argument. Perhaps we can at least agree that all this and everything else with regard to our knowledge of the world proves that bankers are only human as well.
The Earl of Lauderdale: My Lords, my noble friend referred to the duration of the uncapped liabilities. Is it a matter of days, weeks or months?
Lord Mackay of Ardbrecknish: My Lords, I am not able to quantify the time. My understanding is that it is more days than weeks. It may be months, but it certainly is not a very long time. Some of these things have come home to roost, so to speak, already. The young gentleman concerned has not been at this business for very many weeks. I think it will take a few months to quantify, but not very many.
Lord Desai: My Lords, perhaps it needs to be said, because no one else has said it—although my noble friend Lord Peston implied it—that we had a very similar situation with BCCI. I said at the time of the BCCI debate that the Bank of England is not very good at regulation whatever else it may be good at. I do not think it is very good to say after the event that someone far away did this and we did not know it. If we operate in round the clock global markets which are technologically advanced there should already be in place systems of control both at the merchant bank level and at central bank level which can foresee the problem. This problem did not arise in the past week. From what we can gather it has been going on for about two weeks. The person concerned has been buying in. He has been operating in put rather than call options for the past week. He has been adding to his liabilities. That should have been noticed long ago. He has bought around 15,000 contracts. If he has bought 15,000 contracts, why was no one aware of it? What systems of control does the Bank of England have to check the exposure of clearing banks and merchant banks to such problems? Every time this happens everyone says, "What a marvellous response we have made". It is usually said after the event and a bank has failed. I worry that if a clearing bank is exposed to such a risk—let us hope it does not happen—we will have a substantial bill on our

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hands. At that stage it will have to be said that it will be a tough burden for the taxpayer to bear because the mistakes will not have been those of the taxpayer but those of the bank managers and the bank regulators.
Lord Mackay of Ardbrecknish: My Lords, it is important that we have sensible and sound regulatory systems in place, but, dare I say it, it is perhaps only the noble Lord, Lord Desai, who thinks—I doubt whether even he thinks it—that that would necessarily prevent any kind of adverse situation arising, especially one which comes, as this appears to do, from someone behaving in a maverick way and breaking all the internal rules as well as all the other rules.
The noble Lord mentioned some other aspects. Those are exactly what the Board of Banking Supervision will be investigating, as indeed will the main regulator of Baring's Singapore subsidiary, which is the Singapore Monetary Authority. It has delegated its formal responsibility to an organisation called SIMEX, which is the Singapore International Monetary Exchange Limited. All these questions will be asked by it and we look forward to seeing the answers.
Viscount St. Davids: My Lords, I have to declare an interest in these matters as a director of a securities house which is also a subsidiary of a bank. My noble friend will agree, in answer to the noble Lord, Lord Desai, that if one is to contemplate any additional regulations in this market they would have to be agreed with every stock exchange, with every exchange involved in foreign exchange and with every user of those exchanges. We should not contemplate any legislation which places our banks at a disadvantage in international markets, however weak the regulatory bodies are in foreign countries.
Lord Mackay of Ardbrecknish: My Lords, my noble friend makes the point which was made earlier—we are dealing with an international market, international exchanges and international companies. It is all very well to call for regulation here in this country but, frankly, one has to look for sensible regulation and not overburdening regulation all around the world.

Avon (Structural Change) Order 1995
Debate resumed.
4.26 p.m.
Baroness Hamwee: My Lords, in moving a little nearer home and looking west rather than east, perhaps we can return to the Avon (Structural Change) Order. It is clear that the county of Avon—this is no reflection on the county councillors or on the staff—has not won hearts and minds. The artificiality of the new county was always clear. Though I accept that 20:20 hindsight vision becomes even clearer 20 years on, some might say that they had a fairly clear vision of the problems even then. However, this is no reflection on the councillors, the officers and all the staff of the authority, for whom I have the greatest sympathy. Carrying out
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good local government is hard enough; carrying it out in the circumstances in which they have to do so is even harder.
It has seemed to me from central London that the answer which most people in that area wanted to be able to give to the question "Where do you live?" is "I live in Somerset" or "I live in Gloucestershire". It therefore seems particularly odd that their aspirations are met by the provisions for ceremonial purposes contained within the order, though that is perhaps the least of the problems of an approach which deals with structure before function. I find it a little ironic that even that aspiration has been met only in the most peripheral way.
In the case of Avon, I support the creation of the unitary authorities in place of the existing authorities for the reason I have already given, but I have considerable reservations about the order. The Minister said that the noble Baroness, Lady Farrington, regretted that two authorities were to continue as unitary authorities. Whatever the noble Baroness's views about counties, districts and unitary authorities, I read her amendment as regretting the technicality of the continuation—continuing authorities in that sense—and not anything directed at the particular authorities. The noble Baroness nods her head.
Outside the order, but fundamental to it, is the question of financing. Perhaps I may ask some questions in this connection before turning to the order itself. I am aware of the announcement of supplementary credit approvals allowing the capitalisation of revenue costs in connection with the costs of reorganisation. However, as your Lordships will readily appreciate, supplementary credit approvals are not grant. After reading the announcement, some questions occurred to me. The first question which I hope the Minister will be able to answer is how in the forthcoming financial year, 1995–1996, this will relate to the cap for each authority. Will there be any relaxation of the cap to take account of the recognised need for borrowing and the costs that will be incurred in connection with that borrowing?
Secondly, how will the costs be treated from 1996 onwards? Will they be disregarded for the purposes of SSA, grant and capping? This matter extends to all the costs of reorganisation, not just those that will be met by borrowing that is approved through the supplementary credit approvals. I expect that the Minister will say that the costs will be balanced by savings. Although one hopes not only that that will be the case, but that savings will outweigh costs over a period, it is inevitable that in the early years the costs will outweigh the savings. That is why I seek clarification of how those costs will be treated in the early years.
The announcement referred to supplementary credit approvals for the shadow authorities after their election. I ask the Minister to take this opportunity to give a reassurance that they will be available to the authorities after they are elected. I have heard some concern expressed in the area that that may not be the case. I should like to ask the Minister to state that sufficient amounts will be approved, but I recognise that that is

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probably a meaningless question. However, some recognition of the requirements of the shadow authorities would be much welcomed.
Turning to the amendment, the House will be grateful to the noble Baroness, Lady Farrington, for expressing the concerns so succinctly in her amendment and so clearly in her speech. The noble Baroness apologised for the detail; but I believe that your Lordships will feel as I do that there was no need to apologise for that detail, which was extremely helpful. The Isle of Wight is a good example because there is consensus there about the objective and concern about the procedure. Although some of the points raised are different, that highlights the difficulties towards which authorities are heading, led by the format of the orders.
The noble Baroness referred to Article 21 of the order. I find that a difficult provision. It has been suggested that all outgoing authorities will be prevented from exercising their statutory functions. Is that so? Perhaps it will be the case if the reference to a "requirement" ceasing to have effect—that is the word used in the article—means that the transferor authority cannot deal with the subject matter at its discretion. Even if the article is not so tightly drawn, the transfer of responsibilities under the article will lead to real problems in the real world of real difficulties, even with the maximum of co-operation and goodwill.
Incoming authorities will not have the staff to take over immediately—nor the departmental or committee structures that will be necessary. I share the fears that have been expressed about the potential limbo for matters on which there is a statutory duty to consult. I refer, for example, to community care plans, to amendments to schemes for the local management of schools, and to school admissions.
Is Article 19 sufficient to cover the gap? I should be delighted if it signalled that the Government were open to local authorities having a power of general competence, but I do not think that that is so. Local authorities need specific powers. I, too, am concerned that, taken together, Articles 19 and 21 will not be adequate.
I also share the concerns about the effect on staffing and on individual staff. Although I shall not develop my anxieties about the latter now, perhaps I may endorse what has been said about the human element of the problem. I believe that Staff Commission Circular No. 4 encourages continuing authorities to restructure and to create as many new posts as possible as a way of getting round the distinctions in staffing and the need for staffing for the new authorities. Restructuring and creating new posts seems just the sort of artificiality for which central government criticise local government. I believe that that could be open to challenge in an industrial tribunal. Indeed, more restructuring must mean more redundancies and a higher redundancy bill. I am concerned about the fact that that is the recommended approach. Indeed, the fact that that has been recommended seems to point to an enormous defect in the order and in the procedure.
It has also been suggested that Avon and Somerset Police Authority will be unable in 1995–96 to consider matters relating to the period after April 1996 on the
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basis that members who will not be there after 1996 cannot take part in that decision-making process. I should be grateful if the Minister could clarify that point. If that is correct—I hope that it is not—I hope that the Minister can comment on how forward planning can be achieved in such difficult circumstances.
Authorities which presently provide services, including education and social services, appear to have no right to be consulted by the new authorities. No doubt that consultation will take place as a matter of good planning, but perhaps the Minister can assist the House by saying why that has not been included in the drafting.
I appreciate that I have dealt with a number of technical matters, but they are real matters to those who have to implement the order. Much reference has been made in debates on the reorganisation throughout the country to the need for an "early win", as the chairman of the commission referred to it. I notice that the Official Report of another place on this debate referred to an "early wind". The writer had perhaps misheard—or had perhaps put his own cast on the point. I wish the authorities a "fair wind", and I hope that they have a "win" and success. However, I join with the noble Baroness, Lady Farrington, in having considerable reservations both about the content of, and the omissions from, the order.
4.37 p.m.
The Lord Bishop of Bristol: My Lords, I must first declare an interest as a proud inhabitant of the city and county of Bristol. I address your Lordships' House in support of the amendment moved by the noble Baroness, Lady Farrington.
The Avon (Structural Change) Order which has been placed before your Lordships' House neither recognises the need for a unitary authority that would encompass the whole of the urban area of Bristol nor the desire of many to return to their former counties of Somerset and Gloucester. However, rather than encourage your Lordships to reject the order (because the process has already been painfully drawn out over the past three years to the detriment of those who work in local government as well as the people of Avon) I hope that the House will support the amendment.
I am delighted that so many people have spoken warmly about the councillors and officers of Avon and its local councils. Over the past three years they have worked very well together in trying to plan for the future. They are committed to the good of the people of Avon, despite some of the technical flaws which appear in the order. I should like to share three of those flaws with the House.
We have already heard much about the distinction between continuing and new authorities. There is a commitment on the part of all the local councils and the unions that all staff should be fairly and equally dealt with under a common approach. I hope that the noble Viscount will be able to give the House the assurance that the principle of a national detriment compensation scheme for local government staff who lose pay—I

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stress "pay", not posts—as a result of the restructuring will be honoured. That is an important point, and many look forward to hearing that assurance.
The House has already heard of the concern over planning which comes under Article 15. The Minister said clearly that the Government have decided that there does not need to be a statutory requirement for joint preparation of structural plans but that the plans are being devolved to the four local authorities. The travel-to-work area for Bristol and its surroundings will cover three unitary authorities. While it is fine to plan together when there is good will, the law is there when the good will is not to be found among the bodies concerned. The law exists to protect the worst situation, not to deal with the best. Although the Minister said that the Government did not believe it necessary, I hope that there may be a rethink in this area.
We have already heard about policing. I am delighted to hear the Minister claim that there will be a co-ordinating body with regard to the fire authorities, because many people are disturbed, at present and under the present order, about whether there will be co-ordination of emergency services. One authority has been promised. We trust that that will be the case and that it will come quickly.
The noble Baroness, Lady Hamwee, referred to the money required to effect the change from one pattern of local government to another. Many people feel that the cost of implementing the changes and the new authorities to provide services to the people of Avon is already underfunded for various reasons, not least the present system of calculating SSA. We hope that the Government will listen to the pleas that have come from local authorities, because we believe that the underfunding is detrimental to the people of Avon and the services which the four unitary authorities are being asked to provide. I hope that the House will support the amendment.
4.43 p.m.
Lord Peyton of Yeovil: My Lords, I am sure that my noble friend on the Front Bench would have liked to have been able to return to that august department of which he is a distinguished ornament and have said that the order had been welcomed warmly. It would be churlish of me if I did not say at a very early stage in my speech how grateful I am to his right honourable friend who, I recognise, is not the initiator of the commission but just the heir to its recommendations. He drew back from the commission's original idea of making a mess of Somerset. For that, I am genuinely and sincerely grateful. I hope that my noble friend will pass on my cordial thanks to his right honourable friend.
When the commission was first launched I thought what a very good idea it was to go around to find out what people wanted. Of course, I had taken a rather naive position. It appeared later that the Government had a clear idea of what they wanted to do; the commission was not at all slow to pick that up, and thereafter listened with attention to what the district councils had to say but did not do very much to find out what the general public thought about the proposals. So
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we had this rather difficult process of reversing the tide which at one time seemed to flow inexorably towards unitary authorities.
I had hoped originally that the whole exercise might produce an opportunity to restore Somerset to that state which it had enjoyed before being rudely dismembered in the early 1970s. Here I have, sadly, to make a confession: although I had no direct responsibility for that decision, nevertheless I had the doubtful privilege at that time of labouring in the DoE, and I am so sorry that I did not then express my distaste for the proposal.
I shall return to the order, which will leave the people of Avon labouring under four separate unitary authorities. I should like to express some doubt about the wisdom of separating so many of the arrangements from what is happening on the ground. To my mind, the value of ceremony is that it is linked with what is done. If we have ceremony which has no basis, it is apt to look foolish. I just wonder whether the Government have been wise in the rather papered-over compromise they have reached.
Joint arrangements for key services is a concept about which it is easy to talk, but, as the right reverend Prelate said —I agree with him entirely—when there is good will and no particular conflict, it is easy but when conflict arises it becomes difficult. The proliferation of boundaries which this arrangement will produce is a potential source of great difficulties. I agreed also with the right reverend Prelate in what he said about the boundaries of Bristol. It is rather odd that a large part of the urban area of the city should be dismembered. It is clear that the Government will have to return to that problem before very long. I must express some surprise that they did not seize the opportunity, take the bull by the horns and deal with it now.
There is then the argument about costs versus savings. Costs are real and immediate. People have to dip into their pockets to meet them. Savings are very much more remote and speculative. It is probably asking too much of my noble friend to make any precise forecast about when the savings might be realised and when the people who now reside in Avon will be the happy recipients of those benefits. It may not be until their grandchildren are affected or even after that. It is a bit remote for people to take present pleasure from.
I appreciate the difficulty my noble friend is in this afternoon. He said that the order would end the uncertainty. Well, maybe. A decision has been made, but it is a rather messy one. As he was more or less bound to, he said that the Government hoped and expected that everyone would now co-operate in a reasonable manner. But that is stretching optimism a bit too far. I am sure that it is within the recollection of all noble Lords that people are not always reasonable, particularly in areas of government. People defend their boundaries with real resolve and determination.
While I hope that everyone will be peaceful and happy under this arrangement, I fear that it is a messy one, of which the benefit, if any, will be long postponed and the enjoyment very small indeed. I shall not detain your Lordships further, but with the air of mild disapproval to which the noble Baroness characteristically and kindly restrained herself, I am

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willing to support her amendment. I feel sorry for my noble friend in that he is unable to go back to that awful department clothed in the garlands of a victor.
4.49 p.m.
Baroness Faithfull: My Lords, I hope that your Lordships will forgive me for speaking in the gap. I did not realise that there would be a Statement and I thought that I should not be back in time for the debate. I shall speak very briefly.
I am not at all clear about the decision with regard to staff and duties which require special knowledge and experience. As I understand it, the unitary authorities will stay in place and the staff will be added to them. Those staff will have to undertake duties which they had not previously carried out.
I wish to speak in particular about social services. It will be impossible for staff without the necessary experience and training to administer the law in the field of social services. What will be the position of members of staff who have devolved upon them duties which they have not previously carried out? Will provision be made for senior posts so that the departments are able to administer the requirements of the Children Act 1989, the Children and Young Persons Act 1933, community care and so on? All that needs training, experience and managerial structure. I am not clear about that and I should be grateful for some help on that matter.
4.50 p.m.
Baroness Hollis of Heigham: My Lords, I thank the Minister for introducing the order and I shall speak also to the amendment in the name of my noble friend Lady Farrington. It is clear that the principle of the orders for unitary authorities enjoys widespread local support, in fact, some of the strongest local support in the country. Some 72 per cent. of the population polled by the Local Government Commission favoured the reorganisation and only 16 per cent. were against it.
The order would ensure that Bristol which (with Norwich) until the Industrial Revolution, was one of the second cities of England, would regain the full competence that it enjoyed from the 14th century until 1974, as would the continuing authority of North West Somerset and the two new merged authorities of Bath and North East Somerset, one of which was Wansdyke and South Gloucestershire, and the other which was Kingswood and North Avon. In other words, of the six district authorities, two remain as is and the other four merge into two pairs of two.
As the Minister said, apart from Bristol, which has become both a county and a city, the local authorities will revert to Somerset and Gloucester for ceremonial purposes. But although those reorganisations enjoy a great deal of public support, some worries which I share have been quite rightly expressed by your Lordships, and I hope that the Minister will address them.
The first of those anxieties is that there is a problem about the continuing authorities. That was raised by my noble friend Lady Farrington. Two authorities are on the same boundaries and they are continuing; two are new. There will be all-out elections for the four authorities in
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May 1995—in nine weeks' time—whereupon the continuing and shadow authorities will have the same ability to plan, budget and employ. Nevertheless, Avon's staff have real and justified fears that in the continuing authorities, which have a two months' head start, there will be a presumption in favour of existing staff and that county staff may be disadvantaged. I know that the Minister in the other place expressed the hope that there will be honourable and decent solutions but it may be appropriate to issue more general guidance should that situation occur. It is unfortunate and we all recognise that.
There are two continuing authorities because they remain in the existing boundaries. As the right reverend Prelate said, that is clearly a matter of considerable anxiety in Bristol where existing boundaries appear to wander rather vaguely and absent-mindedly through the middle of people's back gardens.
I appreciate that the neighbouring districts of Kingswood and North Avon have no wish to see Bristol's boundaries enlarged at their expense. I realise also that the Local Government Commission ducked the issue and that the Boundary Commission has the power to follow that up subsequently. But at the very least, I believe that everyone agrees that a minor tidying up would have been sensible. The Secretary of State should have had the courage to do so in the light of local calls not only from the CBI but also from the local Labour Party and, this evening, from the Church.
I am less persuaded than is my noble friend Lady Farrington that there is a problem in relation to the transfer of services. On the contrary, many of us are confident that the districts, whose sizes range from 163,000 to nearly 400,000 people—larger than many existing London boroughs and metropolitan authorities—are entirely competent to perform the range of services. Certainly, the Audit Commission and the Local Government Commission agree with that.
It is appropriate also for the order to refer to statutory functions such as police and fire services. It would be unwise for the order to carry detailed arrangements for other services when the Secretary of State has the power to make subordinate and detailed legislation tailored to the local situation as required by Sections 19 and 22 of the Act. That detail should be dealt with not in the order but by supplementary regulations. That is a sensible way in which to proceed.
The same staff anxieties raised by the Cleveland order have not been allayed in relation to this order. I admit that all the authorities concerned have agreed to avoid compulsory redundancies before transfer and have agreed also to work within the national agreements on salary protection, as mentioned by the right reverend Prelate.
It is the case also that the compensation for voluntary severance for those under the age of 50 is less generous than it was in 1986. For the life of me, I do not understand why the Minister has not deemed it worthwhile to smooth what is inevitably a traumatic experience for the dedicated staff of Avon County Council with the more generous terms which were widely and properly applied in 1986.

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Finally—and this was a fear expressed by noble Lords on all sides of the Chamber—my wider fear is that the reorganisation is taking place against a background not merely of inadequate finance for the structural reorganisation itself but against a background of the most severe financial restraint ever experienced by a local government—a shortfall of £1.5 billion before the pay and price increases of next year. For example, my own authority of Norwich will have lost 40 per cent. of its staff in four years. Some of its services may disappear entirely. Sensible, moderate local authorities across the country propose to go beyond their capping limits with the support in many cases of all three political parties rather than in a year wreck what has been built up over decades. School governors are in revolt across middle England as they sack experienced teachers because they can no longer afford to pay their salaries.
I hope that the Minister appreciates that to cut local authority expenditure on services in real terms at the time at which the reorganisation is taking place is the deepest folly. Severe cuts, the closure of services and compulsory redundancies which authorities like mine may face for the first time in decades will be attributed to reorganisation when instead it is due to the SSA determination and the revenue support settlement.
For local government reorganisation to generate the improvement to local and accountable services, which I believe is needed, requires at least a level playing field as regards finance. By refusing that, the Minister—and he should not take it lightly—is jeopardising his own local government review.
Viscount Ullswater: My Lords, the noble Baroness, Lady Hollis, has taken time off to criticise this year's settlement rather than to address her remarks to the changes which are to take place in Avon. I do not criticise her for that; it is another opportunity to make such a criticism. However, I am glad that the noble Baroness began her remarks by saying how much the reorganisation has been supported locally as regards what is happening in Avon. In that, I believe that the noble Baroness encapsulated the feelings of local people; as, indeed, the noble Baroness, Lady Hamwee suggested. I have no query with what the noble Baroness said. No one on this side of the House questions the dedication of the staff or the officers of Avon County Council. But, somehow, Avon as a county—not as a county council—has not won the hearts and minds of people generally.
The noble Baroness, Lady Farrington, asked me a number of questions. I believe that it would be right for me to try to piece together some of the answers for her because I am speaking now in reply to her amendment. The noble Baroness asked for some reassurance on what authorities can and cannot do at various times in the implementation process. I hope that I can provide the noble Baroness with that reassurance.
Before the elections, all authorities can do what they need to do to prepare for reorganisation, but with some responsibilities being reserved until after the elections. As I said earlier in my opening remarks, the essential
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distinction is that decisions, including those on appointments, should be made after the elections by authorities with their new electoral mandates. Authorities can consider the options of how they want to deliver their services and the officers that they might need before the elections. Such consideration could involve drawing up a draft job specification. However, we believe that the actual decisions should be left until after the elections.
I believe that is a very sensible division of responsibilities. It allows authorities to get off to a good start, but ensures that councillors elected to a unitary authority decide how the authority is run. That also suggests that all of the authorities elected in May are, to some degree—and, perhaps, a greater degree—new. They will have new councillors who will not necessarily be bound by the decisions of their predecessors. However, I am sure that the co-operation that I mentioned will be in place and that the new councillors will tackle the challenges, as they find them, of a unitary authority with a fresh approach.
My noble friend Lady Faithfull asked me about specialist staff. I should tell my noble friend that, in fact, we expect that 90 per cent. of the staff will transfer across from Avon County Council to the new unitary authorities. That means that all the front-line service providers, such as the care workers from social services, will transfer by a statutory transfer order. That will ensure that the provision of services will continue. The unitary authorities will have the power to appoint staff, including chief officers, once the elections have been held in May. I believe that my noble friend's concerns about specialist staff are misplaced. Indeed, I am sure that all unitary authorities will be well aware of the statutory requirements that they will have to undertake and that they will ensure that the staff they have are the specialists that they require.
It has been said that, even if the powers are equal, the districts which are combined cannot be expected to co-operate fully and that, as a result, the new authorities are at a practical disadvantage. However, I believe that we have to question that assumption. Is it right? We need to look simply at what is in the interests of the councillors on the districts which are to be combined. Many councillors in those districts will want to be councillors in the new, unitary authorities. They will know that their positions and work in the future will depend very much upon what they do now and that they will be judged by the electorate at the time.
The noble Baronesses, Lady Farrington and Lady Hamwee, also raised the issues regarding the effect of Article 21. We have studied the article most carefully. It is straightforward and simply removes from authorities which are to be abolished any duties which require them to prepare budgets or plans for the years after they are abolished and passes those duties to the successor authorities. Not to make the successor authorities responsible for deciding the way in which they are to deliver services would be indefensible. However, the order does not prevent authorities which are to be abolished from working in those areas; indeed, the duty to co-operate promotes that.

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The Government are satisfied that, taken together, the provisions are adequate to enable the ongoing provision of services in the run-up to reorganisation. It is said that the level of service delivery will decline as a result of reorganisation. I believe that that concern was expressed by my noble friend Lady Faithfull and other speakers. We do not accept that dividing a service between four unitary authorities means that the service would be damaged. In the particular case of Avon, as I said, all the authorities involved have already been working very hard on implementation to ensure a smooth transfer of services. As a part of that work, they have been considering a number of services where joint arrangements might be appropriate. As I understand it, such services include the Social Services Court Team, the Child Protection Register, special education and the Central Library. Concern has been expressed in respect of all of those services. I am encouraged that the authorities involved are looking very carefully at the provision of such services. As my noble friend Lord Peyton emphasised, they are key and important services. I believe that the new authorities will undertake them in a sensible way.
The noble Baroness, Lady Hamwee, and my noble friend Lord Peyton, raised the issue of the cost of reorganisation. In the case of Avon, both the Local Government Commission and the districts believe that reorganisation will produce net savings. We believe that the supplementary credit approvals that we shall be making available will enable authorities to meet any net costs which arise in the short term without making any significant impact on the revenue accounts of the new authorities. Therefore, there should be no need for any adjustment to the authorities' SSA grant or capping limits. As for the years after 1995–96, we shall announce the arrangements for transitional costs nearer the time. However, we do not envisage the need for significant changes.
My noble friend Lord Peyton asked me when those savings would be made and whether it would be for the benefit of our grandchildren should Avon produce such savings. It is difficult to forecast exactly when savings will show through. Indeed, much depends on how authorities implement reorganisation. However, the estimates made by the Local Government Commission suggest that costs will be paid off within around five to 10 years and that, after that, net savings should benefit local people year after year. Perhaps I may remind my noble friend that the commission's estimates of ongoing savings are between £5 million and £9 million each year. Of course, they will be continuing savings.
My noble friend and the right reverend Prelate the Bishop of Bristol also asked about the boundary review of Bristol and whether comment would be made upon the shape of the boundaries. The Local Government Commission considered and rejected proposals to extend the boundary of Bristol. I believe that the Government have made their position on future boundary reviews of Bristol quite clear. The purpose of any future boundary review will only be to correct minor anomalies, although the Government have made
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no decision on precise timing. Such a review would not take place until after reorganisation when the unitary authorities will have had time to bed down.
The right reverend Prelate also asked me about the staff who may have to take a drop in salary and whether they would be protected. We recently consulted on a scheme for detriment compensation—that is, compensation for a drop in earnings —for those remaining in local government employment. At present, we are considering the responses.
The noble Baroness, Lady Hollis, asked why the compensation for redundancy is not as good as it was in 1986. All I have to say to her is that times are different. Things are not the same as they were in 1986, and anyway the local authorities are given discretion to pay up to 66 weeks' pay based on age, service and banding to eligible staff below the age of 50. These arrangements are, as I have mentioned to the noble Baroness before, at the maximum 2.7 times more generous than otherwise statutorily provided under employment legislation. I think that many private sector companies would like to be in that rather privileged position.
The noble Baroness, Lady Hamwee, asked about the future planning for the Avon and Somerset police authority. I assure her that there is no question of the police authority as a result of this order being unable to make plans for the time after 1996. It is only after October 1995 that representatives of the new authorities will take over the planning role, but there is nothing to prevent the existing authorities from starting work on that already in the time between the elections and October.
The noble Baroness, Lady Farrington, asked me why successor authorities have a right of access to information but authorities which are being abolished have no equivalent right. All the authorities have to co-operate, and I believe that this will cover most cases, especially when authorities are working together positively, as they are currently in Avon. But there is a more detailed point here. In order to plan properly the authorities which are taking over functions will need access to information which might otherwise be covered by the requirements for data protection. Authorities which are being abolished will not be in the position of needing such information from their successors. Therefore I think that that point is covered by that part of the order.
The noble Baroness, Lady Farrington, also indicated that there was inadequate consultation with the county council. The Government have been accused of giving authorities in Avon an inadequate opportunity to comment on the draft order. This simply is not the case. The Government allowed authorities as long as possible to make comments, and the High Court made it quite clear that sufficient time had been allowed for consultation on these matters. Of course if the orders were not made early enough to allow elections to be arranged for May this year, reorganisation would be delayed for a year. This would prolong the uncertainty, particularly for staff of authorities to be abolished, and especially for Avon County Council. I am sure that noble Lords would not have wished that to happen.

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My noble friend Lord Peyton indicated that the Government have taken a wise decision with regard to Somerset. I think also that we have taken a wise decision to accept the recommendations of the Local Government Commission which in this instance has, I believe, listened to the opinion—this was also brought to the fore by the noble Baroness, Lady Hollis—of local people. The authorities to be put in place instead of Avon County Council are those which will not only provide the services for local people but will also be broadly welcomed.
The people of Avon have indicated that they want change. Throughout the Local Government Commission's consultation process, only about 100 members of the public, businesses and local bodies wrote to the Government out of a population of some 970,000. In all four of the proposed unitary authorities the commission's polls showed more support for the commission's final recommendation than the present two-tier structure. The purpose of the review, which has been stated frequently by the Government, is to secure for each area the structure of local government which is accountable, reflects the identity and confidence of local people and provides services efficiently and cost-effectively to the community.
I hope that during the course of my remarks I have been able to answer most of the questions put to me by noble Lords. Therefore in the light of what I have said, I hope that the noble Baroness, Lady Farrington, will feel able to withdraw the amendment which she has tabled. The Government believe, and are confident, that the structure proposed by the commission for Avon, and implemented by this order, will achieve what I have mentioned. I commend the order to the House.
5.15 p.m.
Baroness Farrington of Ribbleton: My Lords, I am grateful to the Minister for his helpful reply. I hope he will understand that after I have had a chance to read the detail of some of his technical comments in Hansard I may wish to take them up in writing. I thank all those who have taken part in this debate. The right reverend Prelate the Bishop of Bristol and the noble Lord, Lord Peyton of Yeovil, spoke with strong local knowledge and that is important when we consider the future of local government. I am also grateful for the support I received from my noble friend Lady Hollis.
I fear I have to disagree with the Minister as regards seeing as separate the funding for local government, because the cost of reorganisation is being met by £50 million being top-sliced from the rest of local government expenditure in England in the current year at a time when local authorities can ill afford to lose that. Therefore there is a concern there. Many points of detail have been raised. Perhaps the most important concern still remains that of the continuing authority and the equal treatment of staff.
As I said, I thank all those who have contributed to the debate. I am a new Member of your Lordships' House. I have certainly learnt in the comparatively short time that I have been here how much knowledge
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Members of this House bring from their different backgrounds. It is certainly evidenced in the thoughtful and knowledgeable speeches that have been made. I do not believe on this occasion that the case would be put more strongly by carrying this amendment to a Vote. Therefore, I beg leave to withdraw the amendment.
Amendment to the Motion, by leave, withdrawn.
On Question, Motion agreed to.

Social Security Benefits Up-rating Order 1995
5.17 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish rose to move, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].
The noble Lord said: My Lords, in moving this draft order I wish to speak also to the other four draft orders. These orders build upon the Government's sector-by-sector reform of social security. Our aims are to modernise our welfare state, to make it affordable and to focus help on areas of real need. Once again we will meet our pledges on the level of benefits.
All the main social security benefits will increase fully in line with prices in four weeks' time. As a result of the uprating, retirement pension for a couple will rise by £2 a week. All pensioner couples without other means will be entitled to more than £100 a week. Pensioners will gain over £700 million, long-term sick and disabled people will gain over £400 million and families over £250 million. In total this up-rating of benefits will cost about £1.5 billion. Our policies have continued to protect those most in need by targeting resources on those who need them most. By the Social Security Select Committee's own calculations the safety net of income support is 15 per cent. higher in real terms than in 1979. The extra help made available to low-income families with children since 1988 is worth £1 billion, and to poorer pensioners £1.2 billion. And since 1979 more than five times as many disabled people receive help with the costs of their care or mobility. That is the measure of our commitment to protecting those most in need. Overall, we are spending £84 billion on social security this year. To pay for it costs every working person £15 per working day.
Spending is forecast to grow by 1.3 per cent. a year in real terms over the next three years. After that, growth is expected to resume at an underlying rate of 2.1 per cent. a year up to the end of the century. But even that is significantly lower than the 3.3 per cent. forecast 18 months ago in Growth of Social Security.
By the year 2001 spending on social security is projected to be almost £8 billion less than forecast in Growth of Social Security. Lower unemployment accounts for a quarter of that reduction, as unemployment is less than previously assumed. More than half of the reduction is due to policy changes as reforms take effect.
The need to contain the cost of social security is not unique to the United Kingdom, but many governments are still not looking beyond funding by the state as the solution. Funding by the state means funding by businesses and taxpayers. It damages competitiveness and threatens economic growth. Our approach reduces the burden on taxpayers and protects those most in need while giving more opportunities for individuals to provide for themselves. That is what we are doing in our reforms in relation to pensions, unemployed people, families, lone parents and disabled people.
We are continuing our reform of the sickness and invalidity benefits with two new measures from April. First, the new incapacity benefit will focus on those who are genuinely incapable of work through a more objective test of incapacity. Secondly, one of the orders before the House today will introduce from April a new scheme to give all employers help if a large proportion of their workforce is off sick at any one time. It will be straightforward to operate, will protect cash flow and will continue to give small businesses the lion's share of statutory sick pay reimbursement. The new scheme has been welcomed by the CBI, the Forum of Private Business, the Federation of Small Businesses and the TUC.
One area where spending is still growing fast is housing costs. The cost of support for housing through housing benefit and income support has more than doubled in real terms since 1988–89. It now amounts to £11 billion. It is essential to keep costs under control. Therefore, in November my right honourable friend the Secretary of State announced major reforms. They will give private sector tenants more interest in the level of rents, putting unreasonably high rents under pressure. They will give home-owners more comprehensive protection when they have difficulty paying their mortgages. The present arrangements for home-owners are far from satisfactory. Some 150,000 unemployed people cannot get help with their mortgages. In fact, 70 per cent. of all home-owners would not be covered by income support because they have a working partner, savings or some other income.
We have already begun a process of informal consultation with interested parties for our new proposals. Regarding the changes to housing benefits, officials of my department have already met representatives of the local authority associations, the Institute of Rent Officers and several other interested groups. This week we shall formally consult the Social Security Advisory Committee, which we envisage will go out to public consultation. We shall also consult the local authority associations. It is important that their views should be fed into the detail of the policy, including the working up of a system so that prospective tenants will have an idea of how much housing benefit will be payable before they sign a tenancy.
The Social Security Advisory Committee's consultation document on mortgage interest in income support issued on 10th February invites comments from all interested parties. We are also continuing discussions with lenders and insurers to make sure that the interface between state and private provision works well.
Already one in three new mortgage holders takes out insurance. I am sure that the insurance industry will respond with good quality insurance cover. New products are entering the market all the time and there is evidence that competition is driving prices down. Buying such insurance direct now costs an average 4p in every £1 of monthly repayment. I am confident that that will lead to fewer defaults, fewer repossessions and a healthier housing market.
The area of greatest scope for saving has no direct effect on benefit levels. That is why cutting back on fraud remains a priority. Fraud savings are already at a record high. The Benefits Agency identified and stopped fraud worth £654 million in 1993–94. In April it will begin a five-year programme of investment to switch emphasis away from detecting fraud to preventing it happening in the first place.
Most fraud involves false declarations of earnings or circumstances. So the Benefits Agency will be making more checks and more home visits and making better use of information already held on our computer systems to help spot fraudsters. That should deliver substantial savings of more than £2.5 billion over the first three years.
One of our objectives is undoubtedly keeping expenditure under control. Another important objective is to meet concerns about the debilitating effect of dependency on benefit. More and more people are anxious about the prospect of an increasing proportion of people of working age being dependent on the state. Before our reforms the debate was about helping people on benefit. We still aim to do that, but the whole focus of the debate has now moved towards helping people off benefit and into work. The most effective way of raising living standards and the prospects of unemployed people of working age is by helping them to return to work, as we discussed at Question Time this afternoon.
We have been working on that for a number of years. In 1992 we reduced the number of hours required to qualify for family credit from 24 hours a week to 16 hours a week. In 1993 we introduced the family credit helpline so that people could have easy access to information about how family credit and other benefits could make them better off in work. In 1994 we removed one of the major stumbling blocks preventing families returning to work through our help with childcare costs in the in-work benefits. And in April we are making significant enhancements in the disability working allowance to help more disabled people participate in work.
The process of helping people return to work continues with the package which my right honourable friend announced last November. Like the other benefits, family credit will increase in April in line with inflation. For example, the maximum family credit payable to a family with two children aged eight and 13 will rise from £74.05 to £75.40—an increase of £1.35 per week.
But because benefits reduce as earnings rise, someone working 30 hours a week at, say, £4 an hour receives only £3 more than a person working just 16 hours. That is not right. Therefore, from July this year our £10

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longer hours premium in family credit and disability working allowance will make full-time work more attractive for those working 30 hours or more a week. Those on housing benefit or council tax benefit will receive the full benefit of the extra £10.
From April 1996 people who take a job after six months unemployment will be able to keep their housing benefit at their existing full rate for an extra four weeks. Local authorities will be encouraged to arrange any continuing in-work housing benefit award within that period.
We also aim to speed up the payment of family credit so that people in work will receive that extra help more quickly.
From October 1996 the tax free back-to-work bonus of up to £1,000 will be a considerable help in smoothing a family's income flow on taking up work. A lump sum of up to £1,000 could potentially be paid on top of the back-to-work bonus.
Encouraging employers to take on more unemployed people is another important aspect of one of the orders before us today. The order encourages employers to take on people who are long-term unemployed, who are normally less skilled. This April employers' contributions will be cut by 0.6 per cent. for all employees earning less than £205 a week. In addition, we are encouraging employers to take on more people who have been unemployed. From April 1996 employers will have a one year holiday from the employer's national insurance contribution for every person they take on who has been unemployed for the previous two years.
Finally, we are introducing a radical innovation in social policy. The majority of the long-term unemployed are childless. From October 1996 we shall be setting up a substantial pilot study in eight locations of an in-work benefit for that group which will run for three years. My right honourable friend Peter Lilley will be publishing a consultation document in the spring.
Our package of incentives will help 750,000 people during the course of a year. We will be adding an extra £300 million in benefits and cutting costs to business by £300 million—in all a £600 million package to help people move from dependency on benefits to control over their own circumstances.
The orders before the House today provide for an up-rating of all major benefits and a reduction in employers' national insurance contributions for the second year running. We have met our pledges to pensioners and families. The orders are another important step to improve the social security system. Our plans include a £600 million package to help people out of dependency into work, sensible reforms to curb the costs of benefits for housing and a far-reaching strategy to prevent fraud. They will increase incomes by opportunity, help and incentives. I commend the orders to the House. I beg to move.
Moved, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
5.30 p.m.
Baroness Hollis of Heigham: My Lords, as the Minister said, the up-rating statement is mostly routine. It up-rates in the light of inflation. Last November, when we discussed the issues within the context of the Budget Statement, the House had a fairly major debate on almost all the points raised by the Minister. I do not propose to repeat them tonight. Therefore I shall be brief. However, I wish to pick up two issues raised by the Minister before making the points that I had proposed to make.
First, the Minister spoke more widely than merely on the up-ratings before us. He referred to proposed changes in housing benefit and mortgage benefit which are not specifically the subject of today's orders. Perhaps I may re-emphasise the warning given already in this House and in another place that in terms of housing benefit for private tenants any housing Minister would be able to tell any social security Minister that out there it is a landlord's market regarding rent, and tenants are not in a position to shop around for cheaper property of acceptable quality at an acceptable rent. Therefore the hopes and expectations that the Minister for Social Security apparently applies to this part of his policy—I suspect that the Minister for Housing will agree with me—cannot be met.
The Minister referred to withdrawal of income support for mortgages, with the expectation that for many, if not most, in future that cover will be met by insurance companies. I can only repeat the serious warnings given by that most responsible body, the Council of Mortgage Lenders, that the Government's policy of insisting on insurance and the withdrawal of income support will lead to an increase of between 15,000 and 24,000 repossessions over and beyond the current 50,000 a year. In addition, increasingly those areas in which properties are not easy to sell will become virtually red lined areas, as we saw in the 1970s, for which it will not be possible to attract mortgage or insurance cover. Properties will become virtually unsaleable. The Minister's policies may well create the very "sink tank" estates regarding which his right honourable friend the Minister for Housing has spent so much time and energy and so many resources seeking to overcome. Those of us whose portfolios sometimes range across housing and social security wish that Ministers would talk to one another about what happens when one department exports the costs of its policies to another department and therefore subverts what that department seeks to do.
I had not expected the Minister to range quite so widely on the issue. However, perhaps I may pick up this point. The Minister stated that the Government propose a pilot study to extend family credit to those without families. That proposal is no doubt well intentioned. However, I ask the Minister to be aware of the perverse consequences of such a policy. It is an encouragement to employers everywhere to press wage bills and wages down to whatever level they can get away with, knowing that the Government will subsidise the wage bill for them in the name of family credit, if those people have children, and "non-family credit" if they do not.

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It is very odd indeed that, on the one hand, we see a series of national insurance measures—statutory sick pay, no doubt maternity pay and the like—which should properly be funded by the taxpayer pushed on to the employer, whereas the one area of responsibility that one might reasonably expect the employer to provide, a decent living wage, is increasingly being sustained by the taxpayer. It is a rather odd and perverse swapping of functions which in our view is folly.
I wish to spend a little more time on an issue which, so far as I am aware, has not been raised in your Lordships' House for some time. I turn my attention not to benefits which have been up-rated but to the string of benefits (so far as I am aware there are at least 30) which have not been up-rated. I ask the Minister to tell the House why that is so. For example, the widow's payment of £1,000, fixed in 1988 and frozen in 1988, would, if it were prices-linked today, be worth nearly £1,400. If it were earnings-linked it would be worth over £1,500. The payment remains at £1,000. Are widows not worth more than that? Do the Government think of them so lightly that they freeze their benefit at 1988 figures?
Let us take the war pensions disregard of £10 which was frozen in April 1990. It would have been worth £12.45 in prices terms and £12.75 in earnings terms today. Does the Minister think so lightly of war pensioners and of the disregard that he freezes the sum at 1990 figures?
Alternatively, let us take a matter that affects many people: the capital limits for a single person on income support or housing benefit for families on family credit. The sums were fixed in 1988 and 1990 respectively at £3,000, which would now be worth £4,000, or, if earnings related, £4,500. Why have the Government frozen those earnings disregards? In the light of the Minister's remarks five minutes ago, they are precisely the bait that would have encouraged so many people back into work because they could have kept more of their earnings.
What about the disregard for those on unemployment benefit? The sum of £2 per day was frozen in 1982; it would have been worth nearly double that sum if it had been prices-linked today. What about the £5 earnings disregard for income support which was frozen in 1988? It would have been worth £6.85 today. The occupational pension limit for unemployment benefit was frozen at £35 by this Government in 1981. If the sum were prices-linked today it would have been worth £72.60, or £95 if earnings-linked.
Are widows, war pensioners and those who are hit by the capital limits so unimportant to the Government that they have frozen those benefits in real cash terms for five or seven years? While forcing more people on to means tested benefit, the Government are freezing the disregards and the capping figures which go with those means-tested benefits so that those means-tested benefits become worth less and less in real terms. Whatever the Minister may say, that policy means a cut in real income to the poorest, for whom every pound counts.
I do not wish to anticipate the debate on the Rowntree Report on widening inequality. We had a trailer today for the debate that we shall have on Wednesday. However, as
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a result of government policy, we now see too wide a gap between those on benefit and those in work. In the 1970s it was clear that benefits reduced inequality and to some degree compensated for it. It is also clear that by the mid-1980s, and especially since 1988, benefits have widened the inequality regarding average earnings. The basic pension was a quarter of average earnings; the figure has now drifted down to 17 per cent., and at the end of the century will be 11 per cent., with all the implications which that involves for the elderly.
We accept that average incomes for pensioners, and for the population as a whole, have risen, and that is valuable. However, it remains true that the bottom 10 per cent. has fallen in real terms and that in all groups such as families with children and pensioners inequality has widened within each sector, as well as within society as a whole. That has not only been reinforced by breaking the link with earnings and therefore increasingly ensuring that those on benefits do not enjoy any increase in the prosperity enjoyed by the rest of us—they stay still in real terms. But it has also extended the range of means testing at the expense of contributory non-means-tested benefit.
The Minister referred to the incapacity benefit and the jobseeker's allowance. The consequence of the measures is that under the Tory Government we have been warping a welfare state into perverse policies which no one can believe are sensible. I give an obvious example. If a husband is in full-time work and his wife is in part-time work and the husband loses his job, then after six months the Jobseekers Bill comes into play and he will be on a means-tested benefit. For every £1 that his wife earns in her part-time job, he will lose £1. He will then stop work and they will move from a work-rich to a work-poor household in which they are both fully dependent on all the other benefits: housing benefit, council tax benefit and the like. In order to spring out of that dependence on benefits, both will have to find work but are unlikely to do so. In other words, for the short-term gain of moving away from contributory to means-tested benefits, the Government have locked family after family into a dependence on benefits from which they can never break free. That is perverse, stupid and folly; it is unkind and indecent.
What saddens me is that since the war and under Beveridge and Nye Bevan, the welfare state and the social security system were designed to reduce poverty and inequality, and to offer a springboard of opportunity. For 35 years, until the early 1980s, the social security system helped do precisely that. As a result of the folly and shortsightedness of the Government's policies, accentuated since 1988 and now with a further rash of perverse social security measures, instead of becoming part of the solution, social security has, to use a cliché, become part of the problem. Almost every new legislative proposal of the Government on social security will make the problem worse. We must rebuild an intelligent welfare state. We have given up the hope that the Conservative Government may do so; we look forward to our opportunity to do so in due course.
5.42 p.m.
Earl Russell: My Lords, without dissenting from anything that the noble Baroness said—and I shall agree in due course with a substantial part of it—I wish nevertheless to take the opportunity to congratulate the Department of Social Security. This year's up-rating statement is a landmark in ways which we have not entirely perceived. During the past three years, the budget of the Department of Social Security has been under intense pressure, for reasons which we understand. I would not say that there have been no cuts in that time. Under the next government—of whatever complexion—the system may need up to 20 stitches. I believe that the savings through the Incapacity Bill will be illusory, as those from the Child Support Act have been. Nevertheless, the system will not need to be taken into intensive care; it is still working.
Under that pressure, the order marks a quite remarkable recognition which is now a consensus of three parties, or at least two-and-a-half. The consensus is that although the social security budget is clearly alarmingly high—and there is no dissenting from that—substantial savings will not be achieved simply by cuts in social security spending because the people concerned do not cease to exist if they lose benefits.
The Minister stressed the drain on competitiveness of the expenditure. I do not dissent from that. He may have read the article by Gavyn Davis in the Independent, calculating the amount the country spends on what he called "defensive expenditure": burglar alarms, locks, security cameras, insurance. He put that figure at £16 billion and rising. That is also a drain on our competitiveness and we would not advance the country if we went from one drain on our competitiveness to another.
The up-rating marks a recognition that the sums cannot be substantially reduced; the cost to the country cannot be substantially reduced simply by cutting social security. It means that in addition to the humanitarian and economic arguments for significant reductions in unemployment, it has also become an urgent fiscal necessity. That is a conclusion of quite profound importance.
I noticed that at Question Time today the Minister was enjoying himself, congratulating himself on reductions in unemployment. We all share his pleasure in that. He was disappointed that that was not met with more enthusiasm in the House but I must ask him to tell us what he regards as an unacceptable level of unemployment. I did not say "achievable", I said, "unacceptable", because there must be a good deal of new thinking on that before we get anywhere.
On the details of the order, I entirely share what the noble Baroness said about capital limits. I wished to bring up the capital limits imposed this year on the cost of funerals under the Social Fund. I know that the Minister has already given me a Written Answer, but I ask him now seriously to consider up-rating that benefit in the next statement. If we achieve no progress on that front, I shall seriously consider putting down a Motion
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to resolve, which I may push to a Division. I hope that the noble Baroness's party will put its votes where its mouth is.
I am also distressed that there is no change in the policy on the differential between income support limits for older people of £28 and the lower age income support level of £36.80 for those under 18. They are not adequate for any purposes. That is not subsistence; it is pocket money. Since we have heard so many justifications, I ask the Minister what is this week's justification.
I also support the questions which the noble Baroness asked about the housing benefit. I shall listen with great interest to those answers, as I shall to the answers to the questions about home ownership. I remind the Minister that insurance is a private sector business; its purpose is to make a profit. In deciding which risks it accepts, it must necessarily take that into account. So those people who will need support most are those to whom insurance will give the least support. If the Secretary of State for Employment is right—as he may well be—that we are moving to a situation where people will change jobs more frequently and more jobs will be part-time, there will be time between jobs. That is a series of changes which would put on our insurance industry a burden which I do not believe it fair to ask the industry to undertake. We do not want more insurance or banking failures, least of all today. So when the Minister says that he is entering into consultation, I hope that by "consultation", he really means just that and will not merely ask how to do it, but will ask interested parties whether he should be doing it at all. I hope that the answers will be listened to.
Fraud is always a standby of the Department of Social Security when it is in trouble with the Treasury. Everybody is against fraud. But I sometimes wonder whether we are in a situation where, if fraud does not exist, it is necessary to invent it. In that context I ask the Minister if he will give the House an undertaking that he will not rely on performance targets for detection of fraud. Relying on performance targets risks generating a situation in which we assume that the fraud must be there and go on looking for it until we can claim to have found it. In that situation there may be some obstruction to the doing of justice. It should be entered into with care.
On national insurance, I welcome the changes that the Minister reannounced. I wonder why he has not further raised the lower earnings limit. Also, since he has ranged into these matters, I ask him again a question that I put to him on the up-rating Statement; namely, whether he can tell us what progress is being made with the jobfinder's grant. It is an imaginative idea and one that interests me. But I cannot discover in how many cases it has been made available; how big a pilot scheme is in operation; and what the results of that pilot scheme may be. If the Minister does not have that information to hand, I should be grateful if he could write to me.
I want to make one small point on the separate order up-rating contributions for share fishermen. Share fishermen are subject to what is known as a tie-up period of eight days, during which they are not allowed to fish. Normally, if you received no income during

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eight days, you might hope for unemployment pay during the week. But the trouble is that the tie-up period is normally divided between two different weeks. In the past the department has taken the line that there is no week during which they are wholly unemployed, and therefore they do not receive any unemployment benefit. My honourable friend Mr. Kirkwood has argued many times that that appears to him to be inequitable. I agree with him. I hope that the Government will give just a little more consideration to the matter.
Finally, I turn to the new statutory sick pay scheme. I thank the Minister and the department for accepting an amendment that was moved by the noble Lord, Lord Jenkin of Roding, to which I had my name. They have listened, and they have been persuaded, and I am glad that they have. But there is still one flaw in the scheme. I thought that the Minister slightly cut a corner by claiming the support of the Forum for Private Business. There is still one point that intensely concerns the Forum for Private Business. There is of course a limit on this. The new formula comes into operation when firms are facing a liability for statutory sick pay which exceeds 13 per cent. of their liability for national insurance contributions payments. The question that is being asked by the Forum for Private Business is whether that limit can be changed without primary legislation. It says that if the answer is no, it is happy with the scheme as it is. But if the answer is yes, it is not happy and would have preferred the other scheme. I gave the Minister notice of that question and I look forward to his answer.
Lord Boyd-Carpenter: My Lords, I must begin with two confessions. First, I must declare an interest: as a retirement pensioner, I shall benefit in a modest degree from the improvement that this order makes in the retirement pension. Secondly, as some noble Lords may recall, I was Minister for (as it was known at that time) Pensions and National Insurance. I was responsible for social security for over six and a half years. In fact, I believe that it was for a longer period than any other Minister who has held the post. I therefore have a great deal of what might be called professional sympathy with my noble friend the Minister in dealing with these proposals.
In my time as a Minister, the up-ratings that we made were generally done by primary legislation—that is to say, by a Bill. They were contentious measures. Inevitably, the Opposition did then as they have done now: while welcoming the improvements, they asked for more. Equally, as the Minister has had to do today, I had to reject the proposals to improve the benefits to a greater extent than I was improving them. However, I can look back on the whole history of social security with a good deal of happiness, since benefits have steadily gone on improving—both in the actual quantum of benefit paid (in major benefits) and also with the adjustments and minor improvements which successive Ministers have made.
I know that the noble Lord opposite has criticised one or two points on this particular order. I shall not get in the way of my noble friend the Minister by trying to answer those points. It is his job to answer them. I know from my experience in office that nothing is more
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infuriating than sitting there listening to somebody else trying to answer criticisms of your proposals, not getting the answers quite right and queering the pitch all round. I note that the noble Baroness understands that situation.
Baroness Hollis of Heigham: Do not believe that for a moment.
Lord Boyd-Carpenter: Therefore I shall leave the points of criticism which she made—she always makes them very effectively, if she will allow me to say so—to be dealt with entirely by my noble friend the Minister in his reply.
I welcome the proposals of this order as a whole. They continue the steady improvement in benefits that we have seen over the years; they support a scheme which is of very great importance to a very large number of our fellow countrymen; and they do it on the whole in a highly intelligent way. I would not presume to say that I agree with every word of every detailed proposal. You have to have studied very closely the workings of the scheme to be able to form an intelligent view on the details of its administration. But broadly, this order gives good improvement to quite a number of our fellow countrymen, and maintains a scheme that is of vital importance to a very large number of them.
I was interested to hear what my noble friend said about fraud. He stated a very precise figure: £654 million was the figure he quoted. I do not know how it has been possible to work out that figure, since the essence of fraud is that it consists of transactions which are in greater or lesser degree conceivable. My noble friend may be able to tell the House how he arrived at the figure. I know it is substantial: it always has been, and to some extent I think it always will be. But it is the duty of a Minister and the Government to combat it; it is very wrong that money which gives such valuable help to so many people should go astray, even in much smaller amounts than £654 million.
I was also very interested in my noble friend's statement that it is the object of his policy to encourage employers, and to encourage workers to go back to work, and not to work the social security system so that it carries an inducement to remain unemployed. He stated that, on the contrary, the scheme is designed to encourage the restoration of employment in two ways: by giving, as this order does, some inducement to employers to take on additional labour—which is an enormously valuable thing—and by offering an inducement to those who are unemployed to make every effort to obtain work. I am sure that that is right. It is no doubt as a result of this policy that we are able to point today to a reduction in unemployment of half a million over the past year. This is a very real achievement by the Government of which they are entitled to be proud. I hope and believe that maintenance of this policy will continue this effect. This order is one of the most important matters with which your Lordships' House has to deal. It affects a very large number of our fellow citizens. It operates a system which, for all its sometimes rather trying complexity, is carefully worked out, with improvements made by successive Ministers over the years. It is a system of which we in this country have every reason to be proud.

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I hope that your Lordships will approve this order and send it forward as a means of relieving hardship and providing help to those who need it most in an intelligent way. It is a most important measure, and I wish it well.
6 p.m.
Lord Mackay of Ardbrecknish: My Lords, I shall try to reply to a short but interesting debate. I am grateful to my noble friend Lord Boyd-Carpenter for his support. I am relieved that we do not have to do this every year by primary legislation. To do so may take us a little longer than it will take us this afternoon. I also suspect that it is an indication of the increasing complexity of the social security system since my noble friend was responsible for it. I shall try to deal as quickly as I can—and, dare I say, in no particular order —with the various points that have been raised.
I begin with the in-work benefit measure and the question asked by the noble Earl, Lord Russell, about the progress of the jobfinder's grant. If he does not mind, perhaps I may write to him about that particular matter. As far as the new in-work benefit measure is concerned, we intend to pilot it in order to test the effectiveness of different approaches. Such an in-work benefit may cost a great deal of money. Obviously, before it moves to national coverage it is important to ensure that it does what we want it to do. At one stage in her speech the noble Baroness referred to unforeseen consequences. One thing that is true about social security is that sometimes we amend something for the best of all possible reasons only to find that it has a negative consequence which is much more damaging than has been envisaged. It seems to me that that is one of the problems we face in attempting to fine tune a complex system.
The noble Earl, Lord Russell, returned to the question of 18 to 24 year-olds. With some trepidation, I give my answer. No doubt he will compare the text with previous answers that have been given. My only hope is that he does not have with him the previous answer papers so he can interrupt me to tell me that what I say is different from previous answers. In all seriousness, the lower rate of benefit for single 18 to 24 year-olds helps to reflect the lower earning potential of this group compared with older single people. We feel that it is reasonable to give them a lower rate in order to preserve their incentive actively to seek and retain the kind of work that may be available to them in their age group.
The question about share fishermen is more complex. As the noble Earl perhaps knows, European Community quotas and the Sea Fish Conservation Act may result in share fishermen having to make claims for benefit simply because of the way that the Act operates. Share fishermen are able to claim family credit and income support in the same way as other self-employed people if their income is that low. In addition, the share fishermen's Class 2 contribution, which I believe the order before us is about, uniquely enables them to claim unemployment benefit although they are counted as self-employed. Because unemployment benefit is a daily benefit, share fishermen may be entitled to it for any
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day that they are unable to work, subject to the normal rules which are to do with weekly earnings. If there is anything further that I can add I will certainly put it in writing to the noble Earl. However, it is a complex issue. I am not even sure—this is an awful admission to make to the House —exactly where we are at the moment in relation to tie-up days in the fishing industry.
The noble Earl asked me about the SSP percentage threshold scheme. A change to the percentage can be made only by affirmative regulations. The power to do that is to be found in Section 159A of the social security Act. That is no different from changes to the present small employers scheme.
The noble Earl also asked me about funeral payments. I believe that he put down a marker as to his behaviour, good or bad, on future occasions depending on whether my behaviour was good or bad in his light. The current proposal to introduce a limit of £875 towards the cost of a social fund funeral are being considered by the Social Security Advisory Committee. My right honourable friend Peter Lilley, myself and my colleagues will carefully consider any recommendations that that committee chooses to make once its report is received. I shall bear in mind the point that the noble Earl makes about uprating.
The noble Baroness, Lady Hollis, discussed two related issues which I will take together since they both refer to housing. I believe that the noble Baroness implied that the private rented sector was not a tenant's market and therefore a tenant would not be in a position to bargain down rents. I believe that to be a pessimistic view. To relate housing benefit, as we intend to do, to the generality of local rents should mean better targeting of taxpayers' money. Tenants will have an incentive to find cheaper accommodation, or at least not to accept accommodation which is much more expensive than they would ever be able to afford if they were not on housing benefit, and accommodation that many other people in work and not on benefit would not be able to afford. It makes for that pressure. It also makes for pressure on the landlord. Some landlords will undoubtedly have looked at the potential for housing benefit delivering up to them whatever rents they have agreed to set and tenants have agreed to accept. We believe that bearing down on rents which are markedly higher than the generality of local rents will be an incentive to both tenant and landlord to reduce the very considerable increase in cost in this particular part of housing benefit.
As far as income support mortgage interest (ISMI) is concerned, I listened with interest to what the noble Baroness had to say. Everybody seems to forget, including regrettably the Council of Mortgage Lenders, that if an individual is on income support for nine months, at that stage income support mortgage interest help from the taxpayer will come in again. We are saying that for the first nine months people ought to insure themselves against any eventuality, such as unemployment, occurring in that period. I have said on a number of occasions—I make no excuse for saying it again—that the present system helps only those who are on income support. There are still people who find themselves unemployed and without recourse to income

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support. Because their spouses work, or they have capital above the limit, or they have some other income, they are not eligible. Obviously, they are not protected by income support mortgage interest. Currently, 150,000 unemployed home owners do not qualify. If one looks at the whole field of home owners, something like two-thirds would not qualify for income support.
Is suggesting that perhaps insurance might be a good idea such a terribly wrong thing? After all, everybody who buys a house is rightly expected by the building society to take out insurance against something happening to the house itself. Is it not wise to suggest that people should take out an insurance which will help them in much more difficult circumstances than does the current income support mortgage interest if something happens to them?
Another question that I hear being asked is whether such insurance policies exist. For example, Abbey National has indicated that somewhere in the region of 40 per cent. of new borrowers take out an insurance. That was before we announced the changes that we would make. The Association of British Insurers has confirmed that something like one third of all new borrowers take out insurance.
There is evidence of new insurance packages coming into the market place. As I said, a direct one—not through a building society—from a reputable company offers payments as low as £4 per £100. The cost of insurance to the average borrower based on that policy would be something like £12 per month. As I said, that would give people wider cover than is available under income support.
As I equally said and underline, we are covering the first nine months and very many people who become unemployed—in fact the majority of them—get back into work within that period. The taxpayer will cover for those people who go beyond the nine months and obviously have used up their insurance entitlement.
With regard to fraud, my noble friend Lord Boyd-Carpenter asked me how we worked out the figure of £654 million. That is the amount of fraud that the Benefits Agency identified last year and stopped. He is quite right that no estimate can be given—other than a guestimate—of the total extent of fraud; but on last year's figures that is the kind of level which the Benefits Agency managed to stop.
The noble Earl, Lord Russell, asked me about targets. We are asking the Benefits Agency to shift the emphasise from detection and investigation, which is what it has been doing to date, toward prevention and deterrence. He will appreciate that prevention and deterrence are much more difficult to quantify except that we shall not detect the same level of fraud as we do at the moment. There are a number of schemes, including the link-up with the Post Office, where payment will be made by what we believe will be a much more secure and efficient system.
I was asked why the lower earnings limit for national insurance had not been increased further. The lower earnings limit for national insurance is linked in law to the rate of the basic retirement pension. It is set at the level of the basic pension, rounded down to the nearest
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whole £1. From April the rate of the basic pension will be £58.85. The lower earnings limit therefore is £58. That is the logic behind that measure.
The noble Baroness, Lady Hollis, spent some time in her contribution reading out some payments which have not been up-rated since various periods in this Government's term of office. Those are not by any means the major components of the benefits systems. All the main benefits to widows, war pensioners, people on income support, and so on, have been up-rated. Frankly, if the benefits that the noble Baroness read out so dramatically to us had been up-rated, I am sorry to tell your Lordships that it would not have made a great deal of difference to the amount received by most recipients. We believe that by targeting the increase on the major benefits, we are targeting it on the people who need help.
I heard the noble Baroness say that she looked forward to having the opportunity to improve the welfare state. I noticed at one stage in her speech that she mentioned breaking the links with earnings, which is a recurrent theme. That is fine, but the noble Baroness should be aware that this year, for example, whereas the benefit up-rating has cost £1.5 billion with linkage to prices, linked to earnings it would cost £3.3 billion. Over the period when the link has been prices and not earnings, the amount of additional money—if I heard aright and a promise was given to up-rate according to earnings—would have been £9.7 billion.
Those of your Lordships who have been keeping track of all those figures—
Baroness Hollis of Heigham: My Lords, perhaps the Minister will give way. I quoted from the Rowntree Report—without trying to anticipate Wednesday's debate—and showed that that report made very clear that the result of breaking the link between benefit levels and earnings and relating benefits only to prices was to exclude those on benefits from any increase in prosperity. That is an issue to which we must return. As the Rowntree Report said, that produces a dispossessed and marginalised underclass, the existence of which the Minister himself deplored earlier this afternoon.
Lord Mackay of Ardbrecknish: No doubt, my Lords, we shall return on Wednesday to the underclass.
Earl Russell: My Lords, does the Minister agree that since the noble Baroness's party has no spending plans, it was a purely academic statement.
Lord Mackay of Ardbrecknish: My Lords, I get help from anywhere I can on these difficult matters. The noble Baroness interrupted me almost, dare I say it, at the wrong moment. In fact, she underlined my point. It is all very well to come to the House today, or indeed on Wednesday, and complain about these matters. I have attempted to give the noble Baroness some figures. Let me ask her a question. She has between now and Wednesday to find out the answer. Are we getting a spending pledge from the party opposite that when it comes into office it will restore that link, given the kind of costs that I have just outlined? It will be interesting to see how the debate develops on Wednesday.

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I believe it is essential that, as a civilised society, we try to make sure that those people who are most in need are helped by us—that is to say, by the taxpayer via us. The taxpayer thoroughly approves of that. But we also have a responsibility to make sure that the total costs imposed on the taxpayer by the social security system are kept within reason. I believe that this order and the other orders will do just that. I commend them to the House.
On Question, Motion agreed to.

Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 1995
Lord Mackay of Ardbrecknish: My Lords, I beg to move.
Moved, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Social Security (Contributions) Amendment Regulations 1995
Lord Mackay of Ardbrecknish: My Lords, I beg to move.
Moved, That the draft regulations laid before the House on 13th February be approved [10th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Guaranteed Minimum Pensions Increase Order 1995
Lord Mackay of Ardbrecknish: My Lords, I beg to move.
Moved, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Statutory Sick Pay Percentage Threshold Order 1995
Lord Mackay of Ardbrecknish: My Lords, I beg to move.
Moved, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee]. —(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Building Societies (Joint Account Holders) Bill
6.18 p.m.
Lord Hayhoe: My Lords, I beg to move that this Bill be now read a second time.
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The Bill has come to us from another place, where it started life as a Ten-Minute Rule Bill introduced by my former colleague, Douglas French, the Member of Parliament for Gloucester. Subsequently, it was nodded through its Second Reading and remaining stages on Friday 10th February without objection—a very clear indication of its widespread all-party support.
Your Lordships will recall that a similar Bill was introduced by the noble Lord, Lord Dubs, and given its First Reading on Wednesday, 11th January. Let me say at once how grateful I am to the noble Lord for his help and co-operation. He and Douglas French should share the plaudits from all those who will benefit from this legislation. I should declare an interest as a non-executive director of a building society, although neither I nor any member of my family has any financial interest in this matter.
The Bill seeks to remedy an unfortunate quirk in the law which I believe first came to light some six years ago after the Abbey National Building Society decided to convert to plc status. It has been highlighted again as a result of the proposed take-over of the Cheltenham & Gloucester Building Society by Lloyds Bank. I should explain that the Building Societies Act 1986 empowers building societies to pay a bonus to investing members in the circumstances of a take-over, like that of the Cheltenham & Gloucester by Lloyds Bank, or a merger like that proposed between the Halifax and Leeds Permanent building societies, provided that certain conditions are met. Let me make it abundantly clear that I express no views on the merits or demerits of the C&G take-over by Lloyds or the Halifax and Leeds Permanent merger. I am dealing only with the conditions in which bonus distributions of cash or shares can be made. Those conditions restrict bonus distributions to sole account holders or to the first-named person of a joint account provided they have invested continuously for at least two years.
Let me say at once that the two-year loyalty requirement is generally accepted as sensible and reasonable. It is the restriction to the first-named of joint accounts which gives rise to serious anomalies which are generally seen as unreasonable and unfair. For example, widows who were the second-named in joint accounts with their husbands and whose husbands died during the qualifying two-year period are excluded from bonus payments. Under existing rules, in such cases the bonus cannot be paid to the widow whether her husband's name was simply deleted from the joint account or the balance in that account was transferred to a new account in her name after her husband's death. I do not believe that Parliament intended such unfairness; and this legislation is intended to put matters right.
Somewhat similar anomalies can affect newly-marrieds. For example, if the wife on marriage chooses to redesignate her building society investment account jointly in the names of her husband and herself, she would lose the rights accruing to her before marriage when the account was in her own name. Somewhat similar difficulties can arise when marriages are dissolved or when accounts are split for tax reasons.

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Regrettably, there are other anomalies implicit in the rather complicated provisions of the 1986 Act affecting bonus payments and the related subject of voting rights. But I must make it absolutely clear, as did Douglas French in another place, that this Bill is not a comprehensive measure. It does not attempt to tackle every related problem, and it does not deal with any matters affecting voting rights. The Bill has a limited objective as set out in its Long Title and I hope that that will be accepted when we come to consider the detailed provisions of the Bill in Committee and at Report. Indeed, I fear that if the scope of the Bill were to be widened, it may well be counter-productive as such an amended Bill could run into severe difficulties when it returned to another place. No doubt powerful arguments can, and perhaps will, be deployed to include other desirable objectives in the Bill. But in my view such actions will put at risk the survival of the Bill when it is returned to another place for consideration of Lords amendments.
Both Douglas French and I are grateful for the encouragement and help given and promised by Treasury Ministers and by the Building Societies Commission. As a former Treasury Minister myself, I know how difficult it is to draft new clauses or amendments which meet the high and exacting standards set by parliamentary counsel. I appreciate that considerable redrafting will be required in order to achieve the clear and limited but well worthwhile objectives I have detailed and in support of which the Bill was given what I might describe as fast-track approval in another place. I hope that my noble friend the Minister will, with the assistance of parliamentary counsel, table appropriate amendments for consideration in Committee so that those agreed objectives can be met.
Let me end by stressing that the Bill does not extend or confer rights to those who may benefit. It is a permissive measure. It is not mandatory and the decisions about who should or should not receive bonus distributions of cash or shares will be made by the building society concerned. The Bill seeks to redress specific and genuine grievances, particularly for the group of widows affected, and I commend it to the House.
Moved, That the Bill be now read a second time.—(Lord Hayhoe.)
6.26 p.m.
Lord Dubs: My Lords, perhaps I may first declare an interest in that I hold a savings account with the Cheltenham & Gloucester Building Society, as does my wife, though I am bound to say that I see no personal advantage through the passage of the Bill either to myself or to my wife.
I give the Bill my full support and congratulate the noble Lord, Lord Hayhoe, for his clear exposition of what the Bill is and is not concerned with. As he said, it deals with one of a number of anomalies or injustices created or continued by the Building Societies Act 1986. I regret that, despite a great deal of urging, the Government did not feel it possible to bring about the
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changes in their own right; they left it to a Private Member's Bill to correct what is clearly a glaring injustice.
I hold a letter sent by the Treasury to one of the many people who wrote to me. It is dated December 1994 and signed by a civil servant rather than by a Minister. It states that the Government have decided that the controls on takeovers imposed by Parliament in 1986 are to remain in place. Therefore, somewhere between last December and today, the Government have had a most welcome change of heart.
Perhaps I can say in passing that I am not sure whether or not investors and borrowers as a whole will be better off if banks continue to take over building societies. That is not the subject of today's debate. But, while supporting the Bill, we should not necessarily say that the continued takeover of building societies by banks, and therefore as it were the diminution of building societies as borrowers and lenders, is a good thing.
A number of injustices exist, of which I shall mention three. The first is the subject of the Bill; namely, the position regarding the second-named account holder in the case of a joint account, whether as a result of death, marriage or for any other reason. The second anomaly is one that nobody can do much about—and perhaps should not do much about—and concerns the two-year qualifying period. There must be a qualifying period. However, enormous hardship is caused when somebody misses the qualifying period by perhaps one or two days and is therefore deprived of the benefit which would otherwise accrue to them.
For the reasons expressed by the noble Lord, Lord Hayhoe, one does not want to overload the Bill with further changes. But, again, the third anomaly is one for which I can see no justification. It concerns the situation where individuals switch their account with a specific building society from one type of account to another at the suggestion of the building society because the building society says that the customer will gain more interest. They then lose out in terms of the benefit because they no longer qualify under the legislation. The Cheltenham & Gloucester Building Society wrote in those terms to all people holding specific accounts. I certainly received such a letter and the reason I did not respond was simply inertia; I am now the beneficiary of that inertia. I regret that some people who acted diligently and sensibly in what seemed to be their own interests lost out. It is not an anomaly that we can put right on this occasion, but it is one which is hard to justify.
As soon as I had the privilege of taking my seat in this House last October I set about preparing a Bill, or having a Bill prepared, and I introduced it in early January. Although I was particularly concerned by the Cheltenham & Gloucester situation, my Bill is also relevant to the situation of other building societies. The same is true of the Bill now before the House. I wrote to the Government at the time asking them for their support. However, the postal system must be even worse than I thought it was because I certainly had no answer to my letter of early January as to whether the Government would be willing to support my Bill. It

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might have saved a lot of time had I received a reply because until today I was not sure of the Government's position. But the noble Lord, Lord Hayhoe, has made it clear that the Government support the Bill. A few days after I introduced my Bill in another place a Bill was introduced by Douglas French. That Bill is before us today.
As soon as I introduced my Bill I received an astonishingly large number of letters from all over the country. It is quite amazing how the press coverage and an item on the radio provoked such a large number of letters. Some gave direct support to the proposition contained in my Bill and in the Bill before us and others said that the Bills are fine but drew attention to the anomalies which I have already mentioned. I am grateful to the many people who took the trouble to write to me to express their views. I am also impressed by the enormous strength of feeling that can be seen in those letters. That strength of feeling is right because people, many of whom I am sure are not well off, will suffer an injustice unless the Bill goes through, although others will still suffer injustices which I fear the Bill cannot put right. I agree with the noble Lord, Lord Hayhoe, that it is not possible in a Private Member's Bill to rectify all these anomalies. If we try, we run the risk that when the Bill goes back to another place it will die a death, and we shall have achieved nothing at all. It is painful to have to write to people to say that to them, but it is the truth.
Perhaps I may say in passing that it makes me wonder what was going on when Parliament passed the Building Societies Act 1986. Our much-vaunted scrutiny of legislation in both places seems to have been a little amiss then. However, I have not read the Hansard reports of the proceedings on the Bill to see whether the issues about which we are talking today were debated at the time.
It is welcome that the Cheltenham & Gloucester Building Society has announced that Lloyds Bank has set aside the sum of £10 million to be made available to the second named account holders—I hope it means all second named account holders and not just widows—provided that the legislation goes through Parliament by 1st August this year. That means that the Cheltenham & Gloucester Building Society will not wish to delay a ballot of its members, which has to take place by 31st March. I have had a letter from the chief executive of the Cheltenham & Gloucester Building Society indicating why it would be technically very difficult indeed for that building society to delay yet again its proposed deadline for the ballot. I believe that there is some strength in that argument.
I shall shortly withdraw my own Bill, but before I reach that point perhaps I may say that I am slightly puzzled on one point. I have been asked on a number of occasions why, if my Bill is intended to achieve the same aim as the Bill under discussion, my Bill is so much easier to understand than the other Bill. That is no credit to me whatever. Perhaps I may give my thanks to the Public Bill Office in this House for the help it has been to me and for the fact that it has drafted my Bill in such a way that it is extremely simple to understand.
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The other Bill is jolly difficult to understand. Perhaps the noble Lord can explain whether there is anything in his Bill which is different from what is in my Bill. Otherwise, simplicity of English is something that is always thought desirable in these matters.
I need to explain to the people who have written to me why I am withdrawing my Bill. I have not sought to gain any party political advantage out of what I have done and I was slightly taken aback not only by the Government's failure to reply to my letters but also by one or two of the events surrounding the fact that there were two Bills rather than one. However, it would be churlish of me to go into that at great length. I merely assume that the Government preferred a Bill to go through both Houses in the name of Conservative Members rather than in the name of someone who is a member of the Labour Party.
Having said that, I wish to give my full support to the Bill. I urge its quick and sensible passage through this House in order that it can become law as quickly as possible. It is highly desirable in the interests of the many second named account holders who would otherwise suffer an injustice which they ought not to suffer.
6.35 p.m.
Earl Russell: My Lords, I shall not detain the House long. I am only the understudy in this respect and I have not yet learnt all the lines. I should like, however, to put the support for this Bill on an all-party basis. I thank Mr. French and the noble Lords, Lord Hayhoe and Lord Dubs, for the work which all three of them have done on the subject. The Bill clearly remedies a mischief. When I consider why that mischief is perceived in 1995 and was not perceived in 1986 I think it may have something to do with the fact that the old-fashioned concept of the head of the household now looks a little more out of date than it did then. We on these Benches are happy to welcome that change.
We shall be happy to support amendments which are designed to improve the drafting of the Bill. We have heard what the noble Lords, Lord Hayhoe and Lord Dubs, have said about widening the scope of the Bill. That clearly depends on the possibility of getting the Bill through. On that point, I hope that the Minister may be in a position to give us some further guidance as we proceed. With those few remarks, and the wholehearted support of these Benches for the Bill, I am happy to support it.
6.37 p.m.
Baroness Macleod of Borve: My Lords, I felt that I could not let this evening pass without adding my few words to the passage of the Bill. I do so because for very many years—noble Lords will know that I have been widowed twice—I have been involved with the National Association of Widows. I was president and then chairman and now I am a trustee of the association. It is a large organisation, which tries to help those who have lost their partners in life. Around 500 women are widowed every day and there are more than 3 million

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widows in the country. We try to help them by giving them shoulders to cry on, by giving them advice and by giving them other things to do with their lives.
One of the overriding problems which most of the widows in the country still face is a shortage of money. A great deal of money is no longer there because their husband is no longer contributing or earning any money. We do not give money to widows—we leave that to the state in its wisdom —but the passage of the Bill will be of enormous help to a great number of widows who have with their partners put money into the building societies. Why this change was not made many years ago I have failed to find out, but, as they say, better late than never.
As the noble Lord, Lord Dubs, said, the principle of the Bill is welcomed by many people throughout the country. I congratulate the noble Lord on thinking of his Bill at the same time as the Government thought of theirs. I am afraid that I do not know whose came first. As the noble Earl, Lord Russell, said, the all-party nature of the Bill will make it a great success throughout the country. I am sure that it will be warmly welcomed. I welcome it on behalf of those who are left, the widows. I should like to thank my noble friend Lord Hayhoe for tabling his Bill and for introducing it so ably tonight. I welcome the Bill on behalf of all the widows and, indeed, on behalf of anybody who will be helped by it. I wish it a swift passage through the House.
6.40 p.m.
Lord Eatwell: My Lords, I am happy to join in the pleasing unanimity which has been expressed by those on all sides of the House in welcoming this throughly sensible measure, which clears up an obvious anomaly in the law. We on these Benches are delighted to support the Bill, not least because its essence was contained in the Bill of my noble friend Lord Dubs. The noble Lord, Lord Hayhoe, paid a most warm and kind tribute to the part played in the legislation by my noble friend Lord Dubs.
It would be inappropriate to pass from that point without telling a little of the intriguing story of what actually happened. My noble friend's Bill was introduced in this House on 11th January. Mr. French's Ten-Minute Rule Bill appeared about a week later, Mr. French having switched his topic 48 hours before he was due to introduce his Bill. My noble friend was told that the Second Reading of his Bill could not take place until this coming Wednesday because no Minister was available to deal with it. I have had the opportunity of enjoying the company of the noble Lord, Lord Henley, on numerous occasions over the past seven weeks, and I am surprised that he was not available to deal with my noble friend's Bill earlier than today.
However, enough of that carping—we are all delighted that Mr. French's Bill, which has been introduced in this House by the noble Lord, Lord Hayhoe, is before us today. As I understand it, the scope has been extended a little from my noble friend's Bill to include problems of divorce, marriage and the other ways in which joint ownership or joint account holding can occur.
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The anomaly that we are considering raises the interesting and important question of whether the anomaly occurs elsewhere. Clearly, a building society, as a mutual society, has a rather peculiar relationship between depositors and owners. But what of other mutual societies? Should the legislation be drawn more widely than to cover building societies alone? Given the fact that a significant number of other anomalies are associated with joint account holders, will the Government be bringing forward legislation in due course—perhaps soon—to deal with the wide range of anomalies that were pointed out by the noble Lord, Lord Hayhoe? It seems appropriate that such legislation should be introduced, even if not as an amendment to this Bill. If the Bill is to have a speedy passage, surely a new Bill should be brought forward to deal with those numerous anomalies which have emerged since 1986.
However, there is perhaps one point which should be considered in the context of this Bill. I refer to the extraordinary anomaly that was pointed out by my noble friend of the loss of bonuses or benefits when switching between accounts with the same building society. It is extraordinary that someone who holds an account with a building society and who simply moves between different categories of account should thereby lose the advantages associated with bonuses on mergers or purchases.
It would be appropriate for the Government to introduce a short Bill or an amendment to deal with that matter in short order. If the Government do not do so, perhaps the best thing would be for my noble friend Lord Dubs to introduce another Bill to deal with that anomaly, because we know that the Government will then produce a Bill out of the hat in very short order. Having said that, we are delighted to support this enormously successful measure.
6.45 p.m.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, I start with a small apology to the noble Lord, Lord Eatwell. I am in the rather strange position of being in agreement with what the noble Lord said. The alarm bells sometimes start to ring when I am in agreement with the noble Lord. I start with an apology that his noble friend Lord Dubs was unable to get in touch with me any earlier. However, I have to stress that I have certain other responsibilities within the Government which often have to come before occasions in this House. Perhaps I may also offer an apology to the noble Lord, Lord Dubs, for the fact that his letter of sometime in early January—I am not sure that I caught the date—has not yet been answered. I shall certainly chase that up with my right honourable and honourable friends in the Treasury to ensure that the noble Lord receives an answer in due course.
Perhaps I may also make one small point in response to the point that both he and the noble Lord, Lord Eatwell, made. We have no desperate desire to ensure that such Private Member's Bills are dealt with by my honourable friends in another place or by my noble friends in this House. In fact, I can cite an instance of a Bill in which I had some interest in my previous

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department, the Department of Employment, which was introduced by Mr. Keith Vaz, one of the noble Lord's honourable friends in another place. That Bill was taken through this House as a Private Member's Bill by my noble friend Lady Miller who was then on the Back Benches, but has since, happily, joined us on the Front Bench.
Perhaps I may say on behalf of Her Majesty's Government how much we welcome this Bill which was so persuasively introduced by my noble friend. I should like to pay tribute also to my honourable friend the Member for Gloucester for taking the Bill so quickly through all its stages in another place. I dare say that many of us wish that we could take Bills so quickly through all their stages in this House as well. I am confident that the Bill can complete its remaining stages as speedily as possible, and certainly by the end of July, and so benefit the many widowed joint account holders in the Cheltenham & Gloucester Building Society.
My noble friend and others, particularly the noble Lord, Lord Eatwell, have pointed out other anomalies in building societies legislation and have asked whether we could deal with those matters. As the House will be aware, the Treasury has carried out a review of the Building Societies Act 1986. The results of the second, and final, stage were announced by my honourable friend the Minister of State on Friday of last week. The Government are to change substantially the approach to building societies' powers, moving from the current prescriptive framework to a more flexible structure. This will enable societies to pursue their core business more efficiently, and to provide competition across a wider range of financial services. At the same time, the Government are bringing forward a 15-point package of measures designed to make societies more accountable, by improving the information given to members, and increasing the transparency with which societies conduct their business.
I can give the assurance that we shall bring forward legislation to amend the Building Societies Act as and when a suitable legislative opportunity arises. In the meantime, we shall continue to implement by secondary legislation the various changes which were announced by my honourable friend when he made his statement on the first stage of the review last July, when he made it clear that the Government do not plan to remove the stringent controls on building society conversions and takeovers. The "two-year rule", which outlaws cash payments to recently joined members of a society which converts or is taken over, is designed to stop destabilising flows of funds between societies on the basis of market rumours. We believe that this rule and the high turnout and voting thresholds which must be achieved for a conversion or takeover proposal to succeed are essential protections for the building society sector.
Nonetheless the Government have sympathy for those members of the Cheltenham & Gloucester Building Society who were caught by the two-year rule because of the way in which it interacted with the rules on joint account holders. Many of those, as my noble friend made clear in his introduction, were women who had
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been recently widowed. Although they had been members of the C&G for many years, they had held their savings in joint accounts, of which their late husbands were the first named holders. On inheriting those accounts, in relation to the rules governing cash distributions, the widows are treated in the same way as new members of the society. That means that most of those inheriting accounts after the end of 1992 are ineligible for a cash bonus as part of the takeover bid by Lloyds Bank.
As I have indicated, the Government recognised the concern of the investors who found themselves in that unfortunate position. It would not have been appropriate for us to bring forward piecemeal changes to the legislation, especially when a comprehensive review of the Act was under way. But we welcomed the introduction by my honourable friend in another place of a Bill to allow second named account holders to benefit from a cash distribution, provided that they had been shareholders for at least the required two-year period. It is an excellent example of a useful and constructive Private Member's initiative, and the Government will do all they can to ensure that the Bill is enacted in time to help C&G investors. In that connection, I commend also the efforts of the noble Lord, Lord Dubs, who attempted to tackle the issue of joint account holders' rights by introducing similar legislation, although drafted differently.
The Government support fully the aim of the Bill to secure the rights of second named building society account holders. We believe that, as well as helping widows who have inherited joint accounts, it should allow others who are, or have been, joint holders, but who have been members for at least two years, to be eligible for any distribution if their society converts or is taken over. My noble friend gave the example of a woman who has held a share account for a number of years. If she marries and puts her money into a joint account with her new husband, and his is the first name on the account, then she would lose her entitlement to a distribution. We believe that in future she should not so lose her entitlement. The Government are looking carefully at the wording of the Bill and will bring forward amendments in Committee.
My noble friend suggested that I might bring forward those amendments with some assistance from parliamentary counsel. I can assure my noble friend that I shall need considerable assistance from parliamentary counsel in drafting those amendments, but I am sure that they will advise me appropriately. I shall bring forward amendments in Committee to ensure that the Bill achieves its purpose of extending as far as possible the rights of second named holders, provided that they are consistent with the structure and the spirit of the Building Societies Act.
Again, I repeat the warnings made by my noble friend about making fundamental amendments to the Bill and the danger that that might mean losing the Bill in another place. I am advised that that would be the case if we were to deal with the anomalies relating to those switching accounts within the same building society, pointed out by the noble Lord, Lord Dubs. That is not something which we can deal with in this Bill as drafted.

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The Bill has been welcomed on all sides of the House. It will correct an unintended anomaly in the Building Societies Act and allow thousands of widows, who would otherwise lose out, to benefit if the members of the Cheltenham & Gloucester approve Lloyds Bank's takeover bid. It will provide reassurance for joint account holders in the Halifax and Leeds building societies, who may be concerned about whether they will qualify for any benefits which may be offered if the planned merger and conversion of their societies goes ahead. I commend the Bill to the House.
6.53 p.m.
Lord Hayhoe: My Lords, perhaps I may say how grateful I, my honourable friend Douglas French, and those who will benefit when the Bill becomes law, as I hope it will, are to all who contributed to this short debate, and for the welcome support which has come from all parts of the House. Harmony reigns. It would be wrong of me to say another word since I might disturb that harmony. So I merely commend the Bill to the House with the hope that it will be given an unopposed Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Building Societies (Joint Accounts) Bill [H.L.]
Lord Dubs: My Lords, I beg rose to move that the Bill be withdrawn.
Moved, That the Bill be withdrawn.—(Lord Dubs.)
On Question, Motion agreed to.

Requirements of Writing (Scotland) Bill [H.L.]
6.55 p.m.
The Earl of Balfour: My Lords, I beg to move that this Bill be now read a second time.
The Requirements of Writing (Scotland) Bill is based upon the report (Corn 112) of the Scottish Law Commission on Requirements of Writing and the draft Bill in Appendix A. That report was produced after consultation with the CBI, the Scottish Law Society and other bodies. The Scottish Law Commission's recommendations commanded general agreement and the Bill has the support of the Law Society of Scotland.
The purposes of this Bill are essentially simple. There are five purposes: namely, first, to set out where writing is required for the constitution of certain obligations; secondly, to provide how such documents may be validly executed—i.e., simply by subscription; thirdly, to provide how a document may be subscribed or signed; fourthly, to provide how such documents may be made probative so that they are presumed to have been subscribed by the granter; and, fifthly, to repeal the old Scottish statutes and the common law which relate to these matters.
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The effect of the Bill will be radically to simplify the law of Scotland relating to these matters. It will replace the old Scottish authentication statutes which were first enacted in the middle of the 16th century and the whole corpus of often confusing and conflicting case law which has surrounded them.
It may be helpful if I gave a brief description of what each clause provides. Clause 1 sets out the basic principle that, subject to certain exceptions and to any other enactment, writing is not required for the constitution of any obligation. The exceptions are that writing is still required, first, for the constitution of contracts or other obligations relating to an interest in land (for example, missives); a gratuitous unilateral obligation (except an obligation undertaken in the course of business); and a trust whereby a person declares himself to be the sole trustee of his property; secondly, the creation, transfer, variation or extinction of an interest in land (otherwise than by a court decree, enactment or rule of law)—for example, a conveyance; and, thirdly, the making of any will.
The principle is that in those cases—which would include the purchase or sale of a house, (the most important transaction most people make), agreeing to provide, for example, a large sum of money as a gift for the restoration of, say, a church roof, or declaring that one's own property is held in trust for a favourite grandchild—there is a strong case for a rule which gives a person or the parties time to reflect upon all the implications of the action he is, or they are, contemplating, and perhaps obtain legal advice before being committed.
Clause 2 provides that, where writing is required, the document is validly executed if it is simply subscribed—that is, signed at the end of the last page—by the granter. That replaces the present law, which is that a document must be attested, holograph or adopted as holograph. Noble Lords may be interested in an example of the kind of unfortunate result to which the existing law can lead. Mr. Able, owning a shop, writes out a letter for Mr. Baker to sign for the purchase of that shop. Mr. Baker signs that letter and returns it. Mr. Able then writes a letter of acceptance and delivers it to Mr. Baker. Thus there is a subscribed offer from Mr. Baker and a subscribed acceptance from Mr. Able. Mr. Able then changes his mind and Mr. Baker sues. The court dismisses the action on the ground that the offer Mr. Baker had signed, which was provided for him by Mr. Able, was neither holograph nor attested.
Clause 3 provides how such documents may be presumed to have been subscribed by the granter—that is, made probative. Generally speaking, the document must bear to have been subscribed by the granter and to have been signed by one witness, whose name and address is given. In the case of a will, however, it must also be signed by the granter on every sheet. These new rules greatly simplify and clarify the present law.
I think that I should mention at this stage that the provisions of Clause 3 are modified by Schedule 2 in the case where the granter is a legal person, such as a company, local authority or other body corporate. In the case of a company, it is, for example, provided that, in addition to the Clause 3 arrangements, the present

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statutory requirements for making documents executed by companies probative—signature by two directors, a director or secretary or two authorised persons, without any requirements for witnessing—will remain in place. I understand that that is at the special request of the CBI and the Law Society of Scotland.
Clause 4 enables a court to endorse a document with a certificate that it was subscribed by the granter and the place and date of subscription, if it is satisfied by extrinsic evidence as to those matters. That will be of considerable benefit in cases where a document has not been witnessed, or has been witnessed imperfectly, and will allow its status to be established once and for all.
Clause 5 relates to alterations made to documents, whether made before or after subscription. It sets out the requirements which must be observed if the alteration is to have legal effect. It sets out the conditions which must be satisfied if the alteration is to be presumed to have been made before the documents were subscribed.
Schedule 1 makes provision similar to Clauses 3 and 4 in relation to alterations made to a document after it has been subscribed.
Clause 6 provides that, as at present, only documents which are presumed to have been subscribed by the granter can be recorded in the Register of Sasines or registered in the Books of Council and Session or in the sheriff court books; for example, bills of exchange.
Clause 7 makes provision as to how a document is to be subscribed. Generally speaking, a document is subscribed if it is signed by the person at the end of the last page. It makes provision as to what constitutes a signature, and your Lordships will be pleased to note that existing rules of law relating to subscription or signing of documents by members of the Royal Family, by Peers or by the wives or eldest sons of Peers, are preserved. Those provisions relate to the signature of an individual natural person. Schedule 2 sets out special rules relating to the subscription and signature by legal persons, such as partnerships, companies, local authorities and other bodies corporate and Ministers.
Clause 8 makes provision as to how any annexation to a document should be incorporated in a document. Generally speaking, it is sufficient if the annexation is referred to in the document and identified on its face as being the annexation which is referred to in the document, without the annexation having to be signed or subscribed. However, where the document relates to land and the annexation describes or shows all or any part of the land to which the document relates, the annexation must be signed on each page if it is a plan, drawing or photograph and on the last page if it is an inventory or schedule or other writings.
Clause 9 makes provision for the subscription of any document on behalf of a blind granter or a granter who is unable to write, which must be subscribed by a relevant person, who is described in subsection (6). The third schedule to the Bill lays down the conditions for a document to be formally valid, where it has been subscribed on behalf of a blind person or a person unable to write mostly by making the necessary alterations to Clauses 3, 4 and Schedule 1, including any alteration as described in that schedule.
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Clause 10 empowers the Secretary of State to prescribe model forms for testing clauses, drafts of which are shown in Appendix B to the report (Com. 112).
Clause 11 abolishes the common law rules restricting proof of certain matters to proof by writ or by reference to oath and the common law rules requiring certain contracts and obligations to be in writing. Again, your Lordships may be interested in an example of the kind of injustice which can occur if courts are restricted to writ or oath in the evidence which they can take into account in coming to a decision on whether an obligation exists. A builder is sued by a firm of plasterers for payment of sums allegedly still due under a contract to do plasterwork. He says the sums have been paid and produces parole evidence to that effect. He cannot, however, produce any writ of the pursuer, so the decision goes against him. The judge says that he would probably have decided the other way if it had been open to him to proceed upon the parole evidence.
Clause 12 is the interpretation clause. Clause 13 preserves the right of Her Majesty to authenticate any document by superscription or a document relating to her private estates in accordance with the Crown Private Estates Act 1862. It also preserves certain other Crown writs. Subject to that, however, the Bill will bind the Crown.
Clauses 14 and Schedules 4 and 5 contain minor and consequential amendments, repeals and transitional provisions, and savings.
Clause 15 provides that the Bill should come into force at the end of a period of three months beginning with the date on which it is passed. It also provides that the Bill extends to Scotland only. I commend the Bill to your Lordships' House.
Moved, That the Bill be read a second time.—(The Earl of Balfour.)
7.10 p.m.
Lord Macaulay of Bragar: My Lords, perhaps I may, first, congratulate the noble Earl, Lord Balfour, on having the courage to take on the Bill and present it to your Lordships' House. The legislation now before us is long overdue, arising as it does, and as the noble Earl said, from a Scottish Law Commission report of July 1988. We are now five years away from that report and we have discussed more than once in this Chamber the difficulty in getting Law Commission reports put into legislation, not only in Scotland but also in England.
The Long Title of the Bill says that it is:
"An Act to reform the law of Scotland with regard to the requirement of writing for certain matters and the formal validity of contractual and other documents … to abolish any rule of law restricting the proof of any matter to writ or oath and to abolish the procedure of reference to oath; and for connected purposes".
The antiquity of the Scottish law as it stood before the Bill was introduced and before the Scottish Law Commission decided to have a look at it—perhaps, having been asked to do so—is reflected in Schedule 5 to the Bill. We find that five Acts of Parliament are now abolished in their entirety, starting in the year 1540 and ending in the year 1696. Therefore, it has taken us some time to get reformation of the law in that particular field.

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I believe that it would be wrong for your Lordships' House to consider the Bill without congratulating the Scottish Law Commission on dealing with the matter which concerns a highly complicated and technical area of the law and without recognising that the commission has dealt with the legislation with its usual thoroughness and clarity. The commission has demonstrated an ability to reshape the law for use in modern times.
As the noble Earl said in his introduction, we are dealing with an area of law which has given rise to much litigation over the years, some of which, to the layman, appearing particularly stupid, while appearing to lawyers to be particularly remunerative. With the support of this side of the House and with the Bill being perhaps slightly amended —but we shall see how things go—I hope that such silly court proceedings, if I can put it that way, will be bypassed once the Bill has seen its way through your Lordships' House and the other place. I suppose in these modern sleaze-times I should declare an interest because I am a lawyer. Therefore, I am arguing against myself. I hope that the Bill will reduce the necessity of my appearance in any court in Scotland once the Bill has been enacted.
The Bill reflects the commission's practical approach and, in the form in which it has been presented to the House, has not attracted much criticism. However, as a word of warning, perhaps I may say that, although the legislation has emerged from a report of the Scottish Law Commission and despite its present form, that does not mean that we should go all the way, shake hands with ourselves and say, "This is a magnificent piece of legislation". I say that because no piece of legislation is magnificent; indeed, every piece needs to be closely scrutinised. The present Bill is no exception. At the end of the day, it is possible that we may not have a Committee stage in this Chamber. We do not know about that because the Bill has only just been presented to the House. However, it must still be carefully scrutinised.
I should tell the Government that reservations have been expressed to me—but I am also expressing my own view because I can see where the argument arises—about the application of Clause 8(2). That reads:
"Where a document relates to land and an annexation to it describes or shows all or any part of the land to which the document relates, the annexation shall be regarded as incorporated in the document"—
and strange words are introduced at this point—
"if and only if—

(a) it is referred to in the document; and

(b) it is identified on its face as being the annexation referred to in the document; and

(c) it is signed on—

(i) each page, where it is a plan, drawing, photograph or other representation; or

(ii) the last page, where it is an inventory, appendix, schedule or other writing".

That is a good example of how complex is the area within which the Scottish Law Commission was working.
I know that Clause 8(2) limits documents relating to land. However, if one turns back to Clause 1(2), where we have the basis of the Bill which deals with an interest in land, there is some confusion—at least, certainly in
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my mind; but my mind is no great mind, and no doubt the Government's mind is greater. In Clause 1(2) we have a definition of an interest in land, but in Clause 8(2) there is no such definition regarding land. Similarly, there is no definition of land in Clause 12, so far as I can see, for the purposes of Clause 8(2).
Therefore, although I may be talking in circles or riddles, whatever the appropriate phrase may be, I wonder whether the noble and learned Lord, who knows the problems that such matters in relation to land give to the courts, might have a look at Clauses 1(2) and 8(2) to see whether they can be linked up in some way. Indeed, I wonder whether Clause 8(2) is at all necessary. As has been suggested, it may be that the requirements of Clause 8(2) should only be retained for documents which have to be registered in the Register of Sasines or the Land Register of Scotland, whatever the case may be.
In reverse, perhaps I may briefly refer to certain matters. As we are dealing with the Bill's Second Reading this evening, I shall not go into the minutiae involved. I refer to Clause 7(3) which says:
"Where there is more than one granter, the requirement under subsection (1) above of signing at the end of the last page of a document shall be regarded as complied with if at least one granter signs at the end of the last page and any other granter signs on an additional page".
For the life of me, I cannot understand what that is about. I can see litigation arising out of that subsection until the cows come home. I always understood—perhaps wrongly —that the essence of a document granting something is that everyone involved concurs to the granting of whatever it may be. Although I have not had time to consider the matter in great detail, it seems to me that Clause 7(3) leaves the door open to a challenge being made at some stage in a document where only one granter has signed and then the other granter, who has not signed, comes in and challenges the document.
For my own part, the essence of a document granting something is that, if someone comes along as an outsider to see what has been granted and to look at the document, especially if it is registered in the Register of Sasines or whatever, the granting parties should be seen on the face of the document. As it stands, it looks as if Clause 7(3) could do with a little rewording. However, I raise that only in passing so that the Government and those responsible for drafting the Bill can perhaps reconsider the matter between now and the next stage. Of course, there is no question of it being a political issue. We are here to try to modernise the law in a particularly difficult area.
I turn now to Clause 9 which deals with:
"Subscription on behalf of a blind granter or a granter unable to write".
I should like to raise one issue regarding subsection (6); namely, the question of who is a relevant person. My reading of that—this is only my reading, and I speak for myself—is that the definition of the person who can be a relevant person is too restrictive. It states in the Bill,
"In this Act 'relevant person' means".
"Means" is a restrictive word. In other words, it excludes anyone else. The Bill further states,

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"a solicitor who has in force a practising certificate as defined … an advocate, a justice of the peace or a sheriff clerk".
The Bill continues,
"in relation to the execution of documents outwith Scotland, includes".
Therefore we have a distinction, if I can put it that way. As regards Scotland, there is a restrictive view of who a relevant person is, whereas south of the Border the measure states only that the person we are discussing includes certain people. That means it can be a person within the definition. As regards the definition of a relevant person, why should a general practitioner not be a relevant person, as much as a justice of the peace or a sheriff clerk? Let us take the case of a blind person or a person who cannot write. Why should not such a person go along to his doctor, whom he may have known over the years, and say, "I want to do this, but I want you to make sure that it is done properly. Will you look after me while this procedure is going on and deal with the provisions of Clause 9"? I raise this point as a matter of interest rather than as a criticism.
As the noble Earl said, Clause 11 abolishes proof by writ or by reference to oath. That measure will be welcomed unanimously throughout the legal profession because in my experience of that profession on the few occasions that the provision arose it was an area of law where eventually no one knew what they were talking about. With respect, I suggest that not even the judges knew what they were talking about in this regard. Therefore Clause 11 is a happy clause, and I am very grateful for it because the measure could not be dealt with with any degree of certainty and confidence by the judges.
I have raised the initial matters that have struck me as I have read this measure recently. I now refer to the subscription of companies which is dealt with at Schedule 2, and in particular at paragraph 1 to Schedule 3. I understand that those involved in company business have not raised any great objection to this measure. However, having read it, I have some reservations about how it can be interpreted. Paragraph 3(5) at line 19 on page 17 of the Bill states where,
"a document bears to have been subscribed on behalf of a company by a director, or by the secretary, of the company or by a person bearing to have been authorised to subscribe the document on its behalf…shall be presumed to have been subscribed by the company".
That matter arises throughout the Bill and I do not wish to refer to all the various places where it arises. But how does an outsider know, looking at company accounts and seeing a signature on the company accounts, that the person who has been authorised by the company is a person who has been authorised by the company? I would suggest that as regards any document which bears to be signed by a person authorised by the company, there should be attached a document which states that Joe Smith or Jimmy Brown—I suppose these days we should refer to Jessie Brown as well —is authorised to sign on behalf of the company, with a certificate signed by the company secretary and a director stating that these are the people who are authorised to sign any document on behalf of the company.
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We all know what companies get up to—bogus companies and all the rest of it—and there is little protection for the public as regards company fraud. It appears to me that where people are allowed simply to say that a document bears to have been authorised by them to subscribe on behalf of the company, that opens dangerous doors where the public could be ripped off. I hope that consideration will be given to the matter of building into the Bill a double check. I hope I may suggest one such check which is that no document—I say No with a capital "N" and a capital "O"—should be deemed to be a legal document unless it is signed by the secretary of the company, who obviously will be in the company's books, and one other person whether he be another director, or a person who appears as authorised on a list. That would give some inbuilt check as regards the activities of companies as we all know that one can go to Companies House and obtain details of a company off the shelf and do all the things that people can do with companies. The public have little protection in this regard, but at least the check I have mentioned might provide a certain built in protection for the person who wants to know with whom he is dealing.
For example, if I wish to build a house, I can obtain the name of a company which builds houses. It is of no use to me to have a document signed as a matter of contract which bears to have been signed by a person authorised to subscribe the document on behalf of the company unless I know that the company has authorised that. I may be omitting something here because the Scottish Law Commission document is lengthy. I have tried my best to catch up with it in the time available, and I have looked at the Bill; but I believe there are problems here. The problem is compounded by sub-paragraph (1C) to paragraph 3 of Schedule 2 on page 17 of the Bill.
Once the document is signed, one would think that was the end of the story. However, the sub-paragraph states:
"A presumption under subsection (1) or (1A) above as to subscription of a document does not include a presumption—

(a) that a person bearing to subscribe the document as a director or the secretary of the company was such director or secretary; or

(b) that a person subscribing the document on behalf of the company bearing to have been authorised to do so was authorised to do so".

Looking at that from the layman's point of view, where are we? We get a document duly subscribed by a director, a secretary or a person bearing to have been authorised by the company to subscribe on its behalf. One looks at the document and one says, "That is fine". But then one says, "Wait a minute. The fellow who signed that is not presumed to be the person bearing to subscribe the document as a director or secretary, or having authorisation to do so". I suggest that in this particular area some tightening up needs to be done. However, I may be missing the point here. These are the matters that I wish to raise at this stage of the Bill in your Lordships' House.
In conclusion, I say that the Bill is welcome but, as I said at the beginning, that does not mean that it should not be closely looked at before it leaves the revising Chamber of your Lordships' House. In the time between now and the Committee stage, I and my noble friends

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on this side of your Lordships' House will have time to receive any representations which anyone or any body affected by the Bill would care to present to us. If at the end of the day the practitioners think the Bill is all right, the answer may be, "That is all right". But it is not all right because we and your Lordships' House still have a duty in this regard. We have the reputation of not necessarily taking outside views to be the correct views. We will look at this measure again.
If at the end of the day the Bill marries the modernisation of the law with its practical application, it may go through without any attempt being made to amend it at Committee stage. I hope that the Government and the Law Commission will look at the matters I have raised in the best spirit of your Lordships' House in the time available between now and Committee stage.
Your Lordships will be glad to hear that I have nothing else to say.
7.29 p.m.
The Earl of Mar and Kellie: My Lords, I begin by congratulating the noble Earl, Lord Balfour, on his introduction of the Bill, which aims to regularise and modernise the way in which legal documents are prepared in Scotland.
As mentioned by the noble Lord, Lord Macaulay of Bragar, the Bill has an antiquarian flavour to it, as it repeals or varies no fewer than seven Acts of the Scottish Parliament and also modifies a further 36 Acts, including the Local Government etc. (Scotland) Act 1994 which so recently passed through this House.
I note that the Bill has its genesis in the Scottish Law Commission. I hope that it will enable Scottish lawyers to feel more confident about the number of safeguards that they need to build into every legal document. Over the past 20 years or so I have noticed that the documents required for conveyancing have increased in length from a single page to four pages as extra conditions have been built in to the offer and acceptance. Perhaps that meets genuine difficulties, or is it perhaps the result of easy electronic insertion by the word processor?
The Bill states how documents, appendices, alterations and subsequent additions are to be dealt with. This codifying should establish a new standard for Scottish lawyers to work to. The Bill seems to be sufficiently comprehensive. I note that it details how individuals, partnerships, companies, local authorities, corporate bodies, Ministers of the Crown and government agents will subscribe legal documents in their own distinct way.
The Bill establishes that property and land transactions, obligations, self-imposed trusts and wills must be written down in appropriate form. It goes on to require a single witness to substantiate that the subscriber genuinely signed the document. That seems to abolish the traditional need for two witnesses.
I believe that the Bill abolishes the need for the statement "adopted as holograph" to be written above the subscription on typed documents. Every encouragement should be given to dissuade people from using manuscript documentation.
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Legal documents will require to be signed only on the last page rather than on every page, which could lead to considerable saving in a long and complex document. However, I am glad that wills and other testamentary writings will require a signature on every page. Noble Lords will be aware that getting some people to make a will can be difficult enough. It is therefore sound that in Clause 3(10) there is no prescribed need for wills to be witnessed.
The Bill lays down the registration procedures for legal documents and also deals with false witness and false subscription. I note that it also permits the Lord Lyon King of Arms to continue to allow people to adopt territorial descriptions and use them in signature.
I question the provision in Clause 7(6) which allows for titled people to continue to avoid signing their full name. The usual form for Peers and others to sign with their surname only may not be helpful unless there is clarification within the document as to exactly who they are. I speak as a fourteenth and sixteenth Earl. There are a great many Mar, Kellie, and Mar and Kellie signatures in history.
Clause 11 sets out to abolish proof by writ or by reference to oath. I wonder whether that will deny the possibility of justice to a person who, for example, has loaned money on an IOU basis and whose debtor refuses to pay up. Would not the lack of a legal document, duly subscribed and witnessed, put that situation outwith the jurisdiction of civil proceedings?
Finally, I turn to a matter which relates to a fact that I should have declared earlier. I am not a lawyer but a social worker. Clause 9 lays down the format for the subscription of documents by blind people and by people who cannot write. I wonder whether the clause could be broadened to include people who cannot read, who are dyslexic or who are semi-literate and can understand the practical issue but cannot understand the complex language used in the document. I am also surprised that the task of explaining and subscribing on behalf of such people may be undertaken by a Justice of the Peace who, though honourable, is unlikely to be legally trained.
The noble Earl, Lord Balfour, has introduced a Bill which will be helpful to almost everyone in Scotland, and to solicitors and advocates in particular. Scots law is much respected. This Bill clarifies and modernises its documentary procedures.
7.36 p.m.
The Lord Advocate (Lord Rodger of Earlsferry): My Lords, I should like to add my congratulations to my noble friend Lord Balfour on his clear and thorough explanation of what is admittedly a very technical legal measure. He may have a glittering career in future as a professor of Scots law or conveyancing.
Although its terms are technical, the Bill represents a radical simplification of the law in this area. It should therefore be welcomed in all parts of your Lordships' House. It will certainly be welcomed by anyone who has had the painful duty of studying this particular area of Scots law.

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The Scottish Law Commission has taken the view for many years that there was a need for substantial reform and modernisation of the old laws requiring writing for certain legal purposes. The Bill has been long in preparation, as has been noted. The commission first consulted on the issue in 1977. I should like to join in the tributes that have been paid to members of the commission, past and present, for their work on the report. I mention in particular the former chairman, the distinguished judge the late Lord Maxwell. I should also like to thank the present members for their continued assistance and support in updating and, in some aspects, modifying some of the original proposals.
My noble friend explained that the old Scots statutes and all the common law rules relating to writings will be swept away by Clause 11 of the Bill. I can reassure the noble Earl, Lord Mar and Kellie, that the position of people who are IOU creditors will not be made worse, but will be improved.
In the face of those abstruse rules, Clause 1 establishes a very limited list of obligations, contracts and trusts for which writing is required. A document will be formally valid if it is subscribed by its granter. On the other hand, the document will be probative if the granter's signature is witnessed by one witness. As we have heard, the Bill provides for the execution of documents by companies and other corporate bodies, by government Ministers and local authorities.
As my noble friend made clear, methods by which Peers sign documents at present will continue alongside the arrangements set up by the Bill. There is nothing to prevent Peers using another form if they wish. I am not aware of any problems which have been caused by the kind of signature which Peers are used to adopting.
I turn briefly to some of the specific matters raised by the noble Lord, Lord Macaulay of Bragar. He drew attention to the definition of "land" in Clause 8(2). That is a general reference to documents of any kind which relate to land. In the absence of a definition of "land" in the Bill, one can find such a definition in Schedule 1(5) of the interpretation Act. However, more generally, Clause 8 refers to the actual land rather than the interest in land. The need for Clause 8(2) arises from a specific request by the Law Society and the Keeper of Registers. It is designed to make absolutely clear what is required in the case of annexations in relation to land.
The noble Lord, Lord Macaulay, also referred to Clause 7(3). As the noble Lord will be aware, sometimes one finds that a document finishes at the bottom of a page and there is therefore room for only one signature at the bottom of the page. The purpose of that provision is to allow for other granters to sign on another page rather than having to cram them in at the bottom of the page.
The noble Lord raised points in relation to Clause 9(6), regarding the definition of "relevant person". He pointed out that the provision is wider outside Scotland. The reason is that the provision is designed to include outside Scotland people who have an equivalent qualification by way of being a notary public, or other persons. If one were to limit the provision entirely to people with the kinds of qualification referred to in the
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first part of the subsection, it would be difficult for someone in, for example, France, to find a person who fell within that definition.
As to whether or not others should be included, the list may be restrictive, but it is certainly wider than the existing list which at present includes only solicitors, notaries public and Church of Scotland ministers. Therefore there is a widening of the provision. However, in such an important matter one would not wish to widen it too far. The commission has obviously considered the matter with some care.
On the question regarding whether the provision should include people who cannot read, as the noble Earl will realise, we are concerned with people who cannot subscribe —that is to say, those who cannot actually write for one reason or another. It is the physical act of writing with which we are concerned. That is why one has this specific machinery, limited in that way.
The noble Lord, Lord Macaulay, raised the issue of subscription by companies. In the Bill, as with all provisions for probative documents, one is dealing with a presumption. Where one has a document which bears to have been signed by two persons who have been authorised to subscribe the document on the company's behalf, the document may be presumed to have been granted by the company. Perhaps I may point out to the noble Lord that we already find in existing law at Section 72 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 reference to two persons authorised to subscribe the document on behalf of the company. Therefore one is incorporating in the Bill a provision which already exists and has proved to work satisfactorily. It is as a result of representations from the business community that the final form of the provision relating to documents being subscribed on behalf of a company has been reached. In that situation the business community has been concerned, among other things, to deal with the possibility of fraud, and is satisfied that the matter is properly dealt with.
Reference was made to the fact that there is no presumption that the person who signed is a director. I believe that that is correct. Again, the matter has been inserted as a result of requests from the Law Society. If one simply had the situation where someone bore to sign as a director it would be wrong if there were a presumption thereby that he was a director. That would only arise if the matter were challenged. If it were challenged on the basis that the person was not a director, it seems to me that it is correct, as the clause envisages, that at that stage the question as to whether or not the person was a director at the time should be settled on the basis of normal rules of evidence rather than by virtue of any presumption. The point is that so long as the document bears to be signed by persons as directors, it attracts a presumption—it is a rebuttable presumption but nonetheless a presumption—of probativity.
Noble Lords will have seen a letter from the Law Society of Scotland saying that there is nothing in the Bill to cause undue concern. I think that that is a cautious conveyancer's way of expressing approval. The measure has the support of the CBI (Scotland) as well

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as the Scottish Law Commission. The provisions contained in the Bill are almost exclusively technical and therefore are not, I believe, controversial in nature, in a party political sense or otherwise. There are no political or European implications and the Bill will not lead to an increase in public expenditure. On the contrary, its provisions should lead to savings in time and money being achieved by companies, firms of solicitors and other bodies—perhaps to the detriment of the legal profession's fees, as the noble Lord, Lord Macaulay, said.
It is a much needed and long overdue simplification and clarification of the law of Scotland relating to legal writings which will be welcomed by Scots lawyers and by the business community. I am therefore happy indeed to commend the Bill to the House.
Lord Carmichael of Kelvingrove: My Lords, before the noble and learned Lord sits down, perhaps I may ask for clarification. I was fascinated by his last point regarding the signature of a director if the writer were found not to be a director at the time. Does that mean that if a firm signed a bill, one needs somehow to establish at the time the person signed that he was a director. If he were not a director, would the firm have no liability whatever? It is a small point. However, listening with a fair amount of attention and fascination, it struck me as a slight weakness in the Bill.
Lord Rodger of Earlsferry: My Lords, with the leave of the House perhaps I may say this. The simple fact is that if a person were not a director and signs, the document is not being granted by the company. It would be wrong for the company to be so bound. If the document bears to have been granted as a director, it is presumed to have been granted on behalf of the company. However, if the person were not in fact a director, then the matter can be challenged. I believe that that must be right because if he were not a director it would be quite wrong for the company to be bound. The company cannot be bound by people with no authority to sign on its behalf.
Lord Carmichael of Kelvingrove: My Lords, I am sorry to intervene again. However, I may have paid my money by that time, in order to buy something from a company which did not exist—perhaps to build a house. Perhaps the noble and learned Lord will consider the issue again. It may be that his explanation has satisfied some; I do not know. However, I am not desperately satisfied with the explanation at present.
The Earl of Balfour: My Lords, I am most grateful to noble Lords who have taken part in the debate. I am particularly grateful to my noble and learned friend the Lord Advocate. I am glad that he was able to answer some of the technical questions on which I might have slipped up.
I wish to make one remark to the noble Earl, Lord Mar and Kellie. My full name is the Earl of Balfour and Viscount Traprain. If one also has a few other titles, the signature might cover three or four pages on the document. On occasions like that, thank God our signature is just a single word. I would not wish to change that provision.
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We must note with some sadness the repealing through this Bill of the old Scottish authentification statutes and various deeds Acts going back to 1540. They cannot be read and applied literally as modern statutes should be. I am grateful to the noble Lord, Lord Macaulay, because it is important that if the Bill is enacted there should be no doubt or misunderstanding.
The only other point about the old deeds is that some which are at present still in force must at best be doubtful and at worst pernicious. The Bill will be a delight to students and practitioners in Scots law and I hope that it passes through both Houses and remains for many years on the statute book. I commend the Bill.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Channel 4: Funding Formula
7.51 p.m.
The Earl of Stockton The Earl of Stockton rose to ask Her Majesty's Government whether they intend to abolish the Channel 4 funding formula which was intended as a "safety net" but has resulted in Channel 4 subsidising ITV companies to the extent of £57 million in respect of 1994 alone.
The noble Earl said: My Lords, to put the Question into its context, perhaps I may respectfully remind your Lordships of the statutory framework surrounding Channel 4. Under the Broadcasting Act 1990, if Channel 4's revenue falls below 14 per cent. of the joint advertising and sponsorship revenues of ITV, Channel 4 and Channel 5, the ITV companies would be required to support Channel 4. When Channel 4's revenue exceeds 14 per cent., then 50 per cent. of the so-called excess is paid to ITV; 25 per cent. goes to a statutory Channel 4 reserve fund and only the remaining 25 per cent. can be spent on Channel 4's own programmes. The statutory reserve already stands at £45 million and this fund would have to be exhausted, as well as Channel 4 falling below the 14 per cent., before ITV was asked for a penny. It seems to me that a compulsory insurance premium of £60 million a year is a trifle excessive.
Parliament intended the funding formula to be a safety net for Channel 4 and not a subsidy to ITV. The Member for Witney, my right honourable friend Douglas Hurd, who was then Home Secretary, announced the formula on 13th June 1989, although Channel 4 had not been consulted and the formula was entirely different from that which had been proposed by Channel 4 and endorsed by the Select Committee on Home Affairs in another place in February that year. It has also been endorsed by Ministers involved in the 1990 Act.
Let us therefore look briefly at the record of Channel 4 and also, because it is relevant, that of the ITV companies since the Broadcasting Act 1990 enshrined those policies in legislation. Channel 4 has lived up to its remit as an innovative and original company on the cultural and broadcasting scene in this country and, indeed, worldwide. The ITC is fully satisfied that Channel 4 is fulfilling its distinctive remit. It is worth

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noting that the only note of criticism in 1994 was that Channel 4 was just under the recommended 50 per cent. of British and European production —a direct result, I suggest, of the channel's lack of funds to invest in programmes, especially original drama.
Channel 4 has shown that its income is unlikely to fall below the 14 per cent. threshold during the present licence period. That view is endorsed by all major independent studies, including Zenith Media, the leading advertising media analysts. Channel 4 has proved that the remit set down by Parliament is viable in an increasingly competitive market.
A fortnight ago, Channel 4 handed over a cheque to the ITV companies for £57 million. For 1993, the cheque was £38 million. Yet the ITV companies' own forecasts were that the figure would be no more than £100 million over the entire 10-year span of the licence. Compare that estimate with payments to date of £95 million over just two years and I think your Lordships will agree that Channel 4 has exceeded expectations. I am sure that the noble Lord, Lord Hollick, will point out to your Lordships that the ITV company with which he is connected—Meridian—when calculating its bid, got it right and that it is entitled to its money.
The Chairman of Channel 4, Sir Michael Bishop, has given an undertaking in writing to my right honourable friend in another place, the Member for Loughborough and the Secretary of State for National Heritage, that, if the funding formula is abolished, Channel 4 will recompense bilaterally any ITV company that can demonstrate to the ITC that it has not already received the income it projected that it would receive from Channel 4 during the period from 1993 to the first review date in 1997.
I hope that the noble Viscount, Lord Astor, will be able, in replying to the Question, to justify the changes in the regulatory framework that have been allowed to the ITV companies since the passage of the 1990 Act. Not only has the ITC allowed the programme requirements to be relaxed—in particular to sustain GMTV—but the Government have changed the rule on ownership that has allowed Meridian to take over Anglia, Carlton to take over Central and Granada to subsume LWT. That is a significant rationalisation of the ITV companies, with commensurate cost savings that, in the case of Carlton alone, are estimated to amount to £100 million. In 1992 there were 13 advertising sales points; now, there are only five.
It is also worth noting that it is only since January 1993 that Channel 4 has been selling its own air time. Prior to that, it was handled by the ITV companies. The success of that can be seen by the recently announced figure of a total advertising and sponsorship revenue for 1994 of £393.9 million—an increase of 19.3 per cent. over 1993. Over the same period, ITV revenue grew by 8 per cent. but profits increased spectacularly by 194 per cent. in the case of the old Carlton and by 763 per cent. in the case of the merged Carlton/Central; by 100 per cent. in the case of Granada/LWT; by 83 per cent. for Channel and by 162 per cent. for HTV. I am sure that the noble Lord, Lord Hollick, will be able to give us a comparable figure for Meridian/Anglia.
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However, all those dry and dusty numbers in millions of pounds are not what concerns the viewing public. Channel 4 has a splendid record not only in television but also in the film industry. It would be only a mild exaggeration to say that Channel 4 is the major, indeed nearly the only player in the financing of the British film industry. I am sure that many of your Lordships have seen or heard of films such as: "The Crying Game", "Howards End", "Riff Raff", "Shallow Grave", "Four Weddings and a Funeral", and "The Madness of King George". In respect of the latter I feel I must declare an interest. Last Friday I was privileged to see that film (which has been nominated for three Oscars) at Channel 4 itself, thus enjoying a benefit of £7.50 had I seen it in the West End or £3.50 had I waited until it arrived at my local flea-pit. Incidentally, it is worth noting that in 1993 Channel 4 films won more Oscar nominations than those of any other company, except Warner Brothers and in 1994 more than three of the major Hollywood studios put together.
Your Lordships will realise that "The Madness of King George" is an adaptation of the extremely successful play, "The Madness of George III", but, in order not to confuse the American cinema-going public, largely nurtured on sequels at present, the name was changed lest they might think that they had missed out on the "Madness of George" One and Two! If the depiction in the film of the proceedings in another place is accurate, noble Lords will find that not much has changed over the past two centuries.
Channel 4's television record is as impressive and, beyond mentioning drama series such as "The Rector's Wife" and "GBH" or the multicultural films such as "Bandit Queen", documentaries like "Beyond the Clouds", entertainment such as "After Dark" and "Drop the Dead Donkey" and Channel 4 racing, I believe its output speaks for itself. As an educational publisher, I can attest to the quality of its schools' programming.
If the subsidy to the ITV companies were removed—and in my view it was only ever imposed in some kind of quest for a spurious symmetry—the company would then be in a position to increase considerably its investment in both film and programmes, perhaps by the order of as much as £10 million to £12 million in the case of film and a larger amount in the case of programming, especially in original drama.
It is axiomatic in the industry that the best way of building viewer loyalty is through original drama, which is, of course, also the most expensive part of the schedule. In order to be effective, all art must be dangerous. Originality in any art form involves taking risks. I am sure that Channel 4's drama will continue to outrage some as it engages many. I am sorry to see that my noble friend Lord Orr-Ewing is not in his place, for I know that he has strong views on what is and what is not suitable for our television screens.
I should like also to ask my noble friend whether he has any plans to introduce legislation to regulate the digitisation of the terrestrial broadcast spectra. Channel 4 has set the pace. It has the first all-digital studio and broadcasting capability in the country and already transmits test simulcasts in the format. British television was always held to be the best in the world, but only

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because it was the most original and innovative. The best way to protect the most original of our broadcasters is to remove from them this unnecessary burden and allow them to do more and more of the good work that they have proved they can do.
It is insane to allow a minority channel to subsidise its richer competition, which already has over two and a half times as much to spend on programmes, although that is lower than was promised in its original licence applications. Let both Channel 4 and ITV thrive through the fruits of their labours. Channel 4's ability in the future to sustain its remit is best secured through allowing it to invest in programming now. Channel 4 blazed a trail with its use of independent production companies and helped to break restrictive practices in the industry. It has an excellent record in exporting programmes. Are this Government really going to tell the House that they are in the business of penalising success?
8.1 p.m.
Lord Donoughue: My Lords, once again we are discussing at root the disastrous effects of the appalling 1990 Broadcasting Act. This bizarre funding formula is only one part of the 1990 lunacy which has done so much damage to British television. But it is typical of the whole shambles. For it is bizarre —as the noble Earl, Lord Stockton, pointed out—for a minority channel to have to subsidise bigger and richer competitors on such a scale. It is intolerable that huge funds are being transferred away from making programmes to the bottom line and indeed to the directors' pockets in bigger companies.
I have no need and do not propose to repeat all of Channel 4's arguments. The noble Earl, Lord Stockton, did that well; and they have already been expounded with what might be called loud resonance by Mr. Grade. I am sure that they may be repeated again by noble Lords this evening. I simply say that Sir Michael Bishop's letter to the Secretary of State on 7th February is a devastating critique of the funding formula. But the letter has, in my view, not been answered and is indeed unanswerable. Despite that, ITV has made a few sensible points in response and I look forward to my noble friend making more.
It is true that ITV companies carry burdens. Channel 4 does not. It pays a levy to the Treasury and dividends to shareholders. Channel 4's advertising success is at ITV's cost. Therefore, stopping the subsidy would leave ITV even less funding to make its own programmes.
I am not impressed by one argument in the ITV briefing. It argues that:
"When their bids were made, the ITV companies expected"—
and the word "expected" is underlined—
"to receive money from Channel 4",
by this subsidy; and that these expected revenues,
"represent a significant part of the revenues on which their bids were made".
That is quite strange. We understood that this funding formula was two-way—that it was a safety net to Channel 4. How could it be a safety net for Channel 4 if the ITV companies all expected it always to subsidise
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them and factored that into their bidding budgets? I might ask: what will happen if the situation is reversed and it becomes a safety net? How will some of those companies pay if in their budgeting they have depended on being paid? I am not impressed by that argument.
Nor does it impress me, or worry me, that Mr. Grade and Channel 4 have previously supported the funding formula. The fact that they previously supported "a bad case does not preclude them from finally seeing the light and now saying that it is a bad case. It certainly does not make it a good case. So I hope that we shall not hear too much of that argument.
We wait with interest to hear the Government's defence of the indefensible status quo in this situation. Certainly nothing that the Secretary of State has said so far—I must say that it is a commendable aspect of the Secretary of State that in the whole national heritage field he says very little—is convincing. The argument of no statutory time, which we assume, can be used against any change to any bad legislation. It has not deterred the Government from amending frequently their bad legislation on education and local government. Anyway, they have already found time, as the noble Lord said in opening—though admittedly by order —to amend the 1990 provisions to allow takeovers and to reduce the number of advertising sales houses. So there is no problem of principle or precedent here, just of practicality and priorities.
The Secretary of State's argument that there is still a continuing risk to Channel 4 without the safety net is hypothetical. Anyway, as was pointed out, statutory reserves of nearly £40 million already seem to cover that risk.
The argument that has been suggested that ITV deserves a return for setting up Channel 4 is clearly irrelevant. ITV did not set it up or have anything to do with its recent success. Nor are there any contracts to be broken between Channel 4 and ITV or the Government. The funding formula was established without consultation with Channel 4 and against the advice of the then Select Committee, simply by power of Parliament. It can be changed by the same process.
The arguments for doing so are in principle—I stress "in principle"—decisive. The one serious argument against on the Government's side is the practical one. This formula, although imposed, was part of what might be called the known rules of the game at the time. They can be revised anyway not far ahead, in 1997. It could be said that to take parliamentary time for primary legislation before then might not on balance be worth it.
I say to the Minister that I shall listen sympathetically to that argument, as to all practical arguments of the Government. If he puts that argument, I will listen sympathetically on three conditions: first, that he will admit that the 1990 Act—I mean admit in public, here in this Chamber—was an appalling mistake which nobody now supports; secondly, that he will apologise for it; and thirdly, that he will promise vigorously to examine the possibility of immediate compromise short of primary legislation.
One example is that he will promise to look at Channel 4's offer, which seems fair, and that on termination ITV will be relieved of its hypothetical

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obligation to Channel 4 and that all ITV companies will receive the full income for which they have budgeted for 1993 to 1997. Another example is that he will support and encourage any consensual compromise brokered by the ITC. It may be that a ceiling for Channel 4 payments will be included in a compromise. If I understand the formula correctly, at present it appears not to be a level playing field. The ITV safety net is limited to a maximum of 2 per cent., but the Channel 4 subsidy is open-ended. Therefore, there is scope for a consensual compromise. It should contain a guarantee that Channel 4 will spend the benefits of not having to subsidise on such a massive scale the rest of the ITV sector on programme-making and film production, not for instance on larger cigars for Mr. Grade.
This raises the very important question of investment in British film making which is closely related to the issues we are discussing tonight. The present silly funding formula transfers money from Channel 4, which appears to have a good record in joint film productions, to other ITV companies such as Carlton which I suspect have a more disappointing film production record. First, I ask the Minister how much Channel 4, Carlton, other ITV companies and indeed the BBC invest in film production. Secondly, will he ensure that any compromise that may be brokered—and we urge him to broker a compromise—involves a commitment to greater investment in the British film industry?
We are not here tonight to speak for or against one side or another. I confess that certain aspects of Channel 4 worry me, since some of its so-called minority programmes seem to appeal to what I consider to be undesirable minorities. However, it is always rescued by the excellence of its racing and music coverage. Our main concern is to rescue British television and films from the appalling consequences of the 1990 Act. That system, with its minimum quality requirements and open financial bidding, has failed, as we always said it would. It has failed both on quality and financially, as this debate shows, and will continue to show. In the longer term we need new criteria, with high quality requirements and a fair pricing formula subordinate to that. In the shorter term I shall be interested to see whether the Minister tonight has any proposal to get out of the mess which we are clearly in.
8.14 p.m.
Lord Thomson of Monifieth: My Lords, the House is grateful to the noble Earl, Lord Stockton, for introducing the debate. Very properly, he declared an interest. I gather that he received some modest hospitality from Channel 4 at the preview of a film. I have a much more serious declaration of interest. I am a member of the Nolan Committee on Standards in Public Life and therefore I must be very careful. I declare my interest as a former chairman of the Independent Broadcasting Authority who played some part in the original establishment of the Channel 4/ITV relationship. I also ought to declare an interest as a
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very modest pensioner in the defunct IBA. Finally, I declare a family interest. A daughter has been a senior executive of Channel 4 and has rather vigorously lobbied some of us. However, she left Channel 4 a few days ago to return to the BBC. I do not know what is to be made of this tangle of interests, but I hope that your Lordships' House will accept that I speak for myself and my party from this Bench.
Speaking as a former chairman of the IBA, I find it sad that there should be a slightly bitter multi-million pound quarrel between ITV and Channel 4. I am bound to say that in my days at the IBA the relationship between Channel 4 and the ITV companies was never an easy one. For all my skills as chairman of the Independent Broadcasting Authority, the relationship between Channel 4 and the IBA was not always a harmonious one, but I believe that that was in the nature of constructive tensions in these situations. Today, it is undoubtedly very much worse and to the detriment of British broadcasting.
It is clear that the deeply flawed provisions of the Broadcasting Act 1990 have created a situation that is unsustainable beyond 1997 and ought to be corrected before that stage is reached. Frankly, I find it puzzling that the present Secretary of State—of whom many of us had high hopes—should so resolutely have decided to do nothing about this. It is all the more puzzling because Channel 4 was a very great achievement of a Conservative Administration, in particular that of the noble Viscount, Lord Whitelaw, when he was Home Secretary. I believe that it is an achievement of which a Conservative Administration is entitled to be proud. To create an innovative, distinctive public service channel catering for minorities and entirely commercially funded is a remarkable achievement. Those interested in broadcasting quality and administration throughout the world are full of admiration for the creation by Britain of Channel 4.
I concede to the Minister who is to reply that the idea of having a safety net of IT revenue to preserve Channel 4's remit in the new situation after the 1990 Act if advertising failed was well motivated. But what we face is a familiar story of government politics in recent years. The noble Baroness, Lady Thatcher, when she was Prime Minister, wanted privatisation. There was resistance to that within the administration. They ended up with a compromise which turned out to be a cock-up. The present formula is grotesquely unbalanced, as the noble Lord, Lord Donoughue, pointed out. If things went wrong for Channel 4 there was a downside limit of 2 per cent. of ITV revenue as their legal obligation to help. If things went well for Channel 4 there was no upside limit to the subsidy that Channel 4 would have to give ITV. It was and is open-ended. That is unacceptable. It is something to which the Government should face up and do something about.
In practice, things have gone very well for Channel 4 because of its own efforts. The programmes are popular with their special audiences, if sometimes that proves infuriating to those with more conventional tastes. They have achieved a satisfactory market share.

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Its new advertising department has sold that market share brilliantly. I tell the Minister that some of the bad feelings between ITV and Channel 4, which have not been helped by the personalities on either side, have arisen because Channel 4's marketing flair has reflected badly on the previous skills of ITV when they sold Channel 4's advertising. I well remember, when I was chairman, the arguments when ITV denied that it was not making the most of its opportunities to sell the advertising time on Channel 4. It cannot be right, because of a flawed formula, that Channel 4, which is a non-profit making public service corporation, set up by the present government, this year should subsidise the shareholders of ITV companies to the tune of £57 million.
Now that I am detached from all the arguments of the past, my benchmark in these matters is the interests of the viewers. The formula simply means that Channel 4 is deprived of that money for making programmes—including the films for which it has become famous and with which it has made an immense contribution to the British film industry—without any assurance that it will go on ITV programming rather than to ITV shareholders.
What are the arguments on the other side? I do not wish to rehearse what the noble Earl, Lord Stockton, said very fully about some of these matters, nor the arguments of the noble Lord, Lord Donoughue. The most persuasive argument adduced is what might be called the insurance argument. It is an argument that, although Channel 4 was not party to the original formula in the 1990 Bill as it went through Parliament—it was imposed upon it—nevertheless, it was an insurance policy against things going badly for it. One does not cancel an insurance policy even though things go well. That has always seemed to me to be the most persuasive of the practical arguments. But in all the circumstances, it is not a very realistic argument. No one who pays for an insurance policy would enter into an open-ended commitment to an uncertain increase in the insurance policy in circumstances where, as experience showed, we had less and less need for it. I feel that the Government need to look at the weakness of the arguments for facing up to making a change.
There is a final argument put by the Government; namely, that one cannot move the goal posts of the Broadcasting Act before the review of the Act, which is set for 1997, and in any case, there is no time for broadcasting legislation before then. But, as the noble Earl, said, the goal posts were moved. It was not done in a very dramatic way; they were moved within the terms of the Act because there was provision for orders in council. Nevertheless, the goal posts were undoubtedly moved with the major series of mergers that were allowed. I do not argue against that; but it took place. Equally, changes of a major character in the marketing arrangements were allowed to take place.
I simply fail to understand why the goal posts can be moved by the Government under pressure from the ITV companies in the merger field, taking advantage of the order in council procedure, and why they have
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steadfastly set their face against moving the goal posts to deal with what is a blatantly unfair system as it has presently worked out in the light of experience in terms of the revenues of Channel 4 and ITV.
Then there is the argument of not having time for new legislation. I want to try to smoke out the Minister, if I may, on this particular point on a wider front than simply Channel 4. The Government are now engaged in making new proposals for the new BBC Charter, Licence and Agreement. They have published a White Paper. On this side of the House we are glad that the licence funding of the BBC has been preserved. But in that White Paper there is provision for legislation. In order to merge the Broadcasting Complaints Commission and the Broadcasting Standards Council there has to be legislation.
I do not know what the noble Lord, Lord Hollick, will say from his point of view, but I well remember a speech that he made in your Lordships' House with which I greatly agreed. Before the Government moved the goal posts by allowing the kind of mergers in which the noble Lord's company has participated, he argued that the whole matter, including any plans that he had, should be put on the back burner until the Government's plans for the future of the BBC came before your Lordships' House and Parliament and that then there should be a comprehensive review of broadcasting policy to take Britain into the next century.
That is the opportunity that will lie before the Government later this year. There is no reason why, in the 1995–96 Session, there should not be a new broadcasting Bill. First, it would put right the glaring anomaly and inequity that exist with regard to Channel 4 funding. In addition, it would deal with all the other matters that arise in achieving a decent British broadcasting policy for the 21st century. It would involve, for example, the whole issue of cross-media ownership and looking at the other flaws in the present Broadcasting Act. It would also involve the very serious matter to which the Government should be giving attention; namely, doing something about the monopoly considerations of allowing non-domestic satellite broadcasters not only to be major new broadcasters on the British scene—it is right that they should be so—but also to be the toll keepers and gate keepers of the encryption systems that control whether other people can enter into that area. Some very big issues lie ahead. The new BBC Charter and Agreement and the associated legislation is an opportunity for the Government to put those things right.
I hope that the Minister will use his influence to urge the Secretary of State for National Heritage to throw off his diffidence—if that is what is affecting him, but I simply do not know—and show the necessary ambition and imagination in taking the opportunity in the next Parliamentary Session to put

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British broadcasting on the right basis to face up to all the competitive considerations of global broadcasting in the next century.
8.28 p.m.
Baroness Wharton: My Lords, as the co-vice chairman of the All-Party Media Group, I too am grateful to the noble Earl, Lord Stockton, for raising this Unstarred Question tonight and giving me the opportunity to contribute to the debate, although much of what I have to say has already been said.
I agree with the noble Lord, Lord Thomson, that Channel 4 has become a victim of its own success. For 10 years it remained a station catering for minority tastes and interests not covered by ITV. For that, it received 17 per cent. of the terrestrial qualifying revenue, which was reduced to 14 per cent. under the Broadcasting Act 1990. We have already heard how the revenue above the basic 14 per cent. is split. Channel 4 can lay claim to only 25 per cent. of its profit for its current expenditure.
Since 1993, with the ability to control its own advertising revenue, Channel 4 has gradually become more commercial in its own right and inadvertently finds itself in competition with Channel 3 rather than just complementing it. That success is causing Channel 4 to feel aggrieved. The sums of money (representing 50 per cent.) are very great and there is no reason to expect in the future that the amounts will decrease unless Channel 4, which is a public broadcaster having no shareholders, so chooses.
I kept all the notes supplied with the 1990 Broadcasting Bill. It is quite clear that the channel has come a long way from the one envisaged in that Act. The surplus that now arises reflects the aggressive and commercial way in which Channel 4 schedules its programmes and the fact that it is much easier for Channel 4 to sell its air time because it does so nationally and in macro-regions, whereas ITV has to do it on a purely regional basis. It makes its money by scheduling American imports, "Countdown" and "Brookside" in prime slots. I do not necessarily think that that is wrong, though there is some of Channel 4's scheduling that I do not like and would like to see less of. On the other hand, there is much that I admire. Channel 4's news programme at 7 o'clock is excellent and quite often better balanced than the news on other channels.
I must praise Channel 4 for its commitment to film making. It makes every effort to fund or part invest in the British film industry. It has subtly moved into the commercial sector while at the same time continuing to support new talent. The film, "The Madness of King George" is a brave move into the international market. Nigel Hawthorne and others have already been nominated for Oscars. It is Channel 4 at its best.
Returning to the issue of the 50 per cent. subsidy to ITV, is there not a case to be made, as the noble Lord, Lord Donoughue, said, for placing a cash ceiling on the amount paid rather than a percentage which
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varies? Better still, why not pay that ceiling amount into the ITV network centre to fund more Channel 4 and ITV original films and drama? Failing that, why not freeze the statutory reserve fund? It already stands at £47 million and is more than enough to see Channel 4 through to the next century.
I doubt that there is a risk of the ITV companies having to bail out Channel 4. It has proved, now that it is in control of its own revenue, that it is able to honour its obligations, and putting the extra 25 per cent. back into circulation would allow for more production. We are on the verge of digital television and, if that is to succeed, more material will be needed. I certainly do not wish to flick through repeats on each programme simultaneously. And, without wishing to appear mischievous, perhaps I may ask the Minister what would happen to Channel 4 were it to be privatised. Will the Government's Department of National Heritage consider bringing forward the review? After all, 1997 is a long way off and there is sufficient evidence to consider amending the funding formula now.
8.33 p.m.
Lord Hollick: My Lords, I must declare a number of interests, though not quite the myriad declared by the noble Lord, Lord Thomson. First and foremost, I am the managing director of MAI and we control two companies—as the noble Earl pointed out—Meridian and Anglia. My second interest is that I am a great supporter and admirer of Channel 4 and all its works.
I fear that I shall disappoint a number of noble Lords. First, the noble Earl asked whether I would give a forecast of profits for Meridian. I am afraid I cannot do that for that would make him an insider. Secondly, my noble friend Lord Donoughue suggested that I should not refer to the compelling case put forward by Channel 4 to the National Heritage Committee. I shall disappoint him on that because it is the most cogent and coherent case for the current arrangements. I hope that I shall not disappoint the noble Lord, Lord Thomson, because I shall remain consistent with the call I made two years ago for a comprehensive review. It is time for a comprehensive review of the financial arrangements—and we are talking only of one of the financial arrangements; there are many others with which your Lordships are familiar which operate within the commercial television sector and which have been somewhat overtaken by events.
Let us go back in time. Five years ago, when this matter was being discussed, it was a "Brave New World" with Channel 4 obtaining its freedom to sell; its future was unpredictable. The legislation brought in proposals to ensure that the methods of reconstituting Channel 4 and of tendering for the ITV licences would not destroy the existing strengths and character of the respective channels. The Channel 4/ITV funding formula was one of a number of elements introduced to make the ITV tendering process viable and to remove the threat of financial instability undermining the Channel 4 and the ITV system.

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The Minister at the time, Mr. Mellor, said that the aim was to provide for the separation of Channel 4 from IBA control and also to give it guarantees of income. The aim of the Bill was to ensure that the income of Channel 4 Television Corporation could be reasonably predicted. Should the income fall below what was prescribed, there was provision for a top-up; if it was above, a clawback. The Minister also went on to say that the provisions had been painfully negotiated with Channel 3, Channel 4 and S4C. The absence of amendments to the clause suggested that a provision had been arrived at to which all could set their hands.
That was the position that arose out of the 1990 Broadcasting Act and it is the case that the ITV companies have to abide by—they have no other alternative—the rules set out in the Act.
What was the attitude of Channel 4? The document to which I referred earlier was an extremely good and detailed report submitted to the National Heritage Select Committee in October 1993 (it confirms what the Minister said in the other place):
"Despite the fact that the 'insurance policy' of the 1990 Broadcasting Act is proving to be very expensive, the Channel 4 Board still believes it is worthwhile…The Board concluded at the Bill stage of the 1990 Act that it would not lobby against the formula for reasons which still hold good today…in advance of any experience of directly selling out airtime we appreciated the uncertainty of the transition and our obligation to protect the long term downside risk in order to guarantee the remit. Equally the Board took the view that there was real value to Channel 4 in the Act's provisions, not least for viewers, because they included the cross promotion benefit and meant that Channels 3 and 4 could be encouraged to run as complementary services".
That was October 1993 and a very full endorsement of the current arrangements.
The Earl of Stockton: My Lords, perhaps the noble Earl would give way. Can he say who was chairing the Channel 4 board at that point, in contrast perhaps to who is chairing it now?
Lord Hollick: My Lords, I am afraid that I cannot answer that. The paper was submitted by Channel 4, and those called by the committee for interrogation included the present chief executive of Channel 4.
In a little more detail, the paper went on to say,
"in our submissions to the Home Office we said that 15 per cent of [terrestrial qualifying revenue] was the minimum level of revenue we needed to maintain our programme spending, fulfil the remit and meet the extra financial obligations which the Act imposed".
I believe that this is the heart of the matter. Channel 4 is on the record as saying that 15 per cent.—because of the rather complicated way that it works in terms of spending money, that means 18 per cent. of total advertising revenue, TQR as defined—would be enough for them to meet their remit, a remit which we all applaud and which is a great success. Therefore, at 15 per cent., they are able to deliver the programming that they are required to deliver.
Finally, this splendid document says,
"There is, anyway, provision for a review of the Channel 4 funding formula built into the Act in 1997. We would urge that the Select Committee and the Government await that time before seeking to reach any firm conclusions".
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That was Channel 4's position as of October 1993, and that position obtained until the spring of 1994. We then all saw, heard and experienced a considerable, powerful and eloquent campaign. The document sets out clearly what the position was with Channel 4, why it went along with the 1990 Broadcasting Act, the merits of the situation and also, in this final comment, it essentially said that under this arrangement it would be able to meet its remit and that if it did not work out satisfactorily we could wait until 1997. That is the Channel 4 position.
What is the position of the ITV companies? As I said earlier, when the ITV companies were considering the position of bidding for their licences, they had no alternative but to take into account the rules that were very clearly set out. The rules were set out not only in the legislation but also in the invitation to apply, which the noble Lord, Lord Thomson, will know is a detailed document setting out many conditions and assumptions. One of them was that we had to take into account Channel 4. We also had to take into account Channel 5. The Channel 4 funding formula was included in the invitation to apply.
The invitation to apply specifically said that no amendment would be made before the 1997 review date. Applicants for ITV licences were therefore required to submit confidential business plans and to take the formula into account in presenting financial projections of income, expenditure and operating profit for the first 10 years of the licence. On the basis of those confidential plans the ITC had to satisfy itself that the applicant could sustain the proposed service throughout the 10-year period. The existence of the formula —this was crucial for ITV companies not least those like Meridian which were coming into the industry for the first time—had the effect of smoothing the effects of change—we are going through a period of great change—in the share of revenue between the ITV companies and Channel 4. It therefore had the effect, crucially, of reducing the sensitivity of revenue projections in the confidential business plan and of reducing one element of commercial risk in tendering for an ITV licence.
The noble Earl, Lord Stockton, will recall that he moved the amendment which removed one of the great problems and headaches from the tendering process; namely, inflation. It was a late amendment. This was all done with the intent to smooth that process in order to make it more predictable. So far as Meridian was concerned, the Broadcasting Act enabled Channel 4 to sell its own advertising for the first time. As the noble Earl has said, Meridian anticipated quite accurately that under this arrangement Channel 4 would compete more effectively for advertising revenue because its performance to date understated that potential. Meridian therefore projected a positive flow of revenue from Channel 4 to Meridian throughout its licence period. The existence of the formula supported by primary legislation was an important factor in setting the level of the bid. We made a bid. We signed up for a licence on the basis of the conditions that were in the legislation and the

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conditions that were in the invitation to apply. We have signed up for a bargain and we accept that in 1997 this will come up for review.
The Government's response to this campaign has been to say that we must stick by the legislation and by the rules because to do otherwise would effectively amount, so far as ITV is concerned, to breach of contract. However, the letter from Stephen Dorrell to the chairman of Channel 4, Sir Michael Bishop, has within it the seeds of a possible way forward. He said:
"There will be a number of developments over the next few months which will bear on the issue, including the outcome of our current review of media ownership, and any decision ought properly to reflect the wider elements in the picture".
I say "Hear, hear" to that. The letter goes on:
"You will also I am sure appreciate that any change in the formula would not be looked at in isolation, and would necessarily involve a review of where the money would go, as well as an examination of who should bear the revenue risk of Channel 4 and how they should be remunerated".
In other words, one cannot take this one part of the legislation, this one part of the complex financial arrangements within commercial broadcasting, by itself; one has to look at all the other arrangements.
The other arrangements are quite important. I shall name three. First, there are the infamous cash bids, where we have a completely uneven terrain, with some people paying as little as £1,000 and some people paying as much as £45 million. Those bids come up for review in 1998, the year after the Channel 4 formula. There is a possibility there of taking these things together, but perhaps earlier. The small company subsidy is an important part of the landscape within ITV. The smaller companies are subsidised by the larger companies such as Meridian and Anglia so far as concerns the budget for network programming. They simply do not have the revenue base to pay their full share. Similarly, on transmission costs, we need only one transmitter for London—Crystal Palace. In the West Country there are several hundred transmitters because of the terrain. The arrangements within ITV, which I fully support, are that the larger companies pay a greater share.
Those are three examples of what I would call the fairly complex financial arrangements. To suggest that one of them —the Channel 4/Channel 3 arrangement—should be looked at in isolation is the wrong way forward. What we need to see is a complete review of all of these arrangements. I have considerable sympathy for the suggestion of the noble Lord, Lord Thomson, that if the Government had a mind to they would be able to find time to tackle these matters in a comprehensive way. Whatever the merits of the argument back in 1990, things have moved on since then. We have a very competitive world. We have some competitors—I am thinking of those in Sky—who pay very little for their right to broadcast. I shall not dwell on it, but ITV is expected to pay £4 billion over the 10-year period of its licences into the Treasury's coffers.
I should like to see a comprehensive review and I should like to see it being done quite quickly. I should be grateful if the Minister could confirm that my
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interpretation of the letter is correct and that he has it in mind that there is a linkage between these matters and that cross-media ownership is being reviewed. We are due to hear shortly. Perhaps the Minister can tell us the date when we shall hear it. Perhaps he can also tell us whether it will be possible to take these two issues together so that we can have a thoroughgoing review of these financial arrangements, something which I have called for on a number of occasions.
8.47 p.m.
The Parliamentary Under-Secretary of State, Department of National Heritage (Viscount Astor): My Lords, I am grateful to my noble friend Lord Stockton for initiating this debate on a topic which is clearly of some interest to a number of your Lordships who have spoken this evening. All sides of the argument have been very well put, particularly by my noble friend Lord Stockton. He was supported by the noble Lord, Lord Thomson of Monifieth, and to a degree by the noble Baroness, Lady Wharton. The noble Lord, Lord Hollick, put the ITV case, if I may say so, very clearly. The noble Lord, Lord Donoughue, attacked the 1990 Act. He was not as clear as I thought he might have been on his party's view on the subject. He said—I thought it was intriguing—that he did not like the idea of the pockets of his noble friend Lord Hollick being lined. I shall have to leave that debate to the two of them.
The noble Lord also said that he would listen carefully if I admitted various things which he then went on to list. I shall have to disappoint the noble Lord at the outset by saying that I shall not admit any of the things which he suggested. Far from it: I shall actually say how successful the Broadcasting Act 1990 was.
Noble Lords: Oh!
Viscount Astor: My Lords, I am glad to see that your Lordships are fully in agreement with that sentiment.
There has been a great deal of interest and debate in the press about the effects of the Channel 4 funding arrangements. There has been much speculation on how the money which Channel 4 has paid to the Independent Television Commission for distribution to the Channel 3 companies might otherwise be spent on programming. Channel 4 itself has mounted a vigorous campaign, including expensive advertisements in the national press.
I therefore welcome the opportunity to restate the Government's intention and commitment to ensure the survival of Channel 4 and to preserve its special programming remit. I should say straight away to the noble Baroness, Lady Wharton, that we have absolutely no plans to privatise Channel 4.
Channel 4, which began transmissions in November 1982, has been a remarkable success. The aim of the Broadcasting Act 1990 in respect of Channel 4 was fully to sustain the unique programming remit of the channel. The Act accordingly requires Channel 4 to

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cater for tastes and interests not served by ITV and to encourage innovation and experimentation in the form and content of its programmes. It should also maintain a distinctive character of its own.
Prior to the Broadcasting Act, Channel 4 was a subsidiary of the ITC's predecessor, the Independent Broadcasting Authority. It received income from the ITV in the form of a fourth channel subscription from each of the ITV contractors. The subscription was 17 per cent. of the net advertising revenue of the ITV contractors from the previous year. Channel 4 received not less than 80 per cent. of this subscription, the rest going to fund S4C services. In return, the ITV companies sold Channel 4 airtime and collected the advertising revenue.
As your Lordships will remember, under the Broadcasting Act, Channel 4 became an independent organisation, a public corporation, subject to ITC licensing, but with the freedom to raise funds through advertising. However, to avoid Channel 4 being wholly dependent on this source of revenue, the Act provided a financial safety net which would act as safeguard against any erosion of the channel's remit.
Under the 1990 Act, Channel 4's prescribed minimum income for any year is set out at 14 per cent. of the total television advertising and sponsorship revenues received by all Channel 3 licensees: Channel 4, channel 5 and S4C. Any Channel 4 income above the threshold of 14 per cent. of national television revenues is divided according to a formula set out in Section 27 of the Act; 50 per cent. is distributed to the Channel 3 companies, 25 per cent. is placed in a Channel 4 reserve fund and 25 per cent. is retained by Channel 4 to meet current expenditure.
In the event of Channel 4's income falling below the 14 per cent. threshold, the difference is made up by drawing on the reserve fund and from a levy of up to 2 per cent. of total television revenues imposed on the Channel 3 licensees. The threshold figure may be amended by order but not until 1998. I have to tell your Lordships that during the passage of that legislation there was consultation with Channel 4 and others about its funding and that the Government took the views expressed into account.
In its first year of operation under the new arrangements, Channel 4 increased its share of viewers and proved to be extremely successful in attracting advertising. The result was that under the safety net arrangements it was required by the ITC to pay £38.2 million—that is to say, its income was 18.2 per cent. of total television revenues—to the commission for distribution to the Channel 3 companies. Following a further successful year, Channel 4 has this year been required to pay £57.3 million—its income was 19.8 per cent. of total television revenues to the commission.
Perhaps not surprisingly, Channel 4 has complained and has asked the Government to abolish the funding formula. This would require primary legislation. Channel 4 has argued that it has always been unhappy with the safety net arrangements and that the money
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which is going to the ITV companies would be better spent on high quality, British-made programmes, rather than going to the ITV companies' shareholders.
However, as many of your Lordships have said, this is not an issue which can be looked at in isolation. Others have a close interest. The ITV companies also have strong views, as we have heard from the noble Lord, Lord Hollick. They argue that the Channel 4 payments were an integral part of their business plans and the basis for their cash bids. If the Government changed the funding arrangements before 1997, it would invalidate the basis on which they had been asked to make their bids.
The Government have considered the arguments very carefully. My right honourable friend the Secretary of State for National Heritage met the chairman and chief executive of Channel 4 and the chairman of the ITV Association. He also had discussions with Sir George Russell, the chairman of the ITC.
We have concluded that to amend the formula through primary legislation at present would be wrong; that the burden of proof on those who propose to change the framework with primary legislation within which the Channel 3 licences were awarded is very heavy; and that the Government do not believe that those lobbying for change have demonstrated sufficient justification for changing the provisions of the 1990 Act.
The noble Lord, Lord Thomson, said that the Government have changed some of the provisions of the Act. That is absolutely right. I believe that bidders for the ITV licences will recognise that changes can be made under secondary legislation or by the ITC in the exercise of its discretion. However, they are entitled to expect that the framework of primary legislation under which they operate will not be changed during the currency of their licences except in ways that were clearly envisaged by Parliament in the 1990 Act.
The noble Lord, Lord Thomson, said that the Government need legislation for other things. We need legislation to allow BBC commercial services to be licensed by the ITC and to merge the BCC and the BSC. Again, that matter was discussed in the White Paper. However, taking the noble Lord's point, the earliest that the law could be amended would be 1995–96, so any change would not come into effect until 1997. Under the Act the Government can look at the formula by the end of that year in secondary legislation.
Lord Thomson of Monifieth: My Lords, I am grateful to the Minister for giving way on that point. I accept the argument as far as he has put it, but if we wait until the 1997 review, any legislative change following it will not take place until 1997–98 or even 1998–99. The gap of years is of critical importance to our argument about the balance of the way in which the resources go into programming.
Viscount Astor: My Lords, I understand the noble Lord's argument. However, the gap would be one year, as I sought to explain to the noble Lord.

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We shall look carefully at what has been said on this argument. The noble Lord, Lord Hollick, pointed out that the opinions that have been expressed by Channel 4 are somewhat inconsistent. As the noble Lord said, it was only in October 1993 in a memorandum to the National Heritage Select Committee, which was investigating the future of the BBC, that it was stated that Channel 4's board would not lobby against the formula for reasons which still hold good today. It has given evidence to that effect. However, as the noble Lord also said, Channel 4 has changed its mind.
The provisions of the 1990 Act are there to ensure that Channel 4 survives in the long term. We appreciate that in the short term it is galling for Channel 4 not to be able to retain all the proceeds of its undoubted success. But it was expected at the time of the passage of the Broadcasting Bill that Channel 4 would make a surplus in the first few years but
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that its prospects would decline towards the end of the 1990s in the face of increased competition from cable and satellite channels.
Forecasts can, of course, change and I can assure your Lordships that we will keep the effect of the safety net arrangements under review. There are, however, practical restraints on changing the present arrangements. As I have said, changes to the formula would require primary legislation and there is, we consider, no question of bringing forward a government Bill to deal with this issue alone, given the many pressures on parliamentary time. Any changes would have to be made in the context of wider broadcasting legislation.

Accommodation Level Crossings Bill [H.L.]
Committed to an Unopposed Bill Committee.
House adjourned at nine o'clock.