Lords Sitting of 10 July 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 Southwark.

Public Sector Borrowing Requirement
Lord Barnett Lord Barnett asked Her Majesty's Government:
Whether it is still their policy to bring the public sector borrowing requirement to zero by 1998–99.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, the Government's fiscal objective is to bring the public sector borrowing requirement back towards balance over the medium term.
Lord Barnett: My Lords, that is a little different from what was in the Financial Statement and Budget report, which, as the Minister will know, said that it will be brought to zero by 1998–99. In his Answer, I hope that the Minister is not suggesting that there might be some relaxation of that aim in order to make tax cuts. Can the Minister confirm that there is no relaxation intended?
Lord Mackay of Ardbrecknish: My Lords, the words I used were those of my right honourable friend the Chancellor of the Exchequer in his Mansion House speech. I thought that was a good enough source from which to answer the noble Lord. As regards tax cuts, we believe in prudent management of the economy. We shall cut taxes when it is prudent and sensible to do so.
Lord Boyd-Carpenter: My Lords, is it not a necessary condition of this objective that expenditure should be reduced? Perhaps I may suggest to my noble friend that expenditure on legal aid be cut drastically.
Lord Mackay of Ardbrecknish: My noble friend makes a perfectly valid general point that the key to sensible management of the economy is the control of public spending. That is what we are doing and what we are usually attacked for doing from the other side. I hear what my noble friend says about legal aid. I believe that all government departments have to look very carefully at their spending and see what savings they can make.
Lord Eatwell: My Lords, given what the Minister said about controlling public expenditure, will he confirm that the summer forecast published last week shows an estimate for the PSBR which is 5 per cent. higher than the estimate published in the Budget last November—that is to say, roughly three pence off income tax? In those circumstances will the Minister tell the House what is the Government's view on borrowing to pay for tax cuts?
Lord Mackay of Ardbrecknish: My Lords, I thought that I answered the Question about borrowing perfectly clearly when I said that our intention is to reduce the PSBR towards balance in the medium term.
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That remains our objective. Of course, if the situation allows us to reduce taxes that is what we shall do because we are by nature a tax-cutting party; unlike the party opposite, which in the other place has opposed every single tax-cutting measure we have made since 1979.
Lord Eatwell: My Lords, will the Minister confirm the first part of my question, that the summer forecast shows a significant increase in the PSBR over that forecast at the last Budget?
Lord Mackay of Ardbrecknish: My Lords, the 1994 Budget forecast for this year was £21.5 billion. The summer economic forecast has put that at £23.5 billion. There is a slight increase, but that is part of the problem of forecasting. It is not an entirely accurate business and sometimes forecasts do not come out exactly as predicted.
Lord Peyton of Yeovil: My Lords, does my noble friend agree that one of my right honourable friend's most admirable characteristics is the way in which he makes his meaning absolutely clear? Is it possible that on this occasion he contracted some sort of opaqueness from some of his colleagues and did not make himself absolutely clear beyond all doubt?
Lord Mackay of Ardbrecknish: No, my Lords, I do not believe that my right honourable friend the Chancellor of the Exchequer suffers from the problem of opaqueness. I believe that he makes himself perfectly clear when he speaks. Our aim, as I said, is to move the PSBR towards balance in the medium term. I need not remind my noble friend that during the premiership of my noble friend Lady Thatcher we managed to get into the positive side.
Lord Molloy: My Lords, does the Minister agree that there are two elements into which there must be thorough investigation before there are any cuts whatever? The first is the defence of our country and the second is the defence of the greatest piece of legislation in mankind's history—
Lord Hailsham of Saint Marylebone: My Lords, I thought that was the Ten Commandments!
Lord Molloy:—namely, our British National Health Service?
Lord Mackay of Ardbrecknish: My Lords, both aspects mentioned by the noble Lord are very important. As he will know, we have made considerable changes to the defence budget in the light of the changes in the world in general and the fall of the Russian empire. These changes are in place. As regards the National Health Service, throughout the period since 1979 we have consistently protected the National Health Service and increased spending on it, in contrast to the last Labour Government which actually reduced spending on the health service.
Lord Hailsham of Saint Marylebone: My Lords, this is merely a request for information. Can my noble friend tell me the date when the public sector borrowing requirement was last nil?
Lord Mackay of Ardbrecknish: My Lords, I cannot tell my noble and learned friend the exact year but, as I mentioned earlier, it was during the tenure of office of our noble friend Lady Thatcher.
Lord Stoddart of Swindon: My Lords, how on earth can the Minister talk about tax "cuts" when the percentage of tax taken is the highest ever as a percentage of GDP? How can the Minister talk about tax "cuts" when personal allowances have been reduced in real terms, when the married man's allowance has been reduced, when mortgage interest relief has been reduced and when a tax of 8 per cent. has been imposed on domestic fuel? In my book and, I should think, that of most noble Lords, those are tax "increases". Can the Minister explain how tax "increases" can become tax "cuts"?
Lord Mackay of Ardbrecknish: My Lords, two or three years ago we had to take some serious steps to control public spending and to balance the position so that the PSBR did not go even higher. If the noble Lord is urging me to do the opposite and to make even deeper cuts, perhaps he, his noble friends and his right honourable and honourable friends in the other place might modify their language when they talk about more money being spent. I have fully admitted that we have had to increase taxes. We were reluctant to do that, but it was the sensible and prudent thing to do. Over time, we shall reduce taxes again. As I said, on every occasion on which we have reduced taxes since 1979 the party opposite has voted against us, including when we brought income tax down from its high level of 98 per cent., which was the top rate under the party opposite.
Lord Barnett: My Lords; we understand that the Minister was asked to say as little as possible in answer to this Question and he has managed to achieve that. Nevertheless, does he accept that saying as little as possible could be equally as damaging as if he had said that the Government have it in mind to relax the public sector borrowing requirement? Will he make it crystal clear that there is no question of relaxing the borrowing requirement?
Lord Mackay of Ardbrecknish: My Lords, I have made it crystal clear. As I said in my initial Answer, our objective is to bring the public sector borrowing requirement back towards balance over the medium term. To do that, we shall have to control public spending very severely—and that we intend to do.

Education and Training National Targets
2.46 p.m.
Lord Quirk Lord Quirk asked Her Majesty's Government:
In pursuing the objectives set out in the White Paper published in May 1995 entitled Competitiveness (Cm. 2867), where they place greatest emphasis in seeking improvements in education and training.
The Minister of State, Department for Education and Employment (Lord Henley): My Lords, the new Department for Education and Employment provides an outstanding opportunity to secure for the United
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Kingdom the best qualified workforce in Europe. Demanding the new national targets for education and training endorsed in the Competitiveness White Paper provides the focus for all our efforts to achieve that.
Lord Quirk: My Lords, in thanking the Minister for that reply, may I offer him my congratulations on this his first appearance at the Dispatch Box as Minister of State, and may I refer him to another announcement that was made last week and to which he has just implicitly referred, the bringing under one roof of Employment and Education? May I ask him whether that means that we shall see a more constructive and harmonious relationship between academic and vocational qualifications and an improvement in teacher training to match? In that connection, may I refer the Minister to paragraph 7.46 of the Competitiveness White Paper which talks about the Teacher Training Agency? Is it the case that the Teacher Training Agency's liberal and rapid policy of accreditation of teacher training institutions is a measure of the agency's approval of the quality of work that goes on in those institutions?
Lord Henley: My Lords, I thank the noble Lord for his congratulations to me personally and for his implied congratulations to my right honourable friend the Prime Minister on bringing together the two departments of Education and Employment. As the noble Lord is fully aware, the point of the merger is to provide a degree of focus for all the policies and programmes which are designed to educate and train both young people and adults and to equip and re-equip them for work. On the noble Lord's specific questions about the Teacher Training Agency, I assure him that the Teacher Training Agency has already made its mark as an agency committed to improving the quality of teaching and learning. We shall be fully behind further improvements in the standard of teacher training. We believe that there is yet much more to be done.
Lord Haskel: My Lords, perhaps I too may offer the Minister congratulations on his new appointment. Does he agree with me that nowadays there is no clear dividing line between vocational and non-vocational education and training? Does he agree that that is because in today's knowledge-based world of work employers place much more emphasis on the ability to learn and to continue learning rather than on the application of specific knowledge?
Lord Henley: My Lords, I thank the noble Lord for his kind remarks. I fully agree with the sentiments that he has expressed on the divide between vocational and academic education. I believe that for far too long there has been perceived to be a divide between the two. We believe that that divide is false. I hope that the new merger of the two departments will allow us to continue to prove that that division is false.
Lord Walton of Detchant: My Lords, now that education and training have been brought within the ambit of one government department, as proposed two years ago by the National Commission on Education, will the Government now examine the possibility of establishing a framework for an integrated modular system of qualifications at 16 to 18, embracing the best

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of GCSEs, A-Levels, NVQs and GNVQs, so that young people who so wish can take a combination of vocational and academic subjects?
Lord Henley: My Lords, the noble Lord makes some interesting and complicated suggestions to someone who has been in the department for a matter of just three days, and I have to say that two of those were spent on the beach with my wife and children. I take note of what the noble Lord had to say and I shall certainly pass it on to my right honourable friend the new Secretary of State for Employment and Education.
Lord Ezra: My Lords, does the Minister agree that every time we have had a recovery in the post-war period we have been short of skilled labour; that the real problem in Britain today is that, on the one hand, we have substantial unemployment and, on the other hand, there is a mismatch between what industry requires and the labour available? Will it be a prime objective of the new enlarged department to try to deal with that problem once and for all?
Lord Henley: My Lords, one of the new department's prime objectives is obviously to deal with our general competitiveness. Competitiveness in education plays an important part in ensuring that we have the right people with the right skills to meet the changing labour market. As the noble Lord on the Labour Front Bench said earlier, the important point is that people acquire the art of learning so that they can go on developing their skills and education over the years rather than think that they can rely on one skill that they acquired at the beginning of their career to see them through to the end.
Baroness David: My Lords, how does the Minister think that the recently announced scheme of vouchers for nursery education will contribute to the general improvement, when that scheme has been condemned by a great many well-informed educational circles?
Lord Henley: My Lords, it has been condemned by one or two people, but it has been supported by a great many people. I am sorry that the noble Baroness and the party opposite did not ask to have the Statement on nursery education repeated in this House last week. If they had done so, we could have debated this matter at some length and I hope that I would have been able to convince the noble Baroness—if it is possible to convince the noble Baroness—of the virtues of that scheme. Put simply, it offers parents a much greater degree of choice, and through that choice will allow them to develop nursery education to the benefit of all concerned.
Lord Quirk: My Lords, with respect to paragraph 7.5 of this White Paper, may I just ask if the Government will institute regular and rigorous international comparisons of education performance and be ready to emulate best practice in other countries, not excluding Scotland?
Lord Henley: My Lords, we are always prepared to emulate best practice in all other countries, including Scotland. In the main, our comparisons with our main competitors show that we are doing rather well,
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particularly in matters such as graduate output. In terms of measuring comparisons precisely, it is a difficult art to produce meaningful accurate comparisons over a wide range of qualifications throughout all different countries. The basic point that the noble Lord is putting, that we should seek to learn from the best practice of our competitors, is one that I am more than happy to endorse.
Baroness Brigstocke: My Lords, perhaps I, too, may congratulate my noble friend the Minister on his new appointment. Does he agree that one of the good results of the Government's work over the past few years is that many more girls are obtaining qualifications and therefore they will, of course, strengthen the employment position in this country? Does my noble friend agree that one third of girls are now leaving school with at least one A-Level, and that there are now more than twice the number of women in full-time education after leaving school than there were 25 years ago?
Lord Henley: My Lords, I thank my noble friend for those remarks. They are remarks that we can accept. As regards general employment levels of women in the labour market, I can assure my noble friend that we already have the second highest participation rate of women in the labour market of all our European competitors.
The Earl of Longford: My Lords, as an old educationist may I say how horrified I am by the whole muddle involved in this change? Is the Minister aware that all educationists are aware that what he has been trying to do for young people has nothing whatever to do with solving the problem of the unemployed?
Lord Henley: My Lords, I fail to see how the noble Earl's question follows from what has been said. What we are saying is that we are trying to give a new focus to the work of the Department for Education and the vocational and training work done previously by the Department of Employment. We believe that will help the unemployed.

North Sea Pollution
2.55 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
What are their latest estimates of the percentage of pollution of the North Sea caused by land-based sources and of the proportion of this originating from the rivers of Continental North-West Europe.
The Minister of State, Department of the Environment (Earl Ferrers): My Lords, the best estimate which we have is that more than 70 per cent. of man's input of contaminants to the sea comes from land-based sources. Data from different countries are not strictly comparable, but it is clear that continental rivers are the largest source of anthropogenic contamination of the North Sea. Over 50 per cent. of some contaminants come from the rivers which flow into the North Sea

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from the German, Belgian and Dutch coasts. These estimates would be even higher if those countries were to use our rigorous measurement methods.
Lord Campbell of Croy: My Lords, I am grateful to my noble friend for his reply. Cannot more effective measuring instruments be installed to record the pollution being caused by these North Sea rivers? Will the British Government counter misinformed information about Britain's role in the North Sea by pointing out, among other things, that the Brent Spar was not to be dumped in the North Sea but was to be sunk one-and-a-half miles deep many miles away in the Atlantic, where scientists have advised that it would have little effect on its surroundings?
Earl Ferrers: My Lords, there are already harmonised monitoring arrangements in place for a wide range of contaminants in all UK coastal waters providing measurements in river estuaries at tidal limits. That includes the use of instruments where necessary. I agree with my noble friend's observations about Brent Spar. He is correct in saying that it was to be sunk one-and-a-half miles deep in the Atlantic. In fact less than 1 per cent. of it consists of sludge and scale which is only slightly radioactive. It is as radioactive, I understand, as a street of granite buildings in Aberdeen. It has a little zinc on the outside to help keep off the barnacles, and it contains a few mercury batteries containing some eight ounces of mercury. Germany, Belgium and the Netherlands every year put into the North Sea more than 40 times more copper and 70,000 times more lead than there is in Brent Spar.
Lord Dean of Beswick: My Lords, is the Minister aware that I have a Question on the Brent Spar on the Order Paper tomorrow? Will he give me an assurance that he will not just refer me to the answer that he has given today to a Question that is not about the Brent Spar? Bearing in mind his detailed statement about pollution in the North Sea caused through the rivers, is he aware that this country's record is not that great? Until a few years ago a great deal of pollution in the North Sea and other seas around Britain was caused by local authorities which then had the responsibility of disposing of sewage by pumping raw sewage out from pipes to where people were bathing. I know the situation has improved since that responsibility was removed from them, but will the Minister give us an undertaking that that activity has now been almost eliminated?
Earl Ferrers: My Lords, it seems that I have answered the Question tabled by the noble Lord, Lord Dean, which is due to be answered tomorrow. I had not realised that I had done so, but, if I have, he will be able to remove it from the Order Paper. He accuses me of answering that Question but in fact I answered the Question tabled by my noble friend Lord Campbell of Croy—and a jolly good Question it was, and it received an even better reply.
The noble Lord is right to be concerned about putting sewage sludge into the sea. A great deal has been done and is being done to prevent that. I should have to let him know exactly what is the situation, but I do not believe that it has stopped completely. However, I remind the
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noble Lord that Belgium puts 50 per cent. of its sewage into the rivers which goes thereafter into the sea and all the sewage of Brussels goes into the Senne and thereafter out into the sea. Therefore, that record is a good deal worse than ours.
Lord Marsh: My Lords, does the Minister agree that there seems to be no argument at all that the Brent Spar platform would not have been a major contaminant with the policy intended for it? But does he also agree that the problem is serious because there are literally hundreds of platforms which will have to be disposed of? The idea that they can all be dumped in the Atlantic is worrying. What is the Government's policy in relation to the disposal of those platforms?
Earl Ferrers: My Lords, I agree with the noble Lord that there was not much argument by those who knew that the best place to put the Brent Spar was in the North Atlantic. But a great deal of argument was put forward by people inflamed by passion. If the noble Lord wishes to know what is the Government's policy in relation to the dumping and disposal of oil platforms in the North Sea, I should be happy to answer any Question tabled by him to that effect.
Baroness Hilton of Eggardon: My Lords, is the Minister aware that research shows that we shall fail to meet five of our internationally agreed targets by the end of this year in relation to pesticides and heavy metal, including mercury and cadmium? What is the Government's policy as regards enabling us to meet the internationally agreed targets?
Earl Ferrers: My Lords, the targets set by the North Sea Conference were to halve inputs of 36 substances. The United Kingdom anticipates achieving the target for 24 of the 36 substances and reducing by more than 45 per cent. three other substances. Work is continuing to ensure that the targets are met as soon as possible.

Tibet: EC Aid Via China
3.3 p.m.
Lord Willoughby de Broke Lord Willoughby de Broke asked Her Majesty's Government:
Whether they are satisfied that the £5.9 million EC aid package to the Chinese Government for the Pa Nam Integrated Rural Development Project in Tibet, as approved by the European Commission on 19th October 1994, is not contributing to the Chinese colonisation of Tibet, and what means exist for Her Majesty's Government to prevent such Commission aid projects in the event of their disapproval.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, the European Commission aid proposed is intended to benefit the indigenous Tibetans and not to promote Han Chinese migration into the region. Individual EU projects are approved by qualified majority voting. A blocking minority of the member states is therefore required to prevent a project going forward.
Lord Willoughby de Broke: My Lords, I thank my noble friend for that full Answer. But given that the European Union's position on aid is that aid to politically

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and environmentally sensitive areas should be channelled through non-governmental organisations, do the Government agree that, by any standards, Tibet is an environmentally and politically sensitive area and that aid should be channelled through those NGOs rather than through a bilateral deal between the European Commission and China?
Baroness Chalker of Wallasey: My Lords, my noble friend will be well aware that I am extremely keen to use non-governmental organisations whenever it is relevant to do so. There is no laid-down European policy such as he describes. In this case, some nine months ago the United Kingdom was one of the first member states to express anxiety about the Pa Nam Project. We insisted that there should be a permanent monitoring unit which is now being set up for that project, although the final go-ahead for it has not yet been agreed. The Commission has recently been in close contact with European NGOs who have experience of Tibet, including the UK Tibet Support Group, Save the Children Fund and Médecins Sans Frontières. It has now asked two UK NGOs to advise on suitable consultants for a possible further appraisal mission. That further appraisal mission will give us information. On that basis, the working group will look again at the project before deciding whether or not to proceed.
Lord Bruce of Donington: My Lords, will the noble Baroness give us some indication as to which way Her Majesty's Government voted on the proposals? Were they part of the blocking minority? May we have a little transparency on that? Will the noble Baroness bear in mind that in the field of foreign affairs the United Kingdom has wider obligations to the preservation of international law and the fate of individual nations which arise not from the Community but from membership of the Security Council of the United Nations?
Baroness Chalker of Wallasey: My Lords, first, there was absolutely no vote on this matter. I made it quite clear that the United Kingdom was one of the first member states to express anxiety when the project was first discussed. It was because of our anxiety that indigenous Tibetan people should benefit from the project that the matter was considered further. The point about the project is that the Chinese are funding some 65 per cent. of the total project cost, including the main irrigation works. The remaining 35 per cent. of the costs, if the project goes ahead with EC funding, will be for veterinary, agricultural and water engineering advice to make sure that it benefits indigenous Tibetans. That is as transparent as I can be about the situation. I should say further to the noble Lord, Lord Bruce of Donington, that he is right that foreign and security policy is part of the third pillar, and long may it stay there.
Lord Weatherill: My Lords, I am sure that the Minister is aware that there are grave doubts about the project and it is feared that it will benefit the Chinese more than the Tibetans. Would it not be better for the Tibetans to direct aid to education and grass-roots projects, which would enable them to compete on more equal terms with the economic and social changes which they face? Will
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the Government consult the Dalai Lama on such matters because, after all, he is the authentic voice of the Tibetan people?
Baroness Chalker of Wallasey: My Lords, we well know that the Tibetan people are not opposed to overseas aid provided that it benefits Tibetans. The only reason that the European Community may be involved in this project is in order to ensure that other works that are going on benefit indigenous Tibetans. If the European Community does not contribute 35 per cent. of the total cost to the project, I am told that the Chinese will go ahead with it in any event. It seems to me that if we can have, as we have now been assured, the establishment of a proper permanent monitoring unit and provided that the work is done for the benefit of the indigenous Tibetans, we are likely, by being involved, to have more influence over what the Chinese are doing than by standing aside.

Business of the House: Debate, 14th July
3.8 p.m.
Earl Ferrers Earl Ferrers: My Lords, on behalf of my noble friend the Lord Privy Seal, I beg to move the Motion standing in my name on the Order Paper.
Moved, That Standing Order 38 (Arrangement of the Order Paper) be dispensed with on Friday 14th July to allow the Motion standing in the name of the Earl Howe to be taken before the Second Reading of the Sexual Orientation Discrimination Bill [H.L.].—(Earl Ferrers.)
On Question, Motion agreed to.

Bell's Bridge Order Confirmation Bill
Considered on Report.

Geneva Conventions (Amendment) Bill [H.L.]
Read a third time, and passed, and sent to the Commons.
Bedfordshire (Borough of Luton) (Structural Change) Order 1995
Wiltshire (Borough of Thamesdown) (Structural Change) Order 1995
Derbyshire (City of Derby) (Structural Change) Order 1995
Durham (Borough of Darlington) (Structural Change) Order 1995
Staffordshire (City of Stoke-on-Trent) (Structural and Boundary Changes) Order 1995
Buckinghamshire (Borough of Milton Keynes) (Structural Change) Order 1995
Dorset (Boroughs of Poole and Bournemouth) (Structural Change) Order 1995
East Sussex (Boroughs of Brighton and Hove) (Structural Change) Order 1995
Hampshire (Cities of Portsmouth and Southampton) (Structural Change) Order 1995
3.10 p.m.
Earl Ferrers Earl Ferrers rose to move, That the draft orders laid before the House on 15th, 20th and 22nd June be approved [23rd and 24th Reports from the Joint Committee].—(Earl Ferrers.)
The noble Earl said: My Lords, in moving the Motions on the Order Paper I should like to speak to all nine orders, which are tabled in my name. The orders provide for changes in the future structure of local government in the counties of Bedfordshire, Buckinghamshire, Derbyshire, Dorset, County Durham, East Sussex, Hampshire, Staffordshire and Wiltshire.
I hope that it will be of assistance to your Lordships if I take together the principal issues relating to each of the orders—where they are common to all of them—and that I may do so in the following sequence. First, the proposed new local government structure in each of the areas; secondly, the powers and functions which they will be given; thirdly, the electoral arrangements, staffing and planning; and, fourthly, how the proposals will affect the future role of the Lord Lieutenants and High Sheriffs in those areas. Where different arrangements are being proposed in specific areas, I will also briefly outline how and why they differ.
The structural changes which are to be made by the orders will come into effect on 1st April 1997—not next year, 1996, but in 1997. Bournemouth, Darlington, Derby, Durham, Luton, Milton Keynes, Poole, Portsmouth, Southampton and Thamesdown, which may be more familiarly known to your Lordships as Swindon, will become unitary authorities on their existing boundaries. The remainder of the counties within which they are located will remain two tier, retaining both district and county councils. Similarly, the City of Stoke-on-Trent will become a unitary authority on its existing boundaries, except for a very minor change to tidy up the boundary between Stoke and Stafford Boroughs.
There will be a new unitary authority of Brighton and Hove, comprising the areas of the existing districts of Brighton and Hove. The remainder of the county of East Sussex will remain two tier. In the case of Brighton and Hove, the existing Brighton Borough Council and Hove Borough Council will be abolished and will be replaced by a single new council for Brighton and Hove combined. In all the other cases, no new councils will be created. The existing councils will continue, but they will have unitary powers.
Except for the East Sussex order, the orders do not contain the provisions for co-operation and preparation which were included in previous orders. We have decided that, rather than repeat those provisions in each separate order, we should remove them and place them in general regulations. They will be tabled tomorrow and are subject to negative resolution.
I would stress, though, that there is no change of substance. The powers and duties which authorities will be given will be the same as in the orders which have already been made. We have consulted the affected local authorities, and the local authority associations, twice—once on the draft regulations and once on each of the draft structural change orders.
In the case of East Sussex, the provisions need to be expressed a little differently because, as I have explained, we are abolishing two old authorities and replacing them with one new one. For that reason, the East Sussex order contains specific provisions for co-operation and preparation; it does not rely on the general regulations.
I know that some noble Lords feel strongly that the role which the local authorities' staff will play in the re-organisation will be crucial to its success and that the interests of the staff must be safeguarded. I agree with that concern. We expect that newly-elected councils will pay close attention to staffing matters. Of course, it will be for them to decide on their staffing structures in the light of the new functions that they will be taking on.
That is not a process in which the Government will, or should, interfere. But, for all that, we have taken a number of steps in order to help to ensure that the transition to the new structures is as smooth and as fair as possible. My right honourable friend the Secretary of State for the Environment has had a constructive meeting with representatives of the local authority unions.
We believe that the elected members of authorities which are to be given unitary status should be given a fresh democratic mandate. Therefore, except in Brighton and Hove, all of the current district councillors will retire in May 1996, and there will be elections to the whole council in May 1996.
In Brighton and Hove those matters are more complex. The existing councillors will continue in office right up to 1st April 1997. Meanwhile, there will be elections in May 1996 to a shadow unitary authority. During the period up to 1st April 1997, this shadow authority will plan for the unitary functions which it is to inherit. On 1st April 1997, it will take over as the unitary authority and the old Brighton and Hove councils will be abolished. Between May 1996 and April 1997 it will, therefore, be possible for the same person—if elected—to serve both as a member of one of the old borough councils and as a member of the shadow unitary council.
The orders also provide transitional arrangements which return the authorities to electoral cycles prescribed in the Local Government Act 1972. Derby, Stoke-on-Trent, Portsmouth, Southampton, Thamesdown and Milton Keynes will be returned to their current arrangement of elections by thirds. In Brighton and Hove, Darlington, Poole, Luton and Bournemouth there will be elections in 1996 and 1999, and every four years after that. If any of those authorities wish to apply to the Secretary of State to change to a system of election by thirds, they may do so following the passing of a resolution by the council which must be passed by not less than two-thirds of the members.
The unitary authorities which we propose will all be responsible for strategic as well as local land-use planning for their areas. In Bedfordshire, Buckinghamshire, Dorset, East Sussex, Hampshire, Derbyshire, Staffordshire and Wiltshire, we have concluded that it is desirable for strategic planning to continue across the existing county area. In the cases of Derbyshire and Staffordshire, that would exclude, as it does now, the Peak District National Park. We are, therefore, asking the new unitary authorities, as structure planning authorities, to work together with the county council in each case to maintain a joint structure plan for their combined areas.
In Durham, the commission proposed that the Darlington Council should establish joint structure planning arrangements with the unitary authorities which are to be established in Cleveland. The order, therefore, provides for the transfer of County Durham's strategic planning responsibilities for the area of Darlington to the Darlington Council. That will enable Darlington to make voluntary arrangements with the Cleveland authorities to work on a joint structure plan for their combined areas.
Each order provides for the existing county police authority to continue to cover both the area of the unitary authority and the residual area. It also provides for the members of the particular police authority to be appointed by both the county council and the unitary authority.
There will be combined fire authorities covering the new unitary authorities and the remaining county councils so that the existing brigade areas will be preserved. In order that the Home Office can make fire combination schemes under the Fire Services Act 1947 to achieve this, the orders each provide for the relevant unitary authority to become a fire authority.
Several noble Lords have expressed concern that the orders do not provide for the appointment of Lord Lieutenants or High Sheriffs for the areas which are the subject of the orders. I can assure your Lordships that we will be making separate provision for that in general regulations.
Under those regulations, each unitary authority which is created under the orders will be deemed to be part of the relevant historic county for ceremonial and related purposes, and will therefore remain within the jurisdiction of the Lord Lieutenant and High Sheriff of that county. I hope that I can also reassure your Lordships that there will be no hiatus. The regulations will he made at the earliest opportunity after 1st April
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1996—when the review has been completed—allowing the new arrangements to be in place by no later that 1st April 1997.
The Government believe that the changes for which the orders provide will create better, more accountable local government in the areas which they affect. I hope that your Lordships will also be of that view. I commend the orders to the House.
Moved, That the draft orders laid before the House on 15th, 20th and 22nd June be approved [23rd and 24th Reports from the Joint Committee].—(Earl Ferrers.)
3.19 p.m.
Baroness Gould of Potternewton: My Lords, I rise to support the case for a unitary authority for Brighton and Hove as provided for under the ninth order on the Order Paper. However, I have one caveat to add; namely, that I am not happy about the four-yearly cycle of elections. I hope that the new authority will apply to the Secretary of State to be able to continue with the existing system of annual elections. I have no problem with transitional arrangements and I believe that the safeguarding of the staff is something which both Brighton and Hove authorities are extremely concerned to do.
At present, as a fairly new resident of Brighton, I find it very difficult to determine where the boundary between the two places actually is. If it were not for the statue on the front which everyone tells me is the boundary, it would indeed be most difficult to identify. It certainly seems to me to be completely irrelevant to the economic and social life of the two towns and is completely invisible, as I said, not only to newcomers like myself but also to visitors. Voluntary groups, social organisations and business organisations all operate across the two towns and to be able to deal with one authority will make things much easier for them.
The counter argument that has been put locally is that polls conducted by Hove Council and East Sussex County Council have called for the status quo. However, it is important to put on the record that in both instances the survey methodology was flawed. It was entirely self-selecting in response, did not enable more than one view per household to be put—it would be interesting to know which member of the household put the view—and offered no contextual information. Certainly the view of Hove Council was not supported by the electors at the May elections.
It has perhaps been unfortunate that East Sussex County Council has also distributed a leaflet to householders which referred to cuts in,
"support for the elderly and vulnerable people or for children with special needs",
and to, "increasing class sizes". Yet, more accurately, the county council had previously analysed in great detail the effect of the proposals for change on service provision and had concluded, in its report to the county council local government review panel, that authorities which had between 500,000 and 250,000 population would be self-sufficient local authorities. The new Brighton and Hove unitary authority fits nicely into that category with a population of about a quarter of a million.

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The county council also reiterated its view that Brighton and Hove should be a unitary council in its submission to the Local Government Commission, the main reason being—I think this is important—that it would provide savings of £3.4 million which would accrue year on year. While estimating the financial implications of a new council structure is somewhat hazardous—I would not attempt to do that—as I understand it, certainly Brighton Council agrees with the commission's calculations that there will be an annual impact from £2 million savings to £2 million costs.
The most important point about this amalgamation is that, economically, Brighton and Hove are considered as one and together they face considerable economic challenges. People who visit the town as holidaymakers are often surprised to discover that unemployment levels are exceptionally high, as are levels of multiple deprivation. In an attempt to overcome these serious problems the two borough councils have for the past two years worked closely together with the private sector through the Brighton and Hove Economic Development Company and have been supported by it and its board which has made it absolutely clear that a single unitary council for Brighton and Hove would be a major step forward in the area's ability to resolve many of the complex and interrelated economic development problems facing the area. It is vital that business confidence is rebuilt and that new business investment is attracted and retained. That view has also been supported by the Sussex Chamber of Commerce and Industry and many of the area's key employers who believe that a unitary authority is a necessary condition for the area's economic regeneration.
Being the largest authority on the south coast, the new authority will be able to provide a comprehensive range of services and a strong strategic unit for the coastal conurbation without having to resort to complex or fragile joint arrangements that might currently exist. I appreciate these will continue as regards the fire and the police services. It has been suggested that the residual county which is still under a two-tier structure would suffer. However, I believe it is clear that many of the current tensions created by Brighton and Hove's disproportionate pull on resources would be resolved.
The amalgamation of Brighton and Hove into a unitary authority makes sense. It will provide tremendous opportunities for delivering a better future for residents in the area, improved council services, clearer accountability, a more effective and coherent approach to economic regeneration, and, more importantly, better value for money. I therefore hope that the order will be supported.
3.24 p.m.
Baroness Thomas of Walliswood: My Lords, it is with pleasure that I see the noble Earl, Lord Ferrers, on the Government Front Bench. That is a pleasure not unmixed with some trepidation as his reputation for dealing briskly with the Opposition causes us great amusement and is well deserved. I hope that I do not cross him in any way.
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I have been opposed from the start to this whole process of review. I do not propose to go into the reasons for that because we have gone past that stage. However, what did not occur to me at the beginning of the review was that in implementing it, whatever the results were, we would encounter problems which would indicate that that implementation may not have been properly thought through. The problems were particularly great possibly because—I daresay unexpectedly—of the move towards hybrid change; that is, changes where some authorities become unitary and the existing county councils still remain, was perhaps not foreseen. However, it is quite widespread. There are 15 county councils which are currently affected by hybrid change and that number could increase to 23 of the existing county councils after the next phase of the review.
The whole business of hybrid change has increased the costs of this exercise. These costs have been estimated by the Local Government Commission to be between £55 million and £93 million for the existing 15 county councils I mentioned; but those costs are probably not capable of being funded by long-term savings, particularly in the context of capping. The noble Earl, Lord Ferrers, mentioned the importance of staff and staff effectiveness in ensuring that the changeover from one authority to another was smoothly carried out. But, however hard the staff work, they cannot "magic" money off trees, and the financial problems will still remain. Moreover, as I understand it, those costs will rest with the existing county council at a time when it will be facing possibly reduced efficiency in the provision of its services and therefore increasing costs.
Some other curious anomalies are being brought to light which affect county councillors. As I understand it, Draft Regulation 6, which will replace the previous individual indications of how authorities should manage change, prevents some councilors—that is to say, those councillors whose areas will in the future be part of unitary authorities—from taking part in the budget decision-making process next year. One can see a logic in that except that it is probably true to say that all budget processes these days concern themselves not merely with the next year's budget but also with implementing much longer term programmes and budget approaches. Further, for the purpose of budget making, most county councils regard themselves as corporate bodies. The corporate body in these cases will continue. Further, those county councillors have been elected to represent their people, and they will still represent those people even if decisions are to be taken in a different way in the future. Finally, by not permitting certain county councillors to take part in the budget making process, one may affect—I do not know how this will happen as I have not calculated the statistics—the political balance of the council as it takes those decisions in a way which may or may not reflect the way in which people wish their budget decisions to be decided. That is one of many infelicities which surround the present change.
I should like to concentrate on the problems affecting police authorities. Those problems arise because of the interaction of the current orders with the Police and

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Magistrates' Courts Act 1994 which, as I am sure noble Lords remember, provided for a majority of the members of the newly established police authorities to be elected councillors and that there should be a political balance in those police authorities which represents:
"the balance of parties for the time being prevailing among the members of the relevant councils taken as a whole".
In other words, the relevant councils put forward their members of the police authority and then a balance has to be struck among those councillors.
However, a number of other factors come into this calculation. County councillors each represent many more people than either present local councillors or councillors who will be elected to the unitary authorities. Furthermore, some of the new unitary authorities will have more members than existing county councils. Therefore, on balance, Thamesdown, for example, should have more members on the police authority because it has more councillors than the existing and continuing county of Wiltshire, although the population of Wiltshire is many times that of Thamesdown.
Perhaps I may take the example of Bedford and Luton. I could read the entire figures, but it would be better if I select the more important figures and then perhaps leave the paper with Hansard in case they want to include the full figures. I hope that that will be agreeable to your Lordships. Is that a satisfactory way of dealing with the matter or must I read them all out if I want them to be included in Hansard?
Earl Ferrers: My Lords, perhaps I can help the noble Baroness, if she is kind enough to resume her seat. I need to take some advice, but without taking too much advice, I believe that that would be unacceptable. Otherwise, one might run into the trap of noble Lords saying, "It would be much easier if I just handed my whole speech to Hansard". That might be very agreeable to your Lordships but it would not be the right way of doing things.
Baroness Thomas of Walliswood: My Lords, your Lordships will see what I meant when I referred to the noble Earl, Lord Ferrers, as having a particular talent in answering Members of the Opposition. I accept his guidance, and I shall do my best with the figures and try not to read out too many.
In future, Bedfordshire County Council will have 49 councillors and Luton Borough Council, the new unitary authority, will have 48. There are nine members of the police authority. Therefore, one might say that the division as between the new unitary authority and the continuing county should be five seats for the county and four for Luton. However, on the basis of population it would he much fairer to suggest that three of the nine places available should go to Luton, and six to the county.
I turn now to rather disagreeable political considerations. On the county council the Conservatives have the largest group of members, although not an overall majority. They have 24 councillors. On the other hand, they have only two on Luton Borough Council, and Labour has 37 seats. The Liberal Democrats have 10 seats on the county council and nine on Luton Borough Council, but that is not particularly relevant. Therefore, if Luton appoints four members and the county council
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appoints the remaining five, there will be two Conservatives, eight Labour members and three Liberal Democrats. If the appointments are made on the basis of the political balance on each of the councils, with the county council appointing six of the nine members and Luton Borough Council three, the result would be three Conservatives, four Labour and two Liberal Democrat members.
It is simply not possible to get a representative police authority under these two pieces of legislation operating side by side, unless we lay down that for police authorities whose members are drawn from more than one council, the number of members put up by the various councils should reflect the number of people in those authority areas and not the number of councillors elected by each authority. If that were done, then I believe that the problem of political balance would solve itself. I hope that in responding, the noble Earl will at least assure me that the matter will be looked into because I believe that it is serious.
3.35 p.m.
The Earl of Carnarvon: My Lords, I too should like to compliment the noble Earl on his new office. I am afraid that he went so fast in his introduction—I must say that I should like to have a two year-old as fast as him—that I may repeat a point that he has already answered. I hope that he will forgive me if I do.
I am speaking in a sense on behalf of local government generally and Hampshire in particular. Throughout the discussions on the future structure of local government Ministers have assured us that while new authorities may be created they never intended or envisaged the demise of the historic counties for ceremonial purposes. The order before us would establish Portsmouth and Southampton as counties separate from Hampshire. I understand that it is the Government's intention that regulations will be made so that Portsmouth and Southampton will be deemed part of Hampshire for what they call "ceremonial and related" purposes. Those include the lieutenancy, an office and function which is largely ceremonial but deeply rooted in our history and has a widespread popular identification with Hampshire.
The Department of the Environment has said that the necessary amending regulations will be made in the spring of 1996. I am not quite clear about that point. I hope that when replying to the debate the noble Earl will give an undertaking that he will bring before us as soon as possible the provisions necessary to ensure that the historic counties we are considering today will continue unchanged for ceremonial and related purposes.
My second point was referred to by the noble Baroness, Lady Thomas, and relates to the membership of police authorities. So far as concerns Hampshire, the county council, Portsmouth, Southampton and the Isle of Wight jointly will appoint nine local authority members to the Hampshire Police Authority. Under the Police and Magistrates' Courts Act 1994 those appointments must reflect the strength of the political parties on the separate councils. That concept of proportionality is tried and tested. However, because unitary councils will have more members than the

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county councils—a point made by the noble Baroness, Lady Thomas—their political proportionality will skew the calculations.
For example, there are 74 Hampshire county councillors representing 1.2 million people as compared with the three unitary authorities of Portsmouth, Southampton and the Isle of Wight, which between them will have 132 members representing half a million people. I wonder whether a fairer approach might be to introduce some element into the calculation that relates proportionality to the population of individual authorities. I hope that the noble Earl will give us an assurance that the Government will invite the Home Office to look into a formula for securing better proportionality on the police authorities.
My third point relates to regional planning and structure plans. I speak with benefit of my experience as chairman of the South East Regional Planning Conference. The word "conference" conveys the coming together of many separate authorities—in the south east representing 18 million people—involved in successful regional planning. Successful regional plans cannot be imposed: they come from a shared understanding of the wider issues we face. I know how difficult it is, first, to secure agreement about regional strategy; and, secondly, to ensure that individual authorities act in the spirit and letter of that strategy. Therefore, the most important element in that process is commitment to the strategy among all those authorities in the area they cover.
The Government intend that there should continue to be a single structure plan—I believe that the noble Earl referred to that—and that unitary councils and county councils will have joint responsibility to keep that structure plan up-to-date and for carrying it into action. Many of us are concerned about the provisions in the orders on strategic planning. The orders are designed to enable the continuing county council and the unitary councils to maintain a joint structure plan for their combined area, but the orders do not describe any arrangements to achieve that. In some places, authorities will indeed work together, but in others, authorities, perhaps flushed with their new powers, might seek to "go it alone".
Current legislation does not provide adequately for this eventuality and new legislation is really required. If that is not forthcoming, as a minimum safeguard, I hope that the Secretary of State will publish advice notes imposing a clear duty to co-operate in structure planning, minerals and waste planning and in particular transportation. I am confident that most authorities will work together. However, I hope that the noble Earl will consider using the mechanism of advice notes to ensure co-operation in structure planning.
The orders are the culmination of several years of anxious examination and debate. I am glad to record that elected members and officers of all the councils in Hampshire and the cities are working in close co-operation to ensure the success of the new system. I hope, and guess, that noble Lords in this House will wish them well.
3.44 p.m.
Lord Murton of Lindisfarne: My Lords, first, let me say to my noble friend the Minister that he is a man of many parts and I wish him well in yet one more guise. I hope that he does not find the debate too complicated. In my speech I shall endeavour, if at all possible not to deal with figures.
I begin by making the accustomed declaration of interest. I have no pecuniary interest in the borough of Poole. However, owing to the fact that the order includes Bournemouth perhaps I should state that until January of this year, through a minority shareholding in a private company, I had a financial interest in a property in Bournemouth. That, however, is now sold and the company is in the process of voluntary liquidation.
It is only to Poole that I intend to refer this afternoon. I can claim an interest of another kind—a sentiment of loyalty perhaps—because I have had a close connection with Poole for 38 years; and for the first 28 of those years I had a home in the town. At one time I was an elected borough councillor, and for close on 15 years I had the honour of representing the borough of Poole in the House of Commons. Since then and up to March of this year, I have continued in office in Poole Conservative Association, mostly as president—a total of a further 16 years. It gives me much pleasure, therefore, to welcome the order in particular in relation to Poole.
During the preliminary stages of the Local Government Review, across the county of Dorset as a whole, the consultation exercise demonstrated that 72 per cent. of those who responded favoured a change to unitary authorities. In the case of Poole, 81 per cent. favoured such a change. That result in Poole demonstrates a strong sense of community and the desire to achieve a separate identity as the new County of Poole.
Poole Borough Council has an enviable record in the effective delivery of local services and there is a willingness, indeed an enthusiasm, embracing all sections of the community, both business and residential, to work together to meet the needs and aspirations of a population of 136,000 which is expected to reach 150,000 by the turn of the century. The town grows apace and by the year 2000 there will be almost double the number of residents compared with the figure when I first came to live in Poole in 1957.
It is a prosperous working town with great potential. It also has a strong sense of history. There was already a busy port and harbour in the 13th and 14th centuries and a number of capacious stone built houses of that era, which still exist, are proof of the prosperity of the merchants who lived in them. The nominal roll of mayors and admirals of the port begins in 1490. Probably the most surprising—and in many ways nowadays viewed as amusing—episode in the town's history was the grant of the Great Charter of Queen Elizabeth I in 1568. By this, Poole became a County Corporate with its own sheriff, courts, recorder and Commission of the Peace, and with the style and title of The County of the Town of Poole. The town thus took

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its place with only 16 other cities and towns which at that time were entitled to that dignity in the whole of England—cities such as London, Bristol, York, Newcastle, Norwich and Southampton. When I used the word "amusing", I have to remark that it was a strange advancement for a town which had only 1,400 people in it at that time. History does not relate how that came about, but certainly some person or persons had great influence in the right quarters.
Sadly, much of this independence was relinquished under the provisions of the Local Government Act 1888. At that time Poole Council opted not to apply for county borough status. No one can be sure why, but a guess is that like the English Crown before the Civil War, the Corporation of Poole was expected "to live of its own" and to meet all expenditure from its traditional revenues, and that that was found too difficult to accomplish. That is the opinion of the town's most distinguished historian, the late Mr. H. P. Smith to whose work I have been much indebted over the years. Incidentally, in that Civil War Poole was a supporter of Parliament: a Roundhead town in a Royalist county. The town's two Members of Parliament were Royalists. They came to Poole. When they came ad portas (to the town's gates) they were barred against them. They withdrew discomfited and were followed by threats. If I may say so, that is an early example of the process of parliamentary de-selection.
However, in the age in which we now live co-operation has taken the place of conflict and that is well expressed in the relationship down the years between the county council and the Borough Council of Poole. From time to time there have been tensions but never antagonism. I am pleased to think, therefore, that for ceremonial and related purposes the new County of Poole will remain within the jurisdiction of Her Majesty's Lord Lieutenant of the County of Dorset and of the persons holding office annually as High Sheriff. It is a good example of Imperium in Imperio.
As it so happens, Poole's council historically has been responsible for many county level services such as education, libraries and trading standards, and agencies for the Dorset County Council such as highways. However, much remains to be done during the transition. One difficult task will be the disaggregation from Dorset County to Poole County of the new standard spending assessments. I think that will be extremely difficult to achieve. Working parties are already under way, dealing with the important matters of the police authority, the fire service and both strategic and land use planning where close co-operation with Dorset County Council is due to continue.
The role of the staff and the future of individual members of it are crucial in this reorganisation. Poole Council is paying close attention to these matters, in full co-operation with the local authority unions. In my day as a borough councillor, I heard repeatedly of Poole's aspirations for county borough status. There was some encouragement from Whitehall which implied that the magic figure to be reached before there could be any consideration of the matter would be 100,000 of population. Now at last, Poole is about to have its wish granted, albeit the magic figure has advanced to 136,000 and many years have elapsed in time. The borough
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council is to be commended for its able presentations to the Local Government Commission and the Department of the Environment. I congratulate the new County of Poole and wish it well for a successful future.
Finally, I offer my sincere thanks to my right honourable friend the Secretary of State for turning Poole's long held ambitions into a reality in 1997.
3.50 p.m.
Lord Bancroft: My Lords, it is saddening that government policy compels me to welcome the noble Earl—as I do warmly—to his new responsibilities with some mild criticism of the orders. He has introduced them with his usual courtesy and celerity, as my noble friend Lord Carnarvon mentioned.
I should like to take this opportunity also to pay tribute the noble Earl's predecessor, the noble Viscount, Lord Ullswater, who was a model Minister in your Lordships' House, always helpful and thoughtful. We all regret his, I hope temporary, departure from the Front Bench.
These orders, these "nine bright shiners", play an apt part in the melancholy process of local government reorganisation. The process, as we all know, has been a long one, is lengthening still further and has been, to put it at its most kindly, ill–starred throughout. The basic mistake exemplified by the orders was the Government's insistence on a rolling programme rather than a conclusive single report. That entailed, in the words of the Banham Commission's final document, that Parliament and all other interests had to,
"react to the proposals for individual areas in ignorance of the overall picture, before both the Commission and the Secretary of State had made final decisions".
So we have suffered an incoherent succession of draft reports, revised proposals and final recommendations, produced at random intervals over a period of more than two years. These have been punctuated by the Secretary of State in a series of pronouncements whose illogicality has been exceeded only by their inconsistency.
Now, with these orders, here we go again. First of all, we had a number of structural change orders, whipped through this House and the other place before anything like the full picture had emerged. Now that most—though by no means all—of it has emerged, we are asked to approve nine further orders while the regulations setting out the general framework for the relationship between the transferor and the transferee authorities have still not been approved. I apologise for the Cherokee jargon. Rarely have so many carts preceded the horse.
The Local Government Changes for England (No. 3) Regulations will not even be laid until tomorrow, as the noble Earl informed us. There has, of course, been consultation, but meanwhile I am told there is continuing confusion among authorities about responsibilities for statutory duties during the handover period about the rights of consultation and information and about the exclusion of some county councillors from the budget process.
Other noble Lords have already registered, and some will register, their concern over such matters as finance and, in particular, police and fire authorities. There is

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the general point, too, that the draft regulations on which consultation has taken place are perceived by many, rightly or wrongly, as placing the powers and rights of the unitary authority above those of the amputated county.
I confine myself now to a word about joint arrangements, on which the noble Earl touched in his introductory remarks. Joint arrangements are fundamental to the whole of this wretched reorganisation. They need to be demonstrably robust, workable and effective. I continue to have acute concerns in this area, particularly about planning.
A number of noble Lords—most recently my noble friend Lord Carnarvon—have on various occasions drawn the attention of this House to the importance of maintaining effective strategic planning in areas where the review results in a county council being wholly or partly replaced by smaller unitary authorities. I was extremely grateful to the noble Earl's predecessor for his Written Answer on 5th July (Hansard, cols. WA 82 and WA 83), which place in the public domain what had been rumoured to be the case; namely, that the Secretary of State's power under Section 21 of the Local Government Act 1992 to establish a joint authority for those purposes is only available where the county council is wholly superseded by unitary authorities. It does not apply in what are commonly called "hybrid" areas where only part of the former county is to become unitary.
This newly acknowledged gap in the Secretary of State's powers must be viewed most seriously by all concerned, including many of the authorities affected by the orders now before us. On 9th March, when the Environment Bill was before this House for consideration on Report, I moved an amendment designed to provide for joint arrangements to ensure the continuation of strategic planning in areas where local government is being reorganised. I refer to cols. 438 to 444 of Hansard for 9th March 1995. In reply, the noble Viscount, Lord Ullswater, said:
"should these voluntary arrangements fail, the Secretary of State already has a reserve power under Section 21 … Where he considers that joint working is desirable … but such arrangements fail to emerge, he is able to establish a statutory joint authority … We do not believe that the provisions in the amendment are desirable or necessary".—[Official Report, 9/3/95; col. 443.]
That interpretation of Section 21 was given and accepted in all good faith. It is now acknowledged to be defective. Will the noble Earl, with his customary courtesy, undertake to re-examine the spirit of my amendment and come forward with proposals in a similar vein, using whatever legislative vehicle seems the most appropriate? In the meantime, advice notes as suggested by my noble friend Lord Carnarvon would be a great help.
I end with the observation that Forster, parodying Landor best sums up the role of the Secretary of State in fostering the flame of local democracy by his rebarbative reorganisations of local government:
"I strove with none; for none was worth my strife.
Reason I loved, and next to Reason, Doubt.
I warmed both hands before the fire of life And put it out".
3.59 p.m.
The Earl of Selborne: My Lords, after those erudite and well-informed interventions, I can be brief. I congratulate my noble friend the Minister on the way in which he introduced the nine orders. He made it clear that there will inevitably be further regulations which will tidy up some of the business which remains in hand.
Like the noble Lord, Lord Bancroft, I am an unrepentant two-tier man. Many of the tribulations through which we are going need not have arisen had we stuck with the county council and the two tiers. So be it. We must not reopen old debates as these Motions go through. I was relieved by the assurance that my noble friend was able to give that some of the further regulations will concern lord lieutenants and sheriffs and that they will be put in place before the new county authorities come into existence in 1997. He assures us that there will be no hiatus. That is clearly helpful. The sooner these regulations come on-stream, the better.
Like others who spoke, I am relieved that structural plans are to be produced by the county councils and the new unitary authorities. But again, I suspect that that demonstrates just what we have thrown away with the county council structure. I hope that there will be advice or guidance notes, as two speakers have already urged. There is a particular need in the area of structural planning and transportation. I cannot help thinking that these arrangements always work more robustly within a two-tier structure.
The noble Lord, Lord Bancroft, referred to "amputated" counties. I would draw attention to the problem that those county councils will face, losing, as they will, large centres of population. We shall be reducing the scale of their current activities, but not the range of their functions. They will continue to fulfil the same functions, though obviously with fewer resources; and they will have the disruption to deal with.
As I understand it—and my noble friend may correct me if I have misunderstood—the new authorities will draw on supplementary credit allowances, which will be repaid out of subsequent savings. That is clearly a commendable strategy, since inevitably there will he start-up costs. But equally, if there are start-up costs for the new unitary authorities, there will also, I fear, he costs incurred by the amputated county councils. And they will not have the same opportunity for savings. There will be a loss of income, and there will be a need to manage the disruption. The Local Government Commission pointed out that where only part of a county was to have unitary authorities, there would be little opportunity for savings in cost within the residual two-tier county. I hope that my noble friend the Minister will be able to look at the funding implications and will be able to ensure that the people paying taxes under the new county councils will not be unduly disadvantaged.
4.2 p.m.
Viscount Bridgeman: My Lords, I thank my noble friend the Minister for his courteous reply to my question about the lord lieutenancy. I am very reassured by his assurances that there will be complete continuity.

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I live in Hampshire. The noble Earl, Lord Carnarvon, and my noble friend Lord Selborne referred to the work being done in transferring functions from the county to the unitary authorities in some cases. The strain on the county council should not be underestimated in relation to adapting all its organisations, changing its area offices and, as the noble Earl rightly pointed out, reducing the scale but not the quality of its services.
We are advised by the Local Government Commission that the costs of instituting the unitary authorities of Portsmouth and Southampton are between £7 million and £9 million. To ask the question again: who pays? In Avon, Humberside and Cleveland, where clear savings are expected, facilities have been made for extra borrowing to be repaid out of anticipated savings. As my noble friend made clear, not all the authorities covered by this order will be in that position. The Local Government Commission, quite unequivocally, made that abundantly clear. So there is no sense in borrowing to pay set-up costs where no savings are to be made. It merely defers the costs over a longer period. I therefore ask the Government to look at the costs to the county.
I live in Hampshire, as I said, but at some distance from Portsmouth and Southampton. I do not want my local library to have curtailed opening hours, or to have social services that were previously free now subject to a charge. Neither I nor my neighbours would regard that as a fair and equitable consequence of the creation of the two new authorities. I therefore once again ask the Minister to take another look at financing for the counties, and to ensure that Hampshire, as just one example, is not put in the position of having to reduce its services in order to pay for its share of the transitional costs. All the indications are that the settlement for 1997–98 will be at least as high as this year's. We must not place funding for the structural changes on top of the heavy burden that councils already bear.
4.5 p.m.
Lord Harmsworth: My Lords, your Lordships will be aware that the local government commissioners' recommendation for four unitary authorities for Dorset was met in the county with almost across the board dismay. Only at district level was such a solution thought desirable. The decision of my right honourable friend the Secretary of State to agree that Bournemouth and Poole should each go unitary, the rural remainder being subject to the status quo—the old two-tier system—represents a very acceptable position. It is one with which I am more than content.
I pay tribute to those at all levels of the local authority administration for the way that they are now buckling down to the business of running the three parts of the former old county. In doing so, I particularly commend to your Lordships the very good work of the chief executive, Peter Harvey. There is a general attitude in the county that the changes must be made to work. Temporary tensions have evaporated, and the friendly former working relationships have reasserted themselves. I very much welcome that.
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There are concerns, and noble Lords have referred to them this afternoon. One is the very important question of apportionment of funding for the rural areas. I think particularly of the higher cost of rural schools, transport to them and such services as libraries in rural areas. I hope that in the recalculation of the standard spending assessments, enough weighting will be afforded those inevitably higher-cost operations. I also hope that all that was said by all those concerned relating to the joint committees to deal with strategic matters, which were perhaps more easily dealt with under the old two-tier system, will be vigorously and persistently addressed. Dorset, perhaps more than many, has major strategic projects in the pipeline. I think particularly of the Melbury Abbas by-pass, which is of such importance to Poole and its very fine new harbour facilities—as referred to by my noble friend Lord Murton of Lindisfarne—and the Weymouth relief road.
I congratulate the Government on a very satisfactory outcome, and I wish my county all the success that it deserves.
4.8 p.m.
Lord Finsberg: My Lords, I apologise for speaking in the gap. I had not realised that structural orders would produce a list of speakers. I do so for two reasons. First, I am deputy chairman of the Commission for the New Towns, and the city of Milton Keynes is my special responsibility. I want to welcome this logical development for the future of Milton Keynes.
I know that noble Lords will remember the close connection that Jock Campbell had with Milton Keynes. I was proud to have the chance of working with him when I was a Minister in the department. He was one of the finest chairmen of the new towns that one could have wished to have. I know that he would have been a very happy man today. Knowing Jock, he is probably chortling from somewhere rather higher than your Lordships' House.
I have been in this House only three years. So far as I know, my noble friend Lord Ferrers is now wearing his third hat. He will, I am sure, take it as a compliment if I say that one of my favourite characters in Gilbert and Sullivan is Pooh-Bah. The only difference between my noble friend and Pooh-Bah is that Pooh-Bah had all the jobs at the same time—and, if I remember rightly, all the salaries at the same time. I do not think that my noble friend quite has that.
The tension that existed between the county and the then city has evaporated. The logic of making Milton Keynes a unitary authority became apparent to all. I chair the liaison committee which meets twice a year between the county, the borough and the commission, and certainly it is now recognised that all we have to do is work very hard in our co-operation to achieve a satisfactory future.
Having gone through this exercise in London nearly 30 years ago and served on an elected council, a shadow council and then a new council, I can tell your Lordships that it does work. We were very mixed. There were two Conservative boroughs and one Labour borough. We finished up with one Labour borough. The co-operation in that period was magnificent. We produced about 60

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recommendations, only one of which was never honoured. That one exception was the decision to have as our symbol an elephant's foot rather than a proper coat of arms. There was otherwise no problem. I welcome these orders but specifically the one that relates to the city of Milton Keynes.
4.11 p.m.
Lord Jacques: My Lords, I too did not realise that there would be a list of speakers since there were so many separate orders.
I take this opportunity to welcome the order that relates to Hampshire. I have been waiting for it for 23 years. Way back in 1972 I moved an amendment that sought to retain the status of a number of county boroughs, including Portsmouth and Southampton. I divided the House but lost the vote, but always thought that I won the argument. I have stated the case to this House for the unitary status of Portsmouth and Hampshire on a number of occasions, the last being on 30th March last. I am sure that it is unnecessary for me to repeat those arguments. However, I should like to comment upon the bipartisan consensus that has arisen following consultations. That is the most significant change relating to local government that has occurred in my lifetime.
In 1970, the Royal Commission made its report. The then Labour Government accepted the principle of unitary authorities throughout and said that they would introduce legislation to give effect to it in due course. An election followed and the introduction of a Conservative Government. A minority report of the Royal Commission had been signed by one member. He recommended that throughout there should be a two-tier system. The new Government adopted that system. Because of that election there was a move from one extreme to the other.
I hope that the consensus between the parties will bring that situation to an end and that the principle of the hybrid county is accepted so that the large urban areas have their separate authority but will co-operate with the county in all the matters that have been mentioned, such as strategic planning and police. On the other hand, I believe that for rural areas the two-tier system is the better and produces more efficient local government. I believe that what we are doing now is on the right lines, and that both the Government and the Opposition should be praised for the way in which they have arrived at this point.
4.15 p.m.
Baroness Hamwee: My Lords, the confusion of noble Lords who have spoken in the gap is as nothing compared with the confusion of those of us who arrived to speak at the time of the last set of orders. We found that there was no list and we all tried to find our places in the gap.
There must be many political equivalents of the Irish joke about the individual who asks directions and is told not to start from here. The local government review is perhaps the quintessence of that situation, but
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unfortunately it is no joke. I believe that those of us who think that the proper starting point is the function of local government and the effective delivery of services, not structure, have been vindicated. Most people will agree that the problem should first be analysed before a solution is attempted. As noble Lords have pointed out, that should certainly be done before producing a solution in the form of titillating, tempting sweeties that are distracting from the whole. If we had first considered function, we could have achieved subsidiarity in its proper and best sense, perhaps also at parish level, instead of what, sadly, many people may feel is a carve-up.
During the process the guidelines have shifted radically. Many of the proposed unitary authorities have not been consulted on the specific proposals as they are now. Where there was consultation, there has been a divergence between the preferences expressed in the polls and proposals that were not on offer until the Government announced them, for instance those for Brighton and Hove. Some of the responses are only partly replicated in the proposals. Among them are the proposals for Hampshire where I understand that strong representations were made for a unitary authority for the New Forest as well as for Portsmouth and Southampton.
I congratulate the Government on a post hoc rationalisation of their proposals, characterised by a number of people as cherry picking. They include cherries which understandably some Labour councils have been happy to go along with. The noble Lord, Lord Bancroft, put the matter more eloquently than I have been able to do. However, we start from here. I recognise that what is most important is certainty but within that certainty some matters are fundamental to the changes, including the matter of finance with which the noble Earl, Lord Selborne, dealt earlier. County councils face problems. They will be reduced in size and population base but will have ongoing costs. I appreciate that the figures may not work out precisely. For instance, on the basis of population, East Sussex will lose one-third of its budget but only 5 per cent. of its geographical area. Authorities in a similar position are concerned about the costs they will have to continue to bear and the disproportionately lower resource base with which they will be left. They are right to be concerned and to draw the Government's attention to problems that will arise when county-wide support services are located in an area that is to form a new unitary authority. As the noble Earl, Lord Selborne, said, there will be little opportunity for hybrid counties to make savings in future.
The problems of adequate supplementary credit approvals are very serious. I have made the plea on previous occasions that the Government take seriously the need for adequate supplementary credit approvals. It is borrowing that will be paid back over a period. It is not a plea for extra cash. The continuing counties are bound to worry that their needs may be put at the end of the queue because of the concern that the new unitary authorities should operate adequately. There are also concerns about competitive tendering and staff who will be transferred. There is also the issue of unfair advantage in relation to in-house direct service staff where contracts will have to be immediately re-tendered

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whereas outside companies which have won tenders will have protection as a matter of contract for the period of the contract.
Noble Lords, including my noble friend Lady Thomas of Walliswood and the noble Earl, Lord Carnarvon, have referred to the absurdities that will arise in the arrangement of police authorities. The noble Earl, Lord Carnarvon, and the noble Lord, Lord Bancroft, drew our attention to the genuine concern about joint arrangements and in particular planning. The noble Lord, Lord Bancroft, said that he was grateful for the Government's Written Answer to his Question.
On reading the Government's analysis of the hole they had dug for themselves, I felt alarm rather than gratitude. When I first became involved in strategic planning as a councillor, a colleague said to me—it is politically incorrect to use the example but I shall do so because it is so vivid—"If there is no strategic planning authority, who is going to decide where the gypsy sites go?" That example can equally be applied to questions of mineral extraction and waste disposal. A small authority will naturally resist development—I use the word in its broadest sense in planning jargon—which has an effect on its own area.
There is disquiet too about the shadow period; the regulations to be laid tomorrow have been referred to. It may be useful to flag up what are already actual concerns in the case of East Sussex, which, as the Minister reminded us, is subject to a slightly different regime because of the different arrangements which are to apply. There is the rather loosely worded general duty to co-operate. But local government law is very clear: local authorities are empowered only to do what they are specifically empowered to do. Those authorities which try to transgress the boundaries, as the Government might see them, are sharply rapped on the wrist and told to draw back. It is essential that the transferor authorities as well as the transferees know their position with certainty, if for no other reason than knowing when expenditure on certain activities might be subject to audit challenge.
There is no right in the general regulations for the counties which remain to be consulted by the unitary authorities on how transferred services are to continue to be delivered. As I said, there is simply a duty to co-operate. But if there is a failure to consult, it could mean that the options available are not fully explored and it may turn out that some options have been closed.
Transferring authorities do not have the same rights as transferees to require information. Reference has been made to the exclusion of certain county council councillors from the budget process. I find that quite extraordinary. If councillors were debarred from contributing to decisions about their council budgets where they had a ward or local interest, no budget would ever be set. As my noble friend Lady Thomas of Walliswood pointed out, budget-making is not a matter of taking a snapshot; it is a continuing process. In these days, cash is not pouring out of local authorities' pockets, and indeed, as a matter of good planning, many local authorities set themselves rolling programmes. Only by doing that and by sharing their plans with local
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communities over a long period can they have any hope of securing the confidence of those communities that they have a good overall view of what needs to be done.
Those are matters of particular urgency to East Sussex and to the other authorities which will be affected by the regulations to be laid tomorrow. Generalised expressions of good will are not enough. The Government must provide a robust framework and. I add, a framework which is even-handed between the new authorities and the remaining counties.
4.25 p.m.
Baroness Hollis of Heigham: My Lords, perhaps I may first record that I am one of the many vice-presidents of the ADC. Like other noble Lords, I am delighted to welcome the noble Earl, Lord Ferrers, to the debate on the local government review. He joins it when most of the acrimony and much of the confrontation are over. I am sure he will agree that he could not have arrived at a better time.
The Government and Opposition agree on the need for a sensible exit strategy from what, as many noble Lords have quite rightly said today, has been a chaotic experience. These orders have widespread support and consent. Notwithstanding the remarks about amputated counties from the noble Lord, Lord Bancroft, and the noble Earl, Lord Selborne, these orders will give unitary powers to those cities which, for the most part, were county boroughs before 1974 and have been running their own affairs for centuries. In my city of Norwich, we ran our affairs for 800 years, whereas the administrative county council has had a life of barely 100 years. So the vocabulary of amputation was perhaps unfortunate.
The orders will restore powers to those cities which have had a long experience of running their own affairs, while allowing the rather more rural parts of the country to remain, at least for the time being, as two-tier authorities. The Labour Party had a name for that in the late 1970s. It was called "organic change". Had the general election not occurred when it did but a few months later, the present proposals might have been achieved then. However, we now look forward to such sensible views being put into practice by a happy meeting of minds.
As we discussed earlier in the year, we see a first move in that direction with the abolition of those counties which were created through shotgun marriages in 1974. This second tranche includes many of the authorities known in the local authority organisations as "the big 11". The remarks made by the noble Lord, Lord Finsberg, and in particular his generosity to our departed former comrade and friend Lord Campbell of Eskan, were very welcome. It would, I know, have given Lord Campbell immense pleasure to know that Milton Keynes was obtaining the ability to manage its own affairs as a result of the orders that we are discussing today.
We hope that fairly soon, in the late autumn or new year, will come the 20-plus authorities which have been newly referred back to the commission. Then, either under this Government or the next, will come a further tranche of authorities, such as Ipswich, Oxford, Lincoln

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and Chester, which have good grounds for believing—and very often a long history of evidence to confirm it—that they should have been included in the bids for unitary status. I suspect that further changes, if they occur, will be dependent on constitutional changes. I share with the noble Baroness, Lady Hamwee, a hope that in due course we shall see democratic regional government in this country.
The Minister has also arrived with a new commission, which is welcome. I hope that it, too, will see the wisdom of this settlement, at least for the time being, of the confusion and antagonism surrounding the unhappy local government review.
This array of orders accepts that city and countryside are different. Managing the city is about managing the problems of density, traffic pollution and population congestion. The problems of more rural areas are essentially those of managing sparsity—for example, the lack of transport or the insufficient number of families to justify maintaining the small village school or rural post office. The hope is that by going for "hybrid" solutions, as we call them—unitary cities within two-tier counties—that essential distinctiveness between town and country will be recognised and with it a recognition that one does not need a tidy, mathematical, uniform solution for local government throughout the country as a whole. Local government is about local difference and recognising the distinctiveness both of local geography, local history and local communities, though the noble Lord, Lord Bancroft, was assuredly right when he said that nonetheless we should have had a coherent strategy on this from the beginning.
The local government review has major advantages. First, it will allow the new city authorities to provide much better services. At a time when community care is one of the major responsibilities of local government, housing and social services will be integrated, as will planning and highways. Those noble Lords who have been taking part in recent debates on the disability Bill, will realise the problems caused when a planning authority at district level gives permission for a disability access to be put onto a pavement which the traffic authority, which is the county council, then vetoes as a highways authority. By integrating those responsibilities into one authority, such changes will be more effectively delivered.
The review will allow for the integration of youth and community services. At a time when many young people are unemployed, which may often give rise to anti-social behaviour, that is surely wise. We hope also that the specialist services which currently operate on a country-wide basis (for instance, museums and archives) and which are working well and with consent, should not be fragmented but should go forward on a joint basis—a joint committee, a joint authority. I am confident, and we have plenty of experience to show this, that where joint arrangements are entered into voluntarily by partners of equal weight, they work well. They certainly do in the museums joint authority between my city and the county of Norfolk.
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There was discussion earlier in the debate—and it was particularly mentioned by the noble Baroness, Lady Thomas of Walliswood—about proportionality of police authorities. As I understand it, there will be set numbers of police authorities and the apportionment will be left to local circumstances to decide. Where there is disagreement, the Secretary of State has the last resort power of knocking heads together. It is surely right that where possible the local authorities concerned should come up with their own proposals, provided that the Secretary of State holds backstop powers, which I understand is the situation.
A second advantage of the proposals is that by integrating services—for example, housing and social services—local government in those cities can focus on the needs of the user. It is too often overlooked when talking of pensioners, disabled people or homeless families who need an array of services, that split services means split providers, which means tunnel vision by separate providers. Each provider—the county, the city, the quango or the health authority—tries to export its costs onto another authority in order to keep its own down. The result is often confusion and unacceptable practice.
This integration of services will mean that at the forefront will be the needs of the user of the services—the old person, the disabled person or the homeless family—rather than the needs of the provider and the urge to export its costs to others. There will be no excuse for such behaviour in the future. As a result, these orders will produce better value for money. While some services, like housing and social services or planning and highways, are split but should be integrated, other services, as we know literally to our cost, are concurrent; they overlap; they duplicate. At the moment both districts and counties have overlapping responsibilities for planning. For example, the district is responsible for environmental health, the county for trading standards. When it comes to regulating an open food market, the district environmental health department is responsible if the food is stale, but the county is responsible if the food is underweight. That is absurd. It cannot be sensible to have two sets of authorities, two sets of councillors, two sets of officers, two sets of committees going over the same issue—and all too often coming up with different conclusions. How on earth are ordinary people to know who does what, to what standard and at what price if such confusion prevails?
That brings me to my final reason for welcoming the orders: they will produce in consequence better democratic accountability. The responsibility for all the services will be located in city hall. Voters in the new unitary authorities will know precisely who is taking the decisions and who to hold to account if the decisions made and the moneys spent are not to their satisfaction; they can vote them out. If we are to rebuild healthy local government—the recent commission on local democracy was right to emphasise this—it can best be done where the lines of accountability and responsibility for who does what are clear and unambiguous. In two-tier structures there can never be clear accountability. As all the surveys show, even now, 21

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years after the 1974 reorganisation, people do not know who delivers what service. If they do not know who delivers what service, they cannot hold their councillors responsible for it. That is a fact.
We greatly welcome the orders. With the exception of minor boundary changes at Stoke to include the Wedgwood factory, and with the major exception of Brighton and Hove, these authorities are going ahead on existing boundaries. There is no expansion and aggrandisement at the expense of neighbours. It means, again with the exception of Brighton and Hove, that we will not need shadow authorities but nonetheless will properly have all-out elections. As my noble friend Lady Gould said, Brighton and Hove are very much part of an integrated economic community.
The average size of the population in the new authorities is something like 187,000 which is larger than many existing unitary authorities in London and in the Mets. They are clearly competent to run their own affairs even though population size is a good indicator of that. They all have widespread popular support, as tested by the opinion polls and qualitative surveys; all have all-party support in their localities; all have clear and long-standing identities.
In relation to costs, in all the authorities it is clear that the Local Government Commission and the Audit Commission expect the transitional costs to be repaid within three to five years and thereafter there should be cost savings, though, as the noble Lord, Lord Bridgeman, said, it is right to emphasise that proper arrangements for funding those transitional costs for both district and county should be made. My only regret is that the staff, who bear the true cost of the reorganisation, have not even now been given the financial protection that they had in 1986 when the Met. counties were abolished. However, the ADC and the ACC agreement for 100 per cent. transfers will, I hope, continue to be honoured.
On financial matters, many noble Lords raised the concern that they hope and expect the standard spending assessment to be adjusted appropriately. We need clear assurances on that from the Minister. It is a matter of particular concern, for example, in Portsmouth; it was raised by the noble Lord, Lord Murton, on behalf of Poole and I am sure that it was shared by all the authorities concerned.
These orders will create strong, confident city authorities. They will now have the full range of local authority functions and responsibilities. They can look forward to a vibrant future and I am sure that we wish them well. However, I hope—and the noble Baroness, Lady Hamwee, was absolutely right—that as we get the structure of local government finally into shape, we can begin the even more important argument and debate as to its functions and constitutional standing. Without a healthy local democracy, political citizenship in this country will not flourish.
4.39 p.m.
Earl Ferrers: My Lords, I am very grateful to the noble Baroness, Lady Hollis of Heigham, for giving such a welcome to these orders from the Front Bench opposite. I hope that this will be a prelude to the many
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occasions when she will agree with what the Government are doing. She is right in saying that for local authorities to run properly there has to be local democracy. That is what these measures are about.
I am most grateful to all noble Lords for their contributions. I thank the noble Lord, Lord Bancroft, for his tribute to my noble friend Lord Ullswater, always the most courteous and considerate of Ministers. He was a ministerial colleague of mine; I know that his reputation is of great substance. I am grateful for that acknowledgement from the noble Lord, Lord Bancroft.
My noble friend Lord Murton graciously said that he hoped that I did not find these matters too complicated. They are complicated. My noble friend Lord Finsberg said that he had been in this House for three years and in that time I had been in three different jobs. I was thinking only this afternoon that in the past 12 months I have represented three different departments, which is rather odd, having been for six years in the Home Office. One moved from a position of relative solidity—I do not believe that that is the right word—to one of relative rapidity. Whether that is a good or bad thing I do not know.
The noble Lord said that I reminded him of Pooh-Bah. I say to him that as I entered my new department, my thoughts were much more akin to "The Nightmare" song of Gilbert and Sullivan, which, I believe, runs like this:

"When you're lying awake

With a dismal headache,

With your eyeballs and head

Ever aching,

Your slumbering teems

With such horrible dreams

You had very much better be waking.

For you dream you are crossing the Channel,

And tossing about in a steamer from Harwich

Which is something between a large bathing machine

And a very small second class carriage".

or words to that effect.
Noble Lords: More!
Earl Ferrers: My Lords, I do not wish to prolong the debate. I was delighted to give that rendition, but it will not happen very often. It crossed my mind as being very appropriate on entering an enormous department. I shall discover, no doubt, that I wake up and find everything is sweetness and light.
I am grateful for the fact that so many noble Lords approve of the orders. Many have spoken of areas with which they are familiar. It is an upheaval in many respects and it is not uniform. It cannot be uniform because life is not uniform throughout the country. The whole purpose is to try to get better local government and better value for money in government. Local government should be closer to the people. I was grateful to the noble Lord, Lord Jacques, for saying that at last there is cross-party agreement about the two systems of local government in the single tier and two-tier systems.
I am sorry that the noble Lord, Lord Bancroft, did not approve. My noble friend Lord Selborne said that he was a two-tier man. Those arc perfectly understandable reactions. This is a controversial matter. As the noble

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Baroness, Lady Hollis, said, I arrive in the department when a great deal of the acrimony and consultation is over. It is difficult when one makes changes to local authorities in which people have had great faith, pleasure and comfort. But time moves on. We have to recognise that in order to make local authorities more accountable and closely allied to people it is necessary to have these changes.
The noble Lord, Lord Bancroft, said that illogicality by my right honourable friend was exceeded only by inconsistency. That was a fairly spiky observation. If the noble Lord wants consistency one gets inflexibility: if one wants flexibility one is accused of inconsistency. There has been a great deal of discussion about these matters. I gather that the noble Baroness, Lady Gould, approves of Brighton and Hove now being considered economically as one. She said that it made good sense, and I think it is.
I apologise to the noble Earl, Lord Carnarvon, for the fact that I spoke too quickly. I do not think that that is a peculiarity normally ascribed to me. It may have been the result of one of those encouraging bon mots which the Chief Whip expressed to me just before I rose to speak. He said that he hoped that I had a short speech. That may have put my loquacity into overdrive. But the fact that the noble Earl could not understand all that I said is a cause of great distress to me. I shall try to answer some of his concerns.
The noble Baroness, Lady Thomas of Walliswood, said that she saw me here with a certain amount of trepidation. I assure her that she need feel no trepidation at all. I am always sweetness and light. For the expedition of our discussions it would be very helpful if she were always in fear and trepidation of me because then she would not ask me nasty questions and expect me to answer them.
Both the noble Baroness and my noble friend Lord Selborne were concerned about the cost of continuing the county council. Any transitional costs, such as the set-up costs which are incurred by the county council, can be met by borrowing. For many of these costs we have worked out special arrangements so that repayment need not start for three years by which time the county may have been able to make some savings as a result of reorganisation or will have been able to plan well ahead to meet those costs. The cost of servicing such costs will be very small in relation to a county's budget.
The noble Baroness, Lady Thomas, was also concerned about Regulation 6 excluding the county councillors from budgeting. That is in the general regulations, not in the individual orders. We consulted in June on the draft general regulations. According to Regulation 6, where county councils are to become unitary areas, councillors should not take part in setting budgets for the year after reorganisation. I do not believe it right that councillors should be able to determine a budget for what is in effect a different council. This matter was discussed in another place only last week. I believe that there was general acceptance in principle on that point. We expect to lay the regulations tomorrow.
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The noble Baroness, Lady Thomas, and the noble Earl, Lord Carnarvon, were concerned about membership of the police authorities in Bedfordshire and Hampshire. Local authority members of police authorities are selected by a joint committee of the authorities concerned. I remember with very considerable feeling when that measure went through your Lordships' House some 12 months ago. The selection of members must reflect the political balance across the area as a whole, otherwise the local authorities will have a free hand. For instance, Luton may have no entitlement to a fixed number of seats. It is up to the good sense of the committee to work out how that is to come about. The joint committee is formed by the authorities by mutual agreement. If they fail to agree, the Home Secretary has reserve powers to appoint the joint committee members, but he has never exercised those powers and he does not expect to do so.
The noble Earl, Lord Carnarvon, expressed concern about lord lieutenants and high sheriffs. I believe that that was the moment when my speech may have been delivered too quickly for the noble Earl to keep pace. We shall be making separate provision for them in general regulations. Under them each unitary authority which is created under the orders will be deemed to be part of the relevant historic county for ceremonial and related purposes. I believe that is said slowly enough for the noble Earl to absorb. Therefore, jurisdiction will remain with the lord lieutenant and the high sheriff of the county. The regulations will be made at the earliest possible opportunity after April next year.
The noble Lord, Lord Bancroft, was concerned that we were being one-sided against the county council. We do not have any intention of being one-sided and I do not believe that we have been. One of our main principles is that we should be prescriptive only when that is unavoidable. We do not believe that a successful reorganisation will be helped by an increasing level of regulation. In fact, our intention is that, rather than binding the hands of local government, councillors and officers should be allowed to use their detailed professional practical knowledge to take forward the preparation for reorganisation in the way they believe to be most suitable to local circumstances.
In many ways, the most important two provisions are those imposing a duty to co-operate and giving all authorities involved the power to start preparations. The provisions apply equally to the county and district councils. Where there is a further provision, it is because there are specific points which need to be addressed. We do not believe that it would be appropriate to extend the scope of the provisions beyond what is necessary. The unitary authorities arc given a right to information, for instance, because they will need information which might otherwise be covered by the data protection requirements, whereas transferors will not he in that position.
My noble friends Lord Murton and Lord Harmsworth and the noble Baroness, Lady Hamwee, referred to the standard spending assessment. For a unitary authority, the standard spending assessment will take account of its new functions. The amount of SSA that it will get for its new functions will be determined after

1405
consultation with the unitary authority and the continuing county. We shall consult authorities on the disaggregation of the SSA in a reorganised county. That exercise will be concerned only with disaggregating the SSA for the county. Any other proposals, such as those relating to rural areas, for change to the SSA will be considered in each year's finance settlement and the authorities can, as usual, make such proposals at any time.
My noble friends Lord Selborne and Lord Bridgeman were concerned about the start-up costs of the amputated county councils. I think I can reassure my noble friends that the remaining county council can also apply for supplementary credit approvals to meet set-up costs. Special arrangements are made so that in many cases borrowings need not be repaid for some years. That will enable authorities to realise any savings or receipts from reorganisation or to plan well ahead to meet them. In any case, the costs of meeting the borrowings cannot be significant in terms of the counties' overall budgets. I can assure my noble friends that authorities will have an opportunity to comment on the arrangements for 1996 and later years. We shall he consulting on them later in the summer.
The noble Baroness, Lady Hamwee, was concerned about the costs for continuing counties and about supplementary credit approvals. We have made £50 million available for supplementary credit approvals for 1994–95. We shall decide resources for 1996–97 as part of next year's finance settlement. I can reassure the noble Baroness that county councils can apply for supplementary credit approvals. We have said that we are considering extending the eligibility period for continuing counties. With regard to on-going costs, that must be a matter for the on-going authority. In any event, I doubt whether the costs will be found to be significant even in the context of a reduced county's budget.
I am grateful to the noble Baroness, Lady Hollis, for supporting the orders so generously. Of course, they are a change from what has happened before, but the fact that the noble Baroness, speaking on behalf of the Opposition, with myself speaking on behalf of the Government and others tend to feel that the result, change though it will he, will bring better accountability and better local authority representation and performance, is a good thing and is encouraging. I am grateful for your Lordships' support and commend the draft orders to the House—
The Earl of Carnarvon: My Lords, before the Minister sits down, would he be kind enough to answer the question on advice notes for structure plans because that is an extremely important part of the new arrangements for both existing county councils and the new counties?
Earl Ferrers: My Lords, I apologise to the noble Earl for not having done that. However, as it is a slightly technical question, perhaps the noble Earl will permit me to write to him about it.
On Question, Motion agreed to.

European Film and Television Industry: ECC Report
4.54 p.m.
Lord Elibank Lord Elibank rose to move, That this House takes note of the Report of the European Communities Committee on the European Film and Television Industry (Eighth Report, HL Paper 45).
The noble Lord said: My Lords, in introducing this report on audio-visual activity and the audio-visual industry in Europe, perhaps I may first thank all those who have contributed to it. I refer not only to the members of the sub-committee because we are also particularly grateful to two Members of your Lordships' House, the noble Lords, Lord Hollick and Lord Thomson of Monifieth. I am glad that the latter is to participate in the debate. It is also right that we should thank our specialist adviser, Mr. John Sanderson, who led us through what for most of us was pretty new territory which we approached with great caution. I should like to think that by the time we came to write the report, we could consider ourselves reasonably well-informed. I thank finally our then Clerk, Dr. Philippa Tudor, who made all the administrative arrangements and was largely responsible for producing the draft of the report.
It is easy to think of the audio-visual industry as a glamorous and frothy activity. It is most certainly glamorous, but it is not frothy. If we consider first what is perhaps the most important point, its effect on employment, your Lordships will see what I mean. It is very difficult to try to assess the employment figures relating to audio-visual activity because it is very difficult to say who is employed and who is not. Therefore, I hope that your Lordships will treat with a certain caution any figures produced under that heading. However, the Commission suggests that about 2 million people are employed at the moment, with the expectation that that will increase to about 4 million—that is, the number will double. That is a notable contribution to a continent which is suffering grievously from under-employment. Most of the traditional industrial and service activities are shedding jobs. On the other hand, the audio-visual sector is increasing in importance, productivity and employment and as such deserves the support not only of this country and this Government, but of other governments in Europe.
It is difficult to break down the audio-visual sector into its separate parts, but one must try to do so. There are films, television productions, videos and others. I found it surprising to learn what a predominant part video production played in the overall scheme. In fact, 20 per cent. of the revenue generated by a typically successful film comes from cinema exhibitions, with 20 per cent. from television, 50 per cent. from video leasing and purchases and another 10 per cent. from ancillary sources. So, the production of films is interwoven with other forms of exhibition, and the revenue to be obtained from them is similarly interwoven.
One of the most discussed aspects of the industry, particularly on the television side, is the issue of quotas. That issue is still alive and, as far as I know, has not yet

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been resolved. It dates back some seven or eight years to when an effort was made to produce and to show more European-based productions on television. That became a directive which insisted that 51 per cent. of all productions shown on television should be of European origin "where practical". That phrase was a great let-out and the source of a great deal of controversy. That is how the position stands at the moment. The exclusion or limiting clause is under attack from many countries in continental Europe.
This country always takes a fairly pragmatic and commercial view of television productions. Almost without exception, all the witnesses who appeared before the committee took the same view. One has to have at least some sympathy with other countries in Europe, in particular France, which are leading the fight for the maintenance of quotas, and which see themselves deluged under a flood of Anglo-Saxon productions—95 per cent. or more of which are of course American—as compared with ourselves. We are, and have been traditionally, anti any form of quota, but the French, and many other continental countries, see quotas as the bastion of the defence of their culture which, rightly, is of importance to them.
The committee considered the quota issue and came to the conclusion that quotas were undesirable and unworkable. They are undesirable because they are in essence a form of censorship. They insist that the adult viewer should see 51 per cent. of European productions which may not be to his taste. They also stimulate the promotion of what are sometimes known as "quota quickies", which are effectively rubbish. They meet the quota stipulation and are shown on television to justify the station's ration of European productions. All in all, we thought them very undesirable.
Quotas are also becoming increasingly unworkable. They were first thought of when there were just four terrestrial channels in this country and a similar broadcasting capability in the rest of Europe. Since then, things have changed dramatically. With cable and satellite television, one can now see something between 40 and 50 channels in this country. With the advent of digital technology, that figure is due to increase to something like 500 channels.
With that bewildering array of entertainment and information being transmitted onto the television screen of the average citizen, it seemed to us impossible to try to set a quota which would adequately cover those various transmissions. So we share Her Majesty's Government's view that quotas are, in every sense, undesirable, and we hope that the Government will continue their spirited resistance to their imposition.
Financial incentives form another subject where we tend to differ from our European allies. On the Continent, it is commonplace to offer subsidies of one type or another for film productions. There are, for example, levies on cinema attendance—all the money going into the pot for national film production. We heard a good deal of evidence from various witnesses to the effect that in several countries many of the films produced under this system were mediocre to the extent that they were never seen by anyone. Another tranche
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was seen but was made up of poor films, by anyone's standard. They did not recoup the money invested in them. Subsidies for film production are an unattractive way of trying to stimulate business.
However, we looked at various tax concessions. As your Lordships will see, in the report we recommended a modest tax concession; that is to say, the right to write off production costs in the space of one year rather than three years would be a sensible change in the law and the regulations.
One must face the fact that film production as such is a competitive business. If a producer—he will commonly be an American—seeks to make a film about, say, Brazil, he may choose to make it in Brazil, but he will be looking at the financial regulations obtaining in alternative countries where the film could be produced, and at the technological back-up in those countries. A film about Brazil could be made equally well in Canada, Thailand, South Africa or the Highlands of Scotland. We are competing for business in a global market. If we wish to stimulate the production of films in this country and to obtain our share—preferably more than our share—of the production that is going, it may well be necessary to make some adjustment.
Lord Harmar-Nicolls: My Lords, how does the tax condcession that my noble friend is now commending compare with what the French give to their film industry?
Lord Elibank: My Lords, very modestly indeed. The French give a great deal of money in subsidies and taxes, and impose levies on entrance to cinemas, and produce, I think, the largest subsidy pot in Europe. Anything we could do in the direction that I have been suggesting would be of the most modest order in comparison. Whether it would be enough is a matter for debate. But there is no doubt that we will have to compete in the global market.
There are of course subsidies to the generality of European production—the MEDIA II programme. There was of course a MEDIA I programme but that has been supplemented by the MEDIA II programme to which the Government are of course contributing. There is 50 per cent. more going into MEDIA II than went into MEDIA I, and so an encouraging effort is being made. I could spend a great deal longer on that issue if time permitted. It is small money in total. It amounts to 310 million ecus, I believe. Whereas that is a useful contribution, it will not be a sufficient incentive to lure the big producers to Europe or to this country.
I wish to say a word or two about copyright. The noble Lord, Lord Brain, has given me notice that he intends to raise, and indeed I think to criticise, some of the committee's conclusions. It will be interesting to hear his point of view. Copyright is extremely important, and so is the reverse side of the same coin—piracy.
Most people who produce an artistic creation want to make money. There are exceptions: academics put things on the Internet free just for the benefit of their academic brothers. Most people who produce anything of artistic significance want money for it. If that production is not protected. they will not produce it. The

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issue of copyright is important. It has also become a great deal more difficult because of the multiplicity of channels to which I referred earlier. Of course they include the Internet which is a fact of life with which it is difficult for someone of my generation to come to grips. Its immensity and complication will make the issue of copyright difficult.
There are broadly two systems of copyright: the Anglo-Saxon one which provides for copyright of a production to vest in the producer, and the continental one which provides for it to vest in the author, the director, the producer and actors, not just for their lifetimes but for periods after their death. It seemed to us that the Anglo-Saxon system of vesting the copyright in the producer was the simplest and most direct one, and it is the one we recommend. Which system is adopted is second in importance to its efficiency. We must produce copyright in modern audio-vision which works and which encourages people to produce the kind of material that we would want to see.
The future for audio-vision, not just in this country but in Europe, is extraordinarily exciting. There is a bewildering variety and it is developing at a remarkable speed. It offers prospects for an increase in knowledge and entertainment beyond the grasp of most of us. For that reason, it is most important that any legislation, directives or rules which we produce for the audio-visual industry should, as far as possible, relate to the future and not be an attempt to regulate yesterday's world.
Moved, That this House takes note of the Report of the European Communities Committee on the European Film and Television Industry (Eighth Report, H.L. Paper 45).—(Lord Elibank.)
5.10 p.m.
Lord Howie of Troon: My Lords, I am very pleased to be able to take part in this debate although I was not a member of the committee. Therefore, I start with both thanks and apology to the noble Lord, Lord Elibank. The thanks are to him and his committee for producing a report, which I have read, which was wide-ranging and extremely interesting. My apology is because I intend to raise a matter which is not covered by the report. I do not say that in any way as a matter of criticism but it is a matter of great interest to the Periodical Publishers Association, which has asked me to raise the matter.
The association has asked me to raise the subject because I am its vice-president, as is the noble Earl, Lord Stockton. It is an unpaid post although I should tell the House that tomorrow the association will he entertaining me to lunch. That is not at all because I am making this intervention but because it is its annual general meeting and vice-presidents are expected and, indeed, bound to attend.
The matter which the PPA has asked me to raise and on which I shall speak is what is known as the brand extension of magazines, especially the extension of masthead programming across Europe; that is, the adaptation of existing magazine or newspaper titles into television programmes. Such television programmes are produced by and bear the name of the magazine or newspaper concerned. That would meet at least one of
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the objectives of the sub-committee's report; that is, incentives to invest in programmes and movements towards deregulation and liberalisation.
However, there is a problem. The ITC interprets the sponsorship clause of the television without frontiers directive in such a way as to prevent publishers commissioning programmes for independent television which have the same name as a magazine or newspaper title. On the other hand, the BBC is not limited in that way. It can exploit its programmes by publishing magazines with the same name which then complement the programmes. For example, "Gardeners' World" is the name of a BBC programme and a successful periodical. On the other hand, Practical Gardening—a magazine—cannot produce independent television programmes entitled "Practical Gardening". Therefore, the BBC has a head start in an arena which is of some importance to the magazine publishing industry.
The situation throughout Europe is confused because the rules vary from country to country. Masthead programming is perfectly legal in Germany, Belgium, Spain, Italy and possibly France, although there is some ambiguity in that country, as is not unusual. It is permissible also in the United States although it is forbidden in Denmark, Norway, the Netherlands and the United Kingdom. In the United Kingdom, newspapers and magazines are governed by some of the most stringent regulations to apply anywhere in Europe.
This is a matter of creating equal opportunities for owners of intellectual property so that they may exploit that property across media, whether magazines or television, without unnecessary restrictions. The intention is not to promote a brand name but to exploit intellectual property. Editorial involvement in the programme content means that the publisher is the provider of intellectual material and he is not seeking to promote the brand name. Therefore, masthead programming is quite a different concept from sponsorship. I merely wish to ask the Minister to look at that problem. I am not asking the noble Lord, Lord Elibank, to worry about it in his reply at the end of the debate.
I take this opportunity to congratulate the Minister on his new appointment. I have no doubt that we shall see him nodding benignly towards us from time to time. His predecessor was good enough to look at the problem and he asked for some information about the situation in Europe and that information is now available. Today I am merely asking the Minister to give an assurance that he will look at the issue at the earliest opportunity with a view to giving British publishers the same freedom to exploit the commercial multi-media world which television broadcasters already have.
5.5 p.m.
Lord Thomson of Monifieth: My Lords, I hope that the noble Lord, Lord Howie of Troon, will forgive me if I do not follow him by dealing with the extremely interesting question which he raised. I am bound to say that when watching television I have thought that the BBC. which has no advertising at all, manages to advertise periodicals associated with the BBC with great ingenuity. Not for the first time, the rules of the ITC

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seem to be stricter than those which apply to the BBC. However, I shall say no more about that save to say to the noble Lord, Lord Howie of Troon, that speaking as a member of the Nolan Committee I exonerate him fully in relation to the lunch which he is to attend tomorrow and I hope that he deservedly enjoys it.
Like other noble Lords who are to speak in the debate, I wish to express my appreciation to the noble Lord, Lord Elibank, and the Members of Sub-Committee B for a report which is highly informative on a subject the details of which are not widely known. It is one of the few subjects about which I know a little and I believe that the report is full of sound common sense.
The noble Lord, Lord Elibank, invited me to give evidence to the sub-committee, which I was happy to do. He asked me some extremely pertinent and succinct questions and when I reread my evidence I was rather dismayed to see how long-winded were my replies. I shall try to do better this evening. I shall concentrate on one or two aspects of the report relating to television and my noble friend Lord Falkland will concentrate on the film side of the report about which he has considerable expertise.
My starting point is that broadcasting is more than an important part of a high-technology and high-growth industry. More than any other communications medium, it shapes the social values and cultural climate of our society. How could it be otherwise when, according to the statistics, people spend on average 23 hours per week in front of the television screen? I congratulate the noble Lord, Lord Inglewood, on his new appointment. I know that his Secretary of State is especially conscious of the impact of television on children and on their attitude to the world in which they live.
Therefore, I begin by saying how glad I am that the report chided the commission on overlooking in the Green Paper the vitally important role of public service broadcasting. The committee said that public service broadcasting,
"entails secure funding at an adequate level by national governments".
I commend those words to the new Minister on the Front Bench at a time when the Government are drafting the new BBC Charter and Agreement.
It is dangerous for European Union governments to get into the mood of believing that the so-called "digital revolution", with its potential of up to 500 channels, will absolve them from the responsibility for the quality of their traditional public service channels with their deep-rooted and familiar appeal. The report is absolutely right to say that you cannot, Canute-like, turn back the tide of technology. But you can harness a tide and navigate on it to a consciously planned destination. There is no need to drown in a tide of technology.
The new cable and satellite channels at their best are a complement to the balanced diversity of the public service channels in western Europe. They can provide useful theme channels of 24-hour news services, special sports channels, special music channels and teleshopping channels; indeed, all that adds to the range
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of choice. However, it would be a disaster if they were allowed to drive public service broadcasting in Europe, as we know it, out of existence.
I venture a prophesy: when the day comes when there are potentially 500 channels at our fingertips with our remote controls I suspect that most of us will find that 10 or 12 of them meet all the normal needs that we have. In my judgment, our national channels can remain the heartland of that broadcaster's dozen—provided governments and professional broadcasters keep their nerve.
What then is the European Union dimension in all this? I believe that your Lordships' committee got the balance about right in paragraph 116 of its Opinion. There the committee argued:
"The primary responsibility for attempting to regulate the European audiovisual industry rests with Member States … The Commission's … role [is] helping to establish 'a framework in which the industry can flourish'".
My own views on where national policies need supplementing with Community policies are, I must say, set out most generously in paragraph 36 of the report. They do not include subsidising pan-European programming which, in my view, is best left to professional broadcasters and, in most cases, best left alone altogether. However, there is a role for the European Union to subsidise and fund new dubbing techniques in order to bridge the language barriers which are one of the inherent handicaps of Western Europe within the global economy.
There is a need for European Union law on cross-media ownership to supplement national law and prevent excessive concentrations of economic power. Very recently, Italy had a Prime Minister who owned half of Italy's television systems; indeed, he owned and controlled that half and used it both to become, and to remain, Prime Minister. Now, Rupert Murdoch is riding to the rescue with proposals to add an Italian province to his global media empire.
On another front, Mr. Murdoch's undoubted enterprise has given him a dominating position in encryption technology—that is, the little black box which unscrambles signals for subscribers to a particular channel. As those channels proliferate and develop, none of us wants to have a proliferation of little black boxes on top of our television set competing with the family pictures and the Staffordshire china. Turner Broadcasting System, which gave evidence to the committee of the noble Lord, Lord Elibank, was absolutely right to say that what was needed was,
"a standardised European encryption system".
However, if there is to be such a standardised system, what is also needed, in terms of competition, is that European competition law must ensure that programme providers should not also be the gate-keepers deciding the level of the toll to be paid by potential competitors. There is a major issue here both as regards the United Kingdom and the European Union as a whole.
Then there is the question of the present quota system to which the noble Lord, Lord Elibank, referred. Your Lordships' committee made a strong case for the abolition of those quotas at European level. However, it should be remembered that programme quotas have

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always been deeply embedded in our national legislation; that they remain there; and that they have in fact worked very well. The quota issue is a difficult and complicated one.
I would prefer to tackle the problem from the other end. Rigid quotas, particularly at the European Union level, undoubtedly deter new entrants, and that is wrong. That has been BSkyB's strongest case for a period of exemption from the programme obligations of our domestic broadcasters who are its competitors.
I do not want to intrude into that private quarrel which has been going on between Channel 4 and BSkyB about their respective contributions to the British film industry. However, the figures that were put forward recently by Channel 4's Director of Programmes, Mr. John Willis, were revealing. He claimed that BSkyB's income in 1994 was 50 per cent. greater than that of Channel 4. Yet, Channel 4 invested £179 million in new productions—85 per cent. of its total programme budget. But BSkyB, according to Mr. Willis,
"has made only negligible investments in new commissions … preferring instead to recycle existing material".
BSkyB's own enterprise—and it has been enterprising—and also its privileged, protected position has now put it in profit. Surely the time has come in next year's broadcasting legislation to level that playing field in regard to original programme making.
I was much attracted to the proposal put forward to the committee by the witness from Turner Broadcasting System for a European policy for the new cable and satellite broadcasters that would be fair also to traditional broadcasters; namely, an investment quota based on net revenues for original programmes. The committee rather dismissed that idea feeling that it would be difficult to monitor. I believe that fear to be exaggerated. In an industry that is well accustomed to being monitored pretty closely for levies, and so on, I should have thought that it could be adequately monitored.
I have one final word to say about the global sales potential of the European audio-visual industry because, as the noble Lord, Lord Elibank, said, that is of great importance in terms of potential employment. The BBC is proud to be Europe's largest exporter of programming around the world. Of course, that is building on the splendid reputation of the BBC World Radio Service and it is now a world television service. In India, for example, its success is rather embarrassing and it has become a more popular television service than the Indian National Television Service. That does great credit to the BBC.
Commercial television is also expanding its worldwide sales. ITV's domestic strength lies in its regional companies, but 15 separate companies, which can be a richness for us on the domestic front, can be a handicap in terms of international selling. I notice that Mr. Ward Thomas, a veteran of ITV and now chairman and chief executive of Yorkshire Television, has been seeking to correct that by setting up a joint venture of a number of all ITV companies. There is the prospect of a single overseas sales consortium of ITV companies to
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match the BBC's sales efforts. All that would undoubtedly be in our national interest within the European audio-visual industry.
However, the challenge for both the BBC and ITV is a formidable one. The United States dominates the international market place, but it very much likes to have it both ways. The United States complains bitterly about any European protectionism. However, at the same time there are elusive and effective non-tariff barriers of practice and habit by the great American networks which make it extremely difficult for European broadcasters, and even for British broadcasters without a language barrier, to penetrate that marketplace. I am therefore rather cautious in believing that the global marketplace for audio-visual programme material, while not unimportant, will be a great saviour of the western European economy in the future. I would be careful about that. However, having said that, Britain within the European Union starts with a big advantage in the international audio-visual marketplace of sharing a world language with the Americans. Certainly it is much in our national interest to make the most of that advantage.
5.30 p.m.
Lord Bridges: My Lords, I speak in this debate as a member of the Sub-committee which prepared the report before the House. I first wish to pay tribute to the noble Lord, Lord Elibank, for his admirable chairmanship of our committee and for the skilful way in which he conducted it. We are all greatly in his debt.
What we are dealing with here is a small corner of a large subject. This is, as we all know, the age of the moving image and the screen. The printed page, which has been the means of diffusing knowledge and circulating information ever since the invention of movable type, is giving way to this new form of media. We all know this to be true and accept the concept; but the full dimension of the change is rather more difficult to grasp. Those of us who were brought up on the study of books and taught to operate in a literary society do not find it easy to transfer to the new technology and all it brings with it. I suspect, too, that governments suffer from something of the same difficulty. Their responsibilities are changing also, and it is not easy to recognise at first sight how governments should respond to the new circumstances. I suggest that the first step for us all, whether individuals or governments, is to accept the famous dictum of Marshall McLuhan that the medium is the message, and that this has been fulfilled more completely than he could have imagined at the time of his death in 1980.
What, then, is the role of the European Union in forming policy on audio-visual matters? The Commission's paper does not perhaps address this question directly. The Department of National Heritage deals with some of the individual issues in its recent glossy document replying to the Select Committee in another place; but the previous Secretary of State's reply to our report also avoids discussion of that central question. I do not blame him for that as the definition and allotment of responsibility, both within our country and in relation to the European Union, is not at all

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simple. However, there is one aspect on which the situation is reasonably clear; namely, the responsibility, which our Government have for long exercised, over the supervision of television in this country. The statutes put responsibility for the terrestrial channels clearly in the hands of government in the last resort. The Government are responsible for broadcasting policy and that is relevant to our policy in Europe.
However, the Government have a much more limited interest in the world of the film, which is regarded in this country much as any other form of industry. There is broad surveillance, benevolent supervision and sometimes a little money. However, as the noble Lord, Lord Elibank, has remarked, in continental Europe the situation is different. National film production in France, Italy, and I believe also in Spain, is regarded as a vital part of their living culture, which they take significant measures to promote and protect.
I also note that the treaty on European Union has brought some fresh responsibilities to the Community. Previously, cultural issues were not part of the Treaty of Rome. This was altered at Maastricht, when Article 3 of the treaty—the article which sets out the broad activities of the Community—was enlarged to include the following phrase,
"a contribution to education and training of quality and to the flowering of cultures of the member states".
If one is not clear what this means, one may turn to Title IX of the treaty, which sets out, in Article 128, a general description of the cultural activities of the Union in somewhat less elliptical language. These new responsibilities of the Union are worth bearing in mind as the Green Paper is one of the first policy documents produced by the Commission in the cultural field since the Treaty of Maastricht.
The general view of the Sub-committee on this broad question of who does what in the cultural field was that the chief role of the Community in the audio-visual sector should be to improve the operation of the market. We had no confidence in the quota system for films shown on television, nor in levies on cinema tickets to finance film production. However, we supported the practical emphasis of the MEDIA II programme, which has now been approved by the Council, although at a rather lower level than first proposed by the Commission. We also suggested some improved tax relief to encourage film production in this country. With the exception of that latter point, the Government reacted positively to our report.
I should like to add two more personal comments. First, I want to oppose the argument advanced by many that the progress of technology is so inexorable that government policy in this area should be absolutely minimal. It is argued that any attempt to thwart, control or divert the limitless possibilities of the new technologies is a waste of time—in other words, technology wins. Like the noble Lord, Lord Thomson of Monifieth, I believe that this overstates the case. Government do have a direct responsibility for television, and can, if they choose, determine the way
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in which telephony, television and video-on-demand relate to each other. This looks like being a crucial factor in Europe as well as in our particular market.
The underlying cause of change in television is the extensive increase in the number of channels as the result of digitalisation and satellite broadcasting. It is my observation that television is an area of life where Gresham's Law operates. Diversity does not in itself encourage quality: rather, bad programmes drive out good. Here I beg to disagree with the Government's evidence presented to the committee. In particular I suggest that much more should be done, in Europe and on our own initiative, to exercise some degree of supervision over satellite broadcasting. I suggest that it would be in our own interest to do that, and to exercise some control and restraint over the number of digital channels made available for terrestrial broadcasting in this country. Failure to act will inevitably undermine the existing networks in this country—both BBC and commercial. As these stations are among the very best in Europe, we should not underestimate the danger and the effect.
It may be the case—it is a melancholy thought—that the golden age of television in this country is now drawing to its end. However, we do not want and do not need to accelerate its demise by accepting the proposition that everything which is technically possible must be encouraged. The example of American television, with its great diversity of channels and almost uniformly low quality, is the dreaded example which we seem bound to follow on our present course. I suggest that this is a field where there is a European dimension, particularly as regards the use of satellite television. We would do well to encourage some greater activity at the European level. We could begin by doing more to stop the diffusion of pornographic television programmes beamed at this country from continental Europe. It is one thing for a member state to allow such programmes in its own country, but quite another to permit their diffusion abroad. I recognise that the Government have achieved a satisfactory result in the case of the "Red Hot Dutch" programme, and I have read in the newspaper that they are taking measures as regards the new threat of the "Erotica" programme which is beamed to this country. I believe that more European powers, rather than relying on the goodwill of other broadcasting nations, would be in place here.
My second and final suggestion concerns media concentration, covered in paragraphs 143 and 144 of our report. This matter, although mentioned in our report, was not covered in the then Secretary of State's reply in his letter of 6th June to the chairman of the Select Committee. I believe that there have been developments since our report was written, and I understand that some further action by the Government may now be proposed, and I welcome that.
My purpose in referring to this matter today is to point out that we are not the only country in Europe where this issue arises. Obviously, as the noble Lord, Lord Thomson, said, it is an issue of acute political concern in Italy, even after the recent referendum there. The Sub-committee took evidence from Frau Junker, the rapporteur of the European Parliament on the Green Paper. She spoke clearly to us about the need for both

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European and national legislation on media concentration so as to place some limits on the operations of large international media companies—she named Bertelsmann as an example—and to prevent undue concentration of power in their hands. Such legal controls already exist in the United States, where they have existed for some years.
If we look at the wider scene internationally, raising our eyes for a moment from the anxieties that may exist about the position here, it will be seen that the difficulty is widespread. The best approach may be, as Frau Junker suggested, action at both international and national level. It would be easier for European governments to take some limited and responsible measures to prevent abuse in this area if it could be shown to follow from a broad understanding in the European Union of the nature of the problem and the best way of handling it.
The Green Paper touches on only a few of the large issues which arise when we consider this important subject. I am certain that its international aspects will continue to grow. I hope that the Government will be able to play a positive role when the next version of the paper is presented by the Commission.
There is perhaps some lingering hesitation on our part whenever questions of European cultural policy arise. In the past—and I speak of something which happened a good many years ago—I noticed that our representatives became uneasy when the subject came up for discussion. That impression was confirmed when the representative of another European country asked me why it was that we seemed instinctively to react like an infamous Nazi leader at the mention of the word "culture". That person, it will be remembered, once said that when he heard the word "culture" he reached for his revolver. I was taken aback by that remark and had to explain, rather slowly and painstakingly, that the two situations were entirely different. The Nazis knew exactly what was intended when the word "culture" was mentioned, and they disliked the concept exceedingly; whereas in Britain the word often conveys little meaning, only recently having arrived in our language. For those above a certain age it might be taken to mean a fungus which grows on a saucer in a laboratory. To underline my point I introduced my friend to the work of T. S. Eliot, and in particular to his perhaps insufficiently known work with the revealing title Notes towards the definition of Culture published in the 1950s.
We have come a very long way since then and we now understand what the word "culture" means. All of us who have heard the noble Lord, Lord Inglewood, speak in this House in the past two years will feel sure that he will prove a confident and clear-headed representative at meetings on European cultural matters. I am also hopeful that he will understand the importance of the European cultural dimension. We are part of that and can contribute to it and benefit from it.
5.43 p.m.
Viscount Mersey: My Lords, I thank my noble friend Lord Elibank both for chairing our committee and for initiating the debate. As the noble Lord, Lord Thomson
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of Monifieth, is on the Nolan Committee, I must at once, with great trepidation, declare an interest, which is that I have worked in film and television for 30 years.
I believe that all of us on the sub-committee found the Commission's Green Paper on audio-visual policy a bit of a handful because it is so diffuse. For a start, there is a huge difference between film and television. But if one extends the phrase "audio-visual" further, into Nintendo, computer games, twisted pairs, video on demand, digital compression and the like, it becomes as diffuse as shoes and ships and ceiling wax and cabbages and kings, almost too diffuse to debate. Therefore, in order to be vaguely helpful in this debate I shall confine my remarks to traditional film and television, but even those two are completely different.
We start in the United Kingdom with this difference. As the noble Lord, Lord Thomson, said, we watch 23 hours of television a week. We watch two films a year. The money matches the habit. The BBC's income is some £1.5 billion a year. The British Screen Finance Corporation produces about £3 million a year, and that is not a gift, merely a loan. Therefore, I take issue with the response to the Kaufman Report by my right honourable friend the former Secretary of State for National Heritage in the glossy document which has just been referred to by the noble Lord, Lord Bridges. In that document the Government paint a glowing picture of the film industry showing how the number of films and admissions have doubled since 1984. However, they start from such a low base. In 1984 we watched only one film a year. Now we watch a mere two.
I almost prefer the cynicism of Michael Winner, who defines the British film industry as follows:
"It has three strands. The 'Carry on' series, the 'Doctor in the House' series, and the Hammer House of Horror".
That is all, qua industry. We have made many brilliant single films: "The Third Man", "Chariots of Fire", "The Bridge over the River Kwai" and the two "Henry V" films by Olivier and Branagh. Many of them win awards. Fewer of them make money. To my great dismay I have just discovered that our beloved Ealing comedies lost money and bankrupted Michael Balcon's Ealing Studios.
The Americans control our distribution system. It is unfair, but it is a bitter reality. In 1993 American films captured 94 per cent. of our box office receipts while we captured a paltry 2.5 per cent. The Americans may have a monopoly of distribution, but they are very good at exporting product. Other European film industries resemble our own. French, German, Italian and Spanish films just about scratch a living in their own countries, but they do not do as well as American imports. French films are highly subsidised. If my noble friend Lord Harmar-Nicholls, who interjected while my noble friend Lord Elibank was opening the debate, happens to read my speech he will find that the French film industry produces many a lame duck of a film which never even reaches a French screen. A staggering 60 per cent. of French films arc never shown anywhere. They are simply too boring. The top 10 films shown in France are mainly American.

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What Europe can and does do well is to service American films. Last Wednesday I was at Shepperton. The place was alive with activity. The main film they are shooting there is "Muppet Treasure Island". It is occupying two and a half stages and the model theatre.
In 1993 we attracted to this country eight American movies with a total budget of £176 million. Some say that if we gave tax incentives we would attract even more, as does the Republic of Ireland. However, tax incentives are not everything. Ireland has as yet no proper studios, very little equipment and no technicians as good as our own. A senior technician such as a lighting cameraman cannot be created overnight. From my experience, I regard four years as a minimum in which to train him or her.
Ireland attracts what is called internationally mobile product—films which can be shot anywhere and which are not about the country they are shot in. The noble Lord, Lord Gregson, said in our committee that Ireland is just a jobbing shop. That is the situation at present, but Ireland could build studios, buy in equipment and train lighting cameramen. So we could easily lose that product to our friends across the Irish Sea, and we must be ever vigilant. It is for that reason, as my noble friend Lord Elibank said, that our committee recommends 100 per cent. first year tax write-offs and the simplification of withholding tax on the earnings of foreign entertainers working on films in this country.
Perhaps I may now turn to television. Most of Europe has a healthy home industry simply because people prefer to watch home products at prime time. No American programme can beat "Coronation Street", "Eastenders" or "The Bill". We cannot, of course, export these very British products to the Continent; and nor can the continental countries export to us their national prime-time soaps.
It is an interesting sideline, however, that we can export a format. Thus we export to Germany the plot of "The Bill". The police become the Polizei; London becomes Hamburg, and the programme is called "Stazione". There are also Dutch and Spanish versions of "The Bill". Similarly, the Australian series "Neighbours" is made more Teutonic and retitled "Nachtbaren".
I have dealt with domestic drama. There are other programmes which naturally cross all frontiers as they do not rely on dialogue: natural history programmes, sporting events and music.
However, what will never work is the so-called "Euro Pudding": a real co-production with German actors, French sets, Austrian pastimes and Scandinavian locations. That is sometimes rather cruelly called "Hermann the Riviera Vet on Ice". Naturally, it is doomed. The strength of Europe is its cultural diversity.
Even in the television field some transatlantic figures should cause us concern. First, America exported to Europe 4.1 billion dollars of television products, but Europe exported to America only 360 million dollars worth. Secondly, there is the sheer scale of the American operation: 104 episodes of "MASH" against a mere 12 of "Fawlty Towers".
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The Americans are masters of both film and television. There is no other way of explaining why Germans will watch American but not French programmes; French will watch American but not British programmes; Spain will watch American but not Italian programmes. How can it be that MTV, the new American pop music channel, is Pan-European and regularly reaches more homes than any other channel—a staggering 60 million?
By now noble Lords must have realised that we do not believe that there ever can be a European audio-visual industry to rival that of Hollywood and that the Green Paper is misguided if it suggests that there could be in the shape of some Euro pudding. As my noble friend Lord Elibank said, we are opposed to quotas. An insistence that a certain percentage of film and television must be national or even European merely encourages the second rate. We are opposed to subsidies. Those encourage people to make films which are so bad they will not be seen. There is evidence of that in Germany as well as in France.
However, we favour subsidiarity. An expansion of that theme is set out in paragraph 116 of the opinion of the Committee. I believe that paragraph to be the nub of our 290 pages of report and evidence. I was pleased to hear that the noble Lord, Lord Thomson of Monifieth, and the noble Lord, Lord Bridges, felt the same way. Perhaps I may conclude by quoting some of the report. The heading is The rôle of the European Union, and paragraph 116 states:
"The primary responsibility for attempting to regulate the European audiovisual industry rests with Member States, and is exercised at national and regional government level and by the broadcasters themselves. For practical reasons, and in accordance with the principle of subsidiarity, the European Union has a less direct part to play".
The paragraph concludes:
"The number one priority for the Commission in this area must be the creation of a level playing field so that the European audiovisual industry can achieve its potential".
And that, my Lords, is all that the Commission should do.
5.54 p.m.
Viscount Chelmsford: My Lords, I begin by commending the Select Committee for setting out the background to the report and for summarising the evidence so well. The report employs the usual flair of all reports of the Select Committees of this House—a flair which one compares with the long-winded Eurospeak which so often comes my way and, I am sure, the way of noble Lords concerning reports from Brussels, not least those which originated in the UK.
I wish to concentrate on the television side of the report. I am not close enough to the film industry to comment. I have no difficulty in agreeing with the 28 recommendations in the report in so far as they relate to television. However, I should like to identify and discuss two other areas. The first has already been touched upon by the noble Lord, Lord Thomson of Monifieth, on a rather higher level than is my intention.
I begin with conditional access and the associated problem of encryption. That is the first policy issue currently being debated by the EURIM working party

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on audio-visual matters. The Select Committee heard some evidence on this issue but very much less than I would have expected considering the unhappiness that it engenders in certain parts of the industry. The key question is: does BSkyB have a monopoly on encryption and thus on conditional access? That is a major part of the debate. If noble Lords wish to decide the answer for themselves, and have not already done so, I recommend the reading of BSkyB's evidence to the Select Committee on that point. It is a fascinating story.
I shall now indulge in matters which are commercial. I work with no commercial company. I take no money from any corporate body. However, I work with EURIM, for no money, and EURIM is an all-party group. Therefore, I hope that I am reasonably unprejudiced.
The working party's opinion—it was formed before BSkyB joined us, as it did recently, and has still to be ratified by a full meeting of our members—is that the TV market place is at the least Pan-European if not worldwide. It has noted that there are two other European encryption competitors: Canal Plus and Deutsche Welle TV. It also has evidence to show that digital broadcasting has quite separate problems from those of analogue broadcasting.
In its evidence to the Select Committee, BSkyB claims that it has competitors in analogue conditional access: satellite via the other European encryptors, to which I have just referred; satellite with advertising revenue; and the 22 UK exclusive cable channels. We have just had further dispute in that area with two of the cable companies complaining bitterly. The subject is now being reviewed by regulators.
The EURIM working party is satisfied that when we achieve digital transmissions the position on encryption is quite different. As some noble Lords may know, Digital Video Broadcasting group has European agreement to a digital encryption system from all the EU broadcasters other than UK terrestrial broadcasters—that is, the BBC, ITV and Channel 4. The DVB has produced what is called a code of conduct, an agreement on fair access to allow all to have open access into the encryption system with separate smart cards on the single box. However, so far as I know, the UK terrestrial broadcasters may still be rejecting that. Why that is so, I have yet to ascertain.
There is no evidence to the Select Committee on digital encryption from either the BBC or the ITA. However, there is evidence from Channel 4 which implies that there is no difference between BSkyB's analogue encryption monopoly, so called, and that which will follow regarding digital encryption.
The BSkyB memorandum suggests that digital encryption is different, that ownership is undecided and that it accepts the DVB solution. EURIM has heard evidence that there are two alternative digital technologies, symulcrypt and multicrypt and that as yet they are too immature for positions on potential commercial ownership or profitability to be taken. We read that on 9th June in Paris the BBC, in accordance with other broadcasters,
"laid the foundations of a joint strategy which they presented as an 'act of faith'"
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It is a little difficult to know what that strategy was. I assume that they were presenting it for the Telecommunications Council of Ministers on 13th June.
So far as I can see from the reports available to me, the Telecoms Council on 19th June went reasonably well:
"Fine progress is being made with the procedure designed to adopt EU standards for TV broadcasts so as to avoid a veritable explosion in the number of decoders coming onto the market … Ministers took note of the amendments"—
made by the European Parliament—
"during their June 13 Telecommunications Council meeting and after the Member States' Permanent Representative to the EU … have given the matter more thought, the Member States are expected to signal their agreement to the Directive".
The report states in slightly more detail later on:
"Within the DVB enclosure, the participants have managed to reach a compromise proposing that those offering subscriber-only services (Canal +, BSkyB, Filmnet and so on) would be allowed to provide closed systems, on condition that they permit other operators to use their systems. The DVB also undertook to develop a common interface to allow the use of a single decoder that could be accessed by several access cards".
That sounds fine, but in the Economist there is reference to the fact that on 13th June the UK Government were the sole government rejecting the proposal. Unfortunately, the article does not say what was rejected by the UK Government, but it means that there is still quite a lot of confusion as to where we have got to. Obviously we all wish to see a fair trading position and a fair trading environment for our UK terrestrial broadcasters. It is difficult, though, to know how to respond unless we can understand the problem. Perhaps in his reply the Minister will be able to assist us. Obviously we are concerned that we should allow solutions to develop. If it is too early for that to happen, then it would be dangerous for us to agree on a final solution which will be a one-box solution before such solutions have developed further.
The second issue on which I wish to touch is multimedia and the regulators. EURIM wrote a paper on the G7 to government and the EC which supported the need for the EU to work on level playing fields, as does the Select Committee. However, the latter seems in its recommendations to be content to point out the need to end restrictions on tele-shopping. In EURIM, we went further. We said to ourselves: "The first problem about level playing fields is that they come up against differing legal systems which does not help them much. Secondly, they come up against genuine attempts by nation states to retain their national cultures". Neither of those points makes it easy to achieve level playing fields. Then we said: "Multimedia is round the corner, but we had better see who is actually regulating the various elements of it". We found that there were rather a lot of EU nation state regulators. We are worried that while the multimedia may be converging, it will probably be some time after it has converged that the regulators converge. On top of that, we have the great opportunity for the Commission to add another layer of regulation and make the whole thing tighter.
I know that the Minister is likely to explain that the Government have already made a start on the issue by expanding the ITC's responsibilities. But I think that there is a long way to go. Setting up in multimedia

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involves a corporate in three separate directorates general in Brussels and in the UK it may need clearance from any of the following: the DTI, the DNH, in some cases the Welsh Authority, Oftel, the ITC, the BBC, the Radio Communications Authority and the Radio Authority. If we want to sell something in the multimedia, we could find ourselves involved with the following bodies which are all connected in some way with standards: the Broadcasting Complaints Commission, BABT, ICSSTIS, the Broadcasting Standards Authority, the Advertising Standards Authority, the Trading Standards Association, the Video Standards Council and the Data Protection Registrar.
Of course, multimedia products evolve gradually. Indeed, if we define multimedia as including such things as exist today as ISDN, coaxial cable and compressed analogue signals, then multimedia products are already evolving. The point is not that regulators need to converge this instant but that we need some plans to be developed to allow us to achieve regulatory convergence approximately in line with multimedia convergence so that the UK's interests in leadership and profitability in the field are not damaged.
Regulation inhibits innovation, but if we have no regulation then we get monopolies and unlevel playing fields. Once again, we are back to a balance. I recognise the difficulties in achieving such an appropriate balance between the rules and the freedom. I suggest that the UK's overall costs of regulation need to go down, not up, and that where appropriate decisions on regulation are in doubt the scales should fall on the side of freedom, due to our need to be as competitive as possible.
I have spent much time on two aspects of what could loosely be called infrastructure. Perhaps I may end by saying that recently I was given a little chart. It had two sets of boxes. There was the technician's view of how to reach the consumer which had 10 separate boxes between content and consumer. All were properly identified with the kind of things I have been talking about today. Below that was the consumer's view. It had three boxes: content, interface, consumer. So there are different ways of looking at the matter and it is getting the content to the consumer that makes the profitability.
6.7 p.m.
Lord Brain: My Lords, I congratulate the noble Lord, Lord Elibank, and his committee on a comprehensive report. When we consider that there are 51 paragraphs of recommendations, they obviously studied the matter in great detail. The noble Lord started by saying that in the beginning he did not have a great deal of understanding of the industry but he now understood more. When we were discussing what became the Copyright, Designs and Patents Act 1988 I started in the same position. I have learnt a little more and that is why in a minute I shall speak on copyright. I leave to other speakers, who have much more knowledge of the film and television industry, all the other aspects of this excellent report.
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It should be recognised at the start that the Green Paper and other documents on which the committee's report is based make no mention of copyright as a problem at this current state of the game in the European film and television industry. That is hardly surprising because, perhaps rather like our own government departments, DG X, which looks after the film industry, is at a couple of arm's lengths from DG XV, which looks after copyright. Therefore the fact that DG XV is in the process and may even have got out the first draft of a Green Paper on the problems of modern digital IT networking technology and copyright may not have reached the Department of National Heritage and certainly was not given in detailed evidence to the committee.
The more detailed discussions on copyright are covered in the report at paragraphs 73 to 77 and in the recommendations at paragraphs 145 and 146 and, with notes, at paragraphs 185 to 187. I declare an interest in discussing copyright in that I am a member of the British Copyright Council, a body which represents many of the interests of people who are classified as talent in the report. I myself have no work covered by copyright in the area under discussion in this debate.
The committee considered copyright to be an important topic. I refer to page 53 of the evidence. I suspect that was as a result of the British Screen Advisory Council's written evidence. It therefore seems most unfortunate that in referring in later pages to verbal evidence from the British Screen Advisory Council, the written evidence was not tested to discover what was meant about the feelings of the talent unions. I am afraid that I must contrast that with the evidence taken immediately afterwards by an organisation called PACT (pages 77 to 79), some of which was given by Sophie Balhetchet, even though in written evidence it is made quite clear (page 73) that she was much involved in damage limitation in the case of the harmonisation of copyright with the Commission. This indicates one of the problems that the committee may have had in trying to come to grips with the copyright situation.
Also—I rather regret this, because it slightly changes the balance of the case—the committee appears to have ignored the evidence (on page 35) of Channel 4 that current EU legislation is about right for the present situation, and, on page 39, in response to Question 121, that it is now happy with the amount of copyright legislation that is in force in the EU, and that it is the future development of the new technologies that is important. I shall not go on in great detail now; I have 20 further references to copyright in the evidence section of this report. Largely, the producers' point of view is presented. It is my regret that no evidence was called for from what I call the talent point of view.
It was said earlier that producers are not recognised in copyright law in this country. The author is the first holder of copyright. I quote from the 1988 Act:
"In this Part 'author', in relation to a work, means the person who creates it. That person shall he taken to he in the case of a sound recording or film, the person by whom the arrangements necessary for the making of the recording or film are undertaken".

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In an amendment to the Act which is in draft at the moment, those words are used in another section that is to be inserted with, in brackets after them, "film producer". I think that the committee was misled if it believes, as it reported in paragraph 145, that,
"The need to update copyright legislation … should be used as an opportunity for the European Union to reconsider the legal status of rights holders".
In this country at least, part of the European Union, they are rights holders.
Much has been made of the difficulty of assembling a package so that it can be retailed on afterwards to people in other markets. Again, if evidence had been taken on the talent societies, I believe that the committee would have discovered some bodies known as collecting societies, or licensing and collecting societies. These can represent authors, musicians and other groups of copyright owners. Their function is to administer the copyright rights and the intellectual property rights of individuals, and negotiate their extension if necessary and, more importantly, in Europe—unfortunately, again, in the draft legislation in preparation by the Government, which I hope will be amended—the collection of the rental and lending rights of that very important sector, mentioned by the noble Lord, Lord Elibank, video recording. It is much to my regret that the government department involved does not at the moment seem to realise that its idea that the producers should collect the equitable rights to remuneration from the video recording is vested in the producers. As the evidence of the noble Lord, Lord Elibank, seems to indicate, that gives the producers a greater control over matters. But do the Government realise the problems?
Let us take the example of the producer of a video in this country. Perhaps it is not difficult for him in this country to go round the video shops, discover how much the video is being rented out, and reach a conclusion as to what the equitable remuneration is. But let us suppose that the same video is exported to, let us say, Spain, where there are quite a lot of English speaking residents. How will he go round the video shops there? If the task were to be given to a collecting society, the society already has the established systems for controlling these matters and, through an organisation in Europe, the International Council of Societies of Authors and Composers, it has the facility for working with similar societies in Spain or anywhere else which can monitor the rental of videos, and equally in due course the use of satellite and cable. Therefore there are problems that I should have liked the committee to investigate. However, we have to look forward.
I wholeheartedly agree with the real nub of the recommendations of the committee, which I feel is best summarised in Recommendations 185 to 187. I wholly agree that,
"It is essential that European copyright legislation should be revised to take account of technological developments and consolidate the legal status of producers"—
I would add the words "and others"—
"as rights holders".
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I believe that it can be done by the greater use of collecting societies. Recommendation 186 states:
"We support development of a pan-European broadcasting rights market allowing the acquisition and pricing of rights on a Europe-wide basis".
I wholeheartedly support that. After all, I realise that America is a one-language nation. But it is only the same size as the European Union. I am sure that that could be managed. Finally—this is a matter that I found very interesting in the evidence and the report—Recommendation 187 states:
"Piracy and unauthorised access to audiovisual material are the most important problems affecting the audiovisual industry".
The British Copyright Council has a working party looking at all aspects of piracy and unauthorised access to any form of network, the Internet or whatever. We have been most interested by some of the evidence given to the committee, and we shall follow it up with those who gave evidence. I congratulate the committee again on a very good report. I am sorry that I had to criticise a particular aspect. I also congratulate the Minister who is to reply on his new appointment.
6.19 p.m.
Lord Bancroft: My Lords, I begin by adding my congratulations to those of previous speakers to the noble Lord, Lord Inglewood on his new appointment. We look forward very much to seeing the noble Lord wearing his new hat on the Front Bench.
I hope that my noble friend Lord Brain will forgive me for not following him on copyright and related matters. The European audio-visual industry—if one can conceive of such a wide and disparate being—is an enormous prairie on which many buffalo still roam. As has been demonstrated this afternoon, there is an abundant supply of technologically equipped hunters hanging on the flanks. By this stage in the debate most of my animals have been shot. I am a non-expert member of the sub-committee (on which it is an education to sit under the wise chairmanship of the noble Lord, Lord Elibank). Accordingly, I select only one or two badly wounded animals to pursue. By "badly" I infer that their wounds have been severe, not that the aim has been poor. First, I turn to the continuing argument about whether or not this is a sector in the European Union which is a business with a cultural dimension or one with predominantly commercial objectives. Therefore, in trying to help the industry, should we be looking for cultural schemes with economic side effects or economic schemes with cultural side effects? The sub-committee had little difficulty in concluding that the primary, but by no means the sole, emphasis should be on the business and economic role.
The noble Lord, Lord Elibank, has reminded us of the hugely important employment aspect. Both he and the noble Lord, Lord Thomson of Monifieth, have given us a health warning about forecasts of employment. Nevertheless, it is perhaps worth mentioning that we were told by a formidable German witness that the audio-visual media market was in his view the growth market. The numbers employed in that industry had increased from 430,000 in 1985 to 940,000 in 1993. For

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the Union as a whole, the Economic and Social Committee has set a target for the creation of 2 million new jobs in the audio-visual sector by the year 2000. Even if one takes that with the heaviest possible saline drip—which I am sure one should do—those are big figures in terms of useful future employment. We are discussing big business, not a cultural cottage industry.
My second target is film. That has also been the target of other noble Lords this afternoon. It is a bit of a paradox that the European Union has a strong television industry but a frail film industry. With respect to the noble Viscount, Lord Mersey, who made an extremely informed contribution, this country is an exception in the Union in that it has a recovering film industry, though from a very low base. Therefore, we do not view with quite the same anxiety as others—perhaps we should—the fact that American films fill 80 per cent. of the Union's market and that falling cinema attendances in the Union, though not here, have failed to affect the showing of US films.
I welcomed the former Heritage Secretary's enthusiastic, though in places guarded, response to our sub-committee's recommendations and those of the sub-committee in another place. Like other speakers, I am nonetheless grieved that he has been more guarded than enthusiastic about some of the tax proposals, particularly the introduction of 100 per cent. first year write off for investment in qualifying British films.
My third and final quarry is to do with broadcasting. As the noble Lord, Lord Thomson, has emphasised and the report records, the Commission's Green Paper almost totally overlooks the vital importance of public service broadcasting. Our report encapsulates the point in paragraph 121:
"It seems likely that more than ever before public service broadcasters will have a heavy responsibility in pointing the way to standards of high quality and in presenting national and regional cultures in Europe to their national and regional audiences. The obligations and corresponding privileges of public service broadcasters must be safeguarded. This entails secure funding at an adequate level by national Governments".
I would print the last brief sentence with ail the solemn emphasis of capitals.
It is of interest to note that in its written evidence the BBC reported that it remained the leading British exporter of television programmes, accounting for 70 per cent. of all such exports, and that with a positive trade balance of about £50 million it was the largest production house in the world outside the US and Japan. Accordingly, it is quite reassuring to learn from his response that the former Heritage Secretary agrees with the importance that we attach to public service broadcasting. It is also good to see that he agrees that quotas should be eliminated or phased out in the near future.
The noble Lord, Lord Elibank, mentioned the modesty of the MEDIA programme. I believe it would be a little churlish not to acknowledge that the former Heritage Secretary at least partially took the sub-committee's advice and negotiated an increase in the MEDIA programme from 200 million ecus in phase 1 to 310 million ecus in phase 2. We would have much preferred 400 million ecus. But perhaps the most
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important statement of government policy is tucked away in the penultimate paragraph of the Government's flamboyantly produced response to the report of the sub-committee in another place. My noble friend Lord Bridges referred to it, perhaps implicitly, in his thoughtful speech. That paragraph refers to the creation of a new team in the heritage department
"with a specific remit to sponsor the audio-visual sector, which will augment the existing film sponsorship function and help to ensure that the Government properly understands the concerns of the industry and the difficulties confronting it."
That is a very important statement. Among other things, it is further confirmation of a turn in the ideological tide. Out of respect for the politically dead, I refrain from referring to a U-turn. Just as the d-word—devaluation—was banned from the Government's papers and lips for two years in the mid-1960s, so the s-word—sponsorship—was banned for the whole of the 1980s. This welcome reversal of the Government's industrial policy is further confirmed in the flamboyantly produced paper that I have waved before your Lordships. That reversal was foreshadowed by the then President of the Board of Trade in the public affirmation of his postprandial interventionism of a year or so ago, which all of us will recollect. We must all devoutly hope that he eats well and often in his new incarnation as first Secretary of State and Deputy Prime Minister. We must also hope that the new Heritage Secretary is not on a diet.
6.30 p.m.
The Viscount of Falkland: My Lords, I too congratulate the noble Lord, Lord Elibank, and his committee upon producing a most interesting document and also upon asking so many pertinent questions, to which they received some fascinating replies. So carried away was I that even when Mr. Cazès of Lumière was giving his evidence I found myself mouthing his words in a French accent; so persuasive was his evidence.
Incidentally, I was interested and indeed horrified to be reminded by Mr. Cazès that his company, Lumière, had acquired the library of EMI through Cannon and various other channels. That represents 30 per cent. of our total British film archive. It reflects rather badly on the Government's alertness and care of our film heritage.
Having said that, perhaps I may pass on. I thank my noble friend Lord Thomson for his flattering introduction. I am not an expert on the film industry. I worked in the film industry a long time ago. I must also declare that there are two close members of my family involved with the industry today; one on the commercial side in this country and one on the creative side in Los Angeles in the United States. So I am not short of advice—sometimes conflicting advice—as to the remedies for the European situation.
The European situation has developed over a long period. At one extreme, there is the British film industry—if I may so call it; it is not so much a film industry as an area of film activity—which has been overshadowed for countless years by the American film industry. We share the same language, which increases the difficulties of competing with that great nation of

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cinema producers, at least without them seeing the films that we make because it is only then that we make a profit. At the other extreme there is the German industry, described in the report by the eminent German film director, Wim Wenders, as being dominated by the lethargy of subsidies. Other countries fall somewhere in between those two poles.
It was somewhat unfair not to give credit to the French. As has rightly been explained, they have lavished a great deal of subsidy on their film industry, with the consent of the taxpayer. Theirs is indeed a film industry. It has reached the level of 150 films a year, though falling to about 80 films in recent years. They have found ways of introducing subsidy at almost every level of French film activity, whether it be the production of prints, encouraging exhibition, actual production and so on, with a certain amount of fine tuning. Quite recently they discovered—it cannot have been a surprise to them—that if production subsidy goes very far, one starts making bad films that nobody wants to see. Generally speaking, in order to get production subsidy in France, a film now has to have a box office success in order for subsidy to apply.
So with what is the European Union faced in regard to film? Quite frankly, it is faced with the new technologies, which are imminent and now brought forward to about two years away. The new technologies are digital, with the ability to dial for films on demand through a telephone line. There is also the liberalisation that goes with that. Understandably, that is seen as a threat, which explains the rather defensive tone used in its Green Paper and which was remarked on by several of those who gave oral and written evidence for the report. The natural reaction, like that of anyone who is feeling defensive, is that one should resort to the enforcement of rules which already exist and if those rules are not obeyed, sanctions must apply. That is alien to us in the British field.
To be fair to the European Commission, it has identified one absolutely crucial area for success in making major feature films which will create a profit; namely, that one needs enormous funding to do it. It is an extremely dangerous, hazardous and risky business. That is why the Americans on the west coast of the United States have been so successful for so many years. From the earliest times of cinema they have not only brought in a great deal of commercial acumen but also, if I may say so—it may sound surprising in view of some productions of today—a great deal of creative judgment and good taste. They have created a machine which produces fictional cinematic material of a very high quality. It is not easy to compete with them.
The reason why the Americans can continue with their economies of scale is that they have on tap the funding to finance the losers. The ratio of losers to winners is very high. Evidence on that was given to the All-Party Film Group. I see the noble Viscount, Lord Mersey, nodding in agreement. He knows as well as I do that when the American majors come and explain to the All-Party Film Group why they do not invest more money in this country, they say it is because they have such a business to make a profit with so many losses to set against so few winners. I am afraid that the
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explanation is a lot more complicated than that. Nevertheless, that is the situation that we face. The European Commission has rightly identified as of primary importance some way to create the kind of funding which will allow continuity of production. That is what makes an industry and sadly we do not have it in this country.
Some 10 years ago I made my initial contributions to a debate during the progress of the Films Bill in 1985. That Bill was introduced by the Government, effectively to get rid of the Eady levy and produce a new economic background to the film activity. Over the past 10 years there has been an enormous change. I look back at what I said at that time and take some credit for predicting that there would be a recovery of film admissions in this country which would stem from an improvement in the exhibition sector. That happened within two years of the Films Bill coming onto the statute book.
The mostly American and Canadian investment in the new multiplex cinemas completely changed the viewing habits of cinema-goers. Nevertheless, film-going remains rather in the territory of young people under the age of 30 and mostly those under 24. So between 1985 and now, film attendances have grown from around 60 million a year to double that number. They will probably be even more this year. That is a result of the multiplex development with very high quality prints, good sound, good comfort and American standards of service. I cannot praise our native endeavours in that area, although some have followed in the wake of those North American innovations.
Apart from that, British film activity has been very slight. The British Government cannot be blamed for not succumbing to the blandishments of various interest groups, not all of which have been absolutely in step one with the other. The arguments presented to them have been confusing and they have been doubtful about our ability to compete with the Americans in any meaningful way. If we have a film industry at all, as I said recently during a Starred Question in this House, we have to be thankful to the BBC and Channel 4 for it. Quite understandably, they produce films which will show well on television, but they have kept the activity alive. In order for us to make a real impact, as the Commission identified, we have to find some way to create the continuing funding which will raise the average budget of pictures, so that we can compete and produce the kind of films that people appear to want to see.
Perhaps I may jump to one of the conclusions of the committee in that regard. I was rather disappointed in its recommendations, though I agree with all of them. However, I fancied I detected again an anti-cultural note creeping in. It said that scripts for films were of absolute importance. I agree with that. It is the development of scriptwriting in this country which will make an enormous impact. But it is not at the script stage when one knows that people will see one's film; it is somewhat later. A good script will give people a proper basis on which to judge whether or not it is a film in which they wish to invest money. Big budgets will need

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good scriptwriting and, as happens in the United States, probably multiple scriptwriting with dialogue writers and specialist writers brought in.
I did not like the phrase "aesthetically squeamish". I am afraid that I have been guilty in the past—in the presence, unknown to me, of the Member for Hampstead—of saying that too many films were made for West Hampstead and Belsize Park. I was roundly castigated by the right honourable lady who represented that constituency when she crept in behind me at the meeting where I said that. I excused myself, probably not to her satisfaction, but I agree that there has been too much in the British industry at small budget level which has been parochial and pretentious in an intellectual way which has put off cinema-goers. However, to call screenwriters aesthetically squeamish is not accurate. They are not frightened of the appeals of major budget pictures; there just is not the money around to make them. We have the expertise generally to make good films. However, there is a great deficiency in the screenwriting because television has taken over in the writing skills area from screenwriting. Provided we have the money, we have the skills to make a decent contribution to compete with the United States in a much more fruitful way than we do now.
I am sorry that the Secretary of State for National Heritage left us. I did not feel, at the various meetings I attended, that he necessarily spoke the language, but I became more and more attracted to his approach. The more I read the report, the more I find I agree with what he said, to the extent that I even agree with something he said with which the committee disagreed. At his visit to the Bordeaux meeting of cultural ministers he suggested that added on to the responsibilities of the media programmes should be some way of encouraging exhibition. He was absolutely right. The committee did not agree with that.
Exhibition is fundamentally important, as I said in 1984 about our own case. It is certainly important in some of the countries of Europe. If we want to see a French film which one has heard is good—to be fair, a good percentage of French films are well worth seeing—it is much better to see it in London. The quality of the print and the sound will be better; the seat will be more comfortable, though admittedly, the price will be slightly more expensive and one will not obtain such a good meal afterwards. Nevertheless, the way in which our films are shown in the new theatres in this country is excellent and that is something to which the Europeans need to address further attention.
The evidence from the American producers was very fair in that they said more effective marketing, sales and distribution was absolutely crucial to improvement in the industry. That is something which is extremely weak in Europe. It cannot be artificially stimulated through subsidy; it must emerge through increased activity of the right kind based on good scripts, more funding and so forth. The less necessity there is for government intervention, the better.
I have said enough about the situation. I am not optimistic in regard to the ability of the European Commission vastly to improve the chances of a
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"Eurofilm". Cinema exhibition in this country is vital to the opening of a film. Films are made on celluloid stock and made to be shown in cinemas. If one wants to get the best flavour from a film, one should see it in a cinema. Only 20 per cent. of the revenue now comes from theatrical releases; 50 per cent. from video; 20 per cent. from television and, as I learnt from the report, 10 per cent. from ancillary sales—marketing offshoots, clothing and so forth.
A film makes its initial impact in the cinema and it is vital that it should continue to do so. Nobody in the video or television field would deny that; they all rely on it and would encourage it. They would probably agree with me that, by and large, the quality of exhibition in this country by way of cinemas needs to be further encouraged, though the improvements have been beyond all measure. Indeed, some middle-aged people are now going to the cinema, which I thought would never happen. I hope that more will.
It is not an easy situation to deal with. On the language side I was intrigued to see that the noble Lord, Lord Hollick, said—not about film, but about television—that culturally we in this country did not like dubbed material. He is absolutely right. In relation to film there is a good reason for that. Technically in this country we developed a procedure of using sophisticated sound stages in the making of studio films. In the Latin countries they did not do that; they almost exclusively dubbed even their own productions.
I discovered that fact when a great pin-up of mine, the Italian actress Claudia Cardinale—I admit to having pin-ups in my youth; Claudia Cardinale and another very lovely actress called Gina Lollobrigida, both of whom I believe are still alive today—made her first Hollywood film. In fact, her voice had been dubbed all along and the wonderful, soft, melodious voice that I had listened to in the Italian films was in fact gravelly and raucous (not without attraction, I might say, but I can understand why it had been dubbed). On the other hand, Gina Lollobrigida had a very sweet voice. She was not such a good actress and used her own voice, but still dubbing the material. The Latin countries are used to mouths which do not work in "synch" with the voice. It is something that we find difficult to accept. I hate dubbed films. I much prefer sub-titled films. I do not know whether my noble friend mentioned it, but the dubbed soaps from France were a total failure. I fancy that most people, even before they became involved in the plot, were slightly mystified by some of the strange mouth movements.
It is a difficult problem. We must look for ways in this country of dealing with our problems; above all the quality of scripts. We must encourage the national film and television school at Beaconsfield, and I urge European countries to do likewise. I welcome the new Secretary of State for National Heritage. I am sure she will do an excellent job, continuing the excellent trend shown by her predecessor and supported by the Minister who will be responding today, who we welcome to his post. I look forward to some interesting exchanges across the House on this subject.
6.49 p.m.
Lord Donoughue: My Lords, I wish to join in the welcome to this excellent report from the noble Lords on the Select Committee. It is obviously very thorough. It seems comprehensive and I sympathise with most of its recommendations. I shall not attempt to cover its totality because that would keep the House too long, especially from the tug-of-war which is starting in a few minutes. I should like to consider a few of the major issues—not so big as the tug-of-war, but of some significance—because we are dealing with major industries.
Although the definitions, frontiers and estimates of size vary, it is generally agreed that film and television are major industries with great economic, employment and cultural significance. They are growing rapidly and changing technologically at dramatic speed. Indeed, media technology is advancing at such a rate that it is inevitable that any recommendations may be out of date. I believe that the Green Paper—not this report—is particularly weak on technological advance and seems over-attached to earlier media structures, while not taking on board the most recent technological advances. One sees that especially in the relationship between the video and the film industry, which has just been mentioned and the implications of the rapid growth of cable and satellite broadcasting.
In our considerations we must distinguish very clearly between film and television because they are very different industries. Film is genuinely international: the European product is very weak against the United States, and European audiences seem to prefer United States films. European television is, by contrast, strong. It is second to the United States in world markets and it is basically a national industry where European audiences prefer domestic programmes. There seems little scope for pan-European television programmes although much scope for European-wide financing.
We must also distinguish between the commercial and cultural objectives involved. Commercially, we want a strong film and television industry to promote growth and jobs. Culturally, there is the very difficult question of protecting the wide European culture from being swamped by that of the United States. On that issue I personally sympathise very much with the French and agree with all that the noble Lord, Lord Bridges, said on culture, of which we should not be ashamed. However, I admit that it is not always clear how we protect our own individual national cultures within the European Union.
Commercially, film, and especially television, as I have said, are important growth industries, but they are not simply commercial like, say, the motor car industry. They also have important cultural content and implications. Unbridled commercialism represented by complete deregulation could lead to endless "Miami Vice", perhaps with greater audiences and greater private investment, but involving neglect of the cultural factors. In fact, the mass international commercial market does not readily promote or protect the cultural identities of any society, particularly European societies. So there is a genuine dilemma here and a tension in our choice between cultural and commercial priorities.
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Commercial dominance also threatens public sector broadcasting which, as the Select Committee says, figures too little in the Brussels' proposals. We need to strengthen that side of the European approach. I agree with everything that the noble Lord, Lord Thomson, said about that.
As regards the European aspect of this subject, it seems to me that the Government have been unclear in the recent past on whether or not they want to play a part in the European discussions on important film and television issues. We on this side see Europe as a positive and fruitful vehicle for dealing with several of the trans-national issues that confront us, although not all. We do not always accept the Commission's proposals. We hope that the leadership outcome opposite will stop some of the dithering that we have seen and lead to a more positive approach in Brussels and a clear recognition of the Commission's competence in certain of these matters. For a start, we hope that the Government will send Ministers and not just officials to important discussions there.
As the report states, the Commission's role is to establish a general framework while the main policy decisions lie with member states. But we must not underestimate that European dimension. We find often that the stickiest problems—and I refer only to cross-media ownership and the critical creation of a level playing field of laws and rules—can only be dealt with at the trans-national level in Europe. Here the question of copyright, on which the noble Lord, Lord Brain, spoke with such authority and detail and in which Britain has a major financial interest, is a good example.
Of course, among ourselves we may take different views on how strong a role is to be played by the European Union and the Commission. Is it to be strongly interventionist or simply enabling? Certainly, the Commission and individual member governments are not suitable to be directly involved in film or television production. We believe their role is to establish a level playing field of rules and the law in Europe, as was the first recommendation of this report. They have a role to encourage investment; to regulate cross-media ownership, as I have said, and to control excessive concentrations of power; to deal with particular monopoly or oligopoly situations as, for example, encryption; the gateway which must he opened—and I shall come back to that again—and in film distribution. There is also technological harmonisation to enable the European industry to compete worldwide. In all those areas I believe that Brussels has a competence and a very important role to play.
Looking more specifically at the film industry, I cannot compete with the intimate knowledge of the noble Viscounts, Lord Falkland and Lord Mersey, but the significance of the issues is clear to all. There is already existing here a web of financial incentives for film production in Europe. Member states spend 10 times as much as Brussels itself. In Ireland and Germany that appears to have encouraged film production, with Ireland either taking, or threatening to take, some or much from Britain. In France, which has been subject to some criticism tonight in the House, 30 per cent. of

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the films shown there are French. That is probably the best European exhibition rate. But whatever the incentives, the share of European films shown in Europe continues to fall as do audiences, except recently in Britain.
Obviously, we must be careful on the subject of financial incentives. We do not want Brussels bureaucrats picking winners. The Select Committee is properly wary of some of the suggestions on pan-European levies. We need not always be too wary. The British film industry, once so successful, needs nurturing back to life. One of the strongest recommendations in the report is in paragraph 134, which recommends,
"a new programme of support for film production in the United Kingdom",
adding "without such support" there might well be no British or European film industry in the 21st century. It then recommends the tax breaks.
We shall await with interest what the Government propose to do and perhaps as regards the tax breaks we shall have to wait until the Budget. Obviously, the Government must do much more than was stated in the Secretary of State's mini-statement on the film industry in another place on 6th June.
Other noble Lords, especially the noble Viscount, Lord Falkland, mentioned the related areas of film distribution and exhibition which are crucial to the success of the film production industry. Here, as has been said, Britain and Europe have been very unsuccessful. I am not sure that the Brussels proposals will take us much further. In distribution, we face the massive power of the American global distribution networks. When relying on them for the distribution of our films, we do so against the competition of the Americans' own film products. In cinema exhibition, the United Kingdom has demonstrated with growing audiences what can be achieved by investment in high quality multiplex cinemas. The Europeans have not so far followed that successful example. I thought the most interesting figure was that video accounts for 50 per cent. of film receipts versus only 20 per cent. from cinemas. To me, it seems as if the future is already here. The Brussels Green Paper did not deal adequately with that point.
The Select Committee rightly welcomes the MEDIA II initiatives in training for filming and television work. We join strongly in that welcome. Apart from acting and direction, the United Kingdom's particular strengths in film and television lie in animation and special effects. They depend particularly on skilled training, so the MEDIA II proposals would reinforce our existing infrastructure.
We also support the proposals for aid for script development, but we need to know the Government's views on that. In the past, the Government have seemed to have reservations because it appears to involve subsidy—a "bad thing"—and government intervention—a "bad thing", and an unhappy thing on the Government's experience. I believe that that general approach is not reasonable and that it is too ideological. I agree with the noble Lord, Lord Bridges, that the
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Government can and should act in those areas and not just bow before finance or the allegedly irresistible advance of technology. In fact, the proposed assistance is not a direct subsidy to the industry. It is better seen as assistance to creating an efficient and competitive infrastructure. What is the Government's approach to that? How should we improve our training? What projects will be put forward for MEDIA II grants? Will the Government promise that they will enthusiastically support British project applications in the Brussels jungle?
I note that the Select Committee opposes the Commission's policy on quotas. That stance has received support this evening. Certainly, quotas have had little effect up to now. They have been ignored by satellite broadcasters. We look forward to having a level playing field some day in terms of regulation. Quotas have had little impact in the United Kingdom where UK content rules are legislated and stricter.
The arguments against quotas are serious. Quotas are easily avoided by repeats and late-night showings. There is no guaranteed coincidence of Euro-content and quality. Quotas are increasingly unenforceable in the technological world of multi-channels and video on demand. We are impressed by those arguments, but behind the quest for quotas lies a serious and valid point. Complete deregulation would allow suppliers to buy United States mass products at a marginal cost with which no European producer could compete. That would probably lower the quality of our television and would certainly lower the European cultural content. Moreover, any sudden abandonment of quotas could have a devastating impact on the fragile base of the European production industry.
Our prime objective must be to nurture the European film and television production industries, yet we accept that percentage quotas on exhibition showings may not he the right way. Investment quotas may be a more interesting approach. They are not easy to monitor, but they would ensure that British companies would invest in new programmes made in Britain, thus using British skills and developing our indigenous film and television industries. That approach needs further and sympathetic investigation.
On the delicate issue of digitalisation and the encryption process, I look forward to hearing the Government's views and their reaction to the sound comments of the noble Lord, Lord Thomson, with which I entirely agree. When digital arrives, viewers will need that black box to encode and rescramble the picture. Whoever controls and supplies that box and the encryption system controls the gateway to that myriad of channels. At present, one company controls the ability of other television suppliers to gain access, yet that company is itself a major programme supplier. What do the Government think of that? Europe is obviously worried—and rightly so. Europe believes that there should be a common interface—so do I, and I want to know what the Minister thinks.
I turn finally to education. Britain has a great opportunity and a great competitive advantage in this regard, given the common English language and the history and experience of the Open University with its

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vast body of course material. We must add to that software the opportunities presented by cable and satellite, especially in distance learning. There is a worldwide thirst for education and for the English language. Therefore, educational programming presents a great commercial and cultural opportunity. I should like to hear how the Government propose to exploit that in the European context.
In conclusion, the film and television industries are of crucial importance to our collective futures. They have a huge capacity to generate jobs, profits and exports and are of great importance to the protection of our culture. I trust that the Government will begin to treat them as such. The French do so, despite their language disadvantage in international markets. The European Commission does, seeing their importance to European culture and commerce. The Select Committee rightly did so in its report. The British Government should do so also and should resist their instinctive hostility to so-called "subsidy" and "government interference". The Government should—we trust that they will—recognise film and television for the great industries that they are.
7.7 p.m.
The Parliamentary Under-Secretary of State, Department of National Heritage (Lord Inglewood): My Lords, I feel certain that I am speaking for all in your Lordships' House when I thank my noble friend Lord Elibank for raising this important and interesting topic this afternoon. Given that this is almost my first time out to bat, I must confess that I wish that my noble friend had chosen a subject that is slightly less multi-faceted.
However, this is an important industry. It is important for cultural reasons. I was interested to hear the remarks of the noble Lord, Lord Bridges, about the British view of culture. The industry is important for economic reasons also. At the beginning of the debate my noble friend mentioned the employment figures and from his speech onwards, right to the end of the debate, there has been unanimity about the fact that the industry will he of increasing significance. I do not mean merely that it will generate jobs, but that it will generate money. That is important for the future of the industry itself. It is important to emphasise that they are not alternatives. They are two sides of one and the same coin. Finally, the industry has significant social ramifications, although we have not debated that point as much as I had expected.
We are aware that this is a fast-changing world. Practically every speaker has touched on that point, from my noble friend Lord Elibank, who opened the debate, right through to the noble Viscount, Lord Falkland, and the noble Lord, Lord Donoughue. Things may soon change technologically to make much of what we have said seem out of date, but I can confirm one thing: we are concerned to ensure that the highest standards of public service broadcasting will be maintained whatever may occur.
It is equally important that we realise that aspects of that change—it is really a revolution—are causing considerable concern in all parts of society. Of course,
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the Government have a role to play. Indeed, a failure to appreciate that is an abnegation of the very concept of government itself.
Not only are the issues under discussion this afternoon central to the Department of National Heritage, but in a wider context they are central to the future development of the European audio-visual industry in which the United Kingdom plays a large and significant part. The report from your Lordships' European Communities Select Committee, which has formed the basis for our debate, fully recognises that and takes forward the debate in a positive and constructive way. Indeed, the Government agree with a great many of the points made by your Lordships. I will a little later go on to deal in detail with some of the key issues raised in this debate, but I would also like to take this opportunity to bring you up to date on the developments which have taken place since my right honourable friend the former Secretary of State for National Heritage replied to the noble Lord, Lord Tordoff, on 6th June.
The findings of the report we are discussing and the reply of 6th June by my right honourable friend to the noble Lord, Lord Tordoff, follow a similar format. Like my noble friend Lord Elibank I shall try to disaggregate the issues. At the same time, I shall try not merely to repeat what is already known, but to update that and make some comments. Clearly I cannot comprehensively cover everything that has been raised this afternoon. I shall try to deal with the main matters and I shall write to noble Lords if there arc any outstanding points to be considered.
There is one point which is not directly relevant to the debate which was touched upon by a number of noble Lords. It relates to cross-media ownership. We are fully aware of the importance of relaxing the present rules on cross-media ownership so that they correspond better to the realities of the present markets. Our proposals for adjustments to the rules were set out in the recent White Paper. We hope to bring forward legislation on that in the next Session.
I shall try to concentrate on the MEDIA II programme and the proposed new television without frontiers directive. I must begin with the European Union and its role which was mentioned by a number of noble Lords. We agree with paragraph 116 of the committee's report. We believe that the audio-visual sector is part of the single market. Equally, we are sure that the Community must not just usurp the role of member states in terms of regulation. At the same time, however, we must not overlook the fact that in the technological revolution that is occurring there are benefits in economies of scale. As a number of noble Lords have said, the main force in the industry worldwide is the US industry.
I shall begin with a few comments about television. We too appreciate that there is a distinct set of problems relating to television as opposed to films. I shall turn first to the directive. The European Commission's report on the application of the 1989 television without frontiers directive which it was required to make five years after the adoption of that directive, and the Commission's proposals for amendments to it, were not available to your Lordships' European Communities

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Committee before the completion of its report. Those are set out in EC document 9742/95 which was deposited with Parliament on 27th June and which will be the subject of an explanatory memorandum later this week.
Your Lordships will be pleased to know that the Commission has come to one important conclusion which is in accord with one of the recommendations of the committee's report. It is that the scope of the directive should not be enlarged to cover new point-to-point services such as video on demand or telemedicine. While there are important consumer protection and other regulatory issues to consider in developing such services, they are clearly telecommunications services and should not be included in a broadcasting directive. But it is fair to say that there is an undercurrent of unease among member states, some of them arguing that the means of delivery should not necessarily determine the way in which we regulate services which in content are similar to those of some broadcasters. We shall continue to resist the inclusion of those point-to-point services, but we will consider carefully any proposals which are made for regulation of them at a European level.
Your Lordships will not be surprised to learn that it is the Commission's proposals to remove the existing flexibility in the application of European programme content in Articles 4 and 5 of the 1989 directive which cause us, and the majority of other member states, the most concern. I welcome the attention your Lordships have given in the debate to that important issue, and I trust that the clear messages which have been delivered will reinforce the majority view that those proposals are unacceptable and will not achieve a strengthening of the European production sector.
We welcome the proposal to end a quota regime after 10 years, although we and a number of other states would prefer that abolition to take place immediately. In the Government's view, it is essential to pursue policies that avoid the creation of artificial barriers and regulatory measures which would stifle the development of new business. The matter of possible investment quotas for creating a level playing field between terrestrial channels and new cable and satellite channels was raised. That is one of the Commission's proposals upon which we are taking the industry's views. We shall consider carefully, in the context of the wider debate, removing the flexibility of meeting the majority European content, where practicable, progressively over time.
I should like also to draw your Lordships' attention to the revised Articles 2A, 22 and 22A of the proposed new directive which relate to amendments to protect minors and add the concept of public morality. I hope that will reassure the noble Lord, Lord Bridges, with regard to some of his concerns which he explained to the House. This is not yet legislation and there will be further negotiations in the council before a conclusion is reached. I should like to emphasise the assistance that we believe will be provided for the British case from the Select Committee's report.
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I shall move on now to film. Like noble Lords, we see that the problems of film are separate but in many ways similar to those we discussed earlier in the debate. Before I comment about the MEDIA II programme, I should like to comment upon the point about tax which was raised by a number of noble Lords, in particular my noble friend Lord Elibank and the noble Lord, Lord Bridges, and the comments made by the National Heritage Select Committee of another place.
I am grateful to my noble friend Lord Mersey for pointing out that the grass is not always greener in Ireland, and all is not doom and gloom in the UK film industry. Nonetheless, we are considering those matters. They are under review. The noble Lord, Lord Donoughue, was right: this is a matter for my right honourable friend the Chancellor of the Exchequer rather than for me.
The most important development at the Audiovisual Culture Council, held on 21st June, was the political agreement to come to a common position on the MEDIA II package. There were two decisions. One concerned training and the other development and distribution. That represents a significant achievement by the French presidency which had made the audiovisual field one of its four presidency objectives.
If your Lordships will bear with me, I will describe in a little more detail the MEDIA II proposals, and the outcome which the Government consider an entirely satisfactory one from the UK's perspective. The MEDIA II proposals were adopted by the Commission on 8th February in the form of the paper entitled Audiovisual Policy—Stimulating Dynamic Growth in the European Programme Industry.
They comprised two draft council decisions, one on training, based on treaty Article 127 (which is subject to qualified majority voting) and the other on development and distribution, based on Article 130 (which is subject to unanimity). The Government welcomed those proposals. While we believe that primary responsibility for the audio-visual sector in its many forms lies with the authorities of member states, we recognise that there is a role for the community to play at the European level, not least to help counteract the dominance of foreign-owned companies, in particular those from the US. We see a need for support to correct market failure in this area and avoid terminal decline in the European audio-visual industry. That is also in line with our own stated policy aim of sustaining the UK production infrastructure.
The Government also welcomed the proposals as giving substance to the need to reorientate and refocus the present MEDIA programme, in particular by concentrating efforts on the areas of development, distribution and training.
I can confirm that support will be given under the new MEDIA II programme for dubbing, subtitling, and multilingual productions under the development and distribution decision. Limited support will also be available for cinema exhibition under the same part. There will also be support for script development and for marketing and distribution. In addition, the lottery will also contribute towards the improvement and refurbishment of cinemas. I can confirm also that we

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will endeavour to do what we can to ensure that the British film industry benefits as much as is possible from those initiatives. Of course, in the past the UK industry has a track record of success in that regard.
In the debate leading to the council's decision, we said also that we wished to ensure that the principles of subsidiarity were maintained fully in relation to the training proposals which should properly support and supplement member states' own programmes and not seek to replace them. I am pleased to report that the majority of our concerns have been met. Intensive negotiations within the official working group of the council culminated in the council, on 21st June, agreeing a common position as regards training and reaching a policy agreement on the development and distribution decision. We were able to achieve a reduction in the budget from the 400 million ecu originally proposed by the Commission to a satisfactory compromise of 310 million ecu. In both decisions we were also able to secure the inclusion of sound value-for-money principles and the adoption of strong "comitology" arrangements to oversee the programme as well as a host of improvements on points of substance.
We believe that the UK has negotiated a sound value-for-money package which will play a valuable part in strengthening the audio-visual industry in Europe, thereby enabling it to compete more effectively in both European and world markets.
Those MEDIA II proposals have been part of a larger package of audio-visual proposals from the Commission following on from the Green Paper of last year. The need to agree a programme to carry on in January 1996 from the existing media programme meant that the package has to some extent become unravelled. In your Lordships' report on the European film and television industry, a large number of associated issues were addressed and I should like to single out the most important of those which relate to the proposed amendment to the broadcasting directive and the new European financial instrument. Those form the other elements of the package which will occupy the attention of member states under the Spanish presidency. The Spanish presidency intends to give them a high profile as did the French presidency in relation to the MEDIA II proposals. I am grateful for the guidance which your Lordships have given to the Government both in respect to the report and to the remarks in today's debate.
The third element of the Commission's package, that of a financial instrument, might be seen as just the sort of supportive mechanism which would prove a perfect complement to the MEDIA II programme. But I am pleased to learn that your Lordships are as sceptical as are the Government on developing a new parafiscal measure which in essence would appear to use Commission money along the lines of the European Investment Fund to lever out further monies from the private sector. The Government will weigh up the merits of the particular proposals when they emerge from the Commission, but we are clear that the Commission must demonstrate that intervention is necessary, that a market failure exists to be successfully addressed by the proposed measure and that the measure would offer value for money. We have made it clear that the
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Government will not support a European Union-wide tax measure or novel forms of Community financing impacting on the audio-visual sector but, in any case, such measures are ultimately for finance Ministers and not for the Audiovisual Culture Council.
A number of your Lordships focused on the matter of copyright. That is a central factor in the matters which we are debating. One noble Lord said that most artists create work in order to gain some reward thereby. As Dr. Johnson said:
"No man but a blockhead wrote, except for money".
Secondly, it is important that we have a usable system. A very telling point was made about that by my noble friend Lord Elibank. Thirdly, whatever system is in place it must be enforceable, as science develops technical remedies against piracy and a means of monitoring the use of copyright works, particularly in connection with digital transmission. However, it is for rights' owners to choose whether to use such devices and between competing systems.
One point which it is important to note in that respect is that the value of copyright law does not merely relate to the creation itself but it has a significant impact on the merchandising of goods. As has been mentioned, that may form a very significant part of the return to the person who has the copyright rights. Indeed, looking at the Daily Telegraph today, it seems that the current Rolling Stones tour is likely to gross for the performances something in the order of £162 million while the profits derived from merchandising seem to be more in the order of £200 million.
My noble friend Lord Chelmsford mentioned the important matter of encryption. We have taken very careful note of the points raised by him and by other noble Lords and will ensure that they are brought to the attention of my right honourable friends the Secretary of State for National Heritage and the President of the Board of Trade. At this point I am not in a position to make any statement because it is a matter of enormous difficulty and sensitivity, involving issues of competition as well as regulation at national and European levels.
In addition, reference was made by a number of noble Lords to the involvement of a large number of departments and authorities in the regulations of multi-media products. I can confirm that multi-media developments clearly affect government and public organisations at many points. To assist the Government in ensuring that opportunities arising from that are explored fully, my right honourable friend the President of the Board of Trade has established a multi-media advisory group with representatives from the different industry groups.
Just as the report from your Lordships' Committee was constructive and positive—indeed, those are qualities which are well known in your Lordships' reports right across the European Union—so, too, this debate, which has been characterised by so many expert contributions, has given the Government food for thought and has encouraged us in the work that we are doing in Europe. It is precisely, in the words of the noble Lord, Lord Bancroft, because we see the audio-visual industry, both film and television, as big

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business and not as a cultural cottage industry that we do not support indulgent protectionist measures. The industry is growing and developing rapidly on a global scale. Each member state has a part to play, nurturing its own products. But those must compete ultimately on the basis of quality and watchability. The European Union can and does add an extra dimension to that competitiveness but it must do so by working with market forces and not by denying them. In the negotiations in the months to come, that will be our message.
I am most grateful for your Lordships' approval of the Government's overall approach and support for the audio-visual industries in the United Kingdom. Media matters are very important and I expect that I shall be returning to the Dispatch Box to deal with a number of them in the months ahead.
7.28 p.m.
Lord Elibank: My Lords, in conclusion I thank the members of my Committee for their kind remarks about me which are much appreciated. I must also thank noble Lords who have spoken today for their welcome of and appreciation for the report and the work which was put in to achieve it. Finally, I congratulate the Minister on his robust defence of the Government's policy. Also, I welcome the appreciative way in which he has dealt with the recommendations of the report. I hope that he will be able to follow some of those recommendations.
In introducing a debate like this, one can select only a few points on which to comment. I feared that some other equally valuable points might go by default. They have not done so. In one way or another in the course of the debate, your Lordships have covered all the main points of the report.
My noble friend Lord Chelmsford raised the matter of encryption. That is an exceptionally important subject. Control of the gate-keeper or gate-keepers of the system is a matter of national concern. I am not at all sure that the present situation in this country is entirely satisfactory. I shall say no more about that at present.
The noble Viscount, Lord Falkland, made the point about the importance of sheer quantities of money that are needed and the ability to ride many failures before you have the one blockbuster success. That is often underestimated by the general public who see the occasional "Chariots of Fire" or "Four Weddings and a Funeral" and think that we are on our way. We are not on our way until we have the type of financial backing which produces one or two good films but which can ride through many unsuccessful films.
Finally, I should at least refer to the courteous criticism of the Committee's report in relation to copyright made by the noble Lord, Lord Brain. I do not believe that there is quite as much difference between us as I had thought at first. But even if there is, the Committee would have to admit that in the diversity of subjects at which we looked, we were unable to go into any of the matters, particularly in relation to copyright, in the kind of depth that the noble Lord, Lord Brain, would have wished. That is a limitation imposed on any committee which is looking at a wide diversity of
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subjects in a Green Paper or whatever it is studying. Therefore, I hope that the noble Lord will feel satisfied that we did our best within the time constraints which were inflicted on us. I thank your Lordships, again, for participating in the debate. My last message to the Government would be: audio-visual is a sure-fire winner; do back it.
On Question, Motion agreed to.

Exports and Inward Investment
7.30 p.m.
Viscount Waverley Viscount Waverley rose to ask Her Majesty's Government what new policy developments they are considering to build on the current levels of exports and inward investment.
The noble Viscount said: My Lords, I congratulate the Minister on his new post and wish him and his right honourable friend well. They have a crucial remit.
Much has been achieved in recent years. British export volumes to the rest of the world have hit new records, and the upward trend is expected to continue. Exports are driving the economic recovery and are leading the UK out of recession.
I have combined inward investment and export strategy into this evening's debate. There are linkages. The conditions that are essential to our exporters are what attract inward investors. Indeed, 40 per cent. of our exports is derived from foreign companies having invested in the UK. It is the stable macro-economic conditions, competitive and flexible labour markets, the adaptability of employees, and a vibrant small and medium-sized business sector introducing new technologies to British industry, stimulating new managerial and working practices, that are the key.
We debated this subject in part some 18 months ago. There are those who suggest that, as the prognosis is favourable, there is no need to conduct regular assessments. I cannot share that opinion. Past successes suggest that we are on the right track; but we must emphasise the need for constant evaluation of performance, and indeed be formulating a plan not just for this year but for the next five years. Does the Minister agree and, if so, will we be told about forward policy tonight?
Competition for the available world level of investment is now so strong that we must constantly consider new mechanisms. As other nations wake up to the opportunities, the fight to attract new investment, and retain existing investment, will become harder.
First, perhaps I may be allowed to turn to inward investment. I want to draw attention to four areas where I believe that our present efforts could be enhanced: the need for clarity in promotional activities; the grants regime; the tax structure; and immigration matters. The delivery of the UK's promotional activities could be improved by providing services through a single point. There are many organisations in the UK which undertake activities aimed at encouraging inward investors. That can confuse the potential investor, especially as different bodies promote the same area.

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Such a body would co-ordinate and disseminate all relevant information. It would also ensure that all in the business of selling the UK do not compete to the detriment of the product by confusing the inward investor.
That concept could be taken one step further. At present, the bodies promoting the UK are separated from those responsible for the awarding of grants, such as Regional Selective Assistance. They could, and should, be integrated. That would be a logical extension to the "one-stop shop" approach advocated by the DTI in its Business Links programme. It would also be helpful to have an effective measurement of agencies' performance. Are they providing value for money?
I should like to say a word on grant and tax issues. The UK is the only European country to impose a cost-per-job limit when negotiating Regional Selective Assistance applications. That should be removed. The concept of "additionality", at present used in considering grant applications, could be replaced with a less confrontational approach. Grants, for example, could be decided as part of a process of negotiation as adopted by competitors elsewhere. However, the UK tax regime generally compares well with major international competitors, although some countries have incentives aimed specifically at inward investors.
Steps have been taken to make the UK as competitive, but the systems introduced are often seen as complex and do not place the UK on a par with some of its European Union partners. That need not result in an overall loss to the Exchequer. The investor, without incentives, might not have come to the UK anyway. Indeed, tax incentives would he cash positive as there would be a liability to indirect taxes.
However, I do think that investors seek near certainty as to the tax implications of their investment decisions. Our system does not allow the granting of advance tax rulings. That leaves the investor uncertain as to the tax effects of investing here. More might be done in this area.
I want to touch on difficulties faced by key personnel sent to the UK to evaluate investment potential first hand. Until recently, such individuals could enter this country to establish a representative office. However, the Home Office has recently re-interpreted the rules. The practical effect is to prevent entry, unless there is a commitment at the time of arrival to incorporate a company. That is a disincentive, especially for investors from the Pacific Rim countries.
Countries such as Nissan and Samsung first considered a tangible presence in the UK by the use of a representative office. My fear is that potential investors might be dissuaded from considering the UK as a result of that new interpretation.
We need to continue to attract inward investment. I have identified a number of areas where action is required. Major inducements are not necessarily the answer. Simplification and a levelling of playing fields will enhance the UK's position. They will help not only to keep existing investors here, but also to attract others.
We must fully understand the reasons why investors decide to locate in other European member nations. France, for example, now attracts a similar level of investment to the UK. That was not always the case.
Of course, there is a lot on which the Government can be congratulated. I was delighted to hear at the annual presentation of the Invest in Britain Bureau last week, for example, of the aftercare initiative. I am sure that we shall hear more in detail on those points from the Minister.
I must move on. In my remaining minutes I shall turn to export matters. One of the UK's real advantages is the worldwide access to market intelligence, but we are failing to drive home our advantage. The export intelligence service receives from oversea posts information that could, if of high quality and disseminated and quickly distributed to British industry, dramatically increase exports.
Research has shown that the quality of service has fallen with users critical of the information. Who maintains the quality of that contract, and what steps are being taken to improve the service? When will the agreement be negotiated? What will be the mechanism and criteria for selection? Following on, why do we not yet have a centrally-run business database, complete with company details and products, updated annually, so that buyers around the world can receive details of companies by return which are able to offer the products and services being sought? That is long overdue. Why has it not been implemented?
The export promoter initiative, which was launched some two years ago, has been successful. Will the programme be allowed to lapse? Many exporter promoters have built upon strong links with major UK exporters and foreign governments in their country of specialty. That experience is being lost as the promoters leave their posts and are reabsorbed into their own companies. Can the Minister confirm that the initiative is to be extended; and what steps are being taken to ensure that the experience gained over the past two years is not lost?
I turn now to the Business Links programme. There are those who suggest that the initiative is in serious trouble and floundering. An audit report has criticised the medium and long-term viability of established Business Links as being uncertain. What is the situation? Can I encourage the Minister to react to the anxieties?
I came here this evening expecting to be critical of the cost and availability of credit guarantee insurance but I find that the UK is a competitive marketplace for short-term insurance. Will there be a commitment by the Treasury to have sufficient funds available to match our future increase in exports? I am also pleased to hear of a new product, the Compact Policy, that NCM Credit Insurance is designing to cater for companies that export sales of up to £1 million. This is evidence that credit insurers are addressing the needs of small exporters. This is important.
Another essential category is that of education and training. The Institute of Export does an excellent job of training those at the centre of the export trade, hut there seems to be a growing demand for a course addressing the needs of export managers. Do the Government recognise that more needs to he done in

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this area, and what help might be made available? The DTI must be encouraged to develop a professional career structure for export staff.
Time allows me to comment only briefly on trade missions. Many small and medium sized exporters are critical of the limited number of trade missions they can attend with DTI support. How successful are these missions, and what steps are being taken to ensure that the most suitable companies are selected? What are the pre-qualifying criteria for selection?
Finally, a recent in-depth export-related survey conducted by NCM Credit Insurance and the Institute of Export—and analysed by the Bank Relationship Consultancy—shows that despite large sums invested in services to exporters, on average only 50 per cent. of exporters use the various services. Many are simply not aware of the assistance available, The more precisely we can define and evaluate the services exporters need, the sooner the services can be improved and the better exporters will perform for the benefit of the export-led recovery as a whole. But the questions remain: are we doing as well as we should, and what needs to be done to increase our market share?
7.43 p.m.
Lord Astor of Hever: My Lords, I also wish to start by congratulating my noble and learned friend the Minister on his new job. I hope that he will be as sympathetic to the subject on which I am speaking as his predecessor was. I also commend the noble Viscount, Lord Waverley, on his choice of such an important subject. I am surprised that more speakers from the Opposition are not contributing this evening. The export arena is crucial to the nation, and Labour policies will not help with issues such as the minimum wage. I look forward to hearing how this point and others are defended. I see from the Liberal Benches that the Liberal Party clearly is not interested in this subject!
One of the most frequent questions that I hear being asked is: why cannot we have some good news for a change? It is therefore a great pleasure to report glad tidings from the British motorsport industry, which comprises thousands of companies, large and small, providing specialist, high level, innovative technology, now exceeding aerospace technology. Annual revenue is nearly £2 billion, more than 40 per cent. of which is exported. Over 50,000 people are directly employed in this industry in this country and the motorsport sector has developed to the point where it can justifiably be recognised as an industry in its own right.
Most of the Formula 1 and Indy 500 cars and engines, with their leading edge technology, are designed and built in Britain. The tremendous growth of the British Touring Car Championship is an example of how promoters have recognised the needs of the public for a series that provides close racing in cars with which they can identify. The series is attracting record crowds and commands huge international TV viewership. In rallying, British technology and management is regarded as the best in the world. I congratulate Her Majesty's Government for providing the political environment for this industry to flourish.
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I have spoken to many companies involved with the motorsport industry and without exception they are highly complimentary of the DTI. This point needs to be made tonight. The DTI is supportive of the motorsport industry. Complacency is the biggest threat to the industry. The Japanese, the Americans, the French and the Germans probably dislike continually having to buy British, but in motorsport where success or failure is measured in thousandths of a second, they recognise that only the best will do. The industry is fragmented and some component companies are in an extremely parlous state. Team Lotus and Simtech have gone and others at the top are struggling for sponsorship.
We must accept the importance of the tobacco industry to motor racing and all the jobs that go with it. Benetton, Tyrrell, Williams, McLaren, Jordan, Ligier, Forti and Ferrari are all very dependent on this source of sponsorship, which is not easily replaced. Sadly and inexplicably neither Shell nor BP support a Formula 1 team, unlike other foreign oil companies and I hope the Government will shame or bully both of them into supporting British teams next year.
What new policy developments can the Government consider to help the industry build on its current success and level of exports, and to encourage more inward investment? One issue needing attention is the shortage of good engineers. This applies as much to the motor as the motorsport industry, and is a particular problem for component manufacturers. These companies, mostly employing 50 or less, many almost cottage industries, are one of the engines of future growth and employment for this country. But a recent survey by Anderson Consulting concluded that the gap to world class performance standards is still gaping in components.
There are various problems. First, unlike Germany, France or Japan, engineering as a profession does not have the respect it deserves. Why do more students not go into science engineering? One reason is that teachers do not have a good view of the industry. Schools need to visit factories and other suitable work places so that children can be talked to direct, and feel for themselves the glamour and excitement. These days they will not leave with dirty hands! Industry itself can help here. Toyota has set up an educational foundation, in which it has invested heavily in the past three years, to encourage children to take up engineering at school. The Government can help by encouraging more companies to invest in future engineers in this way.
Secondly, the education system does not prepare engineers to he ready for immediate use. In the case of the motor and motorsport industry, they need to go through significant training before they are any practical use in jobs such as the design of cars. Mechanical design should be more widely taught in engineering courses as it ultimately affects the ability of manufacturers to design and develop components to a high standard. This problem is the single most significant concern of the big multinationals such as Toyota and must be addressed as it is a vital ingredient in attracting inward investment.
How can we encourage component manufacturers to achieve higher standards so that they are better able to compete internationally? How can we address the staffing needs of component manufacturers in the motor

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and motorsport industry and promote the industry as a viable career option in this increasingly high-tech era£ How can the Government liaise more closely with colleges, schools and universities to ensure that the right courses are in place to meet the needs of the industry as we move into the 21st century'£ I should like to make a proposal.
The Prime Minister committed himself last week to holding conferences to hear industry's needs. With DTI assistance the Motorsport Industry Association would be prepared to organise a conference to address its problems. The DTI would be able to hear at first hand the needs of small companies operating exclusively in this important industry and receive ideas on how to make engineering more attractive and exciting to students from those businesses which will need them. In turn the DTI would be able to brief companies on the support it can offer in respect of exports and inward investment.
I declare an interest as the unpaid president of the MIA. However, I can promise substantial interest and support on the part of the motorsport industry. Autosport magazine, the leading motorsport publication in this country, and Race Car Engineering, the definitive trade publication, are both prepared to give any proposed conference major coverage. The engineering director of Cosworth would be happy to chair any conference. I suggest Silverstone or the Williams Grand Prix Engineering base as ideal venues. I look forward to a sympathetic response from the Minister.
7.53 p.m.
Lord Ashbourne: My Lords, I begin by thanking the noble Viscount, Lord Waverley, for introducing this crucially important debate. I congratulate the Minister on his promotion, if it is promotion. If it is not I hope he regards it as promotion to a crucial department. I hope that he will stay awake while I speak because, however boring I am, I have a particular message for him and the new President of the Board of Trade. Therefore, if he should nod off I hope that he will at least read my speech in Hansard afterwards. If he could give me a friendly nod or wink I should be reassured on that point.
I have been brought up on the maxim "export or die". Like the noble Lord, Lord Astor, I am concerned about the small number of your Lordships who saw fit to put their names down for this debate. Looking around, particularly at the Benches opposite, and also the Benches behind me which are hardly bulging with noble Lords, it seems to me that there is a real possibility that we are going to die. I congratulate noble Lords in the Chamber for putting their names down to speak this evening and taking the trouble to support the noble Viscount, Lord Waverley, in bringing the matter forward.
I shall not detain your Lordships long. I shall focus on one facet of export promotion, namely, the role of the Royal Yacht in export promotion. I am happy to inform your Lordships that the inaugural meeting of the All Party Parliamentary Royal Yacht Group is due to be
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held at 1700 hours on Thursday, 13th July in Committee Room 3A. Any noble Lords who are interested and wish to attend will be extremely welcome.
Some noble Lords will be wondering why this chap did not put his name down to speak on this subject on Friday when there is a full-scale defence debate. The answer is simple. The Royal Yacht now has a minimal defence capability. It is true that she is funded by the Ministry of Defence, which is a curious anomaly and based on historic reasons alone. She was built as a hospital ship but cannot really fulfil that role today. She can really only be used as an ambulance. She has one operating theatre only and any sophisticated plastic surgery of the type which was so necessary in the Falklands to deal with the horrific burns as a result of napalm bombs, which our soldiers, sailors and airmen suffered, could not reasonably be dealt with on that ship.
Obviously the Ministry of Defence is not particularly concerned about the Royal Yacht. That is a great pity. Her Majesty has made it clear that in view of the changes in the pattern of Royal visits the yacht is not essential for Royal travel alone. The Government have decided to review the question of a replacement in the light of the significant contribution made to national prestige and trade promotion by the Royal Yacht in the past. The Royal cachet of the yacht and the occasional participation of the Royal Family in promotional events can act as a considerable draw for influential contacts. "Britannia" provides a prestigious venue for trade promotion through its use as a conference or event venue when berthed overseas or through sea days, which are essentially day trips from foreign ports for parties of UK and overseas businessmen, government Ministers and officials. These events are often arranged as part of a wider trade promotion campaign, the most recent ones being held in Bombay and Johannesburg. These were viewed by the business community as very successful. Possible promotional visits planned for 1996 include Pakistan and a tour of East Africa.
Any noble Lords who are geographers may have wondered how it was that the Royal Yacht managed to achieve such success in Johannesburg. I certainly raised my eyebrows when I read that in a brief from the DTI. I could understand the yacht being at Bombay. I spent many years of my working life in the Royal Navy so I know that Bombay is a port. I visited Bombay in a cruiser, the flagship of the East Indies Fleet, many moons ago and enjoyed a welcome visit there. But Johannesburg had me guessing. I rang up the department. I was told that it was true that the Royal Yacht would have had difficulty berthing in Johannesburg, a point that I had difficulty in comprehending as Johannesburg is many thousands of miles inland. Even noble Lords who do not understand naval matters will grasp that point. Apparently the visit was part of the Johannesburg trade fair, and the ship berthed in Cape Town.
I emphasise that point to show that the Royal Yacht's export promotional activities are not confined to ports, although two thirds of the surface of the globe is covered by water. She can have tentacles going thousands of miles inland through good organisation and

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preparatory work. That will show noble Lords that she is even more effective than perhaps they thought previously.
In conclusion, I urge the new Secretary of State to grasp the nettle while the going is good and offer to fund and run the Royal Yacht in co-operation with the Ministry of Defence. I do not for one minute suggest a civilian crew. Surely it should be possible for the crew to be leased from the Ministry of Defence. Indeed, a new Royal Yacht should be designed and built for Royal duties and export promotion. That could be a pearl in the hands of the new President of the Board of Trade. I commend the idea to him.
8 p.m.
Lord Wedgwood: My Lords, I join my noble friends in congratulating the Minister on his new appointment. I note that he did not fall asleep during my noble friend's speech, but he still has my contribution to come. I also join noble Lords in congratulating the noble Viscount, Lord Waverley, on initiating what I consider to be a critical debate, and on his well informed and thought provoking contribution. I, too, am thoroughly surprised by the lack of presence in your Lordships' House, not only on these Benches but in particular on the Benches opposite. I can only think that everyone is recovering from perhaps another victory on the tug-of-war scene outside.
I must declare an interest, for when not present in your Lordships' House I am usually representing Wedgwood, a Staffordshire-based potmaker, in its many overseas markets. As we are just past 4th July and the celebration by Americans of their victory in achieving their independence, I feel safe to reflect on an incident which took place in Williamsburg, Virginia, as our cousins were revolting at the beginning of that war. They ransacked the town and, naturally, were particular in the destruction of anything made in England. As the looting continued, barrels containing Wedgwood products were thrown out of the merchants' windows. Needless to say, at the end of those hostilities, Josiah Wedgwood wrote, "God bless Lord North and his Stars". He was then able to resume his trade across the Atlantic, as did many other manufacturers.
Over 200 years later, as the company celebrates the genius of its founder at the Victoria and Albert Museum, Wedgwood continues an extremely lucrative business in North America. Often referred to as the melting pot of the world, the United States of America is naturally the most competitive market, not only in ceramics but in nearly every other category of product manufactured in this great country. In a global market, where price is a major factor, it is a great credit to any manufacturer to compete in such a market.
My experience in North America, the Antipodes, the Far East and, more recently, in Europe is that we can hold our heads high in the global market. Our products compare most favourably; and there are many reasons for continued success in maintaining such a high level of export. As the Minister, I am sure, will point out, export growth is at an 18-year high.
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In the ceramic industry, over 50 per cent. of production is exported. Less than 30 per cent. of that figure is imported. Therefore, the industry is a considerable net contributor. However, import penetration has increased from about 20 per cent. to 30 per cent. in the past five years.
We must never forget that a serious consideration of the consumer is the quality of the product. It is the element that distinguishes British products from others; and, thanks to our forebears, manufacturers in Britain have a legacy of quality production which as a whole is unequalled. The skill and dedication of workforces in surviving generations have kept that essential element alive. We must encourage wherever possible to maintain our enviable advantage.
As in the beginning, constant innovation and the use of modern technology has allowed our manufacturers to remain competitive. However, as many companies have discovered in recent recessionary periods, complacency is a very dangerous thing. Manufacturers should be constantly aware of what is happening in the world market. My right honourable friend in another place, Mr. Needham, before, sadly, he retired his post, put forward and carried out numerous projects to this end. I am sure that his successor under the direction of my right honourable friend Mr. Lang will continue to do the same. Visits to the newly developing countries around the world, like China, will pay tremendous dividends as we recognise that technology and cheap labour inevitably will teach us to maintain a high level of reinvestment in our own industries and force our manufacturers to be competitive.
There is another side to the knowledge gained by those visits. In countries with state run industries, there is far greater control of labour, energy and raw material costs. More importantly, the prices of exports are determined politically. In other words, cheap products can be made even more cheaply. The effect of dumping products that do not reflect their true value will distort the market, not only here but in our own export field. That unfair competition will be devastating leading to the closure of more companies and the demise of more than one industry.
As part of a review set up with the completion of the single European market, there has been a call by a number of countries, including Britain, to scrap import quotas. Undeniably that will increase import percentages with the devastating effect that I have just mentioned. I do not mean to be parochial, but in the ceramics industry we have a good example of that threat. There have been warnings of a potential loss of as many as 20,000 jobs in North Staffordshire alone. I am proud to say that with the initiatives of the British Overseas Trade Board, other agencies, and the natural inclination of our own industry, we have already adjusted accordingly and are prepared to do battle. Mr. Kevin Farrell, director of the manufacturers organisation, the British Ceramic Confederation, has said that fewer than 5,000 people work in the mass or volume end of the tableware industry. That would be effected, for example, by the Chinese dumping cheap products in our markets.

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However, the real point is that long term distortion will work its way through the higher price points and eventually kill the industry. Winning battles can be won on sound and efficient corporate policy, but to win the war we must be dealt an even hand. A free market is all very well but we must police and control it as other countries do. An unfortunate example of possible unfair play is the proposed development by a Turkish company to manufacture tiles in Liverpool. The plan to support that with considerable government funds while our own industry receives no grants even in the critical area of research is hardly a level playing field—unlike Edgebaston it is not even of our own making.
British industry has sustained through many troubled times. The companies it has spawned and the products manufactured have met the challenge. I urge the Minister to use his very considerable influence in encouraging even further export promotion programmes, such as my noble friend Lord Ashbourne put forward. As I said, the British Overseas Trade Board plays a vital role for which industry must be most grateful.
The British Overseas Trade Board financial report quotes an estimated cost for 1994–95 as £199.8 million. It is estimated that £144.3 million is the cost of staff, man hours including staff time in FCO posts in overseas offices, and other overheads, leaving £55.5 million for gross direct expenditure. Whichever way one breaks that down, it seems a small price to pay for an area so central to our economy.
Not only must our manufacturers be given every encouragement to compete in world markets, but even tougher directives must be given to staff in FCO posts with commercial sections. All too often it has been my experience that those offices will participate with fine representation at social gatherings where we subtly, or sometimes not so subtly, present our products for sale. It is extremely painful to hear a comment such as, "With products like yours you don't really have to sell them, do you?" The level of naivety is astounding. Representing a company that has an Irish sister, I witness at first hand how officials from the Emerald Isle support their own. They are committed and they are very effective. It would be helpful to us to have more creative and aggressive support from these offices.
It is most reassuring to learn about the success of the inward investment programme as presented by the Invest in Britain Bureau. The number of investment decisions, the great percentages of important countries like the United States and Japan investing in Britain as opposed to elsewhere in Europe and the incredible achievement of 11 out of 12 investments from Taiwan, all indicate a tremendous endorsement of the programme.
But I fear that we can be lulled into a false sense of security. Too often I hear the complaints from potential overseas investors who have enjoyed the hospitality of our regional offices but have discovered that they are sometimes poorly staffed and poorly funded, leaving open the opportunity to invest elsewhere. Again, we must provide the bullets to maintain a winning edge.
Much of what I have to say is about competition. Our forefathers saw it clearly. Through great innovation they produced products of indisputable quality, they identified their market and set about selling their wares
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at a competitive price. For a country that depends heavily upon a high level of exports, we must compete more. We must encourage manufacturers to even higher levels of quality. We must help more to identify potential markets. Government must he even-handed in their approach to those problems. Our manufacturers have a responsibility to themselves to be competitive. Individual companies are not holding out their hands, although support is always appreciated. Competition, however, must be fair.
I am sure that if other noble Lords had been present they would have been able to offer a better case in the field of macro-economics, but with so few speakers I would hazard saying that the general recovery from the recession, based on even and relatively stable growth and currencies not fluctuating wildly is going fairly well. At least, as we know, our core manufacturers are contributing to a healthy export situation.
However, in the high street we are suffering from what I call bumps and starts. There is no consistency to consumer spending which makes retailers very uneasy. I realise that my point is slightly wide of the Question, but it wiil have an effect on many industries involved in exporting their products. The health of the home market affects our order books and in turn production as a whole.
In closing, I congratulate the magnificent work forces up and down the country; their managers for their tenacity, dedication and ability in many cases to adapt to an ever-changing world. To the world we remain Great Britain. It is thanks to those men and women that we can hold our heads high, with products to match.
8.12 p.m.
Lord Haskel: My Lords, I too begin by congratulating the Minister on his appointment. I welcome him to the Dispatch Box. I also ask him not to be deterred by a seeming greater interest in the tug of war going on outside than in trade and industry matters in your Lordships' House. The work is in fact very important. It affects the standard of living of all of us in this country.
The Minister may be aware that almost a year ago the noble Viscount, Lord Waverley, introduced a similar debate on exports. I am most grateful to him for introducing the subject again this evening because it gives us an opportunity to review the past year and look forward to the future. The Minister may well feel cheerful this evening as we are perhaps dealing with one of the happier sectors of his new responsibility. Our performance on exports and inward investment seems to have been quite good over the past year.
What are the reasons for that? It seems to me that there are half-a-dozen reasons which vary in importance from industry to industry and firm to firm. The first reason is that some of our companies have simply become more competitive. Quality has improved, unit labour costs have gone down by 3.4 per cent. during the past year, and our products have been better marketed, better designed and better produced.
Secondly, because of devaluation our goods have become cheaper. Thirdly, we have had a stagnant home market. Lack of demand in the UK has forced

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businesses to seek new opportunities of selling abroad and, to their credit, many companies have risen to the challenge. Fourthly, there has been better support from government. The Minister can take some comfort that his department is starting to develop a partnership with industry by preparing a marketing strategy for different countries and different industries. The noble Viscount, Lord Waverley, referred to that and asked whether the initiative would be extended. We look forward to the reply. Government Ministers have travelled many thousands of miles on trade missions with business people and the Minister has all that to look forward to.
Fifthly, improving world trade has helped and we have been able to cling on to our share of it. Finally, we have started to benefit from the European single market, even though it is both a threat and a challenge.
Despite all that, we are, however, still showing a deficit in our balance of trade in manufactured goods. The deficit was £7.5 billion in 1994, compared with a deficit of £8.1 billion in 1993. I hope that those figures are correct. They come from the Central Statistical Office, but I am sure that the Minister will join me in showing some concern about our trade statistics. A surplus of £0.6 billion for the last quarter of 1994 has now been revised down to a deficit of £0.5 billion. The current account deficit for the whole of 1994 has been revised upwards from £0.2 billion to £1.7 billion. I hope that the Minister will ensure that we are at least measuring our performance correctly. He will quickly learn the art of selective statistics, but it is important that the selective statistics are accurate.
However one selects the statistics, it is true that our improved export performance sucks in more imports, particularly capital goods such as machine tools, printing machines and plastic moulding machines, because we produce too few of those and similar products. As the Financial Times said recently:
"Investment spending tends to suck in more imports than consumer spending, because Britain has a relatively small capital goods industry to satisfy demand".
That is one reason why, on these Benches, we have been calling for measures to increase investment in producing capital goods so that we can make the equipment here instead of importing it.
So much for the past. What about the future? It is certain that our exporters will face strengthening international competition in all markets. Other noble Lords have spoken about that. How can we maintain and improve our position? Certainly not on the back of a weakening currency. Both the Chancellor and the shadow Chancellor have emphasised their determination to maintain financial rectitude. Anyway, Germany, Japan and the USA have all, in the last few days, started to reduce their interest rates. Also, our customers are insisting more and more that we sell in their currencies or in European currency units. We can only maintain and improve on our position in world markets by improving the performance of our businesses and improving the performance of the DTI in supporting them.
When speaking to the Institute of Directors recently, the President of the Board of Trade complained that we had too many inferior companies being dragged along
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by too few world-class companies. I agree. What we have to do is to increase the number of world-class companies that we have in this country. The noble Lord, Lord Wedgwood, and the noble Viscount, Lord Astor, spoke of that.
Any company can aspire to be world class. It has to have the will to follow the process of achieving quality of product and technology and low unit costs, and to embrace continuous improvement, mobilise its management and empower its employees. But in today's global market the end product is usually a combination of components from many suppliers. A company will not be world class if its suppliers and its suppliers' suppliers do not share the same aspirations. The end product will succeed only when they are all world class.
In Japan, because of the web of interdependence that grows naturally, there is an integrated approach. Our culture is different, and these relationships have to be encouraged. To do that, I should like the Minister to concentrate on his department's world class manufacturing programme. The companies that adopt the programme will be the companies that will sustain our export performance in the future. The programme is particularly suitable because it takes the training, the work and the information direct to the companies and their executives and employees. It is not just a subsidised consultancy. The programme is designed to deliver and encourage standards of customer care, service, quality, technology and manufacturing equal to those existing in the best international companies, and to continue the improvement. The programme can apply to all sizes of businesses, with tens, hundreds or thousands of employees. It is self-selecting. The noble Lord, Lord Astor, referred to that when speaking of the motor industry.
There is a very good home grown example. In 1990, British Steel started the joint training of managers whose only link was that they worked for a company involved in the supply chain for British Steel. It was pioneering work and I urge the Minister to encourage more of it.
An added advantage of this world class benchmarking is that it gives businesses a framework within which to invest. I spoke earlier about the importance of investment. Companies are much more likely to invest within this framework than they are as a result of simply being exhorted to do so.
I spoke about improving the performance of the DTI. I join the noble Viscount, Lord Waverley, in referring the Minister to the recent survey of international services provided to exporters commissioned by the Institute of Export. I recommend the report as important background reading. Ten thousand companies which are already exporting were surveyed. It was found that one in eight exporters are unaware of the services provided by the department, and another 50 per cent. do not use those services. It is not as if the services are poor. Those who use them consider them to be good. Therefore the task of the Minister is not to introduce more services, but to make sure that the existing ones are better used. As the noble Viscount, Lord Waverley, reminded us, export and inward investment are interconnected. On

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4th July the Invest in Britain Bureau reported that almost half of our exports were made by foreign owned companies, and the trend seems to be rising.
So how can we encourage inward investment? First, we must understand it better. The raw figures show that inward investment is dwarfed by outward investment, but we need to disaggregate the figures because there are different types of inward and outward investment. The largest part of both is simply buying shares in existing companies. I hope that the Minister will take steps to disaggregate the figures, because the important inward investment is the kind made by many of the world's better businesses whose investment brings new jobs, new technology, new products, new management and a general air of optimism.
But it is expensive. Regional grants and special grants are required to attract this investment; and the investing companies know that there is a lot of competition for their presence and they drive a hard bargain. Also, how long-term is this investment£ We all hope that it is long-term, but let us remember that Du Pont closed down the fibre business that it bought from ICI within a couple of years, with a loss of 525 jobs. Raytheon Jets closed down one of the most advanced production facilities in the aerospace industry less than 18 months after buying it from British Aerospace.
There is a lot of myth as to why companies invest here. The noble Lord, Lord Astor, referred to the minimum wage. Ministers and Members opposite often use the success of inward investment as proof of the success of the Government's employment policies. I advise them against doing so, as it is an exaggeration. The Invest in Britain Bureau commissioned a survey of 200 manufacturing, assembly and research and development companies which have already invested in the United Kingdom. They were asked their main reasons for investing in Britain: 126 mentioned the need to be in the European Union as part of their world strategy; 32 mentioned the English language; and only 12 mentioned labour costs.
I hope that the Minister will take note that, on the basis of the survey, the Government's employment policies are pretty irrelevant. What is absolutely clear is that investment in this country is seen as an investment in Europe; and if we are to continue to attract inward investment, the first priority is for the Government to sort out their policies towards Europe. That helps to explain why half our exports emanate from those companies.
The research also showed that another important factor in attracting inward investment is teamwork and continuity. The noble Viscount, Lord Waverley, spoke of confusion created by the lack of such teamwork. The team consists of the Invest in Britain Bureau; the development agencies; the local authorities; and the local private companies on which the inward investor will depend. Each has a role to play.
Bearing in mind that virtually all the local authorities and regional development agencies are Labour controlled, I urge the Minister to emphasise that, in order to put a stop to suggestions that there would be a lack of commitment towards inward investment if there were a change of government. The actions of those
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Labour authorities prove that the commitment would he just as great, and by emphasising that continuity the Minister would be helping to encourage inward investment.
Every encouragement is required because attracting inward investment is becoming more and more difficult. Competition for such investment is coming not only from other European Union countries; it now comes from eastern Europe too. Countries such as the Czech Republic are managing to come up with very attractive packages. Also, the inward investment scene is shifting to Asia. In his department the Minister will find recent figures published in Japan showing that we are ninth on the list of receivers of Japanese investment. Of the eight countries ahead of us, the United States is in third place and all the others are in south east Asia. China heads the list.
So what is our message for the Minister? First, encourage the creation of more world class companies, which will improve our export performance and also attract inward investment. Secondly, sell the services of his department more effectively. Thirdly, encourage the Invest in Britain Bureau to range far and wide and emphasise teamwork and continuity. Fourthly, be positive towards the European Union.
I hope that the Minister finds these suggestions helpful. They are offered in that spirit. I look forward with interest to his response, not only now but also in the future.
8.23 p.m.
The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, perhaps I may begin by thanking the noble Viscount, Lord Waverley, who introduced this debate, and others, including the noble Lord, Lord Haskel, for the kind words of welcome that they extended to me on taking up this portfolio within the Department of Trade and Industry. I say to my noble friend Lord Ashbourne that I have no intention whatever of nodding off to sleep during debate on this particular set of issues. I am hound to say that there are debates on some issues in this House during which the desire for sleep can be overwhelming, but on this occasion that is certainly not the case. My noble friend arrested my attention entirely when he seemed to suggest that the Royal Yacht was steaming into the port of Johannesburg.
The one point that has clearly emerged from this very important debate is that we are all in agreement. It is of vital importance to the United Kingdom and international trade that there should be proper cross-border investment. Export growth is at a record 18-year high, as my noble friend Lord Wedgwood remarked. The current account deficit, as corrected, was indeed £1.7 billion in 1994, but it was the lowest since 1986. The invisible trade surplus of £8.9 billion in 1994 was the highest ever.
In the first quarter of 1995 exports are up a further 9 per cent. on last year, with imports up only one half per cent. At the same time, the CBI reports the strongest growth in export optimism since 1973. Forty per cent. of those manufactured exports are accounted for by international investors in the United Kingdom. The

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inward investment story is one of success. The competitiveness of our economy is nowhere better shown than in our ability to attract inward investment. Over 40 per cent. of all United States, Canadian and Japanese investment—and over 50 per cent. of Korean investment—in the European Union is located here.
Further, 1994–95 was another record year for inward investment. A record 434 overseas companies announced their intention to invest here, bringing with them over 88,000 associated jobs. I hope that the noble Lord, Lord Haskel, will agree that what was particularly encouraging was the fact that there were 28 research and development projects, and 245 projects were expansions of existing investments.
The Government's policy to encourage inward investment has brought enormous benefits to our economy. Since 1978–79 it has created or safeguarded nearly 700,000 jobs. The expertise of those companies has had a knock-on effect throughout United Kingdom industry, strengthening competition and innovation and boosting the productive capacity of our own companies. Our recent record is one of which we can be proud. My noble friend Lord Astor and others were entirely right to point out that, even now, this was not a time to be complacent. We cannot afford to stand still in the face of international competition, and we must continue to seek ways to improve our efforts. That goes for increasing the quality of our export promotion work and the level of investment in the United Kingdom.
The noble Lord, Lord Waverley, began by asking me to look forward. Perhaps I may refer him to the White Paper on competitiveness launched in May of this year. There the Government set out their long-term strategy for export promotion. They have committed an extra £40 million over the next four years which will be spent on enhancing the professionalism of staff in the overseas trade services—a theme that emerged from a number of contributions—reinforcing and improving the delivery of services at business links, increasing the number of trade fairs from 334 in 1994–95 to 400 in 1996–97, mounting a number of British excellence fairs and increasing the number of outward missions to 280.
The noble Lord, Lord Waverley, was particularly concerned that there were too many different organisations promoting inward investment. As a Scot, I clearly recognise that all areas have a legitimate interest in promoting the most positive image of themselves. In many circumstances local organisations are best placed to market their products. It may seem that there is some duplication, but the organisations co-operate with each other in order to market themselves most effectively overseas. The Invest in Britain Bureau of the DTI is responsible for the promotion of inward investment to the United Kingdom as a whole. Overseas posts also liaise with local offices of the territorial and regional agencies to minimise duplication.
As far as the United Kingdom tax regime is concerned, at 33 per cent. the United Kingdom has one of the lowest corporate tax rates in Europe. At the same time, the new rules on advance corporation tax and the reduction of the overall rate to 20 per cent. should increase the United Kingdom's attractiveness as a
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location for headquarters operations. We are confident that these are the right measures to maintain the United Kingdom's attractiveness within the Union.
I believe that the noble Lord is mistaken in his belief that as far as regional selective assistance is concerned the United Kingdom is unique in the imposition of a cost per job limit; nor is it something that the Government are likely to drop. One of the key criteria of the scheme is that it should create jobs. That is an important measure by which we can gauge the scheme's value for money. Similarly, the scheme is selective in that grant is given when there is a proven need. The noble Lord also alluded to the recent re-interpretation of the Home Office rules on entry into Britain. I understand his concerns that potential investors should not be dissuaded from investing in the United Kingdom, but the Invest in Britain Bureau has no evidence that these changes have had any adverse effects on inward investors, nor on the attractiveness of the United Kingdom as an investment location. Nevertheless, he is right to raise this and other issues. I hope that he will be reassured that we constantly monitor our inward investment organisations to minimise duplication and ensure value for money.
I believe that our performance on inward investment speaks for itself. Of course, other European countries are sometimes successful in attracting inward investment, but I believe that we need to look at long-term trends, not simply one-off comparisons. It is reassuring that in 1994–95 57 per cent. of investment in the United Kingdom recorded by the IBB was reinvestment or expansion by companies already established here. If I may say to the noble Lord, Lord Haskel, I do not believe we need to trade whether or not minimum wages have an effect. I invoke, as so many of my colleagues have in the past, President Delors' comment that the United Kingdom was potentially a paradise for investment. I have not seen that recently contradicted. I was also asked whether or not there would be a commitment on the part of the Treasury to match future increases in exports. There is already such a commitment. In 1994 the amber zone budget, which controlled the new level of ECGD exposure in markets where the risk was high, continued to rise over the financial period in question.
I turn to the issue of exports and the comments made on the export intelligence service. This is monitored regularly by in-house staff, and it is intended that regular reviews should continue. I was also asked why we still did not have a centrally-run business data base. The Government do not regard it as part of their role to duplicate the information already available on a number of private sector data bases. A recent review within the DTI recommended that commercial sources could be enhanced if some non-competitive data held by the Government for regulatory purposes was made available to the private sector. We are looking into these matters.
I agree with my noble friend Lord Wedgwood that the export promoter initiative has been successful. I hope that he and others will be glad to learn that there are no plans to wind down the scheme. Industry continues to be supportive by offering high calibre people for secondment to the department. It is true that

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in their two years many export promoters build strong links with United Kingdom exporters and buyers in foreign markets. There may be some concern as to what happens to that accumulated experience. We are confident that it is not lost. Where appropriate, new export promoters pick up where their predecessors leave off, and dedicated desk officers who work alongside the export promoters are also well-placed to maintain the export strategy relating to the market.
I turn to the business links initiative. There have been some teething problems. However, the initiative is nothing short of a revolution in the delivery of government services. We believe that it is the right way to proceed. Delivery through business links meets our objective of getting closer to customers, and it adds an extra dimension to government services and is now offered as part of a wider range of support to meet business needs. Inevitably, there has been some disruption in the early stages, but the benefits are emerging. Leicestershire business link is an excellent example of co-operation in action. DTI staff work closely with staff from chambers, the European information centre and the export development counsellor to produce a joint export strategy. I am fully aware of the concern that we must make more businesses aware of, and get them to use, these services. That very role of the business links initiative is to reach more companies which are developing their business and export strategies and to introduce them, through government support where appropriate, to new markets.
As far as outward missions are concerned, it is true that many small and medium-sized exporters are critical of the limited number of trade missions that they can attend with DTI support. Following a formal evaluation of the outward mission scheme, it was agreed that with effect from 1st April 1993 assistance would be limited to 10 missions per company, with a maximum of three to any one country. So far no company has been turned down because it has exhausted its limit of 10. Even after a company has received assistance for 10 missions it is not precluded from attending future missions.
Between 1993 and 1995 we have annually supported around 150 outward missions, with something like 2,700 annual participants. I want to emphasise that we realise the importance of those missions and are set to increase the figure for 1995–96 to 250. That should lead to around 3,500 participants. The importance was also noted in the increased funding going from £1.7 million to £2.9 million next year. The success can be seen in the £150 million worth of contracts reportedly won by the companies.
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I am conscious that there are a number of detailed points that I shall not be able to follow through. I was dismayed by the observations of my noble friend Lord Wedgwood with regard to the professionalism of those who make a contribution. I can assure him that within the overseas trade services we shall seek further ways in which to increase the professionalism of our staff both in the DTI and the FCO. A programme of secondments between DTI and FCO staff involved in commercial work and with the private sector will help us make the most of trading opportunities. I warmly welcome the commitment of the FCO to trade promotion work and the increased resources promised for the years to come.
I turn to the particular point made by my noble friend Lord Astor on engineering and the vehicle components industry. I know that the motor sports industry association is well known to the vehicles division within DTI, which is responsible for sponsorship of the vehicle industry. I am sure that it would be prepared to consider favourably the association's suggestion of a conference on the industry's needs. We are also aware of the problem of engineering skill shortages and we announced an action for engineering initiative in the 1994 competitiveness White Paper. That is a joint initiative between industry and academia supported by the Government. The Engineering Council has already announced higher standards for educating, training and developing engineers and technicians. The work of that initiative is set to continue through 1996.
I share the interest of my noble friend Lord Ashbourne in the Royal Yacht. I am aware of the value that it has provided for us in export promotion. I noted what he had to say. It is a difficult issue, as I am sure he appreciates. The question of a replacement is being considered by the Government and a decision will he announced in due course. I regret that this evening I am not immediately able to give him the assurance that he sought from me. However, I very much understand his interest and commitment to this matter.
If I have failed to answer any detailed points, I shall be grateful if noble Lords will let me know. I certainly want to ensure that clear attention is paid to the detail of all these important efforts that we are making. It is not just because it has indeed been a success story in recent years. There is little contradiction in your Lordships' House that, if we do not maintain that effort to the very best of our ability, it will indeed undermine the prosperity on which the nation is founded.
House adjourned at a quarter before nine o'clock.