Lords Sitting of 10 May 1995

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Chester.
The Earl of Sandwich—The Earl of Sandwich— Sat first in Parliament after the death of his father.

Marie Clay Reading Recovery Programme
Lord Dubs Lord Dubs asked Her Majesty's Government:
What is their assessment of the effectiveness of measures to improve reading in primary schools with particular reference to the Marie Clay reading recovery programme.
Lord Lucas: My Lords, literacy is at the heart of the revised national curriculum. The most effective way of achieving high standards of literacy for all pupils is through rigorous teaching of the curriculum backed up by regular testing. The Government have funded a three-year trial of reading recovery in 20 inner city local education authorities, and six local education authorities have provided reading recovery from their mainstream funding. The Government are pleased with the results of that trial and will be disseminating the lessons learned later this year through a report and two conferences. Reading recovery has proved an effective means of improving the skills of pupils who are making a slow start at reading.
Lord Dubs: My Lords, given that the Minister has paid tribute to the effectiveness of the Marie Clay reading recovery programme, does it not follow that the most sensible next step would be for the Government to continue to fund the national network co-ordinators at a cost of some £150,000, to ensure that those local authorities that wish to go on tackling this very serious problem will have the central team that will enable them to do so?
Lord Lucas: My Lords, if a central team is needed the local authorities will fund that need for themselves. I question whether such a team is needed. New Zealand, where the scheme originated, manages extremely well and it is about the size of a large LEA itself.
Lord Pearson of Rannoch: My Lords, does my noble friend agree that it is most refreshing to see the Benches opposite taking an interest in better education after the many years in which their Left-wing allies in our education establishment did all that they could to stamp out the phonic method of learning to read? For those who may not be aware of it, the phonic method for "a", "b", "c" and "d" is "ă", "buh", "cuh" and "duh" and so on.
Lord Lucas: My Lords, I shall not attempt to imitate my noble friend. I am sure that the House knows that phonics are now part of the national curriculum. They are an important part of learning to read which, to be
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successful, needs to involve a wide range of strategies. As I said, those strategies include phonics. The conversion of the Benches opposite to excellence in education has not yet gone so far as it might, but progress to date is very welcome.
Baroness David: My Lords, as I happen to have been in the House a little longer and can remember a good many education Bills in which certainly I and my noble friends took part, I hope that the Minister will not assess my contribution in that way, nor indeed the contribution of his noble friends. We have always wanted excellence in education. We have particularly wanted to help those children who have special needs. I hope that he will admit that. In his first Answer he said that "later this year" there would be a report. Will he tell the House how much later and will it be in time to make any positive commitment?
Lord Lucas: My Lords, I pay great tribute to the noble Baroness for her contributions to education debates. As she knows, I have only been in the House for three years, but I have paid great attention to what she has said and have always benefited from listening to her. The dates for the conferences are not yet planned. This summer is as exact as I can get.
Lord Morris of Castle Morris: My Lords, can the Minister tell the House what percentage of children leaving primary school are officially classified as unable to read satisfactorily?
Lord Lucas: My Lords, I do not have that information with me but I can tell the noble Lord that there are too many of those children. There is clearly much to be done in improving the quality of reading and learning to read in primary schools. The effects of the reading recovery scheme appear to stretch out to the whole school where it has been successfully implemented. Indeed, from the results of the work undertaken to date, we believe that over the next few years there is every reason to expect much better standards in primary schools. The Teaching Training Agency and the institutions that it supports have taken very much to heart the lessons coming from the reading recovery trial and they are being widely implemented.
Lord Morris of Castle Morris: My Lords, will the Minister accept that I am not unduly surprised that he was unable to provide the percentage figure for which I asked? Can he say why, as the reading recovery programme has been high profile and very controversial since at least 1989, the Government and his department in particular have done so little in the way of follow-up appraisal?
Lord Lucas: My Lords, that is entirely inaccurate. We have done a great deal in terms of follow-up appraisal, the results of which have been, and are being, widely disseminated. There are successful reading recovery schemes now in operation in many LEAs in this country.
Lord Simon of Glaisdale: My Lords, would not the reading ability in primary and other schools be greatly improved if we removed some of the more gross anomalies of English spelling? I refer to the 10 different ways of pronouncing "o-u-g-h" and the six different ways

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of spelling the sound in the word "see". Would not that be of commercial advantage also in removing discouragement to foreign traders learning English?
Lord Lucas: My Lords, I am disappointed that such an elegant and frequent exponent of good English should take that attitude to our wonderful language. I celebrate the complexity of English; I celebrate its enormous variety of words and phrases and means of expressing oneself. It is one of the great strengths of our language. If the noble Lord wants an international commercial language, he may care to learn Esperanto.
Lord Tebbit: My Lords, is my noble friend aware that Japanese is a difficult and complex language, but does not seem to impair Japanese commercial and industrial success? Is he further aware that, like the noble Lord opposite, I am not surprised that he cannot give a figure for the percentage of youngsters leaving school unable to read? After all, we have not had adequate testing. There are still some dinosaurs and diehards in the teaching unions who want to prevent us from having them and therefore prevent us from acquiring the information for which the noble Lord asks.
Lord Lucas: My Lords, I could not agree more with my noble friend. He may also have noticed that the diehards or the Socialist Workers Party members of the teaching unions wish to prevent reading recovery. They want to reduce class sizes, which would prevent money being put into reading recovery schemes. There is a great deal to be said for the Government's education policies, but there is a limit on the time now.
Baroness David: My Lords, does the Minister think that the £150,000 needed for the continuation of the reading recovery programme is a large sum of money?
Lord Lucas: My Lords, it is not a large sum of money, but it is for the LEAs to spend it if they feel they need it.
Lord Stallard: My Lords, the Minister mentioned Esperanto. Is he prepared to recommend to his right honourable friends that it should be included in the curriculum?
Lord Lucas: My Lords, I did not hear the question.
Lord Stallard: My Lords, the Minister mentioned Esperanto. Is he prepared now to recommend to his right honourable friends that it be included in the national curriculum?
Lord Lucas: No, my Lords.

The European Commission and Political Democracy
2.47 p.m.
Lord Bruce of Donington Lord Bruce of Donington asked Her Majesty's Government:
Whether, in good time before the agenda of the 1996 Inter-Governmental Conference is settled, they will convene an all-party conference to discuss the relationship between the European Commission and
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the national governments of member states (both as separate entities and as members of the European Council or Council of Ministers) with a view to the abolition of the Commission's exclusive right to make proposals and the establishment of the Council's right to reject such proposals without further explanation.
Lord Inglewood: My Lords, we have no such plans.
Lord Bruce of Donington: My Lords, the noble Lord will be aware that there is an admirable precedent for calling inter-party talks, particularly those relating to international affairs, when it is uncertain which government will be in office at the particular time—and the tenure of this Government is not altogether certain. Is the noble Lord aware that, although it proved impossible in the past, at any rate in relation to these isles, to destroy political democracy by force, it is possible nevertheless for political democracy to be drowned in a sea of paper? With that in mind, will the Government consider curbing the powers of the Commission to bring pressure on the Council of Ministers by the sheer volume of paper emanating from it? Will they take steps to ensure that the powers of the Council of Ministers are enlarged, preferably by the allocation to the Council's Secretariat of many of the responsibilities at present held by the Commission?
Lord Inglewood: My Lords, I am not aware of the sense of "wobble" to which the noble Lord alludes. I was not clear from his Question whether he was suggesting an all-party conference on behalf of his noble friends or on his own behalf. If it is merely for himself, it will not be a very useful conference.
Lord Pearson of Rannoch: My Lords, is my noble friend aware of the unelected Commission's growing penchant for legislating by regulation, such as the regulation which at the moment endangers our lettuce-growing industry? Is he aware also that those regulations do not even have to be deposited in Parliament? Does he agree that that at least is a practice which should cease?
Lord Inglewood: My Lords, all secondary legislation brought forward in the Community is made under primary legislation. We believe that the principal democratic focus in the Community is the Council and, in turn, its democratic legitimacy rests on national parliaments. My noble friend points to something which might well be usefully thought about more.
Lord Hylton: My Lords, does the Minister agree that one of the most urgent problems facing the European Union will be its larger membership and keeping the EU effective with a larger membership? Does he think that the Commission will have to grow or stay the same size?
Lord Inglewood: My Lords, the noble Lord is quite right to point out the problems posed by enlargement. That is one of the reasons why the implications of enlargement have been put on the agenda for the 1996 IGC. Matters such as the number of commissioners will have to be addressed in that context for the kind of reasons that are well known.
Lord Tebbit: My Lords, will my noble friend reconsider the rather abrupt answer which he gave to the noble Lord, Lord Bruce? I think that on mature consideration he will realise that he would get more sense out of cross-party talks with the noble Lord than with any of his colleagues on the Opposition Front Bench. After all, the noble Lord does not believe in the imposition of a single currency or the abolition of Britain's right of veto.
Lord Inglewood: My Lords, it is not for me to weigh in the balance the various merits of individual members of the Opposition. The point I wished to make was a simple one. If there are to be inter-party talks, there needs to be a wish for those talks from all the parties concerned. We have heard no evidence that any of the parties opposite wish for such talks.
Lord Bruce of Donington: My Lords, is the noble Lord aware that to the best of my knowledge all the main political parties in the United Kingdom are united in their desire to preserve political democracy in this country? Without in any way diminishing my loyalty to my party, which I joined in 1935, may I say to the noble Lord, bearing in mind that I never knowingly undercharge, that I am very pleased to advise Her Majesty's Government on this aspect of the matter?
Lord Inglewood: My Lords, as I mentioned to your Lordships last week, we value and weigh carefully the advice of the noble Lord, Lord Bruce of Donington. We live in a democratic country and it is the case that all mainstream political parties are committed to that democracy. We may disagree from time to time on emphasis, but, with respect, that is not a matter at issue in this Question.
Lord Richard: My Lords, the noble Lord values what my noble friend Lord Bruce of Donington says and the advice that he gives. Perhaps I may say that from time to time we also value the advice that my noble friend gives and greet it with sometimes the same degree of surprise when it actually arrives, as does the party opposite. Perhaps I may ask the Minister a serious question.
Lord Hailsham of Saint Marylebone: Hear, hear!
Lord Richard: My Lords, the noble and learned Lord is absolutely right. I have been listening to the noble Lord, Lord Pearson of Rannoch, and various other noble Lords. There have not been many serious questions so far. Is it the Government's intention that before the Inter-Governmental Conference takes place they will publish their views as to what it is they wish to get out of the conference? Will they also give us the opportunity to debate it?
Lord Inglewood: My Lords, the Government are developing their negotiating stance in the run-up to the Inter-Governmental Conference, which, as noble Lords will know, takes place next year. Between now and then, and no doubt during the conference itself, we shall be debating in this House and in another place what is happening. In answer to a question from the noble Lord, Lord Barnett, I indicated a number of the Government's priorities for the Inter-Governmental Conference. But, at the same time, just as anyone playing a game of cards will
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not sit down at the table with the cards face-upwards, we must preserve the right to keep the details of our negotiating position to ourselves.
Lord Richard: My Lords, with respect, the Minister has not answered my question. Of course he must keep the details of his negotiating position to himself and of course he must not disclose the cards face-upwards. But will he tell us, please, what game it is that he is going to play?
Lord Inglewood: My Lords, it is the same game I described when I was talking to your Lordships about this last week. It is a game for getting the best for Britain and the British people.
Lord Ezra: My Lords, the noble Lord will no doubt recall the many occasions on which the noble Lord, Lord Bruce of Donington, has appeared to attack the Commission as an unelected body. Does he agree that it is worth recalling that the members of the Commission, all eminent personalities drawn from their respective countries, are nominated by the elected governments of those countries? Furthermore, does he agree that the last suggestion made in the noble Lord's Question,
"the establishment of the Council's right to reject such proposals without further explanation",
would be a most objectionable procedure for considering proposals put forward by the Commission?
Lord Inglewood: My Lords, the noble Lord is right about the way in which the members of the Commission are appointed. The point about the current system of Community legislation is that the final decisions are taken by the Council—
Lord Bruce of Donington: Under pressure!
Lord Inglewood: My Lords, they are taken by the Council. We believe that that is the way matters should remain.

"Marchioness"/"Bowbelle" Collision
2.56 p.m.
Lord Clinton-Davis Lord Clinton-Davis asked Her Majesty's Government:
Whether; in the light of the finding of unlawful killing at the coroner's inquest into the deaths occurring following the collision between the "Marchioness" and the "Bowbelle" they will review their decision not to set up a public inquiry into the disaster.
The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, the Government do not believe that a public inquiry is needed. The circumstances of the tragedy were established by the Marine Accident Investigation Branch whose findings were accepted by the inquest jury. We have acted on the recommendations in the MAIB report and on those of the later Hayes inquiry into river safety. The inquest jury welcomed this and put forward 12 further safety recommendations to which we are giving urgent and careful consideration.
Lord Clinton-Davis: My Lords, is the Minister aware that his reply will disappoint those who were primarily affected—the relatives of the deceased—by this horrible collision? Is he not also aware that in the recently televised "Dispatches" programme there appeared to be serious conflicts of evidence as to the location of the accident, the supervision and training of crews and the responsibilities of the department itself to ensure safety on the river? The Court of Appeal expressed serious reservations about the situation in saying that a full public inquiry was needed. Will the Minister reconsider this matter in the light of the evidence obtained in that television programme, which was something of an indictment of the situation affecting many parties, including the department?
Viscount Goschen: My Lords, the purpose of any inquiry must be to establish the facts of what actually happened during the accident and also to discover and to evaluate what lessons should be learnt to improve river safety. I believe that the facts have been fully established by the independent Marine Accident Investigation Branch's expert technical investigation into this matter. The lessons to be learnt were followed up by recommendations included in the MAIB report and in the Hayes inquiry into river safety and indeed by the recommendations made by the jury.
Lord Boyd-Carpenter: My Lords, is it not very unusual for a catastrophe of this kind not to be followed by a public inquiry? Is there not a great deal of force in what has been said by the noble Lord opposite about the issues still left uncertain, and is that not somewhat disturbing to those of us who use the river?
Viscount Goschen: My Lords, I do not believe that to be the case. It became clear, following the "Herald of Free Enterprise" disaster, that public inquiries were not necessarily the most effective way of establishing what happened and too often they were dominated by those wishing to defend their position. As with investigations into air accidents, in respect of which there has not been a public inquiry since 1972, we believe that this technical and expert manner of investigating such tragedies is the way to go forward in order to produce the lessons which we must learn to ensure that river safety is at the highest standard possible.
Lord Clinton-Davis: My Lords, is the Minister not aware that his answer was profoundly unsatisfactory and that when, as in this case, the Department of Transport itself comes under inquiry in connection with the work that it did as regards the supervision of safety on the river, it is necessary to have, in addition to the inquiry that was undertaken, a full public inquiry? It is a different circumstance where the Department of Transport has no direct responsibility in a situation, but is the Minister prepared to accept that in this case they did? Therefore, in the interests of justice being done and being seen to be done, is it not really necessary to ensure that a public inquiry is undertaken?
Viscount Goschen: My Lords, I agree with the noble Lord, Lord Clinton-Davis, that the department does indeed have a responsibility—that is why an independent investigation by the Marine Accident Investigation
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Branch, which is not under the control of the Secretary of State, was taken forward. That was followed by the Hayes Inquiry into river safety. All these investigations have put forward safety recommendations. The Government have acted on them and I believe that the regime that we have in place is wholly superior to that prior to the time of the "Marchioness" incident. We now have a high standard of safety on the River Thames.
Viscount Caldecote: My Lords, are the Government now satisfied with the standard of safety for passenger carrying vessels on the Thames and on other inland waterways, taking account of the many revolutionary changes in design which are taking place?
Viscount Goschen: My Lords, as I said, I believe that we have a satisfactory safety regime. My noble friend talks about revolutionary changes in design. It is worth bearing in mind that many of these small passenger vessels that ply this trade, particularly on the River Thames, are indeed very old vessels that have been modified. It is important to make sure that they carry the necessary modern safety equipment.

Registered Charities: Accountability
3.2 p.m.
The Countess of Mar The Countess of Mar asked Her Majesty's Government:
What powers the Charity Commissioners have to ensure that registered charities are accountable for their activities.
The Minister of State, Home Office (Baroness Blatch): My Lords, when the final provisions of the Charities Act 1993 are brought into operation at the end of this year, the Charity Commission, as part of carrying out its statutory function of promoting the effective use of charitable resources, will have a full range of powers to register, monitor and investigate charities and so ensure their accountability. Decisions in individual cases are the responsibility of the Charity Commissioners.
The Countess of Mar: My Lords, I thank the noble Baroness for that reply. Is she aware of the activities of an organisation—formerly the Campaign against Health Fraud and now called Health Watch—which has been systematically destroying the reputations of people working in complementary medicine, particularly those in nutritional medicine? I give as examples the well-known Bristol Cancer Help Centre, Larkhall Natural Health, the British Society for Nutritional Medicine and the Breakspear Hospital. The information which Health Watch has provided to the media has been subsequently proved false, but it is too late for such organisations to regain their reputations. These organisations are helping a lot of people whom the National Health Service cannot help. Can the noble Baroness say what recourse the organisations and individuals concerned can take in order to regain their reputations?
Baroness Blatch: My Lords, these are matters for the Charity Commission. The noble Countess is right in saying that Health Watch has been subject to

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investigation, but the allegation that it was acting as a political pressure group was not supported by evidence. There was another allegation that it was paying money to a trustee. That has been properly addressed by the organisation. If any organisation uses its funds in order to campaign against another organisation on the basis of flawed research, the Charity Commission will be concerned.
Baroness Rawlings: My Lords, what plans do the Government have for the Charity Commission to support charities as well as regulating them when they are in trouble?
Baroness Blatch: My Lords, the Government have gone a very long way towards providing a framework within which the charity sector can practise. It is a question of accountability and a light touch on the very small charities. The powers of investigation are much heavier as regards the larger charities. Some of that activity has already been implemented, but much has yet to be introduced. The Charity Commission is doing a great deal to improve its information and advice services to charities. It is working very well.
Lord Hooson: My Lords, is the noble Baroness satisfied that the Charity Commissioners have the power to control, in particular, the fund-raising charities who, in some cases, spend most of their money on their own administration and propaganda rather than on the objects of their charity? Is the noble Baroness satisfied that the controls are there?
Baroness Blatch: My Lords, as a result of the 1993 Act, I am absolutely satisfied that the powers are there. The Charity Commissioners have powers to institute inquiries and to suspend or remove trustees. They have powers to require information to be provided by a charitable organisation. At the end of the day they have powers to make an order to protect charitable property. The powers extend to simple advice and information right through to legal remedies to obtain restitution.
Lord Williams of Mostyn: My Lords, does the Minister agree that Sections 8, 9 and 11 of the Charities Act to which she has referred give enormous powers to the Charity Commissioners requiring the furnishing of information, failing which a criminal offence is committed? Furthermore, is not the answer to the Question asked by the noble Countess, Lady Mar, that if an individual or organisation feels defamed it has ordinary remedies under the law?
Baroness Blatch: My Lords, the noble Lord is right. At the end of the day the decisions and orders of the Charity Commissioners may be appealed to the High Court.
Viscount Caldecote: My Lords, how soon after the end of the financial year do charities have to issue their report and annual accounts? Is that period enforced by the Charity Commissioners?
Baroness Blatch: My Lords, that particular provision in the Act is not yet implemented, but is out for consultation. The draft regulations will give the answer to my noble friend.
Lord Dubs: My Lords, is the Minister satisfied that the Charity Commission has adequate resources to do the work which she has described as its responsibility?
Baroness Blatch: My Lords, yes, I am satisfied that it has the resources. I am also pleased to report to the House that enormous efficiency measures are being undertaken by the Charity Commissioners. They include the introduction of technology which will help enormously in managing their particular role for charities.
The Countess of Mar: My Lords, does the noble Baroness appreciate that many of the people who have been damaged by Health Watch are not very well off? Does she approve of the fact that that organisation is supported by the Wellcome Foundation and Private Patients Plan, among other pharmaceutical and insurance companies? Is the Minister aware that the ordinary person cannot fight the money of these big organisations?
Baroness Blatch: My Lords, if there is a suggestion that that or any other organisation is acting improperly and inconsistently with its aims and objectives, that must be a matter for the Charity Commission.

Business
Lord Strathclyde: My Lords, it may be for the convenience of the House to know that, subject to the progress of business, the House will rise for the Whitsun Recess on Thursday 25th May and return on Monday 5th June. It is expected that the House will sit at 11 a.m. on Thursday 25th May.

Rural Policies
3.9 p.m.
Lord Carter Lord Carter rose to draw attention to the case for coherent policies affecting the social, economic and environmental needs of rural areas; and to move for Papers.
The noble Lord said: My Lords, the Motion on the Order Paper in my name calls for a coherent array of policies embracing the social, economic and environmental needs of rural areas. The speeches in today's debate will, I am sure, range widely over this broad canvas, but no speech will be more welcome than the maiden speech of the right reverend Prelate the Bishop of Durham.
It was just over two years ago, in March 1993, that I opened a debate in your Lordships' House on a very similar Motion. The main change in the two years since that debate is that the need for a coherent rural policy is now firmly on the political agenda. The Government are to produce a White Paper in September on rural policy, while in the Labour Party we have produced a consultation paper entitled A working countryside, with an excellent analysis of the problems of rural areas and a wide range of proposals for comment and consultation.
Rural problems are substantial by any reckoning. Around one-quarter of rural households live on or below the margin of poverty. The earnings gap between rural areas and the national mean has widened since 1979. Those who are living in poverty in rural areas are predominantly the elderly poor, who comprise some 60 per cent. of poor households. Unemployment increased between 1990 and 1995 by 51 per cent. in urban areas compared with 74 per cent. in rural areas. Recorded crime in Great Britain increased by 111 per cent. between 1979 and 1993, with an 87 per cent. increase in the metropolitan counties and a 144 per cent. increase in the shire counties.
We know that agriculture is no longer the major employer in the countryside. Nearly 100,000 jobs for farmers and farm workers have gone in the past 10 years and another 100,000 may go by the end of the decade. However, the less than 3 per cent. of the population engaged in agriculture and forestry are the custodians of the visual and environmental aspects of the 80 per cent. of the British land mass which is rural.
Alongside the stark facts of the rural social problems, there is the paradox that some 13 million people now living in towns and cities expressed the wish to live in the countryside in a recent survey, with 45 per cent. of those interviewed longing for the rural lifestyle. A Gallup poll showed that "the countryside" ranks second only to freedom of speech as the best aspect of life in Britain. When we take all those facts together, we can understand what Professor Howard Newby meant when he referred to,
"two nations in one village".
There is a real social stratification in rural society, with one part of the rural population having less need of jobs, schools and public transport, while others have to struggle with problems of unemployment, bad housing, lack of transport, lack of childcare and many other social problems. There is an underclass in rural areas just as in urban areas, but it is more hidden. Significantly, only 28 per cent. of those defined as "poor" in a recent study actually admitted to the existence of deprivation in their area. They seemed almost to be taking their relative poverty for granted.
I turn now to some of the problems facing rural areas. The National Federation of Women's Institutes said that its members identified the village shop and/or post office as the most highly desired amenity in rural areas; the Village Retail Services Association (VIRSA) claims that one-third of village shopkeepers are pessimistic about the future of their businesses, with incomes well below £10,000 per annum. One shopkeeper said that there were three Peers of the Realm in his parish, all of whom used his shop, but that he never saw a parish councillor from one year's end to the other.
The two-car family (or even the one-car family) can get into town to visit the supermarket or hospital—if there still is one—but 25 per cent. of rural families in Wiltshire have no car. The National Association of Health Authorities & Trusts recently staged a rural health conference. The conclusions of that conference make extremely interesting reading because they concentrate on social rather than health problems as such. The conference concluded that poverty was seen as the key
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dimension in rural health problems; that the influence of car ownership was crucial; that the current health efficiency measures (based on the internal market) are not fair to rural areas because higher costs and a lower population density mean that the cost per case or per visit is bound to be higher than in urban areas; and finally, that mental health, alcohol and drug problems have specific rural dimensions although most current health service models are based on urban assumptions.
Turning to education, the Association of County Councils argues persuasively that the range of educational provision in rural areas is kept low because the standard spending assessment does not take sufficient account of increased travel costs or the diseconomies of scale in providing for smaller groups. The National Association for the Support of Small Schools has pointed out that,
"some LEAs, pushed hard by the DIE to remove surplus places, tend to target the small rural schools where there are usually few, if any, surplus places. It results in the closing of village schools and the bussing of children from their homes and communities. Children inevitably never again feel any strong link with their village … Village schools usually cost a little more but parents and their communities give freely and support their schools very readily".
If proper provision of education and associated services for rural areas is to be encouraged, there needs to be some explicit weighting for the costs of rurality in the standard spending assessment, going beyond the present limited allowance towards certain school-related costs. If total spending levels are tightly constrained—they are—and there is no allowance for the costs of rurality, there is bound to be an inequity in funding between urban and rural areas.
Of course, it is not only the village school that is disadvantaged. In rural areas, it is that much more difficult to sustain a full range of adult education, youth and community services, and leisure provision. The English metropolitan districts offer twice as much pre-primary and four times as much local authority day care as the English counties. One rural parent has put it graphically:
"I have to travel 12 miles—a 24 mile round trip—to get to a playgroup. No sooner do I get home than it is time to go back and pick him up".
There are many and varied analyses of rural problems—I have touched on only a few—but virtually all reports and surveys show that the two major problems, from which so many other problems flow, are jobs and housing. The greater relative degree of unemployment in rural areas and the lack of affordable homes to rent or buy are central to the problems of rural areas. The lack of affordable homes to rent or buy is a major social problem in rural areas, and has been recorded and emphasised by virtually every recent report on rural areas, including by the Duke of Westminster's study group; the Rural Development Commission; the Housing Corporation; the Association of County Councils; the Rural Housing Trust; the Archbishop's Commission and Report entitled Faith in the Countryside and our own Select Committee Report on The Future of Rural Societies.
That situation is the direct result of the Government's right-to-buy policy for local authority housing, accompanied by the refusal to allow local authorities, either as enablers or providers, to replace the lost houses and so maintain the stock of affordable housing. If rural houses, as they become available, are snapped up by rural

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incomers, even the most modest homes are priced way beyond the reach of the working population. In that case, the absence of a replacement supply of affordable housing can only increase the social divisions and stratification in rural areas.
The Government's right-to-buy scheme is a classic example of a popular, successful and vote-winning policy resulting in major socially undesirable results. The tragedy is that the Government could have achieved their political objective and at the same time prevented the worst social effects if they had allowed the local authorities, either as enablers or providers, to replace the stock. We have made it clear that the Labour Government will allow a phased-in release of the receipts from the sales of council houses to be used to build more houses.
Turning to employment, it is clear that more jobs will not be forthcoming from any reform of the existing common agricultural policy that is likely to take place. Every attempt to increase agricultural efficiency and to get our farm prices closer to world prices must exert further downward pressure on agricultural employment. There needs to be a radical redirection of the CAP towards a comprehensive policy for rural development, embracing the role of farming and other rural activities, the protection of the environment and the maintenance of socially viable rural areas.
An excellent Chatham House paper entitled Making the CAP Fit the Future argues that such a rural development policy should assume a political importance which is comparable to that which the CAP has occupied. It also suggests that member states should have greater freedom to pursue locally adapted social and environmental schemes, provided that they are fully decoupled from production and are strictly controlled and monitored to prevent the distortion of competition.
I have already mentioned the Labour Party's consultation document, A working countryside, which places a heavy emphasis on job creation in rural areas. The document sets out three broad objectives for the rural policy of the Labour Government: economic renewal (to ensure a broad range of job opportunities); social and democratic renewal (to strengthen rural communities); and the protection and enhancement of the countryside environment.
There is a curious idea abroad that the Labour Party lacks specific policy proposals. The document A working countryside lists no fewer than 47 policy proposals, and invites consultation on them all. Time does not allow me to list them all, but they all relate directly to the three broad strands of rural policy for the Labour Government: rebuilding the rural economy; renewing rural communities; and respecting the rural environment.
If I pick out just a few of the proposals, your Lordships will appreciate the wide-ranging nature of the document and the work that has gone into it. It suggests extending opportunity with a partnership with the private sector to ensure that rural communities have access to the information superhighway, which will increase job opportunities in the countryside; environmental initiatives to create jobs, to save energy and to improve water quality and the local environment; improvements in nursery education and childcare provision, a particular problem in rural areas; a partnership between local
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councils, local business and voluntary organisations to serve the community; building thousands of new homes with the millions of pounds from council house sales which Labour will allow local authorities to spend on a phased basis; partnership with housing associations to build affordable homes to rent; ensuring land for social housing in local plans; a police service accountable to local people, matched by an effective crime prevention strategy.
That is a selection only of the proposals contained in the document. They include also maintaining the network of rural post offices and strengthening them by giving them much greater commercial freedom; the stopping of rail privatisation and a much greater degree of regulation of the private bus companies, whose privatisation has, in many cases, wrecked the rural transport system. Each health authority will be required to develop a rural health care plan. There will be a statutory responsibility for local councils to develop their cultural policies; the retention of playing fields for the public good; linking rural schools to the information superhighway, thus giving access to new educational opportunities; a judgment of all policies for rebuilding the rural economy and renewing rural communities on criteria of environmental sustainability; a moratorium on new road schemes pending a full review on environmental and economic criteria; a target of increasing Britain's tree cover by 50 per cent. by 2010; existing SSSIs, special protection areas and Ramsar sites (the wetlands) to become sites of national importance with stronger protection; sites of local importance established with local plan protection; and the designation of more parts of Britain with national park status. That is only a selection of our proposals.
To conclude, I suspect that there will be fairly wide agreement all around the House on what needs to be done. I am convinced that the Labour Government will set about the task with new ideas and a fresh approach to rural policy, and will recognise the force of the remark made by the Prime Minister, Mr. John Major, in January 1991:
"We do not want to see a population exchange with the less well off in rural areas being driven into the cities by the absence of affordable housing and jobs in the countryside".
That might be taken to be fairly good description of the results of current government policies.
Mr. Jacques Delors, the former president of the European Commission, put it much better when he said:
"Rural development is a public good which corresponds to a fundamental need of society as a whole".
I beg to move for Papers.
3.24 p.m.
Lord Shuttleworth: My Lords, I must first declare an interest. Many of your Lordships know that I am chairman of the Rural Development Commission, the government agency concerned with the well-being of the people who live and work in rural England. I welcome today's debate. I am grateful to the noble Lord, Lord Carter, for giving us an opportunity to consider the issues. There is, as he suggested, much common ground between us on the issues concerning the future of our rural areas. The debate takes place in the context of the Government's announcement that they intend to publish a rural White Paper in the late summer. What I believe should be at the

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heart of that White Paper must be the needs of the people who live and work in rural England. Without policies which recognise and enable rural areas to be places which provide jobs, homes and services for a mix of people in differing circumstances, we shall see a decline in rural communities and the loss of much of what we value and enjoy in the countryside.
I say that against a backcloth of great change in rural areas in recent years. The noble Lord, Lord Carter, painted a picture of poverty and deprivation. In some cases that is true, but it must be seen in context. Many areas have prospered and grown, and have out-performed urban areas economically. Growing numbers of people now choose to live in the countryside. Many more want to. Some people argue that the growth has been too great; that we should now take steps to stop further development; that we must put the countryside into wraps to ensure its survival.
I believe that calls for blanket policies to safeguard the countryside must be treated with caution for they overlook four crucial factors. First, the countryside, especially the more accessible parts, is where businesses want to locate and grow. If prevented from doing so, they will not automatically go to the towns or cities, and their benefits may be lost.
Secondly, the economic dynamism we see in many rural areas is now an engine of national economic growth. So the continued success of the rural economy is essential to the future prosperity of the country as a whole. Thirdly, some 10 million people already live in rural England. They need jobs, homes, services, especially those who are less well off, are elderly or disadvantaged in some way. They should be able to choose to remain in the countryside: it must not become simply the province of the more affluent and more mobile. A mix of people of different ages and circumstances is essential to healthy and balanced rural communities.
Finally—I acknowledge the point made by the noble Lord, Lord Carter—not all rural areas have benefited from economic growth. Some, generally the remoter and more peripheral areas, are suffering economically—traditional employment, such as agriculture, mining, seaside tourism, is declining and services are disappearing—and these areas need support and assistance. In particular, they need policies which provide a framework for, and stimulate, economic and social growth.
None of that means that I do not recognise and value the importance of the environment. I do not want the countryside destroyed by inappropriate or excessive development or made indistinguishable from the towns. On the contrary, a strong rural economy and balanced and flourishing communities are essential prerequisites for achieving other objectives for the countryside, including enhancing the environment. That means not just the landscape, but the built environment in the countryside: the street scene, the villages, and the community buildings. Without continuing adaptation as economic and social circumstances require, the countryside will at best become a museum of nostalgia; at worst it will wither and die.
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I have listened with some concern to recent debates about sustainable development, and I share the worries of others about the plethora of definitions. It is in danger of becoming all things to all people. My main concern, however, stems from the view held in some quarters that sustainable development means no development in the countryside. The reverse must be true. Continuing appropriate rural development can make a contribution to the objectives of reducing the use of non-renewable resources and protecting the global and local environment.
Development which enables people in the countryside to find jobs near where they live, and to have access to services near where they live, will help to reduce travel, pollution, and congestion. Otherwise, if future development is concentrated only in the towns, it will increase commuting and the demands on those areas.
I welcome, among other things, the various measures that the Government have introduced to increase the supply of affordable rural housing. I hope that they will continue to give this high priority. More can be done to increase the supply. It is essential that the Housing Corporation's special rural programme is continued and, preferably, its size increased to reflect the size of the rural population. It should also continue to be concentrated on the smaller settlements rather than dispersed more widely just because that is easier. The needs are most acute in the smaller villages.
In my experience, government departments, agencies, local authorities and private-sector and voluntary bodies develop and implement policies and programmes with insufficient regard to their effect on rural areas. This is particularly so for the provision of rural services. The Commission recently published its second survey of rural services within four years. It showed that provision is poor and in some cases it is still deteriorating.
More attention needs to be given to improving accessibility to services and to delivering them nearer to the users by using branch and part-time offices, outreach, mobiles or the imaginative development of new technology. That has the potential to help rural areas to be the highways of the next century and will overcome many of the problems currently associated with distance and remoteness. Government must ensure that unnecessary regulatory burdens do not prevent this.
In conclusion, I say to the noble Lord, Lord Carter, who proposed the Motion, that I listened most carefully to what he said. I have also studied carefully his party's recent document, A Working Countryside. I know that he will not be surprised to hear that I agree with practically everything he and it had to say about the problems and difficulties facing the countryside. Indeed, I take it as a compliment that the Labour Party's recently stated objectives for rural areas have now become almost indistinguishable from the long-established objectives of the Rural Development Commission.
What worries me about the document is the easy assumption that every problem in rural England is caused by government and can be cured by government. Government interference and more regulation are not usually the answer. Change is necessary to the countryside. The most effective engine of change is a strong rural economy. There is no easy route to a quick fix.
3.32 p.m.
Lord Beaumont of Whitley: My Lords, I too welcome the debate on the rural areas. I look forward to hearing the maiden speech of the right reverend Prelate the Bishop of Durham. He comes from one of the most important dioceses in the country, combining as it does both rural affairs and industry.
I welcome the debate, first, because there is a crying need for a coherent and ideologically consistent policy in this area. I welcome it, secondly, because I believe that my party has such a policy and indeed, historically speaking, has always understood the necessary revolution which has to happen in English thought—though not so much in Welsh or Scottish thinking—on this matter. I welcome it, thirdly, because it is the subject on which in your Lordships' House I feel most at home because it is closest to my heart. Therefore, it is with more than ordinary enthusiasm that I thank the noble Lord, Lord Carter, for initiating the debate.
A great deal of the running in this area has been left to the party opposite largely because it has been the source of power in the countryside, and it must be said that a pretty hash it has made of it. There are two conflicting political ideologies of the countryside which the Government have nurtured over a long period. Essentially, each is an enemy to the other, although they overlap at the edges and some individual noble Lords opposite seem to be able to combine them both without breaking down into raving schizophrenia.
As regards the first ideology, I have only to go back to the picture of my childhood. It is of a small village with a large house; a simple social structure; the squire and his family; a parson and a schoolmistress appointed by the squire; eight or nine tenant farmers; and a couple of hundred other rather poorer people. The staff at the big house were drawn from the village although, as noble Lords opposite will know, one must import gamekeepers from Scotland since locals in that profession become corrupted. I nearly said "seduced", but this was not Lady Chatterley country.
When there was high agriculture and a decent squire—and often there was a decent squire—the system worked rather well. However, it was never right that one man should have so much power and secretly it was immensely resented. That was one ideology. In those days, the only possible alternative was peasant farming, as practised on the Continent, preached by eccentrics such as G. K. Chesterton and espoused only by radical Liberals.
But since then, there has grown up another ideology held by the party opposite. It is founded on the idea that agriculture is an industry like any other and that if you cut down the manpower, pour in the fertiliser and change the genes of your pigs and cows you can feed the world and make a handsome profit. The suicide rate among farmers will be high and the life of the countryside will be destroyed, but that fine old Englishman, Ricardo, would have approved.
Those policies were viable while food prices were high. However, now that food prices are low—and GATT is ensuring that they will stay low for some time—both policies have ceased to be viable. But at least while food prices are low we have a chance to build a humane society
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in the countryside. Shortly, by which I mean some time in the next 50 years as anyone who studies population and production trends on a global scale will confirm, food prices will rocket again and the devotees of agriculture-as-an-industry will have their chance again.
They must be forestalled. We who care for the countryside—and I know that that includes all noble Lords in the Chamber—must take advantage of the breathing space that we have to put in place policies which will be sustainable and humane. They will not be cheap, but then we have allowed our mishandling of externalities and our failure to recognise true social and ecological costs to blind us to the fact that we are declining from being a rich country to being a poor one. We must come to terms with that.
We must deal with the situation as we find it. We must work for the replacement of the common agricultural policy by a common rural policy and in the short to medium-term that will entail a system of indirect price management, which will provide a programme of direct payments for economic, environmental and social goals that will benefit the wider community as well as farmers, in particular small farmers.
At national level that will take the form of a series of individual contracts between farmers and the wider community. If the immediate reaction to that is that it will be impossible to handle and appallingly bureaucratic my answer is that, first, in these days of computers it is not impossible to handle and, secondly, individual tailor-made arrangements are the opposite of bureaucracy, which involves making individuals fit into general moulds.
We will strive for environmental sustainability; we will encourage the extensification of farming; and we will encourage organic farming. I am pleased to see our great champion of organic farming in the Chamber. We will also encourage the local processing of farm produce and the building up of producers' marketing co-operatives. We aim to encourage the movement of people to the countryside and we guarantee a basic minimum level of services to rural communities. I join the previous speakers in their support of that aim. The devotees of Flora Thompson will recognise what I mean if I say that while we cannot necessarily guarantee all services to Lark Rise we certainly can to Candleford and probably also to Candleford Green.
We would wish to return to the local councils many of the powers that have been taken away from them and, of course, ensure that there is proportional representation in local government, where it is badly needed. For once I am able to point out that that would probably benefit the party opposite more than my own.
Councils are the best judges of housing need and there is no reason why they should not be the providers of much-needed social housing. Healthcare should be delivered as far as possible through small community hospitals and peripatetic primary and community services. In an age when we are trying to cut down travel and when we have the advantages of distance teaching, it makes sense to keep local schools open and in addition, as far as possible to make their facilities open to the local community. Rural post offices should be exempt from business rates; and police officers should be stationed in

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large villages although probably under slightly closer supervision than devotees of Hamish MacBeth would recognise.
In short, we shall operate on the presumption that to be part of the countryside is not only something which many people in this country want, but it is also something which is healthy for them personally and for the community as a whole. If we are to work for a sustainable future in the world, we must achieve a healthy rural economy in this over-populated country of ours.
3.40 p.m.
The Lord Bishop of Durham: My Lords, the noble Lord, Lord Carter, mentioned in passing the report Faith in the Countryside. I am grateful to the noble Lord for that, as I am for his introduction to this useful and timely debate. Your Lordships will remember that Faith in the Countryside was a report of a commission set up by the most reverend Primates the Archbishops of Canterbury and York and chaired by the noble Lord, Lord Prior, published in 1990. Since the publication of that report, there can be no doubt in the country as a whole about the Church of England's commitment to rural areas.
There are some 5,500 Anglican churches in rural areas. If one adds to that another 5,000 churches and chapels of other denominations, the Christian Church as a whole in this country represents the most ubiquitous, widespread and numerous community commitment of all voluntary agencies. Nationally, there is a new ecumenical Churches Rural Group under the auspices of Churches Together in England. The National Rural Officer, working from the National Agricultural Centre at Stoneleigh Park, has established an active network of regional rural officers whose work enables local churches to address the social, economic and environmental needs of rural areas.
My work has taken me into many different aspects of rural life—from the intensive fruit farms of Kent to remote Pennine sheep farms. Indeed "Bishop in Garden of Eden" has been a frequent headline in local newspapers, although I was rather alarmed when it formed the caption for a picture of me taking an apple. On a recent visit to one of the highest parts of Weardale, I was impressed by a farmer who not only kept thousands of sheep but also managed to find time to be a lecturer in the local agricultural college and to be a churchwarden in his local parish. Such community involvement is not unusual from those who, for generations, have made our countryside productive and have also preserved its amenities.
Moreover, I believe that "rural" should not be a word reserved for the most beautiful and attractive parts of our nation. In County Durham there are now many villages, ex-mining communities, which can properly be described as "rural". They are finding new roles slowly and sometimes painfully. But the social and economic problems with which they are faced are very different from those faced by the dales villages only half an hour away from them.
In all those very different settings, the Church is there. In spite of the changing financial structures of the Church—and we are making those changes in a very positive mood—and in spite of many questions
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concerning the deployment of the clergy of the Church of England, that Church intends to remain a living presence in every community. The Church believes that it would be abdicating its responsibilities if it did not make a significant contribution to the maintenance of a lively rural economy and community life. Such a commitment finds its way into clergy training and the encouragement of fine young priests to make rural ministry no less demanding than that in an urban setting. It finds its way into an acceptance that financial responsibilities within the Church are shifting from central to local communities.
Ethical questions which arise in rural areas are of course a priority for the Church. Animal welfare, the distribution of wealth, the stewardship of natural resources and the place of the natural world in the philosophical hierarchy, are all concerns which demand theology being worked out on the ground.
The churches are crucially involved in the social implications of current trends in the development of rural life. For young people to be able to stay in the rural area, as the noble Lord, Lord Carter, has said, housing, employment and training are required. I am glad to hear that those are agreed policies across party boundaries. It attempts to provide affordable housing and the provision of care for the elderly and infirm. Local churches are frequently in the forefront of providing transport and ensuring the retention of the village shop and post office.
I am pleased to report that there is a growing collaboration between the Church and rural community councils. They are natural allies in working towards the vision of wholesome rural life. Together they have been responsible for many village appraisals and housing needs surveys. It is in the worship and prayers of the Church that some of the inherent conflicts between groups in the community can be transformed into what we are seeking to achieve—a coherent community plan.
The Church frequently takes the lead in the debates about the retention of educational facilities in rural areas. A village school, which often because of its quality and convenience is preferred to a large area school, is usually the centre of community life and its buildings are used for long hours, including the evenings, when many activities take place which cultivate community life. It is frequently the local vicar who is the chairman or member of the school management body.
I mentioned the importance of Christian worship as the occasion when many aspirations and reconciliations are brought together. That leads me to say something briefly about church buildings. Vital as they are for practical use, as a lasting symbol and as heritage to be treasured, they often present a dilemma for the members of the rural Christian community. They cannot, and I am sure will not, leave our church buildings to deteriorate. Indeed, it is arguable that they are in a better shape now than ever before. But buildings absorb a disproportionate part of the energy and finance at the disposal of small communities. The continuance of value added tax on the repair of listed buildings causes deep and lasting resentment. The Church looks for a growth in partnership with heritage societies and local authorities to ensure that village churches are maintained as part of our unique heritage and at the same time are usable for worship and other public occasions.

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In our rural areas there are many things to treasure and conserve; but they are, first and foremost, places where people live and work and have their being. But one of the sadder features of the rural scene is its tendency to fragment. Those concerned with environment are often at variance with the farmers; newcomers can be resented by the indigenous population; those with visions of development are mistrusted by those whose viewpoint is more conservationist. It is vital that those different approaches are brought together and the Church is in a strong position to do that. For the Church embraces them all, affirms their good aspirations and believes that rural life can live with diversity while, at the same time, building a cohesive approach to its problems and its potential.
The conventions of a maiden speech require me to be brief and non-controversial. I assure your Lordships that as one who preaches three or four times a week, I am used to working within the constraints of those expectations. But I hope that I shall not be interpreted as being bland and generalist. For example, I am currently involved in a sharp dispute between a mineral extraction company and the local rural community. The problem is in relation to the use of recycled fuels. The company is a good employer which is sensitive and generous to the local community and which contributes significantly to the economy. But the local people are understandably alarmed by the possibility of toxic pollution. The Church's role here is vital: to recognise the concerns, to decipher the underlying questions and to be the place where a diversity of interests can be reconciled. To that process, the Church is totally and irreversibly committed. In that way, we are ready and equipped to further the contribution which rural areas can make to the whole of our national life.
3.50 p.m.
Baroness Mallalieu: My Lords, on behalf of the whole House I congratulate the right reverend Prelate on his maiden speech. He comes to this House with a reputation for personal courage and frankness which is much admired. His valuable contribution to today's debate, in which he drew upon a wealth of experience from both rural and urban parishes, has been great. We hope that the right reverend Prelate's contribution will be the first of many.
The excellent Motion of my noble friend Lord Carter leaves someone in my position in a serious dilemma. I live in a country, some of the time on Exmoor but most of the time on a small sheep farm in Buckinghamshire. After 16 years of a government who profess to speak for the rural community, almost every area of the fabric of rural life is in need of urgent repair. I have never before heard, as I now hear at home, such universal expressions of frustration and despair with any government from country people and from many of those who were formerly their most loyal supporters.
My noble friend Lord Carter has already spoken about a number of serious problems, and other speakers will no doubt do the same. I could have spoken about rural unemployment and low pay as did my noble friend, or about rural homelessness—the lack of affordable housing in rural areas which means that in areas such as
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Buckinghamshire, where I live, village people, born and bred, have had to leave the villages to live in the towns, while the houses are filled by townspeople who can afford them. I could have spoken about rural crime. The party of law and order has put paid, in its days in office by its inactivity, to the days when a car could be left unlocked outside the village shop and when the front door of one's home was never secured at night.
I hope that other speakers will concentrate on the need for better local services, better local health care, local schools and even, perhaps, speak about the wilder excesses of the common agricultural policy which continue to leave me, as a small farmer, breathless with astonishment. Alternatively, I could have spoken about rural transport, if indeed anyone can remember what that was, or about the complete or virtual absence of rural childcare, which prevents so many countrywomen from obtaining work.
Any one of those subjects would merit a debate on its own. What is urgently needed is a decisive government who will rebuild and renew after years of neglect. However, I shall leave those topics to others because I should like to talk quite briefly about something wholly different and which is, in its own way and in my view, an equally serious threat to rural communities and rural life. I refer to the effects of the animal rights movement on this and future governments' policy. I do not believe that I exaggerate when I say that there is a deep-rooted feeling of alienation which I find beginning to be expressed in rural areas the length of the country, from Buckinghamshire to Yorkshire and from the west country to Cumbria.
There is a growing belief that Parliament is no longer listening to the views and experience of rural England and that policies for the countryside are increasingly being determined by the wishes of the often uninformed, urban and suburban majority who have different requirements and different objectives. Those groups are assisted by pressure groups with, apparently, limitless funds to try to achieve their objective. There is a feeling of frustration in some places which borders on despair for the future—a feeling that the whole of the rural community and a way of life which many people hold dear is on the brink of being destroyed. Nowhere is that sense of frustration and conflict more keenly felt than over the issue of the care and management of both wild and domestic animals.
Perhaps I may give the House two examples of what is troubling those to whom I speak almost daily. Shortly before Christmas, animal rights protesters launched an attack on the offices of the Humane Slaughter Association in Potters Bar. That charity has worked for more than 80 years to encourage practices which save food animals from suffering stress, fear or pain in transit at markets and in slaughter houses both here and abroad. Part of the association's work has been to develop mobile slaughter houses with the aim of trying to ensure that animals are slaughtered in familiar surroundings instead of being subjected to long and stressful journeys to distant abattoirs. In short, it was an attack by the animal rights movement on an organisation which has done much to advance animal welfare.

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Shortly after Christmas, as your Lordships will know— and continuing now—animal rights protesters continued to block, attack and shout at lorries loaded with calves and sheep for export. I personally find that trade repugnant. For 15 years I have avoided any of my animals travelling abroad. But, having said that, anyone who understands farm animals knows that that shouting and that noise, is, perhaps, subjecting those animals inside the trucks to the greatest trauma that they are likely to experience.
I cannot believe that I am alone in your Lordships' House in thinking that something has gone very wrong somewhere along the line. On the plus side, there is enormous public interest in the countryside, a desire by people to spend time in the country and a concern for birds and animals which has grown beyond all expectation. Young people in particular are troubled by animal suffering, perhaps more than they are by human suffering. That interest has been stimulated in schools, especially urban ones, and the public is constantly being urged to play an active part in the conservation of the countryside and its animals. Some of that interest is well informed, but some of it is not. The end result is that there is an increasing lack of understanding that animals do not share human feelings, human values or hold human views and opinions.
There is a basic lack of understanding that, in nature, every animal is in effect another animal's breakfast. That is translated in adulthood into the foundation of well-funded groups lobbying for total protection for all wild animals and birds and pressure to preserve in aspic the countryside as it is now. Many people no longer understand that those who shoot, fish, hunt and rear animals for food care greatly for the animals and birds and probably understand them better than those who regard them sentimentally as human equivalents.
The time has come—there has, perhaps, never been a more important time—for those who now manage our countryside to get the message across to the largely urban and suburban electorate, and those who are likely to govern us, that management of the countryside—because it must be managed—should not lightly be taken away from those who live in and understand the countryside and entrusted to the mercies of political correctness. Because they do not understand those things, or want to hear them, there is widespread condemnation of country sports and pursuits. In many of the places, including Exmoor where I live, not only are they a way of life but they also provide a livelihood for many people. Whatever personal views one holds on the rights or wrongs of hunting, it is a fact that a ban on hound sports would, at a stroke, put 16,500 people out of full-time employment and a similar number out of part-time employment. Many of them and their families are in tied accommodation.
The farming industry and the countryside have much to look forward to from a future Labour Government, not least people in charge who actually know about agriculture. Coherent policies are needed in just about every area, but rural policies must also reflect the views of those whose lives are directly affected by them. In formulating those policies, those views must be listened to.
4 p.m.
Lord Stanley of Alderley: My Lords, the Motion in the name of the noble Lord, Lord Carter, suggests to me a prescription given by a doctor to prevent a deterioration in a patient's health. I thank the noble Lord for bringing it to your Lordships' attention. The problem, of course, is what should the medicine be. I subscribe to the view that the nastier the medicine, the better the chance of a long-term cure.
The noble Lord's Motion covers a wide range of subjects such as low cost rural housing which he mentioned. At least your Lordships were instrumental in getting the staircasing arrangements changed. The noble Lord was very much involved in that. I was pleased to hear of the right reverend Prelate's commitment to rural areas, and his commitment, too, to the village school and the village hall, which has not always been apparent in this House. However, I doubt whether anyone would not argue that a healthy, prosperous agriculture will continue to be an essential factor in the social, economic and environmental needs of rural areas. I wish to concentrate on agriculture. My medicine is tailored to the effect on British agriculture of, first, the GATT agreements and, secondly, eastern European countries' accession to the European Union, both of which will make the present CAP support untenable in the 21st century. The noble Baroness said that it leaves her breathless already. It does me too.
There appears to be a choice of medicine. Either we continue with the present policy of production controls, and support such as set-aside, quotas, and cross-compliance, or we move towards a more competitive international agriculture which inevitably means the devil will take the hindmost. Unpleasant though the second course may sound, I believe it to be the right long-term course for British farmers. It can be made less unpleasant by carefully monitored decoupled help and strict anti-dumping controls. But what this help must not do is to affect sound commercial decisions on the farm. For instance, there must be no cross-compliance, no direct production based support for non-viable farmers to remain in business, and there must be no special help for the new entrant.
I realise that such a course would be unpopular, particularly in areas such as Wales where I live where the vast majority of farms are uneconomic. The course to which I refer would be considered in a similar light to the Highland Clearances. However, I believe it is a more effective and kinder medicine than encouraging the non-viable farmer to stay in business, and it is far better than encouraging a young farmer to start on a farm that can never be economic, only to find himself bankrupt aged 40 with a wife and two children.
I was surprised therefore to read in this week's Farmers Weekly leader that the Government should be encouraged to give special help to new entrants. A few pages later it was pointed out in another article that farms must become larger, fewer, and more competitive. To my mind that was something of a non-sequitur. I speak with feeling as I had to enter farming as a tenant with no help or patronage. I would say to those who understand primogeniture that I was a third son of a third son of a third son. Such people do not get much money. I had one advantage which was

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quite a big one in that I was fortunate in marrying a farmer's daughter who understood and who had been brought up to be a slave to the farm.
Of course I shall be accused of adopting a ruthless approach but nature is ruthless, as the noble Baroness said. Although we should always try to co-operate with nature, she demands and respects a certain ruthlessness on the fanner's behalf. Unless we adopt such a policy, we shall become even more demoralised, destitute peasants expected to dress up in smocks to amuse our suburban cousins. I much admired the words of the noble Baroness, Lady Mallalieu, on the subject of animal welfare and rights. They are very much in line with these thoughts.
That is the medicine I would prescribe to deal with the Motion of the noble Lord, Lord Carter. It can be sugared by providing alternative work and development, as mentioned by my noble friend Lord Shuttleworth, and of course by part-time farming. I am aware that I have been called—particularly by the noble Lord, Lord Mackie,—an arch farmer. I am not ashamed of that, far from it, for unless farmers are encouraged to do what they know best, which is to farm, then they and the area in which they work will be the poorer, and so, too, will be our well cared for countryside.
4.5 p.m.
Lord Chorley: My Lords, I add my thanks to those of other noble Lords to the noble Lord, Lord Carter, for enabling us to discuss this important topic today.
As has been said, our subject matter is hugely wide. One must therefore be selective. My interest, both personally and as chairman of the National Trust, whose interests lie at the heart of the topic, is how we obtain those policies which are needed to ensure a prosperous and vibrant rural economy without doing damage to the quality of our countryside—or, perhaps more positively, while at the same time enhancing the quality of our countryside.
I start with three preliminary points. The first is to note that the proposed White Paper is to be a joint affair of the DoE and the Ministry of Agriculture. That is important. It may be stating the obvious, in that how could a White Paper in this area be effective unless it were joint? However, of course logic does not always inform the actions of Government.
My second point is that a healthy, sound economy must be one in which change is accepted, and an economy in which dynamic development is encouraged. A countryside which is a rural museum, with people playing at farming, a Rousseauesque countryside, is not a healthy countryside. In my view it is possible, although not necessarily easy, to achieve a healthy rural market economy within the constraints of a strong sustainable development policy framework; a framework which will include many features of our existing planning system.
My third point is that you cannot divorce rural policies and practices from urban policies. If we want an attractive and healthy countryside we also need a healthy and attractive urban environment because of the consequential effect on house prices of immigrants—or perhaps I should say emigrants—moving from urban and suburban areas. We need to avoid rural areas becoming
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dormitories for urban workers with the consequential effect on house prices. That point was well made by the CPRE in its recent pamphlet Urban Footprints.
It seems to me that the two key ingredients are those of rural communities and land use, and farming has to be the starting point. However, the noble Lord, Lord Stanley, will not be surprised to hear that my recipe is somewhat different from his. Farming has to be the starting point as most of today's problems stem from the huge changes that are going on—and will continue to go on—in agriculture. The noble Lord, Lord Stanley, mentioned the eastern European countries, for example, in this regard. How we farm and what we produce (or do not produce) profoundly affects our countryside. Because, even in the uplands, almost all our landscape—everything we think of as quintessentially English, or Welsh or Scottish—has been made by man. I do not need to labour the point.
Yet much of our finest landscape, our countryside, is in agricultural terms marginal land—economically low quality land. The regime of Countryside Stewardship and of ESAs is, therefore, crucial. I therefore welcome these measures. But we have to ensure not only that agri-environmental measures are strengthened in the CAP, but also that production based subsidies, for example the HLCA regime, are phased out or at any rate reduced because they have resulted in overstocking and damage to upland habitats. There is also the problem of ewe premium quotas, which we debated a year or two ago. We need more flexible tenancy arrangements, and the Agricultural Tenancies Bill, which we dealt with last autumn and winter is something which will be helpful, and which I support.
Even so, the economics of the farmer on this marginal land will remain a problem. On our tenanted upland farms the National Trust estimates that the typical farmer requires a subsidy of £15,000 a year to achieve the modest income of £10,000 a year. That is not healthy. It is sometimes suggested, and PPG7 is an example, that the solution to falling farm incomes and employment lies in farm diversification. The work of people like Professor Richard Munton and others suggests that that is not the case. He shows that there is no empirical evidence to substantiate the claim that a lower financial dependency on farm income is likely to result in systems of production which have less impact on the landscape.
A related issue is the extent to which, if financial resources are shifted towards environmental management, local considerations should be allowed to influence the use of those resources to achieve local environmental objectives. Those expenditures need to be consistent with other policy objectives and processes, such as English Nature's natural habitats initiative and also local plans. Here I also draw attention to the Countryside Council for Wales's Tyr Cymen scheme—the whole farm approach. We also need to adjust our policies to link in with the European Union structural funds.
We must also recognise that competition and technology will inexorably increase the pressures on farm employment and the economic viability of rural communities—the villages and small towns—whose historical basis has, directly or indirectly, been agriculture. As the noble Lord, Lord Shuttleworth, in

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particular, said, other sources of employment will need to emerge. In our national parks tourism may appear to be the answer. However, that, too, can be unhealthy if carried to excess. As I said earlier, nor do I find much comfort in our village economies being based on dormitories for urban commuters or for tele-workers—a fashionable but, in my view, much overworked solution.
What is needed is small-scale local enterprises. This is where the work of the RDC is important. I acknowledge and congratulate the noble Lord, Lord Shuttleworth, on the effectiveness of the RDC. This is where a bit of pump-priming of the kind that the RDC undertakes can be effective in initiating enterprise. It is very difficult to anticipate the enterprises that will emerge. From our experience in the trust we know that a great variety of enterprises can grow up successfully.
I am acutely conscious that I am only scratching the surface of one or two aspects of the rural economy and the relevant policies to support it. I have not dealt with, for example, rural infrastructures, the problems of affordable housing, new buildings or of adapting existing buildings and, for example, the effect of listing buildings. Then there is the problem of public transport and roads. All these are vital. I merely note, en passant, that while there is a great deal on rural transport in the recent report of the Royal Commission on Environmental Pollution it had little to say on the particular problem of rural communities.
I conclude by reiterating what seem to me to be the two key points: the need to enhance policies which ensure environmentally friendly farming to protect our landscape; and the need to ensure the economic and hence social viability of our villages through policies which encourage local employment.
4.13 p.m.
Baroness David: My Lords, last summer I read a pamphlet called Off our Trolleys, which I found not only a good title but a very interesting and indeed alarming read. It dealt with the effect of the growing number and power of supermarkets, mostly out of town and in the countryside, their effect on UK horticulture and the increasing difficulties for the small and medium growers and shopkeepers to compete and stay in business. It also dealt with the effect on road transport. The pamphlet was written by Hugh Raven and Tim Lang. Hugh is co-ordinator of Safe Alliance, a coalition of 35 conservation and environment groups, and Tim is Professor of Food Policy at Thames Valley University.
The pamphlet came about as a result of a report they wrote on the implications for the UK economy of retail concentration. The Select Committee in another place found that,
"the UK highly organised retail sector has a greater percentage of overall turnover concentrated in fewer hands than in other EC countries".
In the light of that, they examined whether the free market applied to food retailing and researched into the extent of food import penetration and the impact of unnecessary transportation of food.
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What has been found is the decline of traditional outlets for UK horticultural produce, particularly wholesale and retail markets. And here the Association of County Councils' submission to the Government's White Paper team makes the point:
"Even within rural areas, there are complex relationships between one locality and another. This is true especially as between market towns and their hinterlands. These towns, typically between 3,000 and 12,000 in population, came into existence to service the agricultural economy, and still play an essential part in, and depend largely upon, the economic activities of the areas which surround them. Today their economic survival can often be threatened, just as much as that of major town centres, by the expansion of out-of-town commercial developments".
Of course, there have been advantages to the consumer in buying fresh fruit and vegetables from big retailers as prices have tumbled in real terms. Supermarkets may claim that they are responding to consumer demand, but they are also responsible for the moulding of consumer expectations. But these savings and changes in tastes have costs elsewhere. Suppliers' margins are squeezed and growers bankrupted by supermarkets' capricious use of their buying power. Specifications can be very tight. Such is the power of the buyers and the fear of their sanction of "delisting" that comment by growers on supermarket buying policy is usually given only on condition of anonymity. Demand for large quantities of uniform products cannot be met without significant external costs measured in terms of pesticides and fertiliser residues and run-off, the by-products of heavy energy use, the loss of genetic diversity and the external effects of long-distance transport.
During the 1980s, the share of the sales of fresh fruit and vegetables shifted markedly between types of outlet. In 1984 the multiples enjoyed 24 per cent. of the market. By 1991 this had increased to 47.6 per cent., while over the same period independent greengrocers saw their share sink from a third to less than a quarter. The multiples' share is now about 50 per cent. and is predicted to rise to 70 per cent. by the end of the decade. For some products, such as apples, dominance is already overwhelming.
This is killing off alternative forms of distribution, including wholesale markets. According to the NFU, many growers are,
"concerned about having a viable alternative to the multiples".
The big stores all carry very similar ranges and will not deal with suppliers under a given size, which has disadvantaged small suppliers and makes it difficult for new firms to start. Those growers who opt to supply the multiples find they are dictated to about their methods of production. They are given specifications for each crop, the approved seed supplier, how to treat the growing crop and the method and timing of harvest.
The multiples' penetration of the fresh produce market has been highly profitable for them. That is reflected in where fresh fruit and vegetables are put—the prime site just inside the entrance where they cannot be missed by any shopper.
There are environmental costs. As I said, genetic diversity is sacrificed; seasonal produce is globally sourced, increasing the demand for freight transport; crop seasons are artificially extended by intensive energy use in protected cropping; and agrochemical inputs are

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required to ensure uniform and unblemished produce. The natural process of growth is moulded and manipulated to achieve a predictable and stable throughput.
Standardisation has resulted in a huge loss of genetic variation in our main food crops. Apples are an excellent example. Of 2,000 varieties on the National Apple Register, only nine dominate commercial outlets. I am lucky enough to live in Cambridge, near enough to bike to the market, where I can still buy small Cox's which have far more flavour than the large shiny ones on offer in the big stores and—an additional advantage if you have a family of children—you get more to the pound.
Demand for seasonal produce out of season has led to an increase both in the inter-continental transport of perishable fresh foods and in glass-houses, or more usually poly-tunnel growing—both having very significant effects on road use and energy use. For supermarkets, seasonality is no longer a consideration. Being able to supply fresh seasonal foods from around the world has been one of the supermarkets' proudest boasts, with very prominent and expensive advertising campaigns, like Safeway's "Picked yesterday in Kilimanjaro". As the price of transport falls, larger quantities come from farther afield, encroaching into markets traditionally supplied domestically and costing rural jobs as large areas of land formerly growing labour-intensive, high value horticultural crops revert to agricultural pursuits and fewer jobs. Import penetration can be rapid and on a large scale. The Financial Times reported:
"Spanish shipments of iceberg lettuce are expected to rise —this year to 79,000 tonnes. This compares to 1,600 in '85, causing British growers to dump large quantities of produce".
Some of the imported supplies are provided by domestic producers, importing to make sure that they can offer continuity of supply. It is a high risk strategy. Supermarkets themselves import produce at exorbitant rates, yet retail it at the same low price as the available home-grown version, subsidising foreign imports out of the UK growers' margin. This is done with iceberg lettuce, celery, broccoli and cauliflower—all expensive, bulky produce, air-freighted from as far as California.
So what are we to make of all this? It is difficult to see a lot of consumers giving up the convenience of the weekly shop at one site. But I do think that the public should be made much more aware than they seem to be of the very large costs involved to UK horticulture, to the reduction of employment in rural areas, and of the reduction in the number of small markets and shopkeepers, vital for the elderly and the poor, the increased use of energy, and in particular the cost of increasing traffic and road use. As supermarkets tighten their grip on grocery sales, centralised distribution will add another twist to the road miles spiral. More than 95 per cent. of goods are delivered to stores via regional distribution centres, on average a 90-mile round trip by lorry, compared with less than 20 miles for some street markets. The newest stores have no storage space and are serviced entirely by lorry. It is small wonder that Sainsbury's and Safeway's trucks cover about 40 million miles per year.
I am of course aware that the DoE has recently tightened the relevant planning guidelines, which should slow down the proliferation of out-of-town stores. Thank
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goodness for that! There has been public pressure reflected in the Environment Select Committee report into retailing and the Royal Commission report on transport. I welcome all that. However, what we want to hear from the Minister is that the department is not only fully aware of all the implications, but that it also intends to take further action in co-operation with MAFF to make some positive changes. Education of the public, so that they are aware of what is happening, is very important.
Could there not be a Green Paper on food retailing, as part of a review of the food economy as a whole—or at least, could it be a part of the rural policy White Paper which I understand is expected in September?
4.23 p.m.
Lord Marlesford: My Lords, first, I declare an interest as chairman of the Council for the Protection of Rural England.
We are all very grateful to the noble Lord, Lord Carter, for introducing this debate. As several noble Lords said, it is particularly appropriate because we expect the rural White Paper in September. Certainly the Government should be very grateful for this opportunity, as the debate may well produce ideas that will be helpful. I suggest that what that White Paper must not contain is a collection of un-thought-out, put-together ideas which seem vaguely relevant to the countryside.
Although I say this with great affection and esteem for the noble Lord, Lord Carter, I was rather worried when he produced the shopping-list that the Labour Party has just produced in its, as it were, rural White Paper. The noble Lord mentioned the example of tree growing. I looked it up because I thought that I must have misheard the percentage. I quote:
"Labour is committed to setting targets for increasing tree cover. A 50 per cent increase by 2010 would be a challenging but achievable target".
Assuming—as I do not—that the noble Lord's party is in power in 1997, if my arithmetic is right, that gives him precisely 13 years to achieve a 50 per cent. increase in tree cover in Britain. I suggest that even Chairman Mao would have shrunk from the implications of such a pledge. However, I shall leave that point aside.
Of course we must try to get a balance in the rural population. As my noble friend Lord Shuttleworth said, it is a matter of the people who work, as well as live, in the countryside. What we cannot have is a countryside inhabited by retired people and commuters. Quite apart from anything else, the constraints on transport that will come about within the lifetime of most of us will make that impossible. I believe that many of us—I say this happily—will end up cycling a great deal more in the countryside. I do not believe it is possible to say that we shall have a population that constantly commutes by car.
Rural land is a scarce resource. But that does not necessarily mean that there is an inadequate supply of land for economic development and affordable housing. In other words, it is possible for land to be made available for the kind of countryside to which my noble friend Lord Shuttleworth referred. But the Government cannot merely predict demands on the countryside and then say that they will provide for those needs. "Predict and provide" is not

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an answer. I believe—and it may be easier for me to say this than it is for Members on the other side—that market forces must be allowed to ration, by price where necessary, the land that is available for both development and housing. But of course those market forces must be modified to some extent by intervention in matters such as affordable housing. I certainly go along with much of what the Labour document says about housing. However, I would make one particular comment to the Government in relation to something I heard the other day that disturbed me. It is important that affordable housing, particularly when provided by housing associations—and let us be frank, in a sense it is council housing by another name—must not be sold. It must be kept as part of the affordable stock for rent.
I also suggest that developers would be wise to ensure that there is a demand before they develop. We have all heard of new golf courses being built which may take up a hundred acres each and which suddenly go bust because there is no proper demand. I always think of the example set by the late Hong Kong shipping tycoon, Y.K. Pao. He was very wise. He never ordered a ship to be built until he had a long charter that would repay him completely. So when many other shipowners went bust, he did not.
The noble Lords, Lord Carter and Lord Chorley, referred to the pressures caused by people coming into the countryside from the towns. Indeed, the noble Lord, Lord Chorley, was kind enough to refer to the study by the CPRE, Urban Footprints. The countryside must not become an easy escape route from the towns. We should look at the detail of those urban pressures. That is the subject of the CPRE's study. It will be enormously valuable to the Government. One could almost say that it is work that the Government should themselves have done. It will cost quite a lot: £110,000. That is peanuts to the Government but mega-bucks to us. I do not object at all to CPRE brains being used to carry out this policy work. However, it would be rather nice if my noble friend the Minister were to suggest that the Government might make a small contribution towards it!
I move on to the crucial issue of planning which is controversial. I am worried about two problems. The first is the extent to which councils can be intimidated by developers who threaten to sue them for costs if they refuse planning permission and if that refusal is subsequently reversed on appeal. I quite understand why sometimes councils give way under such pressure. I do not know the answer, but maybe my noble friend could give some thought to it. Secondly, I advise councils not to be seduced, indeed one might almost say corrupted, by the concept of planning gain. Planning gain may be a good idea, but there is the danger that a clever developer will propose something which ought not to be allowed. However, he may attach to it as an inducement a cherished plan of a councillor or a council official.
Incidentally, I believe that the role of parish councils is crucial. The noble Lord, Lord Carter, mentioned three Members of your Lordships' House who used a shop, while no parish councillor did so. I believe that the most important post that I am honoured to hold is as chairman of my parish council. Parish councils have a crucial role, as the foundation of local government.
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One factor which will add to pressures on the countryside is migration within Europe. We have far better countryside than most countries in Europe and we must not allow the golden goose to be destroyed. I totally understand why people wish to move, but we cannot afford everyone moving to the English countryside who wishes to do so. I believe that we have a great deal to teach Europe about both rural economic development and environmental conservation. Let us not forget that the environmentally sensitive area is a major innovation and one of the better ways of spending CAP money. It was invented in Britain originally at Halvergate in Norfolk to preserve the marshes around the Broads from being ploughed up.
In conclusion, I suggest that for many of these questions to be answered we will depend on the Government producing a good rural affairs White Paper in September.
4.32 p.m.
Baroness Masham of Ilton: My Lords, I thank the noble Lord, Lord Carter, for initiating this valuable debate. I must declare an interest as I wish to give an example of a tragic incident which happened last Thursday and which has happened to many people. I should like to suggest to your Lordships some ideas that might help.
I own a small, well bred pedigree accredited flock of Texel sheep as well as some other breeds. Last Thursday, my farm man was returning from the vet when he saw two people with leads in their hands, looking for their dogs which they said had run away. Our man suddenly thought of my lambs and rushed back to the field to see two red setter type dogs disappearing through the hedge. The two dogs had killed one lamb, having bitten through its jugular vein. Another lamb had been severely mauled, its ear bitten off, its throat ripped and back and neck mauled. That lamb was still alive. The vet was called and he put the severely distressed lamb out of its misery. It was a really well grown excellent tup lamb. Even the vet was shocked to see such mutilation. The shepherd was totally dismayed after all the work that had gone into rearing the lambs and his female helper was in tears. The poor ewes were left in a very stressed state. It was not the first time that the dogs had killed; the owner had been in court only a month before the incident.
Out of control dogs rampaging over the countryside worrying sheep do not endear their owners to farmers. I also read last week that many dogs belonging to New Age travellers were spreading the parvovirus because the dogs had not been vaccinated. Is it not time for us to take seriously the problem of out of control dogs? For example, what happens if rabies arrives in this country? There is now an identichip which can be implanted into dogs to avoid loss. It is a microchip about the size of a grain of rice and the pet is identified with an alphanumeric code. The identichip is recorded on the central computer database with complete details of the owner. A network of scanners covers the country in such places as kennels for strays, with dog wardens, with the Cat Protection League, with the cruelty and welfare societies, the RSPCA and the SSPCA homes. The Kennel Club

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supports the proposal, as do vets. I should be interested to hear what the Government think and whether they intend to do anything about the registration of dogs.
If there is to be harmony in rural areas, then people who come to live in the countryside should abide by the rules. On the land I farm I work closely with the Countryside Commission. We want people to enjoy pleasant walks by the burn. We provide stiles. The Countryside Commission provides signs saying "Please keep your dog on a lead". However, the signs are being ignored and even torn down. We have to chain and padlock gates, as no respect is being given to stock and the gates are left open. More and more people flood into the countryside, abusing and flouting the rules with which farming and country people have grown up and which they respect.
The Government's target, in the White Paper Health of the Nation, to reduce suicides by 15 per cent. was welcomed by many people. It has been found that suicide is almost twice as common among farmers as it is among the public in general. A survey commissioned by the Farmers Weekly found that 36 per cent. of the fanners responding were unhappy or depressed. A survey of farmers around Boroughbridge in North Yorkshire—near where I live—found that 19 per cent. of farmers were anxious or depressed but that very few had told their GPs of those feelings. MAFF figures show that there are about 10,000 farms in North Yorkshire. A report entitled Farming under Stress revealed that hill fanners felt not wanted by society nor listened to by the Government. They are faced with difficult working conditions caused by the weather, long hours of work and administrative paperwork, low income and uncertainty about the continuation of subsidies and allowances.
Because of that information and the concern of many people, the North Yorkshire Rural Initiative was formed last year. It is a coherent group, working together with representatives from agriculture, public bodies and voluntary agencies. The initiative has brought together the Samaritans, the citizens advice bureaux, the health authorities and farming bodies such as the NFU and the Young Farmers, the Church, the police and many other bodies. The aims are to publicise the difficulties facing farmers and to alert them to the help available to them from the Samaritans and the citizens advice bureaux.
I serve on the Family Health Service Authority (FHSA) for North Yorkshire and know at first hand how easy it is to be isolated on farms and in little villages in rural areas, cut off and with no public transport. The distance to the nearest hospital can be 40 miles and bringing care into the community is not an easy matter. With an aging population, many cases of mental or physical ill health can mean difficulties. Health authorities, social services and voluntary agencies need to come together with shared initiatives.
The extra expense of living in the countryside should not be forgotten. The time taken by statutory staff, such as district nurses and home care providers, means that much time is spent in cars. Getting services to the people in the isolated rural areas is expensive. Just to go shopping can be a major operation.
The spread of crime in rural areas has been another anxiety. The police are another service which is expensive. Villages which for years had a local policeman
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living in and serving the community no longer feel secure without their local bobby. Only last week the grass-cutting equipment and mowing machines were stolen from the parish church in Masham, where I live. Even with community watch schemes, these things are happening under people's noses. With the spread of drug abuse, things could get much worse. I have felt for some time that the growth of car boot sales, and the like, provide easy outlets for encouraging that form of crime. Should not boot sales be registered with local authorities?
With so many people coming into the countryside, I feel that it is important to give them recreational facilities. Here, I must again declare an interest. There is some concern felt by riding establishments that they may be taxed out of existence. To run a small riding school or trekking centre, which give opportunities for people to enjoy the countryside and do something healthy, is expensive for the owners. They have many expenses in providing that service, such as blacksmiths' bills, vets' bills, employing staff, providing and feeding the animals, providing the stables and facilities needed, paying for licensing, and the many other expenses, which all add up. A heavy community tax could be the last straw. I hope that that will be understood by the Government and local government. Services such as riding for the disabled, which is often run with the help of those establishments, could also suffer as a result of that. A workable balance has to be found if there is to be successful social, economic and environmental well-being for all those living in and coming into the rural areas.
Much progress has been made in North Yorkshire, with approximately 14 local development agencies coming together in the Forum for Voluntary Organisations. That network must be a good way to stop too much wastage of valuable resources. Nowadays, voluntary organisations have to be efficient and well organised. They need the support and co-operation of the statutory agencies. Good communication links in the rural areas are vital, as are friendly co-operation and respect for one another's needs, living as we do in a very competitive society where everyone is trying to raise funds.
4.42 p.m.
Baroness Nicol: My Lords, before I turn to the main subject of our debate this afternoon, perhaps I may pick up one point made by the noble Baroness, Lady Masham; namely, the need for a dog registration scheme. Your Lordships may remember that it was the wish of this House that there should be such a scheme. To that end, we succeeded in inserting a clause in an earlier environment Bill—it may have been the 1990 environment protection Bill, but I am not absolutely certain—and that clause is still there. It requires only that the Minister should make up his mind and act. I am very pleased to hear a little pressure coming from the noble Baroness again this afternoon. I know that my party intends to use that clause when it has the opportunity.
During the debates on the Environment Bill that is presently going through both Houses, we said a considerable amount on the economic and social needs of rural areas. But at that time we were discussing only the areas in national parks. Therefore it became obvious that we would need a debate of this kind, so that we could deal

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with the other areas outside the national parks. I am very grateful to my noble friend for giving us the opportunity to do so.
Both the Government and Opposition are now formally committed to the principle of attaining environmental sustainability. Therefore, ways must be found to meet the social and economic needs of rural communities consistent with that commitment. I believe that it is quite possible without damage—or at least significant damage—to either. As we have heard, public use of the countryside continues to grow. It is used more and more for recreation and relaxation. Some of the effects are very undesirable, as the noble Baroness, Lady Masham, indicated, but the majority of people want to use the countryside in a peaceful and quiet way. They simply want to enjoy it as it is.
The interaction between human activity and the rural environment has been much more intense recently. The damage to traditional landscapes and wildlife has caused widespread public concern. I shall speak about the social and economic development shortly, but I should like the House to think for a moment about the amount of degradation that has taken place in the countryside.
Bird populations are a significant measure of the degree of degradation that has occurred. The RSPB reports a serious decline in recent years of many once common species. For example, skylarks have declined by 54 per cent. in the past 25 years; corn buntings have declined by 32 per cent. and grey partridge by 73 per cent. in the same period. But increasing membership of the RSPB and other conservation organisations reflects the public concern. My noble friend Lord Carter mentioned a Gallup poll which recorded a very high number of people who were concerned about the countryside. He went on to say that there were many millions of people who wanted to enjoy a country lifestyle. I sometimes wonder, if they really knew what a country lifestyle involved in some parts of the country, whether they would want to take part in it. However, that is their dream and it is a dream that we must cater for in the sense that, if we allow all those people to pursue that dream, they could well ruin the very thing that has become their goal.
Rural areas did relatively well in economic terms during the 1980s in comparison with urban areas and with the national average. But, with the rest of the country, they have suffered from the effects of recession. Of course, there are variations between areas. However, as we heard, they are facing particular social and economic problems in housing, low wages and so on. They lack transport and access to facilities which urban dwellers take for granted but which, in scattered, less populated communities become more difficult and expensive to provide—for example, childcare.
Those problems have been exacerbated by government policies. The Rural Development Commission's strategy for the 1990s stated:
"The extension of privatisation to public services such as rail transport and the Post Office and tight financial constraints on the public and voluntary sectors could lead to a further loss of services".
As we know, the threat to the Post Office has receded, at least for the time being. But if the ethics of privatisation continue to be pursued even within the Post Office, it
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could be just as damaging in rural conditions. It seemed from our discussions on the Environment Bill that residents in rural areas felt that there was a general lack of understanding of their problems and lack of sympathy with their needs. They felt that conservationists and planners were aligned against them to prevent any development which might help them in their present difficulties. But, in the long run, surely rural dwellers would not welcome the downside of over-development. Therefore, guided solutions must be sought.
If the White Paper that the Government is to produce in the autumn is to lead to an effective policy for rural areas, it will need to embrace a new, integrated approach to all the components of rural life, which is based on better information about social and economic conditions in rural areas, including rural labour markets. We have heard a great deal from other speakers about the need for integrated policies and I support that view. There will have to be policy intervention where there is clear evidence of market failure, for example, provision of transport for those without cars and, where desirable, support for farmers for environmental management. In its document called A Rural Policy, the Country Landowners' Association supports that view.
The noble Lord, Lord Shuttleworth, said that the Government could not do it all. That is quite right; they cannot. But the Government have a duty to ensure that the essential structure is maintained, which includes the kind of things that have been mentioned this afternoon; otherwise, there is no hope of recovery for some rural areas. Policies and resources should be aimed at real rather than perceived causes of social and economic problems.
Protection and enhancement of the rural environment are important to urban and rural dwellers alike. Unless we give adequate weight to environmental interests while pursuing social and economic aims, we shall be failing to meet the needs not only of this generation, but also of generations to come. I am sure that everyone in this House understands the need for social and economic development in rural areas. But it must be achieved in an integrated way and with guidance. I hesitate to use the word "planning" because it is not a popular one in an agricultural context. Nevertheless, something like planning is what we need.
4.50 p.m.
Lord Wade of Chorlton: My Lords, I thank the noble Lord, Lord Carter, for presenting to us today the Labour Party's proposals for the countryside. I agree with everything he said regarding the problems that confront the countryside. I agree with him in regard to the need for further economic activity and growth to replace the jobs being lost in agriculture. I agree with him in regard to the need for a communications highway. That is an important point and I hope that the Government will address it. I agree with the noble Lord when he talks of the need in rural economies for there to be opportunities for people who use their motorcars. It is an essential part of country living. I agree with him in all the aspects he identified as serious problems for those who live and work in and want to use the countryside.

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However, I disagree with the noble Lord entirely when he condemns the Government's policy on deregulation. I believe that it will bring a lot of benefits. I disagree entirely when he suggests that it is wrong to privatise many of the bus services and the railways. I believe that that will bring greater economic activity and I welcome a situation where a railway company has a vested interest in extending the economic opportunities of a specific region and will be an "engine" for such activity—if I can use that word in relation to the railways. I therefore welcome all those opportunities.
Where I am further unhappy about the noble Lord's Motion is that it contains an underlying assumption that the problems can only be solved by more detailed planning, regulation and control. I want to see, as the noble Lord wants to see, a much improved economic and diverse rural area. I believe very strongly, as the noble Baroness, Lady Nicol, said, that it is possible to maintain a high quality environment and provide opportunities to increase the economic values of what we can do in the rural economy. But we do that by allowing people the freedom to do it; not by telling them how to do it, by regulating how they should do it or by imposing restrictions on which way they can jump. That is not the way. It is clear from the activities taking place in those areas where it is possible for them to take place that a great desire and entrepreneurial spirit exists in those who operate within the rural economy to do a great many things which will bring enormous benefit to the general economy of the country.
The right reverend Prelate made a marvellous maiden speech, for which I am most grateful. He laid out many things of concern to us all; that many decisions regarding the economy and rural areas are not made with a determination to offer more job opportunities, which is what should be happening. Many other noble Lords made exactly the same point. But they did not say what may be the key to some of those problems, which is surely the planning system. How often do we want to see in place that which the majority believe should be in place, and yet how often are such projects turned down by the shortsighted view of the few? Our planning system seems to be dominated by what the minority do not want rather than what the majority need. That is something we must all address. If this Government or the Opposition have the opportunity to be involved in those issues, they will find that it is through a more relaxed, sensible and practical planning approach that they will be resolved.
I agree wholeheartedly with the views of the Church on this matter, illustrated in the paper it recently published and recited in the views given by the right reverend Prelate today, that it could take a more active role in the development of structural and local plans; that it could put forward more forcibly the arguments the right reverend Prelate stated today regarding the need for more people to be provided with job opportunities.
Mention was made of the CLA. Like the noble Baroness, Lady Nicol, I recently read the CLA's proposals for an economic and rural policy for the EU. I wholeheartedly support its approach. If we are to look at the future of our rural areas, we must look at them in a much more whole way. We can no longer depend upon the continuation of the CAP and the enormous cost that
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that imposes upon everybody. The way in which our agriculture and other economic activities move within rural areas must be looked at as a whole. The quicker the points of view put forward by the CLA in its paper are understood by Europe, the better it will be.
Recently the rural economy group, of which the noble Lord, Lord Carter, and many others in this House and in the other place are members, put forward its proposals to the Government on issues they would like to address in their coming White Paper. I should like to raise one or two issues referred to in those proposals. First, if sustainability is to mean anything it must mean sustainability for the people and the communities living in the rural areas. It is important to have a sustainable economic climate in which people can live. We cannot have a position where other aspects of our rural life become more important than the people who live there and whose future lies there. Therefore, if sustainability means anything it means a developing economy which will allow for the sustainability of those communities.
Secondly, we must look at the benefits that will be achieved from improving technology. It is interesting that the Department of Trade and Industry spends a great deal on improving the technological opportunities for industry but that the CAP puts nothing into improving the technology of rural areas and the rural economy. We have seen the benefits that accrue from finding solutions using technology rather than saying that such-and-such is a problem and cannot be solved. A more realistic view is to find a solution to the problem. Clearly, the opportunities to do that will arise more frequently.
Today a scientist gave me a figure which I found to be quite mind-boggling. He said that research in America shows that what we know today is only 1 percent, of what we will know in the year 2050. The rate of growth in our knowledge therefore is mind-boggling. We must understand a little bit more about how many problems which today we regard as impossible to contemplate will be able to be resolved in the years ahead.
I want briefly to refer to forestry. Recent figures indicate that our forestry investment has gone down. There is an enormous need for new investment in forestry and we should encourage individual investors to take a much more active role. It would help if, by coming together and investing as companies, they were able to obtain the same benefits as they achieve as individual investors. I hope that the Government will look into that.
I want to leave your Lordships with one more story. The noble Lord, Lord Beaumont, mentioned G. K. Chesterton. My grandfather was a horse dealer and was approached by J. B. Priestley to provide some horses for a farm in which J. B. Priestley had decided to invest. In the course of the negotiations over the horses Mr. Priestley mentioned the fact that he intended to bring a new approach to fanning because he intended to share the profits with his workers. My grandfather said, "Who are you are going to share the losses with, Mr. Priestley?" That is a story we should keep in mind because the more we invest, the higher will be the tab that somebody has to pick up. I agree with many of the things said by the noble

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Lord, Lord Carter. But somebody will have to pick up the tab. A more market-led and deregulation approach will be much more successful.
4.59 p.m.
Lord Northbourne: My Lords, I was delighted to see that the noble Lord, Lord Carter, had set down this Motion today. The fact that the Government are themselves preparing a White Paper on the subject and are conscious that there are problems in the countryside and, on the other hand, the fact that the Opposition are setting down this Motion today is most encouraging for those of us who are concerned about the welfare of the countryside.
The point I want to stress is that we are facing entirely new problems in the countryside. The situation is absolutely and totally different from what it was 50 years ago. I want to talk today about access to the countryside, something which has not been touched on by any of your Lordships so far. The main force for change in the economic and social situation in the countryside today is, of course, the internal combustion engine. It is because of the internal combustion engine that we are able to achieve enormously greater efficiencies in our agriculture by farming large areas with large machines. It is because of the internal combustion engine that people are able to work in the towns and live in the countryside—the incomers. It is because of the internal combustion engine that people are able to come out from the towns on bank holidays and the weekends to seek enjoyment in the countryside. That may be a good thing or it may be a bad thing. It is a fact.
We have to accept that because of the internal combustion engine there are many fewer workers on farms; because of the internal combustion engine there are lots of cottages now lived in by people who work in towns or occupied by retired people; and because of the internal combustion engine there will be more and more visitors to the countryside. These incomers bring different attitudes to the countryside. Their needs are different from those of traditional country dwellers. It is sometimes tempting to think that what they really want is an urban environment in a country setting, with all the amenities and conveniences and the countryside suitably manicured to suit their needs.
As far as concerns access, here again there is an enormous need for adaption. In talking about problems of access to the countryside we are not just talking about the good old chestnut of the battle between farmers and the ramblers. There are today quite a lot of different people who want access to the countryside in one form or another. Just in terms of rights of way, there are walkers, cyclists, horse riders, motorcyclists and people with four wheel drive vehicles. The interests of many of those users conflict with one another. It is very difficult to ride a bicycle along a path which has just been churned up by a hunter, and so on. The interests of all those groups may conflict with those of the landowners and the farmers. We have to try to create win-win situations. That will mean restructuring the legal framework within which we are trying to provide access to the countryside to all those people who want it.
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I have been lucky. I have lived in the countryside and grew up there. I used to walk in order to get from one place to another—across a field or a moor, through a forest, or whatever it might be. More recently my wife has become a keen walker. We have had great fun from that. I, too, have walked. We have made new friends and I have learnt the joys of walking over a wider countryside through beautiful unspoilt country. I have to admit that sometimes, when the group wants a chauffeur to pick them up at the end of the walk, I volunteer, but I also go on some of the walks. What we shall need is a flexible and relevant legal structure for rights of way and access to the countryside. This we do not have today—very far from it. The structure we have is based on past needs which in many cases no longer exist, and it is based on a highly inflexible legal structure.
Perhaps I may give your Lordships an example. Eleven years ago I was approached by a member of the district council—he was also a member of the parish council— who said to me, "Would you mind? We want to try to create two circular walks, a long one and a short one, both terminating at the new village hall car park. Will you co-operate?" I said, "Of course I will. Naturally, if you are going to ask me to give you some more rights of way, I would like perhaps some of the anomalies of rights of way that are going diagonally across fields sorted out and a bit of diversion". Over a long period of negotiation we thrashed out an acceptable solution to the problem, with lots of give and take. It was then taken away by the council and discussed with the local amenity authorities. It was discussed with the parish council, with the county council and with goodness knows who. Now, 11 years later, I have received a letter from the county council saying that omnibus schemes of that kind are not acceptable, that each case will have to be put forward independently and that I shall have to pay for it. Your Lordships may be able to guess what I replied to that.
I do not think it was entirely the fault of the county council. It told me that it had 312 schemes backed up in its system and that it is so difficult to get schemes through that it can anticipate achieving only about 30 or 40 a year. So the county council has 10 years of schemes ahead of it anyway; it is rather glad to see mine slip off the end of the list. I believe that changes in the law could be justified in this area. The objective must be to try to create a win-win situation, one where everyone involved is happy with the answer. That is not impossible.
Perhaps I may make some suggestions as to what seems to me a workable possible solution. Why should not the highway authority, which is already responsible for rights of way, have discretion to vary or close or divert rights of way in the best interests of all the parties who would have the right to make representations? The views of local people, and especially those likely to use the right of way, would be given precedence over those who have no such interest. One of the problems at the moment is that if two or more people write in from anywhere across the country and object to a scheme there has to be a public inquiry. That is one of the reasons why the procedure is so slow and so costly. There are one or two cranks around the country who make it their business to object to all proposals for the diversion of rights of way. The authority should have power to purchase new rights of way and,

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where appropriate, to accept money for the closure of existing rights of way when they are no longer needed. Finally, there should be a right of appeal, but only if it can be shown that the authority is behaving unreasonably.
With these small changes, the interests of all involved could be better served and there could be an end to the damaging and unnecessary bitterness between farmers and ramblers.
5.7 p.m.
Lord Dixon-Smith: My Lords, the noble Lord, Lord Carter, does great service to this House and to rural England in bringing this Motion before us at this time. I join happily in the thanks already expressed. However, I hope that both he and the House will forgive me if I have to slip away before the end of the debate. I regret to say that I accepted an invitation elsewhere before I knew that this debate was taking place.
Although I count myself a farmer, I spent the greater part of my working life away from the farm. When my friends ask me how I managed, my customary answer, which was most unfair to my employees—the two men who work for me—used to be that the good Lord looked after the farm for 23 hours and 50 minutes every day and he tolerated me for the other 10. That sufficed until one day an acquaintance said, "But Bill, have you considered what the farm was like when the good Lord had it all on his own?" In its natural state it was oak forest and it produced almost nothing.
The truth is that, except for a few areas of residual ancient forest and woodland, some areas of heath and marsh and some of the highlands and moorlands, rural England is a man-made creation. Its character is formed by the productive industries of agriculture and forestry, moderated by urban development. Paradoxically, as numbers employed in these rural industries diminish, so too man's capacity to change the countryside increases, a point picked up just a moment ago by my noble friend Lord Northbourne.
What is "rural England"? The notion that existed when I was young of communities largely based on agriculture and forestry has long disappeared. In those days large numbers of people worked the land and their friends and relations formed the village community and there was a strong natural sympathy and understanding between the two. Today, what do we see? Agricultural employment is a tithe of its former self and the village has become a dormitory for the neighbouring town. The old relationships are gone and with them sympathy and understanding. Instead, well-intentioned but alien bodies, which are essentially urban in nature and origin, vie to impose their views on those who must live and work the land.
This might be considered a gloomy picture, but consider my own county of Essex. Probably no more than 20,000 people, including wives and families, have direct contact with the land out of a population well in excess of 1.5 million. The proportions are only slightly better in so-called rural counties. At the same time the car has improved access for everyone so that what is the countryman's and the nation's food "manufacturory" has become everyone else's playground and idealized
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landscape. In those circumstances, perhaps it is remarkable that relationships remain as good as they are, for rural England now is countryside with small urban communities randomly dispersed within it.
Just as the traditional rural employment base has diminished, the idealised view of the countryside has constrained development, both residential and commercial, in villages and outside, forcing those who have grown up in particular communities to look elsewhere for employment. Increasing urban prosperity too has at the same time enabled urban man to move out from the towns into rural areas, intensifying the squeeze on families who find that they can no longer afford to settle in the community of their birth. Restrictive planning policies, all proposed with the best possible intentions, have done their work and have separated village communities from those responsible for the countryside surrounding them.
At this stage in the debate there is little point in repeating arguments which have already been well rehearsed. Rural deprivation is no less harsh to those who suffer it because it happens in beautiful surroundings. I have only ever heard of one cure for deprivation and that is to increase prosperity. Increased prosperity only comes from useful employment so that I look forward to hearing from my noble friend the Minister that the coming rural White Paper will specifically address this issue with a view to expanding, with suitable types of enterprise, the economic base of rural areas. That is the sole key which is required if we are in fact to produce a more prosperous countryside. It has implications for the planning system, which will require to be adjusted accordingly through the policy planning guidance notes. We should not shrink from that.
I listened with care to the noble Lord, Lord Carter, as he opened this debate. As others have said, his analysis of the problem is good, but his solution caused me some qualms. It is only recently that this House spent considerable time dealing with the farm business tenancy legislation which was the final step in dismantling the protective landlord and tenant laws and in fact virtually killed the agricultural tenancy system. The noble Lord's solution reminded me of the drug addict who is proposing his next fix as a cure because the noble Lord appeared to be proposing more and more regulation, control and interference.
The speech of the noble Lord, Lord Beaumont of Whitley, was equally interesting. I hope that somebody will produce a tape of it and play it at every National Farmers Union branch in the land. The political effects of that would be very interesting for those of us who sit on this side of the House. I agree completely with what my noble friend Lord Shuttleworth had to say about the way ahead being less regulation and more enterprise. His civilised and enterprising approach to the countryside and rural areas is in very marked contrast to the approach that we have heard from the noble Lord, Lord Carter, and should be commended. I look forward to the coming White Paper, and I hope that it will address this issue, particularly the rural economy.
5.15 p.m.
Viscount Addison: My Lords, I welcome this debate which is very timely and which raises a number of important issues. It is timely, as we have heard, because the Government are currently in the process of preparing a White Paper on the future of rural areas. It is important because the future of rural areas is a matter of interest to people throughout the country, whether they live in urban or rural areas.
A number of noble Lords have referred to the need to address social and economic problems in rural areas. I strongly support that view, but in my contribution to the debate I wish to set the issue of rural needs in a slightly wider context and, in particular, to emphasise the importance of environmental sustainability in any debate about the future of rural areas.
Rural areas are currently undergoing profound social, economic and demographic changes. These changes are the result of many factors. They include structural changes in the national and international economy, including the continuing decline in agricultural employment; rapid technological changes, in particular developments in information technology, as mentioned by my noble friend Lord Shuttleworth; and the increased personal mobility brought about by increased car ownership and expansion of the trunk roads network.
The changes being experienced in rural areas are unavoidable and often desirable. But I believe that there is mounting public anxiety about what we may be losing in rural areas as a result of these changes. Different people talk of what we are losing in different ways. Some talk of "community" or "a way of life"; some of "landscape" or "local distinctiveness", and others of "habitats" or "biodiversity". Whatever words are used, the concern is the same. We are allowing things to be lost or destroyed which we value and which we should be trying to protect and enhance, both for our own sakes and for those generations yet to come.
I wish to focus on one particular issue—the migration of people from urban to rural areas. Between 1981 and 1991, the population of metropolitan districts fell by 5.2 per cent. but grew 2.7 per cent. in non-metropolitan districts and 6.4 per cent. in remote areas. That represents nearly 100 people leaving metropolitan areas every day of the week over the period. Such major movement of population has social, economic and environmental implications for both urban and rural areas. It implies the abandonment of the social and physical infrastructure of our cities; it implies major pressures on the social and physical infrastructure of our countryside.
According to recent research published by the Department of the Environment, a majority of those founding firms in rural areas are urban migrants. At first glance, therefore, it may appear that urban out-migration is a welcome development in rural areas, particularly where they are experiencing problems of unemployment, lack of housing and so on. In fact the situation is not so straightforward. There is some evidence that new jobs in rural areas do not go to local people, particularly when the skills required do not match those available locally. People move in to take up these new jobs, often from
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urban areas. They buy up local housing and hence compound existing local problems of unemployment and lack of affordable housing.
The DoE research I mentioned also found, not surprisingly, that the main reason new firm founders move to rural areas is because of the environmental quality of the countryside. This suggests that there are therefore important economic as well as environmental reasons for protecting the countryside.
What can we say about the best way to achieve coherent policies for meeting social and economic needs in rural areas while taking full account of the environment? First, such policies must look at both urban and rural areas. Our urban and rural areas are more inextricably linked than ever. The current shift away from urban areas is unsustainable in the long term if we are to avoid an American-style abandonment of the cities, not least because of the increasing dependence on the private car as the main means of transport. We therefore have to find ways of encouraging people and businesses to remain in or relocate to urban areas.
Secondly, we have to recognise the crucial importance of protecting and enhancing the countryside, both to people who live and work in it, but also to the millions of people who visit it every year, whether from this country or abroad. The agricultural industry has a crucial role to play in this process. It is vital that we have a viable agriculture industry but also one that is encouraged to farm in an environmentally friendly way. An increase in the resources available for "green" farming schemes would be an important step forward.
Thirdly, we have to recognise that the causes of social and economic problems in rural areas are complex. Their solutions are therefore unlikely to be simple. I have heard it argued that the solution to rural problems lies in liberalising the land-use planning system on the ground that it is restricting new development in rural areas. While that view is intuitively plausible, I believe it is mistaken for a number of reasons. I do not believe there to be any compelling evidence that planners are unnecessarily restricting development or that firms themselves regard planning as a significant constraint on their activities. There are, of course, examples of poor decisions, but I do not believe that the system as a whole is hindering development for nearly 90 per cent. of planning applications are granted.
But perhaps most importantly, the planning system has been one of the main things which has kept the countryside rural. Agriculture, of course, manages 80 per cent. of the land area. But by preventing urban sprawl, the planning system has allowed us to retain a relatively sharp distinction between town and country. Clearly, we must meet the social and economic needs of those living and working in the countryside. We must also accept the need for new economic development in rural areas. But we must ensure that we do these things in ways and in places which allow us to protect the glory and tranquillity of the countryside.
5.22 p.m.
Lord Mackie of Benshie: My Lords, I rise to speak conscious that I have heard a great deal about rural England, which is indeed a very beautiful place. But the problem extends beyond rural England. It is particularly acute in Europe, especially in Hungary and in Poland where the overstaffed state farms have had to be cut down to a reasonably economic size. Those countries have a real problem on their hands in trying to find work for the people displaced from those farms. In many cases, the state farms played a big social role and provided both housing and nursery schools. Poland faces less of a job than Hungary because that country retains 80 per cent. of the land in the hands of small farmers. That provides a social stability which is much to be desired.
As the noble Lord, Lord Stanley, that arch-farmer—that was meant as a compliment—said, one of the problems is that such countries obviously ought to be in the European Union, yet the financing of agriculture is one of the biggest drawbacks to their entry. In a speech in Berlin to the Foreign Affairs Association there, the Foreign Secretary, Douglas Hurd, said clearly that the subsidies must go before such countries can join and that although the recipients of the subsidies would squeal, they would have to grin and bear it. I trust, therefore, that in this important matter the Minister will be able to assure us that he believes in the principles of the common agricultural policy and that a certain stability is essential for the primary producer. Nobody can possibly ignore the fact that mistakes have been made in the CAP when year after year the Council of Ministers has totally ignored the advice of the Commission and has put up prices for purely political reasons.
The question of stability needs to be addressed. I hope that the Minister will give us his views because agriculture is still the mainstay of the countryside and cannot be ignored in any policy. We can look to certain places on the continent for a solution. I am thinking particularly of the Black Forest which has many small farms. They look well farmed and pleasant. Outside each house are two motorcars that have been paid for—not by the CAP—but through the industrial employment that is available to the local people. Part-time farming is a very important factor in any thinking about the countryside because the provision of extra employment will enable those who keep farms to make not only a useful contribution, but a decent living.
We have very good examples in our own country—in my country of Scotland, anyhow. They were introduced by the Labour Government some years ago and have been continued by the Tory Government. I am referring to the Highlands and Islands Development Board, which is now Highlands and Islands Enterprise. The noble Lord, Lord Shuttleworth, will know about that because he is in a somewhat similar position as regards encouraging enterprise and job creation. The HIDB did a remarkable job in the Highlands. I know quite a lot about it because I was once the Member of Parliament for Caithness and Sutherland. The HIDB is an example that should be followed and not forgotten. Its work depends entirely on the money that it gets from the Government. If the Government do not give it any money, it cannot do its job.
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In Caithness particularly there are some remarkable examples of how local enterprise can flourish. The late Lord Thurso, Robin Sinclair, raised £50,000 to start a glass factory. It encountered many vicissitudes but to this day it is providing good employment up there and elsewhere in the Highlands. An even more extraordinary example is that of a couple who started a firm called Norfrost. They began by making deep freezers in a place called Castletown in Caithness. Their success was due to the fact that the husband was an engineering genius while the wife, as is often the case, was an organiser and a very energetic lady. Between the two of them, they have created a firm in the far north of Scotland which employs 360 people in Castletown and which exports to 110 countries. It does things such as provide coolers for Coca Cola, for which it obtained a contract. That is an example of how enterprise can be fostered, but it needs the state to take some part. I point out to the noble Lord, Lord Wade, that it does not move entirely on its own. It needs the community to play a part. That is one of the factors that the Government must keep to the forefront of their minds. They must keep the money going towards all of those enterprises in the countryside, whether they be in rural England or Scotland.
Hill farming is another story. We must maintain hill farming. It needs subsidies. It does not cost a great deal of money. It keeps people in the hills. We must surely think of people as well as the rest of the ecology. We need to restrict the number of sheep. We have all probably seen areas which have been over-grazed. They are full of bad grass. Over the dyke or the fence one finds good heather which gets a lot of money from rich people who want to shoot grouse. That is not something to be ignored in the Highlands of Scotland.
There has been a great deal of talk on all sides of the House, and rightly so, about sustainable enterprise in the countryside. We need to look at it. I do not agree with those who say that modern farming is ruining the countryside. I left home at 7 o'clock this morning, I drove along the edge of the Howe in Strathmore. I have never seen the countryside looking better. It does not come from poisoned land; it comes from many years of looking after it.
A great deal of research on the subject is needed, because until now the fertility of the soil has been maintained by rotational farming. Single culture farming can maintain the humus but research is needed into how that is done. I know that it can be done. It must be done in areas because there is no longer the same amount of stock around the countryside. The Government must keep up the research. Decisions must be based on scientific information backed up by research, and not purely on prejudice, of which we have plenty both with professional farmers and professional conservationists. The Government must consider what has been done successfully. Having considered that, and having examined the evidence, they must put their money in that direction if we are to have a good and sustainable rural policy.
5.34 p.m.
Lord Gallacher: My Lords, the intensity of the lobbying that we have had in connection with the debate confirms its importance. It confirmed also the wisdom of

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my noble friend Lord Carter in persuading the powers that be on this side of the House that it was an appropriate subject for this afternoon. Much of the lobbying comes from organisations wholly or substantially publicly funded, but it comes also from voluntary bodies. It is no less effective on that account.
There are some contradictions in the representations and recommendations which we have received. Agriculture is at the heart of rural affairs. The CAP necessarily dominates farming practice. That is not always recognised. The UK has a voice in the CAP, but one voice only. That fact of life is not fully appreciated by certain lobbyists on rural matters.
Shared responsibility for rural affairs between the Department of the Environment and the Ministry of Agriculture, Fisheries and Food is to some extent within our control, but not much discussed in Parliament. Departmental assurances about "working in harmony" are easily come by. The reality in a changing rural scene may be different, and for that reason alone we welcome the fact that the White Paper is to be a joint one, and we look forward to it.
Advocates in rural affairs often differ in their diagnoses. Some say changes in farming ways cause a decline in the numbers employed. Unemployment created as a result is not then alleviated by planning restrictions on new development or change of use for farm buildings. There is some truth in that.
A related argument is that intensive farming is detrimental to the environment. That is associated usually with pleas for financial help for organic production to reduce comparative shop prices. No lobby has yet got round to the new Agricultural Tenancies Act, designed to bring more land into production at market rents. Whether that legislation will increase the volume of farmed land to the extent supporters claim remains to be seen. So too does the question of how easily consequential increases in production can be accommodated in a currently restricted CAP regime, but set-aside still looks like outstripping sliced bread as one of the wonders of the world.
Other countryside socio-economic problems are connected with the influx of non-rural workers or weekenders, as has already been pointed out by several speakers. They usually commute by car and force up house prices at the expense of locally born people. There is a shortage of economic rentable housing in many villages, as there is in our towns. Consequential problems are shop closures, including sub-post offices, as well as reduced public transport. That is sometimes the result of local authorities reducing subsidies, and a general debility affects old and young alike.
Political parties are sensitive to the issues involved, and we have heard much about that today. Of course the Government's appreciation of the problem is, as I say, highlighted by the White Paper promised for later this year. Television programmes make periodic use of rural problems. The right reverend Prelate referred rightly to the Church of England's important study produced in recent years. Certainly landowners and land users, as well as surveyors, have been forthcoming with the submission of views as to what they believe should be the future of the rural countryside and rural economic affairs.
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Analysis abounds. Specific proposals for change, especially their funding, are less easily come by. One has to be wary of attempting solutions on a national scale. The four countries comprising the UK are different, and within each of them are further rural diversities, including land values, ownership patterns, weather conditions and farming styles.
Much is being attempted to improve aspects of country living, and there are successes. There is some fragmentation of effort so that collective local endeavour is less than would be the case if experiments with consolidated schemes could be attempted on a modest scale.
In that context, the community co-operative appeals to me. Most of the problems of a rural village could come under the auspices of a voluntary local society which would have the advantage of allowing some degree of cross-subsidisation of results from particular activities, always assuming of course that the results themselves allowed that. Thus the shop, including the sub-post office, the pub, village hall, community bus, petrol station, pharmacy, and even medical care, could form the basis of collective endeavour by a single non-profit-making corporate enterprise in the ownership of members.
I exclude housing and schools as those are areas where existing statutory bodies have both responsibilities and powers. Land acquisition, for example, is both a key and a controversial question in the countryside, as is planning consent. The kind of co-operative I have in mind is neither an Owenite community on land nor its lineal descendant, the kibbutz. With a little drafting skill all or part of the community society could be treated as charitable with some tax exemption. Certainly such a society should be allowed to add to reserves free of tax provided distributions are not made subsequently from reserves to shareholders.
Providing adequate capital resources would be the biggest challenge facing a village community co-operative of a mini-conglomerate type. However, already certain village shops have been kept open by customers financing stocks; so we have a precedent of sorts. Village halls have received grants from the Rural Development Commission, which has also part funded business ventures of varying kinds. Grants from local and central government ought to be possible, or at least loan guarantees could be made by government. The European Union has shown itself willing to be financially innovative in areas such as those and, most importantly, it has the resources.
Most of the areas of activity that I have suggested for a village community co-operative are within the present range of operations of many retail societies within the United Kingdom, all of which are in membership of the Co-operative Union in Manchester. The expertise is already there; the problem is to tap it. An exploratory meeting between the Rural Development Commission and the Co-operative Union would cost nothing and would be capable of achieving much. It would be a welcome stimulus if Her Majesty's Government were to encourage such a meeting, even if not going beyond encouragement.

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We have had a useful and all-embracing discussion on this important question. I do not wish to stand between the Minister and his attentive audience.
5.40 p.m.
The Minister of State, Department of the Environment (Viscount Ullswater): My Lords, we have had an interesting and timely debate. I thank the noble Lord, Lord Carter, for giving us an opportunity to discuss these issues today. I am grateful in particular to all noble Lords whose experience of and care for countryside issues has made today's debate an important contribution to our White Paper considerations.
I also thank the right reverend Prelate the Bishop of Durham for his exceptionally good maiden speech. At the outset, he mentioned Faith in the Countryside and indicated the commitment of the Church of England to rural areas. He said that there are some 5,000 churches. I am fortunate because I live in an old rectory. I know at least one of those churches extremely well.
What was important was his firsthand experience of the Church's involvement, in particular in the changes in villages. He mentioned coalmining in Durham. He said that it was important to find new roles for villages now in the rural community. The Church is involved in social changes in the countryside, in particular with young people. I am sure that everything the right reverend Prelate said deserves our consideration. I hope that he will join in many other deliberations.
Thinking back to the VE celebrations two days ago has made me realise how much our countryside has changed since the Second World War. Traditional rural industries such as forestry and agriculture are no longer the major employers they used to be 50 years ago. The rural population is also changing and growing as more people move to rural areas and we now have one of the fastest growing rural populations in Europe. My noble friend Lord Addison drew that to our attention when quoting statistics. In some European countries the rural population is actually declining. The countryside is also under increasing pressure from day visitors. I could go on.
In many ways, the countryside is now at a turning point. That is why we have decided that the time is right to take stock of where we are, where we want to be and what policies we need to have in place to get there. We want to look ahead to the next century to ensure that our countryside will still be a place in which people can live and work. That is why my department and the Ministry of Agriculture, Fisheries and Food have announced that later this year we will jointly produce a rural White Paper for England. The Scottish Office also announced in January that it will be producing this year a rural White Paper for Scotland.
The rural White Paper for England will take stock of existing policies, examining the current pressures on the countryside and how the Government respond to those pressures. It will make sure that all government departments have a consistent strategy to take our rural areas into the next century with optimism and pride.
The Secretary of State and the Minister of Agriculture announced the intention to produce a rural White Paper in October last year. We have sought the views of some 450
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organisations and individuals on what they thought the White Paper should contain. We wanted to hear from everyone with a stake in the future of our countryside. We also publicised the White Paper through the national and regional press because we particularly wanted to hear what rural people had to say and not just the large national organisations and lobbyists. More than 360 organisations and individuals have responded to that exercise. Some have written more than once. The majority of responses were very detailed and carefully considered. My ministerial colleagues in DoE and MAFF have also chaired a number of seminars around the country to hear what is important to people on the ground.
I would like to state from the outset that the countryside is very much a success story. Unlike many of our European neighbours, people in England are leaving the towns because they want to live in the countryside, as my noble friend Lord Shuttleworth said. The noble Lord, Lord Carter, indicated that he thought that it was divisive. I cannot agree with him. I believe that our rural areas have many strengths: the quality of life and of the environment, and the sense of community and identity. Our rural areas are are also a success because of the policies which this Government have put in place. Rural areas have lower crime rates, lower unemployment and higher economic activity. Our policies give people the freedom and opportunity to choose where they want to live and work.
However, we are not complacent about our successes. We recognise that because so many people now want to live in the countryside that itself can lead to problems. For example, rising house prices in some rural areas can make it more difficult for people on lower wages to stay in their villages.
That is the kind of issue that the White Paper will explore. People are vital to the sustainability of small rural communities—both incomers and long standing residents. I state firmly to my noble friends Lord Wade, Lord Shuttleworth and Lord Dixon-Smith, that people will be at the heart of the White Paper. We want to ensure that towns and villages in the countryside continue to provide homes and jobs for rural people, for their children and their grandchildren.
The rural economy has been a success story over recent years. It is becoming increasingly diverse and therefore more akin to the urban economy, although there are still important differences. It is, however, the rural areas that have fared better in recent years. The noble Lord, Lord Carter, was most anxious about jobs in rural areas. I believe that he quoted misleading figures relating to increases in unemployment. Rural labour markets have a slightly higher level of economic activity than in urban markets and there is a greater number of small businesses, the self-employed and part-time workers. Unemployment and long-term unemployment is lower than the average for England. The average unemployment rate in the Rural Development Commission's rural development areas in October 1994 was only 7.1 per cent. compared to 8.4 per cent. in England as a whole. And self-employment accounts for 20 per cent. of the economically active population in RDAs compared with an average of 12 per cent. for England.

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This success is due in part to the changes which have taken place since the Second World War, from the reduction in traditional rural employment areas such as agriculture and forestry to the rise of manufacturing and the service sector. Government policy, for example, through the Rural Development Commission's programmes, has helped rural people to adapt to these changes. Tourism and leisure play an increasingly important part in the rural economy.
In recent years, rural areas, because of the quality of life and the pleasant surroundings, have become particularly attractive to new hi-tech firms. My noble friend Lord Wade said that the key to improving rural prosperity is through the planning system. In many ways, I agree with him. New technology means that firms do not have to be in urban centres to be near to their customers as the fax, electronic mail and video conferencing make it easier to communicate with customers who may be some miles away or even in another country. Indeed, a number of the responses to our consultation exercise mentioned the potential of teleworking and telecottages as a new method of working in rural areas. That was drawn to our attention by the noble Lord, Lord Carter, my noble friends Lord Shuttleworth and Lord Wade, and by many other noble Lords. That is something at which we shall be looking in the White Paper. The rural White Paper will set out how Government can build on those successes and encourage further economic growth in the countryside by utilising the natural strengths of the people who live there—their independence, motivation and entrepreneurial skills.
Of course, that is not just about what Government can do. We must work in partnership with local government, as the noble Lord, Lord Beaumont of Whitley, said, with the private sector and with rural communities to achieve the best future for the people who live in our countryside.
Rural Challenge is a good example of the partnership approach. The first round was a great success, with many innovative ideas on how to tackle social and economic decline. The second round is now under way and we hope that those bids will meet the high standards of the first round. I am sure that my noble friend Lord Shuttleworth, as chairman of the RDC, will also be looking forward to examining the bids later this summer.
I should now like to turn to agriculture because many noble Lords have said that farming is no longer a major employer in the countryside. But it is important to remember that some 76 per cent. of the land surface of England is farmed. The nature of land use and policies for agriculture are very important for our rural areas.
Over recent years environmental measures have become an increasingly important part of the common agricultural policy. The UK has played a leading role in bringing this about and the Government are committed to continuing to press for further integration of environmental objectives into European agricultural policy. The noble Lord, Lord Beaumont, perhaps has not noticed that this Government have moved with the times, as they always have done. My noble friend Lord Stanley recommended taking strong medicine. In particular, we will press for further reduction in support levels and for a
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higher proportion of CAP expenditure on direct payments for farmers to be applied to encouraging more environmentally sensitive farming.
The White Paper will need to take account of the likely future course of the common agricultural policy. It is inevitable that further reform of the CAP will be on the agenda of the European Community within the next few years, particularly as the Community prepares for enlargement to include central and eastern European countries with important agricultural sectors. I believe that the noble Lord, Lord Mackie of Benshie, rightly drew our attention to the problems posed by such commitments in Europe. That is why the Minister of Agriculture has brought together a group of people with practical experience in these areas to advise him on the kind of policy for which the UK should be pressing. The group's remit covers all areas of European agricultural policy, including environmental considerations and the negotiability of UK aims in Brussels. The Minister intends to announce his conclusions from the group's deliberations this summer.
I hope that the noble Lord, Lord Chorley, will agree with me that nowhere is our commitment to countryside conservation more clearly demonstrated than in the wide range of environmental incentive schemes which are now available to farmers and landowners in the UK. For example, environmentally sensitive areas and Countryside Stewardship seek to promote the conservation of valuable landscapes and habitats by offering a range of payments, including incentives for the restoration of hedges and traditional stone walls. The noble Lord mentioned the Tyr Cymen scheme. The success of those schemes is now widely acknowledged and over the past year we have introduced a number of new measures which will bring our annual expenditure on environmental schemes to over £100 million per annum.
The White Paper will recognise that rural areas do not exist in isolation. We have a very densely populated country and our rural areas have a close relationship with our urban centres. Traditionally, our smaller villages have depended on the larger market towns and that is no less true today. However, rural areas do have their own needs, especially in the remoter areas, such as access to public transport and services. That is why, in framing policies, we need to make sure that they are not dominated by an urban view of the world.
To ensure that our towns and villages remain viable and provide a good quality of life for local people, I can tell the noble Baronesses, Lady Masham and Lady Nicol, and the noble Lord, Lord Gallacher, that the White Paper will be looking at the services which small communities need, such as access to shops and post offices, schools and doctors, and access to transport and leisure facilities, because, in their speeches, they drew attention to the need for those local services. They are important for everyone, rural and urban dwellers alike, but in smaller communities it can be more difficult to maintain services. The village shop, for example, has disappeared from some small communities and that is often a reflection of people's decision to shop in larger supermarkets where the food is cheaper and there is a greater choice.

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The noble Baroness, Lady David, gave a very interesting analysis of the great improvements made by the retail industry and how the customer benefits from the amazing range of fresh food made available by the supermarkets. The noble Baroness asked for a Green Paper and I wondered whether she was going to ask for a greengrocers' paper. Certainly, that is an interesting thought. More people have access to their own transport and arc able to travel some distances to shop elsewhere. While everyone welcomes the freedom that personal mobility has brought to many people we must all recognise that it does have its price.
What we need to do is examine what existing services and facilities are in place and how we can make greater use of them. For example, the Post Office has the largest national network of outlets in the UK with half of the 19,700 post offices in rural areas. We are working closely with Post Office Counters Ltd. to see how further diversification can enable more services to be delivered to rural areas. Your Lordships may be aware that the Post Office recently announced that it is now the largest bureau de change chain, with foreign currency exchange facilities available at nearly 19,000 outlets.
The noble Lord, Lord Chorley, drew attention to the need for an increased transport facility. Over the past 27 years, the Post Office has helped to provide transport for people in rural areas through its network of Post Buses. Each year 150,000 people in the UK use the Post Bus network, which is now at some 4.5 million miles. In the past four years, the number of routes has increased from 170 to 228 and I understand that a further 50 routes are planned. Through its rural transport development fund, the RDC has provided £150,000 since 1991 to help to establish 31 new routes.
To most people when we mention the countryside we think of trees and hedgerows, of landscapes and wildlife. I have concentrated so far on the social and economic aspects of life in the countryside but we should not forget that what makes the countryside so different and special is the environment. The environment is why people want to live and work in the countryside, spend holidays there and visit at weekends. Indeed, some 590 million journeys were made in the UK to the countryside last year. The countryside is a national resource, and tourism is vital for the economy of many rural areas. But the countryside is under great pressure, especially in the so-called "honey pot" areas where the numbers of visitors may be threatening the very countryside they came to enjoy. The White Paper will be looking at how to meet those pressures so that we can manage the countryside in a sustainable way. But first and foremost we need to make sure that visitors to our countryside realise that it is not just an idealised picture—a Constable landscape perhaps—hut that it is a living, working environment. We need to protect the environment but we must also protect the livelihoods of the people who live there.
I shall mention only briefly the Environment Bill, as we have spent much time in this House debating the provisions within the Bill now in another place. There was much concern felt in the House about local communities and we therefore strengthened our duty on national parks authorities to,
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"seek to foster the economic and social well-being of the local community within the National Park",
as the noble Baroness, Lady Nicol, mentioned. We were pleased to accept an amendment moved by my noble friend Lord Wade which provided that the Environment Agency should take account of the economic and social well-being of rural communities. The depth of feeling expressed in this House on those issues reflected, I believe, an increasing concern more generally about the needs of rural people. The Bill is now being debated in another place. I shall be keeping a careful eye on what happens there.
The Government continue to strengthen the rights of way network which allows people to visit the countryside and enjoy its beauty and tranquillity. I am sure that my noble friend Lord Marlesford and the noble Baroness, Lady Masham, will welcome the Government's endorsement of the target for the whole network in England to be in good order by the year 2000. We have also supported the Parish Paths Partnership to inspire action by parish councils and volunteers to keep paths open. The noble Lord, Lord Northbourne, suggested the need to restructure the legal framework for sorting out problems with realignment, and so on, of footpaths. The noble Lord suggested a new scheme which I should certainly like to look at and consider. We believe in opening up the countryside through voluntary agreements, built on the experience of those who own and manage the land. I am convinced that, in the longer term, that will be more effective than the imposition of a "right to roam".
I turn briefly to answer one or two specific points raised during the debate. Having recounted a number of subjects upon which she would not speak, the noble Baroness, Lady Mallalieu, then launched on an extraordinarily brave speech about the effects of the animal rights movement. The noble Baroness indicated the growing belief that Parliament is not listening to rural England and that the rural community were frustrated that urban man and pressure groups were dictating policy. I thought the noble Baroness made a most interesting speech coming, as it did, from her side of the House. One reason for the rural White Paper is to ensure the needs of rural people are not overtaken by the urban lobby and by those organisations whose members do not live and work in the countryside. I should add that farm animal welfare, as mentioned by the noble Baroness, is protected in this country by a strong framework of legislation, welfare codes and by giving practical advice to farmers. With the thoughts that the noble Baroness has in mind, I hope that she will be prepared to lobby her own side to drop some of the policies in A working countryside.I know the noble Baroness's thoughts on some of them.
The noble Lord, Lord Carter, the noble Baroness, Lady Nicol, and my noble friend Lord Marlesford were concerned about the lack of affordable houses in rural areas. The Housing Corporation's rural programme is working well. Between 1989–90 and the end of 1994–95 over 10,800 units were approved in rural areas, some 1,600 above target. In this financial year, the rural programme will be some 6 per cent. of the Housing Corporation's new development programme.

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I could continue, but I believe that I should stop now. To sum up, I want to emphasis that the rural White Paper is, like our debate today, about the social, economic and environmental needs of our rural areas. The White Paper is not intended to be the final word but the start of a dialogue. The countryside is not a museum; it is a living, working environment, and the Government's emphasis will therefore be on the people who live and work there. We will ensure that all of Government have a coherent strategy for rural areas to safeguard the future of rural people, their children and grandchildren as well as safeguarding the environment in which we would like our children to grow up. However, it will not be about government policy alone as everyone has a part to play—local communities, local authorities and the private and voluntary sectors. We must all work together.
6.3 p.m.
Lord Carter: My Lords, according to the Clock, I believe that I have about six minutes in which to reply to the debate. However, noble Lords can relax because I am aware of the conventions and I shall, therefore, only take a few minutes to thank all those who took part. There is just one point that I should like to make. There seemed to be a certain symmetry in one or two of the speeches from the Benches opposite in response to the Labour party document, A working countryside. The document expressly does not argue that rural policy should all be left to central government and regulation. Renewing local democracy is a continuing theme as is partnership—as was said by the Minister—among central government, local authorities and the private sector, as appropriate.
I should like to thank all speakers who took part in our debate. We heard many notable speeches but none more so than the maiden speech of the right reverend Prelate the Bishop of Durham. We all look forward to hearing his future contributions to our deliberations. A fact not known to your Lordships is that, with myself, the noble Lord, Lord Dixon-Smith, and the noble Viscount, Lord Addison, no less than one-sixth of the speeches in today's debate were made by former students of Writtle College of Agriculture. We have had a very good debate and received a full answer from the noble Viscount, Lord Ullswater. I shall merely repeat my thanks to all speakers who took part. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Financial Services Regulation
6.5 p.m.
Lord Desai Lord Desai rose to draw attention to the need for effective and comprehensive regulation of the market for financial products and financial services in the light of recent developments; and to move for Papers.
The noble Lord said: My Lords, perhaps I may at the outset immediately say that my purpose in introducing the Motion is not, as it were, to bash the City of London. I am concerned that the City of London is an efficient part of
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the economy. My purpose today is to ensure that it continues to be efficient and competitive. To that end, we may need a number of changes to be brought forward.
The Motion as set out on the Order Paper could involve many issues. In recent days we have had the paper from the Office of Fair Trading on endowment mortgages. We know the problems about personal pensions and there have been warnings about insurance. Moreover, the Consumers' Association recently stated that the financial advice which people receive is not quite right and that something needs to be done in this respect. No doubt other speakers will deal with various issues, but I shall concentrate entirely on derivatives. I do so especially because the topic of derivatives is much misunderstood. It also raises the very complex issue of regulation and supervision. That is all the more so in the light of the failure of Barings to which I shall return later.
I am also aware that there has been much international discussion about derivatives and what regulatory or co-ordination policies are required in relation to them. In recent years, we have had the Bank for International Settlements, the Group of 30 and the Derivatives Policy Group convened by the SEC in America. Moreover, the US Treasury, the US General Accounting Office and several other bodies have reported on the question of derivatives. There is also a large and growing academic literature on the subject. Last December, the Financial Market Group at the London School of Economics convened a conference on the regulation of the derivatives market. I shall have occasion to say something about that later.
What are derivatives? With your Lordships' indulgence, perhaps I may do a little pedagogic work in that respect. The most interesting thing about derivatives is not that they are new but that the market for them has grown enormously. Derivatives enable us to go one stage further from commodity and stock markets. They basically turn the prospect of changing prices into something which one can buy and sell. Because one can bet on either side of a price which is likely to change, anyone who is worried about the possibility of price changes can hedge against that price change as long as he or she hedges properly. The person can minimise, although never eliminate, the risk of a surprise or of a loss in whatever basic asset is being traded in—be it stocks, bonds, interest rates or whatever.
Basically, what a derivatives market trader does, in a sense and if he or she is sober, is to place an each-way bet. That is what hedging really means. Because one is placing an each-way bet on the outcome of a price change, one always plays both sides of a possibility. The margins of gain on any one particular transaction will be very small. There are no enormous profits to be made on a single transaction in derivatives. Therefore, people have to trade in large volumes; in other words, the transactions are in large volumes. Indeed, we hear of tens of thousands of options being bought or of millions of barrels of oil being traded, and so on. That makes sense because, unless one trades in large volumes, one does not make an appreciable gain for all the work put in.
In a market like that, for every loser there is a winner. However, we are only told when people make a lot of money. We are never told about the people who are losing

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money. Sometimes a false impression is created. Quite a few people are surprised to learn that in relation to the basic market production, the volume of derivatives is seven or eight times—or perhaps four or five times—the size of the product market. The daily activity in oil derivatives is about four times the annual production. That is not surprising in that each person in the market is indulging in at least two transactions at the same time. As his expectations of price movements change, he constantly hedges and adjusts his position. Therefore, it is not surprising that volumes of trade are large. That is due in part to the creative effect of the derivatives market which minimises, or rather divides and shares out the risk.
We have to be careful as regards taking a superficial view of the derivatives market. It is not really a case of the Gnomes of Zurich or anything like that. The people who are involved in that market are all professionals. They either represent corporations, institutions or, on the dealers' side, they represent banks or securities firms. The ordinary punter does not become involved in the derivatives markets. When we discuss the problem of regulation, we are really considering the welfare of the financial system as such, or the prospect of large banks going bust, rather than individuals losing their money.
However, it must be said that the volume of transactions in this market is large and has grown quite a hit. In 1989 it amounted to 7 trillion dollars and by 1992 it had grown to 18 trillion dollars. Today it is somewhere in the region of 30 trillion dollars. Why should derivatives cause us problems? Quite a few people think that derivatives may cause volatility and thereby harm the financial system. I wish to quote from the evidence given to the Treasury and Civil Service Committee in another place by my colleague John Board and three others. The evidence stated:
"The overwhelming evidence (including that for the UK) is that derivatives markets are not destabilising, either in theory or in practice. In particular, the evidence is not consistent with the view that derivatives cause undue volatility in the underlying spot market".
Why is there a great fuss being made about derivatives? I believe that in a sense people make a fuss about derivatives not because they are worried about individual losses but because they believe there may be what is called systemic risk, and that the failure of one bank through overtrading may spread to other banks and interrupt transactions and that may cause problems. When Barings collapsed the Bank of England took the view—as it turned out, quite correctly —that there was no systemic risk involved. However, one must consider the Barings case with care because the reason Barings collapsed had nothing to do with the volatility in the derivatives market. The collapse was caused by someone doing something that was surprisingly unprofessional. The trader in question took an unhedged position—he did not take a two-way bet, but a one-way bet—to the extent of 7 billion dollars. That was one of the largest transactions, by a margin of several multiples, transacted on the Osaka and Singapore markets.
What the Barings case tells us is that we have to rethink how banks conduct themselves as regards derivatives trading. There is clearly a failure of internal controls within banks. A parallel could be drawn with the way that children and adults react to computers. Children take to computers immediately; they have absolutely no
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problems with them. However, adults react to computers gingerly—they are too afraid to ask questions. I believe the same thing has happened in banks. The top managers of banks do not quite understand what these young people are playing at in the derivatives market but they are too afraid to ask. If a trader says he is going to do something, the manager may say, "Go ahead, as long as you make money we do not mind".
After the revelation of the crisis at Barings, Mr. Peter Baring gave an interview to the Financial Times. That interview showed that there was a clear lack of understanding as regards what had happened and the nature of the market in which large losses were occurring. There is also the question of whether Barings had sufficient capital to cover the losses. Therefore one might ask whether banks and securities firms of a certain size should be allowed to trade in derivatives. How should we consider this question of having sufficient capital?
Often banks and securities firms hold positions in derivatives but they may not know what risk they are taking. An internal risk measurement for a bank or an institution is a newfangled thing. Techniques to measure these risks are being developed and while some are now available we do not know whether Barings had access to them. Should it not be made a rule that we ensure that institutions and banks have some internal risk measurements and that these should be transparently known, while protecting the confidentiality of operations?
The Barings case illustrated the fact that the incentive structure in this market is completely perverse. If a trader makes a large profit, he receives a big bonus. If he does not make a large profit, he is fired. However, if one stands to receive a bonus of £1 million and one risks being fired from a job with a salary of £30,000, only, in that case, to be re-engaged by another bank, there is great incentive to take risks. I do not know what one can do about that, but it is a matter that is bound to be referred to today.
I now wish to mention another rather interesting case whereby a German company, Metallgesellschaft, got into problems because, although it was acting in a professional manner, it was surprised by market movements. That company made a big loss and again it was because the top management of the German head office did not understand what its American affiliate had done. The American accounting procedures showed that the affiliate was making a profit while the German accounting procedures showed that it was making a loss. Clearly there is a lack of co-ordination in accounting practices which is causing a great problem in what is essentially a global market.
Although there may not be a systemic risk to banks from the derivatives trade, large clearing banks, especially banks which are large retail deposit takers, and in whom ordinary punters must place their trust, should be subject to some ring-fencing as regards their derivatives activities. They should have explicit, separate companies for derivatives trading. The profits can be channelled into a holding company. I do not believe that the banks themselves should indulge in derivatives trading because if a large clearing bank was to go bust, that would cause many problems. It was quite correct for the Bank of England not to act as lender of last resort in the Barings

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case. However, there is a question mark over why the Bank of England, in its supervisory capacity, did not know that these problems were going to arise. Clearly, the information requirements or the staff in the Bank of England arc insufficient to perform these tasks in what is now an increasingly sophisticated and global market.
Therefore, I wish to raise one issue although I have not given the Minister notice of it. Should we not now he thinking about a separation of the supervision activities and other monetary policy activities of the central bank? We are unique in this country in having a central bank which performs both those functions. The time has now come to consider the question. If in future we move to an autonomous central bank it will be doubly necessary to make sure that the supervision aspect of central banking is publicly accountable and answerable to Parliament, although monetary policy activities may not be. My Lords, I beg to move for Papers.
6.20 p.m.
Lord Blaker: My Lords, the noble Lord, Lord Desai, whom I congratulate on initiating the debate, said that its scope was wide. He was right about that, and I do not propose to follow him into the subject of derivatives. Nor would I shed very much light for the House were I to do so. I propose to speak about pension transfers and opt-outs. I have to declare an interest as chairman of a small company of independent financial advisers. The company does not rely on commission but takes fees. It specialises in giving investment advice.
As noble Lords know, there is great concern about what are believed to be a very large number of examples of mis-selling of personal pensions. I have no wish to underplay the size of the problem, but I believe that there is a genuine question about how big the problem really is.
As noble Lords will recall, the problem goes back to the KPMG report published at the end of 1993, which received great publicity and was generally understood to have judged that there were hundreds of thousands of cases of mis-selling of pension transfers. Those were cases of people who had left the employment of a company in which they had been entitled to a company pension and had transferred their money from the company pension to a personal pension. As I recall, the Securities and Investments Board estimated that of the cases surveyed over 90 per cent. had involved non-compliant advice.
However, on examination it became clear that the KPMG survey had not looked into the substance of each case but had merely examined the paperwork to see whether the appropriate forms had been properly filled in. The question of whether the investor had been well or badly advised was not examined. Indeed, Mr. Godfrey Jillings, the former chief executive of FIMBRA, believed that only 3 per cent. of the investors concerned would he found to have received bad advice. What is more, he has said publicly more than once that when FIMBRA was asked by the Securities and Investments Board to provide a selection of files for the KPMG team to examine it was asked expressly to provide not a random selection of files but a selection of bad cases.
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That casts serious doubt on the SIB's estimate that over 90 per cent. of cases involve bad advice. Therefore, as the PIA will confirm, no one knows how many cases of bad advice there have been. It may turn out—and I hope it does—that the figure is a good deal less than the 90 per cent. which the SIB has mentioned.
A similar situation exists in connection with opt-outs—cases where people have opted out of a company pension scheme while remaining employed by the company. There must be some doubt on whether there have been 387,000 opt-outs, as the SIB suggests, since someone applying for a personal pension during the relevant years did not have to say whether he or she was choosing to leave a company pension arrangement. It is not, therefore, clear to me how the SIB's estimate has been made.
I have a number of questions to put to the Minister. First, how can it be possible by taking a snapshot now of the present situation to make a sure judgment on whether or not the advice which an investor has been given to transfer or opt out of a company pension scheme has been good advice? The stock market is down from its peak; therefore the investor's pension fund is down in value. Interest rates are low, so it takes more to buy a pension than it does when interest rates are high. What is certain is that the level of the stock market and interest rates will be quite different in 10 or 20 years' time when the investor's pension comes to be bought.
Surely the only time when one can make a certain judgment of the validity of the advice given is at the point when the pension is bought. What is the position of the adviser who is obliged to pay compensation to the investor on the basis of today's circumstances and who then finds when the investor buys his pension that the advice given was sound after all? Indeed, what is the position of the investor in that situation? If he has been put back into an occupational pension scheme he may find in the end that he is worse off.
I shall be asked whether I am suggesting that one should have to wait 10 or 20 years to see whether the advice was bad. The adviser may well have gone out of business by then. I can see that there may be cases in which it may be possible to make a fair judgment now but in many cases it will not. I suggest that consideration should be given to bringing in a policy fee or product levy, which would be a small fee added to the cost of a pension or life assurance product, which would go towards providing a fund out of which future compensation should be paid. Such a suggestion is not far-fetched; it has been made by Miss Colette Bowe, the chief executive of the Personal Investments Authority.
My next question is this. The SIB and PIA require that independent financial advisers take the initiative in contacting their clients in order to re-examine the arrangements for them to transfer or opt out of their company pension schemes. The independent financial advisers are required by the PIA to have professional indemnity insurance, but the insurers are advising the independent financial advisers that if they take the initiative, as required by the regulators, it will invalidate their professional indemnity insurance. That, of course, would be bad for the investor, among others.

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The PIA says that in such a case the independent financial adviser can place the case in the hands of the PIA's pensions unit and that will avoid the problem. But will it avoid the problem? Will not the insurers still claim that for the independent financial adviser to act in that way will still invalidate the insurance? And would that not leave the independent financial adviser unprotected unless he were to go to the expense of suing the insurer? If he successfully sued the insurer, could not the insurer on the next renewal of the policy simply alter the policy wording to suit himself?
Would not the simplest solution, and a fair one, instead of requiring the advisers to contact every client, be to conduct a countrywide advertising campaign to alert the public to the fact that if they have any doubts about the wisdom of the advice they have received about their pension transfer or opt-out they should contact their adviser? That would not invalidate the professional indemnity insurance.
I have one further suggestion. It concerns the cost of reinstatement to occupational pension schemes. The guidelines issued by the SIB included a recommendation that, where possible, those who have suffered financial loss from transferring or opting out of an occupational scheme should be reinstated into the scheme. Reinstatement will require the payment of a lump sum into the scheme which will be calculated by the scheme actuary.
A report commissioned by consulting actuaries on behalf of insurance companies was sent to to the PIA in January this year and suggests that advisers may face reinstatement costs of up to 10 times the original sum transferred from occupational schemes. I shall give your Lordships two examples. The first is the case of a teacher who was given a transfer value of £22,000 when he opted out. Fifteen months later the reinstatement cost was £84,000. Secondly, a staff nurse was given a transfer value of £5,000; two years later the reinstatement cost was quoted as £53,000. Those are absolutely staggering differences. Since those two cases concern a teacher and a nurse, presumably those two calculations would have been made by the Government Actuary, so the Government have a responsibility.
In some cases there may be particular reasons for the differences. But one suspects that one of the reasons is that the actuaries used different criteria for reimbursement than those that they used to assess the sum for transfer out. Thus, they are using a calculation of the likely increase in earnings instead of the likely increase in the retail prices index; and they are taking account of discretionary benefits whereas no account was taken of those in assessing values for transfer out. In any event, it looks as though the difference between the transfer-out value and the transfer-in value is wholly unjust.
The PIA, in answer to this problem, said that where the adviser considers the transfer in value unreasonable he can, as an alternative, top up the personal pension. But since he would still need to use an actuary to assess the amount of the top-up, the problem might still exist. My suggestion is that the PIA could lay down a rule that the actuary should use the same criteria in assessing the amount of the payment-in as were used in assessing the payment-out.
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I have put some points which are of concern to the IFAs and to life assurers. They are serious points and they deserve to be answered. The IFAs and life assurers have no wish to escape their legitimate responsibilities. All they ask is fairness from the Government and the regulators. No one knows the size of the problem. Certainly the regulators do not know it.
There have been such widespread scare stories that the business of the life assurers has suffered a severe drop in the past 18 months. That is not good for the country. It means that many people who should in their own interest have life assurance do not have it. It means that national savings are down, and this at a time when I understand the Government have set up a committee to consider how to increase national savings. The Government played a major role in the promotion of personal pensions. I urge them to pay attention to the points I have made.
6.32 p.m.
Lord Barnett: My Lords, I, too, congratulate my noble friend Lord Desai on introducing this debate. I should like to have followed the noble Lord, Lord Blaker, on the issue that he raised. It is very important. However, I propose, like my noble friend, to concentrate on the issue of derivatives. It has been, and is presently, a major issue. I do not propose to concentrate on Nick Leeson or even Barings, although Barings will feature in my remarks. The action—or rather lack of action—by the Barings board is clearly relevant to what I have to say. It is hard to believe that the Nick Leeson affair was as unique as the Governor of the Bank of England told the Chancellor, and through him the House of Lords and House of Commons. Given the Governor's lack of knowledge—after all, we are told that he heard about the affair only on 24th February, and the House was told on the 27th; I shall say a little more about that in a moment—it is difficult to know how he could have known that it was unique. I hope that he is right in stating that it is unique. But it is difficult to see how he could have known that.
The real issue is how we can protect the public. In the case of Barings, I know some major institutions which very nearly lost a great deal of money because they invested in Barings on the best possible advice of major trustees who thought it was a wonderful bank. In practice it turned out to be something different. There are still people who lost a great deal of money in Barings. I hope that they will take the appropriate action against those involved.
Many companies can lose money. I declare an interest: I have lost money on share investments that I have made where the companies have not done too well. Fortunately, more recently they have begun to do well again. But that has had nothing to do with derivatives. At least, I do not think that it had anything to do with derivatives. One can hardly be certain. There was a small piece in the Financial Times on Monday which stated:
"The Accounting Standards Board, the UK financial reporting body, has been criticised for not producing guidance on accounting for derivatives."
There are very few firms which report on how much they have lost—or made, for that matter—on derivatives. In the case of Barings it is quite clear, at least to me, that one of the reasons that the bank stayed with Nick Leeson was

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that he made the bank a lot of money last year. I should therefore like to know from the Government what they propose to do about ensuring that companies make greater disclosure on derivatives in their annual report and accounts, if not half-yearly report and accounts.
One could mention many other companies, including insurance companies, as the noble Lord, Lord Blaker, did. Today, however, I want to concern myself mainly with banks. My noble friend Lord Desai gave one definition of derivatives. There are others. C. J. Woelfel, in The Dictionary of Banking, describes derivatives as,
"Financial instruments that derive their value from the performance of assets, interest, currency exchange rates",
and so on. There are other definitions in the Dictionary of Money and Finance which go to considerable extremes. For instance,
"Many bonds with commodity linked payments have been issued. One ski resort tied its bonds' payments to the reported snowfall".
In another case,
"A Salt Lake City bank issued a certificate of deposit whose interest rate was linked to a number of victories by the local Utah jazz basketball team".
It might have been better if Nick Leeson had done that! But certainly, there are some very strange extreme cases of derivatives.
I have quoted some examples. But, as my noble friend said, they do not all involve risky gambles. They can be important hedges or attempts to minimise costs. For instance, if you buy or sell abroad in foreign currencies, it is perfectly reasonable to hedge against them. There is nothing at all wrong with that. As was stated in the House of Commons on 13th March not all derivatives are risky gambles. But in a Written Answer it was stated that the Government are reviewing the situation and proposing follow-up action. I should be very interested to know what action the Government propose to take in this matter. So far as I know, they have not done anything, and we are constantly told that the matter is being investigated and that we shall hear in due course. That is not satisfactory, and I hope that we shall hear rather more about it.
We were also told in the Written Answer on 13th March (holding an answer on 9th March):
"Provided they have adequate controls over their use, insurance companies may prudently use derivatives".—[Official Report, Commons; col. 395.)
The relevant word is "prudently". The plain fact is that in the case of Barings it did not prudently invest. It was the very lack of prudence that ensured that there were problems. So again, what action do the Government propose to take?
We were also told in the other place on 13th March by the Treasury Minister, Mr. Nelson, that there was a meeting way back on 22nd April 1994. He said that it was a trilateral meeting—I assume that that means that three people were involved, a Japanese, a United Kingdom representative and one from the United States.
"It was agreed to co-operate on a trilateral basis in further study".— [Official Report, Commons, 13/3/95; col. 359.]
What was that further study? It was rather a long time ago. It is over a year ago. What have the Government done about that? I shall be very interested to know, as I am sure will this House.
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The real question is: who controls ordinary clearing banks? As my noble friend Lord Desai said, Barings was a small merchant bank, albeit with a very high reputation and a name that led people to have confidence in it.
I must quote from an interview that the Governor of the Bank of England gave to William Keegan in July last year. I quote him exactly:
"We now have an expert team monitoring derivatives who are getting even better every time they go in to see a firm. What they are reporting back from the most active players in the market is very reassuring. These people know what they are doing, whether it's at director level or the chaps on the desk".
That was in July last year. Yet in February this year we had the Barings case. The Governor of the Bank of England tells us that he knew all about it and it was unique. It is incredible that the Governor should have told us that. He said, "I don't want to be complacent", and yet he made that statement to a serious journalist from the Observer. When the Governor said in that context that the Bank was carrying out a serious monitoring job, I should be interested to know what was the job. Maybe someone told the Government; maybe they did not. I assume that the Government were interested to know what was the monitoring. In the Barings case, we heard and read—and I am naive in such matters, I assume it to be true—that large sums of money had been sent out to Singapore. It is hard to believe that the directors of Barings did not know about that.
When the Statement was made in your Lordships' House, I said that I found it incomprehensible that the directors did not know. I find it even more incomprehensible now. So what were the Bank of England's directors doing at that time about monitoring? Clearly, they could not simply rely on the completion of forms by the bank's directors because the forms could be falsified and all kinds of things. We are told how serious and reliable the monitoring was. What were the directors doing?
I make it quite clear that I know and like Eddie George. He is a lovely man. But someone has responsibility for it all. It is no use talking about the Board of Supervision; the Governor of the Bank was its chairman. What on earth was he doing to allow matters to continue? It seems to me that a resignation would not be entirely unjustified in those circumstances when we hear what the Governor of the Bank of England said in July, 1994, and what he did in February, 1994—that is nothing—when he allowed Barings to go bust. We know that it did not go bust because ING took it over and saved most of the investors—not all, quite a number lost many millions in Barings. I leave it to them to decide what action to take. I know what I would do if I had invested in it.
Apparently the Bank had previously issued a long list of notices to various banks. I shall not read them all out because the list is too long. In April 1983 a notice was issued on connected lending; accounts; large exposures; fraudulent invitations and floating charges. Another notice was way back in December 1990: implementation in the United Kingdom of the directive on own funds. Then again in December 1990 there was a notice on implementation in the United Kingdom of the solvency ratio directive. How was that followed up? It is a long time ago and nothing appears to have been done.

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In October 1993, a notice was issued on the implementation in the UK of the directive on the monitoring and control of large exposures of credit institutions. What was done about that? After the event, in March 1995, there was a further amendment to the 1990 paper on implementation in the UK of the solvency ratio directive. In April 1995, there was a notice on the implementation in the UK of the capital adequacy directive.
It all sounds good. However, on 6th March, in a Written Answer to a parliamentary Question (at col. 75 of Hansard in the other place) we were told by Mr. Nelson for the Government that there are no further plans in hand. However, there is a European Union-wide rule on the capital which must be held against market risks. Perhaps the Minister would tell us whether he is happy with that European Union-wide rule. Meanwhile, all we are told is that we are waiting for the analysis of the investigation. That is far too slow to prevent further Barings-type events happening. I hope that we shall hear tonight from the Minister that speedier action will be taken.
6.45 p.m.
Viscount St. Davids: My Lords, I have to declare an interest in the subject of today's debate as a non-executive director of a securities house. I believe that the subject raised by the noble Lord, Lord Desai, should be debated in the context not only of the financial services market but also in the context of the regulatory system governing the operation of financial markets. That is because the former, which is the retail market, is the product of the latter, which is a wholesale market.
The financial services market, ever ingenious, is constantly inventing new products to meet the demands of savers. Those products are sold under the surveillance of a multiplicity of self-regulatory organisations. But however they differ, the products have their major objective in common: the provision of a constant or increasing store of value which is ultimately taken as a stream of income or a capital sum. Financial markets, on the other hand, trade stores of value and their derivatives. Regulation of both markets must ensure honesty, transparency and the provision of value. While the wholesale market trades between professionals and permits a high degree of caveat emptor, the retail market needs a regulatory system which protects the consumer.
What has brought about the need for deeper levels of regulation in both those markets? There can be little doubt that the globalisation of markets, and with it the vast increase in volumes, has done much to change the nature of the market-place itself. The public's confidence in the financial market-place is daily shaken by reports in the press of vast sums paid to many of those employed in both financial markets. In the wholesale market, this needs to be of little concern, for it is a global professional market and its reward system does not impact on the retail product. Any excess of reward will be offset by competition.
The retail market is another matter and it is a major area in which SROs have failed. Charges made for the purchase of the financial product must be transparent. My own firm rebates all front-end charges to the client, then
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charges the client its standard rate of commission. This practice ensures that there can be no pressure on its staff to recommend products with high initial charges. I understand that we are not alone in following that policy and I know a number of other practitioners—and that includes accountants and insurance brokers—who follow it. It should become standard.
Another area which gives the public cause for concern is training. When one reads in the press of mis-selling, one must ask: what was the seller trained to do? What level of knowledge did the salesman have, not only of the product but other competitive products? It is not in the nature of SROs to train up to a common high standard. I have spent some 35 years in the City and I am convinced that much of the blame for the misuse of the reward system and mis-selling lies with the concept of SROs. They worked well before 1986, but then the financial world changed, for the deregulation of the London Stock Exchange had a knock-on effect throughout the financial services industry.
The regulation of the financial markets must be considered, however, in both the domestic and international context. A government cannot legislate for another country's government, so how do we operate an international standard? As recent events may show, high volumes of business will gravitate to the market-place where the lowest standards of regulation prevail. Our Government must not be drawn into placing our financial institutions at a competitive disadvantage in the international market-place by over regulation; but rather turn their attention to the development of reporting systems that ensure that the national entity of the institution maintains its financial integrity. The Government's problem is that they have a responsibility to protect depositors and creditors, but only the real power to maintain a regulatory system in domestic markets. The regulation of international market-places awaits an international solution.
The issue raised by the noble Lord, Lord Desai, concerns the regulation of all financial products that are sold to members of the public. It is in that area that the regulatory system has all too often failed. For regulation to work, it must have not only the confidence of the consumer but also the confidence of the practitioner in the financial products sector.
It is all well and good for us to be gathered here today in your Lordships' House debating these issues. We know the difference between a derivative, a unit trust, a pension plan and any other financial product; but out there in the world in which those products are being sold it is a very different matter. Further confusion is added when one reads on a letterhead "Member of IMRO", or SFA, or any one of a multitude of SROs and often more than one. SROs were established to ascertain by their rules, inspections and investigations whether member petitioners were fit and proper persons and firms to continue in business. They were not intended to carry out a quasi-judicial function to the extent that they have now established, in a role which increasingly denies the protection of the law to the practitioner.
For instance, once an SRO imposes a notice of investigation, the member has to co-operate with it and any information gained by the SRO in disciplinary

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procedures can be discovered in any civil proceedings which may be running in parallel with the SRO investigation or following it, thus placing the member in double jeopardy. In the majority of cases there is no suggestion of dishonesty. The wide publicity that SROs seek upon the results of disciplinary proceedings, since they appear to thirst for a justification for being seen to do their job, again tells against a member in any civil action. The SROs are losing the support of practitioners because of that and many other issues. The question is whether a system can work which is not transparently fair to both sides. The answer must be no.
The financial services industry is an area in which the Government, of whatever political party, must have an interest. The industry is a major provider of employment and creates close to 20 per cent. of GDP. Both major political parties recognise the problems of an ageing population and the implications for the nation's balance sheet, yet the regulation necessary for gaining public confidence is missing. Every time the Government are offered the opportunity to improve the system, they walk away from it. The recent OFT investigation into the mortgage industry is typical. Instead of a savage indictment for the mis-selling of endowment products, there has been a feeble response with all the seriousness of that great British institution the "Carry On" film.
The last sentence of the Financial Times editorial for 20th April sums it up:
"Self-regulation is inadequate; only legislation will change behaviour".
It is now all too obvious that self-regulation does not work. The sooner that we move to a statutory system, the better. I do not advocate that we should replicate the United States SEC, for we have a different culture and tradition. The SIB in an expanded role, with some amendment to the Financial Services Act 1986, would do much to correct the situation. I am not sure where accountable responsibility should lie. Instinct takes me towards the Treasury for retail services and to the Bank of England for the wholesale sector, but not toward the DTI. What is certain is that responsibility should not be split, because that is where, in part, we have come from.
My own views on these matters mirror very closely those expressed in a recent speech by Mr. Alistair Darling, the Opposition spokesman for the City. Those views are not yet held by a majority in the City, but they gain ground daily.
In conclusion, if we expect our fellow citizens to make provision for their old age, to save and play a part in the financial economy, proper regulation is necessary. So, too, is an education system which starts at an early age to inform and instruct our fellow citizens in financial matters. But that is a debate for another day.
6.54 p.m.
Lord Haskel: My Lords, from the speeches that we have heard it is obvious that the Government are in a bit of a mess over regulating the financial markets. Regulation is about moderation. But when it comes to money, the Government's moderation seems to be in short supply. The absence of moderation in financial
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services leads to abuse; and abusing a good idea ruins it. Executive share options, endowment mortgages, pensions and other forms of savings are good ideas. By allowing those good ideas to be abused, the Government have disturbed the delicate balance between regulation and market incentives. People have become wary of the products. The noble Lord, Lord Blaker, told us about that.
That puts the Government in a bind. They say that they want to encourage thrift, savings, home ownership and planning for old age, but the excesses have made people wary. Currently, the Government are in dogmatic deregulation mode and they are not quite sure what to do. In addition, many of the excesses, such as the mis-selling of private pensions, were encouraged by the Government. So, again, the Government are a victim of their own excesses and mismanagement.
We should, therefore, all be grateful to my noble friend Lord Desai for having introduced this debate about the need for better regulation of financial products. Despite the excesses, the products are needed. The market for financial products and services has many sectors. An important distinction is between the wholesale end of the market, which deals with relations between institutions and about which my noble friend Lord Desai spoke, and the retail end of the market, which deals with relations between institutions and individual customers. I should like to speak about the retail end of the market.
The noble Viscount, Lord St. Davids, told us that the principle of caveat emptor can apply to the wholesale end of the market, where institutions are dealing with each other, because they have equal knowledge. However, that will not apply, for example, to a man or woman who wants to buy a life policy from an insurance company, because there is manifestly unequal knowledge. This is where it is important to have sufficient regulation to maintain public confidence, while avoiding too much regulation, which means that we lose sight of what we are trying to achieve and innovation is stifled.
The purpose of the regulation is not only to create fairness but also to promote high standards and integrity at all levels. That will give people confidence to deal with the institutions. High standards of integrity and management will also produce world class financial services companies and those are the firms that London needs to maintain. Better regulation is needed now because the situation is becoming more complex. The nature of financial services companies is changing. There is a blurring of the distinction between different types of institutions. Building societies are becoming banks; banks are setting up life assurance companies, which sell policies to their own customers and to others; building societies are doing the same; and both banks and building societies are competing with each other and investing in each other. In addition, there is a thriving independent financial adviser sector and its relationships with the banks and building societies are also changing.
To add to those complications, there is a growing number of directives coming from Brussels which speak of a European financial industry. Those directives set out a general framework for investment services as required for the single market, which means that financial companies can trade anywhere within the European Union. There are also directives which set out the

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framework within which the supervisory authorities will cooperate with each other, including a harmonised set of reporting rules. Our regulatory system, then, has to be operated Europe-wide and maintain public confidence.
My conclusion is the same as that of the noble Viscount, Lord St. Davids; namely, that it is a task too great for self-regulation. It calls for world class statutory regulation. The public now believe that self-regulation equals self-interest, which equals a lowering of standards. Self-regulation Europe-wide would be impossible. The reason self-regulation will have to go is that it is very difficult to serve two masters—the public interest and the trade interest. The self-regulating organisations are membership organisations and their obligation is to their members. I know that they make valiant efforts to maintain standards, but it is a simple fact that self-regulation is really a fiction. The public are not convinced that if something goes wrong, self-regulation will produce an impartial view.
The payment of compensation illustrates that. The SIB decreed that there will be compensation from the mis-selling of pensions, as the noble Lord, Lord Blaker, told us. He may question the number of cases, but there is no doubt that compensation is disputed by the independent financial advisers. The compensation over the mis-selling of home income plans in the late 1980s depends on whether one's independent financial adviser was regulated by FIMBRA, by LAUTRO or by an insurance company, in which case one would go to the insurance ombudsman. As might be expected, the ombudsman takes a much more generous view regarding those claims. The OFT said that there has been mis-selling of endowment mortgages, yet compensation is uncertain. The PIA is not yet in full operation and compensation in its sphere of influence is unclear.
Confidence in the integrity of the financial services industry is essential if people are to be encouraged to do business with it. That will only come where statutory regulation replaces self-regulation. People should be encouraged to make provision for themselves over and above the basic state pension. People should be encouraged to buy their own homes. People should be encouraged to insure themselves against misfortune affecting their income. Therefore I believe that we need a new statutory Securities and Investments Board that will be responsible for overall regulation of the financial services industry. It will be responsible for the prudential supervision of the industry and the elimination of products which are manifestly unsuitable. That is not to say that I am in favour of a "box ticking" approach to regulation which vets all products. No; that would stifle innovation and commercial judgment. Perhaps the main task for a reformed and strengthened SIB would be to work in conjunction with the criminal law increasingly to play a positive role in enforcing and policing market offences. The public interest is served by getting those who offend out of the market. It does not really matter whether they appear before a crown court or before a regulator.
I am for statutory regulation because I want to maintain London as an important financial services centre. Despite some notable difficulties, London still enjoys a reputation as a good place to do financial business. It is important
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that that reputation should remain. Another reason why I am in favour of statutory regulation is the City of London's fascination with deals. Foreign banks have flocked to London to trade in shares while leaving their businesses back home to get on with creating wealth and building the economy.
Self-regulation seems to be a poor way of maintaining standards in London's more frantic atmosphere. Only last month Ernst & Young called for the proper statutory regulation of the accountancy profession because lax self-regulation had enabled accountants to adapt to the casino atmosphere instead of exposing it. My noble friend Lord Barnett touched on the inadequacy of auditing regulations. Indeed, many in the City go further and say that self-regulation has led to the difficulties at Lloyd's. They tell me that self-regulation has also led to the takeover of well-known UK banks such as the Midland, Morgan Grenfell, Warburg and of course Barings, by the foreign banks which have come to London.
From the consumers' point of view, if we are to ask more and more people to make provision for themselves—pensions and insurance—over and above the basic provision provided by the state, it is crucial that the financial services industry enjoys the confidence of the public. Indeed, people need somewhere safe to put their savings. The tightly regulated mutual building societies have been such a place for generations. They are now rushing into becoming banks to gain more freedom, perhaps freedom to speculate in the derivatives market or the betting on indices market. Other noble Lords have told us all about the dangers of that. The Minister needs to give careful consideration to the need for unadventurous, secure deposit-takers for the savings that we wish to encourage.
At the moment the public are wary. World class statutory regulation with effective enforcement and proper compensation, which is independent, will help to overcome that wariness. It will also enable us to play our full part in the European financial services industry. Statutory regulation will provide the moderation and the high standards that the industry needs.
7.5 p.m.
Viscount Massereene and Ferrard: My Lords, first, I thank the noble Lord, Lord Desai, for bringing this important subject to our attention. I should also like to declare an interest. I have worked in the securities industry as a stockbroker for 30 years and continue to do so. I was a member of Lloyd's but resigned some three years ago after an unsatisfactory but not totally disastrous 14 years.
The regulation of the financial institutions in this country is, frankly, somewhat of a "dog's dinner". We have IMRO, PIA, SFA and the SIB over them. LAUTRO and FIMBRA are now deceased after a comparatively short life. In America they have but one regulatory body, the SEC, which has now been going for some 60 years and I think everyone will agree that it does a pretty good job. It is my opinion that all those various bodies should come under the Treasury rather than the DTI which in fact hived off those responsibilities in the first place. Self-regulation

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means self-interest and has been shown not to work. Lloyd's, that once great institution, is a perfect example and one to which I shall turn later.
When I started in the Stock Exchange it was a small and exclusive club with fixed commissions. To be a member of the club one had to be elected and known by one's fellow members and sponsored by one's firm. Any misbehaviour, questionable conduct or sharp practice against fellow members or clients was dealt with instantly and severely by the Stock Exchange Council. There was a compensation fund which protected the public 100 per cent. against losses caused by default or dishonesty, Stock Exchange members having unlimited liability.
Today, under the Financial Services Act, compensation is limited to only £48,000, and it takes years to get paid. Since the so-called "big bang" swept away fixed commissions, the industry has been thrown open to all-comers. Partnerships have become a rarity and Stock Exchange firms are either owned by international banks or outside shareholders and the standards of behaviour imposed by what was the "old boy" network are now enforced by draconian regulations under the SFA. Security firms are now so tightly regulated that they have, in effect, to go to trial balance every month to check their liquidity and base capital requirements. Large sums of capital have to be kept on deposit which would be much better employed in industry. The whole exercise has turned into minute record keeping, some of which is a waste of time.
To give an example, every time I do an advisory bargain I now have to write a little history as to why I either bought or sold that specific stock and what relevance it had to that specific client. The alternative is to have every call recorded and logged. The cost of the army of bureaucrats needed to monitor all this regulation falls, of course, on the clients. The regulations have by and large worked although the burden of compliance is onerous and scandals still occur on occasions.
I should like to turn to derivatives. They are a newish financial animal on the scene and are in effect options or bets on the future movement of stocks, currencies or commodities. In their more extreme form they can even be bets on options, thereby getting double gearing. It goes without saying that their volatility can be considerable, as I am sure any of the ex directors of Barings can confirm.
Derivatives are traded worldwide over the full 24 hours by all the major international banks and securities houses. A touch of a button can open or close positions which can either win or lose millions of pounds. It is obvious that reporting these open positions on a monthly, weekly or even daily basis is a complete waste of time because by the time any regulatory body can work out anything is amiss, the stable will be well and truly empty and probably on fire as well, as has been so amply demonstrated recently.
The only hope is to devise a method of reporting on a real-time basis direct to a central computer which will have set limits for each securities house commensurate with its liquidity, and if this limit is broken the alarm will sound automatically. I believe current technology can
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cope with that and a program could be written for it. The moral on derivatives is simple: if you do not understand it, do not buy it.
The rule on traded options is that all clients who wish to deal have to read a booklet on them and sign a statement saying that they understand what they are getting into, so if the tears come later there can be no excuses.
I now come to the one City institution most in need of rigorous hands-on regulation—Lloyd's of London. Currently it is operating under the Lloyd's Act 1982 which in effect means it is self regulating. The corporation has lost to date some £8 billion for its members and the final bill is unquantifiable but could go to £12 billion or beyond. The losses of the deposit holders of BCCI, the pensioners of the Maxwell group of companies and Barings Bank pale into insignificance beside this staggering sum. To date 9,000 people have been totally ruined and 30 suicides have been directly attributed to this appalling débâcle and yet there has been no political fallout, the reason being that Lloyd's names are seen as rich gamblers who deserve all they get. The reality is that the qualification for membership is only to have free capital equivalent to the most modest of starter homes.
The reason for these quite incredible losses is, first, the initial gross incompetence of the underwriters, compounded by the infamous LMX spiral, where the risks are passed round and round the market at ever smaller premiums with heavy commissions being paid each time until the greatest fool is finally landed with it. This would have been fair enough if the names who were supporting this merry-go-round had known what they were letting themselves in for. From the information I have had, none of them had the slightest idea and most certainly were not told. They all thought they were either on marine insurance or general insurance. There are also motor and aviation syndicates, which one would have thought were self-explanatory. In actual fact they found themselves taking insane risks for tiny premiums. It is as if they had asked the bookmaker to put £10 on a horse running in the 2.30 at Cheltenham over the sticks and ended up putting £ 1,000 on a total outsider at Ascot on the flat four months later. That is the best illustration I can think of to explain some of the insanity which has been going on at Lloyd's.
The market insiders knew about the asbestosis risk as early as 1982. Their solution to the problem was to instigate a massive membership drive to raise the membership from around 10,000 to 32,000 in 10 years in order to cushion the problems they knew were coming. The management has used every known device to massage and disguise the losses, always giving false forecasts of future profitability. This is a proven fact as CHATSET has consistently been able to give accurate forecasts of future losses which have, without fail, been hotly denied by the Lloyd's management. Four of the past chairmen have been personally involved in questionable dealings in past years. Need I say more.
As regards the present, there is considerable doubt as to whether or not the corporation will be able to pass solvency this year, but I daresay creative accounting will come to the rescue. Bearing all this in mind, there is no doubt that the Lloyd's Act 1982 should be repealed and the corporation brought directly under the SIB. There should be rigorous efforts to root out the malefactors, who

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should be prosecuted for, at the very least, criminal negligence. To add insult to injury, the sums of money these people have been paying themselves make the directors of our national utilities look positively abstemious.
To sum up, the current state of affairs is not satisfactory and we should eventually have in this country an equivalent of the SEC. Furthermore, trial by jury for complicated fraud cases has also been proved not to work and some other system should be carefully considered. For instance, any fraud case investigated by the SFO should be tried by a specialist court of experts rather than by lay persons. But that is a whole different subject.
7.16 p.m.
Lord Monkswell: My Lords, we are all indebted to the noble Viscount, Lord Massereene and Ferrard, for that marvellous contribution. One of the interesting points about the debate is the theme running through it of gambling. In my few remarks I want to try to give a simple explanation of the financial system as I see it. I want to talk a little about the "casino" economy and then try to suggest some ways in which we might go forward.
I am just an ordinary engineer and I am not terribly sophisticated. However, I wish to set out my understanding of financial services. It is probably easier if I explain it in terms of banks. One puts one's money in a bank for two purposes—either to keep it safe until tomorrow or to have some savings which will be invested and which can provide a rate of return for the future. On the other side, one takes money out of the bank to pay day-to-day bills or one borrows a capital sum to invest in a chunk of machinery, a building, land or a fixed asset. That is a simple way of looking at the matter.
The banks have the money when it is not in our pockets or being used for transactions. It would seem from the expert contributions we have had so far in the debate that what the banks do with our money while they have it is to operate a grand casino. They play with our money. They pass it among themselves and lay bets on various things. Someone said that it does not matter and that banks or financial institutions are all professionals and big guys who know what they are doing. But these guys are playing with real money. When someone has a large salary or makes a terrific windfall gain on the betting, they take that money away from you and me. They spend it instead of us spending it. Because they are spending it and we are not spending it, that effectively distorts the economy. Quite large sums of money are involved. The salaries of people working in the financial institutions in London alone add up to a large chunk of money.
The situation then reaches a greater magnitude. One thinks in terms of Black Wednesday when George Soros effectively took about £9 billion out of the UK economy. He spent it again so it was recirculated, but effectively there was a massive transfer from the pockets of ordinary British people into those of some eastern European people. That may have been a very useful thing to have done, but it was done without our consent, knowledge or agreement.
If the banks were being dishonest they would say to us, "Yes, put your money in the bank and we shall cream off a certain amount of it and play with it. We shall lend it to
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other people and then pass it back to you. But that will cost you because of all this sort of casino activity. It may cost you big or little". That is the reality. But the banks do not say that. They say, "We are professionals looking after your money. We have to do these things like operate the derivatives market as a hedge against price movements. It saves us being subjected to the implications of those price movements. We have a little bit here and there and it is all hedged and very nice".
It may be very nice for the professionals operating within the financial institutions. They have nice, well-paid jobs, but what about us ordinary people? It is we who are subject to the vagaries of the market and who are thrown out of work, have short-term contracts or part-time jobs because of the vagaries of the market. These players and financial experts have a lovely time paying themselves large salaries, occasionally making a windfall on the casino economy or occasionally they may take a big loss. What happens if one has a big loss? It is not the directors of Barings who suffer as a result of the collapse of their bank. They are well off people who have assets, and all the rest of it. It is ordinary people who have invested their money in a safe bank who suffer.
It is not just their money, but the effect on industry of all the short-term significant price movements. It means that people who worked in the shipbuilding industry, for example, no longer work there because we have not got such an industry. That is because there is no incentive in this country, operating a casino economy, to invest in the long term. The guys in the financial institutions can make more money by gambling among themselves than they can by lending to industrial concerns which are going to produce goods and services for the community. So we have schools crumbling because it does not make sense to invest long term. As I said, we have virtually no shipbuilding industry now.
The situation does not affect just this country but the whole of the western world. When we look at the steel industry in Europe, we see that Britain, because of nationalisation and massive investment by the state, has one of the most efficient steel industries in Europe. But in other countries, because of the financial casino economy, there is no incentive to invest in modern steelmaking capacity. Who in their right mind in a private market orientated system, will invest in a steel industry that is going to feed into a shipbuilding industry, for example, when people are not investing in modern ships? There is no long-term incentive. It is easier to make a quick buck out of operating a broken down old ship than it is to invest in steel mills and ships for the long term future.
So we have a problem which affects all of us. What can we do about it? Apart from clever kids in the financial services market making money out of it, part of the reason for the derivatives market and for all the other financial services that we are offered, is because of price movements. It may be that not only in this country but worldwide we can think in terms of how we can dampen down price movements.
One has to look at how those fluctuations in price movements are caused. By and large one of the key factors is the fluctuation in currencies and exchange rates. When I worked in industry, one of the things I had to do was to calculate the reimbursement rates for warranty

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claims in different countries throughout the world. Every time I did the calculations, I had to look at the exchange rates for the different currencies around the world in which we were operating in order to arrive at the figures showing what it would cost us in terms of warranty. If there had been much more stability in those currencies, the calculation I had to do and the impact which was felt throughout the books in terms of costs to the company and in the exchange rate movement, would have been minimised. If one considers that the operation I was involved in can be multiplied a million times around the world—there must be an army of people making all these calculations—some of the more astute ones make a terrific living out of it when operating in the currency markets within the financial services.
It may be sensible for governments around the world to sit down around a table and ask, "How can we agree the relationship between our currencies to save these fluctuations in prices which create all sorts of problems for our communities because of the operation that it leads to; namely, the casino economy and the financial services?"
It is interesting to realise that this problem has been experienced before. The problem we are experiencing now is very similar to that experienced by the world in the 1930s. Then there was mass unemployment as there is now. There was instability around the world and, unfortunately, it led to a world war. Now we have instability around the world causing conflagrations. Once the conflict had finished 50 years' ago, the governments of the nations around the world agreed to the Bretton Woods Agreement, the fixed relationship and parity of currencies. It may be that something of that kind needs to be done—not just to save people worrying about the impending collapse of Lloyd's. Maybe we should take that step before the next world war rather than afterwards.
7.28 p.m.
Viscount Chandos: My Lords, I should like to thank my noble friend Lord Desai for introducing this subject and for making such an excellent speech. My noble friend has stimulated a debate which must have led the Minister to question whether the fire from behind his own lines was more frightening than that from across the House.
I start by declaring an interest. I am a director of a small investment banking company regulated by the Securities & Futures Authority Ltd., which has no activities in the derivatives market. However, in the past I was a director of a large merchant bank and at times was responsible for swaps and derivatives activity in the bank. As a result, in the late 1980s I served a term as a director of the International Swaps and Derivatives Association. That position once gave me the dubious privilege of introducing a debate on ethics in the swaps market on the day that the losses of the Hammersmith and Fulham Council were announced.
My noble friends Lord Desai and Lord Barnett concentrated on derivatives. Although I should like to touch on a few other points later, as a past practitioner I should like to address that subject. I have already argued in your Lordships' House that the ownership structure of
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Barings and the lack of proper accountability to outside shareholders contributed centrally to the breakdown of proper management control which led to the failure of the bank. We should remember that that is a special case and we should be careful not to design future regulations which will cover different cases where there is a proper relationship between the shareholders and the banks concerned.
Linked to the ownership structure of Barings was a remuneration system that encouraged both inappropriate risk-taking on the desk, as the Governor of the Bank of England would have said, and an overly relaxed attitude on the part of senior management to what was going on below them. I agree at least in part with some of the arguments of the noble Viscount, Lord St. Davids, about the question of remuneration in the wholesale financial markets. It is inescapable, if London is to thrive as a financial centre, that successful financial traders should have the potential to earn what are, by any standards, large amounts of money. But—these are important caveats— first, it is essential that the calculation of bonuses should be based on broader, rather than narrower, profit centres and bonus pools. Many of the most successful and technologically advanced trading operations in the United States now ensure that all their traders understand that their individual remuneration is not based on the individual profit that they may claim to make.
A second condition should be that the calculation of profits (and probably the payment of bonuses) should be spread over a longer period than one year. Salomon Brothers, by any standards one of the great trading houses of the world, in the past six months has announced an adjustment of profits amounting to many hundreds of millions of dollars as a result of accounting adjustments to trading positions over the past six or seven years in its London operations. Many of those trading positions, whether in derivatives or in the underlying cash markets, are far too complex for income necessarily to be recognised accurately in a single accounting period.
Finally—in my view, most importantly—the performance-linked compensation which is, as I have argued, an essential part of a thriving financial market should be paid in shares or other securities of the bank or securities house for which the traders are operating. In that way, after a period of time, the traders would suffer if the bank or trading house got into similar difficulties to those of Barings.
My noble friends Lord Barnett and Lord Desai both raised the issue of ringfencing the derivatives and, arguably, the other trading activities of a bank—I am referring to the issue of connected lending—to ensure that the privileges that are accorded to an authorised bank cannot be abused for over-aggressive and speculative trading. We shall have to await the report on the collapse of Barings from the Board of Banking Supervision before we can judge whether the existing rules were broken by Barings. I agree with my noble friend Lord Barnett that it is difficult to believe that what has happened could have occurred without the breach of those existing rules. But I believe that there is a strong case for a far greater separation of securities trading activities and related derivatives trading activities of banks from their deposit-taking activities.

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On the other side of the Atlantic, we are finally seeing the prospect of the reform of the Glass-Steagall legislation which separates commercial banking from securities trading and investment banking. It is perfectly clear already that the Federal Reserve Bank and the SEC will ensure rigorous ringfencing between the securities and derivatives trading activities of the banks and their deposit-taking activities. There is some difficulty with derivatives trading relating to money markets and foreign exchange operations because they can be argued to be much more integral to the treasury operations of an authorised bank. I believe that that ringfencing should focus, at least initially, on derivatives trading based on securities and securities trading itself.
The Motion moved by my noble friend Lord Desai refers to:
"effective and comprehensive regulation of the market for financial products",
and that is my excuse for raising a few other points. In terms of the Financial Services Act and its roots in a self-regulatory system, the noble Viscount, Lord St. Davids, said that he did not support a move towards an SEC system because the culture in the UK was different from that in the US. We should remember that the deregulation of the financial markets that occurred in the 1980s was intended to change the culture in the direction of more competitive and efficient markets. Many noble Lords on this side of the House argued at the time of the Bill's passage through your Lordships' House that there was a fundamental inconsistency in moving to increase competition in the financial markets while basing the regulatory system on a sense of gentlemanly self-restraint. In trying to reconcile an essentially self-regulatory approach with statutory backing, the Government created an horrendously complex system— a camel designed by a committee of camels. I therefore join other noble Lords in urging for simplicity and rigour, and for a determined move towards a regulatory system rooted much more strongly in the statutory principle.
Another vivid memory of the passage of the Financial Services Act was the Government's vehement arguments as to why the Lloyd's insurance market should fall outside the provisions of that Act. It is difficult to match the noble Viscount, Lord Massereene and Ferrard, in my indictment of that market, but we should remember one thing. I would rather try to sell a signed photograph of the committee of the Rugby Football Union than membership of Lloyd's, but I suspect that others may be more robust than me. We must ensure that, whatever other reforms are introduced, individuals are not solicited for Lloyd's membership with the cynical irresponsibility with regard to their assets which occurred in far too many cases in the past.
I am struck by the unanimity among noble Lords on both sides of the House on the need for reform and on the need to have a more statutorily led, not statutorily backed, system, and I therefore commend to your Lordships' House the Motion which stands in the name of my noble friend Lord Desai.
7.40 p.m.
Lord Ezra: My Lords, this has been a most important and timely debate, so ably introduced by the noble Lord,
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Lord Desai. As the noble Viscount, Lord Chandos, said, it has given rise to a number of extremely well-informed speeches, some of the noble Lords contributing to the debate being practitioners and therefore knowing what they are talking about. Indeed, I must say so did the other noble Lords who spoke.
The financial products and services about which we are talking affect many millions of people. They affect those making pension arrangements; taking out insurance policies and mortgages; and investing in other financial products. They affect also vast numbers of depositors, some of whom, as we have seen recently, might be dealing with banks which get into serious financial difficulty and therefore threaten their deposits.
The Motion must be seen in the context of the broad developments in financial markets which have occurred since the war. Two major factors, as some noble Lords have said, transformed that market in the post-war period. The first was the abandonment of the Bretton Woods regime of stabilised currencies, thus introducing much more risk in the monetary markets. The second was the liberalisation of financial dealings, to which the noble Viscount, Lord Massereene and Ferrard, referred, thus introducing more variety and competition in financial products and services.
The Financial Services Act 1986, in which a number of noble Lords took part—I personally spent a great deal of time debating that measure—was intended to provide safeguards for investors in the liberalised market through a regime of self-regulation. I agree with all noble Lords who said that the time has now come for a fundamental review of the situation.
At the retail end of the market, there has been an alleged substantial mis-selling of private pension schemes—I introduce the word "alleged" because of what the noble Lord, Lord Blaker, had to tell us—which is the subject of an ongoing inquiry by the SIB. Doubts have also been expressed about the over-promotion of endowment mortgages, and until recently there has been a lack of disclosure of commissions on insurance policies. Overall there has been increasing complexity in the financial products, which the average consumer has found difficult to understand.
At the wholesale end of the market, as we have been well informed, there has been a massive expansion of derivative trading, the scale of which was described by the noble Lord, Lord Desai. That trading was intended originally to minimise forward risk in currency and other transactions, but has led in a number of cases, as we know, to a large degree of proprietary trading, such as occurred in the case of Barings.
In the retail sector a number of steps have already been taken. In the case of personal pensions, the SIB has sought to identify the scale of the mis-selling to prevent a recurrence and to provide compensation. That, of course, is a lengthy process, and in the meantime there is widespread public uncertainty and wariness—I am using a word introduced by the noble Lord, Lord Haskel—about private pension arrangements.
As a means of restoring public confidence in personal pension plans and life insurance, the SIB has laid down rules on disclosure of commissions and other essential information, which took effect from 1st January this year.

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In addition, the Private Investment Authority, which is the new regulator for the majority of, but not all, firms conducting investment business with the public, has established an ombudsman scheme to resolve complaints brought against PIA member firms by the public. The complaints procedure has been streamlined, and the PIA considers that it should provide a valuable service for private investors who find themselves in difficulties.
All those are undoubtedly steps in the right direction. I thought I should mention them to show that something has already been done in this sector. However, there are a number of weaknesses in those arrangements. First, not all financial products available to the public are covered. The details which have to be revealed in the case of personal pension plans and life insurance do not, for example, apply to mortgages, protection-only products, and deposit-based products such as TESSAs. So there is a gap in the products which are covered by the regulations introduced by the PIA.
Secondly, the PIA does not cover all firms conducting investment business with the public. It appears to be up to individual firms whether they subscribe to the PIA or not; and there have been some notable exceptions, such as the Prudential, over which there was a great deal of publicity in recent months. Presumably member firms can withdraw whenever they feel like it, and the complaints procedure and other regulations issued by the PIA would no longer apply to them. We should know whether that is the situation. If that is so, it is most unsatisfactory for the investor.
In the light of those limitations in the existing system, and despite the measures taken, it must be asked—as a number of noble Lords have done—whether there should be a statutory body along the same lines as has been proposed in the case of occupational pension schemes, which we have debated at some length in the Pensions Bill and which was widely acclaimed in that connection. So it would seem appropriate that serious consideration should be given to a statutorily backed body. Many noble Lords have referred positively to the work of the SIB, so a strengthened SIB with greater statutory backing might be introduced into the financial services sector. It would be interesting to have the Minister's views on that issue. So many noble Lords have referred to it that I am sure he will let us know what he thinks.
If a statutory body is not acceptable to the Government, will the Minister indicate how the gaps in the present arrangements—there are notable gaps, as I have shown, despite all the measures taken—could be filled?
With the wholesale end of the market the main problem has arisen with the trading of derivatives. I must warn that in some future years there might be an issue over some other aspect. For example, during the recent recession a number of difficulties were encountered by banks as a result of over-lending to sovereign states or on property deals. That was an equally excessive venture by some banks. At the moment we are concerned with the trading in derivatives which has been brought to the fore by the recent failure of Barings.
Derivative instruments, as many noble Lords have said, provide a means of transferring and spreading risk and accommodating risk management, particularly for those
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engaged in foreign trade. It is a desirable and, indeed, necessary form of financial management which has become very much more important since the break-up of the Bretton Woods system to which I referred earlier. However, while it is desirable for derivatives to be used for risk management against the possibility of unexpected movements in interest or exchange rates, the problem arises when banking institutions use them for proprietary trading in addition to risk management. That is the point which causes concern.
The trouble is that large profits can be made from that trading. We know that in the past year Barings made such large profits. Substantial inducements are offered to the practitioners. I read somewhere that the team of 14 derivative traders at Barings, had their recent venture succeeded, could have shared up to £24 million between them, so the stakes are very high and incite traders to take considerable risks.
The real problem is the way in which that could affect the depositors. The proposal put forward by the noble Lord, Lord Desai, and supported by the noble Viscount, Lord Chandos, merits serious consideration. It is the ring fencing of this type of operation. People who place deposits with banks consider that they are doing something that is gilt-edged. A reputable bank should be able to take care of one's money. The banks give one virtually no interest on that money and, in fact, make several charges for any services that are requested. One should be able to get the money back intact at the end of the day. If that same institution ventures into other activities involving considerable risk those risks should not extend to depositors' money.
The main point about derivatives is that they are global and therefore it is vital that not only should the internal procedures be tightened and some form of ring fencing be introduced but there must be more effective international co-operation. That appeared to be lacking in the case of Barings.
Our debate has shown that there is much to be done to safeguard the public interest in the retail and wholesale financial markets. The two markets, because of their special nature, require different solutions but the solutions should be identified and applied quickly.
7.51 p.m.
Lord Peston: My Lords, we are indebted to my noble friend Lord Desai for introducing this fascinating debate. All noble Lords have made useful and interesting contributions. Only the time constraint—I intend no discourtesy—prevents my commenting on all of them; I must limit myself to a few topics.
I begin with derivatives and more generally with financial instruments. Obviously, they are about the reduction of risks via optimum portfolio management. Risks are reduced in the usual way by pooling, sharing and making use of the covariances between the different assets and so forth. A typical example is buying a share and selling call options on the same share, assuming that the prices of the two instruments are positively related. That is a straightforward way of hedging the risk.
Financial markets exist to ensure that risks are borne by those with the least risk aversion and shared by those with the most. We can make similar remarks about insurance

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and other financial activities. Nothing I say—and nothing that has been said by other noble Lords—is meant to oppose financial markets and financial instruments and say that intrinsically derivatives are a bad thing. They are not. The real question is whether abuse can arise and in what way. I believe that noble Lords have clearly demonstrated that abuses certainly can arise.
Perhaps I may refer to a comment made by my noble friend Lord Desai. A classic question in economics is whether speculators in particular financial instruments can so dominate a market as to add risk rather than reduce it. I know that students of economics are taught that that cannot happen in the long run if speculators are to make a profit. I may have misunderstood my noble friend but I believe that he said that colleagues at the London School of Economics carrying out research claim to have shown that speculation does not destabilise in the real world. If they have shown that, I do not agree. My examination of the data and the research literature shows that there is a great deal of evidence of destabilising speculation. I can draw my noble friend's attention to some of the theoretical literature which supports that. In my judgment, markets are unduly volatile; I believe that of all financial markets relative to the real underlying forces at work. I have little doubt about it.
I now go on to consider what scope there is for corruption and other forms of illegality. The evidence shows that there is too much scope. In recent years—whether we refer to BCCI, Barings, Lloyd's, the mis-selling of pensions or suggestions of something being wrong with the sale of endowment mortgages—there has been sufficient evidence to give grounds for disquiet. Noble Lords have gone into the details of that. I shall not go over the Barings case with which my noble friend dealt more than adequately. The noble Viscount dealt more than adequately with the Lloyd's case. I have a slight disagreement with the noble Viscount. He used the words, "derivatives are, as you like, bets". They are not "as you like, bets"; they are bets. There is no argument about what derivatives are; they are akin to spread-betting, as noble Lords who visit betting shops will know. I do not recommend that to potential gamblers as an open-ended commitment.
The real point about possible corruption and illegality is the excuse that is made. It is made either in terms of uniqueness, as described by my noble friend Lord Barnett, or in terms of, "That was the past and everything is okay now." I am not convinced. Logically, it is just as valid to say that the cases discovered, although few in number, are the tip of the iceberg. I believe that regulation is so poor, notably by the Bank of England, that we are unable to assess the scale of the problem. That does not make me any happier.
I should like to ask a particular question. In practice, can the regulators obtain enough information to do their job effectively? A particular aspect of that occurs in connection with Barings. Recently we read that a number of Barings executives were fired and given a rather generous pay-off. I hope that I am not being too cynical in asking whether they signed a confidentiality clause which would mean that they lose their redundancy payment if they speak in public about what they know. That leads to
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the more important question of whether that will limit the investigations of the Board of Banking Supervision into what happened at Barings. That is a most serious matter.
The general question is whether the regulators are interested in finding malpractice and exposing it. Your Lordships should not forget that in any market, and more generally in the City of London, any example of illegality or corruption casts doubt on the probity of all. I must ask whether there are many instances of sweeping things under the carpet rather than—using the word of the noble Viscount, Lord St. Davids, in another context—transparency. In my judgment, transparency in all financial dealings is of the essence—and that includes the investigations into corruption and so forth.
I agree that the issue is immensely complicated. It was easy when we were dealing with forward markets, stops, futures, options, caps, flows, collars and goodness knows what else. The spellcheck on my word processor refused the word "swaptions". I had to put it into the dictionary. I learnt the word only a few years ago and for all I know it has been replaced.
I wish to emphasise the point that I am not against financial instruments per se. I am against their use. I was intrigued by the remarks made by my noble friends about whether there ought to be more ring fencing as regards who can enter the markets. I do not believe that banks and insurance companies can rely on the Hammersmith and Fulham Council case, believing that the House of Lords will bail them out saying that they were ultra vires if they managed to get themselves into serious trouble.
I do not wish to go to the other extreme, however. I have said that abuse exists and that destabilisation is impossible. But I am not convinced that, for the most part, the ordinary consumer is ill served by the financial community at the detailed level. In other words, I do not want us suddenly to say that this is nothing but a disaster. That would be a terrible mistake. The real point is that the consumer is not always well served by the financial community and is too easily aggrieved on specific occasions. The insurance companies, banks, and so on, always say that that is a minority of cases; and of course, they are right. But the problem is that for the individual concerned, it is the 100 per cent. of cases and for most people they are major cases relative to their total financial assets.
That is true not just of the insurance companies. An extraordinary state of affairs has occurred in our community. I read in a recent article in the Financial Times that the banks, on which we have relied for so long and which have been referred to in the past for their standards, are about the most unpopular and least regarded institution in our country. The banks spend a fortune on public relations and I should have thought that they should learn a different lesson; namely, not to spend any money at all on public relations but to concentrate on giving a decent service. I find that that is the best form of public relations. Therefore, the point is that it is a minority of cases but they are cases which matter to the people concerned. That is why we cannot ignore them.
I turn to the question of self-regulation and regulation generally. I believe that self-regulation has certainly failed in one sense. But in our country it has the most arcane statutory underpinning. Therefore, to call it

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self-regulation and not statutory regulation is absurd. The legislation is so enormous and the regulations are so complex that I cannot believe now that the institutions of the City, which were against statutory regulation, would not now vote unanimously for what would be called statutory regulation because, as my noble friend Lord Chandos said, it would be simple. It is extraordinary that practically no one understands the regulatory system and I am not convinced that the regulators do. Therefore, I do not doubt that we must move to something different.
I know what my party's policy is. But we cannot start from scratch. We have an existing set of institutions and activities. If things are as bad as I think they are, we shall eventually need a new financial services Act. Merely saying that and the thought of going over all that ground again makes me feel slightly sick, especially if I am sitting on the Benches opposite at the time, which looks now to be what used to be called a racing certainty. I do not mean that I shall be sitting on the Front Bench, but I shall certainly be sitting on the Benches opposite. Therefore, we must make changes but I do not believe that we should assume that it will be easy.
My final remarks echo something said by the noble Viscount, Lord St. Davids. He may remember a debate, which I believe was introduced by the noble Lord, Lord Carr of Hadley, on aspects of financial education in schools. We all agree on how important that is. I do not believe that these matters are too difficult for young people to understand. When one thinks of what young people manage to do with computers, I am sure that they will have no difficulty with "swaptions". I hope that, quite independent of anything political, we will take seriously that if our young people are to cope in the modern world, the world of the next century, while many other matters in relation to the national curriculum need to be taken seriously, financial matters cannot be neglected.
I conclude as I began. I have found this debate extremely interesting. I wish that we had had more time to go into details but there will be other occasions on which we can do that. I look forward very much to the reply from the Minister.
8.5 p.m.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, I begin by agreeing with the noble Lord, Lord Peston, that this has been an extremely interesting debate. A great many detailed questions have been raised in the course of it. I hope that noble Lords will understand when I say that it would be inadvisable and, I suspect, wearisome to the House were I to try to answer all the points that have been put to me in the detail which they deserve. However, I shall certainly write to noble Lords—in particular my noble friend Lord Blaker and the noble Lord, Lord Barnett—on some of the points that have been raised. I must say in apologising to the House that, necessarily, some of my answers will be broad-brush.
I suppose that one could say that the intervention made by the noble Lord, Lord Monkswell, was broad-brush. It is a very brave man who tries to give a simple explanation of the financial system in barely 12 minutes. It will not
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surprise the noble Lord to hear that I did not find myself in full agreement with him on many of the points that he made. However, I have no doubt that the noble Lord, Lord Peston, is fully in agreement with many of his points and would like to take them up on another occasion.
Obviously, we accept the need for effective regulation of financial services and products. It would be difficult to imagine anyone disagreeing in total with the Motion put before your Lordships' House by the noble Lord, Lord Desai. Although I do not accept all the apparent shortcomings that have been put forward during the course of the debate, there is no doubt that in a number of areas, firms have fallen short of the required standards.
Noble Lords have drawn particular attention to the collapse of Barings, derivatives—and I thank the noble Lords, Lord Desai and Lord Barnett, for giving such detailed explanation of what derivatives are—the mis-selling of personal pensions, and endowment policies. Lloyd's was mentioned by my noble friend Lord Massereene and Ferrard. In passing over Lloyd's I should say to my noble friend that many of those matters are now before the courts and it would be wrong for me to comment in detail at the Dispatch Box. However, I shall certainly draw the points made by my noble friend to the attention of my right honourable friend the President of the Board of Trade.
All of the issues raised are important and I shall endeavour to respond to some of them in the course of my speech. However, perhaps I may begin by explaining the Government's general approach to financial services regulation.
The financial services industry plays a crucial role in the United Kingdom economy. London's position as one of the world's three main financial markets requires a regulatory framework which maintains clean, well-ordered markets while allowing for innovation and avoiding unnecessary regulatory costs.
Of no less importance is the industry's role in enabling individuals to provide for their future financial needs. Here the first priority is to ensure a high standard of investor protection. Many investors find financial products complex and opaque. I noted the comments made by the noble Lord, Lord Peston, seeking education to cover those points. No doubt others will look at that in due course.
Regulation provides a framework of rules within which free and fair competition can take place. It is essential to create a system within which money can be invested with confidence. Without that, it is not only the investor who suffers but the reputation of the industry, with all that means for future growth and sales. However, we must recognise that the true test of a regulatory regime is not whether it ensures that every firm and every individual always maintain the highest standards. No system of regulation can provide an absolute guarantee that nothing will ever go wrong. Instead the true test is whether the system identifies shortcomings and provides a remedy.
Although the Government believe that the present structure succeeds in providing a high level of investor protection, they are in no way complacent. The regulatory system is always kept under review. The Pensions Bill

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and the creation of the Personal Investment Authority show that, where change is necessary, the Government and the regulators are ready to act.
Before explaining how the regulation of financial services is being developed and strengthened, I should like to deal with the idea stressed by my noble friend Lord St. Davids, the noble Viscount, Lord Chandos, and other speakers that we should move to "fully statutory regulation".
The suggestion that we face a simple choice between "statutory regulation" on the one hand and "self-regulation" on the other is misleading. The present system is based on statute; but, very sensibly, enables those who have expert knowledge to play a key role in setting the rules and ensuring that they are enforced.
The Government believe that the case for a major change to the system has not been made. The costs of such an upheaval are clear: they would be a burden for the industry and the cost would ultimately fall on individual consumers. By contrast, the benefits of a different structure are far from guaranteed. Instead, we believe that the best way forward is to use SIB's powers as fully and as effectively as possible.
We have recently seen SIB making increased use of its powers to expel individuals from the industry and publicly to reprimand firms for misconduct. In addition the front line regulators have imposed a series of substantial fines on their members. Some people—and I suppose that I must include my noble friend Lord St. Davids among them—believe that such fines are a sign of the system failing. I simply do not agree. On the contrary, the fines show how the regulators detect and punish wrongdoing while ensuring that investors who have suffered loss receive redress.
The system has also been strengthened by the formation of the Personal Investment Authority (the PIA) which is committed to a major change in the level of protection for investors. That is being achieved through rigorous monitoring of firms, stronger training—again, that is something for which the noble Lord, Lord Haskel and my noble friend Lord St. Davids asked—and competence requirements for financial advisers and better information for individual investors.
Better information is playing a key role in raising standards. The new requirements for disclosure of information about life assurance charges and commission have already led to increased competition, with new firms entering the market and existing firms cutting their prices. As the latest edition of "Which?" says:
"The new rules are a real breakthrough for consumers".
As regards the remarks made by the noble Lord, Lord Ezra, about the gaps in the coverage of the Financial Services Act, I should point out that that legislation covers investment business and we could not extend those rules to cover all forms of insurance. As the noble Lord is probably aware, the Council of Mortgage Lenders is developing a code of practice for mortgages. Bank deposits are already covered by the banking code. We believe that it is better to have arrangements tailored to different products which have different requirements, rather than seeking something that covers everything.
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Perhaps I may say few words about Barings and derivatives. The word "derivatives" appeared in the original Motion tabled by the noble Lord, Lord Desai. Obviously, it is a matter of considerable concern to many speakers. First, I shall briefly mention Barings. I understand the concerns expressed by many noble Lords in the light of the collapse of the Barings Bank, but, as I believe all are aware—as, indeed, I believe was pointed out quite rightly by the noble Viscount, Lord Chandos— the Board of Banking Supervision is preparing a full report on the affair. As the noble Lord said, it would be idle to speculate and possibly wrong of me to comment, as the noble Lord, Lord Barnett, tried to make me do, on what her Majesty's Government propose to do before the report is released. However, I can say that my right honourable friend the Chancellor of the Exchequer announced in another place that he was determined, when the full facts are known, that all the appropriate lessons will be drawn and any necessary corrective steps will he taken. He expects to be able to publish the full report of the Board of Banking Supervision, subject obviously to the usual need to protect the legitimate confidentiality of innocent third parties and any other legal constraints.
I turn next to derivatives. I accept that many noble Lords have expressed concern on the way that derivatives are currently regulated. The noble Lords, Lord Desai and Lord Barnett, both gave their versions of what derivatives are and what they do. They provide risk management tools for businesses and other organisations. They can bring important benefits to those organisations, to individuals and to the economy at large. They exist and their use has grown because there is a demand for them. It is as simple as that. However, they can be complex and require risk management skills commensurate with that complexity. Derivatives in themselves were not the cause of the Barings collapse—we believe that the issue here is one of failure of management controls. As I believe the noble Lord, Lord Peston, pointed out, the misuse of derivatives—not their use—is the crucial point. The most that can be claimed is that derivatives often allow a greater exposure for a given cash outlay.
The Government obviously recognise the importance of an appropriate system of regulation to ensure that risks taken by financial institutions do not pose a systemic threat to the financial system as a whole. The Bank of England and other City regulators, for example, have rules and regulations in place to limit the exposure of market participants to the markets. Those participants are required to set aside capital against those positions. But it would be wrong, and dangerous, to have a special system solely for derivatives.
I believe the noble Lord, Lord Barnett, said that the use of derivatives should be disclosed in company accounts. The best way to regulate the use of derivatives would he to ensure that proper internal systems are in place, as the international authorities have done. That would be far more effective than any external exposure in accounts.
I move on now to the question of personal pensions, which was raised by my noble friend Lord Blaker, the regulation of which is a matter of concern to many noble Lords. Personal pensions have played an important role in the Government's strategy of bringing about a sustained improvement in the general level of income of those who

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have retired—a level of income that we have seen increasing quite dramatically over the past few years. Increasing affluence means that people will more often have resources available for investment. A strong foundation of privately funded pensions is good for the economy as a whole, just as a strong foundation of occupational pensions fully funded is good for the economy as a whole. I can assure the House that the total value of the United Kingdom's pension funds is now as great, if not greater, than that of the rest of Europe put together. That indicates the strength of our funded system.
I am glad to say that the Securities and Investments Board (SIB), the chief investments regulator, has taken a series of steps to act as an effective watchdog of the standards of professionalism of those who sell personal pensions. First, as the noble Lord, Lord Ezra, stressed, SIB identified a systemic problem and published a report in December 1993 which showed that many sales of personal pensions appeared to have fallen short of the required standards. Then it took steps to stop that happening again, introducing new, stronger rules for future sales of personal pensions in March of last year.
Finally, in October of last year SIB issued a statement setting out in detail how firms responsible for the sale of personal pensions should review their cases—I can tell my noble friend Lord Blaker that that will be on the basis of whether the advice was sound at the time based on the information that was then available—how mis-selling can be identified and the damage caused to investors by it; and, where mis-selling leading to financial damage has occurred, how appropriate redress should be provided. The Personal Investment Authority is now translating that into rules for its members. That will set the scene for pension providers to arrange redress for the victims of past mis-selling. I believe that that is a fine example of regulatory action.
My noble friend Lord St. Davids, the noble Lord, Lord Haskel, and I believe other speakers, expressed a degree of concern about the sale of endowment mortgages in response to the OFT report which was recently published. Obviously, a mortgage may be a family's biggest financial commitment. Therefore, it is important that borrowers get appropriate mortgages. The sale of endowments is regulated by the Financial Services Act which aims to ensure that the investor is sold a suitable investment product and receives the best advice about the choice of that product. The sales practices for endowments and other mortgage-related products were greatly improved from the start of this year with a new regime of product and commission disclosure.
That means that potential investors can get clear information in plain English about the implications of financial commitments such as endowments, including, crucially, the early surrender terms. Could I also say to the noble Lord that anyone who is unhappy about the advice he has received should complain to the company from whom he bought the product, and if he is not then satisfied, he can go to the regulator who obviously can award compensation if rules have been broken.
It is, of course, always easy to demand more regulation every time a problem arises. I suspect that is always the way of the party opposite. As I have sought to
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demonstrate, the regulatory system does seek to learn the lessons of experience. However, this is quite different from piling on an ever increasing number of regulations which would reduce the choice available and impose additional costs. We should all recognise that the regulatory system must provide investor protection in a cost-effective manner. Higher costs for firms inevitably mean higher charges for consumers and thus it is the investors themselves who ultimately meet the cost of regulation. What is required is not more regulation but appropriate regulation; regulation that is able to respond to new developments, that does not restrict innovation and choice; regulation that maintains high standards of investor protection and adequate remedies when these standards are not met, but does not pretend that any system can offer a guarantee against wrongdoing. The Government therefore believe that the way forward is to continue strengthening the existing system, giving consumers the information to choose suitable products, setting high standards for firms, and providing redress when those standards are not met.
8.21 p.m.
Lord Desai: My Lords, I thank all noble Lords who have spoken in this debate. As many have said, it has been a marvellous, well-informed debate that was full of interesting ideas. I was fascinated by the speeches of the noble Viscount, Lord St. Davids, and the noble Viscount, Lord Massereene and Ferrard. Their speeches showed that there is a consensus, as it were, jumping over the Front Bench from the other side. That is only to be welcomed. It is claimed that when the Conservative Party came to power it reformed the trade unions. Perhaps it will need the Labour Party to come to power to reform the City. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Insurance Companies (Reserves) Bill
8.22 p.m.
The Earl of Northesk: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(The Earl of Northesk.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Cox) in the Chair.]
Clauses 1 and 2 agreed to.
The Earl of Northesk The Earl of Northesk moved Amendment No. 1:
After Clause 2, insert the following new clause:
Consequential amendments
.—(1) Schedule 9A to the Companies Act 1985 and Schedule 9A to the Companies (Northern Ireland) Order 1986 (form and content of accounts of insurance companies and groups) shall be amended as follows.
(2) In Note (24) on the balance sheet format set out in Section B—
(a) after "(Liabilities item C.5)" there shall be inserted—

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"This item shall comprise the amount of any reserve maintained by the company under section 34A of the Insurance Companies Act 1982."; and
(b) after "This item shall" there shall be inserted "also".
(3) For paragraph 50 there shall be substituted—
"Equalisation reserves
50. The amount of any reserve maintained—

(a) under section 34A of the Insurance Companies Act 1982 ("the 1982 Act"), or

(b) under regulation 76 of, and Schedule 14 to, the Insurance Companies Regulations 1994 ("the 1994 Regulations"),

shall be determined in accordance with regulations under section 34A of the 1982 Act or, as the case may be, in accordance with regulation 76 of, and Schedule 14 to, the 1994 Regulations.".").
The noble Earl said: In addressing Amendment No. 1, I should also like to take this opportunity to speak to Amendment No. 2. As I am sure the Committee is aware, previous regulations concerning equalisation reserves have applied solely to credit equalisation reserves on a perceived basis, when they were framed, that no need was required for the creation of any other form of regulated equalisation reserve. Clearly, should the Bill be enacted, this situation will change in that it is proposed that regulations will come into force requiring insurance companies to maintain equalisation reserves for certain volatile classes of non-life business.
The purpose of the amendments, as encapsulated in subsection (2), paragraphs (a) and (b) of Amendment No. 1, is straightforward; namely, that of requiring insurance companies to show all the equalisation reserves that they are required to maintain as a technical provision under "Liabilities item C5" in the balance sheet format.
Subsection (3) pursues the logic of subsection (2) in ensuring consistency between existing regulations concerned with the maintenance of credit equalisation reserves, as currently regulated for under Regulation 76 of, and Schedule 14 to, the Insurance Companies Regulations 1994, and the Bill's intention that further equalisation reserves be regulated for for certain classes of volatile non-life business.
In this context I should point out that we are obliged, under Council Directive 91/674—commonly called the insurance accounts directive—to regulate that any equalisation reserves that are a legal or administrative requirement be accounted for in this way. I made it plain at Second Reading that a primary aim of the Bill is to put our insurance industry on a more equal footing with its European counterparts. It therefore strikes me that it would be somewhat self-defeating to go through the motions of passing the Bill without ensuring that its framework is operable within the European context.
It is the case that this particular aspect of the proposed regulations could have been achieved via the mechanism of statutory instrument. My own view is that it is fundamental to the successful operation of the equalisation reserves scheme and that therefore it is wholly appropriate that it should appear on the face of the Bill.
Amendment No. 2 simply seeks to ensure that commencement of the accounting requirement lies in tandem with the regulations themselves. In conclusion, my amendments seek to ensure that the equalisation reserves regulations, as and when they come into force,
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are properly and adequately framed to be workable in a European context. This, after all, is a prime objective of the Bill, to afford our insurance industry, with its deserved worldwide reputation, the opportunity to compete on a more equal footing in the single market. I beg to move.
Lord Graham of Edmonton: My noble friend Lord Peston has asked me to say in his absence that he certainly appreciates the effect of the amendments, and he approves them. Therefore we have no objection to them.
Lord Inglewood: The Government fully support the new clauses proposed by the noble Earl, Lord Northesk, which he so lucidly explained. Just as he spoke to both the amendments in his remarks, I shall do the same. Amendment No. 1 is clearly necessary so that the Companies Act 1985 and the Companies (Northern Ireland) Order 1986 comply with our obligations under European law. It also ensures that those preparing insurance company accounts will know clearly how to report equalisation reserves set up as a result of regulations made in the Bill.
As regards Amendment No. 2, again the Government fully support this proposed amendment which enables amendments to the Companies Act and the Companies (Northern Ireland) Order to be brought into force at the same time as the introduction of regulations. This is logical since it is only at that time that they will have any practical effect.
The Earl of Northesk: I am keen to sustain this note of brevity. Therefore I wish simply to express my gratitude both to the noble Lord, Lord Peston, in absentia, and to my noble friend Lord Inglewood for their support.
On Question, amendment agreed to.
Clause 3 [Short title, commencement and extent]:
The Earl of Northesk The Earl of Northesk moved Amendment No. 2:
Page 2, line 23, leave out ("Section 1") and insert ("Sections 1 and (Consequential amendments)").
On Question, amendment agreed to.
Clause 3, as amended, agreed to.
House resumed: Bill reported with amendments.

Sports (Discrimination) Bill [H.L.]
8.29 p.m.
The Earl of Swinton: My Lords, I beg to move that the Bill be now read a second time.
Since I originally introduced the Bill there seem to have been thunderous goings on in the rugby world, both in the league, with Mr. Murdoch and Mr. Packer having an almighty row in Australia which has indirectly led to the creation of the super league in this country, and also in the union, where I believe Mr. Carling is again captain of England, having not been captain for about a week.
The Bill deals with one aspect of the sport. In fact, the only instance that I can find of discrimination in sport is in the attitude of the Rugby Football Union to Rugby League players. If one has played Rugby League one is told that one has to wait for three years and then "come clean" in public before one is allowed to play Rugby Union. One

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can play Rugby Union as a professional footballer, an American footballer, or as a professional athlete—as anything but not as a professional Rugby League player.
A report has just come out from the National Heritage Select Committee in another place which condemns that attitude completely. One paragraph of the report refers to Mr. Wood, who is the secretary of the Rugby Football Union. It states:
"Mr. Wood said that Rugby Union would prefer not to take professional players back into its sport because 'it undermines the basic principle of our sport'. But such an argument does not explain why Rugby Union is prepared to admit professional players of any and every sport other than Rugby League. The reason for the stance is not defensible in logic or equality".
I should like to make it clear that that attitude comes from the officers of the Rugby Union and is not reflected by the players. In fact, Mr. Carling has often spoken in favour of Rugby League.
I now turn to the Bill itself. It is very short and very simple. Clauses 1 and 2 deal with sport and those responsible for making the rules. Clause 3 gives remedies for those people who have suffered discrimination in sport. Clauses 4, 5 and 6 give interpretations.
As I said, it is a very simple Bill, and I commend it to the House.
Moved, That the Bill be now read a second time.—[The Earl of Swinton.]
8.31 p.m.
Lord Howell: My Lords, we should all be obliged to the noble Earl, Lord Swinton, for promoting the Bill and for his exposition, short and pithy as it was. The Bill is long overdue, and we are grateful to the noble Earl and to Members in the other place, Mr. David Hinchliffe and Mr. Ian McCartney, who are joint authors of the Bill.
I also wish to commend the Minister for Sport, Mr. Iain Sproat, for his attitude on this question and especially for his active involvement in getting the game of Rugby League established in the Armed Forces.
Pleasing as that is, and pleasant as it is to see the noble Baroness, Lady Trumpington, in her place to reply to the debate, once again we have to deplore the absence of the departmental Minister. It is a discourtesy to the House. I say that as one who was a Minister for 11 years. I was taught that my first duty as a departmental Minister was to Parliament and to be present in Parliament to answer for my department. We have received no apology or explanation following last week's absence of the Minister when we debated the subject of football. I hope that the noble Baroness is able to rectify that today and provide us with some answers to some of the questions we shall raise.
It is a disgrace that legislation is needed to make it unlawful for any one sport in this country to prevent the players of another sport from participating freely therein. But that is the case in sport. The nation has outlawed racial discrimination and sexual discrimination, but years of persuasion have failed to achieve the same result in respect of the Rugby Football Union and its discrimination against players of Rugby League football. I have to say with great sadness that that being the case it is time for the law to intervene.
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As the National Heritage Select Committee stated in paragraph 64 of its recent impressive report of March this year, and as the noble Earl reminded us:
"The Committee finds the attitude of Rugby Union to Rugby League both discriminatory and indefensible, and agrees with the use of the word 'hypocritical'".
Those are strong words, but so it is. The Rugby Union does not exercise a ban upon professionals from other sports playing its game, only on professionals from the game of Rugby League.
After taking legal opinion some time ago from an eminent lawyer in this House following the quite diabolical decision of the Rugby Union in the case of Steve Pilgrim, the Wasps full back—suspended because he had a trial for a Rugby League club, without even having his expenses paid—I urged the Rugby League to take the case to court. The legal opinion that I received indicated that that was just as much a restraint on trade as the Tony Gregg case in cricket some years ago.
The House may recall that I raised the matter in this Chamber at that time. The Government would not intervene then and the Rugby League did not go to court. The discrimination persisted. The Rugby Football Union relies upon another court case which it says gives it the right to regulate who plays its sport. I do not believe that to be the case, but if it is, or if doubt persists, then it has to be removed. That is the first justification for the Bill.
When rational arguments and ethical considerations are rejected year after year, resort to a legal solution becomes inescapable.
Further evidence in that direction is to be found in the practice of the Rugby Football Union—again as we heard from the noble Earl—of imposing a waiting period of two years upon league players who have never before played the union code, and a three-year waiting period for anyone who has previously played Rugby Union.
The Rugby Football Union says that it has,
"no discrimination in this matter. We are parties to the regulations of the International Rugby Board and this is a contravention of the International Rugby Football Board regulations".
Time limits set upon the rights of individual freedom are unethical and an affront to civil liberty, as are decisions to ban amateur players from participating in any lawful sport. If the Rugby Football Union says that it is unable to behave in a civilised way to sportsmen in this country, such as we all desire, because of its obligations to an outside body, then it can have no possible objection to Parliament removing such constraints. That is the second justification for the Bill.
I turn now to the role of the Sports Council and, to a lesser extent, that of the Foundation for Sport and the Arts, which are both concerned with funding these sports. In the past two years the Sports Council has provided £337,516 of taxpayers' money to Rugby Union and £519,764 to Rugby League. It recognises both sports as perfectly legitimate. It is ludicrous that the Sports Council funds discrimination of one sport against another.
As I well know myself, Ministers and the Sports Council have spent years trying to bring the Rugby Football Union to its senses. Because we did not wish to penalise Rugby Union clubs and players who were providing opportunities for young people to enjoy sport in

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their communities, we maintained our financial support. We must now agree with the National Heritage Select Committee that that is no longer possible or acceptable.
It may well be that such a financial restriction upon a sport receiving public funds requires legislative back-up. I do not know. If it does, that is the third reason why I support this Bill. It is important for the Government to tell us tonight how they propose to ensure that the Sports Council will implement the recommendations of the National Heritage Committee. With respect to the noble Baroness, that is what we want to hear from the Government spokesman.
The Foundation for Sport and the Arts has done excellent work. We congratulate it on that work. So have the pools promoters who provide its funds—some £12 million for me two rugby codes since 1991. This is also, in part, public money. They are in the same dilemma as the Sports Council, funding one sport to enable it to discriminate against another. That is not acceptable. I should like to add a few words about the effects on the pools promoters of the National Lottery. This point was raised in the debate on football a week or so ago. They are in a most vulnerable position. Pools receipts are now down by some 24 per cent. The Chancellor has taken some action, which is welcome, but is inadequate. He has an obligation to keep this golden goose in good health. I am sure that the noble Baroness will convey that view to him. The same considerations apply to the Football Trust, which is about to support Rugby League clubs with quite a considerable amount of financial commitment. That is also to be welcomed.
I conclude with some reflections on the future of both Rugby Union and Rugby League. They repeat the concerns that I expressed in this Chamber a few days ago when we debated Association Football. As we now see in Australia, the media moguls, Packer and Murdoch, are locked in war. They want to monopolise their control of sport for their television interests. That battle is being fought out over Rugby League in Australia; and it has now claimed a spectacular success in Rugby League in this country.
I recognise that there may be a case for a premier league approach, as we have seen through Association Football; but, as I never cease to expound, governing bodies of sport must at all times and in all circumstances be in total control of their sport. That is especially the case when their sport can be sold to television moguls. When that happens, television companies furthering their own interests will control sport. Governing bodies will become superfluous.
Inevitably the fight for Rugby League monopoly will spread into Rugby Union. Amateur players of that code will receive massive inducements to play for Packer or Murdoch. That will happen not just Down Under, but here in this country, as the television battle spreads across the world. It will be the irony of ironies if the only reason to oppose this Bill is that Packer or Murdoch control both sports and render their governing bodies impotent.
It is sad that Parliament has had no response to all these concerns since we discussed them here during the football debate. We must hope for better things today. The health
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of sport and the interests of millions of players and viewers demand a Government Statement. I hope that the noble Baroness is able to oblige us.
8.44 p.m.
Lord Addington: My Lords, I must declare an interest in relation to this Bill. I am a current Rugby Union player; I am also vice-president to the Student Rugby League. I am one of the few people who has played both codes.
Until 1987 (I believe it was) if you played an amateur game of Rugby League you were forever banned from the bosom of Rugby Union. For over 100 years the split between the two codes has continued. The way that has been justified on both sides is quite ridiculous. We do not want any professionalism in the game of Rugby Union.
If we look at the current stresses on players at the top level in Rugby Union, we see that they are having to adjust their lives to their sport. That is the fact of the matter. You cannot play in one of the national division sides without very heavy considerations about work and how you spend your social life, and major considerations about even such matters as job prospects if you aim to reach the top. The stresses are so great that the number of games in which top-class players take part is deliberately being cut. The game is as demanding as that—both physically and mentally. It effectively dominates your life and becomes a full-time aim.
There is then the question of receiving cash payments. It is an area of the sport that has had many grey areas. Undoubtedly, a degree of "shamateurism" is going on. It is probably universal. Careers advice has always gone on in the bigger clubs. How extensive it is I do not know. The fact is that Rugby Union does not have the spectator power at present to provide a lot of cash payments.
Rugby League, although not quite so guilty of this kind of hypocrisy, still annoys a lot of Rugby Union players by stating that it is "real" rugby. As the noble Lord, Lord Howell, said, they are two different sports. Indeed, it has been said from within Rugby League that players who cross over from one code to the other often do not make it. There are blatant cases of players from Rugby Union discovering a new sport. They do not make the transition. The basic difference is that in Rugby League you are guaranteed possession of the ball. That possession is not contested. In Rugby Union possession of the ball is constantly contested. The type of game structured around that concept is not only different in the number of players involved; the game calls for different physical requirements. The ruck, the maul, the competitive scrummage and the line-out are features of Rugby Union. They have been removed from Rugby League; so you have only the basic handling and tackling skills. It provides a different spectacle; it is a different concept. If both codes could realise that—Rugby League is every bit as guilty in this respect as Rugby Union, and I do not deny that they are different sports—you would probably have a better relationship between the two.
If Rugby Union decides that it wants to maintain itself as an amateur sport—there are arguments in favour of that; it is a very technical and potentially dangerous sport—the problems of having somebody paid for every single game in which he plays and winning at all costs are

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ones which I, as a player, would rather not contemplate. There is too much danger of malicious injury for financial reward. If Rugby Union wants to maintain its current status or something similar, with trust funds, etc., as opposed to direct cash payments, why does it not copy the example of amateur Rugby League which says that once somebody has been a professional he can return to the game and play the game, but he cannot play it at representative level. If that is done, we shall not have people jumping around between codes. Also at the top level we shall not have people jumping around between the two codes for one simple reason. Rugby Union on Saturday and Rugby League on Sunday would probably mean hospital on Monday. It is too much. It cannot be done. That danger of switching around should be borne in mind.
Also, if you happen to be the owner of a Rugby League club, especially under a new and very highly charged financial situation, would you allow your player to risk breaking a leg on a Saturday for an amateur game? I do not think that that will happen. Indeed, I can imagine that it would be the best way of ensuring that a player was fired and lost his contract.
The noble Earl's Bill is one that I rather regret. However, I can see why it was brought forward. The Rugby Union really should address this problem in a realistic manner. It should say, "Yes, we'll bring these people back into the fold". It may place restrictions on the level at which they can play the game and a waiting period between, let us say, playing in national league matches as opposed to local leagues may be acceptable. But to say: "You can't play this sport at a recreational, friendly level" is absurd. There is no case for that.
If the transition between the amateur and the professional codes is allowed in virtually every other sport that has a professional and an amateur structure, such as cricket and association football, what is the difference between the two sports which have a common origin? It is absurd. I hope that the Bill or something similar will not be necessary, but if it is necessary in order to persuade the Rugby Union to move, then so be it. It has gone some way. Only in 1987 there was a total blanket ban on playing in the two codes, but if the Union is not prepared to go the extra mile, I am afraid that ultimately Parliament may have to step in.
8.50 p.m.
Lord Lyell: My Lords, what a pleasure it is to follow the noble Lord, Lord Addington! I do not necessarily have to declare an interest except that at the age of 13 I was told that I was too small to play rugby. Thus I then turned to the traditional game played in Forfar and Kirriemuir in Scotland. In some of my past active performances in Glasgow, the police were called to keep order among the players—not the spectators!
This evening I support my noble friend's Bill for all the reasons beautifully explained by the noble Lord, Lord Addington. I believe we all agree that he speaks with great knowledge and passion on the game in which he participates. We admire him and the game a great deal in the open air, as well as through the electronic media most
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weekends. I admire my noble friend Lord Swinton for his personal interest in Rugby League. I believe that 11 years ago the team with which he had a connection claimed a major trophy at Wembley. Many of his noble friends in the House, as well as those outside, were pleased for him and for Featherstone Rovers.
I also clash mildly with the noble Lord, Lord Howell, I strongly support the presence of my noble friend Lady Trumpington on the Front Bench. First, her knowledge of sport is great; and, secondly, she has a unique position in your Lordships' House. Thirdly, I suggest that had someone of her calibre been around the Rugby Union last weekend, there would not have been the drama which we read about. If half the respect and affection in which she is held by your Lordships' House had been transferred to the Rugby Union, no problem would have arisen. Her motto, known to many soldiers and players in Scotland, should have been nemo me impure lacessit. That is, "You do not threaten me with impunity".
I turn to line 15 in Clause 2 of the Bill, which reads:
"in any other lawful sport or game".
The noble Lord, Lord Addington, may not be entirely in agreement with me, but I sometimes wonder whether Rugby Union matches which I have seen live or on the electronic media fall into the category of lawful game. When my noble friend comes to wind up, perhaps he could explain the thought behind the wording.
I also considered Clause 3 and the phrase in line 20, "civil proceedings". All noble Lords will be aware that I spoke in the previous debate on football initiated by the noble Lord, Lord Donoughue. I suggested that so far as possible the Government and the law should stay out of sports. My imagination does not exactly run riot as to civil proceedings, but the noble Lord, Lord Addington, may be aware that the losing semi-finalist in the French club rugby championship a fortnight ago threatened to sue the referee for a false decision. The mind boggles about that happening in this country in a semi-final or the five nations championship. I repeat my opinion in the debate proposed by the noble Lord, Lord Donoughue: "Leave well alone". I believe, first, that it would not be possible in many cases involving the two codes of rugby to enforce a code of behaviour. Secondly, it would be unrealistic. Thirdly, it would be impossible to compel love, brotherhood or association between the two codes.
The noble Lord, Lord Addington, mentioned two-way traffic between the two rugby codes. He made the case that it would almost certainly not be possible, but if that two-way traffic occurred, I would be interested in what the Rugby Union might say about finance or reward in the Bill, let alone how one would define that phrase. As an onlooker and a player—albeit nearly 45 years ago—I believe that the laws of the game of Rugby Union are complicated enough.
The noble Lord, Lord Addington, did not raise one point. Players may put a great deal of time and effort into the game but there are three people on the pitch who are all amateurs: the referee and the linesmen. They put in a great deal. With them in mind, I am concerned about how the provisions of the Bill would bite. Is it necessary to discriminate between the players of the two codes? The noble Lords, Lord Addington and Lord Howell, asked why one should wait two years. The noble Lord, Lord

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Addington, suggested that there ought to be a system under which the two-way traffic could exist with the return of amateur league players or professional league players to the union game. However, is that not dancing on a pinhead? I do not mean to take the mickey out of some Rugby Union players who dance. My noble friend mentioned making illicit use of the studs, perhaps we are beginning to dance on a pinhead here.
It has often been said to me that grown men do not need government or legal guidance about who may or may not play the game. The noble Lord, Lord Addington, or my noble friend when she winds up might be able to correct me but I believe that before 1987 often players in the amateur Rugby League were frowned upon if they associated with players. How the Rugby Union would define that term "associating" is difficult.
However, I support the thrust behind my noble friend's Bill and congratulate him on bringing it forward. I look forward to hearing what my noble friend says when she winds up in her unique way. For her, it is: nemo me impune lacessit.
8.58 p.m.
Lord Ashley of Stoke: My Lords, I should like to say how grateful I am to the noble Earl, Lord Swinton, for introducing the Bill. I would especially like to thank David Hinchcliffe from the House of Commons for the sterling work he has done there, battling against discrimination over the years. His advocacy of the Bill and his campaign against discrimination against Rugby League is admirable; it has been superb. He has been ably assisted by Ian McCartney, MP, and other Members of the all-party Parliamentary Rugby League Group.
The Bill's success, even before it is enacted, is the way in which the Rugby Union is furiously backpedalling. However, the passage of the Bill is important, despite the way in which the union is backing off like mad, though it is not enough.
The House passed my Bill outlawing discrimination against disabled people a little while ago. In a week or two we shall have the Government's Bill outlawing discrimination against disability. I am now glad to speak on this Bill against discrimination in the Rugby League.
I want to pay tribute to Maurice Lindsay for his leadership of the Rugby League in its campaign against discrimination. Anyone who read his powerful arguments—especially the one that he put to the National Heritage Committee—will be in no doubt about the validity of the need for legislation. The central theme of the case that he put forward was the need for "fair play". Who on earth can argue against fair play? That concept is central to all rugby; it is central to all sports; and indeed it is central to life itself. A synonym for that honoured phrase, equally accepted by both Houses of Parliament, is "equal opportunities" regardless of race, sex, religion or anything else.
After careful examination of the issues and the views of the individuals involved, the National Heritage Committee, which has already been mentioned and quoted tonight, concluded that the attitude of Rugby Union to Rugby League was "both discriminatory and
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indefensible". It added for good measure its endorsement of the IRFB's Amateurism Working Party's own word "hypocritical".
There comes a time in everybody's life when you make mistakes. When you have made a mistake, the best and certainly the most honourable thing to do is to admit it and apologise. Regrettably, the Rugby Football Union—I emphasise that I speak of the officials and not the players —is doing no such thing. It is denying its professionalism, despite absolutely overwhelming evidence to the contrary, evidence supported by Will Carling, England's captain. It is claiming that it will lose many players to Rugby League, but over the past 10 years, only 8.1 per cent. of players were from Rugby Union. It asserts that it is opposed to professionalism while accepting professionals from any other sport except Rugby League. It denies prejudice against anyone, while being in restraint of trade, denying livelihoods and even leisure activity.
The Rugby Football Union has fought a 100-year war against Rugby League. It is living in the past, bearing old grudges, reflecting an outmoded class system and defiling the fine reputation of sport. The case for the Rugby Football Union's discrimination is nonsensical, absurd and preposterous. It would be funny if it were not so tragic. The Rugby Football Union deserves all that it gets. This Bill will put an end to the sporting apartheid once and for all. But until it is enacted, I suggest that the proposal of the National Heritage Committee should be accepted and that no further money from the Sports Council, the National Lottery or any other body should be paid to it.
Perhaps I may say a few brief words about the future of Rugby League. There has been a great deal of controversy about setting up a super league. I do not want to see any control by Mr. Murdoch. I am the last person to support the kind of monopoly that he seeks to create. Nevertheless, the fact is that Rugby League is facing a financial crisis. I am afraid that on this issue I must differ from my old friend, the noble Lord, Lord Howell. I believe that sentimentality will not generate wealth, wealth which we need to buttress Rugby League. Certainly it will not take Rugby League into the next century.
In the past few weeks we have heard a great deal of unjustified condemnation of the chairman of Rugby League, Rodney Walker, and the chief executive, Maurice Lindsay. It has been very unfair criticism. They seized an opportunity to give some kind of financial viability to Rugby League for a limited period. It was an opportunity to revive the game financially. I believe that when that limited period is over, Rugby League may be the stronger. It is a very controversial issue but I do not believe that the black and white simplification that we have heard in recent weeks in the other place, or outside it, is justified. There are some aspects of it which cause concern and notably Murdoch's personal role; and there is the other aspect, which is the ruling, as I understand it, that no player outside Murdoch's control could play for Britain. Such a ruling would be laughable, outrageous and completely unacceptable.
I have an interest to declare too. I am very proud to be the patron of the Widnes Rugby League Club. The club has not done all that marvellously well this year. It has had

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a difficult year. But it has had 19 marvellous years as the great rugby team—far better than Wigan, Leeds and other second-rate clubs. Widnes has been the outstanding club of Rugby League in years. It just happens, like some other people, to have made a single mistake; namely, in this one season, when it has fallen down. But it will recover next year and, of course, beat Wigan by 50 points to two, or maybe 50 points to six. I hope that Widnes, which has been excluded from the super league, will find some means of going back. I do not want to go into detail now. I merely express the hope that it will do so.
But whether Widnes does that or not, I believe that Rugby League has a very great future. I believe that for all the controversy, the financial injection from the super league will be helpful. We still have to iron out some problems, to avoid the monopoly and Murdoch control. I believe that it can be done. Somehow we must bring money into the game in order to bring it into the next century financially viable and financially strong. It is a most wonderful game. It is the great game. I speak as a lifelong enthusiast. I am even more enthusiastic than I was as an adoring young boy some 70 odd years ago. And I hope that this Bill will go some way towards preventing discrimination by Rugby Union.
9.8 p.m.
Lord Dean of Beswick: My Lords, first, I apologise for missing the earlier speakers; unfortunately I was detained elsewhere. However, I want to speak for a few minutes on this Bill.
I believe it was a fortnight ago tonight that your Lordships' House debated what some term as our national sport—Association Football. It was not such a pleasant debate because some of us arc not very pleased with what has been happening in the game. We are now debating what I term as my favourite sport—Rugby League—and there is some sadness about what is taking place in that sport.
But let us not be too sad. We should remind ourselves that this country still has a world champion team—the Wigan Rugby League team. It went to Australia and beat the best Rugby League club in Australia on its own ground; it has done that twice in the past three years. The game, therefore, is in a healthy state provided the money and resources arc available.
My noble friend Lord Ashley referred to the fact that Rugby Union has been waging a 100 years war on Rugby League. That may be so, but we arc on the threshold of entering the next century; it is almost in sight. I like to think that, irrespective of the Bill, over the past 100 years Rugby Union has learnt enough to put its house in order for the next 100 years, starting in the year 2000. It only needs a little bit of good will. The rancour that has continued for decades because of the outlook of Rugby Union could disappear overnight and, if Rugby Union wishes, it could consign to history the Bill we are debating this evening.
We saw what turned out to be more like a comic opera when the English captain used the term "57 old farts". We saw the reaction to that statement. It was probably foolish of the captain—he had probably had one or two drinks
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with the boys—but the reaction was out of proportion. Nevertheless, people in sport make headlines and the sadness is that they are making headlines that are not beneficial to the sport from which most of them are drawing a lucrative living.
I hope that this Bill does end up on the statute book. Action could be taken in advance by the Rugby Union and I do not think it would do it any harm. Some points have been made regarding the present state of Rugby League and the interference—if that is the right word—of Mr. Rupert Murdoch in the financing of its future. It is no secret that there is open competition between Mr. Murdoch and Mr. Kerry Packer. They are both Australians with plenty of money who, each in his own way, seem to be trying to obtain a stranglehold over Rugby League in an international sense. I do not want to personalise the argument, but the two gentlemen concerned are not investing money for the sake of the sport—they have never done that in the past. Mr. Packer's record of involvement in cricket left a lot to be desired and I am sure that he will perform similarly in football. We know, unfortunately, that Mr. Murdoch's record in some of his dealings is not of the highest order. I am not for one moment suggesting that any laws have been broken but I do not believe that those two gentlemen illustrate the best intentions for Rugby League as a sport.
I happen to believe that Rugby League is the most competitive, the fastest, hardest and most skilful game in existence. The performance of the Wigan team at Wembley against Leeds, which is a good team, saw Leeds completely wiped off the field. I do not want to compare the two games because they arc not quite the same, but when Wigan brought a Maori player to this country who weighed 17.5 stones he was not tough enough for Rugby League, despite being a world class player in Rugby Union and feared by our Rugby Union players when he played for the All Blacks against them. It took nearly 12 months for Wigan to make him fit enough to become a regular member of their side. He was the same weight when he finished the training in their hothouse as he was when he arrived, but it had taken 5½ inches off his backside and put it on his chest. That is a measure of what Rugby League is about these days.
Unfortunately, there is only one Wigan. The idea is to lift the game to a point where competition is more equal than it has been. I can remember the time, not many years ago when Widnes did have a team—the team of my noble friend Lord Ashley—it appeared year after year at Wembley. Reggie Bowden was the captain and Mick Burke before that. They were almost annual visitors to Wembley to play in the final of the Rugby League Challenge Cup—not quite with the same domination as Wigan but they were always in either the four championships finals or Rugby League Challenge Cup finals. But it is no good in any sport—my noble friend Lord Howell made the point about soccer—for one team to dominate. It might be good for the team and its followers hut it is not good for the rest of the game.
I hope that the people involved in rugby as a whole will sort out the friction among themselves. I hope that the points made by my noble friend Lord Ashley about the future financing of Rugby League will he ironed out. There is a lot to he ironed out because I question whether

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anyone has the right to tell a player in a free country that if he signs a contract for a certain club he will not be able to represent the country and will not be considered for selection. That is what is being said to some players in rugby. I hope that anyone who is thinking of trying that on will forget all about it because it is what anyone in this country wants to see. People should not be barred because of who they play for.
There is no point in my saying much more because all the points have been made. It will be interesting to see what takes place at the Committee stage. If people had acted sensibly in the immediate past there would be no need for us to be discussing the Bill. It is to be regretted.
9.16 p.m.
Lord Donoughue: My Lords, I thank the noble Earl, Lord Swinton, for promoting the Bill. I should declare a personal interest as a lifelong Rugby Union supporter who played briefly for the Oxford University Greyhounds, the Northampton Second XV and various other even more disreputable assemblies. But I hope that I am not wholly prejudiced in favour of Rugby Union. I love watching Rugby League. The community atmosphere is terrific. I certainly prefer some of its rules, which are clearer and more enforceable than those in Rugby Union on, say, the ruck, the maul and the line out. I wish the Rugby Union would follow the Rugby League and abolish the line out so that we would have no need to distort the game by selecting lamp posts.
Rugby Union is now at the peak of its success and popularity. Sixty-seven nations are members of the International Rugby Football Board. In England there are 2,000 clubs and 3,500 schools playing. There are half a million players and peak attendances. Both the Sports Council and Sportsmatch, and the lottery as well, provide large injections of public funds. So Parliament and the Government have a direct interest. But not all is rosy in Rugby Union's garden, as has been made clear in the debate.
Apart from the alleged flatulence (shall we say?) afflicting the governing body of the sport, there is also growing concern about the union's attitude to its rival, Rugby League, stemming from the split 100 years ago over broken time payments to working class players who lost Saturday work in order to play, which did not so much bother middle class players in the south who did not work on Saturdays.
A key IRF Board regulation, Regulation 2.4, states:
"No person shall play … with a non-amateur club or a non-amateur organisation involved in the playing of any other type of Rugby Football".
Those constraints, amounting to "discrimination"—that is the word used in the National Heritage Select Committee report—are not really about amateurism and the payment of money. We know that some Rugby Union players receive rewards—benefits in kind—for playing Rugby Union, as my noble friend Lord Ashley pointed out. We know that Rugby Union does not even exclude those who are currently being paid in other sports, such as American football professionals. We know that Rugby Union in the past has discriminated against Rugby League players even if unpaid, as
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mentioned by my noble friend Lord Howell. There is the example of Steve Pilgrim, the former Wasps full-back, who was suspended for 12 months for playing unpaid in Rugby League.
The reality is that the Rugby Union ban is really against Rugby League as a game. For 100 years Rugby Union has been trying to prevent Rugby League from expanding, and to prevent Rugby League recruiting Rugby Union players. The National Heritage committee report has been mentioned. It concluded that such restraints constituted discrimination and that the defence which was frequently used of amateurism is a sham. It uses the word "hypocrisy". Other noble Lords have expressed similar views. Do the Government and the Minister share that view? The report also concludes that the Sports Council and lottery funding should cease until discrimination ceases. I repeat the question: does the Minister agree with that? I ask the Minister also, as my noble friend Lord Howell did: when will the Government give their reply to the National Heritage committee report? Mr. Sproat promised it to us in June. Will that promise be kept?
I now turn to the other new dimension of this discrimination problem which has recently arisen and which has been mentioned by other noble Lords; namely, the proposed creation of a new super league. That is within the remit of tonight's debate for two reasons. It involves discrimination in Rugby League and also because Mr. Hinchliffe, in another place, who is pursuing this matter also, has stated that he will amend his Bill accordingly to take that into account.
By this deal a few Rugby League administrators effectively handed over control of British Rugby League to News International/BSkyB. Ultimately, those media controllers will decide who plays for whom, against whom, when and where. Here I must differ—I believe for almost the first time in a long lifetime of friendship—with my noble friend Lord Ashley. This really matters. The deal is based on discrimination, restriction and monopoly. All will be determined by the Murdoch monopoly contract. Individual players will be prevented from playing in games with or against non-Murdoch players. Players without Murdoch contracts will not be able to play for Great Britain against, say, Australia. This is monopoly discrimination not basically different from discrimination by the Rugby Union against the Rugby League about which we and the Bill complain. I point out to my noble friend that one cannot cherry pick in these matters. One cannot have Mr. Murdoch's gold without Mr. Murdoch's contract, without Mr. Murdoch's monopoly and without Mr. Murdoch's discrimination.
This discrimination need not end with Rugby League, as my noble friend Lord Howell said. As that media empire moves into other sports, into soccer, cricket, tennis and athletics, it could apply similar discrimination in relation to who plays for and who plays against whom. The origins of this new dimension have nothing to do with the good of Rugby League. It originates in a power struggle between two media tycoons in Australia. When Kerry Packer won the right to show Australian Rugby League on his channel, Mr. Murdoch responded by setting up a new super league to poach Packer's

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players and coverage and then turned to control English Rugby League. It is all part of what seems a distant, nasty media game, but the fall-out is total disruption to British Rugby League. A few clubs, a few top players, will be much richer, but the game as a whole at its grassroots and in many of the northern communities which love the game, will be much poorer. British Rugby League will in many ways become a mere franchised outlet of a world media empire.
I must agree with my noble friend that Rugby League certainly has its financial problems. Half a dozen clubs have recently gone into liquidation and the collective debt of the league is £10 million—although that is pretty small compared to the collective debt of the Football League. However, those debts are partly the result of the Taylor Report being perhaps inappropriately applied to Rugby League and costing the clubs £30 million in ground improvements. I am not saying that the game should be frozen in a time warp. It certainly needs modernisation, but that should not mean 100 years of Rugby League history being ripped up in a few hours when the offer of gold was made.
In conclusion, Rugby League is a great game with marvellous supporters whose behaviour at games is an example that soccer would do well to follow. Anyone who has seen Wembley packed with Rugby League supporters can be nothing but proud of them. It is regrettable that Rugby League has suffered so long from discrimination by the Rugby Union and now from the new discrimination introduced by the new media controllers. In that context, I must express sympathy with the Bill. I look forward to hearing the views of the Minister and the Government and when and how they will respond to the conclusions of the Select Committee on the National Heritage that Rugby Union does discriminate against the Rugby League and that the Sports Council and the National Lottery should cease financial aid until the Rugby Union has ceased discrimination.
9.26 p.m.
Baroness Trumpington: My Lords, I would like to thank my noble friend Lord Swinton for giving us all the opportunity to debate this very emotional subject. I am very aware of all the arguments put by your Lordships, but I have to say that I am not persuaded that legislation is the answer to this problem. Equally, I hope that the report of this debate will be read by those who are powerful members of the Rugby Football Union and the Rugby Football League. As for the noble Lord, Lord Howell, I am merely tempted to show him a yellow card.
Your Lordships are all aware of the report on this very issue that was published on 19th April by the Select Committee on the National Heritage. The report recommended that both Sports Council and lottery funding to Rugby Union should cease until discrimination against Rugby League stops. In answer to the noble Lord, Lord Donoughue, I must not prejudice the reply which will be given to that report, but is this cutting off of money really the answer—or, for that matter, does the Bill answer the question?
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Again, in answer to the noble Lord, Lord Donoughue, the Government will comment on the Select Committee's report in June. We think that persuasion is a far better approach. Indeed, the Minister for Sport in another place met Rugby Union and Rugby League representatives to encourage more constructive dialogue between both codes. Not long after this, in January of this year, Rugby Union and Rugby League authorities met informally for the first time since the two codes split over 100 years ago. We hope that this is just the start.
We believe that discussion, not legislation, is the way forward. Therefore, the Government do not believe they should intervene in the affairs of properly constituted governing bodies, whatever the sport. Both the Rugby Football Union and the Rugby Football League are properly constituted governing bodies and are responsible for their own policies. The RFU is also responsible for interpreting the rules set by the International Rugby Football Board of which it is a member.
We are more than happy to help where possible, but the Government have no power to control the game, and it would not be appropriate for the Government to support legislation which would be tantamount to favouring the policies of one properly constituted body against another.
The world of sport is ever changing. We heard recently about the proposals for a rugby super league; now there is talk of a Rugby Union super league. Non-super league teams will not lose out to Sky TV. Sky TV has a contract which will allow it to show any Rugby League game, including those not in the super league. So there will be no discrimination in that way. In addition, the BBC will continue to show Rugby League games.
Noble Lords, including the noble Lords, Lord Howell, Lord Donoughue and others, asked about the remuneration of players. Rugby Union players have amateur status, but I am of course aware that individuals receive payment for expenses and, I understand, cars or houses in some cases. However those payments are not a wage. They should, like any other expenses, be declared, and, where necessary, be subject to taxation. All the same, the nature of amateurism in Rugby Union needs revision, but by the sport itself.
I understand that the Rugby Union in Australia and New Zealand is considering a super league to compete with Mr. Murdoch's league. That could be a first step in the changes from amateur to professional which we have been debating this evening. The voluntary dialogue for which we have been waiting has begun, and we should not do anything to jeopardise it.
9.31 p.m.
The Earl of Swinton: My Lords, I thank everyone who has taken part in the debate. The noble Lord, Lord Howell, did not so much attack my noble friend Lady Trumpington as complain that the Minister was not here. My noble friend is not just a Whip, she is a distinguished former Minister of State and Privy Counsellor, so we are lucky to have her here.
Lord Howell: My Lords, I thank the noble Earl for allowing me to intervene. As I said a week ago, I have every affection for the noble Baroness, and if we have to have a substitute I cannot think of a more able one. My complaint is that departmental Ministers who are responsible for creating departmental thinking should be in this place answering for their departments when they are the subject of debate. That is all. I am in no way complaining about the noble Baroness who has provided an admirable exposition of government policy, even if I do not agree with it.
The Earl of Swinton: My Lords, I am grateful to the noble Lord. That is the only part of his speech with which I disagree. I supported the rest of it. Unfortunately, since I have had my stroke I cannot write. I have tried to write some notes but I cannot read them. The noble Lord, Lord Addington, said that he regrets the necessity for the Bill. I, too, regret it. It has been 100 years before Rugby Union has done anything about this, and I am not prepared to wait another 100 years before it does something else, although I regret it.
My noble friend Lord Lyell seemed to be worried about the Bill's financial effects. He went into a long exposition on Clause 3 which provides the remedies,
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but there is no sign there of any money being asked for anyone. So he need not worry too much about that.
The noble Lord, Lord Ashley, is a Widnes fan. It is not as good a team as Featherstone, but it used not to be a bad side. He supported the Bill fully as did the noble Lord, Lord Dean. They, and the noble Lord, Lord Donoughue, made much of the Murdoch position. I happen to know that the debate is being broadcast on Sky TV on Friday. I know that because before the debate I had to give an interview at the Sky TV studios. I do not know what it is going to make out of this debate, because there has not been much support for Mr. Murdoch here. It will have a bit of fun trying to organise that. If in Committee any noble Lord were brave enough to table an amendment about Mr. Murdoch I should welcome it. I know that I am not clever enough to table an amendment and I shall leave it up to others.
My noble friend Lady Trumpington said that she did not wish to support one authority in a takeover battle for another. However, I believe that Rugby Union is making the rules as regards Rugby League and I must press on with the Bill. I shall not withdraw it and I commend it to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned twenty-five minutes before ten o'clock.