Lords Sitting of 21 July 1995

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of St. Albans
Lord Grantley Lord Grantley—Sat first in Parliament after the death of his father.

Medical (Professional Performance) Bill
11.7 a.m.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege)The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Baroness Cumberlege.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 1 [Professional Performance]:
Baroness Jay of Paddington Baroness Jay of Paddington moved Amendment No. 1:
Page 1, line 10, after ("deficient") insert ("(measured against published performance standards and key performance criteria)").
The noble Baroness said: The purpose of the amendment is to make the legislation more precise about how professional performance is to be judged. Throughout the deliberations on the Bill in another place and at Second Reading in your Lordships' House, questions were raised about how to define a seriously deficient medical performance—a definition which is clearly central to the functioning of the new procedures.
Ministers in both Houses have acknowledged that the question of definition is difficult and seem to have accepted that establishing practice codes and guidelines will be left entirely to the General Medical Council. In another place, the Minister, Mr. Sackville, reported at the Committee stage that the General Medical Council will soon publish a new version of its so-called Blue Book under the title: Good Medical Practice. It will be the touchstone against which professional performance will be assessed and judged, although he noted that there could be departures which were serious and which were not covered by the GMC guidance.
In this House at Second Reading, the Minister, the noble Baroness, Lady Cumberlege, said that:
"Serious deficiency in professional performance is a departure from good medical practice, whether it is covered by the GMC guidance or not".—[Official Report, 29/6/95; col. 894.]
The noble Baroness went on to say that she appreciated that what she was giving was "a rather woolly definition"—her words. But she too placed her faith in the publication of the new GMC guidelines, which she hoped would make the issue of standards clearer.
This does not seem to be a satisfactory situation. My amendment, Amendment No. 1, does not attempt to establish descriptions of good, bad or seriously deficient medical practice. But it seeks to place on the face of the Bill that the performance criteria should be explicit, should explicitly refer to the terms of the Bill and not be part of general guidance to the medical profession left to the GMC. It may be that the kinds of codes which I seek will be included in the new Blue Book, in which case there seems to be no problem about placing them on the face of the Bill. After all, the National Health Service and those who work in it have accepted the need for performance indicators across the whole range of health care. Areas of practice which might in the past have been seen to be solely matters of individual professional judgment are now subject to objective assessment. The introduction of medical audit has made it possible to review performance against agreed consistent standards.
It is true that these changes have sometimes been resisted by traditionalist members of the medical profession, who complained of threats to their clinical freedom. But clinical freedom has sometimes meant doing things as they have always been done and not in accordance with advances in medical science or in the best interests of the patients.
It is exactly that kind of rather blinkered approach that the Bill seeks to prevent. The Bill should also seek to make clear that performance will be judged across key objective criteria and will not be differently judged variously, for example, according to personal prejudice or perhaps on the basis of different local practice.
If the primary legislation does not state categorically that consistent national standards will be published and adhered to, then there will be endless opportunities for argument and debate about what constitutes a serious deficiency in performance. One can see this being any medical practitioner's legal adviser's field-day. It is almost certain that in these circumstances procedures will be delayed and there will be a lack of efficiency in achieving precisely what the Bill sets out to make clearer. This situation cannot be helpful to the overall purpose of the Bill, with which noble Lords on all sides of the Chamber agree and which we all welcome; namely, to improve both medical standards and the confidence of patients. I beg to move.
11.15 a.m.
Lord Walton of Detchant: While I sympathise with the intention underlying this amendment, so ably proposed by the noble Baroness, Lady Jay of Paddington, I believe that to include it in the Bill would in many respects be an error. My reasons for saying so relate to the fact that the purpose behind the Bill is to give additional powers to the General Medical Council—additional to those that it already possesses—to enable it to discipline doctors guilty of serious professional conduct and to take action to rehabilitate or otherwise deal with doctors whose health is sufficiently seriously impaired as to put patients at risk.
The whole objective of the Bill, as the noble Baroness said, is to empower the General Medical Council to take appropriate action in relation to doctors whose

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professional performance falls below an acceptable standard. Having made that point, however, the conduct and health procedures have relied upon definitions which some may regard as being woolly, but which have nevertheless stood the test of time. The problem about attempting to codify professional performance in the precise way that the noble Baroness suggested is one that is far beyond the capability of any body of medical practitioners with the legal and lay advice upon which it is likely to rely at the present time.
The problem is that so many specialties exist in medicine that to attempt to lay down precise published performance standards for each of them and key performance criteria would be an incredibly difficult task. Hence, this amendment—though one which has a worthy intention—is not one that could be carried out in practice. Over many years the profession has had experience in assessing the performance of undergraduate medical students at final examinations in medicine with the advice of experienced external examiners; and the officers of the Royal Medical Colleges have a great deal of experience in assessing performance in postgraduate examinations.
There has also been a major development in the introduction of methods of the audit of professional performance carried out voluntarily by members of the profession. This expertise will be drawn upon by the General Medical Council in its efforts to undertake these performance procedures and to make sure that doctors who are not performing up to an appropriate standard are dealt with appropriately, as set out in the Bill. But to try to lay down these procedures in precise terms in statute would be inappropriate. Such performance criteria would have to be regularly updated and modified according to developments in medicine.
The Blue Book to which the noble Baroness referred is not a code of practice. It is a guide to the medical profession about standards of practice and professional behaviour. It is about to be published as updated. I believe that it will form the cornerstone of the form of professional procedures and assessment procedures upon which this Bill will depend. Therefore, I have to say that I am not able, on the advice that I have received, to support this amendment, despite accepting wholly the intentions underlying its proposal.
The Government agree with the noble Baroness's intent. It is important that a doctor knows the limits within which he should work and the standards that he should meet. It is equally important that the public should have information available so that they know what to expect. The General Medical Council is empowered to issue guidance on standards of conduct and ethics. This Bill will empower it to do the same for standards of professional performance. Of course the guidance will be updated regularly.
However, a doctor cannot be judged on a set of published criteria alone, as the noble Lord, Lord Walton of Detchant, outlined. Such criteria will be constantly changing, and a published document can soon become outdated. To require the Committee on Professional
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Performance to make judgments on published standards alone would constrain it, and may act against the public interest.
Therefore, in order to give the Committee on Professional Performance the ability to carry out its task appropriately and effectively, it is important that published criteria form just one aspect of its reasoning. There is a body of unpublished, but widely acknowledged, standards which also needs to be considered. This must also be taken into account. In the light of these arguments, I hope that the noble Baroness will feel able to withdraw the amendment.
Baroness Jay of Paddington: I am grateful to the Minister for that response, and indeed to the noble Lord, Lord Walton of Detchant, for his very authoritative views on this matter. There is perhaps some confusion about the exact terminology that is to be used. I recall that at Second Reading the Minister said that she hoped there would be greater clarity about this whole area before the Bill left this place.
The distinction between guidance and a code, which the noble Lord, Lord Walton, clearly made, in terms of the General Medical Council's publications, is precisely what concerns me a little. I am still unclear whether the guidance which will be published by the General Medical Council will, as it were, be specific to the standards of professional performance which are to be judged under these new proceedings or whether it consists simply of more general pieces of advice to the medical profession about the general standards that it should maintain. If it is the latter, it seems to me that it will not be sufficiently tight or specific to enable the very well informed and, as the noble Lord, Lord Walton, said, extremely experienced members of the committees involved to make the assessments that will be necessary.
My primary concern is not to establish some kind of false external criteria which have simply to be adhered to, but rather to enable the committee to work effectively and not constantly be tripped up, as I said when I moved the amendment, by an articulate doctor or his even more articulate legal representatives running rings around the concept of serious professional failures.
That was the spirit behind the amendment. Having heard what the Minister said and the authoritative comments of the noble Lord, Lord Walton of Detchant, I beg leave to withdraw the amendment at this stage. However, I hope that, before the Bill finally leaves your Lordships' House, we may be able to obtain some slightly more specific guidance in this matter.
Amendment, by leave, withdrawn.
Baroness Masham of Ilton Baroness Masham of Ilton moved Amendment No. 2:
Page 2, line 14, at end insert:
("and such requirements may include conditions for retraining and supervision").
The noble Baroness said: Amendments Nos. 2 and 3 are being taken separately. In moving Amendment No. 2, I wish to make it clear that I have both the interests of the doctors and the public—the patients—equally at heart. The amendment would put clearly on the face of the Bill the provision that, when a doctor had been suspended from registration, for the protection of

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members of the public or in the doctor's interest, the committee could impose conditions for retraining and supervision.
I consider that this amendment is desirable because I feel that the public need reassurance that something constructive will be done. There has been a great deal of concern and dismay among the general public over some tragic cases which have been widely publicised. Let me quote the headlines from a few newspapers printed since the Second Reading of the Bill.
The Universe, Sunday, 2nd July:
"This waste of a beautiful life. Twelve-year old Katie from Moulton, Northampton, died from blood poisoning after a routine appendix operation".
The article says that the family is still horrified by the chain of events leading up to the youngster's death. The whole story will have been widely read.
The Times, Tuesday, 11th July:
"Doctor accused of injuring women with bungled keyhole surgery".
The Times, 14th July:
"Doctor failed in duty to his patients".
Earlier this year, the Evening Standard had a full page spread with the headline:
"The brain tumour that six experts failed to diagnose".
Up and down the country in local papers and the nationals one reads many such stories. It is no wonder that there is a worried and confused public when they hear that the most famous hospital of all, St. Bartholomew's, is under threat of closure. How can they understand that when there is a shortage of British doctors and a much quicker throughput of patients in the hospitals, which puts much more pressure on hospital doctors and on general practitioners once the patient goes home and needs continuing care. The public have campaigned for the hospital which they trust and respect. They feel that nobody is listening to them.
There are many reasons why some doctors fall below acceptable standards and need a period to get back to a good working standard. In an inner city where there are still single handed practices and in rural districts with large, sparsely populated areas it could be very easy for doctors to slip back into unacceptable ways and again become seriously deficient without support and a period of probation with supervision to keep them on the correct track.
Having training and supervision clearly written into the Bill might help to regain some of the public's confidence and reassure the doctor, who might feel isolated and vulnerable without the knowledge that he would have a helping hand when he needed it. I beg to move.
The Lord Bishop of St. Albans: I have been tempted to rise to my feet to express my support for this amendment proposed by the noble Baroness, Lady Masham of Ilton. I congratulate her on the way in which she persuasively presented it.
Far be it from a clergyman to dictate how the medical profession should run its affairs, especially as the Church of England has demonstrated that it has much to learn in the field of discipline and adjudication. The only thing that can be said—it needs to be said in the Lincoln
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case—is that there has been no cover up, which could so easily have happened, when justice would not have been done or seen to be done. But enough of that.
We are dealing with matters of professional incompetence and with a process of retraining and rehabilitation. No comparison between the rehabilitation of doctors and of clergy can be made, but there are certain parallels. The Minister may care to consider whether they have any bearing on the amendment before the Committee.
The Church has developed plenty of experience in seeking rehabilitation for some of the clergy who have been suspended, for whatever reason. It has a sophisticated system of inhibitions and limited permission to officiate, which in my experience works well and is designed to balance the potential usefulness of a restored priest against the need for him to achieve credibility in the eyes of the Church and the parish. The parallel, which I believe can safely be drawn, is that becoming a doctor and becoming a priest involve qualifications but not just qualifications. It is not the same as passing a driving test where, if one drives badly, one can be compelled to take the test again and then carry on along the road. Being a doctor or priest involves qualities as well as qualifications, and particularly being able to sustain the confidence of patients or parishioners. Where that is lacking, no amount of diplomas will compensate.
It has certainly been my experience that rehabilitation in the eyes of the general public can best be served by insisting on a period of restored ministry under supervision, usually (in the case of the Church) as an assistant curate for a year or two. The priest is then able to earn himself not only a good reference or two but the heartfelt appreciation of a congregation which sees that he has made good and is all right again. They can trust him.
I hear many of my people speaking about having great faith in Dr. This or Mr. Surgeon That. Surely it is that kind of rehabilitation that the Bill aims to achieve. Therefore, I commend the amendment and hope that the Minister will consider the parallels that I have suggested as she thinks further about the Government's proposals.
Lord Rea: I rise briefly to support the noble Baroness's amendment. It adds some useful conditions. It spells out some of the actions which might well be covered by the Bill as it is now but it is useful to have that phrase and particularly the matter of supervision once the period of suspension is over and the doctor is back carrying out his professional work. I expect the noble Baroness, Lady Cumberledge, will have something to say about that. Perhaps she can say whether or not the requirements which the amendment incorporates are already covered under the Bill as it stands.
11.30 a.m.
Lord Walton of Detchant: At Second Reading I mentioned that when I had the privilege of serving as president of the General Medical Council from 1982 to 1989, I became increasingly concerned—as did many of my colleagues—over the inability of the council to

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handle certain problems which were regularly brought to our attention. We believed, and still believe, the discipline and health procedures to be effective. However, it became increasingly clear that the council lacked the procedures to deal with impaired or inadequate professional performance or indeed to deal with doctors who failed to demonstrate the understanding, the human compassion and the communications skills which are so crucial to the good practice of medicine.
The purpose of the Bill is to do exactly what the noble Baroness and the right reverend Prelate suggest. But that purpose will be fulfilled by the regulations to which the Bill will lead, approved by the Privy Council. As matters stand, under the health procedures, for example, if a doctor is found to have a form of ill health seriously impairing his or her ability to practice medicine safely, that doctor is required to undergo a period of full assessment by skilled practitioners. Their advice is then accepted and the doctor is required to undergo treatment under supervision over such period as may be necessary before that doctor is enabled to return to clinical practice.
The purpose of the Bill is to carry out an exact mirror image, in a sense, of those procedures in relation to those doctors whose professional performance has been demonstrably shown to be below an effective level. I am advised that if the amendment of the noble Baroness were to be accepted it would not only raise an issue as to whether the GMC should organise and pay for remedial training but that it would also raise complications in relation to the assessment procedures proposed by the Bill and to follow in the regulations, promulgated and eventually approved by the Privy Council.
The General Medical Council believes that it is better to sort out problems of efficiency first by inviting the doctor to undergo assessment or requiring the doctor to undergo assessment and then indicating to the doctor the standard of performance which he or she must achieve in order for an application for restoration to be given favourable consideration. The regulations will require that doctor to undergo a period of retraining under supervision before he or she is able to apply for restoration to the register and is able to return to clinical practice.
I am advised that if this amendment were to succeed it would be necessary for a whole series of consequential amendments to be drawn up and added to the Bill. Hence, while I again fully support the intention underlying the amendment, I am advised that the regulations which will follow the passage of the Bill will make such an amendment unnecessary.
Baroness Jay of Paddington: Perhaps I may briefly support the amendment and also pursue the question raised by my noble friend Lord Rea and the noble Baroness, Lady Masham. I do not feel that it was quite answered by the contribution of the noble Lord, Lord Walton of Detchant.
As I understand it, the issue of retraining under supervision will indeed be included in the regulations, as the noble Lord, Lord Walton of Detchant, explained.
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From what the noble Baroness, Lady Masham, said in introducing the amendment, it is certainly my feeling from a lay perspective that it would be helpful if, once that training and supervision were completed, there was some further probationary period, perhaps in the way the right reverend Prelate explained in relation to the clergy. One could almost describe a doctor as once again wearing "L" plates. It would mean that although he had been retrained and the supervised training had been completed, he was nonetheless recognised by the general public and by his patients not to be a fully rehabilitated member of the profession. It is that matter of supervision and probation after retraining which most concerns me. That is why the amendment is important.
Baroness Cumberlege: Perhaps I can start by thanking the right reverend Prelate the Bishop of St. Albans for his insight into this subject. I take the opportunity to express a personal regret that this is the last day that the right reverend Prelate will grace this Chamber. I am very unhappy therefore to have to disappoint him on this occasion.
The noble Baroness, Lady Masham, through this amendment, seeks to empower the committee on professional performance to impose conditions on a doctor's practice which would require him to undergo remedial training or to be supervised by another doctor. Making continued registration conditional on remedial training will usually only be appropriate where the doctor refused to take any remedial action and there has been no improvement in his performance. The performance procedures are designed to allow a doctor's standards of practice to be assessed and, where that standard is deficient, to allow him the opportunity to remedy the deficiency. That point should be reached long before the case is considered appropriate for the Committee on Professional Performance, the committee which can impose conditions on a doctor's registration.
Where a case does reach the committee, it may wish to make registration conditional on retraining or supervision, or both, in many of the cases where it imposes sanctions. However, the powers that already exist in the Bill will allow the committee on professional performance to impose just those types of conditions. The powers for the committee to impose conditions are similar to those which govern the Health Committee and the Professional Conduct Committee which have, in the past, included making registration conditional on retraining or supervision.
I hope that that explanation meets the points made by the noble Baroness, Lady Jay, and the noble Lord, Lord Rea. We feel that there is no need for this amendment and hope that the noble Baroness will withdraw it.
Baroness Masham of Ilton: My Lords, I thank all noble Lords who have spoken and explained their views. I thank particularly the right reverend Prelate the Bishop of St. Albans and wish him well. I hope we see him back here, perhaps not on duty but as a visitor.
I wish also to say that there is a likeness between the ministry of the Church and the ministry of medicine. There is a feeling that the health service, which belongs to the people, should be an open service. We shall consider carefully what has been said—we have the

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Summer to digest it—and may come back at the next stage of the Bill. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Jay of Paddington Baroness Jay of Paddington moved Amendment No. 3:
Page 2, line 14, at end insert (", the costs of compliance with any such requirements to be paid out of money provided by Parliament").
The noble Baroness said: I beg leave to move Amendment No. 3 which stands in my name and that of the noble Baroness, Lady Robson of Kiddington. This amendment follows closely the previous one moved by the noble Baroness, Lady Masham, and was in fact originally grouped with it. I hope that when I have explained my reasons for moving it, the Committee will understand why we decided to ask for it to be considered separately.
The amendment is designed to ensure that those doctors who are required by the General Medical Council to undertake remedial training will not be financially penalised by paying for that retraining themselves. If the amendment is accepted, the cost will be borne by public funds.
As I understand the present proposals, doctors who hold hospital contracts—those employed by NHS trusts—may expect retraining costs to be paid for by the relevant employing trust; they at least have the opportunity to apply to their employer for that financial help. On the other hand, GPs (family doctors) as independent contractors with the health service, will be required to pay from their personal budgets. The British Medical Association is very concerned that this creates an unfair distinction between the two categories of doctor, both of whom are liable to be judged professionally deficient on the same basis but who will then be differently treated. On these Benches we believe that this is an anomaly in the Bill which should be prevented by amending it as Amendment No. 3 suggests.
I mentioned at Second Reading that there has been correspondence between the British Medical Association and the Minister for Health, Mr. Malone, about this question since the Bill finished proceedings in another place. The BMA has now asked that the Family Health Services Authority, or presumably from next April the successor Health Authority, should reimburse GPs for any costs incurred. As the noble Baroness, Lady Robson, established at Second Reading, these might include the costs of employing a locum practitioner while the GP attended courses and so on, as well as the GP paying for those courses.
Unfortunately, the noble Baroness, Lady Robson, cannot be with us today, but as the Committee will have seen, she supports this amendment and her name is to it as well. However, so far it seems that the Government are not prepared to act on this apparent anomaly. In his most recent letter, dated I believe 5th July, to Dr. Ian
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Bogle, who is the chairman of the British Medical Association's General Medical Services Committee, Mr. Malone said:
"GPs are not employees of the NHS, but independent professional contractors. They are responsible for meeting their own practice costs including the cost of maintaining their professional skills and knowledge. The GMC's guidance is quite clear that it is a doctor's professional duty to maintain his standard of performance by keeping his knowledge and skills up to date throughout his working life … Where a GP fails to do so and his professional performance becomes seriously deficient it is not for the taxpayer to have to spend yet more money on that doctor".
I have two reasons for disagreeing with those points, and I hope that the Minister in this House will accept the amendment. First, it seems to me to be inappropriate to equate the special retraining proposed under this Bill with the general continuing medical education now available to all doctors, and indeed in many cases required of them. Continuing medical education is offered to the profession as a method for maintaining their general knowledge and development in the relevant areas of both science and technology, as indeed Mr. Malone agrees in his letter to Dr. Bogle.
If successful, it is of course very important in preventing some of the failures of competence which could lead to a doctor being reported to the GMC under the new procedures which we are discussing today. However, the continuing medical education programme is not designed to address particular gaps in knowledge or skill, or indeed to counteract any of the more subtle problems of attitude and outlook which several noble Lords raised at Second Reading and which the Minister agreed were covered by the terms of this Bill.
As described, the remedial training which a doctor may be required to undertake under the new procedures will be specifically designed to assist that individual to bring his or her professional performance up to standard. It could be intensive and conducted full-time on a short-term basis. Indeed, the Minister said in her very helpful letter to noble Lords who took part in the Second Reading debate before this stage of the Bill that it could take six months in order to get a doctor back onto the right track.
This obviously will not be the same as attending afternoon lectures or weekend seminars, which often constitute continuing medical education and for which the postgraduate educational allowance exists. The costs will be high. It has been calculated that they may be as much as £20,000 including locum cover.
My second argument for this amendment is about the size of those costs. As I say, it has been calculated that they could reach something in the region of £20,000. As the Bill stands, a professionally deficient GP will face what amounts to a very substantial personal fine of many thousands of pounds, as well as being compelled to undertake retraining. This appears to be in contradiction to the general spirit of the new measures, which is to be remedial and not punitive. It has been responsibly suggested to me that the size of the personal costs which may be directly incurred by an offending GP may actually reduce the effectiveness of the procedures because, for example, colleagues of a doctor

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who may judge that he is performing badly will hesitate to start investigations which could lead to such harsh financial penalties.
It is particularly important to the health service that this legislation should succeed so that standards of patient care are maintained and improved. In the view of most Members on this side of the House, the NHS responsibility for success should include bearing the costs of remedial retraining for all the doctors concerned. I beg to move.
11.45 a.m.
The Viscount of Falkland: I rise briefly on behalf of my noble friend Lady Robson of Kiddington, who is unable to be with us today, to support the amendment of the noble Baroness, Lady Jay. It seems to my noble friend Lady Robson and to other Members on these Benches that it is unfair and possibly damaging to make the distinction between consultants who are going to be fully reimbursed for their training and GPs. Although the arguments in the letter from the noble Baroness' department say quite correctly that doctors are responsible for all the costs involved in running their practices and so on, and indeed for most of their training, it seems to us that to achieve the standards that we wish in primary care—and it is only fair to patients in particular—there should be a high standard of performance by GPs. To achieve that, remedial training is obviously of vital importance and GPs should be assisted in the same way as consultants.
The noble Baroness, Lady Cumberlege, was kind enough to write to my noble friend on the subject of costs which, I understand, range between £6,000 and £22,000. She confirmed in the letter that the locum costs, which are quite a considerable part of the remedial training, are included in those figures. I hope that the noble Baroness will respond positively to the noble Baroness's amendment. It seems to us that her amendment is consistent with the aims of the noble Baroness and her department to achieve the highest standards for both consultants and GPs.
Baroness Masham of Ilton: I take this opportunity to ask the Minister whether she will tell the Committee how the doctors will be retrained. What will be the position of the medical deans over retraining? Who will assess the doctors before they are put back on the register?
Lord Walton of Detchant: I very much support the arguments which have been set out so very clearly by the noble Baroness, Lady Jay of Paddington, in relation to this issue. At Second Reading I made it clear that the costs of the very complicated procedures which will arise from the passage of this Bill will be borne by the General Medical Council. All of the assessment costs will be covered by it. That means that effectively the medical profession as a whole, through its payments of the annual registration fee, will be paying the costs of the procedures. But I made the case, which the noble Baroness has put so clearly, for suggesting that, while consultants and junior hospital staff, as employees of the National Health Service who come under these
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procedures, will have their retraining costs paid for by the NHS, that will not be the case in relation to general practitioners, who are, as the noble Baroness said, independent contractors. Therefore, I urge that the case which has been put so strongly by the British Medical Association should be reconsidered by Her Majesty's Government.
Having said that, I find it is difficult I fear yet again to support this amendment for purely technical reasons. The Committee should recognise that this Bill is concerned with the powers of the General Medical Council as defined by statute. The council is not a negotiating body; it is not a body which has any political responsibilities whatever. The issue of payment in this situation therefore is to be raised by a body such as the British Medical Association, which negotiates with government on terms and conditions of service. Solely for that technical reason I would find it difficult to support this amendment.
Baroness Cumberlege: During the passage of the Bill both here and in another place we have debated how the costs of the new procedures are to be met. At the heart of the Government's argument is that doctors are members of a profession. All members of professions have a duty to maintain their skills and knowledge and to keep up to date with the latest developments. Where a professional person is employed, he can reasonably look to his employer for support in maintaining his professional competencies. Where, as is the case with GPs, they are self-employed these costs are part of their practice costs and should be met from their income, as the noble Lord, Lord Walton, has said.
As the noble Baroness, Lady Jay, said, GPs are entitled to a postgraduate education allowance of £2,150 a year. The costs of other training is treated as a legitimate practice expense and is tax deductible. Expenses including training are included in the total amount of remuneration agreed by the Doctors and Dentists Review Body. All GPs will benefit from this whether or not they have undertaken training: they are not reimbursed on an individual basis. The doctor who has failed to take up training opportunities in the past will not have borne those costs met by his colleagues who have kept their training up to date. The money is already in his bank and we think it unreasonable that he should expect more for this purpose.
The cost of complying with conditions imposed by the General Medical Council's fitness to practice committees has always been seen as a cost for the individual doctor to bear. It does not seem right that this cost should fall on either the profession as a whole or the public. Are we to make the same provision for other professions as well?
The noble Baroness, Lady Masham, asked whether the postgraduate medical deans would be involved in this exercise with the General Medical Council. I can give her a definitive reply in writing but from a personal point of view I would think it inconceivable that the GMC would not work closely with the postgraduate medical deans. Regarding assessment, it is up to the GMC as to when a doctor is fit to return to practice.

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I cannot support the amendment and I do not recommend it to your Lordships. I hope that the noble Baroness will withdraw it.
Lord Rea: Perhaps I may ask the noble Baroness to think about the kind of doctor who gets into these difficulties. On the whole, this will be someone who may have various failures in his life and he will probably not be in a financial position to find extra money. I am told by a former secretary of the inner London medical committee that the benevolent funds that are available to doctors—general practitioners particularly—in difficulty (the Royal Medical Benevolent Fund and the Cameron Fund) are completely stretched and have no further resources to offer to doctors who might be in such a difficulty. I can imagine that bank managers might not be all that keen to help someone who has been suspended from carrying out his professional duties. It would be useful to have from the Minister some word which suggests that the department might be able to offer some assistance, if only for these doctors to get a loan to pay for the cost of their retraining.
Baroness Cumberlege: That is a matter for the individual doctor to negotiate with his bank manager or whoever. We are very clear on this point, as I said in my remarks opposing the amendment. We feel that the medical profession, as other professions, has a duty to maintain its skill and knowledge and to keep up to date with the latest developments. We do not feel it is appropriate to give financial help for the individual case because we give it already in term of the doctor's total remuneration.
Baroness Jay of Paddington: I am grateful to the Minister for her reply and to other Members of the Committee for taking part in this short debate. I am not convinced by the reply. The noble Baroness has still not made the distinction between continuing medical education of a very general kind and of a rather relaxed and part-time nature and the intensive retraining which will be required of doctors who are judged under the new procedures to be seriously professionally deficient. There is also an obvious disparity in the cost. If the allowance for continuing medical education is in the region of £2,000 a year and the cost of retraining is in the region of £20,000, as has been suggested as an outside figure, there is clearly a considerable disparity between what is given for continuing medical education, which I do feel is the equivalent of the specific retraining, and the £20,000 a year which may be expected to be paid for the specific remedial courses.
When the noble Baroness speaks, as she does, of the responsibility of individual practitioners to maintain their personal skills and expertise in developments in medical science, we all appreciate that and would expect it ourselves. However, as I said in moving the amendment, that does not address those difficult and subtle issues which we debated at length at Second Reading of a doctor whose professional attitude and professional relationship with his patients—not his professional skills—may be deficient and which the noble Baroness agreed at Second Reading might be the subject of the kind of proceedings proposed under the
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new arrangements. I am not aware of there being continuing medical education in changing the bedside manner of doctors, yet that may be something which is the subject of these kind of proceedings.
I suspect that behind the Minister's reply and the attitude of the Government is precisely the rather regrettable attitude to the individual responsibilities of general practitioners, their personal budgets and their personal concerns, and not the collective responsibility for standards in the health service which I would have hoped to see. As I said in moving the amendment, I feel that the effective working of the procedures proposed by the Bill is crucially important to the National Health Service and crucially important to the maintenance of good patient standards and the improvement of patient care. That should be the responsibility of the Government. Therefore, the costs of the retraining should be borne by those who are responsible for what is still the National Health Service. We may need to return to this matter at a later stage. However, for the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
Clause 2 [Voluntary removal from the register]:
The Chairman of Committees (Lord Boston of Faversham): In calling Amendment No. 4, I should point out that if it is agreed to, I cannot call Amendment No. 5.
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 4:
Page 3, leave out lines 25 to 29 and insert ("—

(a) providing for the erasure by the Registrar from the register of medical practitioners of the name of any person who applies, in the manner prescribed by the regulations, for his name to be erased from the register;

(b) providing for the refusal by the Registrar of applications under paragraph (a) above in such cases and circumstances as may be prescribed by the regulations;

(c) making provision").

The noble Baroness said: In moving this amendment, I should like to speak also to Amendment No. 6. Clause 2 gives the doctor the option to remove his name voluntarily from the medical register. If a doctor decides he cannot maintain a good standard of performance or does not wish to undertake remedial training, he should be allowed to remove his name from the register. Clause 2 provides for this and other similar circumstances in which a doctor may simply no longer wish to be registered; for example, if he is going to work abroad. It also has the effect of providing a quick and easy way for a doctor to remove himself from practice.
The effect of the amendments is to enable the General Medical Council, when making regulations allowing a doctor to remove his name voluntarily from the register, also to provide for the registrar to refuse an application in such circumstances as may be prescribed in those regulations. The GMC intends to refuse an application for voluntary removal only where the doctor is likely to be subject to the professional conduct procedures. Regulations will be made under Clause 2 requiring the approval of the relevant GMC committee before a doctor could be re-registered following voluntary removal in certain circumstances. That would allow a

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degree of scrutiny over the return to practice of a doctor who has voluntarily removed his name. It is anticipated that this scrutiny would be exercised only in a small number of cases where there is evidence that a doctor may have voluntarily removed his name to avoid possible fitness to practice proceedings.
However, during the debate in another place there was concern that some doctors might abuse the provisions of Clause 2 to avoid proceedings concerning serious professional misconduct. The Opposition tabled a number of amendments aimed at addressing that but none of them gave the GMC the flexibility it requires. Both the Government and the GMC recognise that there may be some instances where it is justified that the doctor should remain on the register and face a committee hearing, primarily where it is alleged that a doctor has committed serious professional misconduct. In conduct cases it is important for the case to be resolved at the time. If the doctor was allowed to avoid a hearing by voluntary removal and then applied some years later to be restored to the register, it could be very difficult to re-open and prove the case—especially if a considerable time had elapsed. This is not the case with health and performance where the issue is the doctor's fitness to practise at the time he applies for restoration to the register.
The amendments will enable the GMC to make regulations to allow its registrar to refuse applications for voluntary removal in defined circumstances. This will not only give the GMC flexibility, but also send a message to the profession and the public that the GMC takes a grave view on matters of serious professional misconduct.
I know that my noble friend Lord Harmsworth has been concerned that under the previous wording of Clause 2 the GMC might not make regulations covering the application to subsequently return to the register. These amendments bring together the three strands of the GMC's new powers to make regulations about voluntary removal and re-registration. I hope that this will meet my noble friend's concern.
My noble friend's comments on this matter have proved helpful. The amendment we have tabled has tightened up the drafting of new Section 31A. Rather than subsection (2) being separate, it is now a new paragraph of subsection (1), thereby making quite clear the intention to treat these powers as a single package and not as separate matters. I hope that this fact and my earlier comments reassure my noble friend. I beg to move.
12 noon
Lord Walton of Detchant: This amendment corrects an anomaly in the Bill that was not spotted at an earlier stage. I warmly support it.
Lord Harmsworth: I support the government amendment. My amendment, Amendment No. 5, was designed to correct a shortcoming in the wording of the original Clause 2. Clause 2 is permissive. It permits the general council to make regulations authorising the registrar to erase the name of a medical practitioner
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from the register in certain circumstances. My difficulty is that subsection (2) is also permissive. It permits the regulations to provide for the restoration to the register of a name. In being permissive, it places no compunction whatsoever on the general council to take any action. The government amendment completely resolves the problem. Under the old wording, the general council could have got away with doing only half the job—although it has no intention of doing anything but the whole job, I am assured. I thank the Minister for her help in this matter, and her officials with whom I have been in correspondence.
Baroness Masham of Ilton: Amendment No. 7, which is grouped with Amendment No. 4, stands in my name and seeks to establish that a doctor's retraining and supervision will be provided for in regulations. I have already referred to the need for that and shall wait to see what happens. I do not intend to move my amendment—but we have not yet reached it.
Baroness Cumberlege: Indeed, Amendment No. 7 comes later. I thank all noble Lords who have spoken for their support for Amendment No. 4.
On Question, amendment agreed to.
[Amendment No. 5 not moved.]
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 6:
Page 3, line 34, leave out ("subsection (1)") and insert ("paragraph (a)").
The noble Baroness said: I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
[Amendment No. 7 not moved.]
Clause 2, as amended, agreed to.
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 8:
After Clause 2, insert the following new clause:
Preliminary proceedings: interim orders
(" .—(1) Section 42 (preliminary proceedings as to professional misconduct and unfitness to practise) shall be amended as follows.
(2) In subsection (3), in paragraph (c) for the word "two" there shall be substituted the word "six".
(3) In subsection (4), for the words "No order for interim suspension or for interim conditional registration shall be made by the Preliminary Proceedings Committee" there shall be substituted the words "No order under subsection (3) (b) or (c) above or (6A) (b) to (d) below shall be made by any Committee".
(4) In subsection (5), for the words "If the Committee decide" there shall be substituted the words "If the Preliminary Proceedings Committee decide".
(5) In subsection (6), for the word "two" there shall be substituted the word "six".
(6) After subsection (6) there shall be inserted—
"(6A) Where an order for interim suspension or for interim conditional registration has been made in relation to any person under any provision of this section (including this subsection) the Preliminary Proceedings Committee, the Professional Conduct Committee or the Health Committee may, subject to subsection (4) above—

(a) revoke the order or revoke any condition imposed by the order;

(b) vary any condition imposed by the order;

(c) if satisfied that to do so is necessary for the protection of members of the public, make an order for interim suspension; or

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(d) if satisfied that to do so is necessary for the protection of members of the public or is in the interests of the person concerned, make an order that his registration shall be conditional on his compliance, during such period as is specified in the order, with such requirements so specified as the Committee think fit to impose for the protection of members of the public or in his interests.

(6B) An order under subsection (6A) (c) or (d) above—

(a) shall take effect as from a date not later than the date on which the interim suspension or interim conditional registration would otherwise come to an end; and

(b) shall specify a period not exceeding three months.

(6C) If an order is made under subsection (6A) (a) to (d) above the Registrar shall forthwith serve a notification of the order on the person to whose registration it relates.
(6D) Where an order has been made under any provision of this section, the court (within the meaning of section 38 above) may—

(a) in the case of an order for interim suspension, terminate the suspension,

(b) in the case of an order for conditional registration, revoke or vary any condition imposed by the order,

(c) in either case, substitute for the period specified in the order some other period which could have been specified in the order when it was made;

and the decision of the court on any application under this subsection shall be final.".
(7) Subsection (7) shall cease to have effect.").
The noble Baroness said: I beg to move Amendment No. 8. In moving this amendment I will also speak to amendments consequential to this—that is, Amendments Nos. 9 to 13 and 18 to 26 inclusive.
My honourable friend the Parliamentary Under-Secretary of State for Health gave a commitment in another place that the Government would bring forward this amendment. It will give the General Medical Council's preliminary proceedings committee the power to impose interim suspension or interim conditions on a doctor for a period of up to six months pending the full hearing of his case by the health or professional conduct committee. These interim orders can be extended by those committees or the preliminary proceedings committee for further periods of up to three months. The preliminary proceedings committee's existing powers are currently limited to one, non-renewable period of two months. This has proved insufficient to cope with protracted hearings or adjournments.
The GMC issued a consultation document in February 1994 which proposed that the period of interim suspension or conditions should be extended from two to six months and that further periods should be imposed if necessary. The proposal received broad support from the profession and from patient groups.
While this power is not expected to be often used, it is needed in order to protect the interests of patients. However, the doctor also has rights. It seems fair that he should be given the opportunity to be heard by the health, professional conduct or preliminary proceedings committees at any time when they are considering imposing interim conditions or suspensions. A doctor would also be able to appeal to the High Court against interim suspension or imposition of interim conditions, or against their renewal.
Interim conditions or suspension will be extended when a hearing is pending. However, because at this point no case will have been proved this should be for only periods of three months at a time. This also ensures that the GMC is required to review the case regularly.
An unfortunate but unavoidable effect of this amendment is that it has spawned a number of minor consequential and technical amendments—14 in all. These are required to reflect the change in structure of Section 42 (as amended) and maintain the current position regarding such matters as the effect of interim suspension on employment.
Lord Walton of Detchant: I rise to support the amendment most warmly. When a doctor is reported to the General Medical Council as having been convicted of a criminal offence, when a report comes to the council suggesting or raising as an issue that the doctor may have been guilty of serious professional misconduct or that his or her health may be seriously impaired, and in the future when the Bill becomes law, as we all trust that it will, when a doctor is reported as perhaps performing below the standard that is required and defined in the Bill, after being considered by a preliminary screener, those reports go to the preliminary proceedings committee.
In the past there have been cases where the preliminary proceedings committee has felt that the offence of which the doctor was convicted or the offence of which the doctor stood charged in, for example, a disciplinary case was so serious that in order to protect the public it was essential that an order of suspension of that doctor's registration should be made immediately effective. However, under the present law, that period of two months has proved to be quite insufficient because collecting the evidence in order to mount a proper case to be heard by the professional conduct or health committees or perhaps in the future by the professional performance committee is a complicated matter. Therefore, extending the period from two to six months is important in the interests of the protection of the public. I warmly support the amendment and the consequential amendments which flow from it.
On Question, amendment agreed to.
Clause 3 [Supplementary and consequential amendments]:
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 9:
Page 3, line 38, leave out ("and 2") and insert ("to (Preliminary proceedings: interim orders)").
The noble Baroness said: In moving Amendment No. 9, I should like to speak also to Amendments Nos. 10 to 13. When considering the previous amendment, I addressed the issue of extending the powers of interim suspension and the making of interim orders. Amendments Nos. 9 to 13 make minor consequential changes and flow from Amendment No. 8. I beg to move.
On Question, amendment agreed to.
Clause 3, as amended, agreed to.
Clauses 4 to 6 agreed to.
Schedule [Supplementary and Consequential Amendments]:
Baroness Cumberlege Baroness Cumberlege moved Amendments Nos. 10 to 13:
Page 5, line 17, at end insert:
(" . In section 36(2) (professional misconduct and criminal offences)—

(a) for the word "42(3) (c)" there shall be substituted the word "42"; and

(b) after the words "the Preliminary Proceedings Committee" there shall be inserted the words "or the Professional Conduct Committee".").

Page 5, line 19, at end insert:
("( ) In subsection (2)—

(a) for the word "42(3) (c)" there shall be substituted the word "42"; and

(b) after the words "the Preliminary Proceedings Committee" there shall be inserted the words "or the Health Committee".").

Page 6, line 48, leave out ("and").
Page 7, line 2, at end insert ("; and
(c) for the words "of the Preliminary Proceedings Committee under section 42(3) (b)" there shall be substituted the words "under section 42".").
On Question, amendments agreed to.
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 14:
Page 7, line 2, at end insert:
(" . In section 53(2) (proof of certain instruments), after the words "the Professional Conduct Committee" there shall be inserted the words ", the Committee on Professional Performance".").
The noble Baroness said: This is a consequential amendment which needs to be made for completeness. It ensures that copies of orders made by the Committee on Professional Performance under Section 38 of the Act, dealing with immediate suspension, can be admissible as evidence. That is already the case for immediate suspension orders of the Professional Conduct Committee and the Health Committee. The purpose of that is to enable a copy of the committee's order, rather than the original document, to be submitted in evidence in an appeal to the court. I beg to move.
On Question, amendment agreed to.
Baroness Jay of Paddington Baroness Jay of Paddington moved Amendment No. 15:
Page 8, line 23, after ("relate") insert ("or any person making a complaint to which the proceedings relate").
The noble Baroness said: The amendment seeks, like Amendment No. 3, to remove an anomaly from the Bill so that everyone involved in the proposed proceedings is treated equally. The amendment makes it possible for persons making a complaint to request that GMC proceedings be held in public—a privilege at the moment, as the schedule stands, given only to the person,
"to whose registration they relate";
that is, to the doctor concerned.
The spirit of the Bill is to create a greater openness in professional self-regulation and to increase patient confidence in the system. Many of the innovations achieve both those aims. Therefore it seems rather strange that when it comes to the proceedings of the
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Committee on Professional Performance itself the balance seems to swing back again to favour the professionals as against the complainants.
Several organisations, including notably the Patients Association, have expressed concerns that even in that altered state the mechanics of investigations into professional performance will seem daunting to many potential 'complainants. The Patients Association has, like us all, welcomed the Bill in principle, but the organisation still feels that if people with a legitimate complaint against their doctor think that the scales are tipped against them within the GMC, they may be deterred from acting.
Of course I acknowledge that there will be many complainants who, like many of the doctors concerned, may well prefer the anonymity of a private hearing, but there are others who will expect their day in court to be public, and they should at least be given that choice. After all, the GMC and the Government clearly acknowledge that in certain circumstances it may be preferable to have an open hearing because the Bill allows for a doctor to opt for that procedure. That makes the new procedures different from health investigations, which, as I understand it, are always held in camera, and professional misconduct hearings, which are, by contrast, always held in public.
There is therefore presumably no objection in principle to the arrangement so that public hearings can be held. That makes the anomaly in the schedule even more objectionable, and it may not be surprising that the conspiracy theorists, or those who are merely alarmed by the prospect of taking on the medical establishment, see it as a last-ditch attempt to give a doctor who is being investigated a potentially unfair advantage over a complainant.
The Government and the GMC have given assurances that proceedings will be monitored and may be revised again after the new system has been operating for some time. The Minister repeated those assurances on Second Reading and stated that there was a commitment to review the operations of the Committee on Professional Performance three years after the first hearing. On that occasion the noble Baroness said (Hansard, col. 895.):
"I am sure that the issue will be addressed again".
Surely it is more sensible to address the issue again today and before the Bill leaves this place and remove the anomaly in the Bill by accepting this simple amendment which must improve general confidence in the equity of the new arrangements. I beg to move.
12.15 p.m.
Baroness Masham of Ilion: I support the amendment. Where there is choice there is generally much more satisfaction.
Lord Walton of Detchant: I can fully understand the reasons underlying the proposal in the amendment. The Professional Conduct Committee of the GMC invariably meets in public except that it may go into camera where there are circumstances such as the protection of the rights and confidentiality of a minor who may be giving evidence when the Committee may decide to protect that individual by going into camera. The Health Committee

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invariably meets in camera, if only because it is important to recognise that its procedures are intended to be rehabilitative, compassionate and, in the first instance, to prevent a doctor who may be so sick as to be a danger to the public from practising except under rigid conditions. Nevertheless, they are intended to help that doctor to recover from his or her illness.
That was an issue which gave the GMC and its advisers considerable difficulty before they decided to recommend to the Government that these proceedings should be held in private, save when the doctor requested that they be held in public. I can wholly understand the reasons why it may be felt that the interests of the patient who is the complainant may require them to be held in public. I am ambivalent about this position but, in general, feel that, after all the consideration that has been given to these procedures which are intended to be rehabilitative and not punitive, it would be better to leave the position as it stands in the Bill.
Baroness Cumberlege: The matter of whether a complainant in a case should be able to ask for hearings of the Committee on Professional Performance to be in public was touched upon as the noble Baroness, Lady Jay, said, on Second Reading. I made it clear then that our intention was that hearings of the Committee on Professional Performance will be held in private unless the doctor wishes otherwise. That intention remains. When the new procedures have been bedded in, the GMC will be better placed to see whether the difficulties of public hearings can be overcome.
The reason we have given the doctor a right to ask for a public hearing and not the complainant is that the case is about whether the doctor should continue in practice. It is his livelihood which is at stake. Under the European Convention on Human Rights the doctor is entitled to a fair and public hearing. Hence, when hearings are to be normally held in private that right must be reserved.
A complainant in a performance case will be party to any hearings of the Committee on Professional Performance on the case in question. The complainant will also be entitled to be heard by the committee and to be legally represented. Some people have compared the performance procedures with the conduct procedures, where hearings are held in public. Indeed, that has been done this morning. The two procedures are very different. The conduct proceedings address specific wilful acts and omissions by doctors and the Professional Conduct Committee operates very much like a court. Hearings of the Committee on Professional Performance will review the report of the assessment panel on the doctor's performance as a whole. It will not make a finding on any single complaint. The finding will relate to the doctor's standard of professional performance generally.
The GMC consulted specifically on the merits of public and private hearings. The result was generally in favour of private hearings. In Committee in the other place a clear commitment was given that the GMC would review the operation of the Committee on Professional Performance three years after the first
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hearing. I repeated that commitment, as the noble Baroness said, on Second Reading and make that commitment again today.
I hope that with those comments the noble Baroness will be reassured and will feel able to withdraw the amendment.
Baroness Jay of Paddington: I am grateful to the Minister for that response. Of course I accept her assurance that the GMC will review these proceedings in three years' time. That is an important commitment. There remains an anomaly in the position in which one party to the proceedings can opt for an open hearing while the other cannot.
I understand the points made by the noble Lord, Lord Walton of Detchant. I am sorry that once again on this amendment we are on slightly different sides, but there is a much closer equation between this type of proceeding, as it has been explained—of course at the moment we are talking only of theory rather than practice as there have been no hearings under these arrangements so far—which I expect will be under the Professional Performance Committee and the Professional Conduct Committee than between the Professional Performance Committee and the Health Committee.
The Minister repeated the words that she used on Second Reading when she spoke of wilful acts in relation to the Professional Conduct Committee. Of course, one is not saying that a doctor who is brought before the professional performance committee has been acting wilfully for many years. That is not the assumption, but it is the assumption that there may have been a conscious dereliction of duty, or at least a failure to involve himself or herself in the continuing medical education programmes which we have discussed today.
It is not fair to say that the committee is equivalent to the Health Committee. However, as we have said in relation to several other amendments, there is an anxiety that the proceedings related to the outcome of these hearings should be remedial rather than punitive. The basis of my anxiety is the differential between the complainant and the complained against. My additional anxiety, which I outlined when I moved the amendment, has been expressed to me by various organisations involved in advocacy on behalf of patients; that, if only the doctor is allowed to ask for the proceedings to be held in public, it may be seen to be, even though it is not in practice, loaded against the patient who is complaining.
However, I accept the Minister's assurances and the assurances and commitments that have been given by the General Medical Council that the procedure will be reviewed and that the issue will be addressed again after a limited time period. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 16:
Page 9, line 2, leave out ("regulations") and insert ("rules").
The noble Baroness said: This amendment is needed to remedy a technical error in the drafting of the Bill. The reference should have been to the "rules", which are mentioned in new paragraph 5A(1), five lines above in the Bill. I beg to move.
On Question, amendment agreed to.
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 17:
Page 9, line 24, at end insert (", and on an appeal under this sub-paragraph the court may—

(a) quash the direction,

(b) substitute for the direction any other direction which the Committee could have made, or

(c) remit a case to the Committee to be disposed of in accordance with the court's directions;

and the decision of the court on any appeal under this sub-paragraph shall be final.").
The noble Baroness said: This amendment is a consequential amendment which brings into line the effects of a decision on appeal to the court against imposition of suspension or conditions by the Committee on Professional Performance for non-co-operation with an assessment with arrangements for appeal to the court in other parts of the Bill. It also provides for which decisions the court may make on such an appeal. I beg to move.
On Question, amendment agreed to.
Baroness Cumberlege Baroness Cumberlege moved Amendments Nos. 18 to 25:
Page 10, line 20, at end insert ("—
(a)")
Page 10, line 21, at end insert ("; and
(b) after the word "42(5)" there shall be inserted the words "or (6C)".").
Page 11, line 15, leave out ("and").
Page 11 line 17, at end insert ("; and").
(c) in paragraph (c), for the words "of the Preliminary Proceedings Committee of the Council under section 42(3) (b)" there shall be substituted the words "under section 42".").
Page 11, line 30, leave out ("and").
Page 11, line 32, at end insert ("; and
(c) in paragraph (c), for the words "of the Preliminary Proceedings Committee of the Council under section 42(3) (b)" there shall be substituted the words "under section 42".").
Page 11, line 45, leave out ("and").
Page 11, line 47, at end insert ("; and
(c) in sub-paragraph (c), for the words "of the Preliminary Proceedings Committee of the Council under section 42(3) (b)" there shall be substituted the words "under section 42".").
The noble Baroness said: I have already spoken about the new clause in the Bill which extends the powers of interim suspension and the making of interim orders. These amendments make minor and consequential changes flowing from Amendment No. 8. I beg to move.
Lord Walton of Detchant: The Bill has been long awaited. The initiative for it came from the General Medical Council. There has been a long period of consultation with the medical profession and the public leading to the Bill becoming a reality and being brought before another place and this Chamber.
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I wish to put on record the debt which the public and the professions at large owe to the noble Baroness, her officers and to the Parliamentary Counsel for the time and effort that they have devoted to introducing these amendments and to ensuring that the Bill passes to this stage in the Chamber. I should like that to be on the record and I support the amendments.
On Question, amendments agreed to.
Schedule, as amended, agreed to.
In the title:
Baroness Cumberlege Baroness Cumberlege moved Amendment No. 26:
Line 4, after ("practitioners;") insert ("to amend section 42 of that Act;").
On Question, amendment agreed to.
Title, as amended, agreed to.
House resumed: Bill reported with amendments.

Local Government Elections (Changes to the Franchise and Qualification of Members) Regulations 1995
12.25 p.m.
The Minister of State, Home Office (Baroness Blatch)The Minister of State, Home Office (Baroness Blatch) rose to move, That the draft regulations laid before the House on 26th June be approved [24th Report from the Joint Committee].
The noble Baroness said: My Lords, the regulations which we are debating today will give citizens of the European Union resident in this country the right to vote in local elections and to stand as candidates in local elections. This extension of the franchise was part of the Treaty on European Union and the relevant directive was agreed towards the end of last year.
To register to vote in a local election, a Union citizen must meet the same requirements as British, other Commonwealth or Irish citizens. He or she must therefore have been resident in Great Britain on the qualifying date of 10th October, or 15th September for Northern Ireland, and must also meet the age qualification. Citizens of other member states who wish to be candidates in local government elections must conform to the same nomination procedures as other candidates. All this flows from the terms of the relevant article of the treaty which requires that non-national residents in a member state should be treated for electoral purposes in the same way as the nationals of that state.
This is the second recent extension of the franchise. Last year Parliament approved regulations which made all Union citizens resident in this country eligible to participate in the European Parliamentary elections. Parliament approved those regulations in time for Union citizens to participate in the European Parliamentary elections which were held in June 1994.
Your Lordships may be aware that the effect of the directive on European Parliamentary elections was that EU citizens resident here who wished to vote had to make a separate application to do so. Under the directive on local government elections, citizens of the European Union will be registered for local elections as part of

501
the annual registration canvass carried out by electoral registration officers. The relevant form, Form A, has been amended for this purpose and electoral registration officers will be under a duty to register all those Union citizens whom they judge eligible, just as they are at present with British, other Commonwealth and Irish citizens.
The regulations before us are comparatively straightforward. They extend local government electoral rights to resident Union citizens by amending the nationality criteria contained in the Representation of the People Act 1983, which covers England, Wales and Scotland, and to the relevant Act of 1989 which deals with Northern Ireland. Regulation 3 effects the necessary changes with regard to the right to stand as a candidate and Regulation 4 deals with the right to vote. Regulation 5 provides for a number of detailed consequential amendments to our electoral law.
Your Lordships may have noticed that Regulations 3 and 5(1) and Schedule 1 come into force on 1st January 1996. This is the deadline in the directive. The remainder of the regulations come into force on the 14th day after the day on which they are made. This is to enable the registration of Union citizens to take place this Autumn. They will have to be registered in the Autumn canvass if they are to enjoy local election voting rights from 1st January next year.
Under the directive, British citizens living abroad in the Community will enjoy local voting rights. What this means in practice will vary from member state to member state. The directive has attached to it a list of the local government units to which the directive applies. However, systems of local and indeed regional government vary considerably from member state to member state, as does the extent to which member states devolve power to local government, and comparison is no easy matter.
Progress with the directive has been reported to Parliament by means of the usual explanatory memoranda. An explanatory memorandum was submitted by the Home Office on 22nd April last year and supplementary memoranda were submitted on 18th May and 30th November. The matter was debated in Standing Committee in another place on 19th July 1994. As those explanatory memoranda made clear, in negotiating the directive the Government achieved its main policy objectives and the regulations now before us give full effect to our treaty obligations. They do no more and no less than that. I beg to move.
Moved, That the draft regulations laid before the House on 26th June be approved [24th Report from the Joint Committee].—(Baroness Blatch.)
12.30 p.m.
Lord McIntosh of Haringey: My Lords, I apologise on behalf of the Opposition Chief Whip for the fact that my name does not appear on the list of speakers. My noble friend Lord Carter was rather unnerved to see his name on the list. I shall speak in his place.
The Opposition support the regulations both in principle and in detail. Indeed, we congratulate the Government on finding time to debate them when the
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Euro-sceptics and xenophobes in this House—I recognise that they are not the same thing but they are too frequently found together—have not woken up to the fact that the regulations are being discussed. Therefore, they have not come into the Chamber to carry out a diatribe against them. The debate on these regulations in another place on Monday was rather unpleasant. A succession of Conservative Back-Bench Euro-sceptics stood up to express not only objections to the regulations but objections to the whole of the Maastricht Treaty process and the movement towards European Union citizenship in addition to UK citizenship. Indeed, they seem to think that the two are alternatives rather than, as we think, necessary and valuable extensions to the right of British citizens.
As a matter of general principle, we support the idea that those who live and pay taxes in an area should have the right to vote in that area. Of course, you cannot advance that principle in support of these regulations because they apply only to citizens of the European Union and not to citizens of other countries who also live here. Those people may live here for many years and pay taxes and they could and, in my view, should have a part to play in our local government.
The only distinction that one can make, apart from the distinction of the requirements of the Single European Act and the subsequent treaties, is that the rights which are being conferred by these regulations are reciprocal. I am not aware that there are any other countries in the world, other than Commonwealth countries and the Republic of Ireland, which give reciprocal rights to British citizens to vote in local elections in their country. To that extent, one can make a distinction and justify the present regulations.
However, we have a practical anxiety about the regulations. I am aware from the debates in another place that all member states have now declared that they will implement comparable regulations from 1st January 1996. In practice, I do not believe that we shall do so until 15th February, which is the date on which the October register comes into force. I understand that member states have placed on record their own definition of what is meant by a local election and what regulations they apply, since these are regulations of individual member states in relation to local elections. I should welcome a renewed assurance from the Minister that there is no cause for concern about progress towards implementation by other countries. The regulations are valuable not only because they extend the franchise in our own local elections but also because they provide that our citizens in other European countries—I understand that there are more than 400,000 of them—may vote in those countries. We have the practical worry I mentioned, but we welcome the regulations and we shall not oppose them.
12.35 p.m.
Baroness Hamwee: My Lords, from these Benches I too welcome warmly the regulations. I am sure that the Minister and the noble Lord, Lord McIntosh, will share my experience of canvassing or simply talking to people during elections. I have been asked by people whose emotions have ranged from puzzlement to great anger,

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"Why am I not entitled to vote? I live here; I pay taxes here; and my children are British"—a point often made by non-British spouses of British citizens—"and I play my full part in the community." I am delighted as regards the elections which are the subject of the regulations that the European Union will enable those people to vote and, indeed, to stand and play the part they want to.
I am particularly aware of the feelings that exist on this matter because I come from an area which has a number of schools, particularly German and Swedish schools. Inevitably, there are many people whom I know personally who fall into the category I have described.
I am pleased too that the regulations may be a small prompt to increased participation in elections. I know that your Lordships are worried that the turnout at local elections is so low. I am glad to welcome anything which may improve that turnout.
I hope that the noble Baroness will be able to respond to the one point I wish to make. She mentioned the change to Form A, which will be put through our letterboxes very shortly, and the responses to the electoral registration officer. Inevitably, however much one tries to move away from it, those forms contain a great deal of jargon. Notices placed in, for example, libraries tend to use somewhat formal bureaucratic language, as do newspaper notices and so on. They do not necessarily reach the people one wants to reach. I hope that the Minister will assure me that real efforts are being made to put across the message. It may be that something needs to go with the form, although the Minister may say that that is a matter for local officers. However, I believe that some imaginative publicity would be extremely appropriate.
I wonder whether the Home Office is liaising with the consulates of the countries concerned. It is important that it is not left as a matter of regulation. A great deal more is needed to put across this welcome message. We support the regulations.
12.38 p.m.
Baroness Blatch: My Lords, first, I welcome what is happily a consensus view about the nature of the regulations. Perhaps I may take up the two points that have been raised.
I say to the noble Lord, Lord McIntosh, that we have no reason to believe that all other countries will not honour the date of 1st January 1996. As I said in opening, there will clearly be different procedures. But what is absolutely certain is that all countries have signed to meet the deadline of the directive. They have also agreed to treat European nationals, from whichever country they come, as nationals of their own country. Therefore, whatever the procedures, they cannot differentiate between a visiting European national and a national indigenous to that country. Therefore, all citizens in every country will be treated as a citizen of that country. We have no reason to believe that that will not happen.
The noble Baroness, Lady Hamwee, referred to participation. We regard that as extremely important. We have a budget to promote participation in elections
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and we are trying to be as imaginative as possible. We are resorting to television advertising and carrying out market testing into the quality of the reception of the message. I shall ask my department whether that extends to incorporating also the importance of these new measures. The department certainly considers it important to encourage people where possible to exercise their right, which is an extremely important right. I commend the regulations to the House.
On Question, Motion agreed to.

Fishing Vessels (Safety Improvements) (Grants) Scheme 1995
12.40 p.m.
Lord Lucas Lord Lucas rose to move, That the scheme laid before the House on 28th June be approved [25th Report from the Joint Committee].
The noble Lord said: My Lords, in moving the above order, it may be for the convenience of the House if I speak at the same time—indeed, if I speak principally—to the Fishing Vessels (Decommissioning) Scheme 1995 which also stands in my name on the Order Paper.
Fishing is an important industry and in the coastal areas around fishing ports makes an important contribution to the economy. It is also a hazardous industry and I have great respect for the fishermen who go out in all weathers to bring in their catches. If my new appointment brings me any pleasure, I hope that it will include a day on a trawler somewhere in the North Sea.
The importance of decommissioning is very clear. Overcapacity in the industry lies at the root of many of the fishing industry's problems. Getting a better balance between fishing capacity and fish stocks will make our industry more efficient and viable. That need to tackle overcapacity is also recognised in our obligations under the EU Multi Annual Guidance Programme targets. The decommissioning schemes we have had over the past two years—and will continue over three more—are designed to make a key contribution to achieving the targets.
Decommissioning is not a cheap option and in a number of ways we have to ensure that we get good value for what we spend.
The MAGP target requires a 19 per cent. reduction in relation to the baseline set for 1991. We initially committed £25 million to decommissioning. The first two schemes have shown that we can achieve worthwhile reductions in capacity. So far we have taken out 297 vessels representing over 10,000 tonnes, 4.6 per cent. of the fleet. For this year's scheme, and for the next two years, we have increased the amount available each year by 50 per cent. to £12 million. I believe that that should substantially increase the impact of the scheme. There should also be a contribution to the target by the licence aggregation penalties. We are looking carefully at the accuracy of the fleet register to ensure that it represents active fishing vessels. With all those contributions, I am sure we will make good, and I hope faster, progress towards the MAGP targets.
We need at the same time to be ready to back up the fleet reduction with the necessary controls and quota management measures. Quotas must be managed effectively along with the various technical conservation measures on gear types, net sizes, minimum landing sizes, closed areas and so forth. There must also be proper enforcement so that fishermen of all member states comply with the various rules.
An important aspect of decommissioning is that we want it to contribute to a reduction in fishing effort. It is the reduction in effort which in future years will bring dividends for our fishermen with increasing fish stocks and the potential for bigger quotas. For that reason we will be continuing to monitor the level of fishing effort of the fleet remaining after decommissioning. If it became evident that the effort was increasing and so undoing the benefits of decommissioning, we would need to take action to contain effort. We made that clear when we introduced the 1994–95 scheme; the indications so far are that there has been a real reduction in effort.
The 1995–96 scheme is similar to its predecessors in providing for a tendering system to ensure best value for money and in continuing the requirements for permanent scrapping and the surrender of licences. The main criteria for eligibility are also unchanged; that is to say, vessels must be seaworthy, over 10 metres in overall length, over 10 years old and, of course, UK registered and licensed.
An important part of securing good value from the scheme is to ensure that it is correctly targeted on the right segments of the fleet. For the setting of MAGP targets the fleet is divided into 10 distinct segments. Some segments of the fleet either have achieved, or can be expected to achieve, the targets without further intervention. The distant water fleet and the under-10 metre vessel segment were both excluded from eligibility last year for that reason. Because the target for nephrops vessels has also now been met, we have decided that they, too, should be excluded from this year's scheme. It would not be right to use funds from the scheme to decommission vessels in a segment that has already achieved its target. The Government do, however, recognise that there are particular structural problems in Northern Ireland where over 50 per cent. of the fleet consists of nephrops vessels and over 50 per cent. of them are over 30 years of age. In view of those structural problems, my noble friend Lady Denton is proposing to introduce a separate Northern Ireland scheme with the objective of tackling the particular structural problems in the Northern Irish nephrops fleet. Details will be announced as soon as the scheme has been finalised.
Finally, I should like to say a word about the implications of the increased amount available for decommissioning this year: £12 million is available and we intend that it should enable a substantially increased number of vessels to be decommissioned. The tendering system that we have used is well understood and gives good value for money. We shall be looking at the bids carefully this year and will not accept bids unless they do give good value. If necessary, we reserve the right to spend less than the full amount available. The residue
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could then be used for a second tender later in the year. I am sure that we will get a good response with competitive bids. But we do have the option to have a second round if that seems likely to give better value. The closing date for applications is 8th September 1995 and application forms will soon be available in local fishery offices.
I should now like to turn to the second order concerning fishing vessel safety grants. Safety at sea is a matter of deep concern to all who are involved with the fishing industry. It is a hazardous industry and I am pleased that we have a grant scheme which can help a little towards ensuring the safety of fishermen.
The new scheme replaces the 1993 scheme and applies to fishing vessels which have to obtain a Department of Transport safety certificate under the Fishing Vessel (Safety Provisions) Rules 1975. The new scheme follows the 1993 scheme, in that grant will he available for meeting the requirements of the Department of Transport's safety certificate which applies to vessels with a registered length of 12 metres or over. Grant will be available for equipment which is necessary to obtain the safety certificate and includes life rafts, UHF radios, rockets, flares and radio beacons which broadcast the position of a vessel if it founders. They are all important for safety.
The scheme has been modified, however, so that items such as engines and structural work will no longer he eligible for assistance. They are not safety requirements in the normal sense; they are fundamental aspects of vessel maintenance which are properly the responsibility of the owner in ensuring that the vessel is fit for its purpose. It is not right that we should be asking taxpayers to contribute to those costs, particularly when changes to engines can result in increased fishing capacity.
I hope that the House will agree that the two orders represent useful measures providing real benefits for fishermen and for the fishing industry. They demonstrate the Government's commitment to the fishing industry and our desire to put it on a sounder and safer footing for the future. I beg to move.
Moved, That the scheme laid before the House on 28th June be approved—[25th Report from the Joint Committee].—(Lord Lucas.)
12.47 p.m.
Lady Saltoun of Abernethy: My Lords, the Scottish Fishermen's Federation is anxious that the decommissioning scheme should be passed as soon as possible, so that the next round of decommissioning can begin. The federation would have liked it amended in certain respects. I am not going to suggest that the scheme should be withdrawn and amended because that would delay it, but I have one or two suggestions to make.
As the United Kingdom was approximately five years behind other European Union member states in initiating a decommissioning scheme, and, in consequence, we lagged behind them in meeting our Multi Annual Guidance Programme capacity for effort reduction target, the acceleration of the £36 million budget which

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is proposed for the next three years into a one-year spend, or even a two-year spend, rather than a three-year spend, would be very helpful. It would put an end to much of the present uncertainty which is pervading the industry. Most important, it would break the impasse on availability of European Community Construction and Modernisation funds for those remaining in it, which has resulted from our target not having yet been met. As I do not see the amount to be spent in 1995 mentioned anywhere in the scheme, that could still be done.
From having, in the early 1980s, had the most modern fishing fleet in Europe, the Scottish fleet is now so old that there is increasing concern for safety, quite apart from our efficiency vis-à-vis our competitors. Another side effect of this lack of modernisation is the consequent running down of the boat building industry, with inevitable loss of jobs. If it runs down much farther, we will not have one left to build any boats at all, and will have to buy from abroad when boats are required. That will mean more lost jobs. I understand that the Treasury thinks it morally wrong to scrap and rebuild at the same time. I am reminded of the time, not many months ago, when the manpower of our Armed Forces was being drastically reduced, and I queried the morality of the Ministry of Defence advertising in the press for recruits at the same time. The ministerial answer was to the effect that soldiers grew older and slower and passed their use-by date, and it was necessary constantly to recruit new young ones. I suggest that the same applies to fishing boats.
In the six years from 1987 to 1993, the United Kingdom received only 2.8 per cent. of the European Community funds paid to member states for these purposes. I suggest to the Government that we are losing out on Community funding which we might be enjoying. The Scottish fishermen are very conscious of this, and if they feel that with a separate Parliament, or with total independence for Scotland from the United Kingdom, they might fare better, who is to blame them?
One other thing I would like to ask the Government to give serious consideration to is this: at present a decommissioned boat has to be scrapped; that is to say, it has to be destroyed. I was brought up in wartime when we never threw away anything but saved every last paper bag. This measure seems to me foolish and shortsighted and it is also very expensive. European Community regulations permit disposal, either for fishing outside the Community, or for other purposes inside the Community. The obligation to deregister, and to surrender fishing licences, ensures that there will be no cheating. There is a demand for decommissioned boats in developing countries, and there are uses for decommissioned boats in this country, for such purposes as training young people in seamanship, sight-seeing trips for tourists and exhibition purposes. I do not know whether or not MAFF can tell the difference between a puma and a domestic pussy-cat, but I am sure it can tell the difference between a boat which is being used for fishing and one which is fitted up for some such purpose as I have described. I do urge the Government to have another look at this.
12.53 p.m.
The Earl of Clanwilliam: My Lords, these are welcome measures, although they be a little late in coming forward and whether they go far enough is debatable. It is self-evident that there is a general erosion of fishing stocks and these controls will help because without them sea fishing will not be sustainable. Indeed the Commission's report (Cmnd. 2426) of January 1994 stated at paragraph 17.8 that without them sea fishing would not be sustainable.
Over-fishing is already affecting productivity. We may still be able to use the old adage that there are as many good fish in the sea as ever came out of it, but one wonders for how long that will be the case. We are, as a nation, the major contributor of two-thirds of the common fisheries policy fishing grounds which were donated by us back in 1972. With every new member there comes further erosion. The common fisheries policy is not working but it is futile to suggest, as I confess I did at one stage in an earlier debate, that we should withdraw from the CFP. We must take a lead. I suggest to my noble friend that the question of the CFP should be put on the IGC agenda. The CAP is in an equally parlous state and that is a good enough reason for it to be on the IGC agenda. Therefore, why should the CFP not be put on that agenda for exactly the same reason?
These measures are the result of the North Sea Conference. The North Sea cod in particular is at risk. We were told the other day by my noble friend Lord Howe that there were 500 million cod in the North Sea. Surely that is not a very viable quantity when one considers that there are 250 million people in Europe eating them. What age are those cod when they are brought in? Are they old enough to have spawned? That raises a serious question as to the viability of those stocks.
I refer to the grants formula on the size of ships which is now related to the size of the vessel and its power. It is of course vital to introduce the new issue of power because any boat going a few knots faster will draw the mesh closer than ever. It does not matter what size mesh one has, if one goes fast enough it will catch all the fish. I understand that there has been some movement on the matter of the square mesh net. I asked my noble friend whether he would advise me whether there had been any movement on that, and what effect it has. I welcome the measures and look forward to my noble friend's reply.
12.56 p.m.
Lord Pearson of Rannoch: My Lords, I hope I may speak briefly and in a somewhat less welcoming tone than other noble Lords who have spoken so far. I think it would help if one were to stand back from these particular measures and consider the common fisheries policy more generally.
I believe it is true that before this policy came into being the United Kingdom used to have some two-thirds of the fish in what are now the Community waters, whereas, thanks to the common fisheries policy, we are now entitled to about one-third of the volume of the fish and to only some 10 per cent. of their value. I trust that my noble friend will put me right if I am wrong on these figures.

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I have two questions for my noble friend. One is of a general nature, and it concerns the number of jobs which have been lost in this country through this policy, which many of us regard as being unwise. We are often told that our membership of the European Communities has produced some 635,000 jobs through inward investment. May I ask my noble friend whether the Government have worked out how many jobs have been lost through the common fisheries policy? The noble Lady, Lady Saltoun, has already mentioned some loss of jobs in boat building, but there are also of course the direct jobs which have been lost at sea and in all the back-up jobs. I would be interested to hear from my noble friend whether the Government have even attempted any calculations in this regard.
One has to bear in mind that the Spanish fishing fleet is now eight times the tonnage of the United Kingdom fleet; and that Spain has some 17 inspectors based in Madrid, which is as far as it is possible to get from the sea, whereas we have some 200 inspectors who patrol efficiently.
My second question to my noble friend is somewhat more specific. I see from a Written Answer in the other place on 17th May that the European Community contributions to the Spanish fishing industry amount to some £739 million over the eight-year period from 1992 to 1998. That means £133 million-odd this year. The cost that we are putting aside for British fishermen in decommissioning to burn their boats and go out of business appears to be about £53 million. May I ask my noble friend what contribution this country makes to the amazing contribution that the Community makes to Spain to continue to steal our fish and to ruin our fishermen's lives?
12.59 p.m.
Lord Mackie of Benshie: My Lords, I might have known that the sceptic would have taken the opportunity to comment. The noble Lord should realise that without co-operation of a close kind in Europe there will not be any fish in the North Sea at all. The first example of that, which is a good one, is when it closed the North Sea to herring fishing. That was successful and within a number of years we got the stock back. Without the co-operation of the European Union that would have been impossible, and the situation is the same today.
I give the scheme a modified welcome. It is not as good as we would have liked. The noble Lady, Lady Saltoun, went through the points made by the Scottish Fishermen's Federation, all of which I agree with. It is ridiculous to say that they will get exactly £12 million each year, whereas it may be possible for a number of boats to be decommissioned quite early. The object of the exercise is to reduce the fleet and to reduce capacity, which may not always be the same thing. That is the object of the exercise, and that is a good point.
The federation also made the point that any money should not he taxed. That would be admirable for everyone. Perhaps the Government will look at the brief in that respect.
The noble Lady also made the point very well that there is no need to scrap the boats. If there is a record and the boats are on a register, surely that is enough. It
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is expensive to scrap boats. There are many other uses they could be put to. That is a point the Government ought to consider.
The sealed bid is easy for the Government, but I do not see why one should not have a simple system of a register of the amounts available and then pick the offers. I do not see why we could not use that system instead of the sealed bid.
The noble Lord, Lord Pearson of Rannoch, and the noble Earl, Lord Clanwilliam, raised a useful point, namely that the common fisheries policy is in grave trouble in that it is dependent on a common level of supervision. Under the decommissioning policy the Danes, for example, have been able to reduce the size of their fleet by half, but I do not know whether they have reduced their capacity. Nor do I know how sound their commercial fishing policy for the production of fish meal is. It is extraordinarily difficult to say whether they are putting in small fish because the whole catch goes into a mishmash so that one cannot possibly tell. They have admittedly reduced their catch of pout, but they are taking enormous numbers of sand eels, which are a very important part of the chain of production of fish of all sorts. They are the bottom line.
These matters need to be examined. Nothing appears to have been done about the square mesh, which according to our fishermen would make a big difference in allowing many small fish to escape rather than being caught and thrown away as useless. The whole question of discards needs to be looked at in the quota. It is extraordinary that we should have a policy which makes people throw back fish which could be sold on the market. I know that there are difficulties with the quota, but that point needs to be examined.
When the first of the quotas was introduced I was a member of a committee which was examining the matter. We found that in the whole of Spain there were only six inspectors, who were based in Madrid. That did not seem to us to be effective. I understand that we now have 81 inspectors operating in the United Kingdom. Can the Minister tell me what is the position throughout Europe, and especially in Spain? It appears that the further south one goes the less respect there is for regulations, at least in the case of Europe. It is important that there is a common standard of regulation. I know that even here so-called "black" fish have been landed and it is very difficult to control. The system needs proper control.
I do not know how many fishery cruisers there are overall, and I do not know whether other countries have fishery cruisers. However, I understand that in the case of some of the Spanish boats they wait until the cruiser picks on one. Rather like a herd of antelope, when the lion picks on one, the rest are happy that he has his food and they will be safe for another day or two. The regulations must be being broken to a very large extent and we ought to do something about it.
I hope that the Minister can give us some information about what I, as a farmer, would call the fallow area—the sea lying fallow. How far can we go in that direction? The concept has been successful in a number of areas with the designation of boxes in the North Sea. That is a development that we need.

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I daresay the Minister is in great difficulty. The Government have made a start on decommissioning. We also need to do something about the ageing fleet and try to catch up. A great deal more money will need to be spent on decommissioning.
I welcome the scheme as far as it goes, together with the subsidies for bringing vessels up to date as regards safety. That is obviously a very good thing.
1.6 p.m.
Lord Carter: My Lords, I welcome the Minister on his first appearance with the agriculture and fisheries brief. I wish him well with it. I also thank him for his very lucid explanation of what is a complicated subject. As he said, we are dealing with two schemes, one concerned with safety and the other with decommissioning. I should like to ask the Minister three questions.
The Minister referred to the MAGP targets and the three years over which the Government plan the scheme. Can we have a complete assurance that the Government are entirely satisfied that the targets will be reached as a result of the financial input into the decommissioning scheme?
To repeat a point made by the noble Lord, Lord Mackie, the Minister mentioned the monitoring of effort. We have heard much about Spain and the inspectors in Madrid. Is there an objective review by the Commission of the monitoring effort in each member state? Is that published? Is it done by the Commission in an objective way so that we can really see what the situation is regarding the monitoring of effort?
Thirdly, the Minister referred correctly to three of the 10 segments that have been excluded: the distant water fleet, the fleet of vessels of less than 10 metres and the nephrops fishery. Can any of those segments be reintroduced into the scheme if it is clear that that segment will not meet its target? Is there a mechanism for bringing them into the scheme just as they have been excluded?
I turn now to the two schemes. Obviously the House welcomes the safety grants. We on this side welcome the principle of decommissioning, although, as I shall show, we have some criticisms of the decommissioning in operation.
On the safety grants, I wish only to repeat a point made in the other place by my honourable friend Mr. Elliot Morley when the schemes were debated there on 18th July. The Minister referred to the various items that can be supplied through the safety grants such as life rafts, beacons and so on, but the point was made by Mr. Morley that,
"It is strange that flotation suits made by British companies are exported to Canada because it is compulsory for Canadian fishing boats to have such equipment, yet apparently such equipment is not eligible for grant under these orders. I am glad that the Minister says that the matter is being considered, but the issue has been raised for a number of years now".—[Official Report, Commons, 18/7/95; col. 1520.]
It would be interesting to know why flotation suits, which would seem to me as a layman to be a vital part of safety equipment on board a boat, are not included in the eligibility for safety grant.
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I turn to decommissioning. I shall make the same point already made about the timetable. Is it possible to accelerate the timetable and to have what is called in the jargon front-end loading so that more of the decommissioning effort is made at the beginning of the period rather than adopting the Treasury device of dividing by three? The urgency of some form of acceleration or front-end loading is revealed by the figures, which show that Spain has had £208 million from the scheme so far, France £55 million, and the UK £19 million, less than 3 per cent. of the total available for decommissioning.
The structural grants, which I am not taking strictly in the right order, relate to decommissioning which has a considerable effect on fishing communities. There is a strong suspicion that the structural grants that might be available to help the fishing communities are held up by a need for the UK contribution to match the EC grants—with which we are familiar—either in full or in part. As a result, are the fishing communities receiving all the direct and indirect aid they should be getting through structural grants and other means such as the early retirement schemes for fishermen which are available? What advantage are we taking of the various schemes to ensure that the serious effect on fishing communities is to some extent alleviated?
I turn now to scrapping. When the noble Lady, Lady Saltoun, referred to Treasury resistance to scrapping and rebuilding, I was reminded that not long ago—it was no fault of the Treasury—we had, as the noble Lord, Lord Mackie, will remember, a scheme in dairy farming under which a dairy farmer on one farm would be paid to scrap his dairy herd while the dairy farmer nextdoor would be paid at the same time to increase the size of his herd. That happened under the EC. So the principle of scrap and rebuild is not unknown.
On a more serious subject, the noble Lady made a good point when she asked why decommissioned boats could not be used for other purposes, particularly for export to developing countries. That seems sensible. Those countries want them. There would he no interference with our fishing, and the boats would supply a real need. Why do we have to scrap the boats? If the authorities could be satisfied that the scheme was not being abused, why could we not send decommissioned boats to developing countries to be used there instead of being burnt or scrapped?
I told the Minister that I would raise a small point of detail out of interest. Why is the minimum in the safety grant scheme 12 metres and in the decommissioning scheme 10 metres? I expect that the Minister will tell me that it is because it is and that is what it has always been. It would be interesting to know the particular argument or logic which states that the safety grants can only apply to the 12 metre minimum and the decommissioning grants to the 10 metre minimum.
In conclusion, we all know that the common fisheries policy is deeply flawed in operation. What is the timetable for review of the scheme? The noble Earl, Lord Clanwilliam, mentioned the possibility of it being placed on the IGC agenda. I am not sure that that is the

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best way to deal with it. Is there a timetable for reviewing it and putting right many of the flaws that appear as the scheme operates?
We support the schemes. I conclude with a remark I have made before. As the common fisheries policy becomes more applicable as it operates, it is beginning to make the common agricultural policy look like a beacon of common sense and sweet reason.
1.13 p.m.
Lord Lucas: My Lords, I am not sure that I can follow the noble Lord, Lord Carter, down the last road which he suggested. The common fisheries policy is at least a necessary policy, even if its form may not be entirely to our liking. I thank the noble Lord for his welcome and hope that in the coming months I shall earn his kind words.
Many points have been raised today and I shall doubtless fail to address all of them. However, I shall go through Hansard and reply in writing to any which I miss.
The noble Lady, Lady Saltoun of Abernethy, asked me a number of questions. First, she asked whether it was possible to front load the scheme. The £12 million available this year already represents a 50 per cent. increase on the funding for 1994. To put even more in at this stage would risk encouraging over-optimistic bids which would represent poor value for money. It would also put a strain on the limited capacity available in this country for the physical scrapping of vessels, which is a requirement of the scheme. I shall come to that later. Lastly, it could risk disturbing the normal infrastructure of the industry, leading to other problems for ports and markets. We feel it is better to proceed at a steady pace and review the need for additional measures in the light of progress.
The noble Lady also asked why there was a delay in the 1980s in introducing decommissioning. Decommissioning is an expensive option. Its primary purpose is to help us achieve our MAGP targets. These did not become mandatory until 1994, although we ran an earlier decommissioning scheme from 1983 to 1986. That was not wholly successful, so we were anxious to learn the necessary lessons before embarking on the current programme. With the additional £28 million announced in January, I am satisfied that we now have a substantial scheme which will make a real impact on the problems of over-capacity which we all know are at the heart of so many of the industry's difficulties.
The noble Lady asked about building and construction aids, and that was also touched on by other noble Lords. We see no sense in the Government financing grants to increase fishing capacity and efficiency while we are still paying money to decommission fishing capacity. Moreover, there is a doubt as to whether the Commission would allow construction aid until we can comply with MAGP objectives.
I agree very much with the noble Lady that the insistence on scrapping vessels is not the most immediately logical or attractive regulation. But we currently see no alternative to it. It is a European Union requirement that vessels do not find their way back into
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the UK or the EC fishing fleet. Scrapping represents the most effective way of ensuring that. Nevertheless, where vessel owners come forward with suitable alternative proposals for scrapping their vessels, we are prepared to consider each case on its merits. But at present we require that each such vessel must be rendered permanently unseaworthy. In that way a number of historic vessels have been saved by museums for posterity or put to charitable use.
We have looked carefully at the possibility of allowing vessels to be exported as opposed to being scrapped, but we have so far been unable to devise arrangements which offer the necessary guarantees that vessels will never return to the European Union fleet. If anyone has suggestions which would enable us to be satisfied on the point, we would be pleased to hear them.
My noble friend Lord Clanwilliam gave what I hope I can regard as unstinting support for the principle of the common fisheries policy. We completely agree with him. Some form of common European fisheries policy is essential since conservation of fish stocks cannot be managed by countries acting in isolation. Co-operation is imperative, given the over-capacity of national fleets and the migratory behaviour of fish stocks. Fishing is carried out by people who are fundamentally the last hunters in Europe. It is an industry populated by people of, as I remember it being called, "infinite resource and sagacity". It is not possible to impose structures on the industry that do not reflect the historic patterns of fishing and the way the industry has grown up.
Of course, there are significant weaknesses in the common fisheries policy. We have already pressed that point with the Commission and have secured a commitment in the Council to minimise bureaucracy. That is why we set up a review group to look at ways in which the common fisheries policy might be improved. Work is progressing and conclusions will be announced in due course. But starting where we had to, we feel that at the inception of the common fisheries policy we achieved an exceptionally good deal for the United Kingdom and its fishermen. We feel that as the common fisheries policy progresses and we reach a position where stocks may once again continue to increase, it will prove to have been an effective, if not perhaps theoretically the tidiest, way in which to rescue what would otherwise become a disastrous situation.
My noble friend Lord Clanwilliam also asked about square mesh panels and other conservation measures. Most trawl nets are constructed of diamond mesh, and this closes to some degree when being fished to make it harder for small fish to escape. A panel of square mesh netting stays open, and so greatly aids the escape of juvenile fish.
The Sea Fish Specified Sea Areas (Regulation of Nets and other Fishing Gear) Order 1991, which came into force on 1st July 1991, requires British vessels to use the panel of square mesh in their nets in most of the areas that they work. We are also in discussion with the National Federation of Fishermen's Organisations, at its request, about additional technical conservation measures, including the increased use of square mesh

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panels. But we should recognise that there are operational problems in using large areas of square mesh to which we have yet to find solutions.
My noble friend Lord Pearson raised a number of doubts about the common fisheries policy. I very much doubt whether I have the capacity to eliminate those doubts, however carefully I argue, but I shall look at what my noble friend said, and if I feel that I can usefully write to him, I shall do so.
The question of the Spanish inspection effort was also raised by other noble Lords. It is no longer true that there are five inspectors stuck in Madrid. About 50 full-time inspectors work for the Ministry of Agriculture, Fisheries and Food, operating from Madrid and supported by fisheries inspectors from the autonomous regional governments, and by military personnel. The Spanish naval marine units and marine civil guard undertake fisheries surveillance at sea.
It is vital that there should be effective standards of enforcement applied consistently by all member states. It is for that reason that we supported the introduction of new fisheries control regulations, which provide a comprehensive framework for uniform and effective enforcement of the common fisheries policy throughout the Community. We have pressed hard for more consistent standards, and we are now meeting with success.
The noble Lord, Lord Mackie, raised a number of small points which I might address best in a letter to him. I shall deal with just one; namely, industrial fishing for sand eels. I entirely share the noble Lord's concerns. We recognise the widespread concerns about industrial fishing and its effects on the wider eco-system. But we need to improve our scientific understanding of these effects so that we can take action if necessary and give weight to our arguments. The United Kingdom will continue to press the European Commission to get research done in this field to assist the formulation of appropriate proposals for the better management of this fishery.
The noble Lord, Lord Carter, asked whether the current programme will enable us to reach our MAGP targets. Of course, we do not know. We believe that it should. But we will obviously monitor its effects. The noble Lord asked whether there would be the opportunity for the nephrops fleet to be brought back into the scheme if conditions change. Yes—
Lord Carter: My Lords, it is not just a matter of the nephrops fleet; my question also relates to the fleet under 10 metres. Can any of these excluded segments come back in?
Lord Lucas: Yes, my Lords. As I said, the reason for exclusion from the current scheme is that we feel that they will meet their targets without that aid. But obviously if that position ceases to hold, we will bring them back into the decommissioning scheme.
The noble Lord also asked about flotation suits. We recognise that these can be a valuable safety aid, but they are not currently a requirement of the 1975 safety rules, which are the basis for grant aid. Life rafts are seen by the Marine Safety Agency as a preferable means
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of keeping dry and containing hypothermia; they are eligible for grant. However, the MSA continues to investigate practical solutions to the problems of effective in-water thermal protection for fishermen in the event of falls overboard or evacuation. Should that opinion change, then obviously the survival suits will come within the scope of the grant.
So far as full access to the European Union grant system is concerned, the way in which European funding works is that most of the costs of these grants, including the decommissioning scheme, in the end comes from the United Kingdom taxpayer—to the extent of about 85 per cent. So fundamentally this is our money, and we have to make our own decisions as to how to spend it. There is no pot of gold into which we can dip for the benefit of our fishermen.
We value our fishing industry and wish it to become safer, more profitable and sustainable in the long term. I beg to move.
Lord Pearson of Rannoch: My Lords, before my noble friend sits down, I do not wish to make his first time at the Dispatch Box in his new capacity any more difficult, and indeed I join with other noble Lords in congratulating him. But when he comes to reply to me in writing, perhaps he could look carefully at my main point in this debate; namely, that we used to own two-thirds of the fish in the Community. They were our fish. If anyone came in to poach them, we could send a gun-boat. It is not good enough to say that other people were over-fishing all over the place, or as I believe the noble Lord, Lord Mackie, indicated, that we should be sunk without this policy, or that there would be no fish left in the North Sea, or anywhere else. The fact is, they were our fish; we have given them away; and we are giving the Spaniards more money to steal our fish than we give to our own fishermen. That is what I should like my noble friend to concentrate on when he comes to write to me.
Lord Lucas: My Lords, I do not in any way share my noble friend's opinions. I think that he is mistaken in the opinions that he holds. I believe that we achieved an extremely good deal for our fishermen when we entered the common fisheries policy. But clearly, I shall have to write to him at length to convince him.
On Question, Motion agreed to.

Fishing Vessels (Decommissioning) Scheme 1995
1.26 p.m.
Lord Lucas Lord Lucas rose to move, That the scheme laid before the House on 4th July be approved [26th Report from the Joint Committee].
The noble Lord said: My Lords, I have spoken to this provision. I beg to move.
Moved, That the scheme laid before the House on 4th July be approved [26th Report from the Joint Committee].—(Lord Lucas.)
On Question, Motion agreed to.

Updated Code of Audit Practice for Local Authorities and the National Health Service in England and Wales 1995
1.27 p.m.
Lord Lucas Lord Lucas rose to move, That the code of practice laid before the House on 27th June be approved [25th Report from the Joint Committee].
The noble Lord said: My Lords, the updated Code of Audit Practice for Local Authorities and the National Health Service in England and Wales has been prepared by the Audit Commission and is now presented for approval by this House.
Appointed auditors have a duty to comply with the code in carrying out their functions under Part III of the Local Government Finance Act 1982. Responsibility for the code rests wholly with the Audit Commission. As required by the 1982 Act, the Commission has consulted the bodies most directly concerned: local authority associations, and representative bodies for the National Health Service and the accountancy profession. The code has also been the subject of consultation with the commission's own auditors—the National Audit Office—the District Audit Service and private accountancy firms and government departments.
The commission has taken legal advice on the form and content of the code and is satisfied that it covers all appropriate aspects of auditors' responsibilities. The code can only deal with the auditor's own powers and duties. Other people's responsibilities are mentioned only where it is necessary to explain the auditor's own function. However, the commission has used the explanatory foreword, which is not part of the code, to set the auditor's role in context.
The content of this updated code is not radically different from the current version. Certain changes have been made specifically to bring the code into line with current thinking or to take account of recent developments. The key ones are as follows. References have been added to the auditor's statutory duties under Section 3 of the Local Government Act 1982, which were not enacted when the current code was approved. These are to ensure that, where an audited body has a duty to publish performance information, it has made sufficient arrangements for collecting, recording and publishing the information. Performance indicator work for the National Health Service is not covered by the code as it is done in response to a request from the Department of Health, on a non-statutory basis.
The updated code generally expresses the auditor's duties, including their duty of care, more clearly. This will help auditors themselves, and those who have an interest in their work, to understand better the framework in which they operate. In particular, new paragraphs on the scope of the code (paragraph 1) and the scope of the audit (paragraph 5) seek to dispel any misconception about how the code is to be applied or about what can be expected from the auditor.
The code gives greater attention to the need for auditors to follow up local value-for-money work and to encourage audited bodies to realise identified
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opportunities for efficiency savings. It would be easy to take for granted the professionalism and integrity of the auditors and the Audit Commission on which we rely to ensure that public money is accounted for properly. But those high standards are not achieved by accident. They are the result of personal commitment and professional attention to detail. This code has a key role in ensuring that audit work is carried out thoroughly and effectively. I beg to move.
Moved, That the code of practice laid before the House on 27th June be approved [25th Report from the Joint Committee].—(Lord Lucas.)
Lord Carter: My Lords, I thank the Minister for introducing the order. I shall be extremely brief. Obviously we welcome the code. Can he tell us how the work of the Audit Commission in future in this respect will relate to the Nolan review, which has undertaken a review of local government and the way in which finances are controlled? If Nolan makes certain recommendations, will it mean a revised code?
Should a part of the Audit Commission's function be to test or evaluate the adequacy of arrangements regarding the conduct of Members and officers? That has been suggested, by the AMA for example. Is that a proper role for the Audit Commission? If not, who should do that? If there were some form of evaluation, it would enable an appraisal to be made of the various authorities and the way in which they implement national codes of practice.
Are the Government entirely satisfied that the code is explicit enough regarding disclosure of pecuniary interests of Members and staff? What are the formal procedures for evaluating auditors' compliance with the code? What is the procedure for ensuring that the auditors who are responsible for carrying out the code in the local authorities and the NHS in fact are doing the job properly?
I have one final question, on which I am sure the Minister has been briefed—at least I hope so—which concerns the legal status of the advice given by the Audit Commission. That point has arisen from a particular case in which a former legal adviser to the Audit Commission, Mr. Childs, gave certain advice—he has since left the commission—which has caused some concern over the use of pension funds. What is the legal status of advice given by the Audit Commission? There is a famous judgment to the effect that an auditor is a watchdog and not a bloodhound. It would be helpful if the Minister could tell us which of those roles he believes that the Audit Commission fulfils.
Lord Lucas: My Lords, I am very conscious of the remarks made by the noble Lord, Lord Williams, when he suggested that this was a boring subject. I am an accountant. I do not consider it boring. I consider it deeply fascinating. I should like to reply to the noble Lord, Lord Carter, at great length.
Lord Williams of Elvel: My Lords, I beg the noble Lord's pardon. I have not made any remark. I have not risen to speak. I have not intervened. Would the noble Lord care to withdraw his observation?
Lord Lucas: My Lords, I am very sorry if I misheard the noble Lord. Nevertheless, I am conscious that there are other subjects on noble Lords' minds today. The noble Lord, Lord Carter, asked a number of detailed questions, to which I should like to give a proper reply. If the noble Lord will allow it, I should like to give that reply in writing.
On Question, Motion agreed to.

Contracting Out (Highway Functions) Order 1995
1.32 p.m.
The Earl of Courtown The Earl of Courtown rose to move, That the draft order laid before the House on 27th June be approved [25th Report from the Joint Committee].
The noble Earl said: My Lords, I beg to move. This order, under Sections 69 and 77 of the Deregulation and Contracting Out Act 1994, will enable the Secretary of State for Transport to contract out certain of his statutory functions as highway authority for the trunk road and motorway network.
The powers are needed for two purposes. The first is the replacement of present maintenance agency agreements between the Secretary of State and local highway authorities by a new model contract, for which both local authorities and private companies could compete. The second is our intention, as part of the private finance initiative, to procure on some sections of the network a comprehensive construction and road management service from private companies—commonly known as DBFO (design, build, finance and operate) contracts. Essentially, companies are being invited to compete for contracts to deliver a major piece of new construction and then manage what they have built for a considerable number of years after the road is open to traffic. The order will give DBFO companies the delegation of powers that they would need to carry out their responsibilities effectively.
Before I go into the detail of the order, perhaps it would be for the convenience of the House if I say a few words about the underlying policy. The purposes of the order have a common theme in helping us to get a better service out of the existing road system. The vast majority of design, construction and capital maintenance activities are already undertaken by the private sector. It seems sensible to see whether and to what extent the more day-to-day management of the system could benefit from competition.
The Secretary of State's formal responsibilities are exercised by the Highways Agency, an executive agency within the Department of Transport. However, day-to-day activities, such as management and maintenance on the trunk road and motorway network, can be delegated by virtue of Section 6 of the Highways Act 1980. These arrangements are set out in the agency agreement, a document whose form dates back to 1948. The Secretary of State's powers are, however, confined by Section 6(8) of the 1980 Act to those agency agreements which are made with the particular local highway authority whose area covers that particular section of trunk road. In other words, we are limited
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by administrative boundaries which have no particular relevance to the trunk road network; nor may private sector contractors enter into such arrangements. That severely limits our ability to test value by competition.
A consultation document Trunk Roads and Motorways: Review of Agency Arrangements was issued by the Highways Agency in April. This also set out proposals for new agencies and their areas under which the new style maintenance and management contracts might operate. The intention would be to allow local highway authorities, or consortia of them, to compete with private companies for the work. A copy of the draft order was included in the consultation document.
For DBFO contracts, arrangements would be slightly different, as in each case major new construction is also required, lying beyond the normal capability of the local highway authority. The main contract would be between the Secretary of State and the DBFO company responsible for delivering the construction and then managing the built road. We are not, however, against allowing local highway authorities the opportunity of bidding for subsidiary contracts let by companies to maintain DBFO roads. This would give the companies the freedom to have access to those services which they feel would most efficiently be procured from the local highway authorities. We have consulted, on a separate order, under the Local Authorities (Goods and Services) Act 1970, which would permit local highway authorities to tender for sub-contracts let by DBFO companies.
I now turn to the structure of the order. The first article contains the citation, commencement and provision for interpretation. The second article makes clear that the Secretary of State may select which of the functions set out in the three schedules are for delegation, depending on the circumstances of the contract. The third article makes a consequential amendment to Section 6(8) of the 1980 Act which at present restricts those to whom the Secretary of State may delegate his highway functions. This amendment modifies Section 6(8) to ensure that it allows for delegations pursuant to an order made under Section 69 of the Deregulation and Contracting Out Act 1994.
I mentioned that the order in draft was included in the Highways Agency's consultation document. It was distributed widely to local authorities, contractors, consultants, representative bodies and other interested parties and drew a wide range of response. Little comment however was offered on the draft order itself. Only one function then proposed for contracting out appeared to cause concern to one or two consultees. That related to the supply of information and recommendations for planning permission. After further thought, that provision has been withdrawn from the order before the House.
The underlying purpose of our policy is to widen the range of options available to us for managing and maintaining the network. The Secretary of State remains the accountable highway authority, and nothing in the order reduces the range of his responsibilities.
The order would, however, allow us to develop arrangements which could provide a better service to the travelling public through a wider selection of road

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management options. The order under consideration today would help this process forward, and I commend it to the House.
Moved, That the draft order laid before the House on 27th June be approved [25th Report from the Joint Committed]—(The Earl of Courtown.)
1.40 p.m.
Baroness Thomas of Walliswood: My Lords, I welcome the new Minister and apologise for coming into the debate in the gap. I shall therefore not discuss the broader issues which the Minister raised but keep myself strictly to what is before us today.
Basically, we welcome the idea that these maintenance contracts, the Highways Agency contracts, are to be let in road network bundles rather than in county council or other highway authority bundles. That probably makes better sense in terms of the way in which the network is managed and therefore I have no objection and welcome the opportunity for local authority consortiums to be formed to bid for those contracts. I am aware that discussions are already taking place.
With regard to the DBFO element—I shall not be tempted into discussing the whole DBFO approach—I welcome the ability of local authorities to tender for the maintenance part of that ongoing contract. I was interested in the remarks made by the Minister, John Watts, that the contractors themselves wished to have access to the expertise currently situated within the offices of the highways authorities as they are now constituted.
I have two anxieties, one of which I warned the Minister about and the other of which I did not, for which I apologise. The one I did not warn him about is our concern that the process is out of kilter with the response to the then Secretary of State's speech to the County Surveyors Society. Dr. Mawhinney at that time raised the possibility of redesignation of the road hierarchy and by implication the allocation of duties of highways authorities vis-à-vis those roads to make the system easier to understand for the consumer or the driver. We have no objection to that approach. However, given that the Institution of Civil Engineers is still discussing the matter, I wonder whether the two processes will not conflict to some extent.
The second matter which I raised by fax with the Minister concerns the interaction of this order with the implementation of CCT on local government services connected with highways. Local highways authorities are in the process of taking decisions regarding the 65 per cent. "contracting" side of their business. Those decisions will affect many members of staff. They will be in the position of not knowing whether they are able to retain the 25 per cent. of work currently accounted for by the Highways Agency contract, at least in some authorities.
Depending on the timing of each process, there is a danger that the implementation of the new orders may pre-empt decisions as to the correct option for organising the 65 per cent. of contracting-out work. The Minister will understand that there is a range of options
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open to local authorities when faced with that 35/65 split. Alternatively, the process of contracting-out by local highways authorities may be affected in mid-process by the operation of the new order. What is the Government's view? In particular, suppose the solution adopted by local authorities is to "sell" their contracting departments to a given private sector consultant and that company does not obtain the Highways Agency work; it will lose 25 per cent. of the work that those people represent. It is likely that those engineers may be moved from one company to another. How will the TUPE operations work under that complicated situation?
1.44 p.m.
Lord Williams of Elvel: My Lords, I congratulate the noble Earl on his first appearance at the Government Dispatch Box and on his presentation of the order. I have no intention of dwelling on the policy underlying the order. The noble Earl knows well what our views are, both on CTT and on DBFO.
I have three specific questions to put to the noble Earl. First, he said that it was the Government's intention to procure on "some" sections of the network this new arrangement. I should like to know what the criteria are by which those sections will be chosen; what the procedure will be; and how it will all work. Secondly, he said that the Secretary of State was "formally" responsible for the network. That is true. But I am sure he will recognise that with the advent of the Highways Agency there is a certain distance now between Parliament and the management of the network. Indeed, if I were to table a Question to the Secretary of State I would be referred to the chairman of the Highways Agency, which is a Next Steps agency. Can the noble Earl say how the Secretary of State proposes in the future to maintain his responsibility for the network? Will we be shuffled off again into questions about the agency, passed on to the chairman? What is the Secretary of State's responsibility? Can the noble Earl put that in clear terms?
My third question relates to the CCT and whether it is value for money, value for quality, or value for quality and money. Can the noble Earl give an assurance that where they go out to test, quality will be taken into account as much as money? There is an abiding suspicion that the whole government programme is designed to save money at the expense of quality.
Finally, I cannot see any of this improving the service to the poor old motoring public, who have been bashed about enough by this Government. I hope that the noble Earl will give us a few reassuring remarks in that regard.
1.47 p.m.
The Earl of Courtown: My Lords, I listened to what was said about the order with interest. First, I thank the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Thomas of Walliswood, for their kind words and their courtesy in giving me prior notice of their concerns.
The order is necessary to allow us the opportunity to bring competition and the possibility of private sector efficiencies to bear on the provision of road management,

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as we have done so successfully in other sectors of life. In this policy the delegation of functions to the private sector maintenance agencies and DBFO managing contractors is important. Without that it would not be possible for private sector managers to show properly what they can do. The managers would have to revert to government to carry out a range of maintenance and improving functions, yet our local authority agents are not confined in that way.
This order allows private sector bidders to have the same degree of control over their operations as the present agent authorities have over theirs. That will be more efficient for private sector operations and I expect those efficiencies to be reflected in pricing.
Bidders for both new-style agency agreements and DBFO projects will be able to submit their proposals in the knowledge that they will have as much control over their operations as is practicable. The playing field between such bidders and local highways authorities will be levelled. Those arguing for the status quo are arguing for a statutory monopoly, which the local highways authority for any specific area now enjoys. Such monopolies are defined by the administrative boundary and not by the operational requirements of the task.
The noble Baroness raised the subject of transfer of undertakings protection of employment regulations. For the DBFO new agencies' arrangements, we have been consistently saying to bidders that they must satisfy themselves, in making their bids, as to whether they would be liable for costs implied by the TUPE regulations. That is not a subject on which I can offer advice in the abstract.
The noble Baroness mentioned the subject of a review of the network to be carried out before new agency arrangements are introduced. There are areas of overlap between the two issues, but they do not need to be carried out consecutively. I am content for them to run in parallel. The Highways Agency will consider the proposals in full knowledge of the points made during consultation.
The noble Baroness also mentioned the contractual arrangements with design services. So long as we have an agreement with an agent authority it would be held responsible for activities carried out under that agreement. Even if it had externalised any ensuing contractual issues between the agent and its consultant it would be for it to resolve.
The noble Lord, Lord Williams, asked for information relating to the sections and routes. Those are concerned with the DBFO projects. Initially this will cover 6 per cent. by mileage of the network in England and covered by the first eight contracts.
The noble Lord went on to mention the relationship of the Secretary of State with these new arrangements. For the vast majority of roads—well over 90 per cent.—the local highway authority (the county council, the metropolitan district council or the London borough council) is responsible. Under the Highways Act 1980, however, the Secretary of State is the highway authority for the motorways and trunk road system. Under Section 6 of the Act he is empowered to delegate functions to the
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local highway authority; notably, day-to-day management and maintenance. In effect it acts as his manager and can use its powers on its roads. The weakness of the system is that Section 6(8) has the effect of making a local highway authority the exclusive delegatee. That is the root of the problem since at present the Secretary of State has the choice either of exercising those functions directly or having them exercised by another highway authority.
Under the proposed arrangements the Secretary of State would remain the highway authority. He would remain accountable for the service rendered by the motorways and trunk road system. Nothing in these proposals changes or reduces that responsibility. The proposals are rather about how he can exercise the function. The essence in the case of both DBFO and of the more widespread agency agreements is that the order would allow him the choice of method. In contract terms he would be the principal or client but his public responsibilities remain as before.
The noble Lord, Lord Williams, asked how we propose to secure better value from road management and maintenance. At present we can compare spending rates among agent authorities but in each case we have a monopoly supplier in the form of the local highway authority. While there are various codes of practice they are not terms of contract and much latitude is available to the local authority road manager. Trunk roads in each area tend to be treated as if they were local authority roads. In practice standards of provision vary. Our case is that we should seek greater consistency and reliability of performance. In the DBFO contracts, and in the new style agency agreements as they develop, the Highways Agency must set out a series of client requirements against which bids will be invited. We are negotiating the DBFO contracts and that gives us the opportunity to explore with bidders the merits of different approaches. I am sure that the local highway authorities have much to contribute to this thinking. Once signed the contract will be monitored and enforced by the Highways Agency. Since we shall be paying explicitly for a service we shall see that that service is actually rendered. In the case of DBFOs the link between company revenue and traffic flow ensures that the company itself will have an interest in the reliability of its service. Finally, such arrangements must remain flexible to allow for continuing technical improvements, so the contracts will contain procedures to adjust the service required in the light of such changes.
With regard to the effect on the travelling public, much attention is given to the merits of road building and we hear various views in this House and elsewhere on those merits. We believe in targeting our spending on particular problems in the national trunk road and motorways system but the average driver will be concerned rather with the reliability of the existing system, on which he or she will have expectations of consistent performance. Our new arrangements seek greater reliability and consistency. Perhaps I may give two examples. We hear much about the impact of roadworks on the availability and reliability of our roads. A formal contract which gives the road manager an incentive to minimise the time taken for roadworks

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would clearly benefit the driver. We do not, as it happens, think that the present day agent authorities render a bad service but rather that greater concentration on routes rather than county boundaries or parity of treatment with local roads would permit us to offer a better service.
My second example concerns driver information. If we are to get better value out of our existing roads one key element will be our ability to improve the information to drivers. Here again it will be better to consider our network on a broader geographical basis than present arrangements permit. I think that we might distinguish these aims from the question of who provides the service. As I hope we have made clear, we have no difficulty with local authorities, perhaps in consortia, bidding for the work either from the DBFO companies or directly for the new agency contracts. But we consider that the travelling public can only benefit from introducing competition combined with subsequent contract monitoring. I think I have covered all the issues raised. I shall read Hansard. If I have missed anything I shall write to noble Lords.
We have some of the most heavily trafficked roads in Europe so we need to be flexible to meet the challenges and to be responsive to customer needs. We are continually working to ensure that we can meet increasing demands on our national road network in ways which can provide better value for money and which are more efficient for the travelling public. This order will allow us to extend the range of options we have for managing the network. We would no longer face, as now, a "Hobson's choice". The order will not only allow us to delegate a range of functions but to select which functions are suitable for the particular circumstances. I believe that the order will play a vital role in helping us to achieve better management. I therefore commend it to the House.
On Question, Motion agreed to.

Employment Protection (Increase of Limits) Order 1995
1.57 p.m.
Lord Chesham Lord Chesham rose to move, That the draft order laid before the House on 28th June be approved [25th Report from the Joint Committee].
The noble Lord said: My Lords, the Secretary of State is required to review each year the limits on certain payments under the legislation while other limits can be reviewed as and when he thinks fit. The order increases the maximum amount of most of the awards that industrial tribunals can make to individuals whose statutory employment rights have been infringed. It also affects the amount of redundancy payment payable to employees.
As your Lordships may know, the limits that must be reviewed annually are the limits on the amount and duration of guaranteed payments, the limit on the weekly amount payable from the National Insurance Fund and the insolvency payments in respect of certain debts, the limit on the amount of a week's pay used to calculate redundancy payment, the basic award of
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compensation for unfair dismissal and the additional award for an employer's failure to comply with an order of re-employment.
As has been the usual practice, the Secretary of State for Employment consulted widely with employer and employee bodies and with others who have an interest in this matter. He has also been required to take into account the general level of earnings, the national economic situation as a whole and any other relevant matters. As a result of all these considerations we propose that the limit on the daily amount of guaranteed pay should increase roughly by the RPI index from £14.10 to £14.50 and that the limit on the amount of a week's pay should increase from £205 to £210. There has been no significant pressure for changes to the duration and period of guaranteed pay. The Secretary of State for Employment laid a report on 19th June in which he explained why these limits would remain at their existing level for five days in any period of three months.
The legislation also enables the Secretary of State to review from time to time limits on the compensatory award for unfair dismissal and the special award which may be made in some cases where dismissal is for trade union or health and safety reasons. The opportunity of the consultation was taken to consider these limits at the same time as those for which an annual review is required by statute. The general compensation limit was last raised two years ago. The special award reflects fundamental protection against being dismissed for trade union membership, or non-membership, or because of trade union activities, or since the Trade Union Reform and Employment Rights Act 1993 for certain health and safety matters.
The level of the limits here act only as compensation for the individual, but are a real deterrent against employers acting in such a way. As with the other limits, we consider it right that there should be a modest increase in these awards this year. The proposed new limits will be as set out in the order. I beg to move.
Moved, That the draft Order laid before the House on 28th June be approved [25th Report from the Joint Committee].—(Lord Chesham.)
2 p.m.
Baroness Turner of Camden: My Lords, I welcome the noble Lord, Lord Chesham, to his first stint at the Dispatch Box on an employment question. I am sure that we shall hear a great deal more about employment from him in future. I would also like to thank him for the way in which he has explained this order.
We on this side welcome it, although perhaps in rather a tepid way, on the ground that it represents an improvement and, I suppose, it is better than nothing. However, the order gives me the opportunity to express my concern about the disappearance of the Department of Employment. It seems to me that, at a time when the employment scene is changing so drastically; when people are so insecure, even those who have jobs; and when everyone, including the Government, are talking about flexibility in employment, which is more like casualisation—we had a debate about that in this House quite recently—entirely the wrong signals are being sent

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out. The impression will certainly get around that the Government are not really concerned about employment problems and that these can be subsumed in other departments—in education, the DTI, the environment and so forth. It simply confirms the point of view that some of us have held for some time, that employee rights are rather low on the Government's agenda and now that they are simply not there at all. I believe it to be a very retrogressive step and it is one which I am sure the Government will regret.
Turning to the order itself, the Government could have done a little better. Some of the limits have not really kept up with inflation, as I am sure the Minister must know. Moreover, as regards unfair dismissal, about which we are concerned because of the general employment situation, there has been, as I believe the Trades Union Congress has said, a total failure to uprate in line with the RPI. The limit is now £11,300, but if it had kept pace with inflation, it would have been of the order of £27,000. However, the limits on compensation awards for sex discrimination and race discrimination have had to be removed as a result of European decisions, so why should we not remove the limit as regards this particular area? As far as other limits are concerned, I gather that in some instances there has been no increase since 1992, so the increases now given are hardly munificent.
As I said at the beginning, we welcome the order on the basis that it is an improvement on what was there before, but we believe that it would have been possible for the Government to have done better.
Lord Chesham: My Lords, I thank the noble Baroness for the kind words welcoming me here. I am glad that she has some welcome for the proposed increase, even though it is not as large as she would have liked. Any increase in these limits must be set in the overall context of the country's economic priorities. Our first priorities must remain the strengthening of the economy and avoiding any unreasonable increases on the burdens of business.
As regards her other comments, it is a little difficult for me to respond to the situation of the Department of Employment. We have done what we can to raise the limits. In fact, where the majority of the maximum limits are involved, the actual amounts paid out are averaging around £2,700 as against £27,000, which is the maximum amount allowed. While they could be higher, the average amount being paid out is considerably less than the maximum amount. I commend the order to your Lordships.
On Question, Motion agreed to.

Banking Supervision
2.4 p.m.
Lord Eatwell Lord Eatwell rose to call attention to the need for improved banking supervision, in the light of the collapse of Barings; and to move for Papers.
The noble Lord said: My Lords, it is traditional for Motions to resolve in your Lordships' House to end with the words, "and to move for Papers". In the circumstances
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of our debate today, that Motion is even more than usually appropriate: Papers are certainly needed. We have all now had the opportunity to study the report of the inquiry into the collapse of Barings. It makes it abundantly clear that the collapse was brought about by the three factors listed in paragraph 13.4: first, unauthorised and concealed trading by Mr. Leeson; secondly, a total management failure at Barings; and, thirdly, a serious regulatory failure by the Bank of England. The collapse would not have occurred without each of those three ingredients to the fatal brew. The report demonstrates that this unbelievable mess was brought about not just, as the Chancellor of the Exchequer originally asserted, by a rogue trader, but also by a rogue management and a rogue regulatory system. All three were necessary for the collapse; only one of them is still in place.
That is why a responsible government, mindful of the importance of the integrity and long-term profitability of the City of London for our national economy, would now set up a proper independent review to consider what should be the structure of a modern supervisory system for British banking. That review should consider both what are the tasks of financial regulation in a fast-changing world and whether the Bank of England should continue to perform those tasks or whether they should pass to a new banking commission. In other words, its terms of reference should be drawn far more broadly than the Board of Banking Supervision's terms of reference in the investigation into Barings.
The Barings report, like the report on the Johnson Matthey affair and the Bingham report, provides a number of detailed recommendations for changes in the Bank of England's regulatory system. Famously, these include the recommendations in paragraphs 14.35 and 14.37 that the Bank should understand the business it is supposed to be regulating—an argument the implications of which are not particularly reassuring. Indeed, as with the Johnson Matthey and the BCCI reports, this report leaves us with the distinct impression of a regulatory system which is always catching up with yesterday's problems, and in the case of Barings a problem which the Governor of the Bank of England believes is an aberration. Therefore, the recommendations, sensible though they undoubtedly are, are also reactions to yesterday's problems.
In the succession of regulatory failures suffered over the past 10 years, we always seem to be playing catch-up. It is time that we designed a regulatory system which could provide Britain with a competitive lead. The need to take a lead has been created by the speed of global financial deregulation and innovation which is sweeping away the old boundaries between deposit-taking banks, on the one hand, and investment and securities houses, on the other hand. Competition in global markets is forcing the development of larger, more diverse financial conglomerates in place of the segmented, fragmented markets of old. New markets in derivatives and other financial products have blurred the lines between prudent hedging and reckless gambling. It was precisely those changes which resulted in the Bank

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of England's regulators confessing in 1993 that they did not understand the business that they were supposed to be regulating.
Of course, the development of global markets also poses new problems of international regulatory co-operation and co-ordination, but the traditional tasks of an effective supervisory system remain essentially the same. First, the banking system must be protected from systemic risk—that is, the possibility of a catastrophic financial failure which spreads from one financial institution to another. The funds of depositors, small and large, in banks and near-banks must be protected. Secondly, while in securities markets investors do not receive the same protection as depositors—investments are necessarily risky—regulators must nonetheless ensure that investors are fairly and honestly treated. As the Barings case shows, the difficulty is that in a world in which banks and securities traders are one and the same, the risks of a securities business can overwhelm prudential banking.
That problem has been considered recently by the so-called "tripartite group" of international banking, securities and insurance regulators, which produced a report entitled The Supervision of Financial Conglomerates. The tripartite group attempts to gain a picture of the entire regulatory framework of the global financial markets. It would be helpful if the Minister could tell us what contribution the Bank of England made to the tripartite group's work on the supervision of conglomerates. After all, the Bank certainly has a lot of experience of what can go wrong.
In its report, the tripartite group identifies a number of possible approaches to the problem of conglomerate regulation. It contrasts, on the one hand, consolidated supervision by a lead regulator who has responsibility for an entire conglomerate with, on the other hand, solo supervision in which different parts of the conglomerate are the responsibility of different regulators. The report also assesses the advantages of the isolation of banking activities from investment activities. Noble Lords will remember that that was an important issue at Barings where banking and securities operations were combined. That form of isolation has been enforced in the United States since the 1930s under the Glass-Steagll Act. Finally, the report assesses the benefits of New Zealand's approach to regulation, which involves far greater transparency, with the enforced publication of exhaustive information.
Whichever of those approaches is adopted, it is clear that banking supervisors have great difficulty handling the new world of conglomerates. Co-operation between different supervisors is difficult enough in one country, let alone between countries. Moreover, it is clear that there will always be a tendency to exploit the soft restrictions which may be found in the cracks between different regulators. All in all, what is most important in any complex financial group is the development of powerful internal controls and methods which are internationally agreed.
It is all those issues and problems—the problems of the modern world—which a thorough review of Britain's supervisory structures should address. In principle, the content and flexibility of the supervisory
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system is far more important than who actually runs it, whether it be the Bank of England or an independent banking commission. The structure of a modern supervisory system should be the major part of the terms of reference of a thorough review.
Although the content of a modern supervisory system is the main question to be tackled, the issue of the role of the Bank of England cannot be left out of the equation. Is the Bank part of the solution or part of the problem? What is most disturbing in the light of the events of the past decade is the increasing evidence that, despite numerous attempts which have led to some significant changes, the Bank cannot adequately reform itself from within. Why not? First, there is the culture which seems to suggest that the Bank knows best. That breeds complacency. The words "informal" and "lack of rigour" echo down through the Johnson Matthey report, the Bingham report and now the report on Barings. The same words appear again and again.
It was that culture of complacency which decreed that there should be no site visit to Barings in three years. It was that culture of complacency which resulted in warnings from Singapore and from the Bank for International Settlement in Basel being ignored. It was that culture of complacency which led the Governor to argue just a year ago:
"We now have an expert team monitoring derivatives who are getting even better every time that they go to see a firm. These people know what they are doing whether it is at director level or the chaps on the desk".
it is that same culture—the belief that the Bank knows best—which results in the Governor of the Bank, a public official, describing parliamentary investigations of a clearly flawed regulatory system as a witch-hunt. Does the Minister consider that rigorous parliamentary oversight of such important matters amounts to a witch-hunt?
The second reason why we must doubt the Bank's ability to reform itself from within is that it appears to have a disturbingly casual attitude to those people at Barings who have managed other people's money so incompetently. On Wednesday, the Governor was notably reticent in his answers to the Treasury and Civil Service Select Committee of another place as to whether those people will be allowed to run a bank again. If they were doctors, they would have been struck off; if they were clergymen, they would have been hauled before a consistory court. What will happen to the people who ran Barings, who clearly could not be entrusted with a whelk stall? Does the Minister think that those people should ever be allowed to run a bank again?
Thirdly, there is a persistent tendency in the Bank's approach to its supervisory role to regard regulation as an unfortunate cost rather than as a competitive benefit. Whenever the Governor is asked to compare the British arm's length approach to regulation with the American aggressive and intrusive tradition of on-site visits, he refers to the extra costs of the American-style regulation and the necessity of not stifling enterprise, if that is what American regulators are trying to do.
The bank seems to believe that regulation should be minimal and best undertaken by those who can be relied upon to put the interests of the City practitioners whom

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the bank represents before those of clients and depositors. But our informally regulated market has not proved a source of competitive advantage for Britain in the long run. Instead, it has been an important factor in the decline of the British merchant banking community. The regulatory failure that hastened the collapse of Barings led to a sharp increase in the cost to all British merchant banks of borrowing money. That money is their essential raw material, and its cost is a major determinant of their competitiveness.
So it is no accident that famous names in British merchant banking—Warburgs and Kleinwort Benson—have surrendered their independence to foreign buyers: the Swiss Bank Corporation and Dresdner Bank respectively. Barings is now owned by the Dutch Company ING and of course Morgan Grenfell is owned by the Deutsche Bank.
In each and every case the stronger purchasing bank has come from financial markets that are considerably more tightly regulated than London. The weaker banks are in London. That has been the particular form of systemic risk which the Bank has itself created: the risk to the entire system of British merchant banking. It is clear that the Conservative Party does not care who owns Britain's banks, but the Labour Party wants there to be a decent number of world-class British companies competing in London and sustaining London as the centre of the world's financial system. The strength of London will not be sustained by informal regulation lacking in rigour. It will be enhanced by a modern supervisory system with transparent, firm controls which encourage creative enterprise. Creating such a system should be the key elements in the terms of reference of a proper review.
It will not happen—not under this Government. What the events of the past few days have illustrated beyond all reasonable doubt is that the true source of the rogue complacency in the British financial system is not to be found in Threadneedle Street but in 11 Downing Street. It has been the Chancellor of the Exchequer who has sought to impede change by deploying the bogus argument that because no regulatory system is absolutely perfect nothing fundamental can be done. It has been the Chancellor of the Exchequer who, by continuously repeating that there can be no guarantee of regulatory perfection, has ensured that the necessary changes can be headed off. It has been the Chancellor of the Exchequer who has declared, in the face of all the evidence in the report to the contrary, that the events leading up to the collapse do not point to the need for any fundamental change to the framework of regulation in the UK.
For the past decade it has been Conservative Chancellors of the Exchequer who have moved their brass plates around from one financial crisis to another. So a complacent Chancellor will not institute the wide-ranging review that the Barings Report so clearly reveals to be necessary. He will not respond to the call made just this week by Mr. Andrew Large, chairman of the SIB for:
"A new business plan for financial regulation".
Mr. Large argued:
"It would be ironic if the end of deregulation was that we had to re-regulate financial markets because the regulators cannot cope with the effects of deregulation".
Mr. Large is absolutely right. It is clear that, despite a series of sticking-plaster reforms, Britain's regulatory system cannot cope. A fundamental review is necessary. That review will be undertaken shortly by a Labour Government.
2.20 p.m.
The Viscount of Falkland: My Lords, I thank the noble Lord, Lord Eatwell, for his persistence in requesting and securing a debate on this important subject. I speak from these Benches as a substitute for my noble friend Lord Ezra. He would have spoken not quite in the swingeing and eloquent terms of the noble Lord, Lord Eatwell, but, nevertheless, would have supported fundamentally the points that the noble Lord made following his remarks after the Minister repeated the Statement that was made in another place a few days ago.
In discharging my duty to my noble friend, I begin by broadly agreeing with the main points, as I understood them, made by the noble Lord, Lord Eatwell. It is no good having an anodyne summary to an interesting and detailed report on which the Government Statement was based. We need a full inquiry and I am confident that, when the true facts emerge, a full inquiry will be before us.
The noble Lord, Lord Eatwell, pointed out various interesting aspects of the situation. For instance, should those within the Bank of England remain responsible for the increasingly complex and international world of securities dealing? In the light of the report, the Government's attitude to the situation appears to be extremely relaxed. I am sure that it is not in reality. The report was published surprisingly quickly and it is surprisingly detailed. However, some of its recommendations are, to say the least, facile. I refer to the first three recommendations, for instance, and I believe that my noble friend Lord Ezra made the point when speaking on the Statement. Some of the recommendations are so basic and obvious that they are rather like reading the instruction manual for a new Japanese car; that in order to start the car one must get the key and put it in the ignition. I believe that in respect of such a serious matter the recommendations should have been more serious and have dealt with the problems to which the noble Lord, Lord Eatwell, referred.
It is some years since I was in the City; indeed, since 1986 when what is popularly known as "Big Bang" took place. At that time I listened to the debates in your Lordships' House and was sceptical about the arrangements that were passed by both Houses. I believe that basic flaws have resulted from what happened in 1986.
The City of London has changed enormously. It is an unhappy mixture of the remnants of the old-boy network, which worked quite well. In fact, the self-regulation of the City in the old days, albeit in a smaller world of operation and with its crooks, I agree—

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crooks always exist where there are large amounts of money—and with its ability to use rough justice and to deal with miscreants was quite impressive. If the situation with Barings had arisen 15 years ago, I do not believe that the old-boy network, for better or for worse, would have allowed such a bank to have disappeared off the scene quite so readily. I do not believe that the Bank of England would have considered it.
We should be in no doubt that the disappearance of Barings is as astonishing and surprising to people with any knowledge of the City as it would be to educationalists if Eton had to be closed because there was revealed an enormous teenage drug-trading ring; or if the Grenadier Guards were found to be trading in surplus military equipment. It is an astonishing business. To City people it would be as amazing as discovering that Cazenove's, the leading stockbrokers, had been cheating their private clients and was facing a similar scandal. In fact, just before the news of the scandal broke it was rumoured in some newspapers that a merger between Cazenove's and Barings was being discussed. That would have been an astonishingly powerful financial institution in this country.
However, we have seen revealed in not much detail a scandalous operation. We can only judge it from what we hear through gossip and from what we read in the newspapers. But the damage to the reputation of the City of London as the leading financial centre of Europe, which is often claimed in your Lordships' House and elsewhere, has been immeasurable. There has been the immediate fall-out from this scandal where deposits have been removed from Barings and other banks to foreign centres. Moreover, as the noble Lord, Lord Eatwell, rightly pointed out, the cost of money has become appreciably greater, thereby making the operation of banks in the competitive world increasingly difficult.
The City of London today is a mixture of the old-boy network, with some of the good things and some of the bad things, and the new state of affairs where there are compliance officers, who are sometimes good and sometimes bad. But, generally, they concentrate on the lesser and minor matters of every-day dealing and miss the bigger fish. The bigger crooks will always find a way round that.
Not that I think that Mr. Leeson was a bigger crook. Not many people have bothered to explain, either in the press or elsewhere, exactly what he was doing. My reading of the situation is that he was doing something which is broadly covered under the name of derivative trading. That is an American term which covers all kinds of sophisticated dealings in options right down to what Mr. Leeson was doing. He was punting on behalf of clients and persons unknown on the rise and fall of the Nikkei index.
The Earl of Longford: My Lords, is derivative trading another term for speculation or gambling?
The Viscount of Falkland: My Lords, as I understand it—and others better placed in this debate will correct me if I am wrong—derivative trading is a cover-all term for sophisticated products, as they are now called, although there is no product; that is the
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jargon. Sophisticated markets are made in order that institutions, rich individuals and international banks can look at their portfolios and decide that, in order to spice them up, they will involve themselves in such dealings, whether it is in commodities, the rise and fall of indexes or the more complicated options. I hope that I have described that to the satisfaction of the noble Earl, but I am sure that others will amplify that explanation.
It seems that Mr. Leeson was doing that. As his statements have been published in the newspapers, they have been extremely interesting. A minor aspect of the affair is that I should like to know how is it that Mr. Leeson ends up in Frankfurt? Apparently, he spent some time trying to cover his losses. He had the most extraordinary role in Singapore. Not only was he the principal trader; he was acting as the accountant and compliance officer. It was a one-man band of the most extraordinary kind. He was sending back information as regards the true situation to a very small group in London. But he stuck it out, trying to create margins in order to continue trading. It all became too much for him and I understand that he ran to Malaysia. We may never know whether he was acting on his own behalf, but I hope that that will come out at the inquiry, which I am sure will take place.
What worries me—and this must worry the Serious Fraud Office and other people in the banks—is what will happen if Mr. Leeson goes to Singapore. I should prefer that he came here. Many people may wish him to be tried in a country where the judges are not independent and the gaols are extremely uncomfortable. I should prefer him to go to Ford open prison so that we have proper declarations and revelations which will enable us to base our future decisions on how such dealings and rogue traders, if that is what Mr. Leeson is, should be dealt with.
I admit that I am raising trivial matters compared with the broader picture given by the noble Lord, Lord Eatwell. I believe that there are many unanswered questions which relate to the day-to-day business of the City of London. Investors, whether here or abroad, and financial institutions will be uneasy until all those questions are answered.
The Bank of England and the Government have successfully bailed out two secondary banks in recent years, after a good deal of discussion in your Lordships' House and elsewhere. But this bank, a primary bank—indeed, one of the leading acceptance banks in the world and one of the blue chip operators in the field—has disappeared and is now in the ownership of a Dutch company. There are many questions to be answered.
I shall not bore your Lordships any longer with any of the gossip which I have managed to pick up during my investigations for today's end-of-term debate.
Noble Lords: Oh!
The Viscount of Falkland: My Lords, I shall, however, give the House one piece of gossip because it is the end of term. Apparently there was a very brilliant operator in Barings. Although I had met him, I did not know that he was that brilliant; but I did know that he was very rich. He made a lot of money and many bonuses for Barings, but he fell out with his fellow

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directors for reasons about which I am not quite clear—some financial and some personal, as I understand it. His departure from the bank left a great gap, so that people less expert than he was stepped into his position.
Mr. Leeson was a lucky young man. Indeed, the City of London now depends upon variably competent or incompetent compliance officers—bright young men, often from what we call the "estuary" part of England, who are quick, ambitious and hard working. Mr. Leeson made a good deal of money and great bonuses for his employers; in fact, we are talking in lottery figures of an enormous kind. When someone becomes used to such luck, not only does he want it to continue, but, he who creates that luck begins to think that he is immortal. Of course, the fall inevitably comes and that is what happened to Mr. Leeson. I believe that that will be revealed when the full inquiry takes place.
Seriously, it is a shabby business and one which is damaging to our country and to the City of London. We shall not get over it easily. It needs to be dealt with in a serious manner by an independent inquiry as the noble Lord, Lord Eatwell, said. I hope that it happens in short order and that we do not have any more bland statements, either from the Bank of England or the Government, on the matter.
Moreover, as we are at the end of term and we can be naughty because we will be away for a few weeks—or, indeed, for a few months—I must say that I think the behaviour of the Governor of the Bank of England has been extraordinary by the standards of normal, government servants at a high level. If I may put it this way, he seems to have taken an aggressively defensive stance, lashing out at any criticism from anywhere—whether it be from an MP, a Treasury Select Committee or the press. If I may say so, and although I do not know the gentleman personally, his attitude has certainly been lacking in grace and has not been appropriate to the gravity of the situation in which the Bank of England now finds itself. I hope that his tone will change in the coming weeks. I am quite sure that, if we have an independent inquiry, he will be forced to change his attitude.
I have finished my speech. However, I should just like to wish all noble Lords, including the Minister who is to reply to the debate, a very happy summer.
2.33 p.m.
Lord Spens: My Lords, as regards the comments of the noble Lord, Lord Eatwell, about complacency in the structure of the Bank of England, I believe that he is probably slightly wrong. The structure of the Bank of England suffers from a different form of problem; namely, the problem of papal infallibility. Every day I cannot help but feel that my old friend Mr. George looks more and more like some sort of Pope who is not subject to any form of criticism and is finding it very difficult to take.
I want to talk a little about the structure of the supervisory function in the Bank of England as it stands today and say why I consider it wholly wrong for it to continue into the future. I first met the supervisory structure—best summed up on page 269 of the report—
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and the individuals in it in 1982. Without exception, they were all one rung lower then but they seem to have moved up in tandem.
When I first joined a small merchant bank it became clear to me that it was to all intents and purposes broke. It had a loan portfolio which did not pay for itself in interest costs; it had an overhead that was too big; it had a bad debt problem on a scale to its portfolio that represented something like 30 per cent.; and it had no share capital. In discussion with this team, from top to bottom, it became clear that they had no idea how a small commercial bank operated, the business it did, or how it conducted life at all. While we went out to find new share capital, they made great efforts to obstruct what was going on.
Eventually we found new share capital and we brought some £70 million of new share capital into that small bank and wrote off £30 million of loans. These were loans which were shown on the balance sheet as on overdraft and therefore money at call. They were all to small furriers and people like that in the City who were also going out of business. It was therefore quite clear that the balance sheet was not showing the truth. None of these loans was likely ever to be repaid on call, if they were to be repaid at all. The supervisory department had no idea of this problem.
Before I go any further I should confess to a slight passing interest in the Bank of England. It will come as no surprise to everyone in this House when I remind them that I am currently in action against the Bank of England for the tort of unlawful interference in contract. Therefore I am prohibited from continuing much further down the line while that is sub judice.
All I can say—I think this is not in dispute—is that the method of regulation and supervision that took place in those days in 1987 was by ultimatum; in other words, the bank was told, "If you do not get rid of Lord Spens by 11.30 this morning, you will lose your banking licence tomorrow". Indeed, 10 directors of Morgan Grenfell went like that. I suspect that one of the reasons that no director of Barings has gone like that is my action against the Bank of England where I stated that this was unlawful behaviour by the Bank.
We shall not know for some time whether that is the case, and it is unfortunate that my case has taken such a long time to come to court. However, it will come to court in due course. I class this as a form of blackmail supervision. If one looks at the record of the Bank of England in its supervisory capacity, apart from the three big ones, Johnson Matthey, BCCI and Barings, there are some 20 to 30 other major failures. There is, for example, the Bank of Wallace Smith and Co. which went under for some £100 million three years ago. The chairman of that bank is currently a guest at Ford Open Prison. What is interesting about that case is that the Bank of England was informed by the auditors that they were unhappy with the fee income as shown in the accounts of that bank and they thought it was bogus.
The Bank of England, under its powers given by the Banking Act 1987, commissioned a Section 41 report, which it is entitled to do, which showed that the income was indeed bogus and did not exist. Did the Bank do anything about that? No, it did not. A year later the

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chairman of Wallace Smith, Mr. Duncan Smith, walked into the Bank of England one weekend and said, "I am bust to the tune of £100 million". Admittedly it was a wholesale bank and therefore there was no great fuss about it.
The Earl of Longford: My Lords, I hope I may interrupt the noble Lord for just one moment. I am naturally following him dispassionately, but I am anxious to know whether he thinks this whole idea of the Bank of England exercising a supervisory role is nonsense, or does he think it could be done better?
Lord Spens: My Lords, if I may, I shall come to that point in a moment. I should like first to put the background in place.
When Mr. Duncan Smith walked into the Bank of England they were aghast. They locked him in a room and called for the police, and he was arrested on the spot. That is all the supervisory department knew about that bank. There are other banks like that. There is Authority Bank and various other banks, including some ethnic banks, where there are problems because many of the people involved do not think that there is a problem for the Bank of England to deal with. What would happen if some 20 or 30 banks went under in one form or another?
Incidentally, there was another major trading transaction at the same time as that of Mr. Leeson. The Midland Bank lost some £500 million in the same period as Mr. Leeson lost £800 million. The difference between the two banks was that the Midland Bank had a shareholder—the Hong Kong and Shanghai Bank—which was capable of absorbing those losses and therefore the bank did not go under. It very nearly went under and it would have done so had it not had a large shareholder.
All of those events took place with the present supervisory structure and team in place. In the case of Barings and the problems which arose when it went under, there were two fundamental problems. The first was the breach of the 25 per cent. rule. That 25 per cent. rule was introduced in the middle of the Guinness/Distillers takeover battle. It was introduced because the Bank of England failed to understand the risks that Morgan Grenfell was taking in underwriting primary issues in the stockmarket some seven or eight times its share capital and reserves, which was the value of the Distillers bid and the Imperial bid at the same time. That 25 per cent. rule was introduced at that time for that reason, not at the instigation of the Bank of England and the supervisory department but of the press, who asked why such a rule did not exist.
That 25 per cent. rule has been improved over the years to how it stands today. However, while Mr. Chris Thompson of the Bank of England resigned because he allowed Barings to go above that 25 per cent. limit, I find it very difficult to believe that he was the only person who knew. I know the Bank of England. I have seen volumes of documents pass from pillar to post, upstairs, downstairs, everywhere in the Bank. They write notes to each other like there is no tomorrow, nearly always passing a decision up and down the line. I simply do not accept that Mr. Thompson did not
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inform his superiors that Barings was going to be in breach of one of the principal obligations of the Bank. It is unheard of for anyone in the Bank of England to be in that position. Yet no one else has resigned. No one else resigned over BCCI when £10 billion was lost. God knows what this Government need to get people to resign at the top.
The second problem at the Bank of England is referred to on page 37 of the report. That problem is the bonuses. In Barings they were getting bonuses of three to one—a multiple of three times their salary. That was paid to 50 or so directors. That makes the bonuses in privatised companies look tiny compared with what is going on in the merchant banking system. That is plain, ordinary greed. Where you have 50 directors receiving bonuses of over £½ million pounds each no command and control system will ever work. Inevitably, they will not look under the stones when they stand to lose that kind of money.
Therefore, to answer the question of the noble Earl, Lord Longford, it does not matter whether supervision and regulation are carried out within the Bank of England or within some other body if the people who do the regulating are incompetent, uncommercial and unprofessional. It will be just as bad. I have this appalling sense of déjà vu; that in a few years time we shall be considering another banking scandal, with the same people in charge and the same people not taking responsibility for what is undoubtedly their own responsibility. As night follows day, we shall have another banking scandal if this team is left in place.
2.44 p.m.
Lord Hollick: My Lords, I too must thank the noble Lord, Lord Eatwell, for introducing this matter while it is fresh in our minds. He has given us a few days to absorb a full report, although there are obvious gaps in it.
The report has been drawn up by the Board of Banking Supervision. It is unfortunate in the extreme that it was not an independent report. There is an undue fondness in the City for self-regulation and there is now a widespread feeling that self-regulation, marking your own card and writing your own report is no longer adequate or satisfactory. The inquiry should have been carried out by an independent body. The report would have had greater credibility, and credibility is at the heart of the integrity of the financial system. That is not to say that an independent body would have discovered anything that the current report has not touched upon; it would simply have had much greater credibility and authority.
I speak as one who has worked in the City since 1968. The report paints an incredible picture of incompetence: reckless, uncontrolled trading, surrounded by a series of breathtaking management failures, underpinned by a universal ignorance of what was going on. I am afraid that the regulator, the Bank of England, shares in it. The report provides a valuable glimpse of how a financial institution operates, particularly one which has businesses throughout the world; and how a regulator also operates in that environment.

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The first point that concerns me is that the management of an organisation should at the least have some knowledge and understanding of the product that it is selling and the service it offers. Running through the report is the fact that no one at Barings had any idea of the business they were in. Apparently, as long as the profits continued to roll in, they were happy. They were unconcerned about the true nature of the product or of the risk. There are touchingly naive pieces in the report. In paragraph 3.57 the chairman of Barings talks about how he found the earnings "pleasantly surprising". Another person questioned said:
"Yes … people talked about it almost incessantly … I have to say that a load of people—all of us, really—found it very puzzling. But I have to say equally, and maybe you will say naively, we accepted it".
As we have already heard, what they accepted was very substantial bonuses. In the case of Mr. Baring, the bonus would be £1 million for the year in question. In the case of the chief executive, Mr. Tuckey, it would be £1.6 million. So, take a big bonus and walk on the other side of the street and close your eyes.
That is extraordinary. I speak as someone who has worked in the City. We have our fair share of crooks and what I believe the noble Viscount described as "estuarial" employees and colleagues. However, I have never seen incompetence, ignorance and naivety on that scale before. They believed that trading was risk free. An organisation which has been established for 200 years should know one thing: nothing is risk free. There is no such thing as risk free. If there is, then please let me know of it first. There is no such thing as a risk-free financial transaction.
The puzzlement of people at Barings did not lead to curiosity. That absence of curiosity was the fundamental flaw; people did not inquire about what had happened. The report suggests a massive failure in management, operating and financial controls. That is wrong. There were no management, operating or financial controls. It was the absence of basic management, operational and financial controls that we see throughout the whole saga.
The control of the financial services business, the control of the bank and particularly the control of the securities trade business require careful and strict supervision, both within the bank, the institution itself, and outside. At the least, there must be a division of responsibility. Fundamentally, there must be a segregation of funds: clients' funds and proprietorial trading funds. There must be arm's length funding of the whole system, otherwise the system itself becomes contaminated.
The whole control of a financial institution is predicated on the basis that out there somewhere—you do not know who it is or when he will turn up—there is a rogue trader. There is always a rogue trader and you have to plan on that basis. Simply shrugging your shoulders and saying, "There's a rogue trader and we got knocked over" is not good enough. He should not have been there and Barings should have had controls in place which would have contained that rogue trader and found out at a much earlier stage what was going on. Rogue traders are not unique to the London market
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and these problems are not unique to the London market, although we seem to have had more than our fair share of such problems in recent years. This report will provide the other institutions in the City, and in other financial centres, with a very useful text about how not to run the securities business. Looking on the brighter side, one of the effects of the Barings débâcle, the Barings disaster, is that it has "sharpened up" many other people. They have suddenly been shaken out of their complacency.
I turn now to the role of the regulator. Speaking generally, this role must in the first instance be to protect the interest of the general public, particularly those members who are not, to use the City expression, financial sophisticated. I guess that in this case that would include everybody who worked at Barings! The need to protect the general public then leads to a need to avoid systemic risk; that is to say, a domino effect, with one institution toppling over another. The third aspect of regulation is to provide comfort in the professional markets; that is, the non-retail markets. It is important that we look at regulation in these two lights: the retail (consumer) side and the professional side.
It is true that on the professional side there are financial institutions which compete with one another and seek to profit out of one another's mistakes. There is a view, which I think is correct, that they can look after themselves to quite a large extent. They do not need to be protected to the same extent. Nevertheless, they need to know that there is a regulatory environment which works, which is effective and which ensures that the worst excesses—as we saw in the case of Barings—are properly regulated and do not continue to put the financial system at risk.
It is important to remember that what a regulator cannot and does not, do is provide a financial guarantee. It would be quite wrong for a regulator to do that. When the Minister repeated the Statement, he talked about "moral hazard". By definition, risk cannot be eliminated in a financial system. Otherwise, it would require a public body, using public funds, to stand behind every single financial institution. However, there is another hazard. I would call it regulatory hazard: the absence of adequate regulation. If the supervision system does not work satisfactorily, that can weaken markets and can weaken the integrity of markets. In the case of the City of London, which is an extremely valuable national asset, it can undermine the smooth working and standing of that market. Credible regulation for professional markets is very important. There needs to be confidence in regulation. Otherwise, there will be a loss of competitiveness.
My noble friend Lord Eatwell referred to some events that have happened subsequently: the sale of one or two of our leading merchant banks to European banks. There is no question but that the failure of Barings has made the climate for medium sized financial institutions much colder and much more difficult. The cost of funds has gone up and their competitive place in the market place has been undermined.
We talk about systemic risk. There is a systemic consequence of a bank such as Barings failing. I do not say that that is the sole reason why Warburgs is now

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owned by a Swiss bank or why Kleinworts will shortly be owned by a German bank. However, the failure of Barings was a contributory factor. It made life far more difficult for those people.
The regulation of Barings, as the report explains at length, falls considerably short of the standard that is required by a regulator. I find that very surprising. I have been regulated by the Bank of England in various capacities for more than 20 years. I am not sure whether it is because of my estuarial background—I come from a different estuary; namely, the Test rather than the Thames—but I have found the Bank of England to be careful, methodical and inquisitive, taking a close interest in what I and my colleagues do. That seems to come as no surprise to my noble friends.
The Bank of England has had a good and continuing relationship with auditors. It does not simply rely, as it appears to have done in the case of Barings, on what the management tells it. If one is in the position of a regulator and relies solely on what the management says, one is on a loser. If the management do not know what is going on, one is in the dark. It is very important that the Bank of England uses its powers under Section 39 to ensure that it has a good working relationship with the auditors and the internal auditors. That appears not to have been the case so far as Barings were concerned.
The Earl of Longford: My Lords, perhaps I may ask the noble Lord for some information. When the auditors arc at fault also, does that let out the Bank, or not?
Lord Hollick: The report points out that the auditors—there are two firms concerned in this case because this sorry tale happened over a three-year period—certainly missed some glaring holes in the control system of the Barings securities businesses. They too do not come out of this affair with any credit.
I find a curious difference between the behaviour of the Bank of England in the case of Barings and the regulatory regime that I have experienced in a number of institutions. I am puzzled, surprised and not a little saddened by the different treatment that appears to have been meted out. It comes back to the words "formality" and "informality". There is a great deal of play made in the document about informal systems, as the informal management systems at work in Barings. And there is an informal regulatory regime. That is not good enough. We need to have formal codification and formal reporting. We need to have a harder edged regime if it is to cope with the complexities of financial institutions and, in particular, with the new products which are coining along and which carry a whole series of risks, both individual and systemic, which are extremely difficult to understand.
Understanding is a key point. One of the newspapers referred to a generation gap. That is quite a problem in financial institutions. When one goes through the Treasury side of a banking institution as a trainee, sitting on a desk, one is in one's twenties. When one rises to the lofty heights of a director or chief executive, it is some 20 years later. That is some 20 years of financial innovation that have been missed out on. Probably one will never get one's mind round some of the new products, let alone understand the extent of the risks
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involved. So there is a real generational problem both with the institutions themselves and also, I submit, with the regulators.
Another problem which arose in the case of Barings was the issue of consolidation. "Solo consolidation" is the term that is used. It means that everything is bundled together, the security side and the banking side. In the case of Barings, we can see that that masked huge movements. In the space of some six weeks, £500 million was shipped out to the Singapore subsidiary. In a disaggregated world, if there were fire walls put up between the various businesses that would have been spotted. At the end of the day, all of these weird and wonderful instruments, and the profits and losses that arise on trading them, show up in the cash flow. If an eye is kept on the cash flow and control kept of the cash, the problems will be found early. Solo consolidation manages to mask everything; it is all one big pot. The tremendous error of judgment made by the regulator of the Bank of England was to allow that informal exemption on a large exposure, on a large inter-group deposit. That was a major error compounded by the fact that it took two years before it was sorted out, which is quite extraordinary.
I feel uncomfortable that Mr. Thompson has been scapegoated, just as the original suggestion that Barings had been brought down by a regular trader is not true. It is the duty of a supervisor in a supervisory regime to work on a team basis; for difficult and awkward decisions to be cast up the line. The noble Lord, Lord Spens, spoke of the plethora of memoranda and minutes. I do not know what the facts are in this case but whatever they are or are not, what should happen is that these issues should be discussed at the highest possible level, otherwise the problems arise that arose in this case.
In summary, the problem for financial institution regulators is to keep pace with rapid changing innovation. Boardrooms do not always understand what is going on and with the aggregation of financial institutions operating in more than one market and operating in different types of product, there is a systemic risk within financial institutions themselves.
The Bank of England is surefooted and experienced in traditional banking. However, it is much less so in the area of securities. It needs to significantly increase its resources. I hope that the Minister will be able to tell us what plans the Treasury has to possibly release the purse strings a little to ensure that the Bank has the best and the brightest in those areas so that it can control and regulate properly. I fear that it does not do that at the moment. It needs to use companies' auditors far more widely and independent auditors. The US has a much harder-edged regime and it is one that I favour. We need less informality and more formality; more strict reporting. We need the concept of fire walls—that is, separation—within institutions. Where the regulator should reside—as a separate organisation or within the Bank—is an important issue and needs to be considered. It is difficult for the Bank to he concerned with the overall stability of the financial system and to take a particularly rigorous line with one institution which may

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upset that. Nevertheless, the real knowledge currently lies within the Bank of England, so whatever we build must be built on that existing base.
There is a need for fundamental change. I was unimpressed with the conclusion that there is no need for a fundamental change. There is need for change. Why? Because there has been a fundamental change in the financial markets, in the way they operate, and the complexity of those markets. There has been a fundamental globalisation of those markets. It is important that the regulatory regime changes in order to deal with it. I should like to see it toughened up and formalised. I should like to see our regulators properly equipped with the necessary resources and skills to deal with complex financial institutions.
As it is the end of term, I should like to finish on a slightly lighter note. On reading the report I discovered that Barings Financial Services was resident at 1 America Square. I recall that that is where a company called J.H. Vavasseur, which was brought low by an earlier banking crisis, was also resident. As it happens, that was the organisation of which, as a result of the lifeboat launch by the Bank of England in 1973, I became chief executive, so it has some memories for me. It is an interesting building. When I went there in 1973 one of the people who worked in the building told me the history of it. Apparently, it had an interesting and colourful history. In the last decade of the last century it thrived as a brothel, providing an excellent service, so rumour has it, to the sea captains of the Port of London. Here we have a site—No. 1 America Square—which has housed two financial collapses but one very successful business so perhaps the City elders, who were the lead regulators at the time the brothel was closed, should re-zone this as a recreational site rather than a site for financial services.
3.5 p.m.
Lord Bruce of Donington: My Lords, the House is most grateful to my noble friend Lord Eatwell for taking this opportunity at the end of term to ventilate further the subject matter of this very interesting and long interim report on the Barings affair. I say "interim" because I share the view of the noble Viscount, Lord Falkland, that there will have to be a full investigation. I sincerely hope that the Government will not use the fact that we are discussing it on this occasion this afternoon as a reason for avoiding either a further investigation or a further debate in this House on the ground, which he might conceivably put forward, that we have already discussed and disposed of it. I do not think that we are going to dispose of this matter for a long time.
For the past 50 years or more I have been0 a professional practising chartered accountant. My first impulse on reading through the report—I have spent only five hours so far, which barely makes any impact on it—was one of anger. But now it is one of sorrow. I am very sad indeed that such a thing could have happened in the United Kingdom, more particularly after the series of warnings that I together with my colleague Lord Williams of Elvel was able to deliver to
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this House some four or five years ago on the necessity to have some statutory control over these matters as distinct from relying on voluntary disciplines in the financial profession. Noble Lords will recall that at the time the Government decided that they preferred the voluntary approach. I do not think the time is far distant when we may have to consider taking rather stronger action.
Even the provisional conclusions of the report are interesting. I should like to give them to the House so that we may be reminded what the supervisory body itself decided at the end of such investigation as it was able to make. It stated on page 250:
"Barings' collapse was due to the unauthorised and ultimately catastrophic activities of, it appears, one individual (Leeson) that went undetected as a consequence of a failure of management and other internal controls of the most basic kind".
The words I venture to emphasise to your Lordships are these:
"as a consequence of a failure of management and other internal controls of the most basic kind".
Noble Lords who have read through paragraph 14.2 of the report will be aware that it specifies these deficiencies. The report states:
"Management teams have a duty to understand fully the businesses they manage".
Really! They really have to understand the businesses! I would have thought that it was an elementary assumption to make that the controllers should understand the nature of the businesses they are trying to control.
The next requirement is this:
"Responsibility for each business activity has to be clearly established and communicated".
Hooray for that! I wonder how businesses in this country manage in their generality to continue without that qualification.
The third requirement is:
"Clear segregation of duties is fundamental to any effective control system".
Tut, tut! We are now treating the real elementum of the whole art and science of management, and it needs to be repeated here.
The report continues:
"Relevant internal controls, including independent risk management, have to be established for all business activities".
Hooray for that! These are matters of plain, ordinary common sense. One does not need to be an accountant or a management consultant to be aware of that.
Finally:
"Top management and the Audit Committee have to ensure that significant weaknesses, identified to them by internal audit or otherwise, are resolved quickly".
Well, well, well! These are all respects which this control body finds were absent from Barings. Do noble Lords really know what is being said? It is being said that Barings ought not to have been authorised bankers from the beginning, because any business—I do not care whether it is a whelk stall (one must not insult whelk stall owners in the context of this catastrophe) or what—knows that these are the basic conditions for the continuance of the business. It seems to me that the

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Bank of England ought never to have authorised this concern without verifying that all these conditions were in place.
There are various other sections of the report I could mention, but because it is the end of term and there is the pressure of time through the usual channels, I shall not elaborate on them further. One has to be merciful at this time, particularly as regards government. I hope noble Lords opposite will accept that when we have the next inquiry we shall enter into the matter fully.
Let us consider the position. Out in Singapore we have Baring Futures (Singapore) Pte. It is out there engaged in what are called "derivative transactions". A rose by any other name would smell as sweet. Without in any way detracting from the very desirable activities which should be carried out by banks and others as a hedge against their future position due to possible currency movements, I venture to suggest that the population at large, after reading this report and the press comment on it, will realise that what has really been happening is massive gambling, and plain gambling at that.
Aside from the hedging purpose, which is quite legitimate in these situations, it was a mass gambling racket in betting on the movements of the Nikkei Index. It was pure gambling. No wealth or extra goods were created by it. No extra service was provided. It had no value whatsoever to society. But it had one advantage: it made massive sums—or they thought that it made massive sums—for the proprietors and directors of Barings. They made—or they thought that they had made—billions of pounds over the years. I shall not be so unkind as to read their remuneration to your Lordships because that might cause some discomfiture to the other side of the House where there is a sneaking sympathy for those characters who made vast sums of money.
However, it was their greed that lay at the root of the whole problem. They did not want to know about the internal structure of the firm. Appendix X of the report gives three organisational charts which look very much like a cat's cradle such as we used to make in our childhood days, with criss-crossings of the chart at various points without any controls or relevance whatsoever. So the directors allowed one Mr. Leeson to do something that they should never have allowed. They allowed him not only to originate transactions (whether by computer, telephone or in other ways; the "front-room" activities)—but to handle also the "back-room" activities relating to the settlement of accounts and the tracing of debtors and creditors. The directors allowed Mr. Leeson to have control of both in complete violation of their own rules on the subject, where such rules existed at all. So Mr. Leeson could continue with impunity.
It is not suggested anywhere in the report—not yet, at any rate—that Mr. Leeson diverted any funds for his own personal purposes. It is suggested that he was merely seeking to increase margins and profits for his employers at Barings, including the 50 directors to whom I have already referred. They were very grateful to him. In 1993 the same directors voted Mr. Leeson a £130,000 extra bonus and for 1994 they had it in
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Mind—this is on the record—to award him a bonus of £450,000, so satisfied were they with what he had done. The fact of the matter is that if you look at the organisational charts and read through the relevant parts of the report, you will find that there is no form of organised control at all.
There are four aspects to any business, even gambling—and that was done on a massive scale here. There is the business aspect itself—that is, the nature of the business and its expansion prospects. There is the trading function, which deals with the profitability or loss-making of the business. There is the technical aspect, which relates to the personnel, equipment and everything else involved. There is then the financial aspect, which deals with the firm's asset and liability position. No matter how much those aspects are made complicated in massive tomes of business analysis, anybody in responsible business who ignores those four factors, however much they may vary from firm to firm according to the nature of its goods or services, does so at their peril. That is what Barings did. The directors did not investigate Mr. Leeson further because he was delivering the goods. They did not want to do anything to disturb that in any way—even though there had been warning signals, as my noble friend and the noble Viscount mentioned. They simply did not want to know.
Moreover, there is some difficulty in determining how Mr. Leeson became engaged in the first place. It seems to be mentioned in the report—I do not want to cast any aspersions on him whatsoever—that his CV was not examined too carefully to see whether he was suitable to deal with this highly sophisticated form of gambling. Nevertheless, he was engaged, and did well.
I come now to another part which also unfortunately features in the report. Speaking as a professional accountant, I deeply regret it. I am glad that my good friend the late Lord Benson was not alive at the time the report was published because he would have been incandescent with rage at its contents—because we find that there were some auditing defects as well. I regret them. Auditors seem to have got into the position—I make no accusation against particular firms—where they rely excessively on computerised records, and in some cases now install systems of computerised auditing of computerised accounts. That is beginning to be carried to an extreme.
In this case, what happened was—it is clear from the report—that the famous account (Account 8888) that was operated by Mr. Leeson to carry through the bulk of his own transactions was not followed up by the auditors as it should have been. It is the function of an auditor always to verify the extent and the authenticity of those who owe the company money and those to whom the company owes money. It is part of the drill of reputable accountants that they seek by independent communication with debtors to verify that they do owe the money and with the principal creditors to check that the amounts are owing to them. Clearly that was not done in this case. It is greatly to be regretted that that should be the case.
It is all part, of course, of a deeper malaise. I can well recall, as can many of your Lordships who were fortunate to be alive about 25 years ago, that you could

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phone up someone in the City, enter into a contract, not even bother to verify it in writing and be sure that the person's word was his bond. You can no longer do that. Complete trust has gone. It has gone with the new Yuppic-dom, based on the new concept that there is no such thing as society and that it is every man for himself. So that now when you have contracts, not only do you have to have them in writing but you have to have your lawyers pour over the small print to be sure that you are not going to be taken for a ride. That is the state to which British commercial and financial life has now descended.
The irony of it in this case is that it has taken to the field of gambling. It has no relevance to the ordinary people of our country. Millions of people in this country play no part in these vast operations which produce such vast wealth for people. They do not benefit from them. They are irrelevant to them. They have developed into a kind of infernal game which those belonging to approximately the same social bracket and who mix together jest upon and enjoy. Unless they are careful, the edifice will come tumbling down.
My noble friend Lord Eatwell earlier made the observation that in the view of bankers, bankers know best. Perhaps I may respectfully suggest to him, to those in government and to others to whom it may be relevant that it may not be wise, in the light of these experiences and pending further inquiries, to allow our economy to be controlled by independent bankers and those who may have it in mind to have European matters at a macro-level entrusted to so-called independent bankers.
As a result of this, bankers do not have a good name. These particular banks are by no means unique; there are plenty more of them. For the moment, all that we can do is to ensure that these matters are investigated further and that justice is done.
I am not satisfied that all the endeavours have been made to bring Mr. Leeson back here for trial. Two or three days ago I read his wife's letter in the Guardian. She explained that her husband has already pleaded guilty to a specific series of offences under British law. Those seem to have been disregarded. As for the resignation of Mr. Thompson, I regret that too. Although there was a statement on behalf of the bank that it knew nothing about the diversion or swap of funds from the banking to the securities sector, it was also revealed in the press that the securities and futures authority was well aware of it two years ago and that it has been common currency since.
A good deal remains to be investigated. I trust that this House, with its own reputation on the line in these matters, will insist that a further investigation takes place.
3.26 p.m.
Lord Monkswell: My Lords, this is a very important debate on the last day of our "term". We have heard an impressive number of speakers and an impressive number have yet to come. I intend to make only three brief points.
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First, we need to take particular note of paragraph 1.77 of the report. It appears that Mr. Leeson's solicitors have replied to the passing of a copy of the report to Mr. Leeson. They state:
"We note the preliminary conclusions reached by your enquiry relating to Mr. Leeson. These conclusions are inaccurate in various respects. Indeed, in relation to certain of the matters they betray a fundamental misunderstanding of the actual events".
It is public knowledge that Mr. Leeson has declared that he is happy to give a full account of his understanding of the events, provided that he can do that in this country. The reasons are obvious. I understand that Mr. Leeson is held in a prison in Germany on the basis of an extradition warrant from Singapore. It would be reasonable that instead of residing in a German gaol he should reside in a British gaol under exactly the same terms, effectively awaiting extradition to Singapore. If the Singapore authorities can make a case for extradition, no doubt the British authorities will accede to that. In the meantime, the Government, the Bank of England and the British public can have a full explanation from Mr. Leeson of his understanding and knowledge of these events. That is very important and I hope that the British Government will take urgent steps to ensure that that is brought about.
My second point relates to paragraph 1.72 of the report. It refers to the investigating team's ability to interview all the relevant directors and employees of the Barings group. The team had all the significant documents and so forth but with the exception of certain electronic mail messages, which apparently have not been retained.
Elsewhere in the report we are advised that telephone conversations were recorded. With the prevalence of insider trading, one can understand the significance of that. The telephone is the best way of informing someone outside of the likely means of insider trading benefits. I suggest that the use of electronic mail is the mechanism nowadays by which most formal messages going between parties within firms and between different firms will be recorded, given the vagaries of the postal system.
Personally, I am astounded that those electronic mail messages have not been retained. I have been away from industry now for five or six years but in my experience—and it was only a multi-national engineering company—it was virtually impossible to corrupt, get rid of or even retrieve an electronic mail message. To think that a banking operation would have a system which allowed the corruption or loss of electronic mail messages seems to be utterly inconceivable. That is a major flaw in the whole system. It is a technical detail but it needs urgent investigation.
Finally, bearing in mind that it is the last day of term, we need to pay tribute to the staff who serve us in this House. I know that they will understand the importance of the debate. Some of them—particularly the Hansard writers—will be here for some hours after we have finished. I am sure that they will appreciate the part which they are playing in our effort, on the Floor of the House of Lords. to ensure that not only an individual British citizen receives justice—and we should

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remember that Mr. Leeson should be presumed innocent until proven guilty—but also that the good name of this country is preserved.
3.31 p. m.
Lord Haskel: My Lords, unlike many noble Lords speaking in this debate, I have had little experience of the financial services industry, but I have had plenty of experience of the manufacturing industry. That has taught me to recognise danger signals and this report is flashing a danger signal. We should be grateful to my noble friend Lord Eatwell for drawing our attention to it.
As many noble Lords have reminded us, the report blames a rogue trader and a rogue regulator for the collapse of Barings. The analysis tells us that the real culprit is a rogue system. It is the system which is wrong and which needs reform.
The task of reforming Barings now lies with the ING company. That is its task. My concern is with the Bank of England. Broadly, the report tells us that the events leading to the collapse of Barings indicates no need for fundamental change but makes 17 proposals which are designed to make the staff more alert, more knowledgeable and to be more efficient managers.
As other noble Lords have said, that is just tinkering. Does the Minister not understand that the report actually says that securities trading has moved on but the Bank of England has not? The succession of failures tells us that. The danger signals are telling us that a proper shake up is needed, and not just exhortations to do better next time.
The Bank of England is not alone in experiencing those problems, the problems of the modern world, as my noble friend Lord Eatwell called them. Over the past few years, because of tough international competition, many industrial companies have faced the same problems. A successful universal response has been, if your Lordships will excuse the jargon, re-engineering. That is a root and branch appraisal of a business's strengths and weaknesses and a careful analysis of the markets that it is in. Many of our major companies have been re-engineered in order to survive. Perhaps the best example is Rover. British Steel is another good example.
Those noble Lords who read company annual reports will have noticed that many chairmen have recently said that their company is being re-engineered so as better to meet the challenges of the global market and understand and serve its customers better. Is that not exactly what the analysis in the report is calling for? Is not the Bank of England being called upon to organise itself better to meet the challenges of the global market and the needs of its customers? If the Bank of England had been subjected to tough international competition, it would have been re-engineered years ago. But that would have required government action.
Despite the rhetoric, we know that the Government are soft on competition. Indeed, only today in the Financial Times Sir Bryan Carsberg, speaking about his time at the Office of Fair Trading, said that he had never got to the bottom of the Government's failure to be proactive on competition. Not so, my honourable friend
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the shadow Chancellor of the Exchequer, Dr. Gordon Brown who, I happen to know, is a great admirer of the Bank of England.
When speaking to the Labour Finance and Industry Group on 17th May this year about tightening up the Bank of England's monetary policy role, my honourable friend made four proposals: first, a new institutional structure and a monetary policy committee for the Bank; secondly, a new stress on openness and sharing of information; thirdly, new individuals to be added to the Bank's monetary committee; and, fourthly, reform of the Bank's court to oversee monetary policy and accountability of senior executives. This, in order to attract better people.
If those four reforms are needed for monetary policy, they are doubly needed to improve the Bank's supervisory role. Surely those proposals give us a framework for the review called for by my noble friend Lord Eatwell and for the re-engineering called for in the report. Those carrying out such work would look at the internal systems of the Bank—for example, its openness, its accountability, its relationships, whether the best qualified people are being promoted and, most important, whether such reforms can take place within the existing structure of the Bank or whether the supervisory role should be taken on by a new banking commission.
There is another reason for calling for this reform. Until this latest disaster, I was reasonably sympathetic to the idea of an independent Bank of England. However, now I am not so sure. Only a review and a gentle shake-up will restore my confidence in the independence of the Bank. I urge the Minister to listen to those arguments and learn from the experience of those who have re-engineered their companies. If he does not do so, it will not be the Bank of England that is criticised for its lack of alertness, its lack of knowledge and poor management: it will be the Government.
3.38 p.m.
Viscount Chandos: My Lords, perhaps I may begin by making an apology for arriving a little late for the start of today's debate and for the opening remarks of my noble friend Lord Eatwell. I should also declare an interest as a director of an SFA regulated merchant banking firm, a past director of a Bank-of-England-authorised merchant bank; and, indeed, a past director of the International Swaps and Derivatives Association.
I am delighted that the Government have acceded to the pressure that my noble friend Lord Eatwell put upon them to hold the debate today. I hope that the Minister does not feel too isolated in that it seems that every speaker comes from this side of the House. I think that that is quite striking. It makes me think back 13 long years ago to my maiden speech on the arcane subject, as my noble friend Lord Bruce of Donington may remember, of accounting for banks under a European directive. On that occasion, the Benches opposite were crowded with the representatives of merchant banks, arguing that they should continue to be able to disclose the profits that they chose rather than that which normal accounting procedures would require.

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Even though the European directive has been adopted, reading this report there is a temptation to believe that in some merchant banks not much has changed. This report covers a saga of disasters which was a major blow to the UK financial markets as well as a significant direct financial blow to investors in the publicly-traded capital instruments of Barings plc. We should recognise the difference between the depositors who were in the end protected through the acquisition of the bank by ING and the investors in the capital instruments, the preferred shares and the subordinated bonds who have lost the largest part of their investment.
My noble friend Lord Eatwell has powerfully stated the case for fundamental change to the regulatory system in the UK financial markets and banking system. Therefore I shall restrict my comments to one or two points. I myself asked a Question on 23rd March of the Government in relation to the ownership of Barings Bank by a charitable foundation. The Minister who replied for the Government—it was not the Minister who is to reply today—said that, of course, prior to the publication of this report they could make no comment as to the appropriateness of the ownership of a bank by a charitable foundation. I argued—and I continue to believe—that whatever the secondary benefits that accrued from that of generous and substantial grants to charities, it created a structure where there was no accountability at all to outside shareholders. I refer to a charity, the majority of whose trustees were comprised of past and present directors of the bank. I was therefore disappointed to note that in this report there was no attempt by the Board of Banking Supervision to consider this aspect and the effect that it may have had on the culture of the bank and its attitude to risk. The management was not putting its money at risk and it had no outside shareholders to whom it was accountable.
The noble Viscount, Lord Falkland, referred to the "old boy network" and its continued prevalence in the City. If my background might qualify me for membership of that network, my presence on these Benches probably disqualifies me. However, there is truth in the suggestion that the old boy network and the complacency that my noble friend Lord Eatwell referred to are at the heart of this disaster. The report by the Board of Banking Supervision certainly does little to dispel the impression of this complacency. Section 13.58 states,
"The Bank was told of the intention of Barings' management to apply BB & Co's standards of control to BSL. The Bank regarded the controls in Barings as informal but effective. It had confidence in Barings' senior management, many of whom were longstanding Barings' employees".
I believe that Mr. Al Capone was a long-standing employee of a family business, but I do not think that that was any reason to have particular trust in his competence. We should remember that one member of the Baring family and a past manager of the bank was a governor of the Bank of England. That incestuous relationship that exists between the Bank of England and the institutions it is responsible for regulating cannot ensure that there is rigorous supervision.
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My noble friend Lord Hollick referred to the phrase "one rogue trader" and the impression that the report, and no doubt Barings' management, wishes to give that it was awfully bad luck to suffer this one rogue trader. That is fundamentally wrong. As my noble friend Lord Hollick argued, trading is all about the control of a collection of rogues—of strongly motivated, financially entrepreneurial dealers.
I turn to the question of the solo group and the central part that the concession that was granted to Barings played in the disaster that unfolded. The view that it was a central part is not mine but that of one of the people most intimately involved, Mr. Maclean, of Barings Bank. In section 11.27 of the report he is quoted as saying:
"I was involved in the setting up of the process which became known as 'solo consolidation', which in my view, is one of the factors at the heart of this problem, this crisis. I think, then, allowing solo consolidation as a technique to be applied, when we look at numbers we see it on the outside of Baring Securities in London but without having controls inside Baring Securities but inside that net, that is the weak link that we will never forgive ourselves for… It could not have happened without solo consolidation. That is the starting point, as far as I am concerned".
In section 11.29 the Board of Banking Supervision disagrees with that analysis. That is extremely hard to understand. As my noble friend Lord Hollick explained, solo consolidation allows the bank to lend to its subsidiaries an amount larger than it is permitted under the large exposure rules to lend to other entities. If those rules had been enforced and the concession that the unfortunate Mr. Thompson had granted to Barings had not been given, then this disaster could not have happened.
What has been learnt from this? In the conclusions, section 13.67 of the report reads:
"A lack of rigour was also displayed by the Bank in the context of the solo consolidation of BSL … This was a very significant step—since it would result in BSL … being included in the unconsolidated returns submitted by BB & Co.… and in BSL being, in effect, treated as one with BB & Co. for capital adequacy and large exposures purposes. It was also novel, being the first solo consolidation of such a kind which the Bank had experienced".
The words "the Bank had experienced" makes it sound like a nasty bout of flu for which it was not responsible. This was something which the Bank, at whatever level, had specifically permitted.
I should like to ask the Minister, if the report says this was the first occasion of solo consolidation, how many other banks are currently being permitted to treat their securities and other trading activities as part of the solo group and create a structure which, as with Barings, removes a natural check on the excessive trading and speculative activities of such a subsidiary? Why should we not introduce regulation that simply says that there shall be no concessions under the rules of large exposure and the solo group regulations? That would replicate the kind of ring-fencing of securities activities which the US authorities are contemplating as they permit the gradual deregulation of the Glass Steagall Act and the merger of investment banks and commercial banks in the United States.
On Tuesday the Minister argued that the report and the Bingham Report on the BCCI collapse both concluded that there was no case and no need for the

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separation of the regulatory and supervisory role of the Bank of England from its other activities. Even if that were true, individually in each case, surely the Minister and his right honourable colleague, the Chancellor of the Exchequer, must be able to work out that the aggregation of the disasters suggests that something is not working right.
The setting up of the Board of Banking Supervision under the Banking Act 1987 must have been an acknowledgment of the need for an independent overview, but sadly only an overview and a typical feeble compromise of the kind that has created the system and structure that has led to further bank crashes.
Therefore, what is needed is a rigorous and independent body to supervise all financial markets, as my noble friend Lord Eatwell said, as did the chairman of the Securities and Investments Board. I therefore join my noble friend Lord Eatwell in calling not only for a further independent inquiry or at least an independent conclusion and recommendation, but also for the urgent separation of the regulatory and supervisory functions of the Bank of England from its proper role as a central bank.
3.52 p.m.
Lord Desai: My Lords, I join other noble Lords in thanking my noble friend Lord Eatwell for introducing the debate. I particularly thank him for being so quick in drawing our attention to the report because in the normal course of events such reports are published and never discussed. We did not discuss the report on the BCCI and it is only my noble friend's efforts through the normal channels that have given us the debate.
However, I regret that it is the last day of term because something has prevented many noble Lords opposite from being present. We could have used their wisdom, with the many former Chancellors of the Exchequer, people in the City and heads of merchant banks. Unfortunately, all have other engagements. I do not know whether it is the hunting season, the boating season or the racing season. I am innocent as to that culture. But something has happened. Alternatively, they may be on mass strike. We would like to know whether there is an innovation on the other side to go on a mass strike when such a debate arises. But be that as it may, we would have liked the many fountains of wisdom on the other side to have contributed to the debate. Then we would at least have known whether there were any defenders of the Bank of England left in this House.
First, as regards the report, it will not do. I have always held that the Board of Banking Supervision is an inadequate body to have investigated Barings. I said so in the course of a Question which I asked a few weeks ago. The Board of Banking Supervision is not independent. If we look at its composition in the first few paragraphs of the report three people were from the Bank of England. One unfortunately had to resign—for reasons utterly unconnected with financial competence or incompetence, I hasten to add. We are left with the Governor and a person in charge of banking supervision. They were commenting on their own competence or incompetence. Another six people, who were of course
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"independent", were chosen by the Chancellor and the Governor of the Bank of England. I should have liked to see in an appendix to this report the connections of all those independent members. I should like to know where they came from and where they had been. I should like to have known what the interconnections, the old boys' networks, were before I judged the independence of this body. In that respect the report is not very good.
It is also not a very good report because by its own admission (in paragraph 1.78) there were problems of limited access. My noble friend Lord Monkswell has already pointed out that, as stated in paragraph 1.77, there was a failure to elicit a proper response from the lawyers of Mr. Leeson. Therefore, on its own admission, this report is inadequate and incomplete. It failed to examine all the relevant documents. Until we can have a body that looks at all the relevant documents, both here and abroad—and that is important—we cannot be sure that this report is the full story.
As the noble Lord, Lord Spens, pointed out, if it is the practice in the Bank of England that notes go backwards and forwards, perhaps the committee ought to have provided us with some of those documents. When was the 25 per cent. rule agreed to by Mr. Thompson? Who saw the notes? When did the notes criss-cross above and below? Did Mr. Quinn sign such and such a document? Why is Mr. Quinn not willing to resign? I believe that he should have resigned long ago in relation to BCCI; but that is another story. Since he wrote the report, he is clearly not going to resign. So this report is not a very good example of its kind.
Even judging by the standards of this report, there are lots of problems to discuss. It is not just for the sake of independence, but for the sake of completeness and full evidence, that one would like a better report, as again my noble friend Lord Monkswell pointed out. On the grounds of this report, one could not indict Mr. Leeson, since this is not the complete story. One would like to have something far better than this.
What the report does show, however, both in the constitution of the committee and in its authorship, as well as what it brings to light, as many other noble Lords pointed out, is that there is a cultural malaise. There is a culture of connivance, a culture in which people get into such jobs and cover for each other. If my noble friend Lord Hollick had been in his place (I know that he had to leave) I should have told him that perhaps the Bank of England supervised him very thoroughly because he was an estuary boy and had not been to a good public school. Perhaps he should have gone to a good public school; then he would have been part of the old boys' network and would have been let off with a light rap on the wrist and nothing else. That is a problem. Incompetent people get important jobs, and other incompetent people in other important jobs protect them. And none of them ever resigns. Those who resign are the people on the outskirts, those on the periphery who have not been to good schools, people who have been in one or other estuary around the country.

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What will happen—and it is already apparent in the loss of many merchant banks to mainline European banks—is that, slowly and steadily, control of the City of London will be lost from British hands to European hands, because eventually competence tells. Competition and survival of the competent or the fittest will dictate that this kind of culture, in which people are not appointed for their competence but for their school tie, will eventually lose out to cultures that value competence in these matters. That will happen.
It is not only a question of people who are in banking and central banking. As my noble friend Lord Bruce pointed out, it is quite shocking that auditors seem to have behaved in a way that is spectacularly irresponsible. I am surprised that they have not come out with any confession of guilt. According to the newspapers, they took the view that this had nothing to do with them; it had to do with banking supervision and therefore they were not responsible. They should at least pay the money back to somebody or other. I also believe that all the directors should pay their bonuses back. If this had happened to any dole scrounger who had taken a £100 loan from the Government and misused it, he would be hounded. Those who did not pay their poll tax were sent to gaol over a fraction of this money. But here people got away with large bonuses and there were large fees for the auditors. They did an incompetent job but they will not pay back the money. Of course they will not pay it back. That is part of the problem.
The central problem concerns the Bank of England—many noble Lords have spoken about it. I have always held the view that before I can judge whether or not the Bank of England should be independent, I must be satisfied about its competence. Competence comes before independence. I have never understood the high reputation of the Bank of England. Through the years it has failed to be good at monetary policy. Through the ages it has failed to control money supply. That is on record. One can read the noble Lord, Lord Lawson, on that. It cannot control the money supply.
Obviously, it is no good at controlling inflation. One has only to look at what has happened to the present value of the pound. It is not any good at foreign exchange. The pound has depreciated in relation to every other currency in the world, including the dollar. It is not any good at banking supervision. There have not only been the three major failures; as the noble Lord, Lord Spens, pointed out, there have been many other failures which the Bank of England has failed to prevent.
So what is the Bank good at doing? It is good at preserving a facade of a grave reputation. When one hears the name of the Bank of England, one thinks of everything reputable. Perhaps that is as true as the infallibility of the Pope—and we know how true that is. So we know how true is the reputation for competence of the Bank of England.
There is another interesting aspect to this matter. When the crisis first took place, there was a weekend meeting when the Bank of England tried to find a buyer for Barings. Even at that late stage the Bank had not understood the nature of the crisis that Barings was
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undergoing. It took Barings' word for what had happened. But it had independent ways of finding out what had happened. Had it known anything about Barings' management, it would not have spent five minutes trying to find a buyer. Perhaps one should be thankful to Mr. Leeson and his ventures. Through him we found out just how incompetent was the management of Barings. The profits would have been high and the guilty would never have been caught. But it is quite clear that on that weekend the Bank of England did not know the nature of the problem that Barings faced; nor was it aware of the incompetence of Barings' management.
The reactions in the press later were interesting. They not only blamed it on a rogue trader but, because this happened out there in Singapore, it seemed that everything was all right. That betrayed not only a lack of understanding of globalised markets today but there was a kind of snobbishness about the matter. SIMEX and the Singapore authorities have been much more thorough and competent in investigating Mr. Leeson than anybody has been on this side of the affair.
Many noble Lords feel that Mr. Leeson should be brought to this country and tried properly. I hope that the investigation is not conducted by the SFO because that would guarantee his release even before the start. I do not feel that we should compound incompetence with incompetence on this.
On a more serious note, I feel that a case such as this needs to be dealt with by an international court—perhaps the international court. It needs a competency of that scope, which could take together the different jurisdictions in which these events happened. It needs something which can take in jointly both British and Singaporean law and come to a decision. These kinds of problems in which more than one competency is involved will increasingly be on the agenda. We shall have to fashion an international court—perhaps through the G7 or something like that—which can look into situations in which such multiple problems arise. Though this is not suggested in the report, we need to look at the international requirements, not merely co-ordinating the Bank of England with other regulators but also what happens when other regulators fail.
It is quite clear that what we now have in Chapter 14, laid out in very simple terms, is the story that the Bank of England does not know what it is doing. While the report is reluctant to say that it ought to change its ways fundamentally, certainly it needs much more by way of competent staff. It needs a completely different culture if it is going to be competent on supervision.
As one of my noble friends said earlier, it should not be a question of stinting on resources. If regulation is costly, let it be costly, but let it be properly done. If it requires paying a lot of money to people who know the business, let that be done also, but let us have decent, competent regulation. The story of the past 15 years in all the various financial markets in London has been a very sorry story. If that continues, London will lose its prime position as a financial centre. It would now seem that it would not go to Frankfurt, because Frankfurt has

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come here and taken over London. But the City will lose its reputation and a considerable amount of our invisible earnings.
4.6 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, the noble Lord, Lord Desai, complained that I do not have many of my noble friends present today. Yesterday he and his colleagues were complaining that I had too many. Obviously it is difficult to keep the Opposition happy.
On Tuesday, when I was asked whether we could have a debate and I indicated that the usual channels would discuss it, I did not anticipate that it would arise so quickly. To begin with, I was not too pleased to see my weekend plans unravel in front of my eyes. However, I have found it an interesting and stimulating debate. As somebody who has little knowledge of these difficult matters, and certainly I have never worked in a merchant bank in any shape or form, I found some of the contributions extremely interesting and useful, perhaps one in particular.
We welcome the opportunity to debate this important issue because only by being open—which we are—do we believe that we can restore confidence in the UK financial system. That is why my right honourable friend the Chancellor of the Exchequer decided to publish the report in full at the first available opportunity. I must say to the noble Lords, Lord Desai and Lord Monkswell, that if we had waited until all the pieces of the jigsaw could be brought together before publishing the report, the complaint against the Government would have been that we were involved in a cover-up and not bringing forward the information. That is far from the case. Here we have brought forward the information at the first available opportunity.
There are lessons to be learnt by many parties, most urgently by the regulators of the financial institutions. They will all need to study the report in depth to learn the lessons and put procedures in place to ensure that those lessons are instilled in all the people working in the relevant areas in those organisations. I might add that they should perhaps also read the speech of the noble Lord, Lord Hollick, who apologised to me that he had to leave due to a prior engagement. Speaking for myself, though I suspect for other noble Lords too, I was pleased that he came along and gave us the speech he did; I found it most interesting and significant.
Because many people have to read it and learn lessons from it, the report is important. It is encouraging that the Governor of the Bank of England announced on Tuesday that he accepted the board's recommendations in full and is determined to ensure that they are acted upon. Many noble Lords rehearsed in various degrees of language what the report tells us about Mr. Leeson and about Barings; but the third pillar, if I can call it that, is the position of the regulator. The policy part of this debate introduced by the noble Lord, Lord Eatwell, relates to that issue—whether the supervision of the banks should continue to be carried out by the Bank of England.
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There has been debate both here and elsewhere on that issue. As I said on Tuesday, Lord Justice Bingham included in his report on BCCI that there was nothing in the history of BCCI which argued against the Bank's dual role. The Treasury and Civil Service Select Committee of another place, in its 1993 report into the role of the Bank, said:
"On balance, we conclude that there is no overwhelming case for separating out the responsibility for prudential supervision to a separate body".
It is certainly possible that a separate body from the central bank can undertake the prudential supervision of banks, as this is done in several other countries. However, even in those countries there is clearly a need for very close co-operation between the supervisors and the lender of last resort. The real issue is therefore whether there is any benefit in the central hank not having this role or if any other organisation could perform it better.
Professor Goodhart, Professor of Banking and Finance at the London School of Economics—he is no doubt known to the noble Lord, Lord Desai—in his evidence to the same committee, put the case for maintaining the status quo rather well when he said:
"I doubt whether it is really feasible for the central banks to withdraw totally from their supervisory function because they are bound to have a concern with the payment system and … the operation of the payment system involves the possibility that one or other participant in the payment system might fail. If that was to happen the payment system would grind to a halt and that would certainly make the economy temporarily run into very severe difficulties. In order to prevent that, the central bank has got to be prepared to make loans or to guarantee payments in order to ensure the continuation of the payment system. That puts the central bank in a sense at risk against the possibility of banks involved in the payment system being in an illiquid and possibly insolvent situation and they have to protect themselves against that systemic instability".
Knowing of the passion of the noble Lord, Lord Eatwell, for all things American, and following his suggestion on Tuesday that we might follow the example of the Securities and Exchange Commission, I decided to discuss this point with my advisers. The noble Lord observed that the SEC is not the lender of last resort, but yet the issue of systemic risk does not arise. My understanding is that this is because the SEC is a securities regulator, not a banking regulator. The latter function is principally fulfilled by the Federal Reserve, which is, of course, the lender of last resort. This split of responsibilities is in fact very close to the one we have in the UK and reflects the fact that banks are uniquely prone to systemic risk because their business depends—
Lord Eatwell: My Lords, the noble Lord is misinformed. It is the Controller of the Currency who is the main regulator of the banking system in the United States, not the Federal Reserve.
Lord Mackay of Ardbrecknish: My Lords, the noble Lord has a habit of jumping in and stopping me continuing. Perhaps if he had shown a little patience, as I did during his speech, I might have come to that point. I was trying to build up a picture of the situation in America. As I was saying, this split of responsibilities is in fact very close to the one we have in the UK and reflects the fact that banks are uniquely prone to

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systemic risk because their business depends on a basic maturity mismatch—borrowing short-term and lending long-term. It is this function that simultaneously makes the banking sector so fragile and so critical to the well-being of the economy.
In the United States the Securities and Exchange Commission regulates only securities houses. Banks are regulated by the Federal Reserve—the bank holding company—by the Office of the Controller of Currency for national banks or by the states for state charter banks. Big banks are supervised by the Fed plus one of the others. So, as I said to the noble Lord, Lord Eatwell, a little patience and I would have made the point that he made for me. US banks often do their securities business through foreign subsidiaries which come within the responsibility of the Fed.
But I asked my advisers another question: how successful are other people at this job? Other countries have had major bank failures to deal with; for example, the Savings and Loans collapse in the United States in the 1980s, Banesto in Spain last year and the massive cash injection needed from the French taxpayer into Credit Lyonnais. An interesting article in the Financial Times compared the cost of banking failures in the UK and the US over the past 10 years. Total payouts from the UK Deposit Protection Fund was £144 million, of which £50 million has been recovered, leaving net costs of £94 million. The net cost in the United States over the same period is over 30 billion dollars. So perhaps the noble Lord, Lord Eatwell, and also the noble Lord, Lord Desai, might have listened to and also read the speech of their noble friend Lord Hollick who, from his own personal experience, looked on the Bank of England as a regulator. He indicated that it seemed careful, methodical and questioning. What puzzled him was the different treatment which appeared to be meted out to Barings. He made a very valid point in questioning that.
Lord Monkswell: My Lords, I query the Minister as regards the figures he gave for bank losses in the United Kingdom and the United States. It appears that he is talking about bank losses which have been made good by the authorities. Can he advise us of the figures for bank losses which have not been made good by the authorities?
Lord Mackay of Ardbrecknish: My Lords, I could not do that without notice. I was comparing like with like in the points I made quoting the article from the
Financial Times.
I can do no better than to leave this subject with a quotation from an article in The Times of Wednesday, 19th July about this whole issue. It is by Mr. Alistair Darling who is a Member of Parliament. I believe that he is pretty influential in the Labour Party's policy-making in these matters. He said that the Labour Party would not be rushing into a decision. He added—and some noble Lords should listen to what their honourable friend said:
"The Bank of England is internationally recognised and before any change is made it has to be justified. For example, moving responsibility for supervision from the Bank, which arguably invented the function, to another body, could have an effect on the City's standing".
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Therefore, I do not believe that this is an issue about which we should move quickly and simply as a knee-jerk reaction. I have no doubt that we shall return to the issue at other times.
I do not want to say much about Mr. Leeson, although I was asked about him on a number of occasions. The position is quite simple. We do not have any charges against him. As my right honourable friend the Chancellor said very firmly, these are matters for the Serious Fraud Office and not for government Ministers. The question before the German authorities is extradition to Singapore where there are charges laid against him. His activities were carried out there. Unlike the party opposite, I do not have the same rather pessimistic view of the justice systems of all foreign countries. I am sure that the German authorities will be looking carefully at the position of Mr. Leeson's extradition.
The noble Lord, Lord Eatwell, asked whether the problem was not of weak United Kingdom merchant banks being taken over by stronger and bigger banks from abroad. He quoted some examples. Of course, some big UK banks own smaller banks in other countries. Why is one thing bad and the other good? Open financial markets are very important. He asked me specifically what role the bank was playing in the international tripartite group on financial conglomerates. Each participating country sends two representatives covering two of the three sectors: banking, securities and insurance. The UK seats were taken by the Department of Trade and Industry, the Insurance Supervisor and the Securities and Investment Board. The Bank was heavily involved in the discussion on the UK position.
The noble Lord, Lord Hollick, suggested that the failure of Barings would make the environment difficult for medium-sized banks. I believe he said that it made it "much cooler". If that means that markets are making a more sober assessment of the risks of the banking business—perhaps this covers points made by other noble Lords—that may not be a bad thing. It is important that market signals keep management up to the mark. They must be convinced that the market they are in is a sensible one and that their controls are in good order in that market.
The noble Lord, Lord Hollick, also asked an important question about the regulatory authority in the form of the Bank. He asked what the Treasury would do to ensure that the Bank of England has the resources it needs if it decides that it needs more to do its job. I can assure the noble Lord and your Lordships that the Bank has accepted the report's recommendations and if there are resource implications, these will no doubt form part of the discussions over the Bank of England's annual dividend. I believe I can give an assurance that lack of resources will not inhibit the Bank in its regulatory role.
I suggest that we should now look to the future. The report is there for all to see, in full, and it is now for all those people in key positions to heed the lessons. I shall not draw on them all because that has been done adequately by many of your Lordships and can be done by all those who will read the report. Provided they do

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that—and this collapse certainly provides a powerful incentive—we can look forward to the enhancement of the reputation of the UK financial system, which is something I think we can all agree is a desirable objective.
4.20 p.m.
Lord Eatwell: My Lords, I have been asked by my noble friend Lord Hollick to convey his apologies to the House for not being able to stay until the end of the debate. I agree wholeheartedly with the noble Lord, Lord Mackay, that we are very lucky that my noble friend Lord Hollick was here to make a most distinguished speech. This evening he is hosting a dinner in Devon for the touring Soweto Cricket Club. We all wish him well in that endeavour.
I am most grateful to all noble Lords, including the noble Lord, Lord Mackay—I am sorry that I have spoiled some of his weekend—who have been willing to spend this last afternoon of the parliamentary Session—and a notably sunny afternoon—in discussion of this Motion. It is a pity that the Minister could not find a single Conservative Peer to speak on his side. Perhaps they are not really interested in the future of the British financial industry or perhaps, more credibly, they are just too embarrassed by the Government's position to turn up.
We have enjoyed a colourful and powerful debate. Some contributions have been notably well informed and incisive. I attempted to argue in my introduction that we desperately need in this country a review of the entire process of banking supervision, a review which goes beyond the terms of reference of the specific investigations into the problems associated with BCCI and Barings. I also argued that finding the right structure for a regulatory system was more important than who was actually to carry out the regulating. Indeed, I have an open mind as to whether the Bank of England should be the basis of that regulation. Perhaps an independent review would conclude that it should be.
As many noble Lords have commented, the problem with the report is that it is not really an independent review. I was most disturbed to find what I believe is perhaps a sad explanation of the distinction which the noble Lord, Lord Ezra, identified in his remarks the other day—that between the analysis in the report and its conclusions as demonstrated in the evidence given by the Governor and Mr. Quinn to the Select Committee on the Treasury and Civil Service in another place on Wednesday. It turns out that, while the analysis of the Bank of England's position was indeed written entirely by the independent members of the Board of Banking Supervision, the writing of those conclusions was chaired by the Governor and by Mr. Quinn. That is unfortunate.
As has been said, any regulatory system will suffer failures, but we want Britain to have the best regulatory system and one which is up to date and capable of dealing with innovation in the modern world. Designing and creating that regulatory system is ultimately the responsibility of the Government and the Chancellor of the Exchequer. The Bank of England is just a division of the Government and the Governor is simply a public
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official. The future of supervision is essentially a political problem and a political responsibility. The Chancellor is shirking that responsibility. The Labour Party will not shirk that responsibility.
In the meantime, I thank all noble Lords who have contributed to an interesting, constructive and wide-ranging debate, and beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Adjournment
4.25 p.m.
Lord Strathclyde: My Lords, I beg to move that the House do now adjourn.
I had hoped that this Motion would be moved rather earlier in the day. Sadly, the buckets and spades will have to wait a few more hours. However, notwithstanding the late hour of the afternoon, it is one of the more congenial duties of the Government Chief Whip to take this occasion to record the thanks of your Lordships to all the staff who work so hard on our behalf.
It would be invidious of me to single out any one particular group, but we depend greatly upon those who provide the services which make it possible for us to do our work in this Chamber. I should like to record my gratitude, and that of all noble Lords on the Government Benches, to those who serve us so well.
I should like also to take the opportunity to express my thanks to the usual channels, and, in particular, to the noble Lords, Lord Graham of Edmonton, and Lord Harris of Greenwich, for the help they give in our attempts to ensure that the business of the House is arranged as often as possible in a way which reflects the wishes of the whole House. Perhaps I may conclude by wishing your Lordships and all our staff a very happy, refreshing and restful Summer Recess.
Moved, That the House do now adjourn.—(Lord Strathclyde.)
Lord Graham of Edmonton: My Lords, not for the first time, the noble Lord the Government Chief Whip has expressed the views and feelings of the House. I endorse every word he said. I am grateful to him for choosing them to express the gratitude of the whole House. I say that from these Benches, but I know that that gratitude stretches far beyond them.
If my memory serves me well, the term just ended has moved, ever so slowly, towards more acceptable hours and conditions. Your Lordships' House has sat on many nights later than the other place, surely a situation up with which we should not put. We need to pay full attention in order to move more quickly towards better hours and conditions.
However, cordial relations exist among all the Benches. That they are maintained and even improved is due, in no small measure, to the style as well as the substance of the Government Chief Whip.
Noble Lords: Oh!
Lord Graham of Edmonton: I am trying to be fair. We are all beneficiaries of his benign patronage, which is backed by the fresh outlook of our new Black Rod and, from the Cross Benches, of the new Convenor, the noble Lord, Lord Weatherill. They are both warmly welcomed as joining those who make this place tick. We are all well served in every way. I am glad that the noble Lord has moved away from the previous practice of trying to itemise and individualise every group to whom we are grateful, because, however hard his predecessors tried, one or two were always missed out. We share his gratitude and that of noble Lords who do a job which they could not do without the backing of so many other good people. We are very grateful to them.
The Viscount of Falkland: My Lords, although I have already expressed their wishes during the course of the previous business, on behalf of all Members of these Benches I echo the words of the noble Lord the Government Chief Whip. I hope that everyone, in particular those who serve us so well in the House, has a good break. It is always invidious to pick out any one group, but I should like to say that on these very hot days the Refreshment Department, in particular, deserves our support. I have seen its members bringing out tray after tray of iced coffee and such drinks at tea time, and later in the evening bringing out soft and other drinks in great quantities, with their usual cheerfulness. It is that kind of dedication which makes this place such a pleasant place in which to work. I wish everyone a happy Recess.
Viscount Tenby: My Lords, on behalf of all Cross-Bench Peers perhaps I may endorse the remarks made by the noble Lord the Government Chief Whip and other noble Lords and echo their thanks. We may not have had the most earth-shattering Session in recent years but much useful work has been accomplished. Despite occasional hiccups, it is good to see that the usual channels continue to be well-dredged.
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We pass our particular thanks to the noble Lord the Government Chief Whip for his invariably courteous, sympathetic and sometimes robust attention to our modest needs on the Cross Benches. We extend also our warm thanks to all the other Front Benches.
Perhaps I may close by echoing the thanks already given to all the staff who make our attendance here so painless and so pleasurable. Perhaps, more than any other grouping, the Cross-Benchers depend upon the good will and skill of the staff of the House. I should like to put on record our deep appreciation of the services of the Officers, Doorkeepers, refreshment staff, librarians and all office staff. In particular, I hope that noble Lords will think it appropriate to single out three particular areas.
First, we are sad to say goodbye to Sir Richard Thomas after his years of dedicated service as Black Rod. We wish him many happy years of retirement. We warmly welcome his successor for what we are confident will be a long and successful tour of duty.
Secondly, we bid farewell to Doorkeeper Mr. Bremner. But our best wishes on his retirement must alas be coupled with an expression of sadness at the recent loss that he has suffered. We offer him our deepest sympathy.
Finally, perhaps I may refer to the retirement during the Recess of Mr. Pink from the Accountants Office. In between wondering who will now explain so effectively and charmingly where noble Lords have gone wrong in the preparation of their expenses, we wish him a long and happy retirement.
I have spoken for far too long, for which I apologise. Those of your Lordships who are left are understandably straining at the leash. On behalf of the Cross-Benchers, I wish all noble Lords a happy and refreshing holiday resulting in recharged batteries for cruising rapidly down the legislative highway in October.
House adjourned for the Summer Recess at half past four o'clock, until Monday 16th October next.